<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1998
REGISTRATION NO. 333 -
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
FLASHNET COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TEXAS 4813 75-2614852
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
FLASHNET COMMUNICATIONS, INC.
1812 NORTH FOREST PARK BOULEVARD
FORT WORTH, TEXAS 76102
(817) 332-8883
(Address, including zip code, and telephone number, including area code, of the
registrant's principal executive offices)
------------------------------
MICHAEL SCOTT LESLIE
PRESIDENT, CHIEF OPERATING OFFICER
AND SECRETARY
FLASHNET COMMUNICATIONS, INC.
1812 NORTH FOREST PARK BOULEVARD
FORT WORTH, TEXAS 76102
(817) 332-8883
FACSIMILE: (817) 870-0296
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
S. MICHAEL DUNN, P.C. DEAN A. TETIRICK, ESQ. ALAN K. AUSTIN, ESQ.
BROBECK, PHLEGER & HARRISON LLP CANTEY & HANGER, L.L.P. BRIAN C. ERB, ESQ.
301 CONGRESS AVENUE, SUITE 1200 801 CHERRY STREET, SUITE 2100 WILSON SONSINI GOODRICH & ROSATI, P.C.
AUSTIN, TEXAS 78701 FORT WORTH, TEXAS 76102 650 PAGE MILL ROAD
(512) 477-5495 (817) 877-2883 PALO ALTO, CALIFORNIA 94304
(650) 493-9300
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, no par value.............. $46,000,000 $12,788
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 18, 1998
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 AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
[LOGO]
SHARES
COMMON STOCK
FlashNet Communications, Inc. is offering [ ] shares of its common
stock. This is FlashNet's initial public offering and no public market currently
exists for its shares. We have applied for approval for quotation on the Nasdaq
National Market under the symbol "FLAS" for the shares we are offering. We
anticipate that the initial public offering price will be between $ and
$ per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
---------------- ----------------
<S> <C> <C>
Public Offering Price........................................................ $ $
Underwriting Discounts and Commissions....................................... $ $
Proceeds to the Company...................................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
FlashNet has granted the Underwriters a 30-day option to purchase up to an
additional [ ] shares of Common Stock to cover over-allotments.
BancBoston Robertson Stephens Inc. expects to deliver the shares of Common Stock
to purchasers on , 1999.
------------------------
BANCBOSTON ROBERTSON STEPHENS
J.C. BRADFORD&CO.
EVEREN SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1999.
2
<PAGE>
Inside front cover fold out:
Graphic depicts a large rectangle with a background collage of a number of
people's faces. Superimposed on the background is a FlashNet name and logo
placed at the top, center of the box. Beneath the name and logo is a map of the
United States depicting the location of FlashNet's points of presence,
third-party points of presence and the network that connects these points of
presence. A large FlashNet logo is superimposed over the map of the United
States.
- --------------------------------------------------------------------------------
Inside front facing cover:
Graphic depicts a large rectangle. "1995" and "1999" are printed on the top
left and bottom right hand corners, respectively. A large arrow runs on a 45
degree angle from the lower left hand corner to the upper right hand corner.
Above the base of the arrow, in the lower left hand corner, are the words "Low
Value Added Consumer Services." Above the point of the arrow, in the upper right
hand corner are the words "High Value Added Business Services." Along the shaft
of the arrow are six equally spaced FlashNet logos. There is a caption connected
to each logo. Beginning from the base of the arrow the captions are "Dial-Up
Consumer Access," "Dedicated/Broadband Business Access," "Web Hosting Services,"
"Co-location Services," "E-Commerce Services," and "Managed IP Services." The
FlashNet name and logo appear in the top left quadrant.
3
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, THE
"COMPANY," "FLASHNET," "WE," "US" AND "OUR" REFER TO FLASHNET COMMUNICATIONS,
INC., TOGETHER WITH ITS CONSOLIDATED SUBSIDIARIES (UNLESS THE CONTEXT OTHERWISE
REQUIRES).
UNTIL , 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary......................................................................................... 4
Summary Consolidated Financial and Operating Data.......................................................... 5
Risk Factors............................................................................................... 6
Use of Proceeds............................................................................................ 20
Dividend Policy............................................................................................ 20
Capitalization............................................................................................. 21
Dilution................................................................................................... 22
Selected Consolidated Financial and Operating Data......................................................... 23
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 24
Business................................................................................................... 34
Management................................................................................................. 51
Certain Transactions....................................................................................... 56
Principal Shareholders..................................................................................... 58
Description of Capital Stock............................................................................... 60
Shares Eligible for Future Sale............................................................................ 63
Underwriting............................................................................................... 65
Legal Matters.............................................................................................. 67
Experts.................................................................................................... 67
Available Information...................................................................................... 67
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
------------------------
"FlashNet" and the FlashNet logo are service marks for which service mark
applications are pending. Additional service mark applications are pending for
the registration of other service marks used by us in our business. This
prospectus also contains the trademarks and service marks of other companies
which are the property of their respective owners.
Our principal executive offices are located at 1812 North Forest Park
Boulevard, Fort Worth, Texas 76102 and our telephone number is (817) 332-8883.
Our World Wide Web site address is www.flash.net. The information on our Web
site is not incorporated by reference into this prospectus.
3
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION AND
OUR CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES: (I) THAT ALL OUTSTANDING SHARES OF OUR SERIES A CONVERTIBLE PREFERRED
STOCK WILL BE CONVERTED INTO 1,364,085 SHARES OF OUR COMMON STOCK UPON THE
COMPLETION OF THIS OFFERING; (II) THAT THERE WILL BE NO EXERCISE OR CONVERSION
OF STOCK OPTIONS, WARRANTS OR CONVERTIBLE NOTES AFTER SEPTEMBER 30, 1998; AND
(III) THAT THE UNDERWRITERS DO NOT ELECT TO EXERCISE THEIR OVER-ALLOTMENT
OPTION. SEE "UNDERWRITING."
THE COMPANY
FlashNet is a nationwide provider of consumer Internet access and business
services. Our Internet access services are provided through a national network
with 621 "points of presence" (local telephone numbers through which our
subscribers can access the Internet) in 450 cities, covering approximately 70%
of the U.S. population. Our business services consist of high-speed dedicated
and broadband Internet access services, Web hosting and co-location services
(which enable customers to outsource their Internet activities), electronic
commerce solutions and other value-added services. We have entered into
strategic network arrangements with PSINet and Level 3 Communications. To date,
we have approximately 170,000 customers, including approximately 2,900 business
customers.
The vast majority of consumers and businesses access the Internet through
Internet service providers ("ISPs"). The market for Internet access is highly
competitive and fragmented with over 4,800 ISPs averaging less than 5,000
customers. Although the majority of these ISPs are small and regional, national
ISPs have emerged to capitalize on economies of scale in network operations and
marketing. Forrester Research projects that ISP access revenues in the United
States will grow from approximately $6 billion in 1997 to $38 billion in 2002.
Additionally, due to cost, personnel constraints and other factors, many
businesses are seeking to outsource their Internet facilities and systems
requirements. In response, an increasing number of ISPs are augmenting their
Internet access services with a wide range of business services. According to
International Data Corporation, the market for business services is the fastest
growing segment of the Internet services market, with revenues expected to reach
approximately $7 billion in 2000.
We offer a full range of consumer Internet access services and a broad
selection of business services nationwide. We believe that our services provide
customers with the following benefits:
- FAST AND RELIABLE QUALITY SERVICE. Our network consists of
state-of-the-art equipment, a Network Operations Center and third-party
network providers.
- COST-EFFECTIVE ACCESS. We offer high-quality Internet connectivity and
enhanced business services at price points that are generally lower than
those charged by other ISPs with national coverage.
- ENHANCED BUSINESS SERVICES. We offer dedicated and broadband Internet
access services, Web hosting and co-location services, electronic commerce
solutions and other value-added services.
- NATIONWIDE NETWORK COVERAGE. Our access services cover 450 cities and
approximately 70% of the population of the United States.
- SUPERIOR CUSTOMER SUPPORT. Our customer care and technical personnel are
available by telephone and on-line 24 hours-a-day, seven days-a-week.
- BRAND NAME RECOGNITION. We have invested significantly in our brand name
to enhance our customers' comfort and familiarity with us as their ISP.
Our objective is to become the leading nationwide provider of Internet
access and business services. Key elements of our business strategy include: (i)
increasing our subscriber base by significantly investing in direct response
marketing, our network marketing program and corporate direct sales; (ii)
expanding our offering of business services; (iii) increasing revenues per
customer; (iv) expanding our network coverage area through strategic
relationships and additional capital investment; (v) optimizing our network
infrastructure, which consists of a state-of-the-art Network Operations Center
connected to 28 remote facilities and the networks of our third-party providers;
and (vi) evaluating strategic partnerships and acquisition opportunities.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................. shares
Common Stock to be outstanding after the shares
Offering(1).......................................
Use of Proceeds..................................... For expansion of our sales and
marketing operations, expansion of our
network infrastructure, development of
our business services offerings,
repayment of $6.5 million of
indebtedness, potential acquisitions
and working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol.............. FLAS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 25,
1995
(INCEPTION) YEAR ENDED DECEMBER NINE MONTHS ENDED
THROUGH 31, SEPTEMBER 30,
DECEMBER 31, ---------------------- ------------------------
1995 1996 1997 1997 1998
-------------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $ 34 $ 4,534 $ 18,325 $ 12,725 $ 18,101
Total expenses.............................................. 141 9,564 28,511 21,399 24,046
-------------- ---------- ---------- ---------- ------------
Loss from operations........................................ (107) (5,030) (10,186) (8,674) (5,945)
Net loss.................................................... (107) (5,175) (10,900) (9,224) (7,876)
Deemed dividends on redeemable preferred stock(2)........... -- -- -- -- (2,633)
Net loss attributable to common shareholders................ (107) (5,175) (10,900) (9,224) (10,509)
Basic and diluted net loss per share(3)..................... (0.10) (3.34) (6.80) (5.77) (6.50)
Shares used in computing net loss per share(3).............. 1,037,375 1,548,938 1,602,584 1,598,761 1,616,635
OTHER DATA:
EBITDA(4)................................................... $ (104) $ (4,485) $ (8,121) $ (7,169) $ (3,659)
Subscribers(5).............................................. 200 47,361 152,022 132,893 165,614
Independent representatives(5)(6)........................... -- -- 1,885 1,472 4,189
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------
PRO FORMA, AS
ACTUAL ADJUSTED (7)
------------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................................................... $ 3,301 $
Total assets.................................................................................... 11,677
Working capital................................................................................. (18,433)
Total debt...................................................................................... 6,866
Redeemable preferred stock...................................................................... 10,445
Total shareholders' equity (deficit)............................................................ (22,176)
</TABLE>
- ------------------------------
(1) This number includes 1,364,085 shares of common stock to be issued to
holders of our Series A Convertible Preferred Stock when the Series A
Convertible Preferred Stock automatically converts to common stock at the
closing of this offering. This number does not include:
- 20,130 shares of common stock issuable to holders of our convertible notes
upon the conversion of such notes;
- 502,905 shares of common stock issuable to our warrant holders when they
exercise their warrants for $0.01 per share; and
- 181,760 shares of common stock issuable to our stock option holders upon
the exercise of outstanding stock options at a weighted average exercise
price of $18.98 per share.
(2) See Note 6 of Notes to Consolidated Financial Statements.
(3) See Note 1 of Notes to Consolidated Financial Statements for the
determination of shares used in computing basic and diluted net loss per
share.
(4) EBITDA consists of net loss before provision for interest expense, income
taxes, depreciation and amortization. EBITDA is not intended to represent
cash flows from operations in accordance with generally accepted accounting
principles (GAAP) and should not be considered as an alternative to net
income as an indicator of our operating performance or to cash flows as a
measure of liquidity. We believe that EBITDA is a standard measure commonly
reported and widely used by analysts, investors and other interested parties
in the Internet service provider industry; however, EBITDA as presented
herein is not a measurement under GAAP and may not be comparable to
similarly titled measures reported by other companies.
(5) Determined as of the end of the period.
(6) Denotes number of independent sales representatives who were registered to
participate in our network marketing program. See "Business--Sales and
Marketing" for additional information concerning this program.
(7) Pro forma, as adjusted to give effect to the conversion of all outstanding
shares of Series A Convertible Preferred Stock into 1,364,085 shares of
common stock, the sale of shares of common stock in this offering at an
assumed initial public offering price of $ per share, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses that are payable by us, and the repayment of $6.5 million of
indebtedness. See "Use of Proceeds" and "Capitalization."
5
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE
ONLY ONES WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US
OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. IN SUCH CASE,
THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR
PART OF YOUR INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THE RISKS FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
OPERATING LOSSES
We incurred net losses of approximately $107,000 for the period from
September 25, 1995 (Inception) through December 31, 1995, $5.2 million for the
year ended December 31, 1996, $10.9 million for the year ended December 31, 1997
and $7.9 million for the nine-month period ended September 30, 1998. As of
September 30, 1998, we had an accumulated deficit of approximately $26.7 million
representing, in large part, the sum of our historical net losses. We have not
achieved profitability in any quarterly or annual period, and we expect to
continue to incur net losses for the foreseeable future. Although our revenues
have grown in recent quarters, we cannot be certain that we will be able to
sustain these growth rates or that we will obtain sufficient revenues to achieve
profitability. 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.
Our liabilities (including our obligation to redeem preferred stock)
exceeded our assets by $22.2 million at September 30, 1998. We expect to
continue to expend substantial financial and other resources on:
- Sales, marketing and administration;
- Developing new service offerings;
- Improving our management information systems; and
- Expanding our network systems and infrastructure.
As a result, we expect that our cost of recurring revenues, cost of other
revenues, sales and marketing expenses, general and administrative expenses,
operations and customer support expenses and depreciation and amortization
expenses will continue to increase, which could negatively affect our operating
results.
LIMITED OPERATING HISTORY
We were incorporated on September 25, 1995 and began offering Internet
access to the public in November 1995. When making your investment decision, you
should consider the risks and difficulties we may encounter in the new and
rapidly evolving Internet market, especially given our limited operating
history. These risks include our ability to:
- Expand our subscriber base and increase subscriber revenues;
- Compete in a highly competitive market;
- Access sufficient capital to support our growth;
- Recruit and retain qualified employees;
- Introduce new products and services; and
- Upgrade our network systems and infrastructure.
6
<PAGE>
We cannot be certain that we will successfully address any of these risks.
In addition, our business is subject to general economic conditions. We cannot
be assured that general economic conditions will be favorable for our business
in the future.
COMPETITION
We face intense competition in conducting our business, and we expect such
competition to continue to increase. Our competitors include various other
Internet access providers with much larger subscriber bases than ours.
Furthermore, a number of our competitors offer a broader variety of business
services and may have done so for longer periods of time. Every local market we
have entered or intend to enter is served by multiple Internet access providers.
Our current and prospective competitors include many large companies, some of
which are better known than us and may have greater financial, technical and
marketing resources than we do, including:
- National Internet service providers, such as EarthLink and MindSpring;
- Regional and local Internet service providers;
- Established on-line information service providers, such as AOL;
- Providers of Web hosting, co-location and other Internet-based business
services, including AOL, Exodus and Verio;
- Computer hardware and software and other technology companies that provide
Internet connectivity with their products, including Gateway, IBM and
Microsoft;
- Telecommunications companies, including long distance carriers (such as
AT&T, MCIWorldCom and Sprint), regional Bell operating companies and local
telephone companies;
- Cable operators that provide Internet access through television cable
lines, including TCI and Time Warner Cable;
- Electric utility companies;
- Wireless communications companies;
- Companies that provide television or telecommunications through
participation in satellite systems; and
- Nonprofit or educational Internet access providers.
Important competitive considerations include the relative ease of use of our
services, pricing trends, increasing consolidation within the industry (as
evidenced by the proposed merger of AOL and Netscape), the timing of
introductions of new products and services by us or by our competitors and
industry and general economic trends. As a result of increased competition in
our industry, we expect to encounter significant pricing pressure. We cannot be
certain that we will be able to offset the effects of any required price
reductions through an increase in the number of our subscribers, higher revenues
from our business services, cost reductions or otherwise, or that we will have
the resources to continue to compete successfully. You should read
"Business--Competition" for a more complete discussion of our competition.
7
<PAGE>
MANAGEMENT AND RISKS OF PLANNED AGGRESSIVE GROWTH
We have expanded our operations rapidly since inception and intend to
continue to expand our operations aggressively to pursue existing and potential
market opportunities. This rapid growth has placed, and is expected to continue
to place, a significant strain on our managerial, operational and financial
resources. In particular, our planned network expansion will require the
acquisition and installation of necessary equipment, implementation of marketing
efforts in new locations and employment of qualified technical, marketing and
customer support personnel in these locations.
In order to manage our growth, we must improve our operational systems,
procedures and controls on a timely basis. For instance, we currently are in the
process of replacing our customer management and billing system with new
software which is expected to be fully operational in the first quarter of 1999.
If this new software is not fully operational on a timely basis or fails to
perform as expected by us, or if the demands placed on our network resources by
our growing subscriber base outpace our growth and operating plans, the quality
and reliability of our service may decline and our relationships with our
customers may be harmed as a result.
Additionally, as part of our corporate sales program, we are beginning to
deploy a geographically dispersed sales force that will be primarily responsible
for attracting and retaining commercial customers for our business services. Our
future success in the business services arena depends on our ability to market
successfully to corporate clients in an environment that is increasingly
competitive. We may not succeed in attracting and retaining qualified sales
managers or other sales people, which is necessary for this type of marketing
approach. You should read "Business--Consumer Access and Business Services" for
a more complete discussion of our services.
FACTORS AFFECTING OPERATING RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
As a result of our limited operating history, we cannot forecast our
operating expenses based on our historical results. Accordingly, we establish
our expense levels in advance based in part on our projections of our future
revenues. Our revenues currently depend heavily on our ability to attract and
retain subscribers who purchase Internet access on an annual basis. Our future
revenues will likely include more business services revenues, which will depend
upon our ability to attract and retain business customers. If our actual
revenues are less than our projected revenues, we may be unable to reduce
expenses proportionately, and our operating results, cash flows and liquidity
would likely be adversely affected.
8
<PAGE>
We expect that our revenues and operating results may fluctuate
significantly from quarter to quarter. A number of factors are likely to cause
these fluctuations, including:
- The rate of new subscriber acquisitions;
- Subscriber retention;
- Changes in our pricing policies or those of our competitors;
- Capital expenditures and other costs relating to the expansion of our
operations;
- The timing of new product and service announcements by us or our
competitors;
- Market acceptance of new and enhanced versions of our products and
services;
- Changes in operating expenses;
- Changes in our strategy;
- Personnel changes;
- The introduction of alternative technologies;
- The effect of potential acquisitions;
- Increased competition in our markets; and
- Other general economic factors.
In addition, we have entered into an agreement with PSINet which provides us
with access to PSINet's points of presence. This agreement requires payment to
PSINet of a monthly fee on a per-subscriber basis. Commencing on July 1, 1999,
we will be required to pay a higher fee per subscriber so long as the number of
our subscribers using PSINet's services remains less than 50,000. Therefore,
unless the number of our subscribers using the PSINet service increases
significantly prior to July 1, 1999, our per-subscriber costs will increase at
such time. Increased PSINet costs may impact our future results of operations
unless we are able to identify comparable services at the same or a lower cost
per subscriber. You should read "Business--Strategic Relationships--PSINet" for
more information on our agreement with PSINet.
As a result of these factors, we believe that quarter-to-quarter comparisons
of our operating results may not be meaningful. You should not rely on the
results of one quarter as an indication of our performance in any future
quarter. You should refer to "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Fluctuations in Quarterly Results" for a
more detailed discussion of factors that may cause our operating results to
fluctuate.
NEED FOR ADDITIONAL CAPITAL
We must continue to enhance and expand our network to maintain our
competitive position and continue to meet the increasing demand for service
quality, availability and competitive pricing. Our ability to grow depends
significantly on our ability to expand our operations by opening new points of
9
<PAGE>
presence, which requires significant capital equipment expenditures and advance
expenditures and commitments for leased telecommunications facilities and
advertising. We anticipate that our cash requirements for 1999 will include
disbursements for some or all of the following purposes:
- Expansion of our sales and marketing operations;
- Expansion of our network infrastructure;
- Development of our business services offerings;
- Repayment of $6.5 million of indebtedness;
- Potential acquisitions; and
- Working capital and general corporate purposes.
If the proceeds from this offering, after these and other expenditures, are not
sufficient to meet our cash requirements, we will need to seek additional
capital from public or private equity or debt sources to fund our growth and
operating plans and respond to other contingencies, which may include:
- Increases in our growth rate;
- Shortfalls in anticipated revenues or increases in expenses;
- Unanticipated opportunities, such as major strategic alliances or
acquisitions of complementary businesses;
- The development of new products and services; or
- The expansion of our customer care operations, including the recruitment
of additional customer care and support personnel.
We cannot be certain that we will be able to raise additional capital in the
future on terms acceptable to us or at all. If alternative sources of financing
are insufficient or unavailable, we will be required to modify our growth and
operating plans in accordance with the extent of available financing and will be
required to attempt to attain profitability in our existing geographic markets.
DEPENDENCE ON THIRD-PARTY SUPPLIERS AND TELECOMMUNICATIONS CARRIERS
We depend on third-party suppliers of hardware components and
telecommunications carriers to provide equipment and networking services.
Certain hardware components used in our network system are currently acquired
from one or two sources, including servers manufactured by Sun Microsystems,
modems manufactured by Ascend Communications and 3Com and high performance
routers (devices that receive and transmit data between different networks)
manufactured by Cisco Systems. We currently rely on a few local telephone
companies and others, such as PSINet and Level 3 Communications, to lease data
communications capacity via local telecommunications lines and leased
long-distance lines. Our suppliers and telecommunications carriers also sell or
lease products and services to our competitors and may be, or in the future may
become, our competitors. Expansion of our network infrastructure and other
competitors' needs will continue to place a significant demand on our suppliers
and telecommunications carriers. We cannot be certain that our suppliers and
telecommunications carriers will continue to sell or lease their products and
services to us at commercially reasonable prices or at all. Difficulties in
developing alternative sources of supply, if required, could adversely affect
our business, future financial condition or operating results. Moreover, failure
of our telecommunications providers to provide the data communications capacity
required by us for any reason could cause interruptions in our ability to
provide access services to our customers, which may materially and adversely
affect our business, financial condition and operating results.
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DEPENDENCE ON NETWORK INFRASTRUCTURE; RISK OF CAPACITY CONSTRAINTS
Our network infrastructure is composed of a complex system of routers,
switches, transmission lines and other hardware used to provide our subscribers
with Internet access and other services. The future success of our business will
depend on the capacity, reliability and security of this network infrastructure.
We will have to expand and adapt our network infrastructure as the number of
subscribers and the amount and type of information they wish to transmit over
the Internet increases. Such expansion and adaptation of our network
infrastructure will require substantial financial, operational and management
resources. We cannot be certain that we will be able to expand or adapt our
network infrastructure to meet additional demand or changing subscriber
requirements on a timely basis and at a commercially reasonable cost, or at all.
Capacity constraints within our network and those of our suppliers have
occurred in the past and will likely occur in the future. Such constraints may
prevent subscribers from gaining access to a particular point of presence or may
inhibit a subscriber from connecting to system-wide services such as e-mail and
newsgroup services. From time to time, we have experienced delayed delivery of
networking components or systems from our third-party suppliers, which has
delayed our delivery of service to customers or caused all incoming modem lines
to become full during peak times, resulting in busy signals for subscribers who
are trying to connect to us. Similar problems can occur if we are unable to
expand the capacity of our information servers (for e-mail, newsgroups and the
World Wide Web) fast enough to keep up with the demand from our expanding
subscriber base. Further, if we do not maintain sufficient bandwidth capacity in
our network connections, our subscribers will experience a general slow-down of
their access to the Internet which may harm our relationships with them. If we
fail to expand or enhance our network infrastructure on a timely basis or adapt
it to an expanding subscriber base, changing subscriber requirements or evolving
industry standards, our business, financial condition and operating results
could be materially and adversely affected.
RISK OF SYSTEM FAILURE
A significant portion of our computer equipment, including critical
equipment dedicated to our Internet access services, is presently located at a
single facility in Fort Worth, Texas. The occurrence of a natural disaster, the
failure of one of our systems or the occurrence of other unanticipated problems
at our headquarters or network hub or at one of our primary points of presence
could cause interruptions in our services. Extensive or multiple interruptions
in providing customers with Internet access are a primary reason for customer
decisions to cancel the use of access services. Accordingly, any disruption of
our services due to system failure could have materially adverse repercussions
to our business, financial condition and operating results.
RISKS OF TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS
The market for Internet access and business services is characterized by
rapidly changing technology, evolving industry standards, changes in subscriber
needs and frequent new service and product introductions. New services and
products based on new technologies or new industry standards expose us to risks
of equipment obsolescence as we invest heavily in equipment to expand
company-owned points of presence and enhance our network infrastructure. We will
need to use leading technologies effectively, continue to develop our technical
expertise and enhance our existing services on a timely basis to compete
successfully in this industry. We cannot be certain that we will be successful
in using new technologies effectively, developing new services or enhancing
existing services on a timely basis or that any new technologies or enhancements
used by us or offered to our customers will achieve market acceptance.
Our ability to compete successfully also depends on the continued
compatibility and interoperability of our services with products and
architectures offered by various third-party vendors. Although
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we intend to support emerging standards in the market for Internet access and
enhanced business services, we cannot be certain that industry standards will be
established or, if they become established, that we will be able to conform to
these new standards in a timely fashion and maintain a competitive position in
the market.
We are also at risk due to fundamental changes in the way that Internet
access may be delivered in the future. Currently, Internet services are accessed
primarily by computers connected by telephone lines. Recently, several companies
have developed cable modems, some of which are currently offered for sale. These
cable modems have the ability to transmit data at substantially faster speeds
than the modems currently used by our subscribers and us. As the Internet
becomes accessible by broad segments of the U.S. population through these cable
modems and other consumer electronic devices, or as subscriber requirements
change the means by which Internet access is provided, we will have to develop
new technologies or modify our existing technology to accommodate these
developments and remain competitive. Our pursuit of these technological advances
may require substantial time and expense, and we cannot be certain that we will
succeed in adapting our Internet access services business to alternative access
devices and conduits.
DEPENDENCE ON CONTINUED GROWTH IN INTERNET USAGE
Widespread use of the Internet is a relatively recent phenomenon. Our future
success substantially depends on continued growth in the use of the Internet and
the continued development of the Internet as a viable commercial medium. We
cannot be certain that Internet usage will continue to grow as it has in the
past or that extensive Internet content will continue to be developed and
continue to be accessible for free or at nominal cost to Internet users. If the
use of the Internet does not continue to grow or evolves in a way that we cannot
address, our business, financial condition and operating results could be
materially and adversely affected.
RISKS OF ACCEPTANCE OF BUSINESS SERVICES
Our operating and growth plans are based in part on our strategy to increase
sales of our business services to corporate customers. This strategy will depend
significantly on the successful development, introduction, expansion and market
acceptance of our business services offerings. We cannot be certain that
additional corporate customers will purchase our business services offerings or
that we will successfully meet customer needs or expectations.
RISKS ASSOCIATED WITH NETWORK MARKETING PROGRAM
We employ a network marketing program that entails the use of independent
representatives to sell our access services and to recruit other independent
representatives to sell these services. Independent representatives are paid
commissions by us for their sales of access service plans as well as for sales
made by those they recruit into the program. This network marketing program
complements our more traditional direct response marketing and corporate sales
activities. We believe that FlashNet is one of only a few ISPs that utilizes
network marketing. Our success will depend on our ability to attract, retain and
motivate a large base of independent representatives, who, in turn, are expected
to recruit both subscribers for our services as well as other independent sales
representatives. For the nine months ended September 30, 1998, approximately 22%
of our new subscribers were generated through our network marketing program. We
believe that significant turnover among independent representatives is typical
of network marketing programs. Therefore, in order to maintain or increase the
overall
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number of our independent representatives, existing representatives must
continually recruit new independent representatives. Our ability to attract and
retain independent representatives could be negatively affected by:
- Adverse publicity relating to our services or operations, including our
network marketing program;
- Our program structure, which may include modifications in commission rates
and training fees;
- The quality and range of our service offerings;
- The level of support services we provide to our independent
representatives;
- The availability of competing network marketing opportunities;
- Adverse trends regarding Internet usage; and
- General economic conditions.
Because our independent representatives are classified as independent
contractors, we may encounter difficulty enforcing the policies and rules that
we have established to govern their conduct. Violations of these policies and
rules can reflect negatively on us. In addition, our network marketing program
is affected by extensive government regulation, such as federal and state
regulation of the offer and sale of business franchises, business opportunities
and securities. Various governmental agencies monitor direct selling activities,
and we may be required to supply information regarding our marketing program to
certain of these agencies. We also could be found not to be in compliance with
existing statutes or regulations as a result of misconduct by our independent
representatives, the ambiguous nature of some of the regulations and the
considerable interpretive and enforcement discretion given to regulators. Any
assertion or determination that our company or our independent representatives
are not in compliance with existing statutes or regulations could have a
material adverse effect on our business and operations.
UNCERTAINTY OF SUBSCRIBER RETENTION
Our sales, marketing and other costs of acquiring new subscribers are
substantial relative to the monthly fees derived from such subscribers.
Accordingly, we believe that our long-term success depends largely on our
ability to retain our existing subscribers, while continuing to attract new
subscribers. We continue to invest significant resources in our network
infrastructure and customer and technical support capabilities to provide high
levels of customer service. We cannot be certain that these investments will
maintain or improve subscriber retention. We believe that intense competition
from our competitors, some of which offer many free hours of service or other
enticements for new subscribers, has caused, and may continue to cause, some of
our subscribers to switch to our competitors' services. In addition, some new
subscribers use the Internet only as a novelty and do not become consistent
users of Internet services and may be more likely to discontinue their service.
These factors adversely affect our subscriber retention rates. Any decline in
subscriber retention rates could have a material adverse effect on our business,
financial condition and operating results.
ANNUAL PREPAID ACCOUNTS; POTENTIAL NEGATIVE IMPACT ON FINANCIAL CONDITION IF
GROWTH RATE SLOWS
The majority of our sales are to customers who prepay for one year of
service. We apply all of the proceeds from these prepayments to acquire more
equipment, purchase advertising, meet current obligations and fund operating
deficits. Proceeds are not set aside as capital reserves to reimburse
subscribers who may decide to discontinue their service before their prepaid
term expires. As a result, our financial condition, including our operating
results, cash flow and liquidity, is dependent upon an increasing number of new
customers in the current year and beyond. You should read "--Factors
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Affecting Operating Results; Potential Fluctuations in Quarterly Results" for a
more detailed description of these factors. In 1997 and 1998, we had to raise
capital through third-party sources due in part to a decline in our rate of new
subscriber growth. Any continued or future decline in the rate of growth of new
subscribers, or any unanticipated increase in the rate of subscriber
reimbursements, could force us to raise additional capital to support our
operations by selling equity securities or incurring additional debt.
PROPRIETARY RIGHTS; INFRINGEMENT CLAIMS
We rely on a combination of copyright, trademark and trade secret laws to
protect our proprietary rights. We cannot be certain that the steps we have
taken will be adequate to prevent the misappropriation of our technology or that
third parties, including competitors, will not independently develop
technologies that are substantially equivalent or superior to our proprietary
technology.
We have obtained from various software manufacturers either licenses or
permissions to use the software that we bundle in our client-side software
product for subscribers and for the software used internally in our Internet
services. Although we believe that these products do not infringe on the
proprietary rights of any third parties, third parties could assert infringement
claims against us in the future. The defense of any such claims would require us
to incur substantial costs and would divert management's attention and resources
to defend against any claims relating to proprietary rights, which could
materially and adversely affect our financial condition and operations. Parties
making such claims could secure a judgment awarding them substantial damages, as
well as injunctive or equitable relief that could effectively block our ability
to sell our services. Any such outcome could have a material adverse effect on
our business, financial condition and operating results. If a claim relating to
proprietary technology or information is asserted against us, we may seek
licenses to use such intellectual property. We cannot be certain, however, that
licenses could be obtained by us on acceptable terms, if at all.
SECURITY RISKS
Although we have implemented, and will continue to implement, security
measures, our network and computer systems are vulnerable to intrusions,
computer viruses or similar disruptive problems caused by, or transmitted
through, our subscribers or other Internet users. Computer viruses or similar
disruptions could lead to interruptions, delays or cessation in service to our
subscribers. Inappropriate use of the Internet by third parties could also
potentially jeopardize the security of confidential information stored in our
computer systems or those of our subscribers, which may cause losses to either
us or our subscribers. The potential that this can occur may deter certain
persons from subscribing to our services. Alleviating problems caused by
computer viruses or other breaches of security likely would cause interruptions,
delays or cessation in service to our subscribers, which could have a material
adverse effect on our business and operations. In addition, we expect that our
subscribers will increasingly use the Internet for commercial transactions. Any
network malfunction or security breach could cause these transactions to be
delayed, not completed, or completed with compromised security. It is possible
that subscribers or others could assert claims of liability against us as a
result of any such failure. Furthermore, until more comprehensive security
technologies are developed, the security and privacy concerns of existing and
potential subscribers may inhibit the growth of the Internet service industry in
general, and our subscriber base and revenues, in particular.
RISKS ASSOCIATED WITH ACQUISITIONS
As part of our growth strategy, we may acquire businesses, products,
technologies and other assets, including subscriber accounts, or enter into
joint venture arrangements, that complement our consumer access and business
services offerings. In an acquisition of access subscribers, we may experience
subscription cancellations in the short-term period following the acquisition
due to the lack of the acquired
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subscribers' familiarity with us as their ISP and billing issues that may arise
due to poor record keeping and billing administration by the selling company. If
we acquire a company, we could encounter difficulties in assimilating the
personnel and operations of the acquired company. This may disrupt our ongoing
business and distract management, as well as result in unanticipated costs and
difficulty in maintaining our standards, controls and procedures. We cannot be
certain that we would succeed in overcoming these risks or any other problems
encountered in connection with any acquisitions we may make. In addition, we may
be required to incur debt or issue equity securities to pay for any future
acquisitions or to fund any losses or unanticipated costs of the combined
companies.
DEPENDENCE ON KEY PERSONNEL
We rely, and will continue to rely, on our senior executive officers and
other key management personnel. If any of these people were to leave us, our
level of management, technical, marketing and sales expertise could be lost and
we would need to hire new people who possess these skills. Regardless of
attrition, we expect that we will need to hire additional employees,
particularly in the areas named above, to support our plans for future growth.
The competition for employees at all levels of the computer technology industry
is intense and is increasing. If we do not succeed in attracting new employees
or retaining and motivating our current employees, our business could suffer
significantly.
GOVERNMENT REGULATION
We provide Internet access and business services, in part, using
telecommunications services provided by carriers that are subject to the
jurisdiction of state and federal regulators. We are presently considered by the
Federal Communications Commission (the "FCC") to be an information services
provider and, therefore, we are currently not subject to direct economic
regulation as a carrier by the FCC or any state. At the present time, we are
subject to the type and scope of regulation applicable to businesses generally.
It is possible that a state could attempt to regulate information services
directly or that a state could disagree with the FCC's determination that the
services we provide are not telecommunications services and attempt to regulate
our services as if we were a carrier. It is also possible that the FCC, in one
of several ongoing proceedings, could overturn its prior determinations and rule
that some or all of the services that we provide are telecommunications
services, and not information services. Due to the increasing popularity and use
of the Internet, additional laws and regulations may be adopted relating to
content, user privacy, pricing and copyright infringement. We cannot predict the
impact, if any, that future regulation or regulatory changes may have on our
business.
We have received authorization from the State of Texas for a wholly-owned
subsidiary of ours to operate as a competitive local exchange carrier ("CLEC")
in Texas, and we may, in the future, seek CLEC status in other states as well.
To the extent we conduct business as a CLEC, the telecommunications services
that we provide through our CLEC subsidiary will be subject to regulation. At
the federal level, the FCC has jurisdiction over interstate telecommunications
services. State regulatory commissions exercise jurisdiction over intrastate
services. Additionally, municipalities and other local government agencies may
regulate certain aspects of our CLEC business, such as use of rights-of-way. The
Federal Telecommunications Act of 1996 ("FTA96") requires the FCC to establish a
subsidy mechanism for universal telephone service, to which we will be required
to contribute based on our telecommunications revenues. In addition, FTA96
requires all local exchange carriers, including incumbent local exchange
carriers and CLECs, to interconnect with other networks and ensure they
interoperate, make services available for resale by other carriers, provide
nondiscriminatory access to rights-of-way, offer reciprocal compensation for
termination of local telecommunication traffic, provide dialing parity and
telephone number portability, and ensure that their services are accessible to
and usable by persons with disabilities. FTA96 reserves to the individual states
the authority to impose their own regulations on local exchange services,
including state universal service subsidy programs, so long as the regulation is
not inconsistent with the requirements of FTA96.
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In our provision of interstate and intrastate services as a CLEC, we may be
subject to tariff and/or price list filing requirements that set forth the
terms, conditions and prices for our telecommunications services, prior to or
soon after offering these services. At the state level, we will also be subject
to state certification proceedings as a CLEC. These certifications generally
require a showing that the carrier has adequate financial, managerial and
technical resources to offer the proposed services consistent with the public
interest. Any challenge to our filed tariffs or our CLEC certificates by third
parties could cause us to incur substantial legal and administrative expenses.
In addition, under some state statutes, changes in the ownership of our
outstanding voting securities also may trigger additional state public utility
commission approval.
POTENTIAL LIABILITY FOR MATERIAL TRANSMITTED THROUGH OUR NETWORK OR RETRIEVED
THROUGH OUR SERVICES
The law relating to the liability of Internet access and business services
providers for information carried on or disseminated through their networks is
unsettled. In addition, FTA96 imposes fines on any entity that knowingly permits
any telecommunications facility under such entity's control to be used to make
obscene or indecent material available to minors via an interactive computer
service. We cannot predict whether any claim under FTA96, similar state statutes
or common law will be asserted against us, or if asserted, whether it will be
successful. As the law in this area develops, the potential imposition of
liability for information carried on and disseminated through our network could
require us to implement measures to reduce our exposure to such liability, which
may require the expenditure of substantial resources or the discontinuation of
certain of our services. Any costs that are incurred as a result of contesting
any such asserted claims or the consequent imposition of liability could
materially and adversely affect our business, financial condition and operating
results.
In addition, because materials may be downloaded by users of our services
and subsequently distributed to others, there is a potential that persons may
make claims against us for defamation, negligence, copyright or trademark
infringement, personal injury or other causes of action based on the nature,
content, publication and distribution of such materials. We also could be
exposed to liability with respect to the offering of third-party content that
may be accessible through our services (including links to Web sites maintained
by our subscribers or other third parties) or posted directly to our Web site,
and subsequently retrieved by a third party through our services. Such claims
might include, among others, that by directly or indirectly providing access to
the Web sites of third parties, we are liable for copyright or trademark
infringement or other wrongful actions committed by these third parties on their
Web sites. It is also possible that if any third-party content provided through
our services contains errors, third parties who access such material could make
claims against us for losses incurred in reliance on such information. We also
offer e-mail services, which expose us to other potential risks, such as
liabilities or claims resulting from unsolicited e-mail (known as "spamming"),
lost or misdirected messages, illegal or fraudulent use of e-mail or
interruptions or delays in e-mail service. From time to time, we receive
inquiries from third parties regarding these matters, all of which have been
resolved to date without any material adverse effect to us. However, we cannot
assure you that we will not incur liability with respect to any of these matters
in the future. Moreover, such claims, with or without merit, likely would divert
management's time and attention and result in significant costs to investigate
and defend. The imposition on us of liability for information carried on or
disseminated through our services could require us to implement measures to
reduce our exposure to such liability, which may require the expenditure of
substantial resources or limit the attractiveness of our services to users.
YEAR 2000 RISKS
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. Confusion of dates may bring about system
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failures or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar business activities. As a result, many companies' software and
computer systems need to be upgraded or replaced in order to comply with such
"Year 2000" requirements. We have established procedures for evaluating and
managing the risks and costs associated with this problem and believe that our
computer systems are currently Year 2000 compliant. However, many of our
customers maintain their Internet operations on commercially available operating
systems, which may be impacted by Year 2000 complications. In addition, we rely
on third-party vendors for certain equipment and software included within our
services that may not be Year 2000 compliant. We are in the early stages of
conducting an audit of our third-party suppliers as to the Year 2000 compliance
of their systems. The failure of our internal computer systems or of third-party
equipment or software to operate without Year 2000 complications could require
us to incur significant unanticipated expenses to remedy any problems and could
expose us to claims for losses incurred by our users due to such Year 2000
complications. The defense of any such claims, with or without merit, could
require us to incur substantial costs and would divert management's time and
attention which could have a material adverse effect on our business, financial
condition and operating results. In addition, we are subject to external forces
that might generally affect industry and commerce, such as utility company Year
2000 compliance failures and related service interruptions.
MANAGEMENT'S DISCRETION REGARDING USE OF PROCEEDS
We intend to use the net proceeds of this offering for some or all of the
following purposes:
- Expansion of our sales and marketing operations;
- Expansion of our network infrastructure;
- Development of our business services offerings;
- Repayment of $6.5 million of indebtedness;
- Potential acquisitions; and
- Working capital and general corporate purposes.
We are not required to allocate the net proceeds of this offering for the
purposes described above and, in light of future developments and circumstances,
may allocate some of the proceeds to uses other than those described above.
ABSENCE OF PRIOR MARKET FOR THE SHARES; POSSIBLE VOLATILITY OF SHARE PRICE
Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after this offering. You may not be able to resell your shares at or above the
initial public offering price due to a number of factors, including:
- Actual or anticipated fluctuations in our operating results;
- Changes in expectations as to our future financial performance or changes
in financial estimates of securities analysts;
- Announcements of technological innovations by our existing or future
competitors;
- Departures of key personnel; or
- The operating and stock price performance of other comparable companies.
In addition, the stock market in general, and the stock prices of Internet
companies in particular, have recently experienced extreme volatility that often
has been unrelated to the operating performance of any specific public
companies. If continued, these broad market and industry fluctuations may
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adversely affect the trading price of our common stock, regardless of our actual
operating performance. You should read the "Underwriting" section of this
prospectus for a more complete discussion of the factors that will be considered
in determining the initial public offering price.
CONTROL BY PRINCIPAL SHAREHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers, directors and existing 5% and greater shareholders
will beneficially own or control, collectively, 2,129,951 shares of our common
stock, representing approximately % of the voting power after this offering
( % if the underwriters exercise their option to purchase additional shares of
common stock in this offering). After this offering, such persons, if they were
to act together, will be in a position to elect and remove directors and control
the outcome of most matters submitted to shareholders for a vote. Additionally,
such persons would be able to influence significantly a proposed amendment to
our charter, a merger proposal, a proposed sale of assets or other major
corporate transaction or a non-negotiated takeover attempt. Such concentration
of ownership may discourage a potential acquiror from making an offer to buy our
company, which, in turn, could adversely affect the market price of our common
stock. You should read "Management," "Principal Shareholders" and "Description
of Capital Stock" for more information on control of our company.
POTENTIAL EFFECT OF SHARES COMING AVAILABLE FOR FUTURE SALE; REGISTRATION RIGHTS
After this offering, we will have outstanding shares of common stock
( shares if the underwriters exercise their option to purchase additional
shares of common stock in this offering) and 704,795 additional shares reserved
for issuance upon exercise or conversion of outstanding options, warrants and
convertible notes. In addition, we will have reserved 62,997 shares for issuance
under option grants that may be made in the future pursuant to our stock option
plan. We intend to register for resale the shares of common stock reserved for
issuance under our stock option plan promptly after the date of this prospectus.
The federal securities laws impose certain restrictions on the ability of our
existing shareholders to resell their shares after this offering. In addition,
our officers, directors and certain shareholders, holders of warrants, holders
of options to purchase our common stock and holders of notes convertible into
common stock, who will collectively hold % of our outstanding shares of
common stock after this offering and who have the right to acquire an additional
shares, have agreed that, for a period of 180 days from the date of
this prospectus, they will not sell their shares.
As a result of these contractual restrictions and the restrictions imposed
by the federal securities laws, shares of our common stock (including shares
issuable upon exercise of warrants and options and conversion of convertible
notes) will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
SHARES COMING AVAILABLE FOR
DAYS AFTER DATE OF THIS PROSPECTUS SALE
- -------------------------------------------------------------- ------------------------------
<S> <C>
Upon effectiveness............................................
-----------
180 days...................................................... 3,573,580
</TABLE>
We have entered into registration rights agreements with certain of our
shareholders, noteholders and holders of warrants. Under the terms of these
agreements, such holders are entitled to include shares of common stock held by
them in any registration of securities by us under the Securities Act of 1933,
as amended (the "Securities Act"). Additionally, certain of such holders are
also entitled to require us to file a registration statement under the
Securities Act at our expense with respect to their shares of common stock.
Sales of a substantial number of shares of common stock into the public market
after this offering, or the perception that such sales could occur, could
materially and adversely affect our stock price or could impair our ability to
obtain capital through an offering of equity securities. You should read "Shares
Eligible for Future Sale" for a more complete discussion of the potential effect
of shares coming available for future sale.
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ANTI-TAKEOVER EFFECTS OF PROVISIONS OF OUR RESTATED ARTICLES OF INCORPORATION
AND BYLAWS
AND OF TEXAS LAW
Our Restated Articles of Incorporation permit our Board of Directors to
issue additional shares of common stock, or establish one or more series of
preferred stock having the number of shares, designations, relative voting
rights, dividend rates, liquidation and other rights, preferences and
limitations that the Board of Directors may designate without shareholder
approval. Any additional issuance of common stock or preferred stock could have
the effect of discouraging the acquisition of control of our company by means of
a merger, tender offer, proxy contest or otherwise, and thereby protects the
continuity of our current management.
Our Bylaws provide that, after this offering, our Board of Directors will be
divided into three classes of two or more directors each, with each class
elected for three-year terms expiring in successive years. Our Restated Articles
of Incorporation allow the Board of Directors to fix the number of directors in
the Bylaws with no minimum or maximum number of directors required. Our Restated
Articles of Incorporation and Bylaws also provide that special meetings of
shareholders generally can be called only by our president or Board of Directors
or by holders of at least 25% of our voting stock and provide for advance notice
procedures for the nomination, other than by our Board of Directors, of
candidates for election as directors as well as for other shareholder proposals
to be considered at annual or special meetings of shareholders. The effect of
these provisions may be to discourage or prevent a tender offer, takeover
attempt or solicitation of proxies that a shareholder might consider to be in
his or her best interests.
After this offering, we will be subject to certain provisions of Texas law
that could have the effect of delaying, deterring or preventing a change in
control of our company. Texas law prohibits a publicly-held Texas corporation
from engaging in any business combination with any affiliated shareholder for a
period of three years from the date the person became an affiliated shareholder
unless certain conditions are met. You should read "--Control by Principal
Shareholders, Executive Officers and Directors" and "Description of Capital
Stock" for more information on the anti-takeover effects of provisions of our
Restated Articles of Incorporation and Bylaws and of Texas law.
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is expected to be substantially higher
than the pro forma net tangible book value per share of the outstanding common
stock immediately after this offering. Accordingly, if you purchase common stock
in this offering, you will incur immediate dilution of approximately $
in the pro forma net tangible book value per share of common stock from the
price you pay for the common stock. To the extent that outstanding options,
warrants and convertible notes are exercised or converted, there will be further
dilution to the investors in this offering. You should read "Dilution" for more
information on dilution to new investors.
19
<PAGE>
USE OF PROCEEDS
The net proceeds we will receive from the sale of the shares of
common stock offered by us are estimated to be $ ($ if the
Underwriters' over-allotment option is exercised in full) after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by us and assuming a public offering price of $ per share.
The principal purposes of this offering are to increase our equity capital,
to create a public market for our common stock, to facilitate future access by
us to public equity markets and to provide increased visibility of FlashNet in a
marketplace where many of our competitors are publicly-held companies. We
currently intend to use the net proceeds of this offering as follows:
- Primarily for expansion of our sales and marketing operations;
and, to a lesser extent, for:
- Expansion of our network infrastructure;
- Development of our business services offerings;
- Repayment of $6.5 million in principal amount of a Secured Promissory Note
issued to Ascend Communications, Inc. (the "Ascend Note");
- Potential acquisitions; and
- Working capital and general corporate purposes.
The Ascend Note matures upon consummation of this offering and bears
interest at 6.0% per annum. At November 30, 1998, the amount outstanding under
the Ascend Note was $6.5 million. Potential acquisitions may include
acquisitions of businesses, subscriber accounts, products and technologies, or
participation in joint venture arrangements, that are complementary to our
business and service offerings. Although we have not identified any specific
businesses, subscriber accounts, products, technologies or joint ventures that
we may acquire or enter into, nor are there any current agreements or
negotiations with respect to any such transactions, FlashNet from time to time
evaluates such opportunities. Pending such uses, the net proceeds will be
invested in government securities and other short-term, investment-grade,
interest-bearing instruments.
DIVIDEND POLICY
FlashNet has not declared or paid any cash dividends on its capital stock
and does not intend to pay any cash dividends on the common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
fund the development and growth of our business. Future dividends, if any, will
be determined by the Board of Directors.
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998, (i) on an actual basis, and (ii) on a pro forma, as adjusted
basis to reflect the conversion of all of the 1,364,085 outstanding shares of
Series A Convertible Preferred Stock into 1,364,085 shares of common stock upon
consummation of this offering and to give effect to the sale of the common stock
offered hereby and the application of the estimated net proceeds therefrom to
repay the Ascend Note as described under "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------------
PRO FORMA, AS
ACTUAL ADJUSTED
------------ ----------------
(IN THOUSANDS, EXCEPT SHARE
DATA)
<S> <C> <C>
Short-term debt (convertible notes payable, note payable and current
portion of capital lease obligations)............................. $ 6,644 $
------------ --------
------------ --------
Capital lease obligations, net of current portion................... $ 223 $
Redeemable Series A Convertible Preferred Stock, par value $1.00 per
share, 1,375,000 shares authorized, 1,364,085 issued and
outstanding actual; none issued or outstanding pro forma, as
adjusted.......................................................... 10,445 --
Shareholders' equity (deficit):
Preferred Stock, $1.00 par value, 2,000,000 shares authorized, none
issued or outstanding actual and pro forma, as adjusted........... -- --
Common Stock, no par value, 5,000,000 shares authorized, 1,626,138
shares issued and outstanding actual and shares issued
and outstanding pro forma, as adjusted(1)......................... 811
Warrants to purchase common stock................................... 3,705
Accumulated deficit................................................. (26,691)
------------ --------
Total shareholders' equity (deficit).............................. (22,175)
--------
Total capitalization............................................ $ (11,507) $
------------ --------
------------ --------
</TABLE>
- ------------------------
(1) Excludes: (i) 20,130 shares of common stock issuable upon conversion of
convertible notes; (ii) 502,905 shares of common stock issuable upon the
exercise of warrants at an exercise price of $0.01 per share; and (iii)
65,625 shares of common stock issuable upon the exercise of stock options
outstanding as of September 30, 1998 at a weighted average exercise price of
$7.78 per share. As of the date of this prospectus, stock options
exercisable for 181,760 shares of common stock are outstanding at a weighted
average exercise price of $18.98 per share. See "Management--1997 Stock
Incentive Plan" and "Certain Transactions."
21
<PAGE>
DILUTION
The pro forma deficit in net tangible book value of the Company at September
30, 1998 was approximately $11.7 million, or $3.92 per share of common stock.
Pro forma deficit in net tangible book value per share represents the amount of
total tangible assets of the Company reduced by the amount of its total
liabilities, divided by the number of shares of common stock outstanding after
giving effect to the mandatory conversion of all shares of Series A Convertible
Preferred Stock. After giving effect to the Company's sale of shares of
common stock in this offering (at an assumed initial public offering price of
$ per share) and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company and the
application of the net proceeds therefrom, the Company's pro forma net tangible
book value as adjusted at September 30, 1998 would have been approximately $
million, or $ per share. This represents an immediate increase in pro forma
net tangible book value of $ per share to the Company's existing shareholders
and an immediate dilution of $ per share to new investors purchasing shares
of common stock in this offering. The following table illustrates the per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
---------
Pro forma deficit in net tangible book value per share at
September 30, 1998............................................. $ 3.92
---------
Increase per share attributable to new investors.................
---------
Pro forma net tangible book value per share after this offering....
---------
Dilution per share to new investors................................ $
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis as of September 30,
1998, the number of shares of common stock purchased, the total consideration
paid to the Company and the average price per share paid to the Company by
existing shareholders and by investors purchasing shares of common stock offered
hereby, before deducting estimated underwriting discounts and commissions and
estimated offering expenses of this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- --------- ------------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................ 2,990,223 % $ 8,622,998 % $ 2.88
New investors(1).................................
---------- --------- ------------- ---------
Total........................................ 100.0% $ 100.0%
---------- --------- ------------- ---------
---------- --------- ------------- ---------
</TABLE>
- ------------------------------
(1) If the underwriters' over-allotment option is exercised in full, the number
of shares of common stock held by new investors will increase to
shares, or % of the total shares of common stock outstanding after this
offering.
The preceding tables (i) include 1,364,085 shares of common stock that will
be issued upon the conversion of 1,364,085 outstanding shares of Series A
Convertible Preferred Stock on the consummation of this offering and (ii) assume
no exercise of any warrants or stock options or conversion of convertible notes
that were outstanding as of or after September 30, 1998. As of September 30,
1998, there were outstanding (i) notes convertible into 20,130 shares of common
stock, (ii) warrants exercisable for 502,905 shares of common stock at an
exercise price of $0.01 per share and (iii) stock options exercisable for 65,625
shares of common stock at a weighted average exercise price of $7.78 per share.
As of the date of this prospectus, stock options exercisable for 181,760 shares
of common stock are outstanding at a weighted average exercise price of $18.98
per share. To the extent that convertible notes are converted, or any
outstanding warrants or options are exercised, new investors will experience
further dilution. See "Management--1997 Stock Incentive Plan" and Note 6 of
Notes to Consolidated Financial Statements.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and the Notes
thereto and the other financial information included elsewhere in this
prospectus. The statement of operations data for the period ended December 31,
1995 and the years ended December 31, 1996 and 1997, and the balance sheet data
at December 31, 1996 and 1997 are derived from the Consolidated Financial
Statements included elsewhere in this prospectus which have been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their report
therein. The statement of operations data for the nine months ended September
30, 1997 and 1998 and the balance sheet data at September 30, 1998 have been
derived from unaudited interim consolidated financial statements included
elsewhere in this prospectus. The unaudited interim consolidated financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of the Company's management, are necessary
for a fair presentation of the results for the interim periods presented.
Results for the nine months ended September 30, 1998 are not necessarily
indicative of the results that may be expected for the full year.
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 25,
1995
(INCEPTION) YEAR ENDED NINE MONTHS ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, -------------------- --------------------
1995 1996 1997 1997 1998
------------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Consumer access services......................................... $ 19 $ 2,360 $ 11,938 $ 7,768 $ 15,979
Business services................................................ -- 55 570 349 925
Set-up fees and other............................................ 15 2,119 5,817 4,608 1,197
------------- --------- --------- --------- ---------
Total revenues................................................. 34 4,534 18,325 12,725 18,101
Operating costs and expenses:
Cost of recurring revenues....................................... 28 2,348 8,229 5,622 8,683
Cost of other revenues........................................... 4 473 799 646 320
Sales and marketing.............................................. 32 4,329 10,300 8,608 5,178
General and administrative....................................... 74 1,039 3,436 2,422 3,537
Operations and customer support.................................. -- 830 3,683 2,596 4,042
Depreciation and amortization.................................... 3 545 2,064 1,505 2,286
------------- --------- --------- --------- ---------
Total expenses................................................. 141 9,564 28,511 21,399 24,046
------------- --------- --------- --------- ---------
Loss from operations............................................. (107) (5,030) (10,186) (8,674) (5,945)
Interest expense (net)........................................... -- (144) (714) (550) (1,931)
------------- --------- --------- --------- ---------
Net loss......................................................... (107) (5,174) (10,900) (9,224) (7,876)
Deemed dividends on redeemable preferred stock................... -- -- -- -- (2,633)
------------- --------- --------- --------- ---------
Net loss attributable to common shareholders..................... $ (107) $ (5,174) $ (10,900) $ (9,224) $ (10,509)
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Basic and diluted net loss per share (1)......................... $ (0.10) $ (3.34) $ (6.80) $ (5.77) $ (6.50)
------------- --------- --------- --------- ---------
------------- --------- --------- --------- ---------
Shares used in computing basic and diluted loss per share (1).... 1,037,375 1,548,938 1,602,584 1,598,761 1,616,635
OTHER DATA:
EBITDA (2)....................................................... $ (104) $ (4,485) $ (8,121) $ (7,169) $ (3,659)
Cash flow provided (used) by:
Operating activities........................................... (38) 412 1,342 1,447 (4,278)
Investing activities........................................... (82) (1,038) (4,461) (492) (652)
Financing activities........................................... 145 739 4,551 (1,092) 6,662
Subscribers (3).................................................. 200 47,361 152,022 132,893 165,614
Independent representatives (3)(4)............................... -- -- 1,885 1,472 4,189
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- SEPTEMBER 30,
1995 1996 1997 1998
--------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................ $ 25 $ 137 $ 1,570 $ 3,301
Total assets..................................................................... 175 5,887 11,000 11,677
Working capital.................................................................. (41) (6,234) (15,168) (18,433)
Total debt....................................................................... -- 4,672 6,766 6,866
Redeemable preferred stock....................................................... -- -- -- 10,445
Total shareholders' equity (deficit)............................................. 51 (4,395) (11,768) (22,176)
</TABLE>
- ------------------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for the
determination of shares used in computing basic and diluted net loss per
share.
(2) EBITDA consists of net loss before provisions for interest expense, income
taxes, depreciation and amortization. EBITDA is not intended to represent
cash flows from operations in accordance with GAAP and should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. The
Company believes that EBITDA is a standard measure commonly reported and
widely used by analysts, investors and other interested parties in the
Internet service provider industry; however, EBITDA as presented herein is
not a measurement under GAAP and may not be comparable to similarly titled
measures reported by other companies.
(3) Determined as of the end of the period.
(4) Denotes number of independent sales representatives who were registered to
participate in the Company's network marketing program. See "Business--Sales
and Marketing" for additional information concerning this program.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN
FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS
PROSPECTUS. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH "SELECTED CONSOLIDATED FINANCIAL DATA," AND THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
FlashNet is a nationwide provider of consumer Internet access services and
business services. Founded in September 1995, the Company initially served as an
Internet access provider for consumers located primarily in the Dallas/Fort
Worth area. To provide Internet access throughout the southwestern United States
and selected central and northeastern states, the Company expanded its
operations during 1996 and 1997 through the installation of 182 Company-owned
POPs where subscribers can access the Company's services through a local
telephone call. These POPs are supported by a Network Operations Center in Fort
Worth, Texas and 28 additional remote facilities where Company-owned equipment
has been deployed within third-party networking or data centers. In the first
quarter of 1998, the Company signed a national network access agreement with
PSINet that provided the Company with access to PSINet's POPs. This agreement,
combined with the Company's agreement with Level 3 Communications, has
transformed the Company into a national ISP with 621 total POPs across 450
cities throughout the United States. Since its inception, FlashNet has
accumulated a subscriber base of approximately 170,000 users, including
approximately 2,900 customers for its business services.
In addition to its access services as a national ISP, the Company offers a
broad range of business services, including dedicated and broadband access
services, Web hosting and co-location services, electronic commerce solutions
and managed Internet protocol ("IP") and other value-added services. The Company
expects that business services revenues will increase in future periods,
particularly in view of the Company's strategy to increase the size of its
corporate sales department and expand its offerings of business services. The
Company believes that attracting additional business customers will result in a
more stable, higher quality customer base. The Company further believes that its
business services enable it to acquire new corporate customers more effectively
and provide many cross-selling opportunities.
The Company's revenues generally are composed of: (i) consumer access
services revenues, (ii) business services revenues and (iii) set-up fees and
other revenues. Consumer access services revenues consist of annual prepaid and,
to a lesser extent, monthly subscriptions for consumer dial-up access to the
Internet. Revenues from prepaid accounts are recognized in the period in which
service is provided to the subscriber. Accordingly, amounts received upon the
sale or renewal of a prepaid subscription initially are recorded as a deferred
revenue liability and are amortized monthly over the life of the subscription.
Consumer access services revenues from monthly subscriptions are recognized in
the period in which the service is provided. FlashNet offers prepaid and monthly
subscribers a full money-back guarantee upon cancellation of their service if
made within 30 days of initiating service. Subscribers may cancel their
subscriptions at any time following the initial 30-day period, in which case the
Company charges the subscriber according to its monthly service rates for
services provided through the end of the month in which the cancellation occurs
plus an additional set-up fee, and refunds any remaining prepaid amounts after
such charges. Cash received from subscribers is applied to working capital when
received, and no cash reserves are maintained for potential refund obligations.
See "Risk Factors--Annual Prepaid Accounts; Potential Negative Impact on
Financial Condition if Growth Rate Slows."
24
<PAGE>
Business services consisting of dedicated access services also are offered
on a prepaid annual and monthly subscription basis. The revenue recognition
policies and customer guarantee practices described above for consumer access
services also apply to dedicated access business services. Revenues from the
sale of other business services typically involve set-up fees, which are
included in set-up fees and other revenues in the Company's statement of
operations, and a service contract that provides for monthly billing. These
business services revenues are recognized as services are provided.
The Company derives set-up fees and other revenues through a variety of
sources, including set-up fees for subscribers to the Company's consumer access
services and business services, consulting services, sign-up and renewal fees
for independent representatives in the Company's network marketing program and
advertising revenues. Set-up fees are charged to new customers of monthly
consumer access services and to business services customers (other than prepaid
annual dedicated access customers) and are recognized as revenues in the initial
month of service. Consulting services have been provided from time to time on a
limited basis by the Company on both a fixed fee and a time-and-materials basis
and are recognized as the services are performed. Non-refundable fees are paid
by representatives in the Company's network marketing program at the
commencement of participation in the program and, for renewal of participation,
are paid on each anniversary of the representative's commencement date. Such
fees are recognized as revenue in the month of initial sign-up or renewal, as
the case may be. Advertising revenues are recognized as advertising services are
provided.
During the nine months ended September 30, 1998, the monthly rate at which
the Company experienced customer cancellations and nonrenewals of subscriptions
for access services (the "churn rate") averaged 3.8%. The Company calculates its
churn rate by dividing (i) the number of customer cancellations and non-renewals
during the period (excluding cancellations made by new subscribers during the
first 30 days of service) by (ii) the average of the numbers of subscribers at
the beginning of the period and at the end of the period. If cancellations made
by new subscribers during the first 30 days of service were included, the
Company's churn rate for the nine months ended September 30, 1998 would have
averaged 4.6%. The Company intends to continue to devote substantial resources
to maintain customer service on a 24-hours-a-day, seven-days-a-week basis
("24x7"), and upgrade and expand its network's structure and system components
to ensure high levels of customer satisfaction.
The Company intends to increase its sales and marketing expenditures
significantly in the foreseeable future to attract customers during the ongoing
growth phase in Internet use by broad segments of the U.S. population.
Accordingly, the Company anticipates significant increases in 1999 in sales and
marketing expenses as compared to 1998. Sales and marketing expenses in 1996,
1997 and the nine months ended September 30, 1998 were $4.3 million, $10.3
million and $5.2 million, respectively. A key component of the Company's
strategy is to increase its customer base, both for its consumer access services
and business services, by expanding its sales and marketing efforts within three
primary channels: (i) direct response marketing through media campaigns and mass
marketing; (ii) the Company's "FlashNet Opportunity" network marketing program;
and (iii) direct corporate sales through a geographically dispersed sales force.
All three strategies are designed to build brand name recognition and generate
high levels of new customers while minimizing the Company's customer acquisition
costs and churn rate. See "Business--Sales and Marketing."
In its efforts to continue delivering to customers fast and reliable, high
quality Internet access services and reduce network costs on a per-subscriber
basis, the Company continually monitors and evaluates network performance and
utilization. Through this process, the Company proactively effects modifications
to its network design, thereby enhancing its ability to address new markets and
improving the efficiency and performance of its networking resources.
Furthermore, in the course of its geographic expansion and the establishment of
new POPs, the Company determines whether it is more cost effective to build its
own facilities or to lease ports from third-party providers, such as those
available to the Company under its contractual arrangements with PSINet and
Level 3 Communications. The Company believes that the combination of its own
network infrastructure with those of its
25
<PAGE>
third-party providers enables the Company to manage effectively its networking
costs to achieve lower service costs per subscriber while ensuring the delivery
of high quality services on a nationwide basis.
The Company has incurred annual and quarterly losses from its operations
since its inception, and the Company expects to incur operating losses on both a
quarterly and annual basis for the foreseeable future. At September 30, 1998,
the Company had an accumulated deficit of $26.7 million. Moreover, although the
Company's revenues have increased in recent periods, there can be no assurance
that the Company's revenues will grow in future periods, that they will grow at
past rates, that the Company will achieve profitability on a quarterly or annual
basis in the future or that, if profitability is achieved, it will be sustained.
See "Risk Factors--Operating Losses," "--Limited Operating History" and "--
Factors Affecting Operating Results; Potential Fluctuations in Quarterly
Results."
RESULTS OF OPERATIONS
The following discussion of the Company's results of operations for the
years ended December 31, 1997 and December 31, 1996 and the period from
September 25, 1995 (Inception) to December 31, 1995 is based upon data derived
from the statements of operations data contained in the Company's audited
Consolidated Financial Statements appearing elsewhere in this prospectus. The
following discussion of the Company's results of operations for the nine months
ended September 30, 1997 and 1998 is based upon data derived from the statement
of operations data contained in the Company's unaudited Consolidated Financial
Statements appearing elsewhere in this prospectus. The following table sets
forth this data as a percentage of total revenues:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 25, NINE MONTHS ENDED
1995 (INCEPTION) YEAR ENDED
THROUGH DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------ ------------------------
1995 1996 1997 1997 1998
------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Consumer access services............................... 56% 52% 65% 61% 88%
Business services...................................... -- 1 3 3 5
Set-up fees and other.................................. 44 47 32 36 7
--- --- --- --- ---
Total revenues..................................... 100 100 100 100 100
--- --- --- --- ---
Operating costs and expenses:
Cost of recurring revenues............................. 82 52 45 44 48
Cost of other revenues................................. 12 10 4 5 2
Sales and marketing.................................... 94 96 56 68 29
General and administrative............................. 221 23 19 19 20
Operations and customer support........................ -- 18 20 20 22
Depreciation and amortization.......................... 9 12 11 12 13
--- --- --- --- ---
Total expenses..................................... 418 211 155 168 134
--- --- --- --- ---
Loss from operations....................................... 318 111 55 68 34
Interest expense (net)..................................... -- 4 4 4 11
--- --- --- --- ---
Net loss................................................... 318% 115% 59% 72% 45%
--- --- --- --- ---
--- --- --- --- ---
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
REVENUES. The Company's total revenues increased $5.4 million, or 43%, to
$18.1 million for the nine months ended September 30, 1998 from $12.7 million
for the nine months ended September 30, 1997. Of this increase, $8.2 million was
attributable to increased subscriptions and renewals, as reflected by the
increase in consumer access services revenues, and approximately $576,000 was
attributable to
26
<PAGE>
increased sales of business services. These increases were offset by a $3.4
million decrease in subscriber set-up fees and other revenues, resulting
primarily resulted from the elimination of set-up fees applicable to annual
prepaid consumer accounts made in connection with a price increase for all
consumer access and business access services in the fourth quarter of 1997. New
subscriptions increased in large part from the expansion of the Company's
network marketing program, which accounted for 17,688 new subscriber
acquisitions in the nine months ended September 30, 1998 as compared to 2,874
new subscriber acquisitions for the corresponding period in 1997. Consumer
access services revenues increased 106% in the nine months ended September 30,
1998 over the nine months ended September 30, 1997, primarily as a result of
increases in the subscriber base and in average revenues per subscriber due to
the price increase in the fourth quarter of 1997. Business services revenues
increased 165% in the nine months ended September 30, 1998 from the nine months
ended September 30, 1997 as the Company expanded its offerings of dedicated and
broadband access and other business services in response to escalating customer
demand. Revenues from set-up fees and other revenues decreased 74% in the nine
months ended September 30, 1998 from the nine months ended September 30, 1997,
primarily as a result of the Company's decision in the fourth quarter of 1997 to
discontinue charging set-up fees for prepaid subscriptions and due to the
receipt in 1997 of consulting fees of $1.0 million for a project that was
completed in the last three quarters of 1997.
COST OF RECURRING REVENUES. Cost of recurring revenues is comprised of the
costs incurred in providing consumer access services and business services.
These costs include costs for providing local telephone lines into each
Company-owned POP, the use of third-party networks and the use of leased lines
to connect each Company-owned POP and third-party POP to the Company's hub and
to connect the Company's hub to the Internet backbone. Cost of recurring
revenues increased $3.1 million, or 55%, to $8.7 million for the nine months
ended September 30, 1998 from $5.6 million for the nine months ended September
30, 1997. This increase was due primarily to an increase in the number of
subscribers, including the number of subscribers served by third-party networks
which generally have higher service costs per subscriber, and to the expansion
of the Company's network infrastructure. As a percentage of total revenues, cost
of recurring revenues increased to 48% for the nine months ended September 30,
1998 from 44% for the nine months ended September 30, 1997 primarily due to the
factors stated above and due to the decline in set-up fees and other revenues in
1998. As a percentage of revenues derived from consumer access services and
business services, cost of recurring revenues decreased to 51% for the nine
months ended September 30, 1998 from 69% for the nine months ended September 30,
1997. This decrease resulted from the price increase in the fourth quarter of
1997 and greater network efficiencies.
COST OF OTHER REVENUES. Cost of other revenues consists primarily of
merchandise costs, including branded software for subscribers, and sales aids
for representatives and distributors involved in the Company's network marketing
program. Cost of other revenues decreased $326,000, or 50%, to $320,000 for the
nine months ended September 30, 1998 from $646,000 for the nine months ended
September 30, 1997. As a percentage of total revenues, cost of other revenues
decreased to 3% for the nine months ended September 30, 1998 from 5% for the
nine months ended September 30, 1997. The decrease in cost of other revenues,
both in absolute dollars and as a percentage of total revenues, primarily
resulted from the Company obtaining a royalty-free license for Netscape software
in the fourth quarter of 1997 that was previously purchased by the Company and
resold to customers.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of media and production costs, commissions and expenses related to the
Company's network marketing program, sales and marketing overhead, and personnel
costs. Sales and marketing expenses decreased $3.4 million, or 40%, to $5.2
million for the nine months ended September 30, 1998 from $8.6 million for the
nine months ended September 30, 1997. As a percentage of total revenues, sales
and marketing expenses decreased to 29% for the nine months ended September 30,
1998 from 68% for the nine months ended September 30, 1997. This decrease, both
in absolute dollars and as a percentage of total revenues, was
27
<PAGE>
primarily attributable to the Company's decision in the fourth quarter of 1997
to reduce sales and marketing expenditures in order to conserve cash resources
and, to a lesser extent, to the Company's decision to purchase national media
spots rather than local media spots, with the latter being generally more
expensive on a per-impression basis. The Company intends to increase
significantly sales and marketing expenses in absolute dollars in the
foreseeable future to attract both consumer and business customers. See
"--Overview."
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist of personnel and related costs associated with the Company's executive
and administrative functions and other miscellaneous expenses. General and
administrative expenses increased $1.1 million, or 46%, to $3.5 million for the
nine months ended September 30, 1998 from $2.4 million for the nine months ended
September 30, 1997. General and administrative expenses increased primarily due
to an increase in the number of staff members, an increase in credit card
processing fees and increased spending on facilities and supplies. As a
percentage of total revenues, general and administrative expense remained
relatively constant at 19%. Management believes that general and administrative
expenses will continue to increase in absolute dollars for the foreseeable
future as the Company's scope of operations continues to expand and due to
anticipated increased administrative costs associated with FlashNet becoming a
public company.
OPERATIONS AND CUSTOMER SUPPORT EXPENSES. Operations and customer support
expenses consist primarily of expenses associated with daily support of the
Company's subscriber base, including customer service and technical support.
Operations and customer support expenses increased $1.4 million, or 54%, to $4.0
million for the nine months ended September 30, 1998 from $2.6 million for the
nine months ended September 30, 1997. This increase was primarily due to the
addition of new customer care and technical personnel to support a larger
subscriber base. As a percentage of total revenues, operations and customer
support expenses increased to 22% for the nine months ended September 30, 1998
from 20% for the nine months ended September 30, 1997 primarily as a result of
the decline in set-up fees and other revenues in 1998. Management believes that
operations and customer support expenses will continue to increase in absolute
dollars as the Company continues to expand its customer service and technical
support capabilities.
DEPRECIATION AND AMORTIZATION. The Company calculates depreciation using
the straight line method over the estimated useful life of the applicable
assets. Depreciation and amortization expense increased $781,000, or 52%, to
$2.3 million for the nine months ended September 30, 1998 from $1.5 million for
the nine months ended September 30, 1997. As a percentage of total revenues,
depreciation and amortization expense increased slightly to 13% for the nine
months ended September 30, 1998 from 12% for the nine months ended September 30,
1997. Both increases primarily resulted from additional purchases of capital
equipment and software that were needed to support the Company's expanding
network.
INTEREST EXPENSE (NET). Interest expense (net) increased $1.4 million to
$1.9 million for the nine months ended September 30, 1998 from $550,000 for the
nine months ended September 30, 1997. This increase was primarily attributable
to borrowings of $6.5 million from Ascend Communications, Inc. ("Ascend") in the
fourth quarter of 1997 and, to a lesser extent, capitalized leases for the
acquisition of additional networking equipment.
NET LOSS. Net loss decreased $1.3 million to $7.9 million for the nine
months ended September 30, 1998 from $9.2 million for the nine months ended
September 30, 1997. As a percentage of total revenues, net loss decreased to 44%
for the nine months ended September 30, 1998 from 72% for the nine months ended
September 30, 1997.
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YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Revenues increased $13.8 million, or 207%, to $18.3 million in
1997 from $4.5 million in 1996. Of this increase, $9.6 million was attributable
to higher revenues from increased subscriptions for consumer access services,
$3.7 million was attributable to increased set-up fees and other revenues and
$515,000 resulted from an increase in business services revenues. Consumer
access services revenues increased 400% in 1997 over 1996 primarily as a result
of more than 104,000 subscriber additions in 1997, which resulted from marketing
programs in core markets that were implemented in December 1996 and that
continued through the third quarter of 1997, as well as from overall industry
growth. Set-up fees and other revenues increased 176% in 1997 over 1996
primarily as a result of the Company's increased number of new subscriptions and
the associated set-up fees charged with respect to all accounts until the fourth
quarter of 1997, at which time such fees for prepaid annual access service plans
were discontinued. In addition, set-up fees and other revenues benefitted from a
consulting engagement in 1997 that generated $1.0 million in revenue.
COST OF RECURRING REVENUES. Cost of recurring revenues increased $5.9
million, or 257%, to $8.2 million in 1997 from $2.3 million in 1996. Cost of
recurring revenues increased in absolute dollars primarily due to an increase in
network capacity and the geographic expansion of the Company's network
infrastructure. As a percentage of total revenues, cost of recurring revenues
decreased to 45% in 1997 from 51% in 1996. This percentage decrease was
primarily attributable to a price increase for access service plan renewals that
was instituted in May 1997, a price increase in access fees for renewals and new
subscriptions that was effected in December 1997 and economies of scale from
more effective utilization of Company-owned POPs and network facilities over a
significantly larger subscriber base.
COST OF OTHER REVENUES. Cost of other revenues increased $326,000, or 69%,
to $799,000 in 1997 from $473,000 in 1996 due to an increase in software costs
resulting from increased subscriptions. As a percentage of total revenues, cost
of other revenues decreased to 4% in 1997 from 10% in 1996. Cost of other
revenues remained relatively constant as a percentage of related revenues.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased $6.0
million, or 140%, to $10.3 million in 1997 from $4.3 million in 1996. This
increase was primarily due to an increase in direct response advertising
expenses in 1997. As a percentage of total revenues, sales and marketing
expenses decreased to 56% in 1997 from 96% in 1996. This percentage decrease was
primarily attributable to the significant increase in revenues relative to sales
and marketing expenses.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $2.4 million, or 231%, to $3.4 million in 1997 from $1.0 million in
1996. General and administrative expenses increased primarily due to an increase
in the number of administrative employees, an increase in credit card processing
fees and increased spending on facilities and supplies. As a percentage of total
revenues, general and administrative expenses decreased to 19% in 1997 from 23%
in 1996. This percentage decrease was attributable to the Company's ability to
leverage its existing infrastructure to support its revenue growth.
OPERATIONS AND CUSTOMER SUPPORT EXPENSES. Operations and customer support
expenses increased $2.9 million, or 344%, to $3.7 million in 1997 from $830,000
in 1996. This increase was primarily due to the addition of new customer support
and technical support personnel to support the Company's larger subscriber base.
As a percentage of total revenues, operations and customer support expenses
increased to 20% in 1997 from 18% in 1996. This percentage increase was
primarily attributable to enhanced levels of customer service and support
provided by the Company to subscribers beginning in 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased $1.5 million, or 278%, to $2.1 million in 1997 from $545,000 million
in 1996. This increase primarily was a result of additional purchases of capital
equipment and software needed to support the Company's expanding network. As a
percentage of total revenues, depreciation and amortization expense decreased to
11% in
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1997 from 12% in 1996 due to network and equipment efficiencies attained through
a significantly larger subscriber base.
INTEREST EXPENSE (NET). Interest expense (net) increased $569,000, or 392%,
to $714,000 in 1997 from $144,000 in 1996. This increase resulted in large part
from increased interest under capital leases and accrued interest on convertible
notes that were issued in the second half of 1996 and that remained outstanding
during 1997.
NET LOSS. Net loss increased $5.7 million, or 111%, to $10.9 million in
1997 from $5.2 million in 1996. As a percentage of total revenues, net loss
decreased to 60% in 1997 from 115% in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO PERIOD FROM SEPTEMBER 25, 1995
(INCEPTION) TO DECEMBER 31, 1995
Revenues increased to $4.5 million in 1996 from $34,500 in the period from
September 25, 1995 (Inception) to December 31, 1995 (the "1995 Period").
Revenues for the 1995 Period were relatively negligible due to the Company's
start-up stage of development. Revenues in 1996 reflected the further
development and expansion of the Company's business in the Dallas/Fort Worth
area. Costs of revenues for 1996 as compared to the 1995 Period increased
significantly due to the development of the Company's business in 1996, with the
Company's subscriber base increasing to 47,361 subscribers at December 31, 1996
from 200 at December 31, 1995. Similarly, the Company's expenses were relatively
negligible in the 1995 Period due to the lack of meaningful operations during
the Company's start-up phase. The Company's net loss from operations in 1996 was
$5.2 million as compared to a net loss in the 1995 Period of $107,000,
reflecting the significant costs and expenses incurred in 1996, particularly in
sales and marketing, to establish and expand the Company's regional ISP
operations and network infrastructure in the Dallas/Fort Worth area in advance
of access services revenues from subscribers.
FLUCTUATIONS IN QUARTERLY RESULTS
Due to the limited operating history of the Company, operating expenses
cannot be forecast based on historical operating results. As a result, the
Company establishes expense levels based in part on future projections of
revenues. Revenues currently depend heavily on the Company's ability to attract
and retain subscribers who purchase consumer Internet access services on an
annual basis. Future revenues will likely include more business services
revenues, which will depend upon the Company's ability to attract and retain
business customers. If actual revenues are less than projected revenues, the
Company may be unable to reduce expenses proportionately and operating results,
cash flows and liquidity would be adversely affected. See "Risk Factors--Factors
Affecting Operating Results; Potential Fluctuations in Quarterly Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital and liquidity needs historically have
related to the Company's sales and marketing activities, the development and
expansion of its network infrastructure, the establishment of the Company's
customer service and support operations and general working capital needs. The
capital needs of the Company have been met, in large part, by receipts from the
Company's prepaid subscriber customer base, which, in turn, increased the
Company's deferred revenue liability. As the Company placed greater emphasis on
developing and expanding its network infrastructure, it sought additional
capital from other sources, including vendor capital leases and other vendor
financing arrangements and through private placements of the Company's
securities, as further described below.
Cash used in operating activities of $4.3 million during the nine months
ended September 30, 1998 primarily was attributable to a $7.9 million net loss
and a $1.9 million decline in accounts payable, partially offset by $2.3 million
in depreciation expenses and $1.4 million in non-cash interest expense. Cash
used in investing activities during the nine months ended September 30, 1998 was
$652,000, principally as a result of the purchase of property, plant and
equipment to support increases in the
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Company's subscriber base. Cash provided from financing activities during the
nine months ended September 30, 1998 was $6.7 million, which consisted primarily
of $7.8 million (after transaction fees) raised in a private placement of
convertible preferred stock offset by debt principal payments.
Cash provided by operations was $1.3 million for the year ended December 31,
1997, which was the result of a $4.8 million increase in accounts payable, a
$5.6 million increase in deferred revenue and $2.0 million in depreciation
expenses, offset by a net loss of $10.9 million. Cash used in investing
activities was $4.5 million for the year ended December 31, 1997, which
primarily related to the purchase of network equipment. Cash provided from
financing activities was $4.6 million for the year ended December 31, 1997,
consisting primarily of borrowings of $6.5 million from Ascend offset by debt
principal payments.
The Company's continued development and expansion of its sales and marketing
efforts and network infrastructure, as well as the further development or the
possible acquisition of new business services, are expected to require
substantial cash expenditures. As a result, the Company expects to continue to
incur operating losses and negative cash flows from operations for the
foreseeable future. As of September 30, 1998, the Company had approximately $3.3
million of cash and cash equivalents available for its working capital needs.
The Company has budgeted its future capital requirements based on current
estimates of its future revenues and with a view to current competitive factors
and the federal and state regulatory environment pertaining to its business.
There can be no assurance that actual revenues will be in line with management's
expectations or that expenditures will not be significantly higher than
anticipated. In addition, there can be no assurance that the Company will be
able to meet its strategic objectives or that the Company will have access to
adequate capital resources on a timely basis, or at all, or that such capital
will be available on terms that are acceptable to the Company. The Company
continues to consider potential acquisitions or other strategic arrangements
that may fit the Company's strategic plan. Any such acquisitions or strategic
arrangements likely would require additional equity or debt financing, which may
result in dilution to investors in this offering. See "Risk Factors--Need for
Additional Capital to Finance Growth" and "Use of Proceeds."
ASCEND NOTE. In December 1997, the Company borrowed $6.5 million from
Ascend pursuant to a secured promissory note (the "Ascend Note") that bears
interest at a fixed rate of 6.0% per annum, with accrued interest payable
monthly. The principal balance of the Ascend Note is due upon the earliest of
(i) December 10, 1999, (ii) the effective date of this offering or (iii) a
change in control of
the Company. See "Use of Proceeds." In connection with the Ascend Note
financing, the Company issued to Ascend a warrant to purchase 400,000 shares of
common stock at an exercise price of $0.01 per share. The warrant expires on the
later of December 2007 or the fifth anniversary of the closing date of this
offering. If, at the expiration of its term, the warrant has not been fully
exercised, it will be deemed to have been automatically converted at such time
into a number of shares of common stock determined by dividing (a) the aggregate
fair market value of the shares for which it was exercisable minus the aggregate
exercise price of such shares by (b) the fair market value of one share of
common stock.
CONVERTIBLE NOTES. From July 1996 through December 1996, the Company sold,
in the aggregate, $635,000 in principal amount of convertible notes due July 31,
1999 (the "Convertible Notes"). The Convertible Notes bear interest at a rate of
12.0% per annum, with accrued interest payable quarterly. The Company is
required to pay the unpaid principal balance of the Convertible Notes in three
equal annual installments, the first and second of which were made on July 31,
1997 and July 31, 1998, respectively. The notes are convertible at the option of
the holders thereof into shares of common stock at the rate of one share per
$10.00 of principal converted. At September 30, 1998, the aggregate principal
outstanding under the Convertible Notes was $201,333 with $297,000 in
outstanding principal having been converted into 29,700 shares of common stock
prior to September 1998. In connection with the Convertible Notes financing, the
Company issued to the purchasers of such notes warrants to purchase 52,070
shares of common stock at an exercise price of $0.01 per share. These warrants
will
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expire if not exercised by July 31, 1999. As of September 30, 1998, 2,050 shares
of common stock had been issued pursuant to warrant exercises, and warrants to
purchase 50,020 shares of common stock remained unexercised.
PREFERRED STOCK. In May 1998, the Company completed the sale of 749,587
shares of its Series A Convertible Preferred Stock, par value $1.00 per share,
for an aggregate purchase price of $4.6 million. In August 1998, the Company
completed a sale of an additional 614,498 shares of Series A Convertible
Preferred Stock for an aggregate purchase price of $3.7 million. Upon
consummation of this offering, the outstanding shares of Series A Convertible
Preferred Stock will convert into an aggregate of 1,364,085 shares of common
stock.
YEAR 2000
The Company recognizes the need to ensure that the provisioning of access
services and business services, as well as its internal systems, will not be
adversely affected by Year 2000 software failures. The Company currently does
not believe that the Year 2000 issue will have a material effect on its internal
network, computer systems or operations. However, it is continuing to assess the
potential impact of the Year 2000 issue. In particular, the Company has
established procedures for evaluating and managing the risks and costs
associated with this problem. The Company's plan to resolve Year 2000 issues
involves four phases: assessment, remediation, testing and implementation. The
Company has completed its assessment of all material information technology
systems, and based on this assessment, the Company believes that its computer
systems are currently Year 2000 compliant. There can be no assurance, however,
that Year 2000 issues will not result in degradation of the performance of the
Company's network or other systems, or complete system failure. Any performance
degradation or system failure, whether of the Company's internal systems or of
the systems of its customers, likely would have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's customers maintain their Internet operations on commercially
available operating systems, which may be impacted by Year 2000 complications.
In addition, the Company relies on telecommunications providers and third-party
vendors for certain equipment and software included within its services that may
not be Year 2000 compliant. The Company is in the early stages of conducting an
audit of its telecommunications providers and third-party suppliers as to the
Year 2000 compliance of their systems, and plans to complete this audit in the
second quarter of 1999. Communications to date from such third parties do not
indicate that these third parties expect, at this time, to be non-compliant by
the Year 2000 based on their progress to date. However, the inability of a
substantial number of third parties to complete their Year 2000 resolution
process on a timely basis and in a manner compatible with the Company's systems
could materially and adversely affect the operation of the Company's internal
systems or its ability to provide consumer access services and business
services.
The total cost of completing the Company's Year 2000 plan is estimated to be
less than $1.0 million and is being expensed as incurred and funded through
operating cash flows. The Company expects that its expenses in 1998 related to
all phases of its Year 2000 project will not be material. The Company has not
established contingency plans in case of failure of its information technology
systems since it believes that such systems are currently Year 2000 compliant.
In connection with the Company's assessment of third-party readiness and
operating equipment, in the third quarter of 1999 the Company plans to evaluate
the necessity of contingency plans based on the level of uncertainty regarding
third-party compliance. In the event the Company's telecommunications providers
or third-party suppliers do not expect to be Year 2000 compliant, the Company's
contingency plans may include replacing such third parties or performing the
particular services provided by such parties itself. See "Risk Factors-- Year
2000 Compliance."
The Company's Year 2000 plans are based on management's best estimates,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain
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resources and other factors. Estimates on the status of completion and the
expected completion dates are based on progress to date compared to the
timetable established by its Year 2000 committee. The Company has not employed
the services of independent contractors to verify the Company's assessment and
estimates related to the Year 2000 problem. There can be no guarantee that these
estimates will be achieved and actual results could differ materially from these
plans. Specific factors that might cause such material differences include, but
are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes and similar
uncertainties.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
About Capital Structure" ("SFAS 129"), which establishes standards for
disclosing information about an entity's capital structure and is effective for
financial statements for periods ending after December 15, 1997. In June 1997,
the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes standards for reporting
and display of comprehensive income and its components in the financial
statements for fiscal years beginning after December 15, 1997. The FASB also
issued, in June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosure About Segments of an Enterprise and Related Information" ("SFAS
131"), which establishes standards for the way public companies disclose
information about operating segments, products and services, geographic areas
and major customers. SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. The Company has determined that the impact on
its financial statements of adopting SFAS 130 is not material and has made the
disclosures required under SFAS 129 and SFAS 131. In June 1998, the FASB issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), which is effective for fiscal
quarters ending after June 15, 1999. The Company does not expect the adoption of
SFAS 133 to have a material impact on its financial statements.
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BUSINESS
OVERVIEW
FlashNet is a nationwide provider of consumer Internet access and business
services. FlashNet's Internet access services are provided through a national
network with 621 "points of presence" (local telephone numbers through which
subscribers can access the Internet) in 450 cities, covering approximately 70%
of the U.S. population. FlashNet's business services consist of high-speed
dedicated and broadband Internet access services, Web hosting and co-location
services, electronic commerce solutions and other value-added services. FlashNet
has entered into strategic network arrangements with PSINet and Level 3
Communications. To date, FlashNet has approximately 170,000 customers, including
approximately 2,900 business customers.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND THE WORLD WIDE WEB (THE "WEB"). The Internet is
a collection of connected computer systems and networks that link millions of
public and private computers to form what is essentially the largest computer
network in the world. The Internet has experienced rapid growth in recent years
and is expected to continue to grow based on estimated increases in the numbers
of Web users, Web traffic and the number of Web sites. International Data
Corporation ("IDC") estimates that there were over 38 million Web users in the
United States and over 68 million worldwide at the end of 1997, which IDC
projects will increase to over 135 million in the United States and over 319
million worldwide by the end of 2002. In a report issued in April 1998, the U.S.
Department of Commerce estimates that traffic on the Internet is doubling every
100 days. Additionally, Forrester Research estimates that the number of Web
sites in the United States will increase from approximately 450,000 in 1997 to
nearly four million in 2002. Several factors are contributing to the Internet's
growth, including the proliferation of lower cost personal computers ("PCs"),
advances in the performance and speed of PCs, modems and networking components,
improvements in network infrastructures, easier and more competitive access to
the Internet and the increasing use of the Internet by businesses as a
competitive tool. The Internet has become an important global medium that
enables millions of people to obtain and share information and conduct business
electronically.
ACCESSING THE INTERNET. Internet access services represent the means by
which ISPs interconnect business and consumer users to the Internet's resources
or to corporate intranets and extranets. Access services vary from dial-up modem
access for individuals and small businesses to high speed dedicated transmission
lines for broadband access by large organizations. An ISP provides Internet
access either by developing a proprietary network infrastructure or by
purchasing access service from a wholesale access vendor, or through a
combination of both. The rapid development and growth of the Internet have
resulted in a highly competitive and fragmented industry consisting of more than
4,800 ISPs in the United States with an average customer base of less than 5,000
subscribers. The vast majority of
U.S.-based ISPs conduct their operations within a single state or city, with
only a handful of ISPs, such as EarthLink and MindSpring, having expanded the
scope of their operations from a single region to nationwide coverage. Due to
the disparity between the large number of smaller ISPs with limited resources
and the emergence of a limited number of national ISPs with their associated
economies of scale, the ISP industry is expected to undergo substantial
consolidation. Forrester Research projects that ISP access revenues in the
United States will grow from approximately $6 billion in 1997 to $38 billion in
2002.
GROWTH IN ELECTRONIC COMMERCE. For many businesses, the Internet has
created a new communication and sales channel that enables companies to interact
with large numbers of geographically dispersed consumers and business partners.
In the last several years, many companies have emerged that focus solely on the
Internet as the medium for selling products or delivering services directly to
purchasers, bypassing traditional wholesale and retail channels. Furthermore,
traditional businesses are
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implementing sophisticated Web sites and extranets to effect electronic commerce
initiatives that offer competitive advantages. These businesses are deploying an
expanding variety of Internet-enabled applications, ranging from Web site
marketing and recruiting programs to on-line customer interaction systems,
integrated purchase order and "just-in-time" inventory solutions for key
customers and suppliers. These capabilities require increasingly complex Web
sites and support operations. In addition, advances in on-line security and
payment mechanisms are alleviating concerns associated with conducting
transactions in an open-platform environment, thus prompting more consumers and
businesses to use the Internet in conjunction with purchases and more businesses
to offer a greater breadth of electronic commerce services. IDC estimates that
the number of consumers buying goods and services on the Internet will grow from
17.6 million in 1997 to over 128 million in 2002, and that the total value of
goods and services purchased over the Internet by consumers and businesses will
increase from approximately $12 billion in 1997 to over $425 billion by 2002.
OUTSOURCING OF INTERNET OPERATIONS. As the Web increasingly becomes
synonymous with electronic commerce, businesses are placing greater emphasis on
their Internet transaction and communication operations. Internet-based
companies, and to a growing extent, traditional businesses, require noncongested
and scalable Internet operations to allow them to perform digital communication
and commerce transactions globally over the Internet. Due to constraints posed
by the lack of technical personnel with Internet skills or experience, the high
cost of advanced networking equipment and the complexity of innovative Web
solutions, many businesses are unable to internally develop, maintain and
continually enhance their facilities and systems to conduct desired levels of
Internet-based activities. As a result of these constraints and other factors,
many businesses are seeking to outsource their facilities and systems
requirements as the preferred means for providing electronic commerce solutions.
To this end, an increasing demand is developing for: (i) dedicated and broadband
access services to support reliable and high-speed Internet access and
communication; (ii) Web hosting and co-location services which enable businesses
to obtain equipment, technical expertise and infrastructure for their Internet
needs on an outsourced basis; (iii) end-to-end electronic commerce solutions to
sell goods and services on the Web in a secure transaction environment; and (iv)
managed IP services, including voice-over, fax-over, Domain Name Service ("DNS")
broadcast, circuit provisioning, domain name registration, electronic messaging
and data retrieval and reporting services. By outsourcing their facilities and
systems needs, businesses are able to focus on their core competencies rather
than expending vital resources to support their Internet operations. Forrester
Research estimates that over 40% of Internet and intranet sites will be
outsourced by 2002.
THE OPPORTUNITY FOR ISPS. The number of businesses and consumers accessing
the Internet is expected to increase significantly in the foreseeable future.
According to Forrester Research, the market for providing access to the Internet
for businesses and consumers is expected to be approximately $18.4 billion in
2000. Additionally, as businesses and consumers are developing greater levels of
comfort in the use of the Internet for electronic commerce, businesses are
increasingly implementing sophisticated electronic commerce solutions which, in
turn, require significantly greater bandwidth and other business services. In
response, an increasing number of ISPs are attempting to augment their basic
Internet access services with a wide range of business services, such as
dedicated and broadband access services, Web hosting services, co-location
services, complete electronic commerce solutions, virtual private networks
(commonly referred to as "intranets" and "extranets") and managed IP and other
value-added services. According to IDC, the market for business services is the
fastest growing segment of the Internet services market, with revenues expected
to increase from approximately $350 million in 1997 to approximately $7 billion
in 2000.
ISPs that provide Internet access to broad segments of the population and
that offer a broad selection of business services are positioned to attain
greater economies of scale through lower network expansion and marketing costs
on a per-subscriber basis. Management believes that only a few ISPs, and in
particular, national ISPs, will be in a position to benefit fully from this
continued growth. These
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ISPs likely will be characterized by: (i) their ability to respond quickly to
market demands; (ii) their ability to provide reliable coverage on a nationwide
basis; (iii) superior technical skills and customer support capabilities; (iv)
electronic commerce expertise and business services capabilities; (v) brand name
recognition and the ability to exploit multiple marketing channels; and (vi)
relatively lower network costs.
THE FLASHNET SOLUTION
FlashNet offers a full range of consumer Internet access services and a
broad selection of business services, both of which are offered nationwide at
competitive prices. FlashNet believes that its services provide customers with
the following benefits:
- FAST AND RELIABLE QUALITY SERVICE. FlashNet's systems and network
infrastructure are designed to provide consumer and business customers
with fast and reliable quality service through its state-of-the-art
equipment, its Network Operations Center that is monitored on a 24x7 basis
by Company technicians and third-party network providers.
- COST-EFFECTIVE ACCESS. FlashNet offers high-quality Internet connectivity
and enhanced business services at price points that are generally lower
than those charged by other ISPs with national coverage. The Company
offers pre-bundled access services packages under monthly or prepaid plans
that include, for no additional charge, at least one e-mail account, Web
space, ftp privileges (the file transfer Internet protocol), full PPP
(point-to-point protocol that facilitates transmission of graphics) and
newsgroups.
- ENHANCED BUSINESS SERVICES. FlashNet offers a broad selection of enhanced
business services that are focused on the practical needs of businesses to
support their Internet operations. The Company currently offers dedicated
and broadband access services, Web hosting and co-location services,
electronic commerce solutions and managed IP services, which include DNS
broadcast, circuit provisioning, virtual private networks and domain name
registration services, and has planned future releases of additional
complementary business services.
- NATIONWIDE NETWORK COVERAGE. Through its proprietary network and
agreements with wide area network ("WAN") circuit and points-of-presence
providers, including PSINet, MCIWorldCom and Level 3 Communications,
FlashNet's access services cover 450 cities and approximately 70% of the
population of the United States.
- SUPERIOR CUSTOMER SUPPORT. The Company provides superior customer service
and support, with customer care and technical personnel available by
telephone and on-line on a 24x7 basis and additional support resources
available at the Company's Web site. The Company believes that its
emphasis on customer service and support was the primary contributor to
the Company's ranking as the third best provider of overall quality
service based on a 1998 survey of 13 leading ISPs conducted by an
independent research firm.
- BRAND NAME RECOGNITION. FlashNet has made significant investments in and
has applied a creative approach to high-visibility advertising, which has
included radio spots and prominent radio host endorsements, television
commercials, targeted direct mail campaigns and billboard placements. As a
result, the Company has achieved brand name recognition in its core
markets that enhances its customers' comfort and familiarity with FlashNet
as their Internet access provider.
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BUSINESS STRATEGY
FlashNet's objective is to become the leading nationwide provider of
Internet access and business services. Key elements of the Company's business
strategy include:
INCREASE SUBSCRIBER BASE. The Company intends to increase aggressively its
consumer and business subscriber base by expanding its sales and marketing
efforts within three primary channels: (i) direct response marketing through
media campaigns and mass marketing; (ii) a network marketing program designed to
penetrate rapidly the broad segment of the population that currently does not
have Internet access; and (iii) direct corporate sales targeted at prospective
customers for business services through a geographically dispersed sales force.
All three channels are designed to build brand name recognition and generate
high levels of customer growth while minimizing customer acquisition costs and
customer turnover. From January 1, 1997 to September 30, 1998, the Company's
sales and marketing expenses were $15.5 million, which contributed to a
significant increase in the Company's subscriber base during this period. The
Company intends to continue to dedicate significant resources to expand its
sales and marketing activities.
EXPAND OFFERINGS OF ENHANCED BUSINESS SERVICES. FlashNet intends to offer
additional business services to address the developing demand for the
outsourcing of facilities and electronic commerce systems to support the
Internet operations of businesses. The Company expects to complement its current
offering of dedicated and broadband access services, Web hosting and co-location
services, electronic commerce solutions and managed IP services with a variety
of additional services, such as unified messaging services, intranet server
systems, Internet security/firewall solutions, 800 roaming service and
voice-over and fax-over IP solutions. The Company believes that the market for
its expanded business services will support a more stable customer base, lower
customer maintenance and acquisition costs and provide higher margin revenue
opportunities. See "--Planned Services Offerings."
INCREASE REVENUES PER CUSTOMER. By offering additional high bandwidth
services and by releasing new services that may be cross-sold to existing
customers, the Company will seek to increase the revenues it derives from its
customers. As an additional means to increase revenues per customer, the Company
intends to introduce a broader variety of pre-bundled, robust services packages
and enhanced levels of access and business services. The Company also will
continually monitor, and when warranted, adjust its pricing policies for access
services and business services. For example, the Company has recently increased
the pricing of its basic access services offerings to approach the pricing
levels of other national providers of Internet access services.
EXPAND NETWORK COVERAGE AREA. FlashNet is committed to the geographic
expansion of its network coverage area and intends to establish strategic
relationships with third-party network providers, such as the Company's current
arrangements with PSINet and Level 3 Communications, to service new markets
initially. FlashNet will expand its infrastructure in new markets to develop
additional Company-owned POPs where warranted by cost efficiencies and customer
demand (which demand will be influenced by its sales and marketing efforts). In
addition, the Company intends to develop "Super POPs" to provide near 100%
ubiquitous network coverage throughout broad geographic regions, including over
multiple existing POPs and areas that are not reached by traditional POPs.
OPTIMIZE NETWORK INFRASTRUCTURE. FlashNet continually seeks to optimize its
network infrastructure by enhancing the quality of its services to serve greater
numbers of customers nationwide while reducing its networking costs on a
per-subscriber basis. To this end, the Company intends to: (i) lease ports from
third-party providers to maintain POPs where demand has not developed
sufficiently to support direct Company ownership; (ii) modify its network
structure and allocate resources accordingly throughout its operations; (iii)
continue to invest cost-effectively in networking components to upgrade circuits
and provide greater bandwidth; (iv) deploy new and sophisticated networking
management and monitoring tools and technologies; and (v) exploit the CLEC
certification of its wholly-owned subsidiary in
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<PAGE>
the State of Texas. In addition, because business and consumer customers tend to
demand access services at alternate times of day, the Company also will seek to
target additional business customers for its access services as a means to
decrease access costs per subscriber.
EVALUATE STRATEGIC PARTNERSHIPS AND ACQUISITION OPPORTUNITIES. The Company
anticipates that the evolving dynamics of the Internet services industry will
present numerous opportunities for the Company to establish strategic
partnerships with current and new market participants. The Company will continue
to evaluate and will seek to complete strategic alliances with or acquisitions
of other providers of business services as a means to expand the scope of the
Company's business services offerings. In addition, the current fragmented
composition of and economies of scale associated with the ISP industry are
expected to result in consolidation of ISPs. The Company intends to pursue
aggressively acquisitions of other ISPs or the purchase of their subscriber
accounts on an opportunistic basis. Finally, with the advent of Internet access
through high-speed transmissions over telephone local loops, cable systems and
wireless devices, the Company believes that opportunities will emerge to partner
with Digital Subscriber Line ("DSL"), cable and wireless providers, and other
developers of new technologies. The Company believes that these strategic
partnerships will enable the Company to expand the scope of its access services,
utilize excess bandwidth capacity and offer additional products and services.
38
<PAGE>
CONSUMER ACCESS AND BUSINESS SERVICES
CONSUMER ACCESS SERVICES. FlashNet's consumer access services are designed
to provide subscribers with simplified access to the Internet through a dial-up
modem. All of the Company's Internet access accounts include: (i) unlimited
access to the Internet; (ii) at least one e-mail account, which facilitates the
subscriber's ability to send and receive e-mail messages across the Internet;
(iii) newsgroup access for reading and posting of messages and other information
among Internet users; (iv) ftp privileges which enable placement of a Web page
by a subscriber (http://www.flash.net/~subscriber name) and the downloading of
software from Web sites; and (v) a full PPP or graphical interface for viewing
of pictures and graphics. The Company also offers advanced filtering
capabilities to reduce access to material that may be unsuitable for family,
business and institutional users. All consumer access services include, for no
additional charge, Netscape Communicator or Microsoft Internet Explorer, and
other Internet software, as well as technical assistance and customer support on
a 24x7 basis, including Web-based support for many products and services. See
"--Customer Service and Support."
The Company currently offers a variety of options for providing customers
with Internet access, as described in the following table:
<TABLE>
<CAPTION>
ACCESS SERVICE DESCRIPTION TARGET CUSTOMERS CURRENT PRICING INFORMATION
<S> <C> <C> <C>
Basic Account Basic Account service that Consumer Internet $17.95/month with a $25
includes two e-mail accounts users set-up fee ($16.95 in some
and five Mb of Web space that markets)(1)(2)
supports access speeds of
14.4k/bs, 28k/bs, 33.6k/bs
and 56k/bs in most markets.
Daytime Basic Account service with Small businesses $6.95 per month with a $35
Account(3) access from 7:00am to 5:00pm, set- up fee; $1.95 per hour
Monday through Friday for off- hours usage
Premium Account Basic Account service plus Consumers and small $19.95/month with a $25
four additional e-mail businesses set-up fee(1)(2)
accounts and eight additional
Mb of Web space.
Clean Internet Premium Account service plus Consumers, businesses $19.95/month with a $25
Account client-side and server-side and institutional set-up fee
filtering software. users
ISDN Dial Up Basic Account with 64k/bs Consumers and small $17.95/month with a $25
Account(3) Integrated Services Digital businesses set-up fee ($16.95 in some
Network ("ISDN") access. markets)(1)(2)
High Speed Dial Basic Account with 128k/bs Small businesses $35.90/month with a $100 set-
Up ISDN ISDN access. up fee(1)
Account(3)
</TABLE>
- ------------------------------
(1) Discounts available in some markets if prepaid on an annual basis.
(2) $25 set-up fee does not apply if prepaid on an annual basis.
(3) Not available in all markets.
39
<PAGE>
BUSINESS SERVICES. The Company has introduced to market a variety of
enhanced business services that enable its business customers to obtain
high-speed Internet access, outsource their Internet facilities and systems
needs and undertake electronic commerce initiatives. Information concerning the
Company's current offering of business services is summarized in the following
table:
<TABLE>
<CAPTION>
BUSINESS SERVICE DESCRIPTION TARGET CUSTOMERS PRICING INFORMATION
<S> <C> <C> <C>
Dedicated ISDN Basic Account access service with Small to medium-sized $144/month with a $50
Account(1) dedicated ISDN 64k/bs access and six businesses set-up fee(2)
IP addresses.
High Speed Basic Account with dedicated 128k/bs Small to medium-sized $288/month with a $250
Dedicated ISDN ISDN account with 12 IP addresses. businesses set-up fee(2)
Account(1)
Broadband Access Dedicated T-1, Fractional T-1, DS-3, Medium to large-sized Monthly fees start at
Solutions(1) and point-to-point frame relay and businesses seeking $1,295 and vary
Asynchronous Transfer Mode ("ATM") high bandwidth access depending on
connections. solutions bandwidth; Set-up fees
apply
Web Hosting Offer Common Gateway Interface Consumers, small to Prices start at
Services(1) ("CGI") scripting access, domain medium-sized $29.95/month with a
name registration, Web space and businesses $45 set-up fee(2)
e-mail accounts.
Co-Location Services enable customers to locate Small to medium-sized Monthly pricing based
Services equipment within FlashNet's Network businesses with on 1/4 rack increments
Operations Center which provides business-critical Web and bandwidth usage;
24x7 monitoring, uninterrupted power sites or electronic Set-up fees apply
support, environment management, commerce programs
electromagnetic surge protection,
radio frequency protection and
disaster recovery systems.
Electronic Solutions include: shopping basket Small to medium-sized Prices range from
Commerce functionality, catalogs, extra businesses seeking $19.95 to
Solutions e-mail accounts, extra Web space, easy- to-use, fully $99.95/month; Set-up
database management functionality, functional electronic fees apply
high-speed data transfer rates, commerce solutions
secure payment mechanisms and
technical support. Features may be
purchased in bundled packages
(FlashNet Express, FlashNet Enhanced
and FlashNet Premium).
Managed IP Various services to support an Small to medium-sized Quote basis
Services organization's Internet operations, businesses with IP
including circuit provisioning, network outsourcing
virtual private networks (commonly needs
referred to as "intranets" and
"extranets"), DNS broadcast
management and IP address
management.
</TABLE>
- ------------------------------
(1) Not available in all markets.
(2) Selected business accounts are discounted if prepaid on an annual basis.
40
<PAGE>
PLANNED SERVICES OFFERINGS
The Company intends to introduce to market several new business services to
complement its existing services offerings. The Company currently has plans to
introduce the following as additional services in the next 12 to 18 months:
<TABLE>
<CAPTION>
PLANNED SERVICE DESCRIPTION TARGET CUSTOMERS
<S> <C> <C>
Unified Messaging Services Allows multiple points of access Consumers as well as small and
to faxes, voicemail and e-mail. medium-sized businesses
Features include text-to-speech
conversion and Web interface.
Intranet Server System A comprehensive suite of Internet Small to medium-sized businesses
services (e-mail, newsgroups,
calendars, databases, etc.) to
company-specific local area
network ("LAN") and WAN
workstation users.
Internet Security/Firewall Allows desired levels of Businesses and other
Solutions protection to LANs and WANs from organizations that regularly
unauthorized access by external receive and transmit sensitive
sources. digital information
800 Roaming Service Allows Internet access from Customers who travel to rural or
locations not served locally suburban areas where Internet
through a FlashNet POP. access via a local call is not
offered by FlashNet
Voice-Over IP Enables use of the Internet to Consumers and businesses
make long distance telephone
calls without the standard toll
charges.
Fax-Over IP Enables the use of the Internet Consumers and businesses
to place long distance fax-to-fax
calls without the standard toll
charges.
</TABLE>
CUSTOMERS AND MARKETS
FlashNet's subscriber base currently consists of approximately 170,000
subscribers for its access services. As a result of its concentrated sales and
marketing efforts within its core markets, approximately 50% of subscribers
reside in Texas, 12% in California and 12% in the midwest region (primarily in
the Chicago and Detroit areas), with the remaining subscriber base spread
through other markets across the nation. Notwithstanding, the Company believes
that the planned expansion of its sales and marketing activities, combined with
its leasing arrangements with PSINet and Level 3 Communications, extends its
potential customer base to most residents of the continental United States. The
Company believes, based on data collected from certain of its subscribers, that
its consumer subscribers tend to reflect the typical Internet user composite
which, according to a survey conducted by Forrester Research, indicates that 56%
of Internet users are male, 47% are between the ages of 25 and 45 and 30% are
college graduates. The average reported annual income of users in the Forrester
Research survey was approximately $55,000, or $20,000 higher than the median
U.S. level.
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<PAGE>
Customers for the Company's business services consist of small and
medium-sized businesses and include professional organizations such as law
firms, accounting firms and medical offices with two to 50 employees. Since its
inception, the Company has accumulated approximately 2,900 customers for its
business services. To date, the Company's business services customers have been
located primarily in Texas. The Company intends to grow its business services
customer base by building its corporate sales force and targeting small and
medium-sized businesses nationwide.
SALES AND MARKETING
FlashNet's sales and marketing strategy consists of three components: direct
response marketing, a network marketing program and corporate direct sales.
Historically, the Company's direct response and network marketing activities
have led to growth in the Company's subscriber base. Moreover, the Company is
aggressively developing a corporate direct sales force to focus specifically on
sales of dedicated and high bandwidth access services and other business
services to business customers. These strategies are designed to build brand
name recognition and generate high levels of subscriber growth while minimizing
subscriber acquisition costs and customer turnover.
DIRECT RESPONSE MARKETING. FlashNet engages in a variety of direct response
marketing and various promotional activities to stimulate consumer awareness of
the value proposition offered by the Company's access services. These efforts
are directed both to consumers who have not previously subscribed to Internet
access services and to Internet users who may switch to FlashNet's services
after learning of their affordability and reliability. The Company principally
employs targeted high-visibility media, including radio advertising, television,
direct mail distribution and billboards, to solicit new subscribers. FlashNet
advertises on television through nationally distributed channels and on a
regional, spot market basis. The Company also is testing consumer acquisition
strategies which entail the bundling of FlashNet's access services with
third-party hardware products, such as devices that are specifically designed
for ease of Internet access.
In addition, the Company believes that a consumer's selection of an ISP
often is strongly influenced by a personal referral. Accordingly, the Company
believes that its delivery of superior customer service and support and its
associated high levels of customer satisfaction have led to positive customer
referrals. These referrals, combined with the Company's consumer marketing
efforts geared toward expanding the Company's brand name identity, have
attracted significant numbers of new customers for FlashNet's access services.
NETWORK MARKETING (THE "FLASHNET OPPORTUNITY"). In June 1997, FlashNet
instituted a network marketing program, referred to as the "FlashNet
Opportunity," as a novel approach within the ISP industry to expand rapidly the
Company's subscriber base. The program is designed to establish and expand a
network of independent representatives to sell FlashNet's access services. An
individual or business entity may become an independent representative of
FlashNet generally by paying a non-refundable fee of $199 for a starting kit
package that includes marketing materials and personal training by Company
personnel or seasoned independent representatives. In general, each independent
representative is paid a commission for signing up new customers to
subscriptions for FlashNet's services and is paid residual commissions as those
customers renew their subscriptions. The Company believes that the FlashNet
Opportunity assists the Company in lowering its cost of customer acquisition,
reducing variable technical support costs by utilizing independent
representatives to aid in the set-up and maintenance of new customers and
reducing customer turnover as the result of the customer's loyalty to his or her
independent representative. As of September 30, 1998, the FlashNet Opportunity
included 4,189 independent representatives and has been responsible for
acquisitions of 24,877 new subscribers since its inception.
The FlashNet Opportunity is particularly well suited for individuals who
possess strong sales skills and are motivated by the prospect of supplementing
their sources of income under a flexible work
42
<PAGE>
schedule without the drawbacks associated with other network marketing programs,
such as (i) the need to purchase inventory, (ii) requirements to meet monthly
sales quotas and (iii) poorly defined commission credit systems resulting in
commission disputes. The commission structure of the FlashNet Opportunity also
creates incentives for independent representatives to recruit other independent
representatives to the program. For each sale of an access services subscription
to a new customer that is made by an independent representative who has been
recruited to the program by another independent representative (the "Sponsor"),
and for each renewal of that subscription, a commission is paid to the Sponsor
in addition to the commission paid to the independent representative who was
responsible for the new subscription or renewal. Additional commissions also are
paid to the Sponsor as independent representatives that were recruited into the
program by the Sponsor recruit other independent representatives who, in turn,
effect sales or renewals of FlashNet access services. The commission tree
extends as these recruited independent representatives recruit other
representatives, and as those representatives recruit other representatives,
such that a new subscription sale or renewal may result in the payment of six
separate commissions. The amount of the commission paid to the Sponsor in
connection with the sale or renewal will vary according to the level of the
Sponsor within the chain of representatives above the representative who
received direct credit for the sale or renewal. As the program continues to
develop and mature, the total amount of commissions paid to independent
representatives per new subscriber will increase; however, the Company believes
that such total commissions nonetheless will be less than the costs for new
subscriber acquisitions through traditional sales and marketing activities.
CORPORATE AND COMMERCIAL SALES. FlashNet's Corporate Sales Department is
responsible for all sales of dedicated analog and ISDN access service accounts,
as well as sales of higher speed broadband connections such as T-1s, fractional
T-1s and DS-3s delivered over frame relay and ATM. The Corporate Sales
Department also has responsibility for sales of other enhanced business
services. The department currently is based within the Company's Fort Worth
headquarters, but the Company plans to establish geographically dispersed direct
sales operations across the core metropolitan areas serviced by the Company. As
of September 30, 1998, the Corporate Sales Department consisted of one general
sales manager, one regional sales manager and seven additional sales personnel.
The Company plans to add to its corporate sales staff during 1999 and 2000 in
conjunction with the planned expansion of its enhanced business services.
CUSTOMER SERVICE AND SUPPORT
A key competitive factor that differentiates the Company from other ISPs is
its strong commitment to customer satisfaction, which is evidenced by the
quality of its customer service and support. The Company continually reviews
network utilization rates, and refines and expands its network as necessary, to
ensure high levels of network performance and reliability, which, in turn,
minimizes many customer service related issues. The Company maintains 24x7
customer support for telephone inquiries, with technical personnel available at
all times to address customer questions and concerns. The Company intends to
continue dedicating the resources necessary to ensure that service calls are
promptly answered and addressed by a support representative, and that customer
issues are resolved on the first telephone call. Customers also can access
customer support services through the Company's e-mail or access
trouble-shooting tips and configuration information, as well as network status
and performance reports, at the Company's Web site. In addition, the Company has
produced a series of videocassettes to assist customers with Web site
development and related subjects and has published user guides to provide
customers with useful information about the Internet and its vast resources. The
Company believes that its emphasis on customer service and support was the
primary contributor to the Company's ranking as the third best provider of
overall quality service based on a 1998 survey of 13 leading ISPs conducted by
an independent research firm.
43
<PAGE>
Consumer and business customers have very different support needs,
especially as to technical requirements and the sophistication of the user who
makes the customer service inquiry. FlashNet employs a tiered support system
designed to direct incoming calls to specialized support personnel as needed for
efficient problem resolution. As a result, customer care personnel generally
field relatively simple technical issues, miscellaneous account questions and
similar customer issues. Customer problems or issues that are more complex or
that affect a customer's business-critical operations are referred to FlashNet's
technical support department for high-level resolution. In addition, the Company
offers premium support, which, for a per-minute charge, enables customers to
speak to the Company's technical personnel to resolve questions or issues
pertaining to any non-connectivity related matter, such as techniques for Web
page design or support for products that were not sold by FlashNet.
NETWORK INFRASTRUCTURE
The Company's network infrastructure and related systems are designed to
provide fast and reliable, high-quality access services, including dedicated
ISDN and broadband access services. The network's structure and design
frequently is re-evaluated and re-defined to leverage resources within the
system to maintain or improve network performance. The Company's current network
consists of a state-of-the-art Network Operations Center in Fort Worth, Texas
that is interconnected to 28 remote facilities where Company-owned equipment is
located and which collectively cover 211 POPs. These facilities also are
connected to the networks of third-party providers, including PSINet and Level 3
Communications, which together support 410 additional POPs. Through a total of
621 POPs, the Company provides local exchange access and remote switched access
in most major metropolitan areas in the continental United States, as well as
smaller communities. The combined coverage area encompasses 450 cities and
approximately 70% of the U.S. population.
Each of the 28 remote facilities where Company-owned equipment is located
include network access server (dial-access terminal server) hardware along with
a router and associated leased-line interface equipment. The terminal server's
modem subsystem is interconnected to the switched telephone network serving the
local area, and high-speed data circuits connect each facility's router to other
sites within the FlashNet network. The Company deploys network elements at each
remote facility containing onboard computing capabilities for generating and
analyzing the performance of the network.
The Company intends to modify its network topology over time to enhance
network performance over a larger subscriber base and broader geographic regions
while minimizing network costs. As part of these efforts, the Company will
complete an ATM backbone in Texas at the DS-3 level, with an ATM switch in each
of Dallas, Fort Worth, Houston and Austin, Texas. Following this addition to its
infrastructure, the Company will begin increasing backbone infrastructure in the
midwest and west coast regions of the United States. The midwest and west coast
infrastructure enhancements will be a combination of regional ATM DS-3 level
network construction along with regional upstream connections to the Internet
utilizing redundant connections upstream along with long distance circuits
connecting the regional networks to the Company's Texas-based core network.
The Company has entered into carrier-interconnect agreements with both
incumbent local exchange carriers ("ILECs") and CLECs for local exchange,
intrastate toll free, and dedicated network access in a single-call processing
platform. Through weekly reports prepared by its Intelligent Network Services
Department, FlashNet continuously monitors capacity demands on its network so
that network resources grow ahead of market demands. As a general guide, when
70% utilization of the Company's network occurs at peak hours in any given
market, FlashNet invests in required new equipment to increase its bandwidth
capacity to achieve lower utilization levels within the network in accordance
with its forecasting models. The Company's agreements with ILECs and CLECs also
enable the Company to offer more cost effective access and near 100% ubiquity on
a statewide basis in selected regions. This framework for servicing POPs across
broad geographic areas will enable the Company to establish
44
<PAGE>
"Super POPs." When deployed, Super POPs will allow the Company to provide more
cost effective local and remote access for a large number of users spanning
broad geographic areas, including multiple traditional POPs. The establishment
of Super POPs is expected to reduce capital expenditures and operating costs,
and lessen the Company's exposure to technological obsolescence of its
equipment. The Company's Super POP strategy involves the deployment of
additional Super POPs in regions where demand and other economic factors
warrant.
NETWORK OPERATIONS CENTER. The Network Operations Center, located in Fort
Worth, Texas, serves as the focal point for monitoring network traffic, quality
of services and security, as well as the performance of the equipment located at
each remote facility, to ensure reliable service. The Network Operations Center
also serves as the primary site for the Company's provisioning of business
services. The Company maintains state-of-the-art equipment within the Network
Operations Center, including multiple enterprise Sun Microsystems' servers,
internal high speed ethernet (100-based T) and Fiber Distributed Data Interface
(FDDI), triple-redundant Internet connectivity systems, high speed, high
capacity storage arrays and other mission-critical systems that are mirrored for
high availability. The Network Operations Center is staffed on a 24x7 basis and
maintains responsibility for operational communications between internal
departments of the Company as well as with external providers of services to the
Company. The Company intends to enhance the operations, administration,
maintenance and provisioning capabilities of the Network Operations Center to
support expansion of its customer base. Anticipating its future growth needs,
the Company intends to relocate its Network Operations Center and ancillary
operations to a larger facility in Fort Worth, Texas by the summer of 1999. See
"--Properties."
NETWORK DESIGN. The Company's network has been designed, and from time to
time will be re-designed, to ensure optimal use of network resources. Network
performance is enhanced through opto-electronics, based on industry-standard
synchronous optical networking with carrier interconnections at DS-3 (45Mb/s)
and T-1 (1.544 Mb/s) speeds. The Company supports switched access at speeds of
56 Kb/s V.90, ISDN BRI (144 Kb/s) & PRI (1.54 Mb/s), and xDSL. DSL technology
uses the existing pair of copper wires and digital signal processing technology
to transmit data at speeds ranging from 144K - 60 Mb/s. The Company intends to
provide xDSL services in coordination with various wholesale vendors of xDSL
ports. The Company supports dedicated access Frame Relay Services (FRS), ATM,
Fractional T-1, T-1 and DS-3. Network speeds are supported through a layer 2
fast packet switching architecture and layer 3 switching systems based on ATM
and IP routing. Dual-Path Dynamic Logical Link Connections, multi-point Internet
backbone interconnects and traffic load balancing enhance overall network
efficiency, reduce the cost of operations and efficiently maximize network
utilization.
The Company's network separates physical and logical resources for greater
redundancy in case of catastrophic failures. Reliability is achieved by means of
primary redundancy of mission-critical systems minimizing single points of
failure. The Company's Engineering Configuration Management guidelines control
the computer-monitored uninterruptible power supply that provides battery
backup, surge protection and power conditioning. An automatic on-site diesel
generator provides power for prolonged power outages. The Company has designed
an Intelligent Network Management System to proactively provide system status
information in connection with its overall objectives of maintaining 99.999%
network availability. Training programs and processes have been implemented to
ensure escalation of issues to senior personnel for rapid resolution.
BILLING SYSTEM. The Company's networking systems are designed to gather
information that is then transmitted to the Company's billing system for
processing. The Company is in the process of implementing a third-party
integrated billing system that will allow the Company to offer multiple service
types on a single bill, which then can be either presented electronically or
mailed directly to the customer. Flexibility in billing system practices enables
the support of the unique billing preferences of each customer, which, in turn,
promotes the Company's delivery of effective customer service.
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<PAGE>
CLEC STATUS. A wholly-owned subsidiary of the Company recently received
certification to conduct operations as a CLEC in the State of Texas. In the
absence of CLEC status, FlashNet has been required to purchase general business
service to support delivery of access services to customers from ILECs and CLECs
on terms generally comparable to those provided to any other business customer
of these carriers. The Company's certification as a CLEC enhances its ability to
negotiate technical and price terms for its network connections directly with
carriers on a preferential basis to better control these costs. Furthermore, as
a CLEC, FlashNet is authorized to sell or resell telecommunications services, in
addition to providing Internet access services, either directly to businesses
and consumers or to other resellers. FlashNet may, in the future, seek CLEC
status in other states as well. See "--Government Regulation."
STRATEGIC RELATIONSHIPS
PSINET. The Company immediately transformed itself into a national ISP in
the first quarter of 1998 through an agreement entered into with PSINet. The
agreement provides FlashNet with access to 359 POPs encompassing large
metropolitan service areas and broad segments of the U.S. population. The
Company believes that its agreement with PSINet has provided an effective and
economically attractive avenue to facilitate the Company's expansion of its
subscriber base over a nationwide coverage area, while providing the Company
with the flexibility to build Company-owned POPs in markets with sufficient
subscriber density. The agreement, which is scheduled to expire in December
2000, requires FlashNet to remit monthly payments to PSINet based on a fixed
dollar amount for each subscriber to FlashNet's National Access Plan. The
agreement provides for an increase in per-subscriber charges to PSINet
commencing in July 1999 if and so long as the number of the Company's
subscribers who access the Internet through PSINet's network is less than 50,000
subscribers. See "Risk Factors--Factors Affecting Operating Results; Potential
Fluctuations in Quarterly Results."
WEBSURFER. FlashNet recently entered into an agreement with WebSurfer,
Inc., a Canadian company ("WebSurfer"), to provide basic Internet access
services to purchasers of a television set-top device that is manufactured and
sold by WebSurfer. WebSurfer intends to sell its device in the United States
through large retail outlets, and the Company will provide the Internet
connectivity for the purchaser of the device. WebSurfer typically sells its
device with one or more months of Internet service included for no additional
charge. As new accounts are established through its relationship with WebSurfer,
FlashNet will receive from WebSurfer an initial payment, and thereafter,
payments directly from the subscriber. FlashNet retains responsibility for both
billing and technical support following account set up. Under a separate
agreement with WebSurfer, FlashNet is authorized to sell the television set-top
device directly to its customers. FlashNet will earn a commission for any sales
of the device that it completes, as well as receive subscription payments for
Internet access services from the device purchaser.
COMPETITION
The market for the provision of Internet access services is extremely
competitive and highly fragmented. As there are no significant barriers to
entry, the Company expects that competition will intensify. The Company believes
that the primary competitive factors determining success as an ISP are: (i) its
reputation for reliability and high-quality service; (ii) effective customer
support; (iii) access speed; (iv) pricing; (v) effective marketing techniques
for customer acquisition; (vi) ease of use; and (vii) scope of geographic
coverage. The Company believes that it has competed favorably based on these
factors, particularly due to: (i) the Company's emphasis on providing fast and
reliable, high-quality services and superior customer service and support; (ii)
its policy of pricing services at prices lower than or competitive to those of
other national ISPs; and (iii) its three-pronged marketing strategy which
includes a novel network marketing approach to the sale of access services
plans. Notwithstanding, there can be no assurance that the Company will be able
to continue to compete successfully
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<PAGE>
against current or future competitors or that competitive pressures faced by the
Company will not materially and adversely affect its business, operating results
or financial condition.
The Company's current and prospective competitors include many large
companies that have substantially greater market presence, brand name
recognition and financial, technical, marketing and other resources than the
Company. With respect to its access and business services, the Company currently
competes, or expects to compete in the foreseeable future, with the following:
(i) national ISPs, including EarthLink and MindSpring; (ii) numerous regional
and local ISPs, some of which have significant market share in their particular
market area; (iii) established on-line information service providers, such as
AOL; (iv) providers of Web hosting, co-location and other Internet-based
business services, including AOL, Exodus and Verio; (v) computer hardware and
software and other technology companies that provide Internet connectivity with
their products, including Gateway, IBM and Microsoft; (vi) telecommunications
companies, including long distance carriers such as AT&T, MCIWorldCom and
Sprint, regional Bell operating companies and local telephone companies; (vii)
cable operators that provide Internet access through television cable lines,
including TCI and Time Warner Cable; (viii) electric utility companies; (ix)
wireless communications companies; (x) companies that provide television or
telecommunications through participation in satellite systems; and (xi)
nonprofit or educational Internet access providers.
With respect to its potential competitors, the Company believes that
manufacturers of computer hardware and software products, media and
telecommunications companies and others will continue to enter the Internet
services market, which will intensify competition. In addition, as consumers and
businesses increasingly move on-line in greater numbers, existing competitors
are expected to further increase their emphasis on Internet access and
electronic commerce initiatives, resulting in even greater competition for the
Company in its markets. The ability of competitors or others to enter into
business combinations, strategic alliances or joint ventures, or to bundle their
services and products with Internet access, could place the Company at a
significant competitive disadvantage.
Moreover, the Company expects to face competition in the future from
companies that provide connections to consumers' homes, such as
telecommunications providers, cable companies and electrical utility companies.
For example, recent advances in technology have enabled cable television
operators to offer Internet access through their cable facilities at
significantly faster rates than existing analog modem speeds. Such companies
could include Internet access in their basic bundle of services or offer such
access for a nominal additional charge, or could deny the Company access to
their proprietary wire and cable connections for purposes of providing Internet
access services to its customers and prospective customers. Any such
developments could materially and adversely affect the Company's business,
operating results and financial condition. See "Risk Factors--Competition."
GOVERNMENT REGULATION
REGULATION OF INTERNET ACCESS SERVICES. The Company provides Internet
access, in part, using telecommunications services provided by carriers. Terms,
conditions and prices for telecommunications services are subject to economic
regulation by state and federal agencies. The Company, as an Internet access
provider, is not currently subject to direct economic regulation by the Federal
Communications Commission (the "FCC") or any state regulatory body, other than
the type and scope of regulation that is applicable to businesses generally. In
April 1998, the FCC reaffirmed that Internet access providers should be
classified as unregulated "information service providers" rather than regulated
"telecommunications providers" under the terms of the Federal Telecommunications
Act of 1996 ("FTA96"). As a result, the Company is not subject to federal
regulations applicable to telephone companies and similar carriers merely
because the Company provides its services using telecommunications services
provided by third-party carriers. To date, no state has attempted to exercise
economic regulation over Internet access providers.
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Governmental regulatory approaches and policies to Internet access providers
and others that use the Internet to facilitate data and communication
transmissions are continuing to develop and in the future the Company could be
exposed to regulation by the FCC or other federal agencies or by state
regulatory agencies or bodies. For example, the FCC has expressed an intention
to consider whether to regulate providers of voice and fax services that employ
the Internet or IP switching as "telecommunications providers" even though
Internet access itself would not be regulated. The FCC is also considering
whether providers of Internet-based telephone services should be required to
contribute to the universal service fund, which subsidizes telephone service for
rural and low income consumers, or should pay carrier access charges on the same
basis as applicable to regulated telecommunications providers. To the extent
that the Company engages in the provision of Internet or IP-based telephony or
fax services, it may become subject to regulations promulgated by the FCC or
states with respect to such activities. There can be no assurance that such
regulations will not adversely affect the Company's ability to offer certain
enhanced business services in the future.
Furthermore, in a rulemaking proposal issued in August 1998, the FCC has
proposed that if an ILEC establishes a separate affiliate to pursue the
deployment of advanced telecommunications services (such as xDSL) and if that
affiliate interconnects with the ILEC's network on the same terms and conditions
as offered to the ILEC's competitors, then the affiliate would not be subject to
the unbundling, discounted resale or co-location obligations in FTA96 that apply
to ILECs. Rather, the affiliate would be treated like a CLEC. If the FCC
ultimately adopts this or any similar proposal, the Company likely would face
increased competition from ILEC affiliates and its access to providers of xDSL
and other high-speed data technology could be curtailed, which could materially
and adversely affect the Company's business, operating results and financial
condition.
REGULATION OF THE INTERNET. Due to the increasing popularity and use of the
Internet by broad segments of the population, it is possible that laws and
regulations may be adopted with respect to the Internet pertaining to content of
Web sites, privacy, pricing, encryption standards, consumer protection,
electronic commerce, taxation, and copyright infringement and other intellectual
property issues. The Company cannot predict the effect, if any, that any future
regulatory changes or developments may have on the demand for its access or
enhanced business services. Changes in the regulatory environment relating to
the Internet access industry, including the enactment of laws or promulgation of
regulations that directly or indirectly affect the costs of telecommunications
access or that increase the likelihood or scope of competition from national or
regional telephone companies, could materially and adversely affect the
Company's business, operating results and financial condition.
REGULATIONS PERTINENT TO THE COMPANY'S CLEC SUBSIDIARY. The Company
recently received authorization for a wholly-owned subsidiary to conduct
operations as a CLEC in the State of Texas. To the extent that the Company's
CLEC subsidiary conducts such operations, the telecommunications services that
it provides will be subject to regulation by federal, state and local
governmental agencies. State regulatory commissions exercise jurisdiction over
intrastate services. Municipalities and other local government agencies may
regulate certain aspects of the Company's CLEC subsidiary's proposed operations,
such as use of rights-of-way. Although typically start-up telecommunications
carriers are not subject to all of the FCC regulations applicable to ILECs (such
as price caps or rate-of-return regulation), FTA96 requires the FCC to establish
a subsidy mechanism for universal telephone service to which the Company's CLEC
subsidiary will be required to contribute based on its telecommunications
revenues. In addition, FTA96 requires all carriers, including CLECs and ILECs,
to make their services available for resale by other carriers, to interconnect
their networks and ensure they interoperate and provide non-discriminatory
rights-of-way, offer reciprocal compensation for termination of local
telecommunication traffic, and provide dialing parity and local telephone number
portability. FTA96 further reserves to the individual states the authority to
impose state regulation of local exchange services, including state universal
service subsidy programs, so long as the state's regulations are not
inconsistent with the requirements of FTA96. The Company is unable to predict
the manner in which Texas, or any
48
<PAGE>
other state where its subsidiary may receive certification as a CLEC, will seek
to regulate its telecommunications operations.
In the provision of interstate, intrastate and international services, the
Company's CLEC subsidiary would generally be subject to tariff or price list
filing requirements pursuant to which the CLEC subsidiary will be required to
publicly disclose, or in some instances obtain approval of, its terms,
conditions and prices for telecommunications services prior to or soon after
offering such services. In addition, individual states where the Company's CLEC
subsidiary conducts activities as a CLEC may subject it to state certification
proceedings and intrastate and local tariff regulations. These certifications
generally require a showing that the carrier has adequate financial, managerial
and technical resources to offer the proposed services consistent with the
public interest. While uncommon, challenges to these tariffs and certification
proceedings by third parties could cause the Company's CLEC subsidiary to incur
substantial legal and administrative expenses. Many states also impose
additional regulatory requirements, such as minimum service quality reporting
and customer service requirements and uniform local exchange carrier accounting
requirements. Under some state laws, changes in the ownership of a CLEC's
outstanding voting securities may require prior approval of the state public
utility commission. In certain jurisdictions, an investor who acquires as little
as 10% of a CLEC's voting securities may have to obtain prior approval for the
acquisition of such securities because such ownership interest might be deemed
to constitute an indirect controlling interest in the carrier. See "Risk
Factors--Government Regulation."
INTELLECTUAL PROPERTY
Although the Company believes that its success is more dependent upon its
technical, marketing and customer service expertise and capabilities than its
proprietary rights, the Company's success and ability to compete effectively are
dependent in part upon its proprietary rights. The Company relies on a
combination of copyright, trademark and trade secret laws to protect its
proprietary rights. "FlashNet" and the Company's logo are service marks for
which service mark applications are pending. Additional service mark
applications are pending for the registration of other service marks used by the
Company in its business. There can be no assurance that the steps taken by the
Company will be adequate to prevent misappropriation of its technology or that
third parties, including competitors, will not independently develop
technologies that are substantially equivalent or superior to the Company's
proprietary technology. See "Risk Factors--Proprietary Rights; Infringement
Claims."
The Company has received authorization to use the products of each
manufacturer of software that is bundled in the Company's software for users
with PCs operating on the Windows or Macintosh platforms. While certain of the
applications included in the FlashNet start-up kit for access services
subscribers are shareware that the Company has obtained permission to distribute
or that are otherwise in the public domain and freely distributable, certain
other applications included in the start-up kit have been licensed where
necessary. The Company currently intends to maintain or negotiate renewals of
all existing software licenses and authorizations as necessary, although there
can be no assurance that such renewals will be available to the Company on
acceptable terms, if at all. The Company may also enter into licensing
arrangements in the future for other applications.
EMPLOYEES
As of September 30, 1998, the Company had 225 employees, including 46 in
sales and marketing, 88 in customer care and technical services and 91 in
general and administrative functions. The Company believes that its employee
relations are good. The Company believes its future success will depend in large
part upon its continuing ability to attract and retain highly skilled technical,
sales, marketing and customer support personnel. See "Risk Factors--Management
and Risks of Planned Aggressive Growth" and "--Dependence on Key Personnel."
49
<PAGE>
PROPERTIES
The Company's corporate offices are located at 1812 North Forest Park
Boulevard, Fort Worth, Texas where all executive, systems, sales and technical
support functions are housed. This facility, together with two additional Fort
Worth facilities, provide the Company with approximately 34,000 square feet
under leases that expire in February and September 1999. Aggregate monthly
rental under such leases is approximately $30,000. The Company also leases space
(typically less than 100 square feet) to house equipment in 28 remote facilities
for each of its other physical POPs in various locations in the Company's core
markets. The Company does not own any real estate. The Company believes that all
of its facilities are adequately maintained and suitable for their present use.
Nonetheless, due to the Company's anticipated growth, the Company intends to
relocate its Network Operations Center and ancillary operations to a larger
facility in Fort Worth, Texas by the summer of 1999.
LEGAL PROCEEDINGS
The Company is not involved in any material pending legal proceedings.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders annual reports containing
audited consolidated financial statements examined by its independent auditors
and quarterly reports containing unaudited consolidated financial statements for
each of the first three quarters of each fiscal year.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and certain key employees of the Company,
and their ages as of September 30, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Albert Lee Thurburn.............................. 44 Chairman of the Board and Chief Executive Officer
Michael Scott Leslie............................. 35 President, Chief Operating Officer, Secretary and
Director
Andrew N. Jent................................... 29 Executive Vice President and Chief Financial Officer
James B. Francis, Jr............................. 50 Director
John B. Kleinheinz(1)............................ 36 Director
James A. Ryffel(1)............................... 38 Director
Kevin A. Stadtler(1)............................. 30 Director
KEY EMPLOYEES
Theresa G. Frey.................................. 33 President, FlashNet Marketing, Inc.
M. Edward Mayhugh................................ 40 Director of Network Services
R. Todd Wallace.................................. 31 Director of Information Services
Darryl G. Westbrook.............................. 33 Director of Customer Services
</TABLE>
- ------------------------------
(1) Member of the Compensation Committee and of the Audit Committee.
EXECUTIVE OFFICERS AND DIRECTORS.
ALBERT LEE THURBURN is a co-founder of FlashNet and has served as its Chief
Executive Officer and Chairman of the Board of Directors since the Company's
inception in September 1995. Prior to founding FlashNet, Mr. Thurburn was a
founder, President and director of Mexico Information Services, Inc., a company
formed in 1993 that was focused on providing information about business
opportunities in Mexico during the implementation of the North American Free
Trade Agreement (NAFTA). He received his designation as a Certified Public
Accountant (CPA) in 1980 and worked for Arthur Andersen & Co., an accounting
firm, from January 1980 to January 1981, prior to establishing his own
accounting firm in Dallas, Texas in January 1981. Mr. Thurburn received a B.A.
in Accounting and an M.B.A. in International Business from the University of
Texas at Arlington.
MICHAEL SCOTT LESLIE is a co-founder of FlashNet and has served as its
President, Chief Operating Officer and Secretary and as a director since the
Company's inception in September 1995. From July 1995 to September 1995, he
worked with Mr. Thurburn to develop the concept of the Company. From June 1987
to July 1995 Mr. Leslie was involved in the commercial real estate industry,
most recently as President of Eleven-O-Five, Inc., a managing General Partner of
real estate partnerships. From June 1985 to May 1987, Mr. Leslie was employed as
a Marketing Associate for Comdisco, Inc., a high technology equipment financing
company. Mr. Leslie received a B.B.A. in Real Estate and Accounting from
Southern Methodist University.
ANDREW N. JENT has served as FlashNet's Executive Vice President and Chief
Financial Officer since November 1998. From April 1998 to November 1998, Mr.
Jent served as Treasurer for OpTel Inc., a competitive local exchange carrier
and private cable operator. From June 1996 to April 1998, Mr. Jent served as
Vice President of Finance and Treasurer for US One Communications Corp., a
competitive local exchange carrier. From February 1995 to June 1996, Mr. Jent
served as Director of Finance for
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TresCom International, an international long distance carrier. From May 1991 to
February 1995, Mr. Jent served in a variety of capacities, most recently as
Treasurer, for Neodata Services, Inc., a direct marketing company. Mr. Jent
received a B.B.A. in Finance from Texas Christian University.
JAMES B. FRANCIS, JR. has served as a director of FlashNet since December
1998. Since March 1998, Mr. Francis has been the Managing Partner of Texas Ltd.,
an investment company. He has also served as President of Francis Enterprises,
Inc., a governmental and public affairs consulting company, since June of 1996.
From January 1986 to June 1996, Mr. Francis was a partner of Bright & Company,
an investment company partnership. From September 1980 to January 1986, Mr.
Francis was a senior management employee of Bright & Company. Mr. Francis is
also a director of Silverleaf Resorts, Inc., a time-share management company,
and the current Chairman of the Texas Department of Public Safety. Mr. Francis
received a B.A. in Political Science from Tulane University.
JOHN B. KLEINHEINZ has served as a director of FlashNet since February 1996.
In January 1996, Mr. Kleinheinz founded Kleinheinz Capital Partners, an
investment management company, where he currently serves as President. From
April 1993 to December 1995, Mr. Kleinheinz served as a Principal of San Antonio
Capital, an investment firm. From January 1991 to December 1992, Mr. Kleinheinz
worked as a financial executive with TRI Securities, a global broker-dealer. Mr.
Kleinheinz received a B.A. in Economics from Stanford University.
JAMES A. RYFFEL has served as a director of FlashNet since February 1996.
Mr. Ryffel is currently with Woodcrest Enterprises, Inc., a manager of
investment partnerships, where he has served as Managing General Partner since
1982. He has also been involved in producing oil wells in the Texas counties of
Clay and Bastrop/Lee as a partner with Beeson Energy and Noble Producing Company
since 1982. Mr. Ryffel received a B.A. in Real Estate/Finance and an M.B.A. from
Texas Christian University.
KEVIN A. STADTLER has served as a director of FlashNet since August 1998.
Mr. Stadtler is a Vice President with Applied Telecommunications Technologies,
Inc. ("ATTI"), a venture capital and lease financing firm focused on the
communications industry, with which he has been affiliated since January 1996.
ATTI is affiliated with Commvest, L.L.C., of which Mr. Stadtler is also a Vice
President. From December 1994 to December 1995, Mr. Stadtler was an associate
with Saturn Asset Management, Inc. a venture capital firm. From June 1994 to
November 1994, Mr. Stadtler attended Harvard University's advanced studies
program. From November 1993 to May 1994, Mr. Stadtler was an associate with the
private investment fund manager Barron Capital Holdings, Inc. From June 1990 to
October 1993, Mr. Stadtler was in the Sales and Management Program at Xerox
Corporation. Mr. Stadtler received a B.A. in History from Villanova University.
KEY EMPLOYEES.
THERESA G. FREY has served as President of FlashNet Marketing, Inc., a
wholly-owned subsidiary of the Company responsible for administering the
FlashNet Opportunity network marketing program, since June 1998. From August
1996 to April 1998, Ms. Frey served as Director of National Sales Programs at
WVT, Inc., a network marketing company based in Dallas, Texas. From July 1990 to
August 1996, Ms. Frey was Director of Marketing/Training and the Vice President
of Sales and Marketing at Total Integration, Inc., a systems integrator and
reseller of voice response and call distribution. Ms. Frey received a B.S. in
Education/English from Indiana University.
M. EDWARD MAYHUGH has served as FlashNet's Director of Network Services
since May 1998. From March 1993 to April 1998, Mr. Mayhugh was Senior Manager of
Intelligent Services at MCI (now MCIWorldCom). From January 1988 to July 1992,
Mr. Mayhugh was a Senior Manager at Northern Telecom, Inc., a telecommunications
company. Mr. Mayhugh received a B.S. in Accounting/Computer Science from Brigham
Young University.
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<PAGE>
R. TODD WALLACE has served as FlashNet's Director of Information Services
since May 1998. From May 1991 to May 1998, Mr. Wallace was employed by Excel
Communications, a long distance carrier, most recently as its Manager of
IT-Architecture. Mr. Wallace received a B.B.A. in General Business from Stephen
F. Austin State University and an M.B.A. from the University of Dallas.
DARRYL G. WESTBROOK has served as FlashNet's Director of Customer Services
since September 1996. From April 1995 to September 1996, Mr. Westbrook was a
Team Leader for Stream International, an outsourcing and support services firm
for technology companies. From March 1993 to April 1995, Mr. Westbrook was
active in restaurant management. Mr. Westbrook received a B.S. in Kinesiology
and a Teaching Certification in Secondary Education from the University of North
Texas.
BOARD COMPOSITION
The Company currently has six directors. Within 90 days following completion
of this offering, FlashNet intends to add an additional non-employee director.
The terms of office of the Board of Directors will be divided into three
classes: Class A, whose term will expire at the annual meeting of shareholders
to be held in 1999; Class B, whose term will expire at the annual meeting of
shareholders to be held in 2000; and Class C, whose term will expire at the
annual meeting of shareholders to be held in 2001. The Class A directors will be
Mr. Kleinheinz and Mr. Ryffel, the Class B directors will be Mr. Stadtler and
the non-employee director to be elected subsequent to this offering, and the
Class C directors will be Mr. Francis, Mr. Leslie and Mr. Thurburn. At each
annual meeting of shareholders after the initial classification, the successors
to directors whose terms have expired will be elected to serve from the time of
election and qualification until the third annual meeting following election.
This classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the Company.
Each officer is elected by, and serves at the discretion of, the Board of
Directors. There are no family relationships among any of the directors or
executive officers of the Company.
COMMITTEES OF THE BOARD
The Audit Committee, currently composed of three of the Company's
non-employee directors, reviews, acts on and reports to the Board of Directors
with respect to various auditing and accounting matters, including the selection
of the Company's independent accountants, the scope of the annual audits, fees
to be paid to the independent accountants, the performance of the Company's
independent accountants and the accounting practices of the Company.
The Compensation Committee, also currently composed of three of the
Company's non-employee directors, establishes salaries, incentives and other
forms of compensation for officers and other employees of the Company and
administers the incentive compensation and benefit plans of the Company.
DIRECTOR COMPENSATION
Directors receive no cash remuneration for serving on the Board of Directors
but are reimbursed for reasonable expenses incurred by them in attending Board
and Committee meetings. In December 1998, Mr. Francis was granted an option to
purchase 4,700 shares of common stock at an exercise price of $30.00 per share.
EMPLOYMENT CONTRACTS
The Company has entered into severance and change in control arrangements
with certain of its officers and key employees. See "Certain
Transactions--Change in Control Arrangements."
53
<PAGE>
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer and the Company's President (the "Named
Executive Officers") for services rendered in all capacities to the Company and
its subsidiaries during the year ended December 31, 1997. No other individual
currently employed by the Company received salary and bonus in excess of
$100,000 during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------
NAME AND PRINCIPAL POSITIONS YEAR SALARY(1) BONUS
- ------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Albert Lee Thurburn ................................................................ 1997 $ 88,000 $ 15,000
Chief Executive Officer and
Chairman of the Board of
Directors
Michael Scott Leslie ............................................................... 1997 $ 88,000 $ 15,000
President, Chief Operating
Officer and Secretary
</TABLE>
- ------------------------------
(1) Salary includes amounts deferred under the Company's 401(k) plan.
No stock options or stock appreciation rights were granted to the individuals
named above during 1997 or any prior period. Mr. Leslie and Mr. Thurburn were
each granted an option to purchase 37,645 shares of common stock at an exercise
price of $30.00 per share in December 1998. In addition, Mr. Jent was granted an
option to purchase 37,645 shares of common stock at an exercise price of $12.00
per share in November 1998.
BONUS ARRANGEMENTS
The Company currently has no formal bonus arrangements in place that are
applicable to its employees. However, the Company has various bonus arrangements
in place for executive officers and certain key employees. In October 1996, the
Board of Directors authorized the award of a $3,000 bonus to each of Mr.
Thurburn and Mr. Leslie for each future 25,000 increase in the number of
FlashNet's subscribers. From October 1996 through September 30, 1998, the
Company paid $18,000 to each of Mr. Thurburn and Mr. Leslie as bonus awards
pursuant to this arrangement. Ms. Frey is eligible for recruiting bonuses in
1998 and 1999 totaling up to $95,000, with the bonus amounts based on goals for
expanding the independent representative network within the FlashNet Opportunity
program. In addition, she will receive a $1.00 per new customer bonus and a
0.25% residual commission for each new customer signing up through the program.
Finally, she will receive a productivity bonus of up to $50,000 in the event the
total number of FlashNet's customers signing up through the FlashNet Opportunity
program equals or exceeds 50,000 by the end of 1998.
1997 STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "Plan") was adopted by the
Board of Directors on March 4, 1997 and was approved by the shareholders on
April 1, 1997. The Plan provides for the grant of incentive stock options and
non-qualified stock options to purchase common stock, stock appreciation rights
and restricted stock to consultants to, and directors, officers and key
employees of, the Company. The purpose of the Plan is to attract and retain
skilled, qualified officers, directors and key employees, to motivate them to
achieve long-range goals and to further align their interests with those of the
other shareholders of the Company.
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<PAGE>
The Company has reserved 239,857 shares of common stock for issuance under
the Plan. As of the date of this prospectus, no shares had been issued under the
Plan, options to purchase 176,860 shares, at a weighted average exercise price
of $19.37 per share, were outstanding, and 62,997 shares remained available for
future grant. The Company also granted options to purchase 55,700 shares to
employees prior to the adoption of the Plan. Options for 4,900 of such shares,
at an exercise price of $5.00 per share, remain outstanding and options for
50,800 of such shares have expired. Shares of common stock subject to options
issued under the Plan which expire or terminate prior to exercise will be
available for future issuance under the Plan.
The Plan is administered by the Compensation Committee of the Board. The
Plan administrator has discretion to determine which eligible individuals are to
receive option grants or other awards, the number of shares subject to each
grant, the status of any granted option as either an incentive option or a
non-statutory option under the federal tax laws, the vesting schedule to be in
effect for each option grant or stock award and the maximum term for which each
granted option is to remain outstanding.
The exercise price for options granted under the Plan may be paid in cash or
in outstanding shares of common stock. Options may also be exercised on a
cashless basis through the same-day sale of the purchased shares.
The Plan administrator may determine that any stock incentive granted under
the Plan, if not previously expired or forfeited, will become fully exercisable
(in the case of an option), fully payable (in the case of an appreciation right)
or fully vested (in the case of a restricted stock award) upon the occurrence of
a change in control of the Company. A change in control is defined as the
consummation of any one of the following:
- dissolution or liquidation of the Company;
- merger of the Company into another corporation, or any consolidation,
share exchange, combination, reorganization or similar transaction in
which the Company is not the survivor;
- sale or transfer of at least a majority of the assets of the Company; or
- sale or transfer of 50% or more of the issued and outstanding common stock
of the Company by its shareholders in a single transaction or in a series
of related transactions.
The Board may terminate, amend or modify the Plan at any time. However, no
termination, amendment or modification may adversely affect the rights of the
holder of an outstanding stock incentive without the consent of that holder.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board consists of Mr. Kleinheinz, Mr.
Ryffel and Mr. Stadtler. To date, no member of the Compensation Committee has
served as an officer or employee of the Company or any subsidiary of the
Company. No member of the Compensation Committee serves as a member of the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
its Compensation Committee.
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<PAGE>
CERTAIN TRANSACTIONS
CONVERTIBLE NOTES
From July 1996 through December 1996, the Company sold a total of $635,000
in principal amount of 12% convertible notes and warrants to purchase a total of
52,070 shares of common stock at an exercise price of $0.01 per share to a
number of investors, including Mr. Kleinheinz, Mr. Thurburn and Mr. Leslie. Mr.
Kleinheinz is a director of the Company; Mr. Thurburn is the Chairman of the
Board and Chief Executive Officer of the Company; and Mr. Leslie is a director
and the President, Chief Operating Officer and Secretary of the Company. In 1997
and 1998, Mr. Kleinheinz converted a total of $34,000 of his note into 3,400
shares of common stock, Mr. Thurburn converted a total of $4,000 of his note
into 400 shares of common stock and Mr. Leslie converted a total of $18,000 of
his note into 1,800 shares of common stock.
ASCEND FINANCING
On December 10, 1997, the Company borrowed $6.5 million from Ascend under
the terms of a Secured Promissory Note with a maturity date of December 10,
1999. Principal of the Ascend Note is payable prior to the maturity date on the
earlier of the effective date of an initial public offering by the Company
providing gross proceeds in excess of $12 million or the date of a change in
control of the Company. Interest on the note accrues at the rate of 6.0% per
annum, payable monthly. The Ascend Note is secured by a lien on all of the
Company's assets. Until the note is paid in full, its terms require the Company
to make all future equipment acquisitions from Ascend if Ascend offers equipment
performing the desired functions at performance levels reasonably deemed
necessary by the Company. The Company intends to pay the Ascend Note in full
upon completion of this offering. In connection with the Ascend financing, the
Company issued to Ascend a warrant to purchase 400,000 shares of common stock,
at an exercise price of $0.01 per share, that is exercisable until the fifth
anniversary of the closing date of this offering. If, at the expiration of its
term, the warrant has not been fully exercised, then it will be deemed to have
been automatically converted at such time into a number of shares of common
stock determined by dividing (a) the aggregate fair market value of the shares
for which it was exercisable minus the aggregate exercise price of such shares
by (b) the fair market value of one share of common stock. Ascend has
"piggyback" registration rights and certain demand registration rights with
respect to the shares of common stock issuable upon exercise of the warrant. See
"Principal Shareholders."
SERIES A CONVERTIBLE PREFERRED STOCK FINANCINGS
On May 6, 1998, the Board of Directors designated shares of its authorized
but unissued preferred stock as Series A Convertible Preferred Stock (the
"Series A Stock"). A total of 1,364,085 shares of Series A Stock were issued in
May and August of 1998, at a purchase price of $6.07 per share, for total cash
consideration to the Company of approximately $8.3 million. Upon closing of this
offering, the Series A Stock will be automatically converted, without further
action on the part of the Company or the holders thereof, into 1,364,085 shares
of common stock. At such time, rights and restrictions applicable to the Series
A Stock, including any redemption rights and special voting rights, will
terminate and be of no further force or effect. Holders of the Series A Stock
will be entitled to "piggyback" and certain demand registration rights with
respect to the shares of common stock into which the shares of the Series A
Stock are converted. See "Shares Eligible for Future Sale."
In the May 1998 transaction, the Company sold 172,980 shares of Series A
Stock to certain independent investors, 411,862 shares to ISP Investors, L.P.,
and 164,745 shares to Fourteen Hill Capital, LP. In the August 1998 transaction,
the Company sold 268,534 shares of Series A Stock to certain independent
investors, an additional 16,474 shares to ISP Investors, L.P., an additional
164,745 shares to Fourteen Hill Capital, LP and 164,745 shares to ATTI. Mr.
Kleinheinz, a director of the Company, is
56
<PAGE>
the sole shareholder, director and principal officer of the general partner of
ISP Investors, L.P. Mr. Stadtler, who became a director of the Company in August
1998, is the Vice President of ATTI. See "Principal Shareholders" for more
information regarding securities of the Company held by the two directors, ISP
Investors, L.P., Fourteen Hill Capital, LP and ATTI.
CHANGE IN CONTROL ARRANGEMENTS
The Company has entered into a severance agreement with Mr. Jent, the
Company's Executive Vice President and Chief Financial Officer. Under the
agreement, a severance amount equal to 12 months salary must be paid to Mr. Jent
if his employment is terminated without cause prior to November 3, 2001, or if
he resigns for "good reason" after a change in control (as defined in the Plan).
Generally, "good reason" is defined as a material change in the nature or scope
of Mr. Jent's duties that is, taken as a whole, inconsistent with the position
held by Mr. Jent at the time of the change in control.
Mr. Thurburn and Mr. Leslie are parties to noncompetition agreements with
the Company, restricting them from engaging in certain competitive activities
during their employment by the Company and for a one-year period following
termination of their employment. If the Company terminates either officer's
employment without cause or if either of the officers resigns for "good reason,"
then in order for the affected officer's noncompetition agreement to remain in
effect, the Company is required to make a lump sum cash payment to the
terminated officer. Generally, "good reason" is defined as a material change in
the nature or scope of the officer's duties that is, taken as a whole,
inconsistent with the position held by the officer on the date he signed his
agreement. In the case of Mr. Thurburn, good reason will not exist solely by
virtue of Mr. Thurburn being relieved of the title and duty of only one of the
offices of Chairman of the Board or Chief Executive Officer. The amount of the
lump sum payment is the greater of (i) the officer's actual aggregate salary and
bonus received during the 12 months preceding termination or resignation, as
applicable, or (ii) the sum of the officer's annualized salary in effect
immediately preceding termination or resignation and the cash bonus for the
then-current fiscal year earned by the officer through the date of termination
or resignation.
FUTURE TRANSACTIONS
All future transactions, including loans between the Company and its
officers, directors, principal shareholders and their affiliates, are required
by the Board to be approved by a majority of the Board, including a majority of
the independent and disinterested outside directors on the Board, and will be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of common stock as of the date of this prospectus, on a pro forma
basis to reflect the automatic conversion upon completion of this offering of
the outstanding shares of the Series A Stock into 1,364,085 shares of common
stock, by:
- each person who is known by the Company to own beneficially more than five
percent of the common stock;
- each of the Company's directors;
- each of the Company's executive officers; and
- all executive officers and directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING
------------------------- SHARES -------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(2) NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------------- ------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Ascend Communications, Inc.(3)....................... 400,000 11.8% --
Applied Telecommunications Technologies, Inc.(4)..... 164,745 5.5 --
Fourteen Hill Capital, LP(5)......................... 329,490 11.0 --
ISP Investors, L.P.(6)............................... 490,116 16.4 --
Thomas K. Reed, Jr.(7)............................... 190,000 6.4 --
James B. Francis, Jr.(8)............................. -- -- --
Andrew N. Jent....................................... -- -- --
John B. Kleinheinz(9)................................ 699,216 23.3 --
Michael Scott Leslie(10)............................. 285,800 9.6 --
James A. Ryffel(11).................................. 250,000 8.4 --
Kevin A. Stadtler(12)................................ 164,745 5.5 --
Albert Lee Thurburn(13).............................. 219,660 7.4 --
All directors and executive officers as a group (7
persons)(14)........................................ 1,619,421 54.0 --
</TABLE>
- ------------------------------
(1) Assumes no exercise of the Underwriters' over-allotment option. Beneficial
ownership is determined in accordance with the rules and regulations of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of the date of this
prospectus are deemed outstanding. These shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each shareholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such shareholder's name.
(2) Unless otherwise indicated, the address for the following shareholders are
c/o FlashNet Communications, Inc., 1812 North Forest Park Boulevard, Fort
Worth, Texas 76102.
(3) Includes a warrant immediately exercisable for 400,000 shares of common
stock. The address for Ascend Communications, Inc. is 1701 Harbor Bay
Parkway, Alameda, California 94502.
(4) The address for Applied Telecommunications Technologies, Inc. ("ATTI") is 20
William Street, Wellesley, Massachusetts 02481.
(5) The address for Fourteen Hill Capital, LP is 1700 Montgomery Street, Suite
25, San Francisco, California 94111.
58
<PAGE>
(6) The address for ISP Investors, L.P. is 201 Main Street, Suite 2001, Fort
Worth, Texas 76102.
(7) The address for Mr. Reed is 1070 Mansion Ridge Road, Santa Fe, New Mexico
87501.
(8) The address for Mr. Francis is 2911 Turtle Creek, Suite 925, Dallas, Texas
75219.
(9) Includes 1,600 shares of common stock issuable upon conversion of a note,
4,100 shares of common stock issuable on exercise of a warrant and 490,116
shares held by ISP Investors, L.P. Mr. Kleinheinz, a director of the
Company, is the sole shareholder, director and primary officer of the
general partner of ISP Investors, L.P. He disclaims beneficial ownership of
the shares held by ISP Investors, L.P. except to the extent of his pecuniary
interest in them arising from his ownership interest in the general partner
of that entity. Mr. Kleinheinz's address is c/o ISP Investors, L.P.
(10) Includes 700 shares of common stock issuable upon conversion of a note and
2,050 shares of common stock issuable upon exercise of a warrant.
(11) The address for Mr. Ryffel is 3113 South University Drive #600, Fort Worth,
Texas 76109.
(12) Includes 164,745 shares held by ATTI. Mr. Stadtler, a director of the
Company, is a Vice President of ATTI. He disclaims beneficial ownership of
the shares held by ATTI. Mr. Stadtler's address is c/o Applied
Telecommunications Technologies, Inc.
(13) Includes 100 shares of common stock issuable upon conversion of a note and
410 shares of common stock issuable upon exercise of a warrant.
(14) Includes 2,400 shares of common stock issuable on conversion of notes,
6,560 shares of common stock issuable upon exercise of warrants, 490,116
shares held by ISP Investors, L.P. and 164,745 shares held by ATTI.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of common stock, no par value, and
5,000,000 shares of preferred stock, $1.00 par value. As of the date of this
prospectus, there are outstanding:
- 1,626,138 shares of common stock, held of record by 37 shareholders;
- options to purchase an aggregate of 181,760 shares of common stock at a
weighted average exercise price of $18.98 per share;
- warrants to purchase 502,905 shares of common stock at an exercise price
of $.01 per share;
- $201,333 in principal amount of notes convertible into 20,130 shares of
common stock; and
- 1,364,085 shares of Series A Stock which will be automatically converted
into 1,364,085 shares of common stock upon completion of this offering.
There will be shares of common stock outstanding (assuming no exercise
of the Underwriters' over-allotment option and assuming no exercise of
outstanding stock options or warrants or conversion of convertible notes) after
giving effect to the sale of the shares of common stock to the public offered in
this offering.
The following summary of certain provisions of the Company's common stock,
preferred stock, Restated Articles of Incorporation and Bylaws, as in effect
upon the closing of this offering, is not intended to be complete and is
qualified by reference to the provisions of applicable law and to the Company's
Restated Articles of Incorporation and Bylaws included as exhibits to the
Registration Statement of which this prospectus is a part.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, that may be declared from
time to time by the Board of Directors out of funds legally available therefor.
In the event of the liquidation, dissolution, or winding up of the Company, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities, subject to prior distribution rights of holders of
preferred stock, if any. The common stock has no preemptive or conversion rights
or other subscription rights. There are no redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are fully
paid and nonassessable, and the shares of common stock to be issued upon
completion of this offering will be fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the shareholders. The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the shareholders and may
adversely affect the voting, dividend and other rights of the holders of common
stock. As further discussed below, the issuance of preferred stock with voting
and conversion rights may adversely affect the voting power of the holders of
common stock, including the loss of voting control to others. At present, the
Company has no plans to issue any shares of preferred stock after this offering.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE RESTATED ARTICLES OF INCORPORATION,
BYLAWS AND TEXAS LAW
RESTATED ARTICLES OF INCORPORATION AND BYLAWS. Pursuant to the Company's
Restated Articles of Incorporation, the Company's Board of Directors may issue
additional shares of common stock or establish one or more series of preferred
stock having the number of shares, designations, relative
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<PAGE>
voting rights, dividend rates, liquidation and other rights, preferences and
limitations that the Board of Directors may fix without shareholder approval.
Any additional issuance of common stock or designation of rights, preferences,
privileges and limitations with respect to preferred stock could have the effect
of impeding or discouraging the acquisition of control of the Company by means
of a merger, tender offer, proxy contest or otherwise (including a transaction
in which the Company's shareholders would receive a premium over the market
price for their shares) and thereby protects the continuity of the Company's
management. Specifically, if in the due exercise of its fiduciary obligations,
the Board of Directors were to determine that a takeover proposal was not in the
Company's best interest, shares could be issued by the Board of Directors
without shareholder approval in one or more transactions that might prevent or
render more difficult or costly the completion of the takeover by:
- diluting the voting or other rights of the proposed acquiror or insurgent
shareholder group,
- putting a substantial voting block in institutional or other hands that
might undertake to support the incumbent Board of Directors, or
- effecting an acquisition that might complicate or preclude the takeover.
The Company's Bylaws provide that the Board of Directors shall be divided
into three classes of two or three directors each, with each class elected for
three-year terms expiring in successive years. The Company's Restated Articles
of Incorporation also allow the Board of Directors to fix the number of
directors in the Bylaws with no minimum or maximum number of directors required.
Cumulative voting in the election of directors is specifically denied in the
Restated Articles of Incorporation. The effect of these provisions may be to
delay or prevent a tender offer or takeover attempt that a shareholder might
consider to be in his or her best interest, including attempts that might result
in a premium over the market price for the shares held by the shareholders.
The Company's Restated Articles of Incorporation and Bylaws provide that
special meetings of shareholders generally can be called only by the President
or the Board of Directors or by holders of at least 25% of the voting stock of
the Company and provide for an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors or a committee of
the Board of Directors, of candidates for election as directors as well as for
other shareholder proposals to be considered at annual meetings of shareholders.
In general, notice of intent to nominate a director or raise business at such
meetings must be received by the Company not less than 30 nor more than 60 days
before the meeting, and must contain certain information concerning the person
to be nominated or the matters to be brought before the meeting and concerning
the shareholder submitting the proposal. These provisions of the Bylaws:
- may preclude a nomination for the election of directors or preclude the
conduct of business at a particular annual meeting if the proper
procedures are not followed; and
- may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to
obtain control of the Company, even if the conduct of such solicitation or
attempt might be beneficial to the Company and its shareholders.
TEXAS TAKEOVER STATUTE. Subsequent to this offering, the Company will be
subject to Part Thirteen of the Texas Business Corporation Act ("Part
Thirteen"), which became effective on September 1, 1997. Subject to certain
exceptions, Part Thirteen prohibits a Texas corporation which is an issuing
public corporation from engaging in any business combination with any affiliated
shareholder for a period of three years following the date that such shareholder
became an affiliated shareholder, unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
shareholder becoming an affiliated shareholder; or
61
<PAGE>
- the business combination is approved by at least two thirds of the
outstanding voting shares that are not beneficially owned by the
affiliated shareholder or an affiliate or associate of the affiliated
shareholder at a meeting of shareholders called not less than six months
after the affiliated shareholder's share acquisition date.
In general, Part Thirteen defines an affiliated shareholder as any entity or
person beneficially owning 20% or more of the outstanding voting stock of the
issuing public corporation and any entity or person affiliated with or
controlling or controlled by such entity or person. Part Thirteen defines a
business combination to include, among other similar types of transactions, any
merger, share exchange, or conversion of an issuing public corporation involving
an affiliated shareholder.
Part Thirteen may have the effect of inhibiting a non-negotiated merger or
other business combination involving the Company.
INDEMNIFICATION ARRANGEMENTS
The Company's Restated Articles of Incorporation limit the liability of the
Company's directors for monetary damages arising from a breach of their
fiduciary duty as directors, except to the extent otherwise required by the
Texas Business Corporation Act. Such limitation of liability does not affect the
availability of equitable remedies such as injunctive relief or rescission. The
Company's Restated Articles of Incorporation permit the Company to indemnify its
directors and officers to the fullest extent permitted by Texas law, including
in circumstances in which indemnification is otherwise discretionary under Texas
law.
Under Texas law, a corporation may indemnify a director or officer or other
person who was, is, or is threatened to be made a named defendant or respondent
in a proceeding because the person is or was a director, officer, employee or
agent of the corporation, if it is determined that such person:
- conducted himself or herself in good faith;
- reasonably believed, in the case of conduct in his or her official
capacity as a director or officer of the corporation, that his or her
conduct was in the corporation's best interests, and, in all other cases,
that his or her conduct was at least not opposed to the corporation's best
interests; and
- in the case of any criminal proceeding, had no reasonable cause to believe
that his or her conduct was unlawful.
Any such person may be indemnified against judgments, penalties (including
excise and similar taxes), fines, settlements and reasonable expenses actually
incurred by the person in connection with the proceeding. If the person is found
liable to the corporation or is found liable on the basis that personal benefit
was improperly received by the person, the indemnification is limited to
reasonable expenses actually incurred by the person in connection with the
proceeding, and must not be made in respect of any proceeding in which the
person is found liable for willful or intentional misconduct in the performance
of his or her duty to the corporation.
Prior to the consummation of this offering, the Company plans to enter into
indemnification agreements with each of its directors and executive officers
that provide for indemnification and expense advancement to the fullest extent
permitted under the Texas Business Corporation Act.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is EquiServe.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common
stock. Future sales of substantial amounts of common stock in the public market
could adversely affect prevailing market prices and impair the Company's ability
to raise capital through the sale of equity securities.
Upon completion of this offering, the Company will have outstanding
shares of common stock ( shares if the Underwriters'
over-allotment option is exercised in full), assuming no exercise or conversion
of options, warrants or convertible notes after the date of this prospectus. Of
these shares, the shares offered hereby ( shares if the
Underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act. The remaining 2,990,223 shares of common stock
outstanding upon completion of this offering will be "restricted securities" as
that term is defined in Rule 144.
Upon the expiration of certain lock-up agreements entered into by securities
holders of the Company with the Underwriters, beginning 180 days after the date
of this prospectus, 2,511,335 shares held by certain shareholders of the Company
will become eligible for sale, subject to the volume limitations, manner of sale
and notice requirements of Rule 144, and 474,388 shares held by certain other
shareholders of the Company will become eligible for sale without regard to the
volume limitations and manner of sale and notice requirements of Rule 144. As of
the date of this prospectus, a total of 4,500 shares held by shareholders who
have not entered into lock-up agreements are eligible for sale immediately
without regard to the volume limitations and manner of sale and notice
requirements of Rule 144. In addition, as of the date of this prospectus, there
were options outstanding to purchase an aggregate of 181,760 shares of common
stock. Pursuant to lock-up provisions contained in the stock option agreements
or separate lock-up agreements, 20,900 shares underlying such options will
become eligible for sale pursuant to Rule 701 beginning 180 days after the date
of this prospectus and the remaining 160,860 shares underlying such options will
become eligible for sale pursuant to Rule 701 more than 180 days after the date
of this prospectus as such options vest. Also, as of the date of this
prospectus, an aggregate of 523,035 shares of common stock were issuable upon
exercise of outstanding warrants and the conversion of outstanding convertible
notes. After the expiration of lock-up agreements, and subject to exercise or
conversion of the warrants and notes, 505,305 of such shares will become
eligible for sale subject to the volume limitations, manner of sale and notice
requirements of Rule 144 and 13,764 shares will become eligible for sale without
regard to the volume limitations and manner of sale and notice requirements of
Rule 144. As of the date of this prospectus, a total of 3,966 shares issuable
upon conversion of outstanding convertible notes held by noteholders who have
not entered into lock-up agreements will be eligible for sale immediately upon
completion of this offering without regard to the volume limitations and manner
of sale and notice requirements of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who owns shares that were purchased from the
Company (or any affiliate thereof) at least one year previously, is entitled to
sell in "brokers' transactions" or to market makers, within any three-month
period, a number of shares that does not exceed the greater of:
- one percent of the then outstanding shares of common stock (approximately
shares immediately after this offering, or approximately shares if
the Underwriters' over-allotment option is exercised in full); or
- the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which the required notice of such
sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are generally subject to the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who owns shares that were purchased
63
<PAGE>
from the Company (or any affiliate thereof) at least two years previously and
who has not been an affiliate of the Company at any time during the 90 days
preceding a sale, would be entitled to sell such shares under Rule 144(k)
without regard to the volume limitations or manner of sale, public information
or notice requirements of Rule 144. Under Rule 701, persons who purchase shares
from the Company upon exercise of options granted prior to the date of this
prospectus are entitled to sell such shares in the public markets commencing 90
days after the date of this prospectus in reliance on Rule 144 without having to
comply with the holding period requirements thereof and, in the case of
non-affiliates of the Company, without having to comply with the volume
limitations, or public information or notice requirements thereof.
Within 90 days after the date of this prospectus, the Company intends to
file a registration statement under the Securities Act covering the shares of
common stock reserved for issuance under the Plan. See "Management--1997 Stock
Incentive Plan." Such registration statement will become effective upon filing,
thus permitting the resale of such shares in the public markets without
restriction under the Securities Act, subject, however, to applicable lock-up
arrangements and limitations applicable to affiliates.
After this offering, the holders of approximately 1,865,985 shares of common
stock outstanding or issuable upon conversion of notes or exercise of warrants
will be entitled to certain rights with respect to the registration of such
shares under the Securities Act. Under the terms of the agreements between the
Company and the holders of such registrable securities, if the Company proposes
to register any of its securities under the Securities Act, either for its own
account or for the account of other security holders exercising registration
rights, such holders are entitled to notice of such registration and are
entitled to include shares of the common stock held by them in the registration.
Additionally, certain holders are also entitled to demand registration rights
pursuant to which they may require the Company to file a registration statement
under the Securities Act at its expense with respect to their shares of common
stock, and the Company is required to use its best 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 an offering to
limit the number of shares included in such registration.
64
<PAGE>
UNDERWRITING
The underwriters (the "Underwriters") named below, acting through their
representatives, BancBoston Robertson Stephens Inc., J.C. Bradford & Co. and
EVEREN Securities, Inc. (the "Representatives"), have severally agreed with
FlashNet, subject to the terms and conditions set forth in the underwriting
agreement, to purchase from FlashNet the number of shares of common stock set
forth opposite their names below. The Underwriters are committed to purchase and
pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
BancBoston Robertson Stephens Inc..........................................
J.C. Bradford & Co.........................................................
EVEREN Securities, Inc.....................................................
------
Total....................................................................
------
------
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of common stock to the public at the initial public
offering price set forth on the cover page of this prospectus and to certain
dealers at such price less a concession of not in excess of $ per share,
of which $ may be reallowed to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount of
proceeds to be received by FlashNet as set forth on the cover page of this
prospectus. The common stock is offered by the Underwriters as stated herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part.
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
OVER-ALLOTMENT OPTION. FlashNet has granted to the Underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as the Company will receive for the shares that the Underwriters
have agreed to purchase. To the extent that the Underwriters exercise this
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage of such additional shares that the number of
shares of common stock to be purchased by it shown in the above table represents
as a percentage of the shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those on
which the shares are being sold. FlashNet will be obligated, pursuant to
the option, to sell shares to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of the shares of common stock offered hereby. If such
option is exercised in full, the total Public Offering Price, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ , $
and $ , respectively.
INDEMNITY. The Underwriting Agreement contains covenants of indemnity among
the Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.
LOCK-UP AGREEMENTS. With the exception of holders of 54,747 shares of
outstanding common stock, holders of options and warrants to purchase 62,725
shares of common stock and holders of convertible notes convertible into 3,966
shares of common stock, each of the Company's executive officers, directors,
director-nominees, shareholders of record, optionholders, warrantholders and
holders of convertible notes has agreed with the Representatives, for a period
of 180 days after the date of this prospectus (the "Lock-Up Period"), subject to
certain exceptions, not to offer to sell, contract to sell,
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<PAGE>
or otherwise sell, dispose of, loan, pledge or grant any rights with respect to
any shares of common stock, any options or warrants to purchase any shares of
common stock, or any securities convertible into or exchangeable for shares of
common stock owned as of the date of this prospectus or thereafter acquired
directly by such holders or with respect to which they have or hereafter acquire
the power of disposition, without the prior written consent of BancBoston
Robertson Stephens. However, BancBoston Robertson Stephens may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to the lock-up agreements. There are no agreements between
the Representatives and any of FlashNet's shareholders providing consent by the
Representatives to the sale of shares prior to the expiration of the Lock-Up
Period.
FUTURE SALES. In addition, FlashNet has agreed that during the Lock-Up
Period, FlashNet will not, subject to certain exceptions, without the prior
written consent of BancBoston Robertson Stephens: (i) consent to the disposition
of any shares held by shareholders prior to the expiration of the Lock-Up
Period; or (ii) issue, sell, contract to sell or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable for
shares of common stock, other than the sale of shares in this offering, the
issuance of common stock upon the exercise or conversion of outstanding options,
warrants or convertible securities and FlashNet's issuance of incentive awards
under the Plan. See "Shares Eligible for Future Sale."
LISTING. Application has been made to have the common stock approved for
quotation on the Nasdaq National Market under the symbol "FLAS."
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for the common stock of FlashNet. Consequently, the initial public
offering price for the common stock offered hereby will be determined through
negotiations between FlashNet and the Representatives. Among the factors to be
considered in such negotiations are prevailing market conditions, certain
financial information of FlashNet, market valuations of other companies that
FlashNet and the Representatives believe to be comparable to FlashNet, estimates
of the business potential of FlashNet, the present state of FlashNet's
development and other factors deemed relevant.
STABILIZATION. The Representatives have advised FlashNet that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the Underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Representatives have advised FlashNet
that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
DIRECTED SHARE PROGRAM. At the request of FlashNet, the Underwriters have
reserved up to shares of common stock to be issued by FlashNet and offered
hereby for sale, at the initial public offering price, to directors, officers,
employees, business associates and related persons of FlashNet. The number of
shares of common stock available for sale to the general public will be reduced
to the extent such individuals purchase such reserved shares. Any reserved
shares which are
66
<PAGE>
not so purchased will be offered by the Underwriters to the general public on
the same basis as the other shares offered hereby.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
FlashNet by Brobeck, Phleger & Harrison LLP, Austin, Texas and by Cantey &
Hanger, L.L.P., Fort Worth, Texas. Certain legal matters in connection with this
offering will be passed upon for the Underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of FlashNet as of December 31, 1996
and 1997 and for the period from September 25, 1995 (Inception) to December 31,
1995, and the years ended December 31, 1996 and 1997 appearing in this
prospectus and Registration Statement have been audited by Deloitte & Touche
LLP, independent auditors, as set forth in their report appearing herein, and
are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
AVAILABLE INFORMATION
FlashNet has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement. For
further information with respect to FlashNet and the common stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part of the Registration Statement. Statements contained in
this prospectus concerning the contents of any contract or any other document
are not necessarily complete; reference is made in each instance to the copy of
such contract or any other document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference to
such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from the
Public Reference Room of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World
Trade Center, 13th Floor, New York, New York 10048 after payment of fees
prescribed by the Commission. Information on the operation of the Public
Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The
Commission also maintains a Web site which provides online access to reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission at the address HTTP://WWW.SEC.GOV.
67
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and September 30, 1998 (unaudited)............ F-3
Consolidated Statements of Operations for the Period from September 25, 1995 (Inception) through December
31, 1995, the Years Ended December 31, 1996 and 1997 and the Nine Months Ended September 30, 1997
(unaudited) and 1998 (unaudited)......................................................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Period from September 25, 1995
(Inception) through December 31, 1995, the Years Ended December 31, 1996 and 1997 and the Nine Months
Ended September 30, 1998 (unaudited)..................................................................... F-5
Consolidated Statements of Cash Flows for the Period from September 25, 1995 (Inception) through December
31, 1995, the Years Ended December 31, 1996 and 1997 and the Nine Months Ended September 30, 1997
(unaudited) and 1998 (unaudited)......................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
FlashNet Communications, Inc.
We have audited the accompanying consolidated balance sheets of FlashNet
Communications, Inc. (the "Company") and subsidiaries as of December 31, 1996
and 1997, and the related consolidated statements of operations, shareholders'
deficit and cash flows for the period from September 25, 1995 (Inception)
through December 31, 1995 and the years ended December 31, 1996 and 1997. 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company and subsidiaries at
December 31, 1996 and 1997, and the results of their operations and their cash
flows for the period from September 25, 1995 (Inception) through December 31,
1995 and the years ended December 31, 1996 and 1997 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
the Company and subsidiaries will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company and subsidiaries have
experienced operating losses since their inception and the Company and
subsidiaries' liabilities exceeded their assets by $11,768,471 at December 31,
1997. These matters raise substantial doubt about the Company and its
subsidiaries' ability to continue as a going concern. Management's plans in
regard to these matters are described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Fort Worth, Texas
March 16, 1998
F-2
<PAGE>
FLASHNET COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
SHAREHOLDERS'
DECEMBER 31, DEFICIT AT
----------------------- SEPTEMBER 30, SEPTEMBER 30, 1998
1996 1997 1998 (NOTE 6)
---------- ----------- ------------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 137,413 $ 1,569,719 $ 3,301,484
Accounts receivable, net of allowance for uncollectible
accounts of $28,414, $35,068 and $42,536 in 1996,
1997 and 1998, respectively.......................... 311,157 494,470 622,290
Prepaid expenses and other current assets.............. 177,038 377,331 828,316
---------- ----------- -------------
Total current assets................................. 625,608 2,441,520 4,752,090
PROPERTY AND EQUIPMENT, net.............................. 5,128,559 8,396,423 6,800,226
SOFTWARE LICENSES, net of accumulated amortization of
$6,250, $25,000 and $56,307 in 1996, 1997 and 1998,
respectively........................................... 65,450 46,700 16,451
OTHER ASSETS............................................. 67,720 115,350 108,618
---------- ----------- -------------
TOTAL.................................................... $5,887,337 $10,999,993 $11,677,385
---------- ----------- -------------
---------- ----------- -------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations........... $1,120,421 $ 1,446,273 $ 2,056,183
Current portion of convertible notes payable........... 128,242 160,566 173,489
Note payable........................................... 4,414,077
Trade accounts payable................................. 2,024,590 6,634,393 4,243,328
Accrued payroll and related expenses................... 124,662 169,740 402,112
Other accrued expenses................................. 147,845 319,996 545,745
Deferred revenue....................................... 3,313,591 8,878,104 11,350,641
---------- ----------- -------------
Total current liabilities............................ 6,859,351 17,609,072 23,185,575
CAPITAL LEASE OBLIGATIONS, net of current portion........ 3,067,054 1,806,089 222,524
CONVERTIBLE NOTES PAYABLE, net of current portion........ 356,201 185,303 --
NOTE PAYABLE............................................. -- 3,168,000 --
---------- ----------- -------------
Total liabilities.................................... 10,282,606 22,768,464 23,408,099
COMMITMENTS AND CONTINGENCIES
REDEEMABLE SERIES A PREFERRED STOCK, $1.00 par value;
1,375,000 shares authorized, 1,364,085 issued and
outstanding as of September 30, 1998................... -- -- 10,444,860 $ --
SHAREHOLDERS' DEFICIT:
Common stock, no par value, 5,000,000 shares
authorized, 1,594,388, 1,613,888 and 1,626,138 issued
and outstanding at December 31, 1996 and 1997 and as
of September 30, 1998, respectively.................. 462,500 701,910 810,822 11,255,682
Warrants to purchase common stock...................... 424,000 3,711,590 3,704,699 3,704,699
Accumulated deficit.................................... (5,281,769) (16,181,971) (26,691,095) (26,691,095)
---------- ----------- ------------- -------------------
Total shareholders' deficit.......................... (4,395,269) (11,768,471) (22,175,574) $ (11,730,714)
---------- ----------- ------------- -------------------
-------------------
TOTAL.................................................... $5,887,337 $10,999,993 $11,677,385
---------- ----------- -------------
---------- ----------- -------------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FLASHNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 25, 1995 YEARS ENDED DECEMBER NINE MONTHS ENDED
(INCEPTION) 31, SEPTEMBER 30,
THROUGH DECEMBER ----------------------- ------------------------
31, 1995 1996 1997 1997 1998
------------------ ---------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Consumer access services.............. $ 19,411 $2,359,788 $11,937,998 $7,768,190 $15,979,047
Business services..................... -- 54,682 570,349 348,635 925,139
Set-up fees and other................. 15,065 2,119,494 5,816,384 4,608,544 1,196,653
------------------ ---------- ----------- ----------- -----------
Total............................... 34,476 4,533,964 18,324,731 12,725,369 18,100,839
------------------ ---------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of recurring revenues............ 28,426 2,348,287 8,228,398 5,621,669 8,683,480
Cost of other revenues................ 3,708 472,916 798,886 645,959 319,906
Sales and marketing................... 31,718 4,328,891 10,299,651 8,608,007 5,178,395
General and administrative............ 74,663 1,039,010 3,436,068 2,422,384 3,536,634
Operations and customer support....... -- 830,346 3,683,207 2,596,406 4,041,726
Depreciation and amortization......... 2,811 544,959 2,064,457 1,505,146 2,285,617
------------------ ---------- ----------- ----------- -----------
Total............................... 141,326 9,564,409 28,510,667 21,399,571 24,045,758
------------------ ---------- ----------- ----------- -----------
LOSS FROM OPERATIONS.................... (106,850) (5,030,445) (10,185,936) (8,674,202) (5,944,919)
INTEREST EXPENSE........................ -- (148,815) (735,362) (565,505) (1,984,988)
INTEREST AND OTHER INCOME............... -- 4,341 21,096 15,618 53,467
------------------ ---------- ----------- ----------- -----------
NET LOSS................................ (106,850) (5,174,919) (10,900,202) (9,224,089) (7,876,440)
DEEMED DIVIDENDS ON REDEEMABLE PREFERRED
STOCK................................. -- -- -- -- (2,632,684)
------------------ ---------- ----------- ----------- -----------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS.......................... $ (106,850) $(5,174,919) $(10,900,202) ($9,224,089) $(10,509,124)
------------------ ---------- ----------- ----------- -----------
------------------ ---------- ----------- ----------- -----------
NET LOSS PER SHARE:
Basic and diluted..................... $ (0.10) $ (3.34) $ (6.80) $ (5.77) $ (6.50)
------------------ ---------- ----------- ----------- -----------
------------------ ---------- ----------- ----------- -----------
Pro forma............................. $ (3.81)
-----------
-----------
SHARES USED IN COMPUTATION:
Basic and diluted..................... 1,037,375 1,548,938 1,602,584 1,598,761 1,616,635
------------------ ---------- ----------- ----------- -----------
------------------ ---------- ----------- ----------- -----------
Pro forma............................. 2,066,975
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FLASHNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
WARRANTS TO
COMMON STOCK PURCHASE TOTAL
-------------------- COMMON ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT STOCK DEFICIT DEFICIT
--------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
INCEPTION, SEPTEMBER 25, 1995
Issuance of common stock..................... 1,037,375 $ 157,500 $ -- $ -- $ 157,500
Net loss..................................... -- -- -- (106,850) (106,850)
--------- --------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1995..................... 1,037,375 157,500 -- (106,850) 50,650
Issuance of common stock..................... 557,013 305,000 -- -- 305,000
Issuance of warrants......................... -- -- 424,000 -- 424,000
Net loss..................................... -- -- -- (5,174,919) (5,174,919)
--------- --------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1996..................... 1,594,388 462,500 424,000 (5,281,769) (4,395,269)
Conversion of notes payable.................. 19,500 195,000 -- -- 195,000
Warrants retired............................. -- 44,410 (44,410) -- --
Issuance of warrants......................... -- -- 3,332,000 -- 3,332,000
Net loss..................................... -- -- -- (10,900,202) (10,900,202)
--------- --------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1997..................... 1,613,888 701,910 3,711,590 (16,181,971) (11,768,471)
Conversion of notes payable (unaudited)...... 10,200 102,000 -- -- 102,000
Exercise of warrants (unaudited)............. 2,050 6,912 (6,891) -- 21
Dividends related to issuance of redeemable
preferred stock (unaudited)................ -- -- -- (2,632,684) (2,632,684)
Net loss (unaudited)......................... -- -- -- (7,876,440) (7,876,440)
--------- --------- ----------- ------------- -------------
BALANCE, SEPTEMBER 30, 1998 (unaudited)........ 1,626,138 $ 810,822 $3,704,699 $ (26,691,095) $ (22,175,574)
--------- --------- ----------- ------------- -------------
--------- --------- ----------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FLASHNET COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 25, 1995 YEARS ENDED DECEMBER NINE MONTHS ENDED
(INCEPTION) 31, SEPTEMBER 30,
THROUGH DECEMBER ----------------------- -----------------------
31, 1995 1996 1997 1997 1998
------------------ ---------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................... $ (106,850) $(5,174,919) $(10,900,202) ($9,224,089) $(7,876,440)
Adjustments to reconcile net loss to
net cash provided (used) in operating
activities:
Depreciation......................... 2,186 536,209 2,039,761 1,483,193 2,247,577
Amortization of debt discount........ -- 43,311 211,150 167,074 1,352,740
Amortization of software licenses.... -- 6,250 18,750 18,750 30,249
Amortization of organizational
costs.............................. 625 2,500 5,946 3,703 6,733
Provision for allowance for
uncollectible accounts............. -- 28,414 6,654 -- 7,469
Gain on sale of equipment............ -- -- 11,905 9,801 --
Changes in assets and liabilities:
Increase in accounts receivable.... (53,059) (286,512) (189,967) (38,337) (135,288)
Increase in prepaid expenses and
other current assets............. (5,396) (171,642) (200,293) (320,040) (450,995)
Increase in other assets........... -- (58,345) (53,576) (38,022) --
Increase (decrease) in accounts
payable and accrued
liabilities...................... 40,924 2,256,173 4,827,031 4,948,104 (1,932,947)
Increase in deferred revenue....... 83,099 3,230,492 5,564,513 4,436,623 2,472,537
---------- ---------- ----------- ----------- ----------
Net cash provided (used) by
operating activities........... (38,471) 411,931 1,341,672 1,446,760 (4,278,355)
---------- ---------- ----------- ----------- ----------
INVESTING ACTIVITIES:
Purchases of property and equipment,
net.................................. (81,673) (966,845) (4,663,538) (577,040) (651,380)
Purchases of software licenses......... -- (71,700) -- -- (798)
Proceeds from sale of equipment........ -- -- 202,594 85,002 --
---------- ---------- ----------- ----------- ----------
Net cash used in investing
activities..................... (81,673) (1,038,545) (4,460,944) (492,038) (652,178)
---------- ---------- ----------- ----------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt and stock purchase warrants..... -- 635,000 6,500,000 -- --
Principal payments under capital lease
obligations.......................... -- (200,829) (1,921,422) (1,065,135) (1,079,519)
Principal payments under convertible
notes payable........................ -- -- (27,000) (27,000) (172,380)
Proceeds from issuance of common
stock................................ 145,000 305,000 102,021
Proceeds from issuance of preferred
stock................................ -- -- -- -- 7,812,176
---------- ---------- ----------- ----------- ----------
Net cash provided by financing
activities..................... 145,000 739,171 4,551,578 (1,092,135) 6,662,298
---------- ---------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 24,856 112,557 1,432,306 (137,413) 1,731,765
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................. -- 24,856 137,413 137,413 1,569,719
---------- ---------- ----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................. $ 24,856 $ 137,413 $ 1,569,719 $ -- $3,301,484
---------- ---------- ----------- ----------- ----------
---------- ---------- ----------- ----------- ----------
SUPPLEMENTAL INFORMATION:
Cash paid for interest................. $ -- $ 88,342 $ 512,377 $ 270,632 $ 493,556
Equipment acquired under capital leases
and through issuance of warrants..... -- 4,618,435 858,587 858,587 --
Additional common stock issued upon
conversion of long-term debt......... -- -- 195,000 195,000 102,000
Deemed dividends on redeemable
preferred stock...................... -- -- -- -- 2,632,684
Stock issued for services.............. 13,000 -- -- -- --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
FlashNet Communications, Inc. and its wholly-owned subsidiaries, FlashNet
Marketing, Inc. ("FlashNet Marketing") and FlashNet Telecom, Inc. ("FlashNet
Telecom") (collectively referred to as the "Company") were organized on
September 25, 1995, June 16, 1997 and May 18, 1998, respectively. The Company is
a nationwide provider of consumer Internet access services and business
services. FlashNet Marketing is a marketing organization designed to increase
utilization of the Company's services through customer incentive marketing
programs. FlashNet Telecom is licensed as the Company's competitive local
exchange carrier.
The Company's operations are subject to certain risks and uncertainties
including, among others: (i) risks associated with technology and regulatory
trends; (ii) evolving industry standards; (iii) dependence on its network
infrastructure and suppliers; (iv) growth and acquisitions; (v) actual and
prospective competition by entities with greater financial and other resources;
and (vi) the development of the Internet market. There can be no assurance that
the Company will be successful in achieving or sustaining profitability and
positive cash flow in the future.
GOING CONCERN BASIS
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
The Company has experienced operating losses since its inception and its
liabilities and redeemable preferred stock exceeded its assets by $22,175,574 at
September 30, 1998. These factors raised substantial doubt at December 31, 1997
as to the Company's ability to continue as a going concern.
The Company's continuation as a going concern is dependent on its ability to
generate sufficient cash flow to meet its obligations on a timely basis, to
obtain additional financing, as may be required and, ultimately, to attain
profitable operations. Management is of the opinion that the Company will meet
its obligations and sustain operations in 1998 and beyond by increasing its
customer base, improving operations, controlling costs and obtaining additional
financing to support its planned expenditures and operations. The financial
statements do not include any adjustments relating to the recoverability and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
MANAGEMENT ESTIMATES
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
CONSOLIDATION
Significant intercompany balances and transactions have been eliminated in
consolidation.
F-7
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments with an
original maturity date of three months or less at date of purchase to be cash
equivalents. Cash and cash equivalents are stated at cost, which approximates
fair value.
CREDIT RISK
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services, the use of
preapproved charges to customer credit cards, and the ability to terminate
access on delinquent accounts. The large number of customers comprising the
customer base mitigates the concentration of credit risk.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful life of five years. Leasehold
improvements are amortized over the shorter of the term of the related lease or
the estimated useful lives of the assets.
EQUIPMENT UNDER CAPITAL LEASE
The Company leases certain of its data communications equipment and other
fixed assets under capital lease agreements. The assets and liabilities under
capital leases are recorded at the lesser of the present value of aggregate
future minimum lease payments, or the fair value of the assets under lease.
Assets under these capital leases are depreciated over the shorter of the term
of the related lease (generally 36 months) or the useful life of the asset.
LONG-LIVED ASSETS
The Company periodically reviews the carrying values of long-lived assets,
such as property and equipment and software licenses, to determine if the
carrying values are recoverable. Management believes that the long-lived assets
in the accompanying balance sheets have not been impaired.
REVENUE RECOGNITION
Amounts received upon the sale or renewal of prepaid subscriptions are
recorded as deferred revenue and amortized over the period in which service is
provided.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising expense
for the period from September 25, 1995 (Inception) through December 31, 1995,
the years ended December 31, 1996 and 1997 and the nine months ended September
30, 1998 were $21,244, $3,725,080, $7,477,729 and $3,598,885 (unaudited),
respectively.
F-8
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
COMMON STOCK-BASED COMPENSATION
The Company accounts for its employee stock-based compensation in accordance
with the provisions of Accounting Principles Board Opinion No. 25 ("APB No. 25")
and provides pro forma disclosures in the notes to the financial statements, as
if the measurement provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," had been adopted.
INCOME TAXES
The shareholders of the Company elected at inception that the Company be
taxed as an S Corporation as provided by the Internal Revenue Code. As a result,
income tax was not imposed at the corporate level and the Company's income or
loss was reportable by the individual shareholders for Federal income tax
purposes until the Company revoked its S Corporation status effective January 1,
1997.
Deferred income taxes are provided in 1997 and 1998 under the liability
method for temporary differences between revenue and expenses recognized for tax
return and financial reporting purposes.
NET LOSS PER SHARE
Basic loss per share is computed using the weighted average number of common
shares outstanding. Options, warrants and convertible securities are not
included in the computation of diluted loss per share as the effects would be
antidilutive. Pro forma loss per share (unaudited) reflects the assumed
conversion of preferred stock (See Note 6).
SOURCE OF SUPPLIES
The Company relies on local telephone companies and other companies to
provide data communications capacity. Although management believes alternative
telecommunications facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results.
The Company attempts to maintain multiple vendors for its modems, terminal
servers and high-performance routers, which are important components of its
network. If the suppliers are unable to meet the Company's needs as it expands
its network infrastructure, the Company may experience delays and increased
costs, which would adversely affect operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure," which establishes standards for disclosing information
about an entity's capital structure and is effective for financial statements
for periods ending after December 15, 1997. In June 1997, the FASB issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income and its components in the
financial statements for fiscal years beginning after December 15, 1997. The
FASB also issued, in June 1997, SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which establishes standards for the way
public companies disclose information about operating segments, products and
services, geographic areas and major customers. SFAS No. 131 is effective for
financial statements for periods beginning
F-9
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
after December 15, 1997. The Company has determined that the impact on its
financial statements of adopting SFAS No. 130 is not material and has made the
disclosures under SFAS Nos. 129 and 131. In June 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal quarters ending after June 15, 1999. The Company does not
expect the adoption of SFAS No. 133 to have a material impact on its financial
statements.
RECLASSIFICATION
Certain reclassifications have been made to prior period amounts to conform
with the 1998 presentation.
INTERIM FINANCIAL STATEMENTS
The interim financial data for September 30, 1997 and 1998 is unaudited. In
the opinion of the Company, the interim financial data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim periods. The results of operations for the nine
months ended September 30, 1997 and 1998 should not be regarded as necessarily
indicative of the results of operations for any future period.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ ------------- SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C> <C> <C>
Data communications equipment.............................. $ 5,308,348 $ 10,198,002 $ 10,445,993
Office and other equipment................................. 296,331 644,585 973,483
Purchased software......................................... 62,274 93,764 168,254
------------ ------------- -------------
5,666,953 10,936,351 11,587,730
Less accumulated depreciation.............................. (538,394) (2,539,928) (4,787,504)
------------ ------------- -------------
$ 5,128,559 $ 8,396,423 $ 6,800,226
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
Property and equipment includes $4,618,435, $4,726,491 and $4,726,491
(unaudited) of data communications equipment under capital leases at December
31, 1996, 1997 and September 30, 1998, respectively. Depreciation expense
charged to operations was $2,186, $536,209, $2,039,761 and $2,247,576
(unaudited) in the period from September 25, 1995 (Inception) through December
31, 1995, the years ended December 31, 1996 and 1997 and the nine months ended
September 30, 1998, respectively, and included $0, $249,347, $1,395,697 and
$1,226,573 (unaudited), respectively, pertaining to property under capital
leases.
3. CAPITAL LEASE OBLIGATIONS
During 1996 and 1997, the Company entered into capital leases with minimum
payments totaling $5,513,431 and $981,663, respectively, for new data
communications equipment and other fixed assets.
F-10
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CAPITAL LEASE OBLIGATIONS (CONTINUED)
The Company's capital lease obligations are generally repayable in 36 monthly
installments from the dates of purchase and include bargain purchase options at
the end of the lease term.
Future minimum lease payments under capital leases at September 30, 1998 are
as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
1998................................................................................. $ 601,045
1999................................................................................. 1,879,597
2000................................................................................. 53,062
------------
Total minimum lease payments......................................................... 2,533,704
Less amounts representing interest and approximately $55,000 of unamortized value
attributed to warrants (see Note 6)................................................ 254,997
------------
Present value of future minimum lease payments....................................... 2,278,707
Less current portion................................................................. 2,056,183
------------
$ 222,524
------------
------------
</TABLE>
4. CONVERTIBLE NOTES PAYABLE
During 1996, the Company issued units of convertible notes payable totaling
$635,000 and stock warrants exercisable at $0.01 per share for 52,070 shares of
common stock, which were assigned a value of $175,000 (see Note 6). The
remaining principal balance of the notes is due in July 1999 and bears 12%
annual interest, payable quarterly. At December 31, 1996 and 1997 and September
30, 1998, the notes payable are presented net of approximately $151,000, $67,000
and $28,000 (unaudited) respectively, in unamortized discount. After giving
effect to the value assigned to the warrants, the notes payable bear an
approximate effective annual interest rate of 25%. The outstanding balance of
the notes payable is convertible at $10 per share into an aggregate of 20,130
(unaudited) shares of the Company's common stock at July 31, 1999.
5. NOTE PAYABLE
In December 1997, the Company entered into an agreement with a vendor to
borrow $6,500,000. Warrants initially exercisable at $0.01 per share for 400,000
shares of the Company's common stock were issued as part of the agreement and
were assigned a value of $3,332,000 (see Note 6). Substantially all of the
Company's assets serve as collateral to the note payable. The principal balance
of the note payable is due and payable on the earliest of December 28, 1999, an
initial public offering by the Company providing gross proceeds in excess of $12
million or change of control. Interest accrues at 6.0% per annum and is payable
monthly. At December 31, 1997 and September 30, 1998 (unaudited), the principal
balance outstanding is $6,500,000 and is presented net of approximately
$3,332,000 and $2,086,000 (unaudited), respectively, in unamortized discount.
After giving effect to the value assigned to the warrants, the note payable
bears an approximate effective annual interest rate of 35%.
F-11
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CAPITAL STOCK
At September 30, 1998 the Company has reserved shares of common stock for
issuance as follows:
<TABLE>
<CAPTION>
SHARES
-----------
(UNAUDITED)
<S> <C>
Convertible notes payable.................................................................. 20,130
Convertible preferred stock................................................................ 1,364,085
Warrants................................................................................... 502,905
Stock options.............................................................................. 244,757
-----------
2,131,877
-----------
-----------
</TABLE>
REDEEMABLE CONVERTIBLE PREFERRED STOCK (UNAUDITED)
In May and August 1998, the Company issued a total of 1,364,085 shares of
its redeemable Series A Convertible Preferred Stock to investors including,
among others, affiliates of certain directors of the Company for $8,280,000 and
incurred stock issuance costs of $467,824. The Company has recorded dividends of
$2,632,684 for the deemed difference on the date of issuance between the
issuance price of the Preferred Stock and the fair value of the common stock
into which the Preferred Stock is convertible. Each share of the Series A
Convertible Preferred Stock is convertible into one share, adjusted for stock
splits or recapitalizations, of the Company's common stock at the option of the
holder and is automatically converted upon consummation of an underwritten
public offering of the Company's common stock in which the proceeds are at least
$15 million, and which reflects a pre-offering valuation of the Company's
outstanding equity of at least $50 million. Assuming conversion of the Series A
Convertible Preferred Stock into shares of common stock on September 30, 1998,
the pro forma number of, and stated value of common stock shares outstanding
would be 2,990,223 and $11,255,682 (unaudited), respectively.
Holders of Series A Convertible Preferred Stock are entitled to voting
rights equivalent to the number of common shares issuable if converted. The
Series A Convertible Preferred stockholders have the exclusive right to elect
two sevenths of the members of the board of directors but do not participate
with the holders of Common Stock in the election of other directors. The holders
of the Series A Convertible Preferred Stock have the right to require redemption
after November 7, 2000. The Company may redeem all outstanding shares after May
7, 2003. While the Series A Convertible Preferred Stock is outstanding, no
dividends may be declared or paid on any other capital stock of the Company. The
holders of the Company's Series A Convertible Preferred Stock have a liquidation
preference equal to their initial investment. Any assets remaining after the
preferred liquidation preference will be distributed to the holders of common
stock.
WARRANTS
During 1996, the Company entered into an agreement to issue warrants to
purchase shares of common stock at $0.01 per share in connection with a lease
line for equipment. The 52,885 warrants will expire at the later of the
termination of the lease line or July 1999.
Warrants issued with the Company's convertible notes payable are exercisable
at $0.01 per share through July 1999 for 50,020 shares. Warrants issued with the
Company's note payable are exercisable
F-12
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CAPITAL STOCK (CONTINUED)
at $0.01 per share for 400,000 shares through the later of December 2007 or the
fifth anniversary of a defined initial public offering.
STOCK OPTIONS
During 1997, the Company adopted a Stock Incentive Plan (the "Plan"). The
Plan provides for the issuance incentive and non-qualified stock options to key
employees and directors of the Company. The total number of shares of common
stock authorized and reserved for issuance under the Plan is 239,857 shares. As
of September 30, 1998, options to purchase 62,997 shares of common stock
remained available for grant under the Plan. Options vest over periods ranging
from 0 to 5 years. At September 30, 1998, options granted prior to the adoption
of the Plan to purchase 4,900 shares were outstanding and fully vested. Stock
option activity from January 1, 1996 through September 30, 1998 is summarized by
the following:
<TABLE>
<CAPTION>
EXERCISABLE
------------------------
WEIGHTED WEIGHTED
NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
January 1, 1996............................................... -- -- -- --
Granted..................................................... 19,700 $ 3.65
---------
December 31, 1996............................................. 19,700 3.65 7,500 $ 2.45
Granted..................................................... 45,000 5.33
Cancelled................................................... (27,800) 4.58
---------
December 31, 1997............................................. 36,900 5.00 27,900 4.03
Granted (unaudited)......................................... 60,725 8.00
Cancelled (unaudited)....................................... (32,000) 5.00
---------
September 30, 1998 (unaudited)................................ 65,625 7.78 14,900 7.01
---------
---------
</TABLE>
Options outstanding as of September 30, 1998 (unaudited) are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE OPTIONS YEARS TO CURRENTLY
PRICE OUTSTANDING EXPIRATION EXERCISABLE
- ----------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
$5.00............................................................ 4,900 10.00 4,900
8.00............................................................ 60,725 4.13 10,000
----------- -----------
65,625 4.57 14,900
----------- -----------
----------- -----------
</TABLE>
The Company applies the provisions of APB No. 25 and related interpretations
in accounting for its stock options. Accordingly, no compensation cost has been
recognized as the exercise price assigned to the options at the date of grant
equalled or exceeded the estimated fair market value. Had compensation cost for
the Company's stock options been determined based on the fair value at the grant
dates
F-13
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. CAPITAL STOCK (CONTINUED)
for awards consistent with the method prescribed by SFAS No. 123, the Company's
pro forma net loss attributable to common shareholders and loss per share would
have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1997
------------- -------------- NINE MONTHS
ENDED
SEPTEMBER 30,
1998
--------------
(UNAUDITED)
<S> <C> <C> <C>
Net loss attributable to common shareholders:
Actual...................................... $ (5,174,919) $ (10,900,202) $ (10,509,124)
Pro forma................................... $ (5,180,919) $ (10,922,202) $ (10,525,124)
Basic and diluted loss per share:
Actual...................................... $ (3.34) $ (6.80) $ (6.50)
Pro forma................................... $ (3.35) $ (6.82) $ (6.51)
</TABLE>
The weighted average fair value of options granted during 1996, 1997 and
1998 was estimated at $2.30, $1.90 and $1.60 per share, respectively. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for the grants: risk-free interest rates of 6.00% in 1996 and
1997 and 5.00% in 1998, dividend yield of 0%, expected lives of three years in
1996, 1997 and 1998 and no expected volatility (because the Company's stock has
not been publicly traded).
7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Guaranteed monthly levels of telecommunication services with certain of the
Company's telecommunication vendors at September 30, 1998 aggregate to the
following annual amounts:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, (UNAUDITED)
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 472,000
1999............................................................................ 1,465,000
2000............................................................................ 135,000
------------
$ 2,072,000
------------
------------
</TABLE>
The Company leases certain of its facilities and billboards under
non-cancelable operating leases expiring in various years through 2000. Total
rent expense for all operating leases amounted to $2,740, $287,896, $1,806,054
and $1,360,874 (unaudited) in the period from September 25, 1995 (inception)
through December 31, 1995, the years ended December 31, 1996 and 1997 and the
nine months ended
F-14
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMITMENTS AND CONTINGENCIES (CONTINUED)
September 30, 1998, respectively. Future minimum lease payments under
non-cancelable operating leases as of September 30, 1998 are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING DECEMBER 31, (UNAUDITED)
- --------------------------------------------------------------------------------
<S> <C>
1998............................................................................ $ 628,000
1999............................................................................ 1,820,000
2000............................................................................ 832,000
2001............................................................................ 151,000
------------
$ 3,431,000
------------
------------
</TABLE>
CONTINGENCIES
The Company is subject to certain claims and legal proceedings that arise in
the ordinary course of its business activities. Each of these matters is subject
to various uncertainties, and it is possible that some of these matters may be
decided unfavorably to the Company. Management believes that any liability that
may ultimately result from the resolution of these matters will not have a
material adverse effect on the financial condition, operating results or cash
flows of the Company.
8. INCOME TAXES
No provision for income taxes has been recognized as the Company incurred
net operating losses for income tax purposes. Deferred tax assets and
liabilities consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------- SEPTEMBER 30,
1998
-------------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 3,500,000 $ 6,200,000
Book depreciation in excess of tax............................ 150,000 250,000
Other......................................................... 100,000
------------- -------------
Total deferred tax assets................................... 3,650,000 6,550,000
Deferred tax liabilities........................................ -- --
------------- -------------
Net deferred tax asset.......................................... 3,650,000 6,550,000
Valuation allowance............................................. (3,650,000) (6,550,000)
------------- -------------
$ -- $ --
------------- -------------
------------- -------------
</TABLE>
The Company has provided a valuation allowance for net deferred tax assets,
as it is more likely than not that these assets will not be realized.
At September 30, 1998, the Company has net operating loss carryforwards of
approximately $16 million (unaudited) for income tax purposes. These net
operating loss carryforwards begin to expire in 2012 and may be limited in their
use due to significant changes in the Company's ownership.
F-15
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The differences between the Company's effective tax rate and the federal
statutory rate of 34% are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
----------------- NINE MONTHS ENDED
SEPTEMBER 30,
1998
-----------------
(UNAUDITED)
<S> <C> <C>
Income tax benefit at statutory rate............................ (34)% (34)%
State tax benefit, net of federal benefit....................... (3) (3)
Valuation allowance............................................. 37 37
-- --
Total income tax expense........................................ --% --%
-- --
-- --
</TABLE>
9. EMPLOYEE SAVINGS PLAN
During 1997, the Company began sponsoring an employee savings plan under
Section 401(k) of the Internal Revenue Code. The plan does not provide for
Company contributions.
10. FAIR VALUE OF INSTRUMENTS
The Company has estimated the fair value of financial instruments as of
December 31, 1996 and 1997 and September 30, 1998. The estimated fair value
amounts are determined by using available market information and appropriate
valuation methodologies. However, considerable judgment is required to interpret
market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated fair
value amounts.
The Company's financial instruments include: accounts receivable, accounts
payable, notes payable and capital leases. The Company has estimated that the
carrying amount of accounts receivable and accounts payable approximates fair
value due to the short-term maturities of these instruments.
The Company's notes payable bear fixed interest rates and are privately
placed with unique terms and no active market. The fair value of such financial
instruments was determined by discounting future cash flows at current market
yields, which were determined based on the market yields for similar instruments
with similar terms. The following is a summary of both the carrying values and
fair values of such instruments.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------
1996 1997 SEPTEMBER 30, 1998
---------------------- -------------------------- --------------------------
HISTORICAL HISTORICAL HISTORICAL
CARRYING CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Convertible notes
payable................ $ 484,000 $ 482,000 $ 346,000 $ 348,000 $ 173,000 $ 209,000
Note payable............. -- -- 3,168,000 3,009,000 4,414,000 4,536,000
</TABLE>
F-16
<PAGE>
FLASHNET COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. SUBSEQUENT EVENTS (UNAUDITED)
During November and December 1998, options to purchase 47,645 shares of
common stock at $12 per share were granted to an officer and an employee of the
Company under the Plan. During December 1998, options to purchase 79,990 and
5,000 shares of common stock at $30 per share and $20 per share, respectively,
were granted to a director, officers and a consultant. Such options vest over
periods ranging from 0 to 5 years and expire over periods ranging from 2 to 10
years.
The Company's Board of Directors has authorized the filing of a registration
statement with the Securities and Exchange Commission that would permit the
Company to sell shares of the Company's common stock in connection with a
proposed initial public offering.
F-17
<PAGE>
// Inside Back Cover //
Graphic depicts FlashNet's Internet home page. The FlashNet name and logo
are on the top of the home page and the FlashNet mission statement is written
beneath. The text of the mission statement states:
"FlashNet Communications is committed to serving its customers with pride,
friendliness and enthusiasm. FlashNet's mission is to make Internet access easy
and affordable for the mainstream Internet user while at the same time
maximizing our return on investment. FlashNet is committed to providing a stable
work environment for its employees, along with the opportunity for personal
growth and professional fulfillment. FlashNet encourages creativity and
innovation in our employees and we value their expression of individuality in
service to our customers.
FlashNet believes that the Internet should be affordable for everyone and
that people from all walks of life should have access to all that the Internet
has to offer. FlashNet is a responsible member of the local community. This
means we support organizations, both local and national, that are committed to
improving the opportunities and standard of living from our neighbors. We
believe in helping provide access to technology to the underprivileged who would
otherwise suffer greatly because of their lack of access to innovations and
advances such as the Internet. FlashNet would like to help bridge the skills and
knowledge gap so that those among us who are less fortunate can have access to
the same opportunities we have. In this regard, FlashNet supports various
charitable groups around the nation.
FlashNet believes the potential uses for the Internet have only begun to be
explored. The next several years should be one of the most exciting times in our
nation's history and FlashNet intends to remain at the forefront of providing
Internet access to everyone. FlashNet believes that the market in affordable
consumer-based access to the Internet offers substantial opportunity for the
Company and its business partners today, tomorrow and beyond."
<PAGE>
// OUTSIDE BACK COVER //
Graphic depicts FlashNet's logo in the center of the page.
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
All capitalized terms used and not defined in Part II of this Registration
Statement shall have the meaning assigned to them in the prospectus which forms
a part of this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the registrant in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 12,788
-----------
NASD fee...................................................... 5,100
-----------
Nasdaq National Market listing fee............................ *
Printing and engraving expenses............................... *
Legal fees and expenses....................................... *
Accounting fees and expenses.................................. *
Blue sky fees and expenses.................................... *
Transfer agent fees........................................... *
Miscellaneous................................................. *
-----------
Total..................................................... $ *
-----------
-----------
</TABLE>
- ------------------------
* To be included by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The registrant has authority under Articles 2.02A.(16) and 2.02-1 of the
Texas Business Corporation Act (the "TBCA") to indemnify its directors and
officers to the extent provided for in such statute. The registrant's Restated
Articles of Incorporation permit indemnification of directors and officers to
the fullest extent permitted by law.
The TBCA provides in part that a corporation may indemnify a director or
officer or other person who was, is, or is threatened to be made a named
defendant or respondent in a proceeding because the person is or was a director,
officer, employee or agent of the corporation, if it is determined that such
person (i) conducted himself in good faith; (ii) reasonably believed, in the
case of conduct in his official capacity as a director or officer of the
corporation, that his conduct was in the corporation's best interests, and, in
all other cases, that his conduct was at least not opposed to the corporation's
best interests; and (iii) in the case of any criminal proceeding, had no
reasonable cause to believe that his conduct was unlawful.
A corporation may indemnify a person under the TBCA against judgments,
penalties, (including excise and similar taxes), fines, settlement, and
reasonable expenses actually incurred by the person in connection with the
proceeding. If the person is found liable to the corporation or is found liable
on the basis that personal benefit was improperly received by the person, the
indemnification is limited to reasonable expenses actually incurred by the
person in connection with the proceeding, and shall not be made in respect of
any proceeding in which the person shall have been found liable for willful or
intentional misconduct in the performance of his duty to the corporation.
A corporation may also pay or reimburse expenses incurred by a person in
connection with his appearance as a witness or other participation in a
proceeding at a time when he is not a named defendant or respondent in the
proceeding.
II-1
<PAGE>
Article Twelve of the registrant's Restated Articles of Incorporation
provides that, to the fullest extent permitted by the TBCA as the same exists or
as it may hereafter be amended, no director of the registrant shall be
personally liable to the registrant or its shareholders for monetary damages for
breach of fiduciary duty as a director.
Prior to consummation of this offering, the registrant will enter into
indemnification agreements with each of its directors and executive officers
that provide for indemnification and expense advancement to the fullest extent
permitted under the TBCA.
The registrant currently carries directors and officers liability insurance
with policy limits of $2,000,000.
Reference is made to Section of the underwriting agreement to be filed as
Exhibit 1.1 hereto, indemnifying the officers and directors of the registrant
against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its formation on September 25, 1995, the registrant has issued and
sold or otherwise transferred the below listed unregistered securities. These
issuance's were deemed exempt from registration under the Securities Act in
reliance on either (i) Section 4(2) of the Securities Act, as transactions not
involving any public offering, or (ii) Rule 701 promulgated under the Securities
Act. No underwriters were involved in connection with the sales of securities
referred to in this Item 15.
1. Soon after its formation, the Company issued 218,750 shares of common stock
to Albert Lee Thurburn, the Company's Chairman of the Board and Chief
Executive Officer, and 93,750 shares of common stock to Michael Scott
Leslie, the Company's President, in exchange for services rendered to the
Company prior to September 28, 1995. Such shares were deemed to have an
aggregate value, as of the date of issuance, which value was determined in
good faith by the Board of Directors, of $8,750 in the case of Mr. Thurburn,
and $3,750, in the case of Mr. Leslie.
2. On January 27, 1996, the Company sold a total of 1,250,000 shares of common
stock for an aggregate purchase price of $250,000. Michael Scott Leslie, the
Company's President, purchased 187,500 of such shares and the remaining
shares were sold to independent investors.
3. From July 1996 through December 1996, the Company sold a total of $635,000
in principal amount of 12% convertible notes, together with warrants to
purchase a total of 52,070 shares of common stock at an exercise price of
$.01 per share, to a total of 25 purchasers. Each purchaser is a party to a
separate purchase agreement dated as of July 8, 1996. Interest accrues at
the rate of 12% per annum and is to be paid on January 31, April 30, July 31
and October 31 of each year. The Company was required to pay one-third of
the original principal amount of the notes on each of July 31, 1997 and July
31, 1998, except to the extent converted. The remaining unpaid or
unconverted principal balance of the notes is due July 31, 1999. The
principal amount of the notes is convertible into common stock at a rate of
$10.00 per share, subject to adjustment solely for stock splits or
combinations. The warrants are exercisable in whole or in part at any time
after December 31, 1996 and prior to July 31, 1999. A total of $80,000 in
principal amount of the notes and warrants to purchase a total of 6,560
shares of common stock were sold to executive officers and directors of the
registrant and the remaining notes and warrants were sold to independent
investors. As of September 30, 1998, the remaining outstanding principal of
the notes was $201,333 ($24,000 of which was held by affiliates), a total of
$297,000 in principal amount of the notes had been converted into 29,700
shares of common stock (5,600 of which are held by affiliates) and warrants
to acquire 50,020 shares of common stock were outstanding and unexercised
(of which warrants to purchase 6,560 shares of common stock were held by
affiliates).
4. In December 1996, the Company sold 31,888 shares of the Company's common
stock to Stephen B. Markwardt, a director of the Company, for a cash
purchase price of $200,000.
II-2
<PAGE>
5. On May 7, 1998, the Company sold 749,587 shares of the Company's newly
designated Series A Convertible Preferred Stock for a total cash purchase
price of $4,550,000. An additional 614,498 shares of the preferred stock
were sold on August 3, 1998 for a total cash purchase price of $3,730,000.
Of the 1,364,085 shares sold, 984,351 shares were sold to entities who were
controlled by or became affiliates as a result of their purchase and 379,734
shares were sold to independent investors.
6. The registrant has from time to time granted to employees options to
purchase common stock. The following table sets forth certain information
regarding such grants:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICES
UNDERLYING OPTIONS PER SHARE
------------------- ---------------
<S> <C> <C>
Inception through September 30, 1996.......................................... N/A N/A
October 1, 1996 through September 30, 1997.................................... 10,000 $ 2.00
5,000 $ 2.67
5,000 $ 4.00
27,700 $ 5.00
8,000 $ 6.00
9,000 $ 8.00
October 1, 1997 through the date hereof....................................... 60,725 $ 8.00
47,645 $ 12.00
5,000 $ 20.00
79,990 $ 30.00
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<S> <C>
1.1* Underwriting Agreement.
3.1 Restated Articles of Incorporation of the Company, dated February 18, 1998.
3.2 Certificate of Designations of Series A Convertible Preferred Stock of the
Company, dated May 7, 1998 and Statement of Increase in Number of Shares of
Series A Convertible Preferred Stock of the Company, dated July 31, 1998.
3.3 Bylaws of the Company, adopted September 27, 1995.
3.4 Form of Restated Articles of Incorporation of the Company, as in effect upon
closing of this offering.
3.5 Form of Bylaws of the Company, as in effect upon closing of this offering.
4.1 12% Convertible Notes Purchase Agreement, dated July 8, 1996, between the Company
and a purchaser of such notes. Each purchaser is a party to an identical
agreement with the Company.
4.2 Common Stock Purchase Agreement, dated December 5, 1996, between the Company and
Stephen B. Markwardt.
4.3 Secured Promissory Note, dated December 10, 1997, payable by the Company to
Ascend Communications, Inc.
4.4 Warrant to Purchase common stock, issued by the Company to Ascend Communications,
Inc. on December 10, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
4.5 Stock Purchase Agreement, dated May 7, 1998, by and among the Company, Apogee
Fund LP, Emmett M. Murphy, ISP Investors, L.P., Scott M. Kleberg, J. Luther
King, Jr., Scott C. Hollmann, and Fourteen Hill Capital, LP.
4.6 Registration Rights Agreement, dated May 7, 1998, by and among the Company and
the investors named in 4.5 above.
4.7 First Amendment to Stock Purchase Agreement, dated August 3, 1998, by and among
Apogee Fund LP; Emmett M. Murphy; ISP Investors, L.P.; Scott M. Kleberg; J.
Luther King, Jr.; Scott C. Hollmann; Fourteen Hill Capital, LP; Applied
Telecommunications Technologies, Inc.; Paul Castro; UD Donna Manning IRA; Faith
Griffin; Youssef Squali; Jeffrey N. Wilkes; George P. Jenkins Insurance Trust,
U/A 6/28/91, James P. Jenkins, Robert N. Jenkins and Richard G. Jenkins,
Trustees; James P. Jenkins; Frank A. Klepetko; Q Ventures, L.P. and the
Company.
4.8 First Amendment to Registration Rights Agreement, dated August 3, 1998, by and
among the investors named in 4.7 above and the Company.
4.9* Specimen Certificate for shares of common stock.
5.1* Opinion of Cantey & Hanger, L.L.P.
5.2* Opinion of Brobeck, Phleger & Harrison LLP
10.1+ Master Lease Agreement, dated June 7, 1996, between the Company, as Lessee, and
Ascend Credit Corporation, as Lessor.
10.2 Master Lease Agreement, dated October 31, 1996, between the Company, as Lessee,
and Shiva Corporation, as Lessor.
10.3 Letter lease agreement, dated September 27, 1996, between the Company and U.S.
Robotics
10.4 Letter lease agreement, dated October 14, 1996, between the Company and U.S.
Robotics
10.5+ Master Lease Agreement, dated June 12, 1997, between the Company, as Lessee, and
EMC 2 Corporation, as Lessor.
10.6 Warrant letter agreement, dated July 31, 1996, between the Company and ACSI
Advanced Technologies, Inc.
10.7 Letter agreement, dated June 17, 1997, between the Company and ACSI Advanced Data
Services, Inc. (successor to ACSI Advanced Technologies, Inc.)
10.8 Management Consulting Services Agreement, dated June 17, 1997, between the
Company and ACSI Advanced Data Services, Inc.
10.9 WebSite Management Company, Inc. 1997 Stock Incentive Plan.
10.10 Office Lease, dated June 14, 1996, between the Company, as Tenant, and Colonial
Savings, F. A., as Landlord, including Addendum, dated May 23, 1997.
10.11+ Lease Agreement, dated February 13, 1998, between the Company and Leonard
Properties.
10.12 Merchant Bank Credit Card Agreement, dated June 29, 1998, between the Company and
First Charter Bank, N.A.
10.13 Agreement, dated December 12, 1997, between the Company and Summit National Bank.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.14 Netscape Communications Corporation Network Service Provider Distribution
Agreement, dated March 26, 1996, between the Company and Netscape
Communications Corporation.
10.15+ Software License and Support Agreement, dated August 28, 1998, between the
Company and Portal Software, Inc.
10.16 Software Distribution and Licensing Agreement, dated December 24, 1996, between
the Company and Solid Oak Software, Inc.
10.17+ Shopsite Distributor Agreement, dated June 11, 1998, between the Company and Open
Market, Inc.
10.18+ PSINet Wholesale Usage Agreement, dated February 17, 1998, between the Company
and PSINet, Inc. and Amendment No. 1 to PSINet Wholesale Usage Agreement, dated
November 10, 1998
10.19 Noncompetition and Nondisclosure Agreement, dated May 7, 1998, by and between the
Company and A. Lee Thurburn.
10.20 Noncompetition and Nondisclosure Agreement, dated May 7, 1998, by and between the
Company and Michael Scott Leslie.
10.21 Letter Agreement between the Company and Andrew N. Jent, dated November 3, 1998.
10.22 Letter Agreement between the Company and Terri Frey, dated June 24, 1998.
21.1 Subsidiaries of the registrant.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Cantey & Hanger, L.L.P. Reference is made to Exhibit 5.1.
23.3 Consent of Brobeck, Phleger & Harrison LLP. Reference is made to Exhibit 5.2.
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be included by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
(B) FINANCIAL STATEMENT SCHEDULES.
No financial statement schedules of the Company are included in Part II of
this registration statement because the information required to be set forth
therein is not applicable or is shown in the Consolidated Financial Statements
or the Notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the TBCA, the Restated Articles
II-5
<PAGE>
of Incorporation or the Bylaws of the registrant, the Underwriting Agreement, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-6
<PAGE>
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 the City of Fort Worth,
State of Texas, on December 18, 1998.
<TABLE>
<S> <C> <C>
FLASHNET COMMUNICATIONS, INC.
By: /s/ MICHAEL SCOTT LESLIE
-----------------------------------------
Michael Scott Leslie
PRESIDENT, CHIEF OPERATING OFFICER AND
SECRETARY
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Michael Scott Leslie and Albert Lee
Thurburn, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to sign any registration
statement for the same offering covered by this registration statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or his or their substitute or substitutes, may lawfully do or cause 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 and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman and Chief
/s/ ALBERT LEE THURBURN Executive Officer
- ------------------------------ (principal executive December 18, 1998
Albert Lee Thurburn officer)
/s/ MICHAEL SCOTT LESLIE President, Chief Operating
- ------------------------------ Officer, Secretary and December 18, 1998
Michael Scott Leslie Director
Executive Vice President
/s/ ANDREW N. JENT and Chief Financial
- ------------------------------ Officer (principal December 18, 1998
Andrew N. Jent financial officer)
/s/ JOHN B. KLEINHEINZ
- ------------------------------ Director December 18, 1998
John B. Kleinheinz
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JAMES A. RYFFEL
- ------------------------------ Director December 18, 1998
James A. Ryffel
/s/ KEVIN A. STADTLER
- ------------------------------ Director December 18, 1998
Kevin A. Stadtler
/s/ JAMES B. FRANCIS, JR.
- ------------------------------ Director December 18, 1998
James B. Francis, Jr.
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
1.1* Underwriting Agreement.
3.1 Restated Articles of Incorporation of the Company, dated February 18, 1998.
3.2 Certificate of Designations of Series A Convertible Preferred Stock of the
Company, dated May 7, 1998 and Statement of Increase in Number of Shares of
Series A Convertible Preferred Stock of the Company, dated July 31, 1998.
3.3 Bylaws of the Company, adopted September 27, 1995.
3.4 Form of Restated Articles of Incorporation of the Company, as in effect upon
closing of this offering.
3.5 Form of Bylaws of the Company, as in effect upon closing of this offering.
4.1 12% Convertible Notes Purchase Agreement, dated July 8, 1996, between the Company
and a purchaser of such notes. Each purchaser is a party to an identical
agreement with the Company.
4.2 Common Stock Purchase Agreement, dated December 5, 1996, between the Company and
Stephen B. Markwardt.
4.3 Secured Promissory Note, dated December 10, 1997, payable by the Company to
Ascend Communications, Inc.
4.4 Warrant to Purchase common stock, issued by the Company to Ascend Communications,
Inc. on December 10, 1997.
4.5 Stock Purchase Agreement, dated May 7, 1998, by and among the Company, Apogee
Fund LP, Emmett M. Murphy, ISP Investors, L.P., Scott M. Kleberg, J. Luther
King, Jr., Scott C. Hollmann, and Fourteen Hill Capital, LP.
4.6 Registration Rights Agreement, dated May 7, 1998, by and among the Company and
the investors named in 4.5 above.
4.7 First Amendment to Stock Purchase Agreement, dated August 3, 1998, by and among
Apogee Fund LP; Emmett M. Murphy; ISP Investors, L.P.; Scott M. Kleberg; J.
Luther King, Jr.; Scott C. Hollmann; Fourteen Hill Capital, LP; Applied
Telecommunications Technologies, Inc.; Paul Castro; UD Donna Manning IRA; Faith
Griffin; Youssef Squali; Jeffrey N. Wilkes; George P. Jenkins Insurance Trust,
U/A 6/28/91, James P. Jenkins, Robert N. Jenkins and Richard G. Jenkins,
Trustees; James P. Jenkins; Frank A. Klepetko; Q Ventures, L.P. and the
Company.
4.8 First Amendment to Registration Rights Agreement, dated August 3, 1998, by and
among the investors named in 4.7 above and the Company.
4.9* Specimen Certificate for shares of common stock.
5.1* Opinion of Cantey & Hanger, L.L.P.
5.2* Opinion of Brobeck, Phleger & Harrison LLP
10.1+ Master Lease Agreement, dated June 7, 1996, between the Company, as Lessee, and
Ascend Credit Corporation, as Lessor.
10.2 Master Lease Agreement, dated October 31, 1996, between the Company, as Lessee,
and Shiva Corporation, as Lessor.
10.3 Letter lease agreement, dated September 27, 1996, between the Company and U.S.
Robotics
10.4 Letter lease agreement, dated October 14, 1996, between the Company and U.S.
Robotics
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.5+ Master Lease Agreement, dated June 12, 1997, between the Company, as Lessee, and
EMC 2 Corporation, as Lessor.
10.6 Warrant letter agreement, dated July 31, 1996, between the Company and ACSI
Advanced Technologies, Inc.
10.7 Letter agreement, dated June 17, 1997, between the Company and ACSI Advanced Data
Services, Inc. (successor to ACSI Advanced Technologies, Inc.)
10.8 Management Consulting Services Agreement, dated June 17, 1997, between the
Company and ACSI Advanced Data Services, Inc.
10.9 WebSite Management Company, Inc. 1997 Stock Incentive Plan.
10.10 Office Lease, dated June 14, 1996, between the Company, as Tenant, and Colonial
Savings, F. A., as Landlord, including Addendum, dated May 23, 1997.
10.11+ Lease Agreement, dated February 13, 1998, between the Company and Leonard
Properties.
10.12 Merchant Bank Credit Card Agreement, dated June 29, 1998, between the Company and
First Charter Bank, N.A.
10.13 Agreement, dated December 12, 1997, between the Company and Summit National Bank.
10.14 Netscape Communications Corporation Network Service Provider Distribution
Agreement, dated March 26, 1996, between the Company and Netscape
Communications Corporation.
10.15+ Software License and Support Agreement, dated August 28, 1998, between the
Company and Portal Software, Inc.
10.16 Software Distribution and Licensing Agreement, dated December 24, 1996, between
the Company and Solid Oak Software, Inc.
10.17+ Shopsite Distributor Agreement, dated June 11, 1998, between the Company and Open
Market, Inc.
10.18+ PSINet Wholesale Usage Agreement, dated February 17, 1998, between the Company
and PSINet, Inc. and Amendment No. 1 to PSINet Wholesale Usage Agreement, dated
November 10, 1998
10.19 Noncompetition and Nondisclosure Agreement, dated May 7, 1998, by and between the
Company and A. Lee Thurburn.
10.20 Noncompetition and Nondisclosure Agreement, dated May 7, 1998, by and between the
Company and Michael Scott Leslie.
10.21 Letter Agreement between the Company and Andrew N. Jent, dated November 3, 1998.
10.22 Letter Agreement between the Company and Terri Frey, dated June 24, 1998.
21.1 Subsidiaries of the registrant.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Cantey & Hanger, L.L.P. Reference is made to Exhibit 5.1.
23.3 Consent of Brobeck, Phleger & Harrison LLP. Reference is made to Exhibit 5.2.
24.1 Power of Attorney (see page II-7).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be included by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Securities and Exchange Commission.
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
WEBSITE MANAGEMENT COMPANY, INC.
ARTICLE ONE
WebSite Management Company, Inc., pursuant to the provisions of Article
4.07 of the Texas Business Corporation Act, hereby adopts restated articles of
incorporation which accurately copy the articles of incorporation and all
amendments thereto that are in effect to date and as further amended by such
restated articles of incorporation as hereinafter set forth and which contain no
other change in any provision thereof.
ARTICLE TWO
The articles of incorporation of the corporation are amended by the
restated articles of incorporation as follows:
The name of the corporation is changed from WebSite Management Company,
Inc. to FlashNet Communications, Inc. by a change to ARTICLE ONE of the articles
of incorporation.
The number of shares which the corporation is authorized to issue is
changed from Fifty Million (50,000,000) shares of Common Stock to Five Million
(5,000,000) shares of Common Stock and Two Million (2,000,000) shares of
Preferred Stock by a change to ARTICLE FOUR of the articles of incorporation.
All shares of Common Stock have identical rights and privileges with each other
in every respect. Shares of Preferred Stock may be issued in one or more series
designated by the Board of Directors.
Preemptive rights are denied as to all shareholders by a change to ARTICLE
SEVEN of the articles of incorporation.
ARTICLE THREE
Each of the above described amendments to the articles of incorporation by
the restated articles of incorporation has been effected in conformity with the
provisions of the Texas Business Corporation Act and such restated articles of
incorporation and each such amendment made by the restated articles of
incorporation were duly adopted by the shareholders of the corporation on the
7th day of February, 1998.
ARTICLE FOUR
The number of shares outstanding at the time of adoption of the restated
articles of incorporation was 1,613,888; the number of shares entitled to vote
on the restated articles of incorporation as so amended was 1,613,888; the
number of shares voted for such restated articles of incorporation as so amended
was 1,256,888; and the number of shares voted against such restated articles of
incorporation as so amended was zero.
<PAGE>
ARTICLE FIVE
The articles of incorporation and all amendments and supplements thereto
are hereby superseded by the following restated articles of incorporation which
accurately copy the entire text thereof, as amended as above set forth.
ARTICLE ONE
THE NAME OF THE CORPORATION IS FLASHNET COMMUNICATIONS, INC.
ARTICLE TWO
THE PERIOD OF DURATION IS PERPETUAL.
ARTICLE THREE
THE CORPORATION IS ORGANIZED FOR THE PURPOSE OF PROVIDING INTERNET SERVICES
TO THE GENERAL PUBLIC, COMMERCIAL INTERESTS AND OTHERS, AND THE TRANSACTION OF
ANY AND ALL LAWFUL BUSINESS FOR WHICH A CORPORATION MAY BE ORGANIZED UNDER THE
LAWS OF THE STATE OF TEXAS.
ARTICLE FOUR
THE AGGREGATE NUMBER OF SHARES WHICH THE CORPORATION SHALL HAVE THE
AUTHORITY TO ISSUE IS SEVEN MILLION (7,000,000), DIVIDED INTO ONE CLASS OF FIVE
MILLION (5,000,000) SHARES OF COMMON STOCK WITHOUT PAR VALUE PER SHARE AND ONE
CLASS OF TWO MILLION (2,000,000) SHARES OF PREFERRED STOCK WITH PAR VALUE OF ONE
DOLLAR ($1.00) PER SHARE.
ALL SHARES OF COMMON STOCK SHALL HAVE RIGHTS AND PRIVILEGES IDENTICAL WITH
EACH OTHER IN EVERY RESPECT.
THE SHARES OF PREFERRED STOCK AUTHORIZED BY THESE ARTICLES MAY BE ISSUED
FROM TIME TO TIME IN ONE OR MORE SERIES. THE BOARD OF DIRECTORS MAY FIX OR
ALTER THE DIVIDEND RATES, CONVERSION RIGHTS, AND RIGHTS AND TERMS OF REDEMPTION;
SPECIFICALLY, THE BOARD MAY FIX OR ALTER, AMONG OTHER THINGS, SINKING-FUND
PROVISIONS, THE REDEMPTION PRICE OR PRICES, AND THE LIQUIDATION PREFERENCES OF
ANY WHOLLY UNISSUED SERIES OF SHARES OF THE PREFERRED STOCK (INCLUDING THE
NUMBER OF SHARES CONSTITUTING ANY SUCH SERIES AND THE DESIGNATION THEREOF).
ARTICLE FIVE
THE STREET ADDRESS OF THE CORPORATION'S REGISTERED AGENT IS 1812 NORTH
FOREST PARK BOULEVARD, FORT WORTH, TEXAS 76102, AND THE REGISTERED AGENT AT
THIS ADDRESS IS M. SCOTT LESLIE.
- -------------------------------------------------------------------------------
RESTATED ARTICLES OF INCORPORATION
PAGE 2
<PAGE>
ARTICLE SIX
THE CORPORATION WILL NOT COMMENCE BUSINESS UNTIL IT HAS RECEIVED FOR THE
ISSUANCE OF SHARES CONSIDERATION OF THE VALUE OF AT LEAST $1,000, CONSISTING OF
MONEY, LABOR DONE OR PROPERLY ACTUALLY RECEIVED.
ARTICLE SEVEN
NO SHAREHOLDER OR OTHER PERSON SHALL HAVE A PREEMPTIVE RIGHT TO ACQUIRE ANY
TREASURY SHARES, PRESENTLY AUTHORIZED SHARES, OR SHARES THE CORPORATION MAY
HEREAFTER BE AUTHORIZED TO ISSUE. SHARES OF THE CORPORATION MAY BE ISSUED AND
SOLD FROM TIME TO TIME BY DIRECTION OF THE BOARD OF DIRECTORS AND UPON SUCH
TERMS AND CONDITIONS AS THE BOARD OF DIRECTORS MAY DEEM PROPER AND ADVISABLE.
ARTICLE EIGHT
THE NUMBER OF DIRECTORS CONSTITUTING THE CURRENT BOARD OF DIRECTORS IS SIX.
THE NAMES AND ADDRESSES OF THE CURRENT MEMBERS OF THE BOARD OF DIRECTORS ARE:
JOHN B. KLEINHEINZ 201 MAIN STREET
SUITE 2001
FORT WORTH, TEXAS 76102
MICHAEL SCOTT LESLIE 1812 N. FOREST PARK BLVD.
FORT WORTH, TEXAS 76102
PETER PHILPOT 9320 CROWLEY RD.
FORT WORTH, TEXAS 76134
STEPHEN BRADLEY MARKWARDT 2409 COLONIAL PARKWAY
FORT WORTH, TEXAS 76109
JAMES A. RYFFEL 3113 UNIVERSITY DR.,
SUITE 600
FORT WORTH, TEXAS 76109
ALBERT LEE THURBURN 1812 N. FOREST PARK BLVD.
FORT WORTH, TEXAS 76102
- -------------------------------------------------------------------------------
RESTATED ARTICLES OF INCORPORATION
PAGE 3
<PAGE>
ARTICLE NINE
CUMULATIVE VOTING BY THE SHAREHOLDERS AT ANY ELECTION FOR DIRECTORS IS
PROHIBITED. THE SHAREHOLDERS ENTITLED TO VOTE FOR DIRECTORS IN THE ELECTION MAY
CAST ONLY ONE VOTE PER DIRECTORSHIP FOR EACH SHARE HELD.
ARTICLE TEN
THE DIRECTORS OF THE CORPORATION WILL NOT BE LIABLE TO THE CORPORATION OR ITS
SHAREHOLDERS FOR MONETARY DAMAGES FOR ACTS OR OMISSIONS THAT OCCUR IN THE
DIRECTORS' CAPACITY AS DIRECTORS. THIS ARTICLE DOES NOT LIMIT THE LIABILITY OF
ANY DIRECTOR TO THE EXTENT SUCH DIRECTOR IS FOUND LIABLE FOR: (1) A BREACH OF
HIS DUTY OF LOYALTY TO THE CORPORATION OR ITS SHAREHOLDERS; (2) AN ACT OR
OMISSION NOT IN GOOD FAITH THAT CONSTITUTES A BREACH OF THE DIRECTOR'S DUTY TO
THE CORPORATION, OR AN ACT OR OMISSION THAT INVOLVES INTENTIONAL MISCONDUCT OR A
KNOWING VIOLATION OF THE LAW; (3) A TRANSACTION FROM WHICH THE DIRECTOR RECEIVED
AN IMPROPER BENEFIT, WHETHER OR NOT THE BENEFIT RESULTED FROM AN ACTION TAKEN
WITHIN THE SCOPE OF THE DIRECTOR'S OFFICE; OR (4) AN ACT OR OMISSION FOR WHICH
THE LIABILITY OF THE DIRECTOR IS EXPRESSLY PROVIDED BY AN APPLICABLE STATUTE.
ARTICLE ELEVEN
ANY ACTION REQUIRED BY THE TEXAS BUSINESS CORPORATION ACT TO BE TAKEN AT ANY
ANNUAL OR SPECIAL MEETING OF SHAREHOLDERS, OR ANY ACTION WHICH MAY BE TAKEN AT
ANY ANNUAL OR SPECIAL MEETING OF SHAREHOLDERS, MAY BE TAKEN WITHOUT A MEETING,
WITHOUT PRIOR NOTICE, AND WITHOUT A VOTE, IF A CONSENT OR CONSENTS IN WRITING,
SETTING FORTH THE ACTION SO TAKEN, SHALL BE SIGNED BY THE HOLDER OR HOLDERS OF
SHARES HAVING NOT LESS THAN THE MINIMUM NUMBER OF VOTES THAT WOULD BE NECESSARY
TO TAKE SUCH ACTION AT A MEETING AT WHICH THE HOLDERS OF ALL SHARES ENTITLED TO
VOTE ON THE ACTION WERE PRESENT AND VOTED.
Dated the 18th day of February, 1998.
WEBSITE MANAGEMENT COMPANY, INC.
By: /s/ M. Scott Leslie
---------------------------
M. Scott Leslie, President
- -------------------------------------------------------------------------------
RESTATED ARTICLES OF INCORPORATION
PAGE 4
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
FLASHNET COMMUNICATIONS, INC.
Pursuant to Article 2.13 of the
Texas Business Corporation Act
FlashNet Communications, Inc., a corporation organized and existing
under the laws of the State of Texas (the "Corporation"), DOES HEREBY CERTIFY
that, pursuant to the authority conferred on the Board of Directors of the
Corporation by the Restated Articles of Incorporation of the Corporation and
in accordance with Article 2.13 of the Texas Business Corporation Act, on May 6,
1998, the Board of Directors of the Corporation duly adopted, by all
necessary action on the part of the Corporation, the following resolutions
establishing and designating a series of its Preferred Stock, par value $1.00
per share, designated "Series A Convertible Preferred Stock" and fixing and
determining the relative rights and preferences thereof:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation (the "Board of Directors") in accordance with
the provisions of its Restated Articles of Incorporation, a series of
Preferred Stock, par value $1.00 per share, of the Corporation is hereby
created, and that the designation and number of shares thereof and the
preferences, limitations and relative rights thereof are as follows:
SECTION 1. DESIGNATION, NUMBER OF SHARES AND STATED VALUE OF SERIES A
CONVERTIBLE PREFERRED STOCK. There is hereby authorized and established a
series of Preferred Stock that shall be designated as "Series A Convertible
Preferred Stock" (hereinafter referred to as "Series A Preferred"), and the
number of shares constituting such series shall be 825,000. Such number of
shares may be increased or decreased, but not to a number less than the
number of shares of Series A Preferred then issued and outstanding, by
resolution adopted by the full Board of Directors. The "Stated Value" per
share of the Series A Preferred shall be equal to $6.07.
SECTION 2. DEFINITIONS. In addition to the definitions set forth
elsewhere herein, the following terms shall have the meanings indicated:
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which banking institutions in Fort Worth, Texas are authorized or
obligated by law or executive order to close.
"Common Stock" shall mean the common stock, no par value per share, of
the Corporation.
<PAGE>
"Conversion Price" shall mean the conversion price per share of Common
Stock into which the Series A Preferred is convertible, as such conversion
price may be adjusted pursuant to Section 10 hereof. The initial Conversion
Price is the Stated Value.
"Junior Securities" means the Common Stock or any other series of stock
issued by the Corporation ranking junior as to the Series A Preferred upon
liquidation, dissolution or winding up of the Corporation.
"Original Issue Date" shall mean the date on which shares of the Series
A Preferred are first issued.
"Parity Security" means any class or series of stock issued by the
Corporation ranking on a parity with the Series A Preferred upon liquidation,
dissolution or winding up of the Corporation.
"Person" means any individual, corporation, association, partnership,
joint venture, limited liability company, trust, estate, or other entity or
organization, other than the Corporation, any subsidiary of the Corporation,
any employee benefit plan of the Corporation or any subsidiary of the
Corporation, or any entity holding shares of Common Stock for or pursuant to
the terms of any such plan.
"Qualified IPO" means a registered underwritten public offering of the
Common Stock: (i) resulting in gross proceeds (before deduction of
underwriters' commissions, discounts or expenses) to the Corporation of at
least $15,000,000, and (ii) resulting in a pre-offering valuation of the
Corporation's outstanding equity by the underwriters of at least $50,000,000.
"Qualified Sale" means any merger, reorganization, change of control, or
other transaction: (i) resulting in proceeds (before directly attributable
fees and expenses) to the Corporation or its shareholders of cash and/or
marketable securities having an aggregate value of at least $38,000,000, and
(ii) in which each share of Series A Preferred is valued for at least $12.14
per share (if prior to November 7, 1999) or at least $18.21 per share (if
subsequent to November 6, 1999).
"Senior Securities" means any class or series of stock issued by the
Corporation ranking senior to the Series A Preferred upon liquidation,
dissolution or winding up of the Corporation.
SECTION 3. DIVIDENDS AND DISTRIBUTIONS. For so long as any share of
the Series A Preferred shall remain issued and outstanding, no dividend or
other distribution shall be declared or paid, or set apart for payment on or
in respect of any capital stock of the Corporation.
SECTION 4. CERTAIN COVENANTS AND RESTRICTIONS.
(a) So long as any shares of Series A Preferred are outstanding;
(i) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the shares of Series A
Preferred as provided in Section 10 such number of its authorized but
unissued shares of Common Stock as will be sufficient to permit the
conversion of all outstanding shares of Series A Preferred, and all
other securities and instruments convertible into shares of Common
Stock, and shall take all reasonable action within its power required
to increase the authorized number of shares of Common Stock
2
<PAGE>
necessary to permit the conversion of all such shares of Series A
Preferred and all other securities and instruments convertible into
shares of Common Stock.
(ii) The Corporation represents, warrants and agrees that all
shares of Common Stock that may be issued upon exercise of the
conversion rights of shares of Series A Preferred will, upon issuance,
be fully-paid and nonassessable.
(iii) The Corporation will endeavor to make the shares of stock
that may be issued upon exercise of the conversion rights of shares of
Series A Preferred eligible for trading upon any national securities
exchange, or any automated quotation system of a registered securities
association, upon or through which the Common Stock shall then be
traded prior to such delivery.
(iv) Prior to the delivery of any securities which the
Corporation shall be obligated to deliver upon redemption or
conversion of the Series A Preferred, the Corporation will endeavor to
comply with all federal and state securities laws and regulations
thereunder requiring the registration of such securities with, or any
approval of or consent to the delivery of such securities by, any
governmental authority.
(v) The Corporation shall pay all taxes and other
governmental charges (other than any income or franchise taxes) that
may be imposed with respect to the issue or delivery of shares of
Common Stock upon conversion of Series A Preferred as provided herein.
The Corporation shall not be required, however, to pay any tax or
other charge imposed in connection with any transfer involved in the
issue of any certificate for shares of Common Stock in any name other
than that of the registered holder of the shares of the Series A
Preferred surrendered in connection with the conversion thereof, and
in such case the Corporation shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid, or
it has been established to the Corporation's satisfaction that no tax
or other charge is due.
(b) Prior to the consummation of a Qualified IPO or Qualified Sale,
in the event the Corporation proposes to offer any of its equity securities
(including, without limitation, shares of the Corporation's capital stock
or any rights to acquire such shares), excluding (i) interests issued
pursuant to the Corporation's option plans in which employees, independent
directors or consultants participate as of the Original Issue Date,
(ii) securities issuable pursuant to a transaction governed by Rule 145 of
the Securities Act of 1933, as amended, and (iii) securities issuable as
dividends or upon the exercise or conversion of other securities, then the
holders of shares of Series A Preferred shall have the preemptive right to
acquire such securities from the Corporation. In the event that the
Corporation proposes to make any offer that is subject to this
Section 4(b), then and in each such case the Corporation shall at least
thirty days prior to any such event (the "Window"), and within five
business days after it has knowledge of any such pending transaction,
provide to the Series A Preferred holders written notice of the
Corporation's intention to make such an offer of securities. Such
notice shall include the number and type of securities to be offered,
the price, the intended offer date, and any other information reasonably
requested by the Series A Preferred holders. Each Series A Preferred
holder may exercise this preemptive right, by providing written notice
to the Corporation within fifteen days (the "Response Period") after
receipt of the foregoing
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<PAGE>
notice from the Corporation, with respect to a percentage of the
securities offered, calculated by dividing (i) the number of Series A
Preferred shares held by such holder, by (ii) the total number of Series
A Preferred shares outstanding. In the event any holder(s) shall elect
not to exercise the preemptive rights as provided hereunder, then the
aggregate shares otherwise entitled to be purchased by such
non-participating holders (the "Non-Subscribed Securities") shall be
available for purchase by the remaining Series A Preferred holders, who
shall accordingly receive notice from the Corporation of such
availability within five days after the expiration of the Response
Period, in the proportion that the number of each holder's Series A
Preferred shares held bears to the total number of Series A Preferred
shares held by all such holders electing to exercise preemptive rights.
The preemptive rights to acquire the Non-Subscribed Securities shall
expire upon the expiration of the Window, at which time the Corporation
may issue any and all securities regarding which the Series A Preferred
holders failed to exercise their preemptive rights hereunder.
SECTION 5. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation (in connection with the bankruptcy or insolvency of the
Corporation or otherwise), whether voluntary or involuntary, before any
payment or distribution of the assets of the Corporation (whether capital
or surplus) shall be made to or set apart for the holders of shares of any
Junior Securities, the holders of the shares of Series A Preferred shall be
entitled to receive an amount per share equal to the Stated Value per share
held by them. To the extent the available assets are insufficient to fully
satisfy such amounts, then the holders of the Series A Preferred shall
share ratably in such distribution in the proportion that each holder's
shares bears to the total number of shares of Series A Preferred
outstanding. No further payment on account of any such liquidation,
dissolution or winding up of the Corporation shall be paid to the holders
of the shares of Series A Preferred or the holders of any Parity Securities
unless there shall be paid at the same time to the holders of the shares of
Series A Preferred and the holders of any Parity Securities proportionate
amounts determined ratably in proportion to the full amounts to which the
holders of all outstanding shares of Series A Preferred and the holders of
all such outstanding Parity Securities are respectively entitled with
respect to such distribution. For purposes of this Section 5, neither a
consolidation or merger of the Corporation with one or more partnerships,
corporations or other entities nor a sale, lease, exchange or transfer of
all or any substantial part of the Corporation's assets for cash,
securities or other property shall be deemed to be a liquidation,
dissolution or winding-up of the Corporation, whether voluntary or
involuntary.
(b) After payment of the full amount of the liquidation preference to
which the holders of shares of Series A Preferred are entitled, the holders
of Common Stock shall receive, to the extent available therefor, the Stated
Value on account of each share of Common Stock held. To the extent the
remaining available assets are insufficient to fully satisfy such amounts,
then the holders of Common Stock shall share ratably in such distribution
in the proportion that each holder's shares bears to the total number of
shares of Common Stock outstanding.
(c) After the payment of the full amount to the holders of Common
Stock pursuant to the preceding paragraph, all shareholders shall share
ratably in the distribution of the remaining available assets of the
Corporation in the proportion that each holder's shares bears to the total
number of shares of capital stock of the Corporation outstanding.
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(d) Written notice of any liquidation, dissolution or winding up of
the Corporation, stating the payment date or dates when and the place or
places where the amounts distributable in such circumstances shall be
payable, shall be given by first class mail, postage prepaid, not less than
fifteen days prior to any payment date stated therein, to the holders of
record of the shares of Series A Preferred at their respective addresses as
the same shall appear in the records of the Corporation.
SECTION 6. OPTIONAL REDEMPTION BY THE CORPORATION. The outstanding shares
of Series A Preferred are subject to redemption in accordance with the following
provisions:
(a) Subject to the terms hereof, the Corporation may at its option
elect to redeem all, but not less than all, of the outstanding shares of
Series A Preferred after May 7, 2003.
(b) The redemption price per share for Series A Preferred redeemed on
any optional redemption date (the "Redemption Price") shall be equal to the
greater of (i) the Stated Value per share of the shares to be redeemed, and
(ii) the fair market value of the Series A Preferred as mutually agreed in
good faith by the Corporation and the Series A Preferred holders. If after
the expiration of twenty days following the notice required by paragraph
(c) of this Section 6, the Corporation and the Series A Preferred holders
fail to agree regarding fair market value under this paragraph, the dispute
shall be determined pursuant to binding arbitration in accordance with the
rules of the American Arbitration Association. Subject to Section 6(c)
hereof, the Redemption Price shall be paid in cash from any source of funds
legally available therefor.
(c) Not less than thirty nor more than sixty days prior to the date
fixed for any redemption of any Shares of Series A Preferred, a notice
specifying the time (the "Redemption Date") and place of such redemption
shall be given by first class mail, postage prepaid, to the holders of
record of the shares of Series A Preferred to be redeemed at their
respective addresses as the same shall appear on the books of the
Corporation (but no failure to mail such notice or any defect therein shall
affect the validity of the proceedings for redemption except as to the
holder to whom the Corporation has failed to mail such notice or except as
to the holder whose notice was defective), calling upon each such holder of
record to surrender to the Corporation on the Redemption Date at the place
designated in such notice such holder's certificate or certificates
representing the then outstanding shares of Series A Preferred held by such
holder. On or after the Redemption Date, each holder of shares of Series A
Preferred called for redemption shall surrender his certificate or
certificates for such shares to the Corporation at the place designated in
the redemption notice and shall thereupon be entitled to receive payment of
the Redemption Price. From and after the Redemption Date, unless there
shall have been a default in payment of the Redemption Price, all rights of
the holders of Series A Preferred designated for redemption (except the
right to receive the Redemption Price without interest upon surrender of
their certificate or certificates) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
SECTION 7. REDEMPTION AT OPTION OF HOLDER. At any time after
November 7, 2000 and prior to the consummation of a Qualified IPO or Qualified
Sale, each holder of shares of Series A Preferred shall have the option to
require the Corporation to redeem all or part of such holders' shares for cash
at a redemption price equal to the Stated Value per share of the shares to be
redeemed. To exercise such option, such holders shall deliver the certificate
or certificates representing the shares of Series A Preferred
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<PAGE>
to be redeemed pursuant to this Section 7 to the Corporation and a notice of
the election of the holders to have all or part of such holders' shares
redeemed. Upon receipt of such certificate and notice, the Corporation
shall, subject to any applicable restrictions of law or regulations, promptly
redeem the shares for which such holders have elected to be redeemed and pay
to or on the order of such holders in immediately available funds the full
redemption price for the shares of Series A Preferred to be so redeemed. In
the event the Corporation has insufficient funds (whether by legal
prohibition or otherwise) to redeem all shares of each holder delivering a
notice hereunder, then the Corporation shall use the maximum amount of funds
available, and the number of shares redeemed and the redemption price
therefor shall be allocated according to the relative number of shares sought
to be redeemed by each holder as compared to the total number of shares
sought to be redeemed by all Series A Preferred holders exercising their put
option hereunder.
SECTION 8. REACQUIRED SHARES. Any shares of Series A Preferred
repurchased, redeemed, converted or otherwise acquired by the Corporation
shall be retired and canceled promptly after the acquisition thereof. All
such shares shall upon their cancellation become authorized but unissued
shares of Preferred Stock, without designation as to series, and may
thereafter be reissued.
SECTION 9. VOTING RIGHTS.
(a) Except as otherwise provided in this Section 9 or required by law
or any provision of the Articles of Incorporation of the Corporation, the
holders of the shares of Series A Preferred shall vote together with the
shares of Common Stock as a single class at any annual or special meeting
of stockholders of the Corporation, and each holder of shares of Series A
Preferred shall be entitled to one (1) vote for each share of Series A
Preferred held by such holder on the record date fixed for such meeting.
In the event the Corporation shall at any time after the Original Issue
Date (i) subdivide the outstanding shares of Common Stock into a greater
number of shares or (ii) combine the outstanding shares of Common Stock
into a smaller number of shares, the number of votes to which each share of
Series A Preferred is entitled shall be adjusted proportionately so that
the adjusted number of votes shall bear the same relation to the number of
votes in effect immediately prior to such event as the total number of
shares of Common Stock outstanding immediately prior to such event shall
bear to the total number of shares of Common Stock outstanding immediately
after such event. Such adjustment shall become effective immediately after
the effective date of a subdivision or combination.
(b) Notwithstanding any other provision of this Section 9, until the
consummation of a Qualified IPO or Qualified Sale:
(i) in any election of directors of the Corporation at any
meeting of the shareholders or by written consent of the shareholders
of the Corporation, (1) the holders of shares of Series A Preferred
shall be entitled to elect the smallest whole number of directors
necessary to represent at least two-sevenths of the total members of
the Board of Directors (the "Series A Directors"), to remove from
office such directors, and to fill any vacancy caused by their
resignation, death or removal from office, and (2) the remaining
shareholders of the Corporation, voting as a single class, shall be
entitled to elect the remaining members of the Board of Directors;
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<PAGE>
(ii) the Board of Directors may at any time and from time to
time, and shall in any event promptly upon the request of the holders
of the Series A Preferred, establish a committee of the Board of
Directors, with such committee being comprised of the Series A
Directors and one (1) other member of the Board of Directors (the "CEO
Committee"); the CEO Committee shall have the exclusive right to
select and recommend candidates for the office of Chief Executive
Officer of the Corporation, which officer shall be elected, if at all,
by the full Board of Directors only if such candidate was presented to
the Board of Directors by the CEO Committee; and
(iii) immediately following and until a complete correction or
cure of (1) the Corporation having failed to make any required
redemption payment to a holder of shares of Series A Preferred
(regardless of whether such payment is legally permissible), or (2) a
breach by the Corporation or the Board of Directors of any provision
of paragraph (c) of this Section 9, each of the Series A Directors
shall be entitled, with respect to any action taken by the Board of
Directors (whether at any regular or special meeting or by written
consent), to cast enough votes that are sufficient to constitute a
majority of the votes entitled to be cast by the entire Board of
Directors.
(c) For so long as the Corporation has not provided a cash
(whether by redemption, negotiated purchase or otherwise) return of at
least two-thirds of the aggregate amount invested by the Series A
Preferred holders in the Series A Preferred on the Original Issue Date,
and before the consummation of a Qualified IPO or Qualified Sale, the
Corporation shall not, without the affirmative vote or consent of the
holders of a majority of the shares of Series A Preferred voting
together as a separate class: (i) authorize, create or issue, or
increase the authorized or issued amount of, any class or series of
stock of Senior Securities or Parity Securities, or any security
convertible into or exchangeable for Senior Securities or Parity
Securities (other than in connection with (1) stock option plans in
which employees, independent directors, or consultants of the
Corporation are eligible to participate, (2) exercises of rights, that
are outstanding on or before the Original Issue Date, to acquire shares
of Common Stock, or (3) a Qualified IPO or Qualified Sale) or reclassify
or modify any Junior Securities so as to become Parity Securities or
Senior Securities; (ii) amend, repeal or change any of the provisions of
the Articles of Incorporation of the Corporation (including the
Certificate of Designations relating to the Series A Preferred); (iii)
authorize or take any action resulting in the merger, reorganization,
change of control, or sale of substantially all of the assets of the
Corporation (other than a Qualified Sale); (iv) redeem, repurchase or
otherwise reacquire any shares of a class or series of Junior Securities
or Parity Securities (other than redemptions from employees of the
Corporation in connection with their employment termination); (v)
authorize or take any action resulting in a transaction between the
Corporation and one of its affiliates (other than a wholly-owned
subsidiary), unless on terms no less favorable than would have been
available with either a less than wholly-owned subsidiary of the
Corporation or an independent third party; (vi) increase the size of the
Board of Directors; or (vii) authorize or provide to any employee,
independent contractor or other representative of the Corporation either
annual cash compensation exceeding, individually or in the aggregate to
any single party, $250,000 or a severance benefit exceeding,
individually or in the aggregate to any single party, $150,000.
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SECTION 10. CONVERSION RIGHTS. Holders of shares of Series A Preferred
shall have the right to convert all or a portion of such shares into Common
Stock, as follows:
(a) At any time, each share of Series A Preferred shall be
convertible at the option of the holder thereof into fully paid,
non-assessable shares of Common Stock. Moreover, all outstanding shares
of Series A Preferred shall be automatically converted (i) upon the
closing of a Qualified IPO or Qualified Sale, or (ii) upon both the
affirmative vote of the holders of a majority of the Series A Shares,
voting as a separate class, and the affirmative vote of the holders of
a majority of the issued and outstanding Common Stock, voting as a
separate class. The number of shares of Common Stock deliverable upon
conversion of each share of Series A Preferred shall be determined by
dividing the Stated Value of such share of Series A Preferred by the
Conversion Price then in effect.
(b) In case at any time the Corporation shall (i) subdivide the
outstanding shares of Common Stock into a greater number of shares, or (ii)
combine the outstanding shares of Common Stock into a smaller number of
shares, (iii) issue any shares of Common Stock for a price less than the
Stated Value, (iv) subject to paragraph (c) of this Section, issue any
option, warrant or other convertible security or right to subscribe for or
purchase capital stock of the Corporation at a price per share less than
the Stated Value, then the Conversion Price in effect immediately prior
thereto shall be multiplied by the fraction obtained:
by dividing
(X), which is the numerator obtained by adding (A) the total number of
issued and outstanding shares of Common Stock immediately prior to the
effectiveness of such action by the Corporation, plus (B) the number
of shares of Common Stock that could have been acquired with the
consideration, if any, received or deemed received by the Corporation
in exchange for such action at the Conversion Price in effect
immediately prior thereto,
by
(Y), which is the denominator that equals the total number of issued
and outstanding shares of Common Stock immediately after such
effectiveness.
Such adjustment shall become effective immediately after the effective date
of a subdivision, combination or issuance; provided, however, that no
adjustment shall be made to the Conversion Price on account of securities
issued by the Corporation in connection with (i) stock option plans in
which employees, independent directors, or consultants of the Corporation
are eligible to participate, (ii) exercises of rights, that are outstanding
on or before the Original Issue Date, to acquire shares of Common Stock, or
(iii) a Qualified IPO or Qualified Sale. In the event of a consolidation
or merger of the Corporation with or into another corporation or entity as
a result of which a greater or lesser number of shares of common stock of
the surviving corporation or entity are issuable to holders of capital
stock of the Corporation in respect of the number of shares of its capital
stock outstanding immediately prior to such consolidation or merger, then
the Conversion Price in effect immediately prior to such consolidation or
merger shall be adjusted in the same manner as though there were a
subdivision or combination of the outstanding shares of capital stock
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of the Corporation. The Corporation shall not effect any such
consolidation, merger, or sale unless prior to or simultaneously with
the consummation thereof the successor corporation or entity (if other
than the Corporation) resulting from such consolidation or merger or the
corporation or entity purchasing such assets and any other corporation
or entity the shares of stock or other securities or property of which
are receivable thereupon by the holder of Series A Preferred shall
expressly assume, by written instrument executed and delivered (and
satisfactory in form) to the Series A Preferred holders, (i) the
obligation to deliver to such holders such stock or other securities or
property as, in accordance with the foregoing provisions, such holders
may be entitled to purchase and (ii) all other obligations of the
Corporation hereunder.
(c) In case at any time the Corporation shall grant any rights to
subscribe for or purchase, or any options for the purchase of, securities
convertible into or exchangeable for Common Stock (such rights and options
being herein called "Options" and such convertible or exchangeable
securities being herein called "Convertible Securities"), whether or not
such Options or the rights to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by
dividing (x) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of such Options, plus, in the case of any
such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon
the conversion or exchange of such Convertible Securities, by (y) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than
the Stated Value in effect immediately prior to the time of the granting of
such Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall (as of the date of
granting of such Options) be deemed to be outstanding and to have been
issued and sold for such price per share (a "Deemed Issuance") and the
provisions of paragraph (b) hereof shall apply accordingly. With respect
to any Deemed Issuance, effective as of the close of business on the first
Business Day on which no share of Common Stock may thereafter be issued
upon an exercise of an Option or Convertible Security that is included in
such Deemed Issuance (whether by reason of (a) the expiration or
termination of any right to exercise any Option or Convertible Security
included in such Deemed Issuance and that has not been exercised, or (b)
the purchase by the Corporation and cancellation or retirement of some or
all Options or Convertible Securities included in such Deemed Issuance that
have not been exercised), the shares of Common Stock then acquirable upon
conversion by the Series A Preferred holders shall be adjusted by: (1)
recalculating the initial adjustment of the Conversion Price that occurred
by reason of such Deemed Issuance, based on the shares of Common Stock
issued by the Corporation upon exercise of all Options and Convertible
Securities included in such Deemed Issuance (rather than the number of
shares of Common Stock deemed outstanding immediately after the issuance of
the Options and Convertible Securities included in such Deemed Issuance),
and (2) recalculating each other subsequent adjustment, if any, theretofore
made to the Conversion Price on account of subsequent issuances of Common
Stock, by utilizing the Conversion Price as initially adjusted pursuant to
the immediately foregoing clause (1)
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and including in the number of shares of Common Stock outstanding for
such purpose only the shares of Common Stock actually issued and
outstanding.
(d) In the event that the Corporation proposes to take any action
specified in this Section which requires any adjustment of the Conversion
Price, then and in each such case the Corporation shall at least thirty
days prior to any such event, and within five business days after it has
knowledge of any such pending transaction, provide to the Series A
Preferred holders written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution, or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation, winding-up, or transaction. Such
notice shall also specify, as applicable, the date on which the holders of
capital stock shall be entitled thereto or the date on which the holders of
capital stock shall be entitled to exchange their stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, winding-up, or
transaction, as the case may be. Such notice shall also state that the
action in question or the record date is subject to the effectiveness of a
registration statement under the Securities Act of 1933, as amended, or to
a favorable vote of security holders, if either is required. Furthermore,
any notice shall state the Conversion Price resulting from such adjustment
and the increase or decrease, if any, in the number of shares purchasable
at such price upon exercise, setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
(e) The conversion of any share of Series A Preferred may be effected
by the holder thereof by the surrender of the certificate or certificates
therefor, duly endorsed, at the principal offices of the Corporation or to
such agent or agents of the Corporation as may be designated by the Board
of Directors and by giving written notice to the Corporation that such
holder elects to convert the same. If any shares of Series A Preferred are
called for redemption pursuant to Section 6 hereof, such right of
conversion shall cease and terminate as to the shares called for redemption
at the close of business on the Business Day immediately preceding the
Redemption Date, unless the Corporation shall default in the payment of the
Redemption Price, in which event such conversion right shall remain in
effect until the full payment of the Redemption Price has been made.
(f) As promptly as practicable after the surrender of shares of
Series A Preferred for conversion, the Corporation shall issue and deliver
or cause to be issued and delivered to the holder of such shares
certificates representing the number of fully paid and non-assessable
shares of Common Stock into which such shares of Series A Preferred have
been converted in accordance with the provisions of this Section 10.
Subject to the following provisions of this Section 10, such conversion
shall be deemed to have been made as of the close of business on the date
on which the shares of Series A Preferred shall have been surrendered for
conversion in the manner herein provided, so that the rights of the holder
of the shares of Series A Preferred so surrendered shall cease at such
time, and the person or persons entitled to receive the shares of Common
Stock upon conversion thereof shall be treated for all purposes as having
become the record holder or holders of such shares of Common Stock at such
time; PROVIDED, HOWEVER, that any such surrender on any date when the stock
transfer books of the Corporation are closed shall be deemed to have been
made, and shall be effective to terminate the rights of the holder or
holders of the shares of Series A Preferred so surrendered for conversion
and to constitute the person or persons entitled to receive
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such shares of Common Stock as the record holder or holders thereof for
all purposes, at the opening of business on the next succeeding day on
which such transfer books are open.
(g) The Corporation shall not be required to issue fractional shares
of stock upon the conversion of the Series A Preferred. As to any final
fraction of a share which the holder of one or more shares of Series A
Preferred would otherwise be entitled to receive upon conversion, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the same
fraction of the Conversion Price on the day of conversion.
(h) In case the Corporation shall be a party to any transaction
(including without limitation, a merger, consolidation, statutory share
exchange, sale of all or substantially all of the Corporation's assets or
recapitalization of the Common Stock), in each case as a result of which
shares of Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof)
(each of the foregoing transactions being referred to as a "Fundamental
Change Transaction"), then the shares of Series A Preferred remaining
outstanding will thereafter no longer be subject to conversion with Common
Stock pursuant to this Section 10, but instead each share shall be
convertible into the kind and amount of stock and other securities and
property receivable (including cash) upon the consummation of such
Fundamental Change Transaction by a holder of that number of shares of
Common Stock into which one share of Series A Preferred was convertible
immediately prior to such Fundamental Change Transaction (including an
immediate adjustment of the Conversion Price if by reason of or in
connection with such consolidation, merger, or sale any securities are
issued or event occurs which would, under the terms hereof, require an
adjustment of the Conversion Price), assuming such holder of Series A
Preferred has failed to elect to have all or a part of such holders' shares
redeemed pursuant to Section 7 hereof. The provisions of this paragraph
shall similarly apply to successive Fundamental Change Transactions.
SECTION 11. RANKING. The Common Stock shall be Junior Securities.
SECTION 12. RECORD HOLDERS. The Corporation may deem and treat the
record holder of any shares of Series A Preferred as the true and lawful
owner thereof for all purposes, and the Corporation shall not be affected by
any notice to the contrary.
SECTION 13. NOTICE. Except as may otherwise be provided by law or
provided for herein, all notices referred to herein shall be in writing, and
all notices hereunder shall be deemed to have been given upon receipt, in the
case of a notice of conversion given to the Corporation as contemplated in
Section 10 hereof, or, in all other cases, upon the earlier of receipt of
such notice or three Business Days after the mailing of such notices sent by
Registered Mail (unless first-class mail shall be specifically permitted for
such notice under the terms hereof) with postage prepaid, addressed: If to
the Corporation, to its principal executive offices (Attention: Corporate
Secretary) or to any agent of the Corporation designated as permitted hereby;
or if to a holder of the Series A Preferred, to such holder at the address of
such holder of the Series A Preferred as listed in the stock record books of
the Corporation, or to such other address as the Corporation or holder, as
the case may be, shall have designated by notice similarly given.
SECTION 14. SUCCESSORS AND TRANSFEREES. The provisions applicable to
shares of Series A Preferred shall bind and inure to the benefit of and be
enforceable by the Corporation, the respective successors to the Corporation,
and by any record holder of shares of Series A Preferred.
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RESOLVED FURTHER, that the appropriate officers of the Corporation be, and
they are hereby, authorized and directed from time to time to execute such
certificates, instruments or other documents and do all such things as may be
necessary or advisable in their discretion in order to carry out the terms
hereof, including the filing with the Secretary of State for the State of Texas
of a copy of the foregoing resolution executed by an officer of the Corporation.
Dated: May 6, 1998
FLASHNET COMMUNICATIONS, INC.
By: /s/ M. Scott Leslie
----------------------------------------
M. Scott Leslie, President and Secretary
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STATEMENT OF INCREASE IN NUMBER OF SHARES
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
FLASHNET COMMUNICATIONS, INC.
PURSUANT TO ARTICLE 2.13 OF THE
TEXAS BUSINESS CORPORATION ACT
FlashNet Communications, Inc., a corporation organized and existing under
the laws of the State of Texas (the "Corporation"), DOES HEREBY CERTIFY that,
pursuant to the authority conferred on the Board of Directors of the Corporation
by the Restated Articles of Incorporation of the Corporation and in accordance
with Article 2.13 of the Texas Business Corporation Act, on July 31, 1998, the
Board of Directors of the Corporation duly adopted, by all necessary action on
the part of the Corporation, the following resolutions increasing the number of
shares of the Corporation's Series A Convertible Preferred Stock:
WHEREAS, on May 6, 1998, the Board of Directors of the Corporation
adopted resolutions establishing and designating a series of the
Corporation's Preferred Stock, par value $1.00 per share, designated
"Series A Convertible Preferred Stock," and fixing and determining the
relative rights and preferences thereof; and
WHEREAS, it is considered to be in the best interest of the
Corporation to increase the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED, that pursuant to the authority vested
in the Board of Directors of the Corporation by provisions of its Restated
Articles of Incorporation, the number of shares constituting the
Corporation's Series A Convertible Preferred Stock is hereby increased from
825,000 shares to 1,375,000 shares;
RESOLVED FURTHER, that the appropriate officers of the Corporation be,
and they hereby are, authorized and directed from time to time to execute
such certificates, instruments or other documents and do all such things as
may be necessary or advisable in their discretion in order to carry out the
terms hereof, including the filing with the Secretary of State for the
State of Texas of a copy of the foregoing resolution executed by an officer
of the Corporation.
Date: July 31, 1998
FLASHNET COMMUNICATIONS, INC.
By: /s/ M. Scott Leslie
----------------------------------------
M. Scott Leslie, President and Secretary
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BYLAWS OF
WEBSITE MANAGEMENT COMPANY, INC.
A Texas Corporation
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BYLAWS OF
WEBSITE MANAGEMENT COMPANY, INC.
TABLE OF CONTENTS
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PAGE
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ARTICLE I OFFICES
Section 1. Registered Office and Agent 1
Section 2. Other Offices 1
ARTICLE II SHAREHOLDERS
Section 1. Meetings 1
Section 2. Annual Meetings 1
Section 3. Special Meetings 1
Section 4. Fixing Record Date 1
Section 5. Notice of Shareholders Meetings 2
Section 6. Voting List 2
Section 7. Voting Shares 3
Section 8. Quorum 3
Section 9. Majority Vote 3
Section 10. Action by Shareholders Without Meeting 3
Section 11. Telephonic Meeting 4
ARTICLE III DIRECTORS
Section 1. Board of Directors 4
Section 2. Number of Directors 4
Section 3. Vacancies and Newly-Created Directorships 4
Section 4. Removal of Directors 5
Section 5. Meetings 5
Section 6. First Meeting 5
Section 7. Regular Meetings 5
Section 8. Special Meetings 5
Section 9. Quorum; Majority Vote 6
Section 10. Consent of Directors 6
Section 11. Telephonic Meeting 6
Section 12. Committees of Directors 6
Section 13. Compensation of Directors 7
Section 14. Resignation 7
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ARTICLE IV NOTICES
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Section 1. Method of Notice 7
Section 2. Waiver of Notice 7
ARTICLE V OFFICERS
Section 1. Officers 8
Section 2. Election 8
Section 3. Term; Removal; Resignation; Vacancies; Compensation 8
Section 4. Chairman of the Board 8
Section 5. President 9
Section 6. Vice Presidents 9
Section 7. Controller 9
Section 8. Secretary and Assistant Secretaries 9
Section 9. Treasurer and Assistant Treasurers 10
ARTICLE VI CERTIFICATES AND SHAREHOLDERS
Section 1. Certificates of Shares 10
Section 2. Transfer of Shares 11
Section 3. Registered Shareholders 12
Section 4. Lost Certificates 12
Section 5. First Right of Refusal on First Offering 12
Section 6. Options to Officers 12
Section 7. Subchapter S Election 12
ARTICLE VII INDEMNIFICATION; INSURANCE
Section 1. Extent of Indemnification 13
Section 2. Insurance 13
ARTICLE VIII GENERAL PROVISIONS
Section 1. Distributions 13
Section 2. Reserves 13
Section 3. Contracts 13
Section 4. Annual Statement 14
Section 5. Deposits 14
Section 6. Books and Records 14
Section 7. Checks 14
Section 8. Fiscal Year 14
Section 9. Seal 14
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ARTICLE IX BYLAWS
Section 1. Amendment, Alteration and Repeal of Bylaws 14
Section 2. Construction 15
Section 3. Table of Contents; Headings 15
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BYLAWS OF
WEBSITE MANAGEMENT COMPANY, INC.
A Texas Corporation
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE AND AGENT. The registered office and
registered agent of the Corporation shall be as designated from time to time by
the appropriate filing by the Corporation with the Office of the Secretary of
State of the State of Texas.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation may
require or as may be desirable.
ARTICLE II
SHAREHOLDERS
Section 1. MEETINGS. All meetings of shareholders for any purpose shall be
held at such times and places, within or without the State of Texas, as shall be
stated in the notices of the meetings or in executed waivers of notice thereof.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall be
held annually on the second Saturday of the month of February beginning in 1996
or at such date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by law or by the Articles of
Incorporation or by these Bylaws, may be called by the Chairman of the Board or
the President and shall be called by the Chairman of the Board, the President or
Secretary at the request in writing of a majority of the Board of Directors, or
at the request in writing of shareholders owning at least ten percent (10%) of
all shares of stock entitled to vote at such meeting. A request for a special
meeting shall state the purpose or purposes of the proposed meeting. Business
transacted at any special meeting of shareholders shall be limited to the
purposes stated in the notice of such meeting or in an executed waiver of notice
thereof. The record date for determining shareholders entitled to call a special
meeting is the date the first shareholder signs the notice of that meeting.
Section 4. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of, or to vote at, any meeting of shareholders
or any adjournment thereof, or entitled to receive payment of a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors may provide
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that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, sixty (60) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date as a record
date for the determination of shareholders, such date not to be more than sixty
(60) days and, in the case of a meeting of shareholders, not less than ten (10)
days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive a distribution (other than a distribution involving a
purchase or redemption by the Corporation of any of its own shares) or a share
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Board of Directors declaring such distribution or share
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this Section 4,
such determination shall be applied to any adjournment thereof except when the
determination has been made through the closing of the stock transfer books and
the stated period of closing has expired.
Section 5. NOTICE OF SHAREHOLDERS MEETINGS. Written or printed notice
stating the place, day and hour of each meeting of shareholders, and in case of
a special meeting, the purpose or purposes for which it is called, shall be
delivered not less than ten (10) nor more than sixty (60) days before the date
of the meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, the President, or the Secretary, to each shareholder of
record entitled to vote at such meeting.
Any notice required to be given to any shareholder, under any provision of
the Texas Business Corporation Act, or the Articles of Incorporation of this
Corporation or these Bylaws, need not be given to the shareholder if (1) notice
of two consecutive annual meetings and all notices of meetings held during the
period between those annual meetings, if any, or (2) all (but in no event less
than two) payments (if sent by first class mail) of distributions or interest on
securities during a twelve-month period have been mailed to that person,
addressed at his address as shown on the records of the Corporation, and have
been returned undeliverable. If such a person delivers to the Corporation a
written notice setting forth his then current address, the requirement that
notice be given to that person shall be reinstated.
Section 6. VOTING LIST. The officer or agent who has charge of the transfer
books for shares shall make, at least ten (10) days before every meeting of
shareholders, a complete list of the shareholders entitled to vote at the
meeting or any adjournment thereof, arranged in alphabetical order, and showing
the address of each shareholder and the number of shares held by each
shareholder. Such list shall be kept on file at the registered office of the
Corporation and shall be subject to the inspection of any shareholder during
usual business hours, for a period of at least ten (10) days prior to the
meeting. The list shall also be produced and kept open at the time and place of
the meeting during the whole time thereof, and may be inspected by any
shareholder. The original stock ledger or transfer book, or a duplicate thereof,
shall be prima
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facie evidence as to the identity of the shareholders entitled to examine such
list or share ledger or transfer book or to vote at any meeting of the
shareholders.
Section 7. VOTING SHARES. Each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except (a) to the extent that the Articles of Incorporation
provide for more or less than one vote per share or limit or deny voting rights
to the holders of the shares of any class or series, or (b) as otherwise
provided by law. At any meeting of shareholders, a shareholder having the right
to vote may vote either in person or by proxy executed in writing by the
shareholder or by his duly authorized attorney-in-fact. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy. Each proxy shall be revocable unless the proxy form
conspicuously states that the proxy is irrevocable and is coupled with an
interest.
Any vote may be taken by voice or show of hands unless a shareholder
entitled to vote, either in person or by proxy, objects, in which case written
ballots shall be used. Treasury shares, shares of the Corporation's own stock
owned by another corporation (the majority of the shares of which is owned or
controlled by the Corporation) and shares of the Corporation's own stock held by
the Corporation in a fiduciary capacity shall not be voted (directly or
indirectly) at any meeting and shall not be counted in determining the total
number of outstanding shares at any given time.
Section 8. QUORUM. The holders of a majority of the shares issued and
outstanding and entitled to be voted, present in person or represented by proxy,
shall be requisite and shall constitute a quorum at all meetings of shareholders
except as otherwise provided by law or by the Articles of Incorporation or by
these Bylaws. If, however, a quorum shall not be present or represented at a
meeting of the shareholders, the shareholders entitled to vote thereat, present
in person or represented by proxy, shall have the power to adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally called.
Section 9. MAJORITY VOTE. When a quorum is present at any meeting, the vote
of the holders of the majority of the shares having voting power present in
person or represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of law, the
Articles of Incorporation or these Bylaws, a greater vote is required in which
case such express provision shall govern and control the decision of such
question. The shareholders present at a duly constituted meeting may continue
to transact business until adjournment, despite the withdrawal of enough
shareholders to leave less than a quorum.
Section 10. ACTION BY SHAREHOLDERS WITHOUT MEETING. Any action required
to be taken at a meeting of shareholders of the Corporation, or any action which
may be taken at a meeting of shareholders, may be taken without a meeting, if a
consent in writing, setting forth the action so taken, shall be signed by all
the shareholders entitled to vote with respect to the subject matter thereof,
and such consent shall have the same force and effect as a
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unanimous vote of the shareholders. The consent may be in more than one
counterpart so long as each shareholder signs one of the counterparts.
Section 11. TELEPHONIC MEETING. Shareholders may participate in and hold
a meeting by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Participation in such a meeting shall constitute presence in person at the
meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
ARTICLE III
DIRECTORS
Section 1. BOARD OF DIRECTORS. The business and affairs of the Corporation
shall be managed by the Board of Directors who may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law, by the
Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the shareholders.
Section 2. NUMBER OF DIRECTORS. The initial Board of Directors shall
consist of the number of Directors named in the Articles of Incorporation.
Thereafter, the number of Directors to be elected shall from time to time be
fixed and determined by resolution adopted by the Board of Directors from time
to time or by the shareholders at the annual meeting. The Directors shall be
elected at the annual meeting of the shareholders, except as provided in Section
3 of this Article III, and each Director elected shall hold office until the
next succeeding annual meeting of shareholders and until his successor is
elected and qualified or until his earlier death, resignation, retirement,
disqualification or removal. Directors need not be residents of the State of
Texas or shareholders of the Corporation.
Section 3. VACANCIES AND NEWLY-CREATED DIRECTORSHIPS. Vacancies occurring
on the Board of Directors may be filled by a majority of the remaining
Directors, though less than a quorum. A Director elected to fill the vacancy
shall be elected for the unexpired term of his predecessor in office.
The number of Directors may be increased or decreased from time to time as
provided in these Bylaws, but no decrease shall have the effect of shortening
the term of any incumbent Director. Any directorship to be filled by reason of
any increase in the number of Directors may be filled by election at an annual
or special meeting of shareholders called for that purpose, or by the Board of
Directors for a term of office continuing only until the next election of one or
more Directors by the shareholders, provided that the Board of Directors may not
fill more than two such directorships during the period between any two
successive annual meetings of shareholders.
Notwithstanding the foregoing, whenever the holders of any class or series
of shares of stock of the Corporation are entitled to elect one or more
Directors by the provisions of the Articles of Incorporation, any vacancies in
such directorships and any newly-created directorships
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of such class or series to be filled by reason of an increase in the number of
such Directors may be filled by the affirmative vote of a majority of the
Directors elected by such class or series then in office or by a sole remaining
Director so elected, or by the vote of the holders of the outstanding shares of
such class or series, and such directorships shall not in any case be filled by
the vote of the remaining Directors or the holders of the outstanding shares as
a whole unless otherwise provided in the Articles of Incorporation.
Section 4. REMOVAL OF DIRECTORS. Except to the extent limited by law, the
Articles of Incorporation or these Bylaws, any Director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
shares entitled to vote at an election of Directors. If the Articles of
Incorporation should be amended so as to permit cumulative voting or if
cumulative voting shall otherwise become effective as to the Corporation and if
less than the entire Board of Directors is to be removed, no one of the
Directors may be removed if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
Board of Directors.
Section 5. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, within or without the State of Texas. The
Chairman of the Board, the President or the Secretary shall provide all
Directors with notice of all meetings in accordance with Article IV hereof.
Section 6. FIRST MEETING. The first meeting of each newly-elected Board
of Directors shall be held without further notice immediately following the
annual meeting of shareholders, and at the same place, unless by the unanimous
consent of the Directors then elected and serving, such time or place shall be
changed.
Section 7. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held upon such notice, at such time and place as shall from time to time be
determined by the Board of Directors.
Section 8. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman of the Board or by the President on not less than
three (3) hours' notice to each Director. Special meetings shall be called by
the Chairman of the Board, the President or Secretary in like manner and on like
notice on the written request of two Directors unless the Board consists of only
one Director, in which case special meetings shall be called by the Chairman of
the Board, the President or Secretary in like manner and on like notice on the
written request of the sole Director. Unless otherwise required by law, the
Articles of Incorporation or these Bylaws, neither the business to be transacted
at, nor the purpose of, any special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Attendance of a Director at any meeting shall constitute a waiver of notice
of such meeting, except when a Director attends for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
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Section 9. QUORUM; MAJORITY VOTE. At all meetings of the Board of
Directors, a majority of the number of Directors fixed in the manner provided in
these Bylaws shall constitute a quorum for the transaction of business, and the
act of a majority of the Directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law, the Articles of Incorporation or these Bylaws;
provided, however, that if a Board of one Director shall be authorized, then one
Director shall constitute a quorum and the act of that one Director shall be the
act of the Board of Directors. If a quorum shall not be present at any meeting
of the Board of Directors, the Directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present.
Section 10. CONSENT OF DIRECTORS. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board or the committee, as the
case may be, consent thereto in writing, setting forth the action so taken. Such
consent shall have the same force and effect as a unanimous vote at a meeting.
The consent may be in more than one counterpart so long as each Director signs
one of the counterparts.
Section 11. TELEPHONIC MEETING. Unless otherwise restricted by the Articles
of Incorporation, subject to the provisions required or permitted by law and
these Bylaws for notice of meetings, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in and hold a
meeting of the Board of Directors, or such committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in such a
meeting shall constitute presence in person at the meeting except when a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 12. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution adopted by a majority of the whole Board, from time to time designate
from among the members of the Board of Directors one or more committees, each
committee to consist of one or more members.
Except as limited by law, the Articles of Incorporation, these Bylaws or
the resolution establishing such committee, each committee shall have and may
exercise all of the authority of the Board of Directors as the Board of
Directors may determine and specify in the respective resolutions appointing
each such committee. A majority of all the members of any such committee may
fix the time and place of its meetings, unless the Board of Directors shall
otherwise provide, and meetings of any committee may be held upon such notice,
or without notice, as shall from time to time be determined by the members of
any such committee. At all meetings of any committee a majority of its members
shall constitute a quorum for the transaction of business, and the act of a
majority of the members present shall be the act of any such committee, unless
otherwise specifically provided by law, the Articles of Incorporation, these
Bylaws or the resolution establishing such committee. The Board of Directors
shall have power
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at any time to change the number, subject to the foregoing, and members of any
such committee, to fill vacancies and to discharge any such committee.
Section 13. COMPENSATION OF DIRECTORS. By resolution of the Board of
Directors, the Directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors and may be paid a fixed sum for
attendance at each meeting of the Board of Directors and/or a stated salary as
Director. No such payment shall preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of committees may be allowed like compensation for attending committee meetings.
Section 14. RESIGNATION. Any Director may resign at any time by written
notice to the Corporation. Any such resignation shall take effect at the date of
receipt of such notice or at such other time as may be specified therein, and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective. Any Director who does not, for any reason
whatsoever, stand for election at any meeting of shareholders called for such
purpose shall be conclusively deemed to have resigned, effective as of the date
of such meeting, for all purposes, and the Corporation need not receive any
written notice to evidence such resignation.
ARTICLE IV
NOTICES
Section 1. METHOD OF NOTICE. Whenever by law, the Articles of
Incorporation, or these Bylaws, notice is required to be given to any committee
member, Director, or shareholder, it shall not be construed to mean personal
notice, but any such notice may be given (a) in writing, by mail, postage
prepaid, addressed to such member, Director or shareholder at his address as it
appears on the records of the Corporation, or (b) by any other method permitted
by law (including but not limited to telegram and, in the case of Directors, by
telephone). Any notice required or permitted to be given by mail shall be deemed
to be delivered and given at the time when the same is deposited in the United
States mail as aforesaid. Any notice required or permitted to be given by
telegram shall be deemed to be delivered and given at the time transmitted with
all charges prepaid and addressed as aforesaid.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be given
under the provisions of law, of the Articles of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
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ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the Corporation shall be chosen by the
Board of Directors and shall consist of a Chairman of the Board (if the Board of
Directors shall determine the election of such officer to be appropriate), a
President, and a Secretary, and may consist of such other officers and agents as
the Board of Directors may deem necessary, including an assistant president, one
or more Vice Presidents (and, in the case of each Vice President, with such
descriptive title, if any, as the Board of Directors shall determine), a
Treasurer, a controller, and one or more assistant secretaries and assistant
treasurers. Two or more offices may be held by the same person.
No officer shall execute, acknowledge, verify or countersign any instrument
on behalf of the Corporation in more than one capacity, if such instrument is
required by law, the Articles of Incorporation, these Bylaws or any act of the
Corporation to be executed, acknowledged, verified or countersigned by two or
more officers. None of the officers need be a Director or a shareholder of the
Corporation.
Section 2. ELECTION. Without limiting the right of the Board of Directors
to choose officers of the Corporation at any time when vacancies occur or when
the number of officers is increased, the Board of Directors, at its first
regular meeting after each annual meeting of shareholders or as soon thereafter
as conveniently practicable, shall elect the officers of the Corporation and
such agents as the Board of Directors shall deem necessary or desirable.
Section 3. TERM; REMOVAL; RESIGNATION; VACANCIES; COMPENSATION. The
officers of the Corporation shall hold office until their successors are elected
or appointed and qualified, or until their earlier death, resignation,
retirement, disqualification or removal. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time with or without
cause by the affirmative vote of a majority of the Board of Directors whenever,
in its judgment, the best interests of the Corporation shall be served thereby,
but any such removal shall be without prejudice to the contractual rights, if
any, of the person so removed. Any officer may resign at any time by giving
written notice to the Corporation. Any such resignation shall take effect at the
date of the receipt of such notice or at such other time specified therein, and
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective. Election or appointment of an officer or
agent shall not of itself create contract rights. Any vacancy occurring in any
office of the Corporation may be filled by the Board of Directors for the
unexpired portion of the term.
The compensation of all officers and agents of the Corporation shall be
fixed from time to time by the Board of Directors or pursuant to its direction.
No officer shall be prevented from receiving such compensation by reason of his
also being a Director.
Section 4. CHAIRMAN OF THE BOARD. The Board of Directors, by resolution,
may elect a member of the Board to serve as the Chairman of the Board of
Directors. The Chairman of the Board may also be an officer of the Corporation.
As such, he may have general and active
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management of the business of the Corporation, shall preside at all meetings of
shareholders and the Board of Directors, shall see that all orders and
resolutions of the Board of Directors are carried into effect, and shall have
such other authority and perform such other duties as may be prescribed by the
Board of Directors or these Bylaws.
Section 5. PRESIDENT. The President shall be the chief operating officer
of the Corporation and, subject to the direction of the Board of Directors,
shall have and exercise direct charge of and general supervision over the
business affairs and employees of the Corporation. He shall also have such other
authority and perform such other duties as may be prescribed from time to time
by the Board of Directors, the Chairman of the Board or these Bylaws. The
President shall, if there is no Chairman of the Board, or in the absence or
disability of the Chairman of the Board, be the chief executive officer of the
Corporation, preside at all meetings of shareholders and of the Board of
Directors, and perform the duties and exercise the powers of the Chairman of the
Board.
Section 6. VICE PRESIDENTS. The Board of Directors, by resolution, may
appoint one or more Vice Presidents. Vice Presidents shall have such authority
and perform such duties as may be delegated, permitted or assigned from time to
time by the President or the Board of Directors and, in the event of the
absence, unavailability or disability of the President, or in the event of his
inability or refusal to act, shall perform the duties and have the authority and
exercise the powers of the President in the order of their seniority, unless
otherwise determined by the Board of Directors.
Section 7. CONTROLLER. If a Controller is appointed, the Controller shall
have charge of the Corporation's books of account, records and auditing.
Section 8. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall have
the duty of recording the proceedings of the meetings of shareholders and Board
of Directors in a minute book to be kept for that purpose and shall perform all
like duties for any committees. The Secretary shall perform such other duties as
may be prescribed by the Board of Directors or President, under whose
supervision the Secretary shall be. The Secretary or an Assistant Secretary
shall have safe custody of the seal of the Corporation and he, or an Assistant
Secretary, when authorized and directed by the Board of Directors, shall affix
the same to any instrument requiring it and when so affixed, it shall be
attested by his signature or by the signature of an Assistant Secretary or of
the Treasurer or an Assistant Treasurer. The Secretary also shall perform such
other duties and have such other powers as may be permitted by law or as the
Board of Directors or the President may from time to time prescribe or
authorize.
The Assistant Secretaries in the order of their seniority, unless otherwise
determined by the Board of Directors shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
perform such other duties and have such other powers as may be permitted by law
or as the Board of Directors or the President may from time to time prescribe,
authorize or delegate.
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In the absence of the Secretary or an Assistant Secretary, the minutes of
all meetings of the Board of Directors and of shareholders shall be recorded by
such person as shall be designated by the Board of Directors.
Section 9. TREASURER AND ASSISTANT TREASURERS. If a Treasurer is
designated as an officer of the Corporation by the Board of Directors, the
Treasurer shall have the custody of the corporate funds and securities and shall
keep, or cause to be kept, full and accurate accounts and records of receipts
and disbursements and other transactions in books belonging to the Corporation
and shall deposit, or see to the deposit of, all moneys and other valuable
effects in the name and to the credit of the Corporation in such depositories as
may be designated by or under the authority of the Board of Directors. He may
also: (a) endorse or cause to be endorsed in the name of the Corporation for
collection the bills, notes, checks or other negotiable instruments received by
the Corporation; (b) sign or cause to be signed all checks issued by the
Corporation; and (c) pay out or cause to be paid out money as the Corporation
may require, taking vouchers therefor. In addition, he shall perform such other
duties as may be permitted by law or as the Board of Directors or the President
may from time to time prescribe, authorize or delegate. The Board of Directors
may by resolution delegate, with or without power to re-delegate, any or all of
the foregoing duties of the Treasurer to other officers, employees or agents of
the Corporation, and to provide that other officers, employees and agents shall
have the power to sign checks, vouchers, orders or other instruments on behalf
of the Corporation. The Treasurer shall render to the Board of Directors,
whenever they may require it, an account of his transactions as Treasurer and of
the financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond of such type, character and
amount as the Board of Directors may require.
If a Treasurer is not designated as an officer of the Corporation, the
functions of the Treasurer shall be performed by the President, the Secretary or
such other officer or officers of the Corporation as shall be designated by the
Board of Directors at any time or from time to time.
The Assistant Treasurers in the order of their seniority, unless otherwise
determined by the Board of Directors, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer and shall
perform such other duties and have such other powers as may be permitted by law
or as the Board of Directors or the President may from time to time prescribe,
authorize or delegate. If required by the Board of Directors, the Assistant
Treasurers shall give the Corporation a bond of such type, character and amount
as the Board of Directors may require.
ARTICLE VI
CERTIFICATES AND SHAREHOLDERS
Section 1. CERTIFICATES OF SHARES. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled. Such
certificates shall be numbered and shall be entered in the books of the
Corporation as they are issued. They shall be signed by the President or any
Vice President, and by the Secretary or any Assistant Secretary, and may be
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sealed with the seal of the Corporation or facsimile thereof. Any or all of the
signatures upon the certificate may be facsimiles. If any officer or officers
who have signed or whose facsimile signature or signatures have been used on any
such certificate or certificates cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before said
certificate or certificates shall have been issued, such certificate may
nevertheless be issued by the Corporation with the same effect as though the
person or persons who signed such certificates or whose facsimile signature or
signatures shall have been used thereon had been such officer or officers at the
date of its issuance. Certificates for shares shall be in such form as shall be
in conformity to law or as may be prescribed from time to time by the Board of
Directors.
In the event the Corporation is authorized to issue shares of more than one
class, each certificate representing shares issued by the Corporation (1) shall
conspicuously set forth on the face or back of the certificate a full statement
of (a) all of the designations, preferences, limitations and relative rights of
the shares of each class authorized to be issued and, (b) if the Corporation is
authorized to issue shares of any preferred or special class or series, the
variations in the relative rights and preferences of the shares of each such
series to the extent they have been fixed and determined and the authority of
the Board of Directors to fix and determine the relative rights and preferences
of subsequent series; or (2) shall conspicuously state on the face or back of
the certificate that (a) such a statement is set forth in the Articles of
Incorporation on file in the office of the Secretary of State of the State of
Texas and (b) the Corporation will furnish a copy of such statement to the
record holder of the certificate without charge on written request to the
Corporation at its principal place of business or registered office. Each
certificate representing shares issued by the Corporation (A) shall
conspicuously set forth on the face or back of the certificate a full statement
of the limitation or denial of preemptive rights contained in the Articles of
Incorporation, or (B) shall conspicuously state on the face or back of the
certificate that (i) such a statement is set forth in the Articles of
Incorporation on file in the office of the Secretary of State of the State of
Texas and (ii) the Corporation will furnish a copy of such statement to the
record holder of the certificate without charge on request to the Corporation at
its principal place of business or registered office. All certificates
surrendered to the Corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in the cases of a
lost, stolen, destroyed or mutilated certificate a new one may be issued
therefor upon such terms and with such indemnity, if any, to the Corporation as
the Board of Directors may prescribe. Certificates shall not be issued
representing fractional shares of stock.
Section 2. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, and otherwise meeting all legal requirements for
transfer, a new certificate shall be issued to the person entitled thereto and
the old certificate canceled and the transaction recorded upon the books of the
Corporation. Transfers of shares shall be made only on the books of the
Corporation by the registered holder thereof, or by such holder's attorney
thereunto authorized by power of attorney and filed with the Secretary of the
Corporation or the transfer agent.
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Section 3. REGISTERED SHAREHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by Texas law.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of shares to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors, in its
discretion and as a condition precedent to the issuance thereof, may prescribe
such terms and conditions as it deems expedient and may require such sureties,
assurances or indemnities as it deems adequate to protect the Corporation from
any claim that may be made against it with respect to any such certificate
alleged to have been lost or destroyed.
Section 5. FIRST RIGHT OF REFUSAL ON FIRST OFFERING. The Corporation has
made an offering as set out in an INVESTMENT LETTER AND UNIT SUBSCRIPTION
AGREEMENT. All persons who subscribe for such offering and who are issued stock
shall have the option to participate in any future offerings of stock in an
amount which is sufficient to enable the Subscriber to maintain a pro rata
percentage ownership in the Company. This first Right of Refusal on subsequent
offerings shall extend only to the Subscriber and only as long as the Subscriber
shall own shares in the Company. This right is not subject to transfer to
subsequent transferees should Subscriber sell or transfer by any means other
than inheritance or bequeathal of any or all Subscriber's shares in the future.
The Right of Refusal shall be available for a reasonable period of time not to
exceed thirty (30) days from the date of any subsequent offering and notice of
the offering shall be provided to Subscriber by registered or certified mail,
return receipt requested. The Right of Refusal shall entitle Subscriber to
purchase shares on the same terms and conditions as are currently offered to
others on any offering which is the subject of this paragraph.
Section 6. OPTIONS TO OFFICERS. The Corporation may issue stock options
to officers after June 30, 1996, but only with the consent of sixty (60%)
percent of the outstanding stock of the Company owned by persons who are not
then officers of the Corporation.
Section 7. SUBCHAPTER S ELECTION. If the Corporation elects Subchapter S,
and any period of time during which it is an S corporation, no shareholder shall
take any action, or inaction, which would cause the termination of such
election, and each shareholder shall take whatever action is necessary to
continue and perfect the S election, it being understood that the determination
of whether or not the Corporation will be or continue to be an S corporation is
vested in the Corporation's board of directors.
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ARTICLE VII
INDEMNIFICATION: INSURANCE
Section 1. EXTENT OF INDEMNIFICATION. The Corporation shall indemnify and
advance expenses to any person who (i) is or was a Director, officer, employee,
or agent of the Corporation or (ii) serves or has served at the request of the
Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, to the fullest extent that a corporation may
or is required to grant indemnification to a director under the Texas Business
Corporation Act; notwithstanding the foregoing, however, the Corporation may
indemnify and advance expenses to an officer, employee or agent, or any person
who is identified in (ii) of the first clause of this Article VII and who is
not a Director to such further extent, consistent with law, as may be provided
by the Corporation's Articles of Incorporation, these Bylaws, general or
specific action of the Board of Directors, or by contract, or as otherwise
permitted or required by common law.
Section 2. INSURANCE. The Corporation may purchase and maintain insurance
or other arrangement, at its expense, to protect itself and any such director,
officer, employee, agent or person as specified in Section 1 of this Article
VII, against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify him against such expense, liability or loss
under the Texas Business Corporation Act.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DISTRIBUTIONS. The Board of Directors, at its discretion, at any
regular or special meeting, may by resolution authorize and the Corporation may
make distributions, subject to any restrictions contained in the Articles of
Incorporation and to the limitations prescribed by law. The term "distribution"
shall have the meaning assigned to it by the Texas Business Corporation Act.
Section 2. RESERVES. Before payment of any distributions, the Board of
Directors by resolution from time to time, in their absolute discretion, may set
apart out of any funds of the Corporation available for dividends a reserve or
reserves for any proper purpose, including without limitation a reserve or
reserves for meeting contingencies, equalizing dividends, repairing or
maintaining any property of the Corporation, or for such other purpose as the
Directors deem beneficial to the interests of the Corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
Section 3. CONTRACTS. Subject to the provisions of Article V, the Board of
Directors may authorize any officer, officers, agent or agents to enter into any
contract or agreement of any nature whatsoever, including, without limitation,
any contract, deed, bond, mortgage, guaranty, deed of trust, security agreement,
pledge agreement, act of pledge, collateral mortgage, collateral chattel
mortgage or any other document or instrument of any nature whatsoever, and to
execute and deliver any such contract, agreement, document or other instrument
of any nature whatsoever
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for and in the name of and on behalf of the Corporation, and such authority may
be general or confined to specific instances.
Section 4. ANNUAL STATEMENT. On request, the Board of Directors shall
present at each annual meeting, and at any special meeting of the shareholders,
a full and clear statement of the business and condition of the Corporation.
Section 5. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
Section 6. BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders and Board of Directors and committees thereof, and shall
keep at its registered office or principal place of business, or at the office
of its transfer agent or registrar, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of the shares
held by each. Any books, records and minutes may be in written form or in any
other form capable of being converted into written form within a reasonable
time.
Section 7. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 8. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
Section 9. SEAL. The corporate seal shall be in such form as may be
prescribed by the Board of Directors. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
ARTICLE IX
BYLAWS
Section 1. AMENDMENT, ALTERATION AND REPEAL OF BYLAWS. The Board of
Directors may amend or repeal these bylaws, or adopt new bylaws unless:
(1) The Articles of Incorporation or the Texas Business Corporation Act
reserves the power exclusively to the shareholders in whole or in part; or
(2) The shareholders in amending, repealing, or adopting a particular
bylaw expressly provide that the Board of Directors may not amend or repeal that
bylaw.
Unless the Articles of Incorporation or a bylaw adopted by the shareholders
provide otherwise as to all or some portion of these bylaws, the shareholders
may amend, repeal, or adopt
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these bylaws even though these bylaws may also be amended, repealed or adopted
by the Board of Directors.
Section 2. CONSTRUCTION. Whenever the context so requires, the masculine
shall include the feminine and neuter, and the singular shall include the
plural, and conversely. If any portion of these Bylaws shall be invalid or
inoperative, then, so far as is reasonable and possible:
(a) The remainder these Bylaws shall be considered valid and operative,
and
(b) Effect shall be given to the intent manifested by the portion held
invalid or inoperative.
Section 3. TABLE OF CONTENTS: HEADINGS. The table of contents and headings
are for organization, convenience and clarity. In interpreting these Bylaws, the
table of contents and headings shall be subordinated in importance to the other
written material.
I, the undersigned, being the Secretary of WebSite Management Company, Inc.
do HEREBY CERTIFY THAT the foregoing are the Bylaws of said corporation, as
adopted by the written consent of the Board of Directors of said
Corporation as of the 27th day of September, 1995.
/s/ Albert Lee Thurburn
------------------------------------------
ALBERT LEE THURBURN, Secretary
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FLASHNET COMMUNICATIONS, INC.
RESTATED ARTICLES OF INCORPORATION
Pursuant to the provisions of Article 4.07 of the Texas Business
Corporation Act, FlashNet Communications, Inc., a Texas corporation (the
"Corporation"), hereby adopts these Restated Articles of Incorporation (the
"Restated Articles"), which accurately reflect the original Articles of
Incorporation and all amendments thereto that are in effect to date
(collectively, the "Original Articles") and as further amended by such Restated
Articles as hereinafter set forth and which contain no other change in any
provision thereof.
ARTICLE I
The name of the Corporation is FlashNet Communications, Inc.
ARTICLE II
The Original Articles are amended by these Restated Articles as follows:
(a) Article Four is amended in its entirety to increase the number of authorized
shares of common stock from 5,000,000 to [50,000,000], to effect a split of
__________ shares for each _________ share of common stock outstanding, to
increase the number of authorized shares of preferred stock from 2,000,000 to
[5,000,000] and to more specifically vest in the Board of Directors the
authority to issue preferred stock in one or more series and to set the
designations, rights and preferences of the preferred stock; (b) Article Seven
is amended in its entirety to provide that the number of directors shall be set
forth in the Bylaws; (c) Article Ten is added regarding transactions between the
Corporation and its directors or officers; (d) Article Eleven is added to state
indemnification provisions; (e) Article Ten is redesignated as Article Twelve
and restated to limit director liability; (f) Article Eleven is redesignated as
Article Thirteen and restated to permit written consents by shareholders; (g)
Article Fourteen is added regarding special meetings of shareholders; and (h)
Article Fifteen is added regarding adoption, revision and repeal of Bylaws.
ARTICLE III
Each such amendment made by the Restated Articles has been effected in
conformity with the provisions of the Texas Business Corporation Act and the
Original Articles and each amendment made by the Restated Articles was duly
adopted by the shareholders of the Corporation on _________________, 1998.
ARTICLE IV
The number of shares outstanding at the time of adoption of the Restated
Articles was ______________ shares of common stock and _____________ shares of
Series A Convertible preferred stock, all of which were entitled to vote on the
Restated Articles as so amended. The number of shares of common stock voted for
the Restated Articles was _________ and the number of shares of preferred stock
voted for the Restated Articles was __________. The number of
RESTATED ARTICLES OF INCORPORATION Page 1
<PAGE>
shares of common stock voted against the Restated Articles was _________ and
the number of shares of preferred stock voted against the Restated Articles
was _________.
ARTICLE V
The Original Articles are hereby superseded by the following Restated
Articles, which accurately copy the entire text thereof as amended as set forth
above:
RESTATED ARTICLES OF INCORPORATION
OF
FLASHNET COMMUNICATIONS, INC.
ARTICLE ONE
The name of the Corporation is FlashNet Communications, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The Corporation is organized for the purpose of providing Internet services
to the general public, commercial interests and others, and the transaction of
any and all lawful business for which a corporation may be incorporated under
the Texas Business Corporation Act.
ARTICLE FOUR
The aggregate number of shares which the Corporation shall have the
authority to issue is [55,000,000] shares, consisting of (i) [50,000,000] shares
of common stock, without par value, and (ii) [5,000,000] shares of preferred
stock, $1.00 par value.
Each of the Corporation's common shares issued and outstanding immediately
prior to the taking effect of this Article Four is hereby changed into
____________ common shares.
The aggregate stated capital of the common shares issued and outstanding
upon the taking effect of this Article Four shall be the same as the aggregate
stated capital of the common shares issued and outstanding immediately prior to
the taking effect of this Article Four.
Each certificate representing one or more common shares issued and
outstanding immediately prior to the taking effect of this Article Four shall
thereafter represent the same number of common shares; and the Corporation shall
issue to or upon the order of each holder
RESTATED ARTICLES OF INCORPORATION Page 2
<PAGE>
of record, as of the close of business on the day this Article Four takes
effect, an additional certificate or certificates representing
_________________ common shares for each common share theretofore represented
by such outstanding share certificate.
The following is a statement of the designations, preferences, limitations,
and relative rights, including voting rights, in respect of the classes of stock
of the Corporation and of the authority with respect thereto expressly vested in
the Board of Directors of the Corporation:
COMMON STOCK
(1) Each share of common stock of the Corporation shall have identical
rights and privileges in every respect. The holders of shares of common stock
shall be entitled to vote upon all matters submitted to a vote of the
shareholders of the Corporation and shall be entitled to one vote for each share
of common stock held.
(2) Subject to the prior rights and preferences, if any, applicable to
shares of the preferred stock or any series thereof, the holders of shares of
the common stock shall be entitled to receive such dividends (payable in cash,
stock, or otherwise) as may be declared thereon by the Board of Directors at any
time and from time to time out of any funds of the Corporation legally available
therefor.
(3) In the event of any voluntary or involuntary liquidation, dissolution,
or winding-up of the Corporation, after distribution in full of the preferential
amounts, if any, to be distributed to the holders of shares of the preferred
stock or any series thereof, the holders of shares of the common stock shall be
entitled to receive all of the remaining assets of the Corporation available for
distribution to its shareholders, ratably in proportion to the number of shares
of the common stock held by them. A liquidation, dissolution, or winding-up of
the Corporation, as such terms are used in this paragraph (3), shall not be
deemed to be occasioned by or to include any merger of the Corporation with or
into one or more corporations or other entities, any acquisition or exchange of
the outstanding shares of one or more classes or series of the Corporation, or
any sale, lease, exchange, or other disposition of all or a part of the assets
of the Corporation.
PREFERRED STOCK
(4) Shares of the preferred stock may be issued from time to time in one
or more series, the shares of each series to have such designations,
preferences, limitations, and relative rights, including voting rights, as shall
be stated and expressed herein or in a resolution or resolutions providing for
the issue of such series adopted by the Board of Directors of the Corporation.
Each such series of preferred stock shall be designated so as to distinguish the
shares thereof from the shares of all other series and classes. The Board of
Directors of the Corporation is hereby expressly authorized, subject to the
limitations provided by law, to establish and designate series of the preferred
stock, to fix the number of shares constituting each series, and to fix the
designations and the preferences, limitations, and relative rights, including
voting rights, of the shares of each series and the variations of the relative
rights and preferences as between series, and to increase and to decrease the
number of shares constituting each series, provided that the Board of Directors
may not decrease the number of shares within a series to less than the
RESTATED ARTICLES OF INCORPORATION Page 3
<PAGE>
number of shares within such series that are then issued. The relative powers,
rights, preferences, and limitations may vary between and among series of
preferred stock in any and all respects so long as all shares of the same series
are identical in all respects, except that shares of any such series issued at
different times may have different dates from which dividends thereon cumulate.
The authority of the Board of Directors of the Corporation with respect to each
series shall include, but shall not be limited to, the authority to determine
the following:
(a) The designation of such series;
(b) The number of shares initially constituting such series;
(c) The rate or rates and the times at which dividends on the shares
of such series shall be paid, the periods in respect of which dividends are
payable, the conditions upon such dividends, the relationship and
preferences, if any, of such dividends to dividends payable on any other
class or series of shares, whether or not such dividends shall be
cumulative, partially cumulative, or noncumulative, if such dividends shall
be cumulative or partially cumulative, the date or dates from and after
which, and the amounts in which, they shall accumulate, whether such
dividends shall be share dividends, cash or other dividends, or any
combination thereof, and if such dividends shall include share dividends,
whether such share dividends shall be payable in shares of the same or any
other class or series of shares of the Corporation (whether now or
hereafter authorized), or any combination thereof, and the other terms and
conditions, if any, applicable to dividends on shares of such series;
(d) Whether or not the shares of such series shall be redeemable or
subject to repurchase at the option of the Corporation or the holder
thereof or upon the happening of a specified event, if such shares shall be
redeemable, the terms and conditions of such redemption, including but not
limited to the date or dates upon or after which such shares shall be
redeemable, the amount per share which shall be payable upon such
redemption, which amount may vary under different conditions and at
different redemption dates, and whether such amount shall be payable in
cash, property, or rights, including securities of the Corporation or
another corporation;
(e) The rights of the holders of shares of such series (which may
vary depending upon the circumstances or nature of such liquidation,
dissolution, or winding up) in the event of the voluntary or involuntary
liquidation, dissolution, or winding up of the Corporation and the
relationship or preference, if any, of such rights to rights of holders of
stock of any other class or series. A liquidation, dissolution, or winding
up of the Corporation, as such terms are used in this subparagraph (e),
shall not be deemed to be occasioned by or to include any merger of the
Corporation with or into one or more corporations or other entities, any
acquisition or exchange of the outstanding shares of one or more classes or
series of the Corporation, or any sale, lease, exchange, or other
disposition of all or a part of the assets of the Corporation;
(f) Whether or not the shares of such series shall have voting powers
and, if such shares shall have such voting powers, the terms and conditions
thereof, including,
RESTATED ARTICLES OF INCORPORATION Page 4
<PAGE>
but not limited to, the right of the holders of such shares to vote as a
separate class either alone or with the holders of shares of one or more
other classes or series of stock and the right to have more (or less)
than one vote per share; provided, however, that the right to cumulate
votes for the election of directors is expressly denied and prohibited;
(g) Whether or not a sinking fund shall be provided for the
redemption of the shares of such series and, if such a sinking fund shall
be provided, the terms and conditions thereof;
(h) Whether or not a purchase fund shall be provided for the shares
of such series and, if such a purchase fund shall be provided, the terms
and conditions thereof;
(i) Whether or not the shares of such series, at the option of either
the Corporation or the holder or upon the happening of a specified event,
shall be convertible into stock of any other class or series and, if such
shares shall be so convertible, the terms and conditions of conversion,
including, but not limited to, any provision for the adjustment of the
conversion rate or the conversion price;
(j) Whether or not the shares of such series, at the option of either
the Corporation or the holder or upon the happening of a specified event,
shall be exchangeable for securities, indebtedness, or property of the
Corporation and, if such shares shall be so exchangeable, the terms and
conditions of exchange, including, but not limited to, any provision for
the adjustment of the exchange rate or the exchange price; and
(k) Any other preferences, limitations, and relative rights as shall
not be inconsistent with the provisions of this Article Four or the
limitations provided by law.
(5) Except as otherwise required by law or in any resolution of the Board
of Directors creating any series of preferred stock, the holders of shares of
preferred stock and all series thereof who are entitled to vote shall vote
together with the holders of shares of common stock, and not separately by
class.
ARTICLE FIVE
The street address of the Corporation's registered office is 1812 North
Forest Park Boulevard, Fort Worth, Texas 76102, and the name of its registered
agent at that address is M. Scott Leslie.
ARTICLE SIX
The Corporation will not commence business until it has received
consideration of the value of $1,000.00, consisting of money, labor done or
property actually received, for the issuance of its shares.
RESTATED ARTICLES OF INCORPORATION Page 5
<PAGE>
ARTICLE SEVEN
No shareholder or other person shall have a preemptive right to acquire any
treasury shares, presently authorized shares, or shares the Corporation may
hereafter be authorized to issue. Shares of the Corporation may be issued and
sold from time to time by direction of the Board of Directors and upon such
terms and conditions as the Board of Directors may deem proper and advisable.
ARTICLE EIGHT
The number of directors shall be set forth in the Bylaws of the Corporation
and, until amended, shall be six. The name and address of each director is:
John B. Kleinheinz 201 Main Street
Suite 2001
Fort Worth, Texas 76102
Michael Scott Leslie 1812 N. Forest Park Blvd.
Fort Worth, Texas 76102
James B. Francis, Jr. 2911 Turtle Creek
Suite 925
Dallas, TX 75219
James A. Ryffel 3113 University Dr.
Suite 600
Fort Worth, Texas 76109
Kevin Stadtler 20 William Street
Wellesley, Massachusetts 02181
Albert Lee Thurburn 1812 N. Forest Park Blvd.
Fort Worth, Texas 76102
ARTICLE NINE
Cumulative voting by the shareholders at any election for directors is
prohibited. The shareholders entitled to vote for directors in the election may
cast only one vote per directorship for each share held.
ARTICLE TEN
No contract or transaction between the Corporation and one or more of its
directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for this reason, solely because the director or
RESTATED ARTICLES OF INCORPORATION Page 6
<PAGE>
officer is present at or participates in the meeting of the Board of Directors
or committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved, or ratified by the Board of Directors,
a committee thereof, or the shareholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
This provision shall not be construed to invalidate a contract or
transaction which would be valid in the absence of this provision or to subject
any director or officer to any liability that he would not be subject to in the
absence of this provision.
ARTICLE ELEVEN
The Corporation shall have the power and authority to indemnify any person
to the fullest extent permitted by law.
ARTICLE TWELVE
To the fullest extent permitted by applicable law, a director of the
Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for an act or omission in the director's capacity as a
director, except that this Article Twelve does not eliminate or limit the
liability of a director of the Corporation to the extent the director is found
liable for:
(a) a breach of the director's duty of loyalty to the Corporation or
its shareholders;
(b) an act or omission not in good faith that constitutes a breach of
duty of the director to the Corporation or an act or omission that involves
intentional misconduct or a knowing violation of the law;
RESTATED ARTICLES OF INCORPORATION Page 7
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(c) a transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action taken within
the scope of the director's office; or
(d) an act or omission for which the liability of a director is
expressly provided by an applicable statute.
Any repeal or amendment of this Article Twelve by the shareholders of the
Corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of the Corporation arising
from an act or omission occurring prior to the time of such repeal or amendment.
In addition to the circumstances in which a director of the Corporation is not
personally liable as set forth in the foregoing provisions of this Article
Twelve, a director shall not be liable to the Corporation or its shareholders to
such further extent as permitted by any law hereafter enacted, including without
limitation any subsequent amendment to the Texas Miscellaneous Corporation Laws
Act or the Texas Business Corporation Act. The foregoing provisions of this
Article Twelve shall not authorize the elimination or limitation of the
liability of a director of the Corporation for any act or omission occurring
prior to August 31, 1987.
ARTICLE THIRTEEN
Any action which may be taken, or which is required by law or the Articles
of Incorporation or Bylaws of the Corporation to be taken, at any annual or
special meeting of shareholders may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall have been signed by the holder or holders of shares
having not less than the minimum number of votes that would be necessary to take
such action at a meeting at which the holders of all shares entitled to vote on
the action were present and voted.
ARTICLE FOURTEEN
A special meeting of the shareholders of the Corporation may only be called
by the President or Board of Directors of the Corporation or the holders of not
less than 25 percent of all the shares entitled to vote at the proposed special
meeting or by such other person or persons as may be so authorized by the Bylaws
of the Corporation.
ARTICLE FIFTEEN
The power to amend or repeal the Corporation's Bylaws and to adopt new
Bylaws shall be reserved exclusively to the Board of Directors of the
Corporation.
ARTICLE SIXTEEN
The foregoing change of the par value of the Corporation's preferred stock
from $1.00 per share to $0.01 per share has no effect on the Corporation's
stated capital.
RESTATED ARTICLES OF INCORPORATION Page 8
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EXECUTED as of ___________, 1998.
FLASHNET COMMUNICATIONS, INC.
By: __________________________________
M. Scott Leslie, President and
Secretary
RESTATED ARTICLES OF INCORPORATION Page 9
<PAGE>
AMENDED AND RESTATED
BYLAWS OF
FLASHNET COMMUNICATIONS, INC.
1. OFFICES
1.1 PRINCIPAL OFFICE. The principal office of the Corporation shall be
located in Fort Worth, Texas.
1.2 OTHER OFFICES. The Corporation may also have offices at such other
places within or without the State of Texas as the Board of Directors may
from time to time determine or the business of the Corporation may require.
2. MEETINGS OF SHAREHOLDERS
2.1 ANNUAL MEETING. The annual meeting of shareholders for the
election of Directors and such other business as may properly be brought
before the meeting shall be held at such place within or without the State of
Texas and at such date and time as shall be designated by the Board of
Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
2.2 SPECIAL MEETINGS. Special meetings of the shareholders may be
called (a) by the President or the Board of Directors, or (b) by the holders
of at least 25% of all the shares entitled to vote at the proposed meeting.
The record date for determining shareholders entitled to call a special
meeting shall be the date the first shareholder signs the call and notice of
that meeting. Only business within the purpose or purposes described in the
notice of a special meeting of shareholders may be conducted at such meeting.
2.3 NOTICE AND WAIVERS OF NOTICE.
(a) Written notice stating the place, date and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be delivered not less than 10 nor more than
60 days before the date of the meeting, either personally or by mail, by or
at the direction of the President, the Secretary, or the officer or persons
calling the meeting, to each shareholder entitled to vote at such meeting.
If mailed, such notice shall be deemed to be delivered when deposited in
the United States mail addressed to the shareholder at his address as it
appears on the share transfer records of the Corporation.
(b) Notice may be waived in writing signed by the person or persons
entitled to such notice. Such waiver may be executed at any time before or
after the holding of such meeting. Attendance at a meeting shall
constitute a waiver of notice, except where the person attends for the
express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called.
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(c) Any notice required to be given to any shareholder, under any
provision of the Texas Business Corporation Act, as amended (the "Act"),
the Articles of Incorporation or these Bylaws, need not be given to the
shareholder if (1) notice of two consecutive annual meetings and all
notices of meetings held during the period between those annual meetings,
if any, or (2) all (but in no event less than two) payments (if sent by
first class mail) of distributions or interest on securities during a
12-month period have been mailed to that person, addressed at his address
as shown on the records of the Corporation, and have been returned
undeliverable. Any action or meeting taken or held without notice to such
a person shall have the same force and effect as if the notice had been
duly given and, if the action taken by the Corporation is reflected in any
articles or document filed with the Secretary of State, those articles or
that document may state that notice was duly given to all persons to whom
notice was required to be given. If such a person delivers to the
Corporation a written notice setting forth his then current address, the
requirement that notice be given to that person shall be reinstated.
2.4 RECORD DATE. For the purpose of determining shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof, or entitled to receive payment of any dividend, the Board of
Directors may in advance establish a record date which must be at least 10
but not more than 60 days prior to such meeting. If the Board of Directors
fails to establish a record date, the record date shall be the date on which
notice of the meeting is mailed.
2.5 VOTING LIST.
(a) The officer or agent having charge of the stock transfer books
for shares of the Corporation shall make, at least ten days before each
meeting of shareholders, a complete list of the shareholders entitled to
vote at such meeting or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each, which
list, for a period of ten days prior to such meeting, shall be kept on file
at the registered office of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection of any shareholder during
the whole time of the meeting. The original stock transfer book shall be
prima facie evidence as to who are the shareholders entitled to examine
such list or transfer books or vote at any meeting of shareholders.
(b) Failure to comply with the requirements of this section shall
not affect the validity of any action taken at such meeting.
(c) An officer or agent having charge of the stock transfer books
who shall fail to prepare the list of shareholders or keep the same on file
for a period of ten days, or produce and keep it open for inspection as
provided in this section, shall be liable to any shareholder suffering
damage on account of such failure, to the extent of such damage. In the
event that such officer or agent does not receive notice of a meeting of
shareholders sufficiently in advance of the date of such meeting reasonably
to enable him to comply with the duties prescribed by these Bylaws, the
Corporation, but not such officer or agent
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shall be liable to any shareholder suffering damage on account of such
failure, to the extent of such damage.
2.6 QUORUM OF SHAREHOLDERS. With respect to any matter, a quorum shall
be present at a meeting of shareholders if the holders of a majority of the
shares entitled to vote on that matter are represented at the meeting, in
person or by proxy, unless otherwise provided in the Articles of
Incorporation in accordance with the Act. Unless otherwise provided in the
Articles of Incorporation, the shareholders represented in person or by proxy
at a meeting of shareholders at which a quorum is not present may adjourn the
meeting until such time and to such place as may be determined by a vote of
the holders of a majority of the shares represented in person or by proxy at
that meeting.
2.7 WITHDRAWAL OF QUORUM. Unless otherwise provided in the Articles of
Incorporation, once a quorum is present at a meeting of shareholders, the
shareholders represented in person or by proxy at the meeting may conduct
such business as may properly be brought before the meeting until it is
adjourned, and the subsequent withdrawal from the meeting of any shareholder
or the refusal of any shareholder represented in person or by proxy to vote
shall not effect the presence of a quorum at the meeting.
2.8 VOTING ON MATTERS OTHER THAN THE ELECTION OF DIRECTORS. With
respect to any matter, other than the election of Directors or a matter for
which the affirmative vote of the holders of a specified portion of the
shares entitled to vote is required by the Act, the affirmative vote of the
holders of a majority of the shares represented in person or by proxy at a
meeting of shareholders at which a quorum is present shall be the act of the
shareholders, unless otherwise provided in the Articles of Incorporation.
2.9 VOTING IN THE ELECTION OF DIRECTORS. Directors shall be elected in
the manner provided in the Articles of Incorporation.
2.10 METHOD OF VOTING. The holders of outstanding shares of capital
stock of the Corporation shall be entitled to vote on matters submitted to a
vote of shareholders as provided in the Articles of Incorporation. Any
shareholder may vote either in person or by proxy executed in writing by the
shareholder. No proxy shall be valid after 11 months from the date of its
execution, unless otherwise provided in the proxy.
2.11 ACTION WITHOUT MEETINGS.
(a) To the extent so provided in the Articles of Incorporation,
any action required by law to be taken at any annual or special meeting of
shareholders, or any action that may be taken at any annual or special
meeting of shareholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holder or holders of
shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all
shares entitled to vote on the action were present or represented and
voted.
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(b) Every written consent shall bear the date of signature of each
shareholder who signs the consent. No written consent shall be effective
to take the action that is the subject of the consent unless, within
60 days after the date of the earliest dated consent delivered to the
Corporation in the manner required by law, a consent or consents signed by
the holder or holders of shares having not less than the minimum number of
votes that would be necessary to take the action that is the subject of the
consent delivered to the Corporation by delivery to its registered office,
to its principal office or to an officer or agent of the Corporation having
custody of the books in which proceedings of meetings of shareholders are
recorded. Delivery shall be by hand or certified or registered mail,
return receipt requested. Delivery to the Corporation's principal office
shall be addressed to the President or the Chief Executive Officer of the
Corporation.
(c) A telegram, telex, cablegram, or similar transmission by a
shareholder, or a photographic, photostatic, facsimile, or similar
reproduction of a writing signed by a shareholder, shall be regarded as
signed by the shareholder for purposes of this section.
(d) Prompt notice of the taking of any action by shareholders
without a meeting by less than unanimous written consent shall be given to
those shareholders who did not consent in writing to the action.
2.12 CONDUCT OF MEETING. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or
otherwise unable to act, the President shall preside at all meetings of
shareholders. The Secretary shall keep the records of each meeting of
shareholders. In the absence or inability to act of any such officer, such
officer's duties shall be performed by the officer given the authority to act
for such absent or non-acting officer under these Bylaws or by a person
appointed by the meeting.
2.13 SHAREHOLDER PROPOSALS AT ANNUAL MEETINGS. At an annual meeting of
the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
otherwise properly brought before the meeting by or at the direction of the
Board of Directors or otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the Secretary
of the Corporation. To be timely, a shareholder's notice must be delivered
to or mailed and received at the principal executive offices of the
Corporation not less than 30 days nor more than 60 days prior to the meeting;
provided, however, that in the event that less than 40 day's notice or prior
public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the Secretary shall set forth
as to each matter the shareholder proposes to bring before the annual
meeting, (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such
AMENDED AND RESTATED BYLAWS OF FLASHNET COMMUNICATIONS, INC. Page 4
<PAGE>
business at the annual meeting, (ii) the name and record address of the
shareholder proposing such business, (iii) the class and number of shares of
the Corporation that are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be conducted at
the annual meeting except in accordance with the procedures set forth in this
section 2.13, provided, however, that nothing in this section 2.13 shall be
deemed to preclude discussion by any shareholder of any business properly
brought before the annual meeting in accordance with said procedure.
2.14 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS. In
addition to any other applicable requirements, only persons who are nominated
in accordance with the following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of
the Corporation may be made at a meeting of shareholders by or at the
direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any shareholder of the Corporation
entitled to vote for the election of Directors at the meeting who complies
with the notice procedures set forth in this section 2.14. Such nominations,
other than those made by or at the direction of the Board of Directors, shall
be made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 30 days nor more than 60 days prior to the meeting; provided,
however, that in the event that less than 40 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made. Such
shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director,
(i) the name, age, business address and residence address of the person,
(ii) the principal occupation or employment of the person, (iii) the class
and number of shares of the Corporation beneficially owned by the person, and
(iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of Directors pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended; and
(b) as to the shareholder giving the notice, (i) the name and record address
of the shareholder, and (ii) the class and number of shares of the
Corporation beneficially owned by the shareholder. The Corporation may
require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a Director of the Corporation. No person
shall be eligible for election as a Director of the Corporation unless
nominated in accordance with the procedures set forth herein. These
provisions shall not apply to nomination of any persons entitled to be
separately elected by holders of preferred stock.
2.15 INSPECTORS. The Board of Directors may, in advance of any meeting
of shareholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the Chairman of the meeting shall, or if inspectors shall not
have been appointed, the Chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality
AMENDED AND RESTATED BYLAWS OF FLASHNET COMMUNICATIONS, INC. Page 5
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and according to the best of his ability. The inspectors shall determine the
number of shares of capital stock of the Corporation outstanding and the
voting power of each, the number of shares represented at the meeting, the
existence of a quorum, and the validity and effect of proxies and shall
receive votes, ballots, or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate
all votes, ballots, or consents, determine the results, and do such acts as
are proper to conduct the election or vote with fairness to all shareholders.
On request of the Chairman of the meeting, the inspectors shall make a
report in writing of any challenge, request, or matter determined by them and
shall execute a certificate of any fact found by them. No Director or
candidate for the office of Director shall act as an inspector of an election
of Directors. Inspectors need not be shareholders.
3. DIRECTORS
3.1 POWERS. The powers of the Corporation shall be exercised by or
under authority of, and the business and affairs of the Corporation and all
corporate powers shall be managed under the direction of, the Board of
Directors.
3.2 NUMBER, TERM OF OFFICE AND QUALIFICATIONS. The property and
business of the Corporation shall be managed and controlled by a Board of
Directors consisting of seven Directors or such other number of Directors as
shall be determined from time to time by the Board of Directors. The Board
of Directors shall be divided into three classes, to be known as Classes "A,"
"B" and "C, with the term of office of one class expiring each year. Class A
shall consist of two or three Directors, each to hold office for an initial
term expiring on the date of the 1999 annual meeting of shareholders; Class B
shall consist of two or three Directors, each to hold office for an initial
term expiring on the date of the 2000 annual meeting of shareholders; and
Class C shall consist of two or three Directors, each to hold office for an
initial term expiring on the date of the 2001 annual meeting of shareholders,
or, in each case, until his successor shall be elected and shall have
qualified. Subject to the foregoing, at each annual meeting of shareholders
a single class of Directors shall be elected to succeed the Directors whose
terms shall have expired, and to hold office for a term expiring at the third
succeeding annual meeting of shareholders. In the event of an increase or
decrease in the number of Directors, any newly created or eliminated
Directorships shall be apportioned among the classes so as to make all
classes as nearly equal as possible; provided, however, that no decrease in
the number of Directors shall have the effect of shortening the term of an
incumbent Director. Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of 60% of the remaining Directors. A Director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Any Directorship to be filled by reason of an
increase in the number of Directors shall be filled by election at an annual
meeting or at a special meeting of shareholders called for that purpose.
Directors need not be residents of the State of Texas or shareholders of the
Corporation.
3.3 ELECTION. The Directors shall be elected at the annual meetings of
the shareholders, and each Director elected shall serve until his successor
shall have been elected and qualified.
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3.4 REMOVAL OF DIRECTORS. At any meeting of shareholders called
expressly for the purpose of removing a Director, any Director or the entire
Board of Directors may be removed, with or without cause, by a vote of the
holders of a majority of the shares then entitled to vote at an election of
Directors.
4. MEETINGS OF THE BOARD OF DIRECTORS
4.1 PLACE. Meetings of the Board of Directors, regular or special, may
be held either within or without the State of Texas.
4.2 REGULAR MEETINGS. Regular meetings of the Board of Directors shall
be held at such dates and times and at such places as shall from time to time
be determined by the Board of Directors. Regular meetings may be held with
or without notice, as determined by the Board of Directors.
4.3 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman of the Board of Directors or the President and
shall be called by the Secretary on the written request of any two Directors.
Notice of each special meeting of the Board of Directors shall be given to
each Director at least 48 hours before the meeting is scheduled to convene.
4.4 NOTICE AND WAIVER OF NOTICE. Attendance of a Director at any
meeting shall constitute a waiver of notice of such meeting, except where a
Director attends for the express purpose of objecting to the transaction of
any business on the ground that the meeting is not lawfully called or
convened. Except as may be otherwise provided by law or by the Articles of
Incorporation or by these Bylaws, neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.
4.5 QUORUM OF DIRECTORS; VOTE REQUIRED. At all meetings of the Board
of Directors a majority of the Directors shall constitute a quorum for the
transaction of business and the act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of Directors, the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present.
4.6 ACTION WITHOUT MEETINGS. Any action required or permitted to be
taken at a meeting of the Board of Directors or any committee may be taken
without a meeting if a consent in writing, setting forth the action so taken,
is signed by all the members of the Board of Directors or committee, as the
case may be.
4.7 COMMITTEES.
(a) The Board of Directors, by resolution adopted by a majority of
the full Board of Directors, may designate from among its members one or
more committees, each of which shall be comprised of one or more of its
members, and may designate one or
AMENDED AND RESTATED BYLAWS OF FLASHNET COMMUNICATIONS, INC. Page 7
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more of its members as alternate members of any committee, who may, subject
to any limitations imposed by the Board of Directors, replace absent or
disqualified members at any meeting of that committee. Any such committee,
to the extent provided in such resolution shall have and may exercise all
of the authority of the Board of Directors, subject to the limitations set
forth below and in the Act.
(b) No committee of the Board of Directors shall have the authority
of the Board of Directors in reference to:
1. amending the Articles of Incorporation, except that a
committee may, to the extent provided in the resolution
designating that committee or in the Articles of Incorporation
or the Bylaws, exercise the authority of the Board of
Directors vested in it in accordance with Article 2.13 of the
Act;
2. proposing a reduction of the stated capital of the Corporation
in the manner permitted by Article 4.12 of the Act;
3. approving a plan of merger or share exchange of the Corporation;
4. recommending to the shareholders the sale, lease, or exchange
of all or substantially all of the property and assets of the
Corporation otherwise than in the usual and regular course of
its business;
5. recommending to the shareholders a voluntary dissolution of the
Corporation or a revocation thereof;
6. amending, altering, or repealing these Bylaws of the Corporation
or adopting new Bylaws of the Corporation;
7. filling vacancies in the Board of Directors;
8. filling vacancies in or designating alternate members of any
such committee;
9. filling any Directorship to be filled by reason of an increase
in the number of Directors;
10. electing or removing officers of the Corporation or members or
alternate members of any such committee;
11. fixing the compensation of any member or alternate members of
such committee; or
12. altering or repealing any resolution of the Board of Directors
that by its terms provides that it shall not be so amendable or
repealable.
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(c) Unless the resolution designating a particular committee, the
Articles of Incorporation, or these Bylaws expressly so provide, no
committee of the Board of Directors shall have the authority to authorize a
distribution or to authorize the issuance of shares of the Corporation.
(d) The designation of a committee of the Board of Directors and
the delegation thereto of authority shall not operate to relieve the Board
of Directors, or any member thereof, of any responsibility imposed by law.
4.8 COMPENSATION. The Directors shall receive such compensation for
their services as Directors as may be determined by resolution of the Board
of Directors. Each Director shall be reimbursed for travel and other
reasonable out-of-pocket expenses incurred by such Director in attending
regular and special meetings of the Board of Directors or any committee. The
receipt of compensation or reimbursement of expenses shall not preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor.
5. OFFICERS
5.1 ELECTION, NUMBER, QUALIFICATION, TERM, COMPENSATION. The officers
of the Corporation shall be elected by the Board of Directors and shall
consist of a President, a Vice President, a Secretary and a Treasurer. The
Board of Directors may also elect a Chairman of the Board, additional Vice
Presidents, one or more assistant secretaries and assistant treasurers and
such other officers and assistant officers and agents as it shall deem
necessary, who shall hold their offices for such terms and shall have such
authority and exercise such powers and perform such duties as shall be
determined from time to time by the Board by resolution not inconsistent with
these Bylaws. Two or more offices may be held by the same person. None of
the officers need be Directors except the President. The Board of Directors
shall have the power to enter into contracts for the employment and
compensation of officers for such terms as the Board deems advisable. The
salaries of all officers of the Corporation shall be fixed by the Board of
Directors.
5.2 REMOVAL. The officers of the Corporation shall hold office until
their successors are elected or appointed and qualify, or until their death
or until their resignation or removal from office. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board,
with or without cause. Such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment
of an officer shall not of itself create contract rights.
5.3 VACANCIES. Any vacancy occurring in any office of the Corporation
by death, resignation, removal or otherwise shall be filled by the Board of
Directors.
5.4 AUTHORITY. Officers and agents shall have such authority and
perform such duties in the management of the Corporation as may be provided
in these Bylaws.
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5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside at all meetings of the Board of Directors and of the
shareholders and shall have such other powers and duties as may from time to
time be prescribed by the Board of Directors upon written directions given to
him pursuant to resolutions duly adopted by the Board of Directors.
5.6 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if
elected, shall preside at meetings of the Board of Directors and of
shareholders in the absence of the Chairman of the Board. The Vice Chairman
of the Board shall have such other powers and duties as from time to time may
be prescribed by the Board of Directors.
5.7 PRESIDENT. The President shall be the chief executive officer of
the Corporation, shall have general and active management of the business and
affairs of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. He shall preside at all
meetings of the shareholders and of the Board of Directors, unless a Chairman
of the Board or Vice Chairman of the Board has been elected, in which event
the President shall preside at meetings of the shareholders and of the Board
of Directors in the absence or disability of the Chairman of the Board or
Vice Chairman of the Board.
5.8 VICE PRESIDENT. Vice Presidents, including executive vice
presidents and senior vice presidents, in the order of their seniority,
unless otherwise determined by the Board of Directors, shall, in the absence
or disability of the President, perform the duties and have the authority and
exercise the powers of the President. They shall perform such other duties
and have such other authority and powers as the Board of Directors may from
time to time prescribe or as the President may from time to time delegate.
5.9 SECRETARY. The Secretary shall attend all meetings of the Board of
Directors and all meetings of shareholders and record all of the proceedings
of the meetings of the Board of Directors and of the shareholders in a minute
book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board
of Directors, and shall perform such other duties as may be prescribed by the
Board of Directors or President, under whose supervision he shall be. He
shall keep in safe custody the seal of the Corporation and, when authorized
by the Board of Directors, shall affix the same to any instrument requiring
it and, when so affixed, it shall be attested by his signature or by the
signature of an Assistant Secretary or of the Treasurer.
5.10 TREASURER.
(a) The Treasurer shall have custody of the corporate funds and
securities and shall keep full and accurate accounts and records of
receipts, disbursements and other transactions in books belonging to the
Corporation, and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors.
AMENDED AND RESTATED BYLAWS OF FLASHNET COMMUNICATIONS, INC. Page 10
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(b) The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the President or Board of
Directors so requires, an account of all his transactions as Treasurer and
of the financial condition of the Corporation.
(c) If required by the Board of Directors, the Treasurer shall
give the Corporation a bond of such type, character and amount as the Board
of Directors may require.
5.11 ASSISTANT SECRETARY AND ASSISTANT TREASURER. In the absence of
the Secretary or Treasurer, an Assistant Secretary or Assistant Treasurer,
respectively shall perform the duties of the Secretary or Treasurer.
Assistant Treasurers may be required to give bond as provided in
section 5.10(c). The assistant secretaries and assistant treasurers, in
general shall have such powers and perform such duties as the Treasurer or
Secretary, respectively, or the Board of Directors or President may prescribe.
6. CERTIFICATES REPRESENTING SHARES
6.1 CERTIFICATES. The shares of the Corporation shall be represented
by certificates signed by the President or a Vice President and the Secretary
or an Assistant Secretary of the Corporation, and may be sealed with the seal
of the Corporation or a facsimile thereof. The signatures of the President
or Vice President and the Secretary or Assistant Secretary upon a certificate
may be facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the Corporation itself or an employee
of the Corporation. The certificates shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued. Each
certificate shall state on the face thereof the holder's name, the number and
class of shares, and the par value of such shares or a statement that such
shares are without par value.
6.2 PAYMENT, ISSUANCE. Shares may be issued for such consideration,
not less than the par value thereof, as may be fixed from time to time by the
Board of Directors. The consideration for the payment of shares shall
consist of money paid, labor done or property actually received. Shares may
not be issued until the full amount of the consideration fixed therefor has
been paid.
6.3 LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed upon
the making of an affidavit of that fact by the person claiming the
certificate to be lost, stolen or destroyed. When authorizing such issue of
a new certificate, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, prescribe such terms and
conditions as it deems expedient and may require such indemnities as it deems
adequate to protect the Corporation from any claim that may be made against
it with respect to any such certificate alleged to have been lost or
destroyed.
AMENDED AND RESTATED BYLAWS OF FLASHNET COMMUNICATIONS, INC. Page 11
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6.4 REGISTRATION OF TRANSFER. Shares of stock shall be transferable
only on the books of the Corporation by the holder thereof in person or by
his duly authorized attorney. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, a new certificate shall be issued to the person entitled thereto
and the old certificate canceled and the transaction recorded upon the books
of the Corporation.
6.5 REGISTERED OWNER. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as of the record date
as the owner of shares to receive dividends or other distributions, and to
vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except
as otherwise provided by the laws of the State of Texas. The person in whose
name the shares are or were registered in the stock transfer books of the
Corporation as of the record date shall be deemed to be the owner of the
shares registered in his name at that time. Neither the Corporation nor any
of its officers, Directors, or agents shall be under any liability for making
such a distribution to a person in whose name shares were registered in the
stock transfer books as of the record date or to the heirs, successors, or
assigns of the person, even though the person, or his heirs, successors, or
assigns, may not possess a certificate for shares.
7. DIVIDENDS
7.1 DECLARATION AND PAYMENT. Subject to the Act and the Articles of
Incorporation, dividends may be declared by the Board of Directors, in its
discretion, at any regular or special meeting, pursuant to law and may be
paid in cash, in property or in the Corporation's own shares.
7.2 RESERVES. Before payment of any dividend, the Board of Directors,
by resolution, may create a reserve or reserves out of the Corporation's
surplus or designate or allocate any part or all of such surplus in any
manner for any proper purpose or purposes, and may increase, create, or
abolish any such reserve, designation, or allocation in the same manner.
8. GENERAL PROVISION
8.1 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
8.2 SEAL. The corporate seal shall be in such form as may be
prescribed by the Board of Directors. The seal may be used by causing it or
a facsimile thereof to be impressed or affixed or in any manner reproduced.
8.3 MINUTES. The Corporation shall keep correct and complete books
and records of account and shall keep minutes of the proceedings of its
shareholders and Board of Directors, and shall keep at its registered office
or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving names and addresses of all
shareholders and the number and class of the shares held by each.
AMENDED AND RESTATED BYLAWS OF FLASHNET COMMUNICATIONS, INC. Page 12
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8.4 AMENDMENT. The power to amend or repeal these Bylaws and adopt new
Bylaws shall be reserved exclusively to the Board of Directors. These Bylaws
may be altered, amended or repealed and new Bylaws may be adopted by the
Board of Directors, at any meeting of the Board of Directors at which a
quorum is present, provided notice of the proposed alteration, amendment, or
repeal is contained in the notice of the meeting.
8.5 NOTICE. Any notice to Directors or shareholders shall be in
writing and shall be delivered personally or mailed to the Directors or
shareholders at their respective addresses appearing on the books of the
Corporation. Notice by mail shall be deemed to be given at the time when the
same shall be deposited in the United States mail, postage prepaid. Notice
to Directors may also be given by facsimile transmittal. Whenever any notice
is required to be given under the provisions of applicable statutes or of the
Articles of Incorporation or of these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of
such notice.
Dated: __________________
________________________________________
M. Scott Leslie, President and Secretary
AMENDED AND RESTATED BYLAWS OF FLASHNET COMMUNICATIONS, INC. Page 13
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WEBSITE MANAGEMENT COMPANY, INC.
12% CONVERTIBLE NOTES PURCHASE AGREEMENT
JULY 8, 1996
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<PAGE>
TABLE OF CONTENTS
<TABLE>
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SECTION 1 PURCHASE AND SALE OF THE NOTES AND WARRANTS
1.1 Authorization of the Notes and Warrants . . . . . . . . . . 1
1.2 Sale of the Notes and Warrants . . . . . . . . . . . . . . 1
1.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2 REPRESENTATIONS AND WARRANTIES OF FLASHNET
2.1 Organization and Standing . . . . . . . . . . . . . . . . . 2
2.2 Corporate Power . . . . . . . . . . . . . . . . . . . . . . 2
2.3 No Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Authorization . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Title to Properties and Assets; Liens, Etc. . . . . . . . . 3
2.7 Financial Statements . . . . . . . . . . . . . . . . . . . 3
2.8 Patents, Trademarks, Ect. . . . . . . . . . . . . . . . . . 3
2.9 Compliance with Other Instruments, Etc. . . . . . . . . . . 3
2.10 Litigation, Etc. . . . . . . . . . . . . . . . . . . . . . 4
2.11 Employees . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.13 Registration Rights . . . . . . . . . . . . . . . . . . . . 4
2.14 Governmental Consent, Etc. . . . . . . . . . . . . . . . . 4
2.15 Offering . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.16 Licenses . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.17 No Brokers or Finders . . . . . . . . . . . . . . . . . . . 5
2.18 Tax Returns and Audits . . . . . . . . . . . . . . . . . . 5
2.19 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.20 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 5
2.21 No Prior Rights . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3 REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER
3.1 Organization and Power . . . . . . . . . . . . . . . . . . . 6
3.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Accredited Investor; Experience . . . . . . . . . . . . . . 6
3.4 Investment Intent . . . . . . . . . . . . . . . . . . . . . 6
3.5 Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.6 No Public Market . . . . . . . . . . . . . . . . . . . . . . 7
3.7 Access . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.8 No Brokers or Finders . . . . . . . . . . . . . . . . . . . 7
</TABLE>
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SECTION 4 CONDITIONS TO OBLIGATIONS OF THE PURCHASER
4.1 Representations and Warranties Correct . . . . . . . . . . . 8
4.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Concurrent Purchases of Notes . . . . . . . . . . . . . . . 8
SECTION 5 CONDITIONS TO OBLIGATIONS OF FLASHNET 8
5.1 Representations and Warranties Correct . . . . . . . . . . . 8
5.2 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Concurrent Purchases of Notes . . . . . . . . . . . . . . . . 9
SECTION 6 AFFIRMATIVE COVENANTS OF FLASHNET
6.1 Financial Information . . . . . . . . . . . . . . . . . . . . 9
6.2 Availability of Common Stock for Conversion and Exercise . . 9
6.3 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 Notice of an Event of Default . . . . . . . . . . . . . . . . 10
SECTION 7 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
7.1 Restrictions on Transferability . . . . . . . . . . . . . . . 10
7.2 Certain Definitions . . . . . . . . . . . . . . . . . . . . . 10
7.3 Restrictive Legend . . . . . . . . . . . . . . . . . . . . . 11
7.4 Registration by FlashNet . . . . . . . . . . . . . . . . . . 12
7.5 Expenses of Registration . . . . . . . . . . . . . . . . . . 13
7.6 Registration Procedures . . . . . . . . . . . . . . . . . . . 14
7.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 14
7.8 Information by Holder . . . . . . . . . . . . . . . . . . . . 16
7.9 Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . . 16
7.10 Transfer of Registration Rights . . . . . . . . . . . . . . . 16
SECTION 8 MISCELLANEOUS
8.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 17
8.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . 17
8.4 Entire Agreement; Amendment . . . . . . . . . . . . . . . . . 17
8.5 Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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8.6 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . 17
8.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . 18
8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 18
8.9 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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TABLE OF EXHIBITS
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<S> <C>
Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit A
Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit B
</TABLE>
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12% CONVERTIBLE NOTES PURCHASE AGREEMENT
This 12% CONVERTIBLE NOTES PURCHASE AGREEMENT (this "Agreement") is made
as of this 8th day of July, 1996, by and between WebSite Management Company,
Inc., a Texas corporation conducting business as FlashNet Communications
("FlashNet"), and the subscriber named on the Subscriber Signature Page
hereof (the "Purchaser"). FlashNet and the Purchaser hereby agree as follows:
SECTION 1
PURCHASE AND SALE OF THE NOTES AND WARRANTS
1.1 AUTHORIZATION OF THE NOTES AND WARRANTS. FlashNet will authorize
the issuance and sale of FlashNet's 12% Convertible Notes ("Notes"), due July
31, 1999, in the aggregate principal amount of $1,000,000, and the issuance
and sale of Warrants ("Warrants") for the purchase of an aggregate of 82,000
shares of FlashNet's Common Stock, without par value ("Common Stock"), at an
exercise price of one cent ($.01) per share. The Notes shall, with
appropriate insertions, be substantially in the form attached as Exhibit A
hereto. The Warrants shall, with appropriate insertions, be substantially in
the form attached as Exhibit B hereto.
1.2 SALE OF THE NOTES AND WARRANTS. Subject to the terms and
conditions hereof, FlashNet will issue and sell to the Purchaser, and the
Purchaser will buy from FlashNet, Notes and Warrants in the amount and for
the cash purchase price set forth on the Subscriber Signature Page hereof.
1.3 CLOSING.
(a) The closing of the purchase and sale of the Notes and
Warrants hereunder (the "Closing") shall be held at the offices of Cantey &
Hanger, L.L.P., 801 Cherry Street, Suite 2100, Fort Worth, Texas 76102, at
10:00 a.m. on July 16, 1996, or at such other place or date as FlashNet and
the Purchaser shall agree in writing (the date of the Closing is hereinafter
referred to as the "Closing Date").
(b) At the Closing, FlashNet will deliver to the Purchaser
against payment therefore, a Note registered in the Purchaser's name in the
principal amount set forth on the Subscriber Signature Page hereof. FlashNet
will also deliver to the Purchaser a Warrant representing the right to
purchase the number of shares of Common Stock set forth on the Subscriber
Signature Page hereof. The Purchaser will pay to FlashNet, by check payable
to the order of FlashNet, the cash purchase price for the Notes and Warrants
purchased by the Purchaser as set forth on the Subscriber Signature Page
hereof.
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SECTION 2
REPRESENTATIONS AND WARRANTIES OF FLASHNET
FlashNet hereby represents and warrants to the Purchaser as follows:
2.1 ORGANIZATION AND STANDING. FlashNet is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Texas. FlashNet has all requisite corporate power and authority to own
and operate its properties and assets and to conduct its business as
presently conducted. FlashNet is qualified to do business as a foreign
corporation in all jurisdictions where the ownership or leasing of FlashNet's
properties or assets and the nature of FlashNet's business as presently
conducted requires such qualification.
2.2 CORPORATE POWER. FlashNet has all requisite legal and corporate
power to execute and deliver this Agreement, to issue and sell the Notes and
Warrants hereunder, to issue the shares of Common Stock issuable upon
conversion of the Notes or exercise of the Warrants, and to carry out and
perform its obligations under the terms of this Agreement, the Notes and the
Warrants.
2.3 NO SUBSIDIARIES. FlashNet does not own of record or beneficially
any shares of capital stock or other equity interests which constitute a 10%
or greater equity interest in any other corporation, association, joint
venture, general or limited partnership or other legal person.
2.4 CAPITALIZATION. The authorized capital stock of FlashNet
consists of 50,000,000 shares of Common Stock, without par value ("Common
Stock"), of which 1,562,500 shares are issued and outstanding. All such
issued and outstanding shares have been duly authorized and validly issued
and are fully paid and nonassessable. There are no options, warrants,
conversion privileges or other rights currently outstanding to purchase or
otherwise acquire any authorized but unissued shares of capital stock of
FlashNet.
2.5 AUTHORIZATION. All corporate action on the part of FlashNet, its
directors and shareholders necessary for the authorization, execution,
delivery and performance of this Agreement by FlashNet, the authorization,
sale, issuance and delivery of the Notes and the Warrants (and the shares of
Common Stock issuable upon conversion or exercise thereof) and the
performance of FlashNet's obligations hereunder and under the Notes and the
Warrants has been taken. This Agreement, the Notes and the Warrants, when
duly executed and delivered, shall constitute valid and binding obligations
of FlashNet enforceable against FlashNet in accordance with their respective
terms, subject to principles of equity and laws of general application
relating to bankruptcy, insolvency and the relief of debtors and except that
rights to indemnification pursuant to Section 7.7 hereof may be limited or
varied by applicable securities laws or public policy. The Notes and the
Warrants, when issued in compliance with the provisions of this Agreement,
will be duly authorized and validly issued, and the shares of Common Stock
issuable upon conversion of the Notes and upon exercise of the Warrants, as
the case may be, have been duly and validly reserved and, when issued in
compliance with the
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provisions of the Notes and the Warrants and of this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable, and will be free of
any liens or encumbrances; provided, however, that the Notes and the Warrants
(and the shares of Common Stock issuable upon conversion or exercise thereof)
will be subject to restrictions on transfer under this Agreement and state
and federal securities laws. FlashNet has reserved from its authorized and
unissued shares of Common Stock sufficient shares to satisfy the conversion
provisions of the Notes and the exercise provisions of the Warrants.
2.6 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. FlashNet has good
and marketable title to the properties and assets owned by it, and has valid
leasehold interests in the properties or assets leased by it, in each case
subject to no mortgage, pledge, lien, security interest, encumbrance, charge
or adverse claim that materially detracts from the value to FlashNet of the
property subject thereto or materially impairs the operations of FlashNet and
that has arisen other than in the ordinary course of business.
2.7 FINANCIAL STATEMENTS. FlashNet has delivered to the Purchaser
FlashNet's unaudited financial statements as of June 30, 1996 and for the six
months then ended and its unaudited financial statements as of December 31,
1995 and the year then ended (collectively, the "Financial Statements").
Except for the omission of certain notes to the Financial Statements, the
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods indicated
and present fairly the financial condition of FlashNet as of the dates
indicated above and the results of operations of FlashNet for the periods
then ended, subject to normal recurring year-end audit adjustments none of
which would be material in the aggregate. To the best of FlashNet's
knowledge, since June 30, 1996, there has not been any material adverse
change in FlashNet's business, financial condition, affairs, operations,
properties or assets except as disclosed in the Financial Statements.
2.8 PATENTS, TRADEMARKS, ETC. To the best of FlashNet's knowledge,
FlashNet owns or has the right to use all material patents, trademarks, trade
names, copyrights, licenses, proprietary rights, trade secrets, and
manufacturing processes and technologies (collectively, "Intellectual
Property") used in the conduct of its business, without infringing upon or
otherwise acting adversely to the valid and asserted rights of any person or
entity under or with respect to any such Intellectual Property.
2.9 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The business and
operations of FlashNet have been conducted in accordance with all applicable
statutes, regulations, rules or other laws, except in those instances in
which failure to comply has not materially and adversely affected, and to the
best of FlashNet's knowledge on the Closing Date will not materially and
adversely affect, FlashNet or its business or finances. The execution,
delivery and performance by FlashNet of this Agreement do not, and to the
best of FlashNet's knowledge on the Closing Date will not, (a) require any
authorization, consent, approval, license, exemption of or filing or
registration with any court or governmental department, agency or
instrumentality of government, except such as have been lawfully and validly
obtained, (b) cause FlashNet to
3
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violate or contravene any statute, rule, regulation or other law of any
agency or government, any order, writ, judgment, decree or determination, or
any provision of the Articles of Incorporation or Bylaws of FlashNet, in each
case as amended on the Closing Date, (c) violate or conflict with, result in
a breach of or constitute (with or without notice or lapse of time, or both)
a default under, any material agreement, instrument, commitment or
arrangement to which FlashNet is a party or by which FlashNet or any of its
properties or assets is bound or affected, or (d) result in the creation or
imposition of any material lien or encumbrance upon the properties of
FlashNet. FlashNet is not in violation of or (with or without notice or lapse
of time, or both) in default under, any term or provision of its Articles of
Incorporation or Bylaws, in each case as amended on the Closing Date, or any
material agreement, instrument, commitment or arrangement to which FlashNet
is a party or by which any of FlashNet's properties or assets is bound or
affected. FlashNet is not subject to any restriction of any kind or
character which materially and adversely (i) affects in any way its business,
properties or assets, or (ii) prohibits FlashNet from entering into this
Agreement, or (iii) would prevent or make burdensome the performance of or
compliance with all or any part of this Agreement or of the Articles of
Incorporation of FlashNet or the consummation by FlashNet of the transactions
contemplated hereby.
2.10 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending against FlashNet or its properties before any court or
governmental agency (nor, to the best of FlashNet's knowledge, is there any
valid basis therefor or threat thereof) which, either individually or in the
aggregate, might result in any material adverse change in the business or
financial condition of FlashNet or any of its properties or assets, or in any
material adverse impairment of the right or ability of FlashNet to carry on
its business as now conducted, or in any material liability on the part of
FlashNet, or which questions the validity of this Agreement or any action
taken or to be taken in connection herewith.
2.11 EMPLOYEES. To the best of FlashNet's knowledge, no employee of
FlashNet is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement that relates to the
employment of any such employee with FlashNet or with any former employer and
that may materially and adversely affect the business conducted by FlashNet.
FlashNet does not have any collective bargaining agreements covering any of
its employees. FlashNet is not aware of the imminent departure of any key
employee, the recent departure of any key employee or any threatened or
pending material litigation between a current employee and one of his or her
former employers.
2.12 INSURANCE. FlashNet maintains policies of fire and casualty
insurance policies sufficient in amount to allow it to replace any of its
properties which might be damaged or destroyed through fire or other casualty
so insured.
2.13 REGISTRATION RIGHTS. Except as set forth in this Agreement and
in substantially similar agreements with other Purchasers of the Notes and
Warrants, FlashNet has not granted or agreed to grant any right to register
(as defined in Section 7.2 hereof) any of its currently outstanding
securities or any of its securities which may hereafter be issued.
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2.14 GOVERNMENTAL CONSENT, ETC. Subject to the accuracy of the
Purchaser's representations in Section 3 hereof, no consent, registration,
qualification, approval or authorization of or designation, declaration or
filing with any governmental authority on the part of FlashNet is required in
connection with the valid execution and delivery of this Agreement, or the
offer, sale or issuance of the Notes and the Warrants to the Purchaser (and
the shares of Common Stock issuable upon conversion or exercise thereof), or
the consummation of any other transaction contemplated hereby, except in the
case of any filings pursuant to Section 4(6) of, or Regulation D promulgated
under, the Securities Act of 1933, as amended (the "Securities Act") and
pursuant to any state securities laws.
2.15 OFFERING. Subject to the accuracy of the Purchaser's
representations in Section 3 hereof, the offer, sale and issuance of the
Notes and Warrants to be issued in conformity with the terms of this
Agreement and the issuance of the shares of Common Stock to be issued upon
conversion of the Notes and upon exercise of the Warrants constitute
transactions exempt from the registration requirements of Section 5 of the
Securities Act.
2.16 LICENSES. FlashNet possesses from the appropriate agency,
commission, governmental body and authority, all licenses, permits,
authorizations, approvals and rights as are necessary for FlashNet to engage
in such business as is conducted by it, including without limitation its
development, use, sale and marketing of its products and services.
2.17 NO BROKERS OR FINDERS. All negotiations relative to this
Agreement have been carried out by FlashNet directly with the Purchaser
without the intervention of any person on behalf of FlashNet in such manner
as to give rise to any claim by any such person for a finder's fee, broker's
commission or similar payment.
2.18 TAX RETURNS AND AUDITS. FlashNet has accurately prepared and
timely filed all federal, state and other tax returns that are required to be
filed by it and has paid or made provision for payment of all taxes that have
come due pursuant to such returns. The federal income tax returns of
FlashNet have not been audited by the Internal Revenue Service. No deficiency
assessment or adjustment of FlashNet's federal, state or other taxes is
pending, and FlashNet has no knowledge of any proposed liability for any tax
to be imposed upon its properties or assets for which there is not an
adequate reserve reflected in the Financial Statements.
2.19 ERISA. FlashNet has no "employee benefit plan" within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended.
2.20 DISCLOSURE. No representation or warranty of FlashNet contained
in this Agreement or furnished in connection with the transactions
contemplated hereby (when read together) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make
the statements contained therein not misleading in light of the circumstances
under which they are made.
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2.21 NO PRIOR RIGHTS. No person or entity has any preemptive right,
right of first refusal or similar right with respect to FlashNet's issuance
and sale of the Notes or the Warrants pursuant to this Agreement, or the
shares of Common Stock issuable upon conversion or exercise thereof, except
such rights as shall be fully waived by the holders thereof at or prior to
the Closing Date.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to FlashNet as follows:
3.1 ORGANIZATION AND POWER. If the Purchaser is a corporation,
general partnership or limited partnership, it is duly organized, validly
existing and in good standing under the laws of its state of organization and
has all requisite power and authority to execute and deliver this Agreement,
to purchase the Notes and the Warrants hereunder, to own the Notes and the
Warrants and the shares of Common Stock issuable upon conversion or exercise
thereof, and to carry out and perform its obligations under the terms of this
Agreement.
3.2 AUTHORIZATION. If the Purchaser is a corporation, general
partnership or limited partnership, all action on the part of the Purchaser
and its directors and officers necessary for the authorization, execution,
delivery and performance of this Agreement by the Purchaser and the
performance of its obligations hereunder has been taken. This Agreement,
when duly executed and delivered by FlashNet, shall constitute the valid and
binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms, subject to principles of equity and laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and except that rights to indemnification pursuant to Section 7.7
below may be limited or varied by applicable securities laws or public policy.
3.3 ACCREDITED INVESTOR; EXPERIENCE. The Purchaser is an "accredited
investor" as that term is defined in Section 2(15) of the Securities Act and
the rules promulgated thereunder and is experienced in evaluating and
investing in new, high technology companies such as FlashNet. Such Purchaser
has evaluated the merits and risks of investing in the Notes and the Warrants
and can afford a complete loss of its investment therein.
3.4 INVESTMENT INTENT. The Purchaser has not been formed, and has
not sold its own securities, for the purpose of investing in the Notes and
Warrants and is acquiring the Notes and the Warrants for investment for its
own account and not with the view to, or for resale in connection with, any
distribution thereof. The Purchaser understands that the Notes and Warrants
have not been registered under the Securities Act or the securities laws of
any state by reason of specific exemptions from the registration provisions
of the Securities Act and applicable state securities laws, which exemptions
are dependent upon, among other things, the bona fide nature of investment
intent of the Purchaser as expressed herein.
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3.5 RULE 144. The Notes and the Warrants (and the shares of Common
Stock issuable upon conversion or exercise thereof) must be held indefinitely by
the Purchaser unless subsequently registered under the Securities Act and
applicable state securities laws or an exemption from such registration is
available. The Purchaser is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of securities purchased in
a private placement subject to the satisfaction of certain conditions, including
without limitation the existence of a public market for the securities, the
availability of certain current public information regarding FlashNet, the
resale occurring not less than two years after a person has purchased and paid
for the security to be sold, the resale being through a "broker's transaction"
or in a transaction directly with a "market maker" (as provided by Rule 144(f))
and the number of securities being sold during any three-month period not
exceeding specified limitations.
3.6 NO PUBLIC MARKET. The Purchaser understands that no public market
now exists for any of the securities issued by FlashNet and that a public market
may never exist for the Notes or the Warrants or the shares of Common Stock
issuable upon conversion or exercise thereof.
3.7 ACCESS. The Purchaser acknowledges that (a) it has been given the
opportunity to make such inquiries concerning the proposed operations of
FlashNet as the Purchaser considers necessary or advisable to enable it to form
a decision concerning the purchase of the Notes and the Warrants, (b) all
documents, records and books of FlashNet that the Purchaser has asked to examine
in connection with the proposed purchase of the Notes and the Warrants have been
made available to the Purchaser, (c) the Purchaser has had an opportunity to
view FlashNet's facilities and to ask questions of and receive answers from
FlashNet's executive officers, directors, employees and agents concerning
FlashNet's business, financial condition, results of operations and properties
and the terms and conditions of such purchase, and all such questions have been
answered to the satisfaction of the Purchaser, and (d) the Purchaser has not
received any representations or warranties from FlashNet or its officers,
directors, employees or agents, other than those contained in this Agreement and
the documents contemplated herein, including, without limitation, the Exhibits
hereto.
3.8 NO BROKERS OR FINDERS. All negotiations relative to this Agreement
have been carried out by the Purchaser directly with FlashNet without the
intervention of any person on behalf of the Purchaser in such manner as to give
rise to any claim by any such person for a finder's fee, broker's commission or
similar payment.
SECTION 4
CONDITIONS TO OBLIGATIONS OF THE PURCHASER
The Purchaser's obligation to purchase the Notes and the Warrants on the
Closing Date is subject to the satisfaction on or prior to the Closing Date of
all of the following conditions:
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4.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties of FlashNet contained or referred to in this Agreement shall be true
and correct in all material respects when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of the Closing Date.
4.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by FlashNet on or prior to the Closing Date shall
have been performed or complied with in all material respects.
4.3 CONSENTS. All authorizations, approvals or permits of any entity
or person, governmental or otherwise, including but not limited to the waivers
referred to in Section 2.21 of this Agreement, that are required in connection
with the issuance of the Notes and the Warrants pursuant to the Agreement and
the issuance of shares of Common Stock upon conversion or exercise thereof shall
have been duly obtained and shall be effective on and as of the Closing Date.
4.4 CONCURRENT PURCHASES OF NOTES. On the Closing Date FlashNet shall
have entered into purchase agreements with other purchasers substantially
identical to this Agreement for the purchase of a minimum of $250,000 of the
Notes, including the Purchaser's investment.
SECTION 5
CONDITIONS TO OBLIGATIONS OF FLASHNET
FlashNet's obligations to sell the Notes and the Warrants to the Purchaser
are subject to the fulfillment to FlashNet's satisfaction on or prior to the
Closing Date of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Purchaser pursuant to this Agreement shall be true and
correct in all material respects.
5.2 COVENANTS. All covenants, agreements and conditions contained in
this Agreement to be performed by the Purchaser on or prior to the Closing Date
shall have been so performed or complied with in all material respects. (The
Purchaser's payment for the Notes and the Warrants shall conclusively evidence
certification as to the fulfillment of the conditions set forth in Sections 5.1
and 5.2).
5.3 CONSENTS. All authorizations, approvals or permits of any entity
or person, governmental or otherwise, including but not limited to the waivers
referred to in Section 2.21 of this Agreement, that are required in connection
with the issuance of the Notes and the Warrants pursuant to the Agreement and
the issuance of shares of Common Stock upon conversion or exercise thereof shall
have been duly obtained and shall be effective on and as of the Closing Date.
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5.4 CONCURRENT PURCHASES OF NOTES. On the Closing Date FlashNet shall
have entered into purchase agreements with other purchasers substantially
identical to this Agreement for the purchase of a minimum of $250,000 of the
Notes, including the Purchaser's investment.
SECTION 6
AFFIRMATIVE COVENANTS OF FLASHNET
FlashNet hereby covenants and agrees as follows:
6.1 FINANCIAL INFORMATION. FlashNet will furnish the following reports
to the Purchaser for so long as the Purchaser is a holder of a Note or Warrant
or not less than 10,000 shares of Common Stock into which the Notes are
convertible or for which the Warrants are exercisable:
(a) As soon as practicable after the end of each fiscal year, and
in any event within 120 days thereafter, consolidated balance sheets of FlashNet
and its subsidiaries, if any, as of the end of each fiscal year, and
consolidated statements of operations and consolidated statements of changes in
financial position of FlashNet and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting
forth in each case in comparative form the figures for the previous fiscal year,
all in reasonable detail and audited by independent public accountants of
recognized national standing selected by FlashNet;
(b) as soon as practicable after the end of each fiscal quarter,
and in any event within 45 days thereafter, a consolidated balance sheet of
FlashNet and its subsidiaries, if any, as of the end of such quarter, and
consolidated statements of operations of FlashNet and its subsidiaries, if any,
for each quarter and for the current fiscal year to date; and
(c) with reasonable promptness, such other information and data
with respect to FlashNet and its subsidiaries, if any, as the Purchaser may from
time to time reasonably request.
The Purchaser covenants, however, that the financial or other information
or data received by it pursuant to this Section 6.1 or Section 7.9 hereof will
not be used in violation of any applicable federal or state securities laws,
including without limitation the antifraud provisions of such laws.
6.2 AVAILABILITY OF COMMON STOCK FOR CONVERSION AND EXERCISE. So long
as the Notes or the Warrants are outstanding, FlashNet will at all times keep
authorized and expressly reserved unissued shares of Common Stock sufficient to
permit conversion of the Notes and exercise of the Warrants pursuant to the
terms thereof.
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6.3 USE OF PROCEEDS. FlashNet will use the proceeds from the sale of
the Notes and Warrants for general corporate purposes, but not for the payment
of (i) dividends or (ii) existing material undisclosed claims or indebtedness as
of the Closing Date.
6.4 NOTICE OF AN EVENT OF DEFAULT. So long as the Notes are
outstanding, FlashNet shall promptly upon the happening of any condition or
event which constitutes an Event of Default under the Notes provide the holder
of each Note a written notice specifying the nature and period of existence of
any such Event of Default and what action FlashNet is taking or proposes to take
with respect thereto.
SECTION 7
RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; COMPLIANCE WITH SECURITIES ACT
7.1 RESTRICTIONS ON TRANSFERABILITY. The Notes and the Warrants (and
the shares of Common Stock issuable on conversion or exercise thereof) shall not
be transferable except upon the conditions specified in this Section 7, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and applicable state securities laws. Purchaser will not sell or
transfer or offer to sell or transfer the Notes, the Warrants or the shares of
Common Stock issuable upon conversion or exercise thereof (a) unless a
registration statement has been filed with respect to the offer of such
securities, and such registration statement has become effective with respect to
the sale of such securities, under the Securities Act and applicable state
securities laws, or (b) except in a manner that would not require registration
under the Securities Act and any applicable state securities laws and would not
jeopardize the exemption from such registration of the offer, sale and issuance
of the Notes, the Warrants or the shares of Common Stock issuable upon
conversion or exercise thereof. Each transferee of the Notes, the Warrants or
of any shares of Common Stock issuable upon conversion or exercise thereof shall
take and hold such securities subject to the provisions and upon the conditions
specified in this Section 7.
7.2 CERTAIN DEFINITIONS. As used in this Section 7, the following
terms shall have the meanings respectively ascribed to them:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Holder" shall mean any holder of Registrable Securities.
"Restricted Securities" shall mean the securities of FlashNet required to
bear the legend set forth in Section 7.3 hereof.
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"Registrable Securities" shall mean (a) shares of the Common Stock issued
or issuable pursuant to the conversion of the Notes or the exercise of the
Warrants, and (b) any Common Stock issued in respect of such shares of the
Common Stock upon any stock split, stock dividend, recapitalization, or similar
event declared or effected by FlashNet.
The terms "register", "registered" and "registration" refer to a
registration of FlashNet's securities effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering by the Commission of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by FlashNet in
complying with Section 7.4 hereof, including without limitation all
out-of-pocket registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for FlashNet, blue sky fees and
expenses, and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of
FlashNet which shall be paid in any event by FlashNet).
"Requesting Investors" shall mean the respective Holders under and as
defined in this Agreement that are then requesting the inclusion of their
securities of FlashNet in a registration and underwriting subject to Section 7.4
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
federal statute enacted in substitution thereof, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities by or on behalf of
any Holder and all fees and disbursements of counsel for any Holder.
7.3 RESTRICTIVE LEGEND. The Notes, the Warrants and each certificate
representing (a) any shares of the Common Stock issued upon conversion of the
Notes or upon exercise of the Warrants, or (b) any other securities issued in
respect to the Notes, the Warrants or such shares upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event declared or
effected by FlashNet, shall (unless otherwise permitted by the provisions of
this Section 7) be stamped or otherwise imprinted or endorsed with a legend
substantially in the following form (in addition to any other required legend,
if any):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS, HAVE BEEN TAKEN FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED OR OFFERED FOR SALE OR TRANSFER UNLESS A REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS WITH
RESPECT TO SUCH SECURITIES IS THEN IN EFFECT, OR
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IN THE OPINION OF COUNSEL (SATISFACTORY TO THE COMPANY), SUCH REGISTRATION
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The foregoing legend shall be removed from the Notes, the Warrants and any such
certificate representing Restricted Securities, and FlashNet shall issue in
substitution thereof a Note, Warrant or certificate that shall be identical
thereto except for the deletion of such legend, (a) if the Restricted Security
evidenced thereby is registered under the Securities Act and applicable state
securities laws or (b) if FlashNet has been provided with an opinion of counsel
satisfactory to FlashNet to the effect that a public sale or transfer of such
Restricted Security may be made by the Holder without registration under the
Securities Act and applicable state securities laws; provided, however, that if,
but only to the extent, any such securities cease to be registered, or to be
eligible for public sale or transfer without registration under the Securities
Act and applicable state securities laws, and if the foregoing legend has been
removed from the Note, the Warrants or the certificates representing such
securities pursuant to this Section 7.3, the Holder agrees to surrender (within
15 calendar days following his or its receipt of FlashNet's written request
therefor) the Note, Warrants or certificates representing such securities, and
FlashNet agrees at its expense to return promptly to the Holder a new Note, new
Warrant or new certificates for such securities which again shall bear the
foregoing legend and shall be deemed Restricted Securities for purposes of this
Agreement.
7.4 REGISTRATION BY FLASHNET.
(a) If at any time or from time to time before August 1, 1999
FlashNet shall determine to register any of its securities, either for its own
account or the account of a security holder or holders exercising their
respective registration rights, other than (i) a registration on Form S-8 or
similar forms which may be promulgated in the future relating solely to employee
benefit plans or (ii) a registration on Form S-4 or similar forms which may be
promulgated in the future relating solely to a reclassification, merger,
consolidation, asset acquisition or other business combination subject to Rule
145 under the Securities Act or any similar transaction, FlashNet will:
(A) promptly give to each Holder written notice thereof (which
shall include a list of the states in which FlashNet intends to attempt to
qualify such securities under applicable state securities laws); and
(B) except as provided herein or as set forth in Section 7.4(b)
hereof, include in such registration under the Securities Act and any related
qualification under such state securities laws, and in any underwriting involved
therein, all the Registrable Securities specified by any Holder or Holders in a
written request or requests therefor delivered to FlashNet within 20 calendar
days after receipt by such Holder or Holders of FlashNet's written notice given
pursuant to Section 7.4(a)(A) hereof.
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(b) If the registration of which FlashNet gives written notice
pursuant to Section 7.4(a) hereof is for a registered public offering involving
an underwriting, FlashNet shall so advise the Holders as a part of such notice.
In such event, the right of any Holder to registration pursuant to this Section
7.4 shall be conditioned upon, and shall not be exercisable by any Holder
without, such Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent provided
herein. If required by the underwriter or underwriters selected by FlashNet for
such underwriting (collectively the "Underwriter"), (i) all Holders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement with the Underwriter in customary form, and (ii)
all Holders shall agree not to sell publicly any of their Registrable Securities
for such period as the Underwriter may reasonably request. Notwithstanding any
other provision of this Section 7.4, if the Underwriter determines that
marketing or other factors require a limitation of the number of securities to
be underwritten, the Underwriter in its sole discretion may exclude from such
registration and underwriting some or all of the securities requested to be
included in such registration and underwriting by Requesting Investors and other
persons other than FlashNet; provided, however, that if all securities requested
to be included in such registration and underwriting by Requesting Investors and
persons other than FlashNet are not so excluded by the Underwriter, the number
of such non-excluded securities shall be allocated proportionately among all
having the right to request registration of securities (including Requesting
Investors). If securities requested to be registered by Requesting Investors
are excluded pursuant to this Section 7.4(b), such exclusion shall be
apportioned among such Requesting Investors in the same proportion as the number
of such securities covered by the respective Requesting Investor's instant
registration request bears to the total number of such securities covered by the
instant registration requests of all persons (including Requesting Investors).
If different classes or types of securities are to be excluded in whole or in
part from registration pursuant to this Section 7.4(b), all percentage
calculations for such exclusions shall be based on the respective public
offering prices of such classes or types of securities, which public offering
prices shall be determined or estimated by the Underwriter. If any Holder
disapproves of the terms of any underwriting subject to this Section 7.4(b),
such Holder may elect to withdraw therefrom by written notice to FlashNet and
the Underwriter. Any securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration. FlashNet shall advise all persons
seeking to include their securities in such registration and underwriting of the
number of each such person's securities that may be so included.
(c) Any notice to be delivered by FlashNet to a Holder pursuant to
this Section 7.4 shall simultaneously be delivered to the holders of the Notes
and the Warrants.
7.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration or qualification pursuant to this Section 7
shall be borne by FlashNet; and, unless otherwise agreed by FlashNet and the
Underwriter, all Selling Expenses relating to Registrable Securities included
pursuant to this Section 7 in a registration statement, whether or not filed or
declared effective, shall be borne by the Holders of such Registrable Securities
pro rata on the basis of the number of such securities so included.
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7.6 REGISTRATION PROCEDURES. In the case of each registration or
qualification effected by FlashNet pursuant to this Section 7, FlashNet will
keep each Holder advised in writing as to the initiation of each registration or
qualification, as to the status thereof from time to time, and as to the
completion thereof. At its Registration Expense, FlashNet will:
(a) use all commercially reasonable efforts to cause the
respective registration statement to become effective under the Securities Act
and securities laws of the states designated by FlashNet pursuant to Section
7.4(a) hereof and to keep such registration and qualification effective for a
period of 120 days or until the Holder or Holders have completed the
distribution described in such registration statement relating thereto,
whichever first occurs; and
(b) furnish such reasonable number of the registration statement,
preliminary prospectuses, final prospectuses, amendments and supplements
thereto, and other documents incident thereto as a Holder from time to time may
reasonably request.
7.7 INDEMNIFICATION.
(a) FlashNet will indemnify each Holder, each of its officers and
directors and partners, if any, and each person controlling such Holder within
the meaning of Section 15 of the Securities Act, with respect to which
registration or qualification has been effected pursuant to Section 7.4 hereof,
and each underwriter, if any, for such Holder and each person who controls any
such underwriter within the meaning of Section 15 of the Securities Act, against
all expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration or
qualification, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or any violation by FlashNet of any rule or regulation promulgated under the
Securities Act applicable to FlashNet and relating to action or inaction
required of FlashNet in connection with any such registration or qualification,
and will reimburse each such Holder and such officers, directors, partners,
underwriters and controlling persons for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action; provided, however, that FlashNet
will not be liable in any such case to a particular Holder to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to
FlashNet by such Holder or such underwriter.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration or
qualification is being effected, indemnify FlashNet, each of its directors,
partners and officers, each underwriter, if any, of
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FlashNet's securities included in such registration or qualification, each
person who controls FlashNet or such underwriter within the meaning of
Section 15 of the Securities Act, and each other Holder whose Registrable
Securities are so included, each of its officers, partners and directors and
each person controlling such other Holder within the meaning of Section 15 of
the Securities Act, against all claims, losses, damages, liabilities and
expenses (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising
out of or based on any untrue statement (or alleged untrue statement) by such
Holder of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration or qualification, or
based on any omission (or alleged omission) by such Holder 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,
nor misleading, or any violation by the indemnifying Holder of any rule or
regulation promulgated under the Securities Act applicable to such Holder and
relating to action or inaction required of such Holder in connection with
such registration or qualification, and will reimburse each of FlashNet, such
other Holders, and such directors, officers, partners, underwriters and
control persons for any legal or any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document, or any amendment or supplement thereto,
in reliance upon and in conformity with written information furnished to
FlashNet by such indemnifying Holder; provided, however, that the obligations
of an indemnifying Holder hereunder shall be limited to an amount equal to
the proceeds to such Holder of Registrable Securities sold as contemplated
herein.
(c) Each person entitled to indemnification under this Section 7.7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, however, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its indemnity obligations under this Section 7.7 unless,
but only to the extent, the rights or obligations of the Indemnifying Party have
been materially and adversely affected by such failure. No Indemnifying Party,
in the defense of any such claim or litigation, shall, except with the consent
of each Indemnified Party, consent to the entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) Notwithstanding anything to the contrary herein, if the
registration and public offering of the Registrable Securities is accomplished
pursuant to a valid underwriting
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agreement, the provisions thereof shall supersede the provisions of this
Section 7.7 with respect to the matters covered in said underwriting
agreement.
7.8 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish FlashNet such information
regarding such Holder or Holders, the distribution proposed by such Holder or
Holders, and such other matters as FlashNet may request in writing and as shall
be required in connection with any registration or qualification referred to in
this Section 7.
7.9 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission that may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock, FlashNet agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, so long as a Holder
owns any Restricted Securities at all times after the effective date of the
first registration statement under the Securities Act filed by FlashNet for an
offering of its securities to the general public;
(b) use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of
FlashNet under the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), at any time after FlashNet has become subject to
such reporting requirements; and
(c) so long as a Holder owns any Restricted Securities, to furnish
to the Holder, promptly upon such Holder's written request, a written statement
by FlashNet, as to its compliance with the reporting requirements of Rule 144
(at any time after 90 days following the effective date of the first
registration statement filed by FlashNet for an offering of its securities to
the general public), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of FlashNet, and such other reports and
documents of FlashNet as a Holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing a Holder to sell any such
Restricted Securities without registration.
7.10 TRANSFER OF REGISTRATION RIGHTS. The rights to cause FlashNet to
register securities granted to Holders under Section 7.4 above may be assigned
to a transferee or assignee in connection with a transfer or assignment of such
securities but only to a transferee or assignee which receives in such transfer
or assignment a Note aggregating not less than $50,000 principal amount (or the
number of shares of Common Stock for which at least such $50,000 principal
amount of the Note has been converted, or a combination of such shares and
principal amount of the Note which is the equivalent of such $50,000 principal
amount). Except as provided in the foregoing sentence, such registration rights
shall not be transferrable or assignable.
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SECTION 8
MISCELLANEOUS
8.1 GOVERNING LAW. This Agreement, the Notes and the Warrants shall be
governed in all respects by the laws of the State of Texas applicable to
contracts wholly made and to be wholly performed in the State of Texas.
8.2 SURVIVAL. The representations, warranties, covenants and
agreements contained in this Agreement shall survive any investigation made by
the Purchaser and FlashNet and the Closing Date until August 1, 1998; provided,
however, the covenants and agreements contained in Sections 6 and 7.4 hereof
shall survive any investigation by the Purchaser and the Closing Date for the
periods set forth in such Sections.
8.3 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto; provided, however, the Purchaser's right
to purchase the Notes and Warrants shall not be assignable without FlashNet's
prior written consent.
8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement (including the
Schedules and Exhibits hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof. Neither this Agreement nor any
term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the parties hereto.
8.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or delivered either by hand or by messenger,
addressed
(a) If to the Purchaser, at the Purchaser's address as set forth
on the Subscriber Signature Page hereof, or at such other address as the
Purchaser shall have furnished FlashNet in writing, or
(b) If to FlashNet, at 2801 West Seventh Street, Fort Worth, Texas
76107, Attention: M. Scott Leslie, or at such other address as FlashNet shall
have furnished to the Purchaser.
8.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to FlashNet, the Purchaser or any other Holder, upon
any breach or default of FlashNet, the Purchaser, or any other Holder, as the
case may be, under this Agreement, shall impair any such right, power or remedy;
nor shall any such delay or omission be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver,
17
<PAGE>
permit, consent or approval of any kind or character on the part of FlashNet,
the Purchaser or any other Holder of any breach or default under this
Agreement, or any waiver on the part of FlashNet, the Purchaser or any other
Holder of any provisions or conditions of this Agreement must be in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies either under this Agreement or by law or otherwise
afforded shall be cumulative and not alternative.
8.7 SEVERABILITY. In the event any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said
provision; provided, however, that no such severability shall be effective if it
materially changes the economic benefit of this Agreement to any party.
8.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.9 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officer or
representative as of the day and year first written above.
FLASHNET: WEBSITE MANAGEMENT COMPANY, INC.
By:
-------------------------------------
18
<PAGE>
SUBSCRIBER SIGNATURE PAGE
Name of Subscriber:
------------------------------------
Authorized Signature
of Subscriber:
------------------------------------
If other than an individual subscriber, purchase is being made as (circle
one):
Partnership............Corporation............Trust............Other
RESIDENCE: BUSINESS:
- -------------------------------- ---------------------------------
Street Address Street Address
- -------------------------------- ---------------------------------
City/State/Zip City/State/Zip
- -------------------------------- ---------------------------------
Phone Number Phone Number
- --------------------------------
Subscriber's Social Security No./
Tax Identification No.
Please mark appropriate address for mailings:
Residence
-----------------------------
Business -----------------------------
The Notes and the Warrants are being offering by FlashNet for a purchase
price of $1,000 per unit. Each unit (individually a "Unit," and collectively
the "Units") consists of: (i) $1,000 in principal amount of the Notes and
(ii) a Warrant entitling the holder thereof to purchase eighty-two (82)
shares of FlashNet's Common Stock, at a purchase price of $.01 per share.
The minimum purchase by any subscriber is 10 Units.
The Purchaser is subscribing for ____ Units, or $__________ in principal
amount of the Notes and Warrants for _________ shares of Common Stock. The
purchase price for the Notes and the Warrants being purchased hereunder is
$___________________.
19
<PAGE>
EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER ANY STATE SECURITIES LAW OR THE
SECURITIES ACT OF 1933, AS AMENDED (THE "FEDERAL ACT"). THIS NOTE HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, HYPOTHECATED, SOLD
OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR TRANSFEREE THEREOF BE RECOGNIZED BY
WEBSITE MANAGEMENT COMPANY, INC. (THE "COMPANY") AS HAVING ANY INTEREST IN
THIS NOTE, IN THE ABSENCE OF (i) AN EFFECTIVE REGISTRATION STATEMENT WITH
RESPECT TO THIS NOTE UNDER ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION
OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE
COMPANY, THAT THE TRANSACTION BY WHICH THIS NOTE WILL BE OFFERED FOR SALE,
HYPOTHECATED, SOLD OR TRANSFERRED IS EXEMPT UNDER ANY APPLICABLE STATE
SECURITIES LAWS, OR IS OTHERWISE IN COMPLIANCE WITH SUCH LAWS, AND (ii) AN
EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THIS NOTE UNDER THE FEDERAL
ACT, OR AN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
WEBSITE MANAGEMENT COMPANY, INC.
12% Convertible Note Due July 31, 1999
No. $
----------- -------------
WebSite Management Company, Inc., d/b/a FlashNet Communications (the
"Company"), a Texas corporation, for value received, promises to pay to
_______________, or registered assigns, the principal amount of $_____________,
with interest thereon, as provided herein.
1. THE NOTES. This note is one of a duly authorized issue of the
Company's 12% Convertible Notes, due July 31, 1999, limited to an aggregate
principal amount of $1,000,000.00 (the "Notes"). Interest on the outstanding
principal of the Notes, accruing from the date of issuance of the Notes at
the rate of twelve percent (12%) per annum, shall be paid to the registered
holders on October 31, January 31, April 30 and July 31 of each year,
commencing October 31, 1996.
2. PAYMENT AND PREPAYMENT (REDEMPTION). The principal of this note
shall be paid, and may be prepaid or redeemed as follows:
2.1 UNPAID PRINCIPAL AMOUNT. On July 31, 1999, the Company
shall pay the unpaid principal amount of this note. "Unpaid principal amount"
means the original principal amount minus: (1) the principal amount converted
into Common Stock under Section 3, (2) the principal amount paid under
Section 2.2, and (3) the principal amount redeemed under Section 2.3.
2.2 ANNUAL INSTALLMENTS OF PRINCIPAL. The Company shall pay one
third of the original principal amount of this note on July 31, 1997 and
another one third of the original principal amount on July 31, 1998;
provided, however, the Company's obligation to make such
<PAGE>
payments shall be reduced if and to the extent the principal amount has been
converted into Common Stock under Section 3 or redeemed under Section 2.3.
The right under Section 3 to convert into Common Stock the principal amount
of this note to be repaid in annual installments shall continue until the
close of business on the date three business days before the date on which
such annual installment is due.
2.3 REDEMPTION. The Company, at its option, after giving
notice, may prepay or redeem this note at any time, in whole or in part, in
multiples of $1,000.00 principal amount, plus accrued interest on the
principal amount being redeemed, on or after January 1, 1997.
2.4 NOTICE OF REDEMPTION. Before any redemption of this note,
notice shall be given to the registered holder not less than thirty nor more
than sixty days prior to the date fixed for redemption. The notice shall
specify: (1) the principal amount to be redeemed; (2) the date fixed for
redemption; (3) that on the date fixed for redemption, the principal amount
to be redeemed, and interest thereon will become due and payable, and that
interest thereon will not accrue after that date; (4) the applicable
conversion price on the date of the notice; (5) the date on which the right
to convert the principal amount so called for redemption shall terminate; and
(6) the location and address of the office or agency of the Company in
Tarrant County, Texas where this note may be presented for conversion or is
required to be presented for redemption (if presentment is required), and the
hours and days when the office or agency is open for business.
2.5 EFFECT OF REDEMPTION NOTICE. If redemption notice is so
given, there shall become due and payable, on the date specified in the
notice, the principal amount of this note designated for redemption plus
interest accrued on that principal amount to the date fixed for redemption.
However, such principal amount (and related interest) shall cease to be due
and payable to the extent that the principal amount designated for redemption
is converted into Common Stock.
2.6 RELATION TO CONVERSION RIGHT. If redemption notice is so
given, the right under Section 3 to convert into Common Stock the principal
amount of this note designated for redemption shall continue until the close
of business on the date three business days before the date fixed for
redemption. The right to convert any remaining principal amount of this note
shall not be affected by a partial redemption.
3. CONVERSION.
3.1 CONVERSION RIGHT; CONVERSION PRICE. This note is
convertible, in multiples of $1,000 of unpaid principal amount, into shares
of Common Stock of the Company at the conversion price then in effect ("the
applicable conversion price"). The conversion price is initially $10 per
share of Common Stock and is subject to adjustment as provided below.
Conversion may be made at any time, at the option of the holder, up to and
including the maturity date (or, to the extent paid in annual installments or
called for redemption, the dates specified in Sections 2.2 and 2.6,
respectively). For conversion, the holder must present this note at the
office or agency of the Company designated for payments along with the
conversion notice, in the form attached hereto as Exhibit A, properly
executed.
2
<PAGE>
3.2 EFFECT OF STOCK DIVIDEND, SPLIT, ETC. If the Company splits
or combines its outstanding shares of Common Stock into a greater or lesser
number of shares, the applicable conversion price shall be proportionately
reduced or increased, calculated to the nearest cent.
3.3 EFFECTS OF MERGER, ETC. If the Company merges with another
corporation, the holder of this note shall thereafter be entitled on
conversion, with respect to each share of Common Stock receivable on
conversion immediately before the merger becomes effective, to receive the
securities or other consideration to which a holder of one share of Common
Stock is entitled in the merger, without any change in, or payment in
addition to, the conversion price in effect immediately before the merger.
3.4 COVENANTS AS TO MERGER. The Company shall use its best
efforts in connection with a merger to assure that Section 3.3 and all other
provisions of this note shall thereafter be applicable, as nearly as
reasonably may be, to any securities or other consideration so deliverable on
conversion. The Company shall not merge unless, prior to consummation, the
successor corporation (if other than the Company) assumes the obligations of
Section 3.3 and all other provisions of this note by written instrument
executed and mailed to the registered holder.
3.5 DEFINITION OF MERGER. A merger includes: (1) a sale or
lease of all or substantially all the assets of the Company for a
consideration (apart from the assumption of obligations) consisting primarily
of securities; and (2) a consolidation.
3.6 INTEREST. Unless converted on a quarterly interest payment
date, interest shall accrue and be paid from the last such date until the
conversion date on the unpaid principal amount converted.
3.7 COVENANTS AS TO COMMON STOCK. Shares deliverable on
conversion shall, at delivery, be fully paid and nonassessable, and free from
taxes, liens and charges with respect to their purchase. The Company shall
at all times reserve and hold available sufficient shares of Common Stock to
satisfy all conversion and purchase rights of its outstanding convertible
securities.
3.8 LIMITED RIGHTS OF HOLDER. This note does not entitle the
holder to any voting or other rights as a shareholder of the Company, or to
any other rights whatsoever except those herein expressed. No dividends are
payable or will accrue on this note or the shares purchasable hereunder
until, and except to the extent that, the note is converted into shares.
4. LIQUIDATION. In the event that the Company is liquidated, the
holder of this note will have first right on all assets prior to any
distribution of assets to the Company's stockholders.
5. SUBSTITUTION. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this note and, in
the case of any such loss, theft or destruction, upon delivery of a bond of
indemnity satisfactory to the Company, or in the case of any such mutilation,
upon surrender or cancellation of this note, the Company will issue to the
holder a new note of like tenor, in lieu of this note.
3
<PAGE>
6. EVENTS OF DEFAULT. If one or more of the following events shall
occur and be continuing:
(a) The Company shall fail to pay any amount due hereunder when
due and the failure shall continue for a period of ten (10) days; or
(b) The Company shall file a petition in bankruptcy, make an
assignment for the benefit of its creditors, or consent to or acquiesce in
the appointment of a receiver for all or a substantial part of its property,
or a petition in bankruptcy or for the appointment of a receiver shall be
filed against the Company and remain unstayed for at least 90 days;
then, in any such event, the holder of this note may, by
written notice to the Company, declare the principal of this note immediately
due and payable and, upon such a declaration, the maturity of this note shall
accelerate and it shall become due and payable. Upon the occurrence of (a)
above, amounts of principal and accrued interest unpaid when due will bear
interest until paid at the lesser of the rate of eighteen percent (18%) per
annum or the maximum rate permitted by law.
7. TRANSFER OF NOTE. Subject to the provisions of Section 9 below,
upon due presentment for registration of transfer of this note, the Company
will execute, register and deliver in exchange a new note or notes equal in
aggregate principal amount to the then unpaid principal amount of this note,
dated the date to which interest has been paid and registered in the name of
the transferee. Each note presented or surrendered for registration or
transfer, exchange, conversion or payment shall (if so required by the
Company) be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Company and duly executed by, the
registered holder or its attorney duly authorized in writing.
8. STATUS OF REGISTERED HOLDER. The Company may treat the
registered holder of this note as the absolute owner of this note for the
purpose of making payments of principal interest and for all other purposes
and shall not be affected by any notice to the contrary.
9. SECURITIES LAW RESTRICTIONS. This note and the shares of Common
Stock issuable upon conversion of this note have not been registered for sale
under the Securities Act of 1933, and neither this note nor those shares nor
any interest in this note or those shares may be sold, offered for sale,
pledged or otherwise disposed of without compliance with applicable
securities laws including, without limitation, an effective registration
statement related thereto or delivery of an opinion of counsel reasonably
acceptable to the Company that such registration is not required under the
Securities Act of 1933.
10. REGISTRATION RIGHTS. The holder of this note will have the
registration rights described in that one certain 12% Convertible Notes
Purchase Agreement between the Company and the original purchaser of the
Note, dated July 8, 1996.
11. NOTICES. Any notice required or contemplated by this note shall
be deemed sufficiently given if sent by registered or certified mail to the
Company at its principal office or to the registered holder at his address
shown on the books of the Company or at such other address as the registered
holder may designate in a notice for that purpose.
4
<PAGE>
12. MODIFICATION; TERMINATION. Neither this note nor any term of
this note may be modified, waived, discharged or terminated orally.
13. HEADINGS. The headings in this note are solely for convenience
of reference and shall not affect its interpretation.
14. GOVERNING LAW. This note shall be governed by and construed in
accordance with the laws of the State of Texas applicable to agreements made
and to be performed in that state.
DATED the ______ day of July, 1996.
ATTEST: WEBSITE MANAGEMENT COMPANY, INC., a
Texas Corporation
By:
----------------------------------
5
<PAGE>
CONVERSION NOTICE
The undersigned irrevocably exercises the option to convert $__________
aggregate principal amount of the 12% Convertible Note due July 31, 1999
("Note") of Website Management Company, Inc. ("Company") registered in the
name of the undersigned into Company common shares in accordance with the
terms of the Note and directs that the shares issuable on conversion be
issued and delivered to the undersigned.
Date:
--------------------------------
- ----------------------------------------
EXHIBIT A
<PAGE>
EXHIBIT B
THIS WARRANT AND THE SHARES OF COMMON STOCK COVERED HEREBY (COLLECTIVELY, THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER ANY STATE SECURITIES LAWS OR THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES HAVE BEEN OR
WILL BE ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
HYPOTHECATED, SOLD OR TRANSFERRED, NOR WILL ANY ASSIGNEE OR TRANSFEREE
THEREOF BE RECOGNIZED BY WEBSITE MANAGEMENT COMPANY, INC. (THE "COMPANY") AS
HAVING ANY INTEREST IN SUCH SECURITIES, IN THE ABSENCE OF (i) AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT TO THE SECURITIES UNDER APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL SHALL BE
REASONABLY SATISFACTORY TO THE COMPANY, THAT THE TRANSACTION BY WHICH SUCH
SECURITIES WILL BE OFFERED FOR SALE, HYPOTHECATED, SOLD OR TRANSFERRED IS
EXEMPT UNDER APPLICABLE STATE SECURITIES LAWS OR IS OTHERWISE IN COMPLIANCE
WITH SUCH LAWS, AND (ii) AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO
THE SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL, WHICH OPINION AND
COUNSEL SHALL BE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH
REGISTRATION IS NOT REQUIRED.
WEBSITE MANAGEMENT COMPANY, INC.
COMMON STOCK PURCHASE WARRANT
Number No. A-1
of Shares:
-----------------
This certifies that, for value received, _______________________
("Purchaser") or Purchaser's registered assigns (in any such case, the
"Registered Holder"), is entitled, subject to the terms and conditions
hereinafter set forth, to purchase __________ shares of Common Stock, no par
value per share (the "Common Stock"), of WEBSITE MANAGEMENT COMPANY, INC., a
Texas corporation (the "Company"). The purchase price payable upon the
exercise of this warrant shall be $.01 per share (such amount being
hereinafter referred to as the "Warrant Price"), which must be paid in cash.
This Warrant is subject to the following terms and conditions:
1. EXERCISE.
(a) EXERCISE OF WARRANT. The Registered Holder may exercise
this Warrant in whole or in part at any time after December 31, 1996, and
from time to time following such date, at or prior to 5:00 o'clock P.M.,
C.S.T., July 31, 1999, but not thereafter, as to all or any part of the
number of whole shares of Common Stock then subject hereto.
1
<PAGE>
(b) EXERCISE PROCEDURE. This Warrant will be deemed to have
been exercised when the Company has received at its principal office at 2801
West Seventh Street, Fort Worth, Texas 76107, or at such other address as the
Company may designate by notice in writing to the Registered Holder, the
following items (in any such case, the "Exercise Time"): (i) this Warrant
with a Subscription Form in the form of Annex I hereto duly executed by the
Registered Holder, (ii) if this Warrant is being exercised by an assignee of
Purchaser or other subsequent holder, the Assignment or Assignments in the
form of Annex II hereto evidencing the assignment of this Warrant to the
Registered Holder, and (iii) a check payable to the Company in an amount
equal to the Warrant Price multiplied by the number of shares of Common Stock
being purchased upon such exercise (the items referred to in clauses (i),
(ii) and (iii) being referred to herein collectively as the "EXERCISE
DOCUMENTS"). In case of any partial exercise of this Warrant, the Company
shall promptly execute and deliver to the Registered Holder a new warrant of
like tenor and date for the balance of the shares of Common Stock purchasable
hereunder. After receipt of the Exercise Documents, the Company shall
deliver a certificate evidencing the shares of Common Stock purchased upon
exercise of this Warrant within ten days after the date of the Exercise Time.
The Common Stock issuable upon exercise of this Warrant will be deemed to
have been issued to the Registered Holder at the Exercise Time, and the
Registered Holder will be deemed for all purposes to have become the record
holder of such Common Stock at the Exercise Time. All shares of Common Stock
which may be issued upon the exercise of this Warrant will, upon issuance, be
duly and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect thereto.
2. REORGANIZATION, RECLASSIFICATION, SALE OR MERGER OF THE COMPANY. If
at any time while this Warrant is outstanding there shall be any capital
reorganization or reclassification of the capital stock of the Company or any
Merger or Sale of the Company (as defined herein) shall be effected in such a
way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then,
as a condition of such reorganization, reclassification, Sale or Merger,
lawful and adequate provision (in a form reasonably satisfactory to the
Registered Holder) shall be made whereby the Registered Holder shall
thereafter have the right to acquire and receive, in lieu of the shares of
Common Stock immediately theretofore receivable upon the exercise of this
Warrant, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for the number of shares of Common
Stock immediately theretofore receivable had such reorganization,
reclassification, Sale or Merger not taken place, and in any such case
appropriate provision shall be made with respect to the rights and interests
of such holder to the end that the provisions hereof shall thereafter be
applicable to this Warrant (including, if necessary to effect the adjustments
contemplated herein, an immediate adjustment, by reason of such
reorganization, reclassification, Sale or Merger, of the Warrant Price to
reflect the value for the Common Stock evidenced by the terms of such
reorganization, reclassification, Sale or Merger if the value so evidenced is
less than such Warrant Price in effect immediately prior to such
reorganization, reclassification, Merger or Sale). The Company will not
effect any such Sale or Merger, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such Sale or
Merger or if the corporation purchasing such assets shall assume by written
instrument (in a form reasonably satisfactory to the Registered Holder),
executed and mailed or delivered to the Registered Holder at the last address
of such holder appearing on the books of the Company, the obligation to
deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
receive.
2
<PAGE>
For purposes of this warrant, a "Sale or Merger" of the Company shall mean
(a) the sale, lease, assignment or transfer (to a party other than a wholly
owned subsidiary of the Company) of all or substantially all of the Company's
assets, property or business or the sale, lease, assignment or transfer of
all or substantially all of the assets, property or business of any of the
Company's subsidiaries taken as a whole, or (b) the acquisition of the
Company by another entity by way of merger, consolidation or other business
combination resulting in the exchange of the outstanding shares of the
Company for securities or consideration issued, or caused to be issued, by
the acquiring corporation or its parent or subsidiary.
3. CHARGES, TAXES AND EXPENSES. The issuance of certificates for shares
of Common Stock upon any exercise of this Warrant shall be made without
charge to the Registered Holder hereof for any tax or other expense in
respect to the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the
name of, or in such name or names as may be directed by, the Registered
Holder of this Warrant; provided, however, that in the event that
certificates for shares of Common Stock are to be issued in a name other than
the name of the Registered Holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by an instrument of transfer in
form satisfactory to the Company, duly executed by the holder hereof in
person or by an attorney duly authorized in writing.
4. EXERCISE IN CONNECTION WITH PUBLIC OFFERING. Notwithstanding any
other provision hereof, if an exercise of any portion of this Warrant is to
be made in connection with a public offering or Sale or Merger of the
Company, the exercise of any portion of this Warrant may, at the election of
the Registered Holder hereof, be conditioned upon the consummation of the
public offering or Sale or Merger of the Company in which case such exercise
shall not be deemed to be effective until the consummation of such
transaction.
5. NO IMPAIRMENT. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, consolidation, dissolution, Sale
or Merger, or by any other voluntary act or deed, avoid or seek to avoid the
performance or observance of any of the covenants, stipulations or conditions
to be performed or observed by the Company, but will at all times in good
faith assist in the carrying out of all provisions of this Warrant and the
taking of all other action which may be necessary or appropriate in order to
protect the rights of the holder of this Warrant against impairment. Without
limiting the generality of the foregoing, the Company agrees that it will not
establish or increase the par value of the shares of any Common Stock which
are at the time issuable upon exercise of this Warrant above the then
prevailing Warrant Price hereunder and that, before taking any action which
would cause an adjustment reducing the Warrant Price hereunder below the then
par value, if any, of the shares of any Common Stock issuable upon exercise
hereof, the Company will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable shares of such Common Stock at the
Warrant Price as so adjusted.
6. MISCELLANEOUS.
(a) RESERVATION OF STOCK. The Company covenants that it
will at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely
3
<PAGE>
for the purpose of issue upon the exercise hereof, a sufficient number of
shares of Common Stock to permit the exercise hereof in full.
(b) NO VOTING RIGHTS; LIMITATION OF LIABILITY. This Warrant
will not entitle the holder hereof to vote or receive dividends or to be
deemed to be a shareholder of the Company for any purpose. No provision
hereof, in the absence of affirmative action by the holder to purchase Common
Stock, and no enumeration herein of the rights and privileges of the holder
shall give rise to any liability of such holder for the Warrant Price or as a
shareholder of the Company.
(c) WARRANT TRANSFERABLE. Except as otherwise provided
herein, this Warrant and all rights hereunder are transferable by the
Registered Holder hereof in person or by duly authorized attorney on the
books of the Company upon surrender of this Warrant with a properly executed
Assignment in the form of Annex II hereto at the principal office of the
Company. The Company may deem and treat the Registered Holder of this Warrant
at any time as the absolute owner hereof for all purposes and shall not be
affected by any notice to the contrary.
(d) BINDING EFFECT. The terms of this Warrant shall be
binding upon and shall inure to the benefit of any successors or assigns of
the Company and of the holder or holders hereof and of the Common Stock
issued or issuable upon the exercise hereof.
(e) DESCRIPTIVE HEADINGS; GOVERNING LAW. The section
headings used herein are for purposes of convenience and reference only and
do not form part of, nor are they to be referred to in the interpretation or
construction of, this Warrant. This Warrant shall be governed by and
construed in accordance with the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officers.
Dated _________________, 1996
WEBSITE MANAGEMENT COMPANY, INC.
By: /s/ A. Lee Thurburn
--------------------------------------
A. Lee Thurburn, Chairman of the
Board and Chief Executive Officer
ATTEST:
/s/ M. Scott Leslie
- --------------------------
M. Scott Leslie
President and Secretary
4
<PAGE>
ANNEX I
SUBSCRIPTION FORM
TO: WEBSITE MANAGEMENT COMPANY, INC.
The undersigned hereby exercises the right to purchase ___________
shares of Common Stock covered by the attached Warrant in accordance with the
terms and conditions thereof, and herewith makes payment of the Warrant Price
of such shares in full.
The undersigned represents and warrants that the undersigned is
acquiring such shares for the undersigned's own account with the intent of
holding such shares for investment and without the intent of participating
directly or indirectly in a distribution of such shares.
By:
-----------------------------
Signature
Address
-------------------------
Dated , 1996
----------------
5
<PAGE>
ANNEX II
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, and assigns and
transfers unto
- -----------------------------------------------------------------------------
the foregoing Warrant or [describe portion being transferred] and the rights
represented thereto to purchase shares of Common Stock of WEBSITE MANAGEMENT
COMPANY, INC., in accordance with the terms and conditions thereof, and does
hereby irrevocably constitute and appoint
_______________________________Attorney to transfer the said Warrant on the
books of the Company, with full power of substitution.
By:
-----------------------------
Signature
Address
-------------------------
Dated: , 19
--------------------
In the presence of:
6
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COMMON STOCK PURCHASE AGREEMENT
This COMMON STOCK PURCHASE AGREEMENT (this "Agreement") is made as of this
5th day of December, 1996, by and between WebSite Management Company, Inc., a
Texas corporation conducting business as FlashNet Communications ("FlashNet" or
"Seller"), and Stephen Bradley Markwardt, a resident of Fort Worth, Texas (the
"Purchaser"). FlashNet and the Purchaser hereby agree as follows:
SECTION 1
PURCHASE AND SALE OF COMMON STOCK
1.1 NUMBER OF SHARES; PURCHASE PRICE. Subject to the terms and conditions
hereof, FlashNet will issue and sell to the Purchaser, and the Purchaser will
buy from FlashNet, a total of 31,888 shares of FlashNet's Common Stock, without
par value (the "Shares"), for the cash purchase price of TWO HUNDRED THOUSAND
AND NO/100 DOLLARS ($200,000.00).
1.2 CLOSING.
(a) The closing of the purchase and sale of the Shares hereunder (the
"Closing") shall be held at the offices of FlashNet, 1812 North Forest Park
Boulevard, Fort Worth, Texas 76102, at 10:00 a.m. on December 9, 1996, or at
such other place or date as FlashNet and the Purchaser shall agree in writing
(the date of the Closing is hereinafter referred to as the "Closing Date").
(b) At the Closing, FlashNet will deliver to the Purchaser against
payment therefore, a certificate registered in the Purchaser's name representing
the Shares purchased hereunder. The Purchaser will pay to FlashNet, by check
payable to the order of FlashNet, the cash purchase price for the Shares.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF FLASHNET
FlashNet hereby represents and warrants to the Purchaser as follows:
2.1 ORGANIZATION AND STANDING. FlashNet is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas.
FlashNet has all requisite corporate power and authority to own and operate its
properties and assets and to conduct its business as presently conducted.
FlashNet is, or is the process of being, qualified to do business as a foreign
corporation in all jurisdictions where the ownership or leasing of FlashNet's
properties or assets and the nature of FlashNet's business as presently
conducted requires such qualification.
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2.2 CORPORATE POWER. FlashNet has all requisite legal and corporate power
to execute and deliver this Agreement, to issue and sell the Shares hereunder
and to carry out and perform its obligations under the terms of this Agreement.
2.3 NO SUBSIDIARIES. FlashNet does not own of record or beneficially any
shares of capital stock or other equity interests which constitute a 10% or
greater equity interest in any other corporation, association, joint venture,
general or limited partnership or other legal person.
2.4 CAPITALIZATION. The authorized capital stock of FlashNet consists of
50,000,000 shares of Common Stock, without par value ("Common Stock"), of which
1,562,500 shares are issued and outstanding. All such issued and outstanding
shares have been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth on Schedule 2.4, there are no options,
warrants, conversion privileges or other rights currently outstanding to
purchase or otherwise acquire any authorized but unissued shares of capital
stock of FlashNet.
2.5 AUTHORIZATION. All corporate action on the part of FlashNet, its
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement by FlashNet, the authorization, sale, issuance
and delivery of the Shares and the performance of FlashNet's obligations
hereunder has been taken. This Agreement, when duly executed and delivered,
shall constitute the valid and binding obligation of FlashNet enforceable
against FlashNet in accordance with its terms, subject to principles of equity
and laws of general application relating to bankruptcy, insolvency and the
relief of debtors and except that rights to indemnification pursuant to Section
7.7 hereof may be limited or varied by applicable securities laws or public
policy. The Shares, when issued in compliance with the provisions of this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Shares will be subject to restrictions on transfer under this Agreement
and state and federal securities laws.
2.6 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. Except as set forth on
Schedule 2.6, FlashNet has good and marketable title to the properties and
assets owned by it, and has valid leasehold interests or licenses in the
properties or assets leased by it or used in the conduct of it business, in each
case subject to no mortgage, pledge, lien, security interest, encumbrance,
charge or adverse claim that materially detracts from the value to FlashNet of
the property subject thereto or materially impairs the operations of FlashNet
and that has arisen other than in the ordinary course of business. Schedule 2.6
contains a listing of all material contracts and obligations of FlashNet.
2.7 FINANCIAL STATEMENTS. Attached as Schedule 2.7 are FlashNet's
unaudited financial statements as of September 30, 1996 and for the nine months
then ended (the "Financial Statements"). Except for the omission of certain
notes to the Financial Statements, the Financial Statements have been prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods indicated and present fairly the financial condition of
FlashNet as of the date indicated above and the results of operations of
FlashNet for the period then ended, subject to normal recurring year-end audit
adjustments none of which would be material in the aggregate. To the best of
FlashNet's knowledge, since September 30, 1996, there
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COMMON STOCK PURCHASE AGREEMENT PAGE 2
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has not been any material adverse change in FlashNet's business, financial
condition, affairs, operations, properties or assets except as disclosed in
the Financial Statements.
2.8 PATENTS, TRADEMARKS, ETC. To the best of FlashNet's knowledge,
FlashNet owns or has the right to use all material patents, trademarks, trade
names, copyrights, licenses, proprietary rights, trade secrets, and
manufacturing processes and technologies (collectively, "Intellectual Property")
used in the conduct of its business, without infringing upon or otherwise acting
adversely to the valid and asserted rights of any person or entity under or with
respect to any such Intellectual Property. Schedule 2.8 is a listing of the
Intellectual Property owned by FlashNet.
2.9 COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The business and operations
of FlashNet have been conducted in accordance with all applicable statutes,
regulations, rules or other laws, except in those instances in which failure to
comply has not materially and adversely affected, and to the best of FlashNet's
knowledge on the Closing Date will not materially and adversely affect, FlashNet
or its business or finances. The execution, delivery and performance by
FlashNet of this Agreement do not, and to the best of FlashNet's knowledge on
the Closing Date will not, (a) require any authorization, consent, approval,
license, exemption of or filing or registration with any court or governmental
department, agency or instrumentality of government, except such as have been
lawfully and validly obtained, (b) cause FlashNet to violate or contravene any
statute, rule, regulation or other law of any agency or government, any order,
writ, judgment, decree or determination, or any provision of the Articles of
Incorporation or Bylaws of FlashNet, in each case as amended on the Closing
Date, (c) violate or conflict with, result in a breach of or constitute (with or
without notice or lapse of time, or both) a default under, any material
agreement, instrument, commitment or arrangement to which FlashNet is a party or
by which FlashNet or any of its properties or assets is bound or affected, or
(d) result in the creation or imposition of any material lien or encumbrance
upon the properties of FlashNet. FlashNet is not in violation of or (with or
without notice or lapse of time, or both) in default under, any term or
provision of its Articles of Incorporation or Bylaws, in each case as amended on
the Closing Date, or any material agreement, instrument, commitment or
arrangement to which FlashNet is a party or by which any of FlashNet's
properties or assets is bound or affected. FlashNet is not subject to any
restriction of any kind or character which materially and adversely (i) affects
in any way its business, properties or assets, or (ii) prohibits FlashNet from
entering into this Agreement, or (iii) would prevent or make burdensome the
performance of or compliance with all or any part of this Agreement or of the
Articles of Incorporation of FlashNet or the consummation by FlashNet of the
transactions contemplated hereby.
2.10 LITIGATION, ETC. Except as set forth on Schedule 2.10, there are no
actions, suits, proceedings or investigations pending against FlashNet or its
properties before any court or governmental agency (nor, to the best of
FlashNet's knowledge, is there any valid basis therefor or threat thereof)
which, either individually or in the aggregate, might result in any material
adverse change in the business or financial condition of FlashNet or any of its
properties or assets, or in any material adverse impairment of the right or
ability of FlashNet to carry on its business as now conducted, or in any
material liability on the part of FlashNet, or which questions the validity of
this Agreement or any action taken or to be taken in connection herewith.
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2.11 EMPLOYEES. To the best of FlashNet's knowledge, no employee of
FlashNet is in violation of any term of any employment contract, patent
disclosure agreement or any other contract or agreement that relates to the
employment of any such employee with FlashNet or with any former employer and
that may materially and adversely affect the business conducted by FlashNet.
FlashNet does not have any collective bargaining agreements covering any of its
employees. FlashNet is not aware of the imminent departure of any key employee,
the recent departure of any key employee or any threatened or pending material
litigation between a current employee and one of his or her former employers.
2.12 INSURANCE. FlashNet maintains policies of fire and casualty insurance
policies sufficient in amount to allow it to replace any of its properties which
might be damaged or destroyed through fire or other casualty so insured.
2.13 REGISTRATION RIGHTS. Except as set forth in this Agreement and in
substantially similar agreements with the purchasers of the notes and warrants
referred to in Schedule 2.4, FlashNet has not granted or agreed to grant any
right to register (as defined in Section 7.2 hereof) any of its currently
outstanding securities or any of its securities which may hereafter be issued.
2.14 GOVERNMENTAL CONSENT, ETC. Subject to the accuracy of the Purchaser's
representations in Section 3 hereof, no consent, registration, qualification,
approval or authorization of or designation, declaration or filing with any
governmental authority on the part of FlashNet is required in connection with
the valid execution and delivery of this Agreement, or the offer, sale or
issuance of the Shares to the Purchaser or the consummation of any other
transaction contemplated hereby, except in the case of any filings pursuant to
Section 4(6) of, or Regulation D promulgated under, the Securities Act of 1933,
as amended (the "Securities Act") and pursuant to any state securities laws.
2.15 OFFERING. Subject to the accuracy of the Purchaser's representations
in Section 3 hereof, the offer, sale and issuance of the Shares to be issued in
conformity with the terms of this Agreement constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act.
2.16 LICENSES. FlashNet possesses from the appropriate agency, commission,
governmental body and authority, all licenses, permits, authorizations,
approvals and rights as are necessary for FlashNet to engage in such business as
is conducted by it, including without limitation its development, use, sale and
marketing of its products and services.
2.17 NO BROKERS OR FINDERS. All negotiations relative to this Agreement
have been carried out by FlashNet directly with the Purchaser without the
intervention of any person on behalf of FlashNet in such manner as to give rise
to any claim by any such person for a finder's fee, broker's commission or
similar payment.
2.18 TAX RETURNS AND AUDITS. Except as set forth in Schedule 2.18,
FlashNet has accurately prepared and timely filed all federal, state and other
tax returns that are required to be filed by it and has paid or made provision
for payment of all taxes that have come due pursuant to such returns. The
federal income tax returns of FlashNet have not been audited by the Internal
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Revenue Service. No deficiency assessment or adjustment of FlashNet's federal,
state or other taxes is pending, and FlashNet has no knowledge of any proposed
liability for any tax to be imposed upon its properties or assets for which
there is not an adequate reserve reflected in the Financial Statements.
2.19 ERISA. FlashNet has no "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended.
2.20 DISCLOSURE. No representation or warranty of FlashNet contained in
this Agreement or furnished in connection with the transactions contemplated
hereby (when read together) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which they
are made.
2.21 NO PRIOR RIGHTS. No person or entity has any preemptive right, right
of first refusal or similar right with respect to FlashNet's issuance and sale
of the Shares pursuant to this Agreement except such rights as shall be fully
waived by the holders thereof at or prior to the Closing Date.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to FlashNet as follows:
3.1 POWER AND AUTHORITY. The Purchaser has all requisite power and
authority to execute and deliver this Agreement and to carry out and perform his
obligations under the terms of this Agreement.
3.2 BINDING OBLIGATION. This Agreement, when duly executed and delivered
by FlashNet, shall constitute the valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, subject to
principles of equity and laws of general application relating to bankruptcy,
insolvency and the relief of debtors and except that rights to indemnification
pursuant to Section 7.7 below may be limited or varied by applicable securities
laws or public policy.
3.3 ACCREDITED INVESTOR; EXPERIENCE. The Purchaser is an "accredited
investor" as that term is defined in Section 2(15) of the Securities Act and the
rules promulgated thereunder and is experienced in evaluating and investing in
new, high technology companies such as FlashNet. The Purchaser has evaluated
the merits and risks of investing in the Shares and can afford a complete loss
of his investment therein.
3.4 INVESTMENT INTENT. The Purchaser is acquiring the Shares for
investment for his own account and not with the view to, or for resale in
connection with, any distribution thereof. The Purchaser understands that the
Shares have not been registered under the Securities Act or the
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securities laws of any state by reason of specific exemptions from the
registration provisions of the Securities Act and applicable state securities
laws, which exemptions are dependent upon, among other things, the bona fide
nature of investment intent of the Purchaser as expressed herein.
3.5 RULE 144. The Shares must be held indefinitely by the Purchaser
unless subsequently registered under the Securities Act and applicable state
securities laws or an exemption from such registration is available. The
Purchaser is aware of the provisions of Rule 144 promulgated under the
Securities Act which permit limited resale of securities purchased in a private
placement subject to the satisfaction of certain conditions, including without
limitation the existence of a public market for the securities, the availability
of certain current public information regarding FlashNet, the resale occurring
not less than two years after a person has purchased and paid for the security
to be sold, the resale being through a "broker's transaction" or in a
transaction directly with a "market maker" (as provided by Rule 144(f)) and the
number of securities being sold during any three-month period not exceeding
specified limitations.
3.6 NO PUBLIC MARKET. The Purchaser understands that no public market now
exists for any of the securities issued by FlashNet and that a public market may
never exist for the Shares.
3.7 ACCESS. The Purchaser acknowledges that (a) he has been given the
opportunity to make such inquiries concerning the proposed operations of
FlashNet as the Purchaser considers necessary or advisable to enable him to form
a decision concerning the purchase of the Shares, (b) all documents, records and
books of FlashNet that the Purchaser has asked to examine in connection with the
proposed purchase of the Shares have been made available to the Purchaser, (c)
the Purchaser has had an opportunity to view FlashNet's facilities and to ask
questions of and receive answers from FlashNet's executive officers, directors,
employees and agents concerning FlashNet's business, financial condition,
results of operations and properties and the terms and conditions of such
purchase, and all such questions have been answered to the satisfaction of the
Purchaser, and (d) the Purchaser has not received any representations or
warranties from FlashNet or its officers, directors, employees or agents, other
than those contained in this Agreement and the documents contemplated herein,
including, without limitation, the Schedules hereto.
3.8 NO BROKERS OR FINDERS. All negotiations relative to this Agreement
have been carried out by the Purchaser directly with FlashNet without the
intervention of any person on behalf of the Purchaser in such manner as to give
rise to any claim by any such person for a finder's fee, broker's commission or
similar payment.
SECTION 4
CONDITIONS TO OBLIGATIONS OF THE PURCHASER
The Purchaser's obligation to purchase the Shares on the Closing Date is
subject to the satisfaction on or prior to the Closing Date of all of the
following conditions:
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4.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties of FlashNet contained or referred to in this Agreement shall be true
and correct in all material respects when made, and shall be true and correct in
all material respects on the Closing Date with the same force and effect as if
they had been made on and as of the Closing Date.
4.2 COVENANTS. All covenants, agreements and conditions contained in this
Agreement to be performed by FlashNet on or prior to the Closing Date shall have
been performed or complied with in all material respects.
4.3 CONSENTS. All authorizations, approvals or permits of any entity or
person, governmental or otherwise, including but not limited to the waivers
referred to in Section 2.21 of this Agreement, that are required in connection
with the issuance of the Shares pursuant to this Agreement shall have been duly
obtained and shall be effective on and as of the Closing Date.
SECTION 5
CONDITIONS TO OBLIGATIONS OF FLASHNET
FlashNet's obligation to sell the Shares to the Purchaser are subject to
the fulfillment to FlashNet's satisfaction on or prior to the Closing Date of
the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
warranties made by the Purchaser pursuant to this Agreement shall be true and
correct in all material respects.
5.2 COVENANTS. All covenants, agreements and conditions contained in this
Agreement to be performed by the Purchaser on or prior to the Closing Date shall
have been so performed or complied with in all material respects. (The
Purchaser's payment for the Shares shall conclusively evidence certification as
to the fulfillment of the conditions set forth in Sections 5.1 and 5.2).
5.3 CONSENTS. All authorizations, approvals or permits of any entity or
person, governmental or otherwise, including but not limited to the waivers
referred to in Section 2.21 of this Agreement, that are required in connection
with the issuance of the Shares pursuant to this Agreement shall have been duly
obtained and shall be effective on and as of the Closing Date.
SECTION 6
AFFIRMATIVE COVENANTS OF FLASHNET
FlashNet hereby covenants and agrees as follows:
6.1 FINANCIAL INFORMATION. FlashNet will furnish the following reports to
the Purchaser for so long as the Purchaser is a holder of not less than 1,000
shares of Common Stock:
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(a) As soon as practicable after the end of each fiscal year, and
in any event within 120 days thereafter, consolidated balance sheets of
FlashNet and its subsidiaries, if any, as of the end of each fiscal year, and
consolidated statements of operations and consolidated statements of changes
in financial position of FlashNet and its subsidiaries, if any, for such
year, prepared in accordance with generally accepted accounting principles
and setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail and audited by independent
public accountants of recognized national standing selected by FlashNet;
(b) as soon as practicable after the end of each fiscal quarter,
and in any event within 45 days thereafter, a consolidated balance sheet of
FlashNet and its subsidiaries, if any, as of the end of such quarter, and
consolidated statements of operations of FlashNet and its subsidiaries, if
any, for each quarter and for the current fiscal year to date; and
(c) with reasonable promptness, such other information and data
with respect to FlashNet and its subsidiaries, if any, as the Purchaser may
from time to time reasonably request.
The Purchaser covenants, however, that the financial or other
information or data received by it pursuant to this Section 6.1 or Section
7.9 hereof will not be used in violation of any applicable federal or state
securities laws, including without limitation the antifraud provisions of
such laws.
6.2 USE OF PROCEEDS. FlashNet will use the proceeds from the sale of
the Shares for general corporate purposes, but not for the payment of (i)
dividends or (ii) existing material undisclosed claims or indebtedness as of
the Closing Date.
6.3 RIGHT OF OBSERVATION. For so long as the Purchaser is a holder of
not less than 1,000 shares of Common Stock, until FlashNet completes an
Initial Public Offering, the Purchaser shall have the right to designate,
through written notice delivered to FlashNet, one individual to attend and
observe meetings of FlashNet's Board of Directors with the right to review
all documents presented at the meeting including all financial material, and
the further right to review any other information that is available to any
Director regarding the Company, all with appropriate decorum and
confidentiality; provided, however, that no such individual shall be entitled
to vote on any matter as a Director of the Company. Each designated
individual shall be entitled to the same notice of such Director's meetings
as is given to FlashNet's Directors, but the failure to give such notice to
the designated individual shall not affect the validity of such meeting or
any action taken thereat.
SECTION 7
RESTRICTIONS ON TRANSFERABILITY OF
SECURITIES; COMPLIANCE WITH SECURITIES ACT
7.1 RESTRICTIONS ON TRANSFERABILITY. The Shares shall not be
transferable except upon the conditions specified in this Section 7, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and applicable state securities laws. Purchaser will not sell
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or transfer or offer to sell or transfer the Shares (a) unless a registration
statement has been filed with respect to the offer of such securities, and
such registration statement has become effective with respect to the sale of
such securities, under the Securities Act and applicable state securities
laws, or (b) except in a manner that would not require registration under the
Securities Act and any applicable state securities laws and would not
jeopardize the exemption from such registration of the offer, sale and
issuance of the Shares. Each transferee of the Shares shall take and hold
such securities subject to the provisions and upon the conditions specified
in this Section 7.
7.2 CERTAIN DEFINITIONS. As used in this Section 7, the following
terms shall have the meanings respectively ascribed to them:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Holder" shall mean any holder of Registrable Securities.
"Restricted Securities" shall mean the securities of FlashNet required
to bear the legend set forth in Section 7.3 hereof.
"Registrable Securities" shall mean (a) the Shares, and (b) any Common
Stock issued in respect of such shares of the Common Stock upon any stock
split, stock dividend, recapitalization, or similar event declared or
effected by FlashNet.
The terms "register", "registered" and "registration" refer to a
registration of FlashNet's securities effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering by the Commission of the effectiveness of such
registration statement.
"Registration Expenses" shall mean all expenses incurred by FlashNet in
complying with Section 7.4 hereof, including without limitation all
out-of-pocket registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for FlashNet, blue sky fees
and expenses, and the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular employees
of FlashNet which shall be paid in any event by FlashNet).
"Requesting Investors" shall mean the respective Holders under and as
defined in this Agreement that are then requesting the inclusion of their
securities of FlashNet in a registration and underwriting subject to Section
7.4 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any federal statute enacted in substitution thereof, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect
at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities by or on behalf
of any Holder and all fees and disbursements of counsel for any Holder.
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7.3 RESTRICTIVE LEGEND. Each certificate representing (a) the Shares,
or (b) any other securities issued in respect to the Shares upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event declared or effected by FlashNet, shall (unless otherwise permitted by
the provisions of this Section 7) be stamped or otherwise imprinted or
endorsed with a legend substantially in the following form (in addition to
any other required legend, if any):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS, HAVE BEEN TAKEN FOR INVESTMENT AND MAY NOT BE SOLD OR
TRANSFERRED OR OFFERED FOR SALE OR TRANSFER UNLESS A REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS WITH
RESPECT TO SUCH SECURITIES IS THEN IN EFFECT, OR IN THE OPINION OF
COUNSEL (SATISFACTORY TO THE COMPANY), SUCH REGISTRATION UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The foregoing legend shall be removed from any such certificate representing
Restricted Securities, and FlashNet shall issue in substitution thereof a
certificate that shall be identical thereto except for the deletion of such
legend, (a) if the Restricted Security evidenced thereby is registered under
the Securities Act and applicable state securities laws or (b) if FlashNet
has been provided with an opinion of counsel satisfactory to FlashNet to the
effect that a public sale or transfer of such Restricted Security may be made
by the Holder without registration under the Securities Act and applicable
state securities laws; provided, however, that if, but only to the extent,
any such securities cease to be registered, or to be eligible for public sale
or transfer without registration under the Securities Act and applicable
state securities laws, and if the foregoing legend has been removed from the
certificate representing such securities pursuant to this Section 7.3, the
Holder agrees to surrender (within 15 calendar days following his or its
receipt of FlashNet's written request therefor) the certificate representing
such securities, and FlashNet agrees at its expense to return promptly to the
Holder a new certificate for such securities which again shall bear the
foregoing legend and shall be deemed Restricted Securities for purposes of
this Agreement.
7.4 REGISTRATION BY FLASHNET.
(a) If at any time or from time to time before December 1, 1998
FlashNet shall determine to register any of its securities, either for its
own account or the account of a security holder or holders exercising their
respective registration rights, other than (i) a registration on Form S-8 or
similar forms which may be promulgated in the future relating solely to
employee benefit plans or (ii) a registration on Form S-4 or similar forms
which may be promulgated in the future relating solely to a reclassification,
merger, consolidation, asset acquisition or other business combination
subject to Rule 145 under the Securities Act or any similar transaction,
FlashNet will:
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(A) promptly give to each Holder written notice thereof (which
shall include a list of the states in which FlashNet intends to attempt to
qualify such securities under applicable state securities laws); and
(B) except as provided herein or as set forth in Section 7.4(b)
hereof, include in such registration under the Securities Act and any related
qualification under such state securities laws, and in any underwriting
involved therein, all the Registrable Securities specified by any Holder or
Holders in a written request or requests therefor delivered to FlashNet
within 20 calendar days after receipt by such Holder or Holders of FlashNet's
written notice given pursuant to Section 7.4(a)(A) hereof.
(b) If the registration of which FlashNet gives written notice
pursuant to Section 7.4(a) hereof is for a registered public offering
involving an underwriting, FlashNet shall so advise the Holders as a part of
such notice. In such event, the right of any Holder to registration pursuant
to this Section 7.4 shall be conditioned upon, and shall not be exercisable
by any Holder without, such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. If required by the underwriter or underwriters
selected by FlashNet for such underwriting (collectively the "Underwriter"),
(i) all Holders proposing to distribute their Registrable Securities through
such underwriting shall enter into an underwriting agreement with the
Underwriter in customary form, and (ii) all Holders shall agree not to sell
publicly any of their Registrable Securities for such period as the
Underwriter may reasonably request. Notwithstanding any other provision of
this Section 7.4, if the Underwriter determines that marketing or other
factors require a limitation of the number of securities to be underwritten,
the Underwriter in its sole discretion may exclude from such registration and
underwriting some or all of the securities requested to be included in such
registration and underwriting by Requesting Investors and other persons other
than FlashNet; provided, however, that if all securities requested to be
included in such registration and underwriting by Requesting Investors and
persons other than FlashNet are not so excluded by the Underwriter, the
number of such non-excluded securities shall be allocated proportionately
among all having the right to request registration of securities (including
Requesting Investors). If securities requested to be registered by
Requesting Investors are excluded pursuant to this Section 7.4(b), such
exclusion shall be apportioned among such Requesting Investors in the same
proportion as the number of such securities covered by the respective
Requesting Investor's instant registration request bears to the total number
of such securities covered by the instant registration requests of all
persons (including Requesting Investors). If different classes or types of
securities are to be excluded in whole or in part from registration pursuant
to this Section 7.4(b), all percentage calculations for such exclusions shall
be based on the respective public offering prices of such classes or types of
securities, which public offering prices shall be determined or estimated by
the Underwriter. If any Holder disapproves of the terms of any underwriting
subject to this Section 7.4(b), such Holder may elect to withdraw therefrom
by written notice to FlashNet and the Underwriter. Any securities excluded
or withdrawn from such underwriting shall be withdrawn from such
registration. FlashNet shall advise all persons seeking to include their
securities in such registration and underwriting of the number of each such
person's securities that may be so included.
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COMMON STOCK PURCHASE AGREEMENT PAGE 11
<PAGE>
7.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration or qualification pursuant to this Section 7
shall be borne by FlashNet; and, unless otherwise agreed by FlashNet and the
Underwriter, all Selling Expenses relating to Registrable Securities included
pursuant to this Section 7 in a registration statement, whether or not filed
or declared effective, shall be borne by the Holders of such Registrable
Securities pro rata on the basis of the number of such securities so included.
7.6 REGISTRATION PROCEDURES. In the case of each registration or
qualification effected by FlashNet pursuant to this Section 7, FlashNet will
keep each Holder advised in writing as to the initiation of each registration
or qualification, as to the status thereof from time to time, and as to the
completion thereof. At its Registration Expense, FlashNet will:
(a) use all commercially reasonable efforts to cause the
respective registration statement to become effective under the Securities
Act and securities laws of the states designated by FlashNet pursuant to
Section 7.4(a) hereof and to keep such registration and qualification
effective for a period of 120 days or until the Holder or Holders have
completed the distribution described in such registration statement relating
thereto, whichever first occurs; and
(b) furnish such reasonable number of the registration statement,
preliminary prospectuses, final prospectuses, amendments and supplements
thereto, and other documents incident thereto as a Holder from time to time
may reasonably request.
7.7 INDEMNIFICATION.
(a) FlashNet will indemnify each Holder, each of its officers and
directors and partners, if any, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration or qualification has been effected pursuant to Section 7.4
hereof, and each underwriter, if any, for such Holder and each person who
controls any such underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any
such registration or qualification, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by FlashNet of any
rule or regulation promulgated under the Securities Act applicable to
FlashNet and relating to action or inaction required of FlashNet in
connection with any such registration or qualification, and will reimburse
each such Holder and such officers, directors, partners, underwriters and
controlling persons for any legal and any other expenses reasonably incurred
in connection with investigating, preparing or defending any such claim,
loss, damage, liability or action; provided, however, that FlashNet will not
be liable in any such case to a particular Holder to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to
FlashNet by such Holder or such underwriter.
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COMMON STOCK PURCHASE AGREEMENT PAGE 12
<PAGE>
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration or
qualification is being effected, indemnify FlashNet, each of its directors,
partners and officers, each underwriter, if any, of FlashNet's securities
included in such registration or qualification, each person who controls
FlashNet or such underwriter within the meaning of Section 15 of the
Securities Act, and each other Holder whose Registrable Securities are so
included, each of its officers, partners and directors and each person
controlling such other Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages, liabilities and expenses
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) by such Holder of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any amendment or supplement thereto,
incident to any such registration or qualification, or based on any omission
(or alleged omission) by such Holder 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, nor misleading, or any
violation by the indemnifying Holder of any rule or regulation promulgated
under the Securities Act applicable to such Holder and relating to action or
inaction required of such Holder in connection with such registration or
qualification, and will reimburse each of FlashNet, such other Holders, and
such directors, officers, partners, underwriters and control persons for any
legal or any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability
or action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished to
FlashNet by such indemnifying Holder; provided, however, that the obligations
of an indemnifying Holder hereunder shall be limited to an amount equal to
the proceeds to such Holder of Registrable Securities sold as contemplated
herein.
(c) Each person entitled to indemnification under this Section 7.7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom; provided, however, that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense; and provided further, that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its indemnity obligations under this Section 7.7
unless, but only to the extent, the rights or obligations of the Indemnifying
Party have been materially and adversely affected by such failure. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to the entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
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COMMON STOCK PURCHASE AGREEMENT PAGE 13
<PAGE>
(d) Notwithstanding anything to the contrary herein, if the
registration and public offering of the Registrable Securities is
accomplished pursuant to a valid underwriting agreement, the provisions
thereof shall supersede the provisions of this Section 7.7 with respect to
the matters covered in said underwriting agreement.
7.8 INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish FlashNet such
information regarding such Holder or Holders, the distribution proposed by
such Holder or Holders, and such other matters as FlashNet may request in
writing and as shall be required in connection with any registration or
qualification referred to in this Section 7.
7.9 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission that may at any time
permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock,
FlashNet agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, so long as a
Holder owns any Restricted Securities at all times after the effective date
of the first registration statement under the Securities Act filed by
FlashNet for an offering of its securities to the general public;
(b) use all commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of
FlashNet under the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), at any time after FlashNet has become subject
to such reporting requirements; and
(c) so long as a Holder owns any Restricted Securities, to furnish
to the Holder, promptly upon such Holder's written request, a written
statement by FlashNet, as to its compliance with the reporting requirements
of Rule 144 (at any time after 90 days following the effective date of the
first registration statement filed by FlashNet for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements),
a copy of the most recent annual or quarterly report of FlashNet, and such
other reports and documents of FlashNet as a Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing a Holder
to sell any such Restricted Securities without registration.
7.10 TRANSFER OF REGISTRATION RIGHTS. The rights to cause FlashNet to
register securities granted to Holders under Section 7.4 above may be
assigned to a transferee or assignee in connection with a transfer or
assignment of such securities but only to a transferee or assignee which
receives in such transfer or assignment not less than 10,000 shares of the
Common Stock. Except as provided in the foregoing sentence, such
registration rights shall not be transferrable or assignable.
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COMMON STOCK PURCHASE AGREEMENT PAGE 14
<PAGE>
SECTION 8
MISCELLANEOUS
8.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of Texas applicable to contracts wholly made and to be
wholly performed in the State of Texas.
8.2 SURVIVAL. The representations, warranties, covenants and
agreements contained in this Agreement shall survive any investigation made
by the Purchaser and FlashNet and the Closing Date until December 1, 1998;
provided, however, the covenants and agreements contained in Sections 6 and
7.4 hereof shall survive any investigation by the Purchaser and the Closing
Date for the periods set forth in such Sections.
8.3 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns, heirs, executors
and administrators of the parties hereto; provided, however, the Purchaser's
right to purchase the Shares shall not be assignable without FlashNet's prior
written consent.
8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement (including the
Schedules hereto) and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and thereof. Neither this
Agreement nor any term hereof may be amended, waived, discharged or
terminated, except by a written instrument signed by the parties hereto.
8.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or delivered either by hand or by messenger,
addressed
(a) If to the Purchaser, at 2900 West Seminary, Fort Worth, Texas
76133 or at such other address as the Purchaser shall have furnished FlashNet
in writing, or
(b) If to FlashNet, at 1812 North Forest Park Boulevard, Fort
Worth, Texas 76107, Attention: M. Scott Leslie, or at such other address as
FlashNet shall have furnished to the Purchaser.
8.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to FlashNet, the Purchaser or any other Holder, upon
any breach or default of FlashNet, the Purchaser, or any other Holder, as the
case may be, under this Agreement, shall impair any such right, power or
remedy; nor shall any such delay or omission be construed to be a waiver of
any such breach or default, or an acquiescence therein, or of or in any
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval
of any kind or character on the part of FlashNet, the Purchaser or any other
Holder of any breach or default under this Agreement, or any waiver on the
part of FlashNet, the Purchaser or any other Holder of any provisions or
conditions of this Agreement must be in writing and shall
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COMMON STOCK PURCHASE AGREEMENT PAGE 15
<PAGE>
be effective only to the extent specifically set forth in such writing. All
remedies either under this Agreement or by law or otherwise afforded shall be
cumulative and not alternative.
8.7 SEVERABILITY. In the event any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided, however, that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
8.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
8.9 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first written above.
FLASHNET: WEBSITE MANAGEMENT COMPANY, INC.
By: /s/ M. Scott Leslie
-------------------------------------
PURCHASER: /s/ Stephen Bradley Markwardt
----------------------------------------
Stephen Bradley Markwardt
----------------------------------------
Social Security Number
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COMMON STOCK PURCHASE AGREEMENT PAGE 16
<PAGE>
SECURED PROMISSORY NOTE
$6,500,000 December 10, 1997
FOR VALUE RECEIVED, the undersigned, WEBSITE MANAGEMENT COMPANY, INC., dba
FLASHNET COMMUNICATIONS ("BORROWER"), hereby promises to pay to ASCEND
COMMUNICATIONS, INC. ("LENDER"), or order, the principal sum or so much of the
principal sum of Six Million Five Hundred Thousand Dollars ($6,500,000) as may
from time to time have been advanced and be outstanding, together with accrued
interest as provided herein.
A. PRINCIPAL.
1. ADVANCES. Borrower may from time to time request advances from Lender
(individually an "ADVANCE" and collectively the "ADVANCES") by giving written
notice to Lender in accordance with the terms hereof, which notice shall
indicate the amount of the Advance requested and the proposed use of the Advance
proceeds. Provided that no Event of Default is in existence and that the
requested Advance would not cause an Event of Default to occur, Lender shall
make the Advance to Borrower within five (5) days of receipt of Borrower's
notice. Lender shall not be obligated to make an Advance to the extent that such
Advance, when aggregated with all prior Advances, would exceed Six Million Five
Hundred Thousand Dollars ($6,500,000). Borrower shall not have the right to
re-borrow any Advance to the extent that it has been repaid.
2. USE OF PROCEEDS. The proceeds of Advances shall be used exclusively as
follows: (i) Three Million Five Hundred Thousand Dollars ($3,500,000) shall be
used to satisfy Borrower's payment obligations under its current equipment
leases, (ii) Five Hundred Thousand Dollars ($500,000) shall be used to finance
Borrower's acquisition of network equipment, (iii) Three Hundred Thousand
Dollars ($300,000) shall be used to satisfy Borrower's existing account payable
owed to Lender, (iv) One Million Seven Hundred Thousand Dollars ($1,700,000)
shall be used to satisfy Borrower's other trade payables existing as of the date
hereof, and (v) Five Hundred Thousand Dollars ($500,000) shall be used for
working capital purposes.
B. INTEREST. Interest shall accrue with respect to the principal sum hereunder
at the per annum rate equal to the average of the yields to maturity of all
Government Bonds and Notes maturing in thirty (30) years listed in THE WALL
STREET JOURNAL Treasury Bonds, Notes & Bills report on the date hereof. However,
if an Event of Default, as defined herein, occurs, then interest shall accrue at
the rate per annum equal to two percent (2%) plus the rate that would otherwise
be in effect (the "DEFAULT RATE"). Interest payable hereunder shall be
calculated on the basis of a three
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hundred sixty (360) day year for actual days elapsed. Interest shall be due and
payable in arrears on the first day of each calendar month, commencing with the
first month after the date hereof.
C. PAYMENT.
1. SCHEDULED PAYMENT. The principal indebtedness shall be payable in full
on the second anniversary of the date hereof.
2. MANDATORY PREPAYMENT. The principal indebtedness and all accrued but
unpaid interest shall become immediately due and payable, without demand or any
notice by Lender, on the date of the first to occur of (i) the effective date of
the IPO or (ii) the date of a Change of Control.
3. OPTIONAL PREPAYMENT. Borrower shall have the right at any time and
from time to time to prepay, in whole or in part, the principal of this Note,
without payment of any premium or penalty. Any principal prepayment shall be
accompanied by a payment of all interest accrued on the amount prepaid through
the date of such prepayment.
4. FORM OF PAYMENT. Principal and interest and all other amounts due
hereunder are to be paid in lawful money of the United States of America in
federal or other immediately available funds.
D. COVENANTS.
1. EXCLUSIVITY. Borrower agrees, for itself and all of its affiliates,
that during the term of this Note, they will purchase and/or lease or otherwise
acquire all equipment that they need for their businesses from Lender or
Lender's designees, to the extent that Lender at the time of the equipment
acquisition offers equipment that performs the functions of the equipment that
Borrower and/or its affiliate desires to acquire in the manner and at the
performance levels reasonably deemed necessary by Borrower.
2. INSURANCE. Borrower, at its expense and with such companies as are
reasonably acceptable to Lender, shall maintain business interruption and
liability insurance and fire, theft and other hazard insurance which covers the
Collateral, which insurance shall be in such amounts as are ordinarily carried
by other owners in similar businesses conducted in the locations where
Borrower's business is conducted on the date hereof. All such liability
insurance policies shall show Lender as an additional insured or loss payee, as
applicable, and shall specify that the insurer must give at least thirty (30)
days' notice to Lender before canceling its policy for any reason Borrower, upon
Lender's request, shall deliver to Lender certified
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Collateral, having good and marketable title thereto, free and clear of any and
all Liens other than the Lien and security interest granted to Lender hereunder
and Permitted Liens as described in SCHEDULE "A" hereto. Borrower shall not
create or assume or permit to exist any such Lien on or against any of the
Collateral except as created or permitted by this Note and Permitted Liens, and
Borrower shall promptly notify Lender of any such other Lien against the
Collateral and shall defend the Collateral against, and take all such action as
may be necessary to remove or discharge, any such Lien.
3. PERFECTION OF SECURITY INTEREST. Borrower agrees to take all actions
requested by Lender and reasonably necessary to perfect, to continue the
perfection of, and to otherwise give notice of, the Lien granted hereunder,
including, but not limited to, execution of financing statements.
F. EVENTS OF DEFAULT.
1. DEFINITION OF EVENT OF DEFAULT. The occurrence of any one or more of
the following events shall constitute an "EVENT OF DEFAULT" hereunder:
(i) Borrower's breach of the obligation to pay any amount
payable hereunder on the date that it is due and payable;
(ii) Borrower's breach of the covenant with respect to the
use of the Advance proceeds or of the covenant with respect to acquisition of
equipment exclusively from Lender;
(iii) Borrower's failure to perform, keep or observe any of
its covenants, conditions, promises, agreements or obligations under any other
agreement with any person or entity if such failure may have a material adverse
effect on Borrower's assets, operations or condition, financial or otherwise;
(iv) Borrower's institution of proceedings against it, or
Borrower's filing of a petition or answer or consent seeking reorganization or
release, under the federal Bankruptcy Code, or any other applicable federal or
state law relating to creditor rights and remedies, or Borrower's consent to the
filing of any such petition or the appointment of a receiver, liquidator,
assignee, trustee or other similar official of Borrower or of any substantial
part of its property, or Borrower's making of an assignment for the benefit of
creditors, or the taking of corporate action in furtherance of such action;
(v) the loss, theft, damage or destruction of, or sale
(other than in the ordinary course of business), lease or furnishing under a
contract of service of,
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any of the Collateral to the extent that such Collateral is not replaced by like
Collateral as covered by insurance or otherwise;
(vi) the creation (whether voluntary or involuntary) of, or
any attempt to create, any Lien upon any of the Collateral, other than the
Permitted Liens, or the making or any attempt to make any levy, seizure or
attachment thereof and such Lien, levy, seizure, or attachment has not been
removed, discharged or rescinded within ten (10) days;
(vii) the occurrence and continuance of any default under any
lease or agreement for borrowed money that gives the lessor or the creditor of
such indebtedness, as applicable, the right to accelerate the lease payments or
the indebtedness, as applicable, or the right to exercise any rights or remedies
with respect to any of the Collateral; or
(viii) the entry of any judgment or order against Borrower
which remains unsatisfied or undischarged and in effect for thirty (30) days
after such entry without a stay of enforcement or execution.
2. RIGHTS AND REMEDIES ON EVENT OF DEFAULT.
(a) During the continuance of an Event of Default, Lender shall have
the right, itself or through any of its agents, with or without notice to
Borrower (as provided below), as to any or all of the Collateral, by any
available judicial procedure, or without judicial process (provided, however,
that it is in compliance with the UCC), to exercise any and all rights afforded
to a secured party under the UCC or other applicable law. Without limiting the
generality of the foregoing, Lender shall have the right to sell or otherwise
dispose of all or any part of the Collateral, either at public or private sale,
in lots or in bulk, for cash or for credit, with or without warranties or
representations, and upon such terms and conditions, all as Lender, in its sole
discretion, may deem advisable, and it shall have the right to purchase at any
such sale. Borrower agrees that a notice sent at least fifteen (15) days before
the time of any intended public sale or of the time after which any private sale
or other disposition of the Collateral is to be made shall be reasonable notice
of such sale or other disposition. The proceeds of any such sale, or other
Collateral disposition shall be applied, first to the expenses of retaking,
holding, storing, processing and preparing for sale, selling, and the like, and
to Lender's reasonable attorneys' fees and legal expenses, and then to the
Secured Obligations and to the payment of any other amounts required by
applicable law, after which Lender shall account to Borrower for any surplus
proceeds. If, upon the sale or other disposition of the Collateral, the proceeds
thereof are insufficient to pay all amounts to which Lender is legally entitled,
Borrower shall be liable for the deficiency, together with interest thereon at
the Default Rate, and the reasonable fees of any
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<PAGE>
attorneys Lender's employs to collect such deficiency; PROVIDED, HOWEVER, that
the foregoing shall not be deemed to require Lender to resort to or initiate
proceedings against the Collateral prior to the collection of any such
deficiency from Borrower. To the extent permitted by applicable law, Borrower
waives all claims, damages and demands against Lender arising out of the
retention or sale or lease of the Collateral or other exercise of Lender's
rights and remedies with respect thereto.
(b) To the extent permitted by law, Borrower covenants that it will
not at any time insist upon or plead, or in any manner whatever claim or take
any benefit or advantage of, any stay or extension law now or at any time
hereafter in force, nor claim, take or insist upon any benefit or advantage of
or from any law now or hereafter in force providing for the valuation or
appraisal of the Collateral or any part thereof, prior to any sale or sales
thereof to be made pursuant to any provision herein contained, or the decree,
judgment or order of any court of competent jurisdiction; or, after such sale or
sales, claim or exercise any right under any statute now or hereafter made or
enacted by any state or otherwise to redeem the property so sold or any part
thereof, and, to the full extent legally permitted, hereby expressly waives all
benefit and advantage of any such law or laws, and covenants that it will not
invoke or utilize any such law or laws or otherwise hinder, delay or impede the
execution of any power herein granted and delegated to Lender, but will suffer
and permit the execution of every such power as though no such power, law or
laws had been made or enacted.
(c) Any sale, whether under any power of sale hereby given or by
virtue of judicial proceedings, shall operate to divest all Borrower's right,
title, interest, claim and demand whatsoever, either at law or in equity, in and
to the Collateral sold, and shall be a perpetual bar, both at law and in equity,
against Borrower, its successors and assigns, and against all persons and
entities claiming the Collateral sold or any part thereof under, by or through
Borrower, its successors or assigns.
(d) Borrower appoints Lender, and any officer, employee or agent of
Lender, with full power of substitution, as Borrower's true and lawful
attorney-in-fact, effective as of the date hereof, with power, in its own name
or in the name of Borrower, during the continuance of an Event of Default, to
endorse any notes, checks, drafts, money orders, or other instruments of payment
in respect of the Collateral that may come into Lender's possession, to sign and
endorse any drafts against debtors, assignments, verifications and notices in
connection with accounts, and other documents relating to Collateral; to pay or
discharge taxes or Liens at any time levied or placed on or threatened against
the Collateral; to demand, collect, issue receipt for, compromise, settle and
sue for monies due in respect of the Collateral; to notify persons and entities
obligated with respect to the Collateral to make payments directly to Lender;
and, generally, to do, at Lender's option and at
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Borrower's expense, at any time, or from time to time, all acts and things which
Lender deems necessary to protect, preserve and realize upon the Collateral and
Lender's security interest therein to effect the intent of this Note, all as
fully and effectually as Borrower might or could do; and Borrower hereby
ratifies all that said attorney shall lawfully do or cause to be done by virtue
hereof. This power of attorney shall be irrevocable as long as any of the
Secured Obligations are outstanding.
(e) All of Lender's rights and remedies with respect to the
Collateral, whether established hereby or by any other agreements, instruments
or documents or by law shall be cumulative and may be exercised singly or
concurrently.
G. OTHER PROVISIONS.
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
"CHANGE OF CONTROL" means an event or series of events as a result of which
(i) any person or group is or becomes the beneficial owner of shares
representing more than fifty percent (50%) of the combined voting power of the
then outstanding securities entitled to vote generally in elections of
Borrower's directors (the "VOTING STOCK"), (ii) Borrower consolidates with or
merges into any other corporation, or conveys, transfers or leases all or
substantially all of its assets to any person, or any other corporation merges
into Borrower, and, in the case of any such transaction, Borrower's outstanding
common stock is changed or exchanged as a result, unless the Borrower's
shareholders immediately before such transaction own, directly or indirectly,
immediately following such transaction, at least fifty-one percent (51%) of the
combined voting power of the outstanding voting securities of the corporation
resulting from such transaction in substantially the same proportion as their
ownership of the Voting Stock immediately before such transaction, or (iii)
Continuing Directors do not constitute a majority of the Board of Directors of
Borrower (or, if applicable, Borrower's successor).
"COLLATERAL" means all of Borrower's right, title and interest in each and
all of the following, whether now existing or owned or hereafter created or
acquired by Borrower:
a. All goods and equipment, including, without limitation,
all machinery, fixtures, vehicles (including motor vehicles and trailers), and
any interest in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions, and improvements to any of
the foregoing, wherever located;
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b. All inventory, including any returns upon any accounts
or other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing any
of the above, and Borrower's books relating to any of the foregoing;
c. All contract rights and general intangibles, including,
without limitation, goodwill, trademarks, servicemarks, trade styles, trade
names, patents, patent applications, leases, license agreements, franchise
agreements, blueprints, drawings, purchase orders, customer lists, route lists,
infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of
insurance and rights to payment of any kind;
d. All accounts, contract rights, royalties, license rights
and all other forms of obligations owing to Borrower arising out of the sale or
lease of goods, the licensing of technology or the rendering of services by
Borrower, whether or not earned by performance, and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower and Borrower's books and records relating to any of the
foregoing;
e. All documents, cash, deposit accounts, securities,
letters of credit, certificates of deposit, instruments and chattel paper and
Borrower's books and records relating to the foregoing; and
f. All claims, rights and interests in any of the above
and, all substitutions for, additions and accessions to and proceeds thereof.
"CONTINUING DIRECTORS" means at any date a member of Borrower's Board of
Directors (i) who was a member of the Board as of the date hereof, or (ii) who
was nominated or elected by at least a majority of the directors who were
Continuing Directors at the time of such nomination or election or whose
election to the Board was recommended or endorsed by at least a majority of the
directors who were Continuing Directors at the time of such nomination or
election.
"FISCAL YEAR" means the fiscal year of Borrower.
"IPO" means the first sale of Borrower's securities to the public pursuant
to a registration statement under the Securities Act of 1933, as amended, in
which the gross proceeds to Borrower, without reduction for selling commissions
or expenses of the sale equals or exceeds Twelve Million Dollars ($12,000,000).
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, security interest, charge, claim
or other
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encumbrance of any kind (including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to give any
security interest) and any agreement to give or refrain from giving a lien,
mortgage, pledge, hypothecation, assignment, deposit arrangement, security
interest, charge, claim or other encumbrance of any kind.
"PERMITTED LIENS" means: (i) Liens imposed by law, such as carriers',
warehousemen's, materialmen's and mechanics' liens, or Liens arising out of
judgments or awards against Borrower with respect to which Borrower at the time
shall currently be prosecuting an appeal or proceedings for review; (ii) Liens
for taxes not yet subject to penalties for nonpayment and Liens for taxes the
payment of which is being contested in good faith and by appropriate proceedings
and for which, to the extent required by generally accepted accounting
principles then in effect, proper and adequate book reserves relating thereto
are established by Borrower; and (iii) Liens described in ATTACHMENT "A" hereto.
"UCC" means the Uniform Commercial Code in effect from time to time in the
relevant jurisdiction.
2. GOVERNING LAW; VENUE. This Note shall be governed by the laws of the
State of California, without giving effect to conflicts of law principles.
Borrower and Lender agree that all actions or proceedings arising in connection
with this Note shall be tried and litigated only in the state and federal courts
located in the County of Alameda, State of California or, at Lender's option,
any court in which Lender determines it is necessary or appropriate to initiate
legal or equitable proceedings in order to exercise, preserve, protect or defend
any of its rights and remedies under this Note or otherwise or to exercise,
preserve, protect or defend its Lien, and the priority thereof, against the
Collateral, and which has subject matter jurisdiction over the matter in
controversy. Borrower waives any right it may have to assert the doctrine of
forum non conveniens or to object to such venue, and consents to any court
ordered relief. Borrower waives personal service of process and agrees that a
summons and complaint commencing an action or proceeding in any such court shall
be promptly served and shall confer personal jurisdiction if served by
registered or certified mail to Borrower. If Borrower fails to appear or answer
any summons, complaint, process or papers so served within thirty (30) days
after the mailing or other service thereof, it shall be deemed in default and an
order of judgment may be entered against it as demanded or prayed for in such
summons, complaint, process or papers. The choice of forum set forth herein
shall not be deemed to preclude the enforcement of any judgment obtained in such
forum, or the taking of any action under this Note to enforce the same, in any
appropriate jurisdiction.
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3. NOTICES. Any notice or communication required or desired to be served,
given or delivered hereunder shall be in the form and manner specified below,
and shall be addressed to the party to be notified as follows:
If to Lender: Ascend Communications, Inc.
1701 Harbor Bay Parkway
Alameda, California 94502
Attention: Fran Jewels, Esq.
Telecopier: (510) 747-2638
If to Borrower: Website Management Company, Inc.
dba Flashnet Communications
1812 North Forest Park Boulevard
Fort Worth, Texas 76102
Attention: Mr. Bill Kaczynski
or Mr. Scott Leslie
Telecopier: (817) 332-9594
or to such other address as each party designates to the other by notice in the
manner herein prescribed. Notice shall be deemed given hereunder if (i)
delivered personally or otherwise actually received, (ii) sent by overnight
delivery service, (iii) mailed by first-class United States mail, postage
prepaid, registered or certified, with return receipt requested, or (iv) sent
via telecopy machine with a duplicate signed copy sent on the same day as
provided in clause (ii) above. Notice mailed as provided in clause (iii) above
shall be effective upon the expiration of three (3) business days after its
deposit in the United States mail, and notice telecopied as provided in clause
(iv) above shall be effective upon receipt of such telecopy if the duplicate
signed copy is sent under clause (iv) above. Notice given in any other manner
described in this section shall be effective upon receipt by the addressee
thereof; PROVIDED, HOWEVER, that if any notice is tendered to an addressee and
delivery thereof is refused by such addressee, such notice shall be effective
upon such tender unless expressly set forth in such notice.
4. LENDER'S RIGHTS; BORROWER WAIVERS. Lender's acceptance of partial or
delinquent payment from Borrower hereunder, or Lender's failure to exercise any
right hereunder, shall not constitute a waiver of any obligation of Borrower
hereunder, or any right of Lender hereunder, and shall not affect in any way the
right to require full performance at any time thereafter. Except as otherwise
specifically provided herein, Borrower waives presentment, diligence, demand of
payment, notice, protest and all other demands and notices in connection with
the delivery, acceptance, performance, default or enforcement of this Note. In
any action on this Note, Lender need not produce or file the original of this
Note, but need only
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<PAGE>
file a photocopy of this Note certified by Lender be a true and correct copy of
this Note in all material respects.
5. ENFORCEMENT COSTS. Borrower shall pay all costs and expenses,
including, without limitation, reasonable attorneys' fees and expenses Lender
expends or incurs in connection with the enforcement of this Note, the
collection of any sums due hereunder, any actions for declaratory relief in any
way related to this Note, or the protection or preservation of any rights of the
holder hereunder.
6. SEVERABILITY. Whenever possible each provision of this Note shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision is prohibited by or invalid under applicable law, it shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of the provision or the remaining provisions of this
Note.
7. AMENDMENT PROVISIONS. This Note may not be amended or modified, nor
may any of its terms be waived, except by written instruments signed by Borrower
and Lender.
8. BINDING EFFECT. This Note shall be binding upon, and shall inure to
the benefit of, Borrower and the holder hereof and their respective successors
and assigns; PROVIDED, HOWEVER, that Borrower's rights and obligations
shall not be assigned or delegated without Lender's prior written consent, given
in its sole discretion, and any purported assignment or delegation without such
consent shall be void AB INITIO.
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<PAGE>
9. TIME OF ESSENCE. Time is of the essence of each and every provision
of this Note.
10. HEADINGS. Section headings used in this Note have been set forth
herein for convenience of reference only. Unless the contrary is compelled by
the context, everything contained in each section hereof applies equally to this
entire Note.
WEBSITE MANAGEMENT COMPANY, INC.
dba FLASHNET COMMUNICATIONS
By /s/ Scott Leslie
-------------------------------
Scott Leslie, President
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<PAGE>
ATTACHMENT "A"
TO
SECURED PROMISSORY NOTE
BY
WEBSITE MANAGEMENT COMPANY, INC.
1. Lien securing the obligations under the Ascend Credit Corporation capital
equipment lease outstanding on the date hereof, to the extent that the lease
payment obligations secured do not exceed $483,286.
2. Lien securing the obligations under the US Robotics equipment lease
outstanding on the date hereof, to the extent that the lease payment obligations
secured do not exceed $1,380,732.
3. Lien securing the obligations under the Shiva Corporation equipment lease
outstanding on the date hereof, to the extent that the lease payment obligations
secured do not exceed $789,250.
4. Lien securing the obligations under the American Communication Services,
Inc. capital equipment lease outstanding on the date hereof, to the extent that
the lease payment obligations secured do not exceed $1,598,980.
5. Lien securing the obligations under the Ascend Credit Corporation operating
equipment lease outstanding on the date hereof, to the extent that the lease
payment obligations secured do not exceed $2,639,775.
6. Lien securing the obligations under the EMC Corporation operating equipment
lease outstanding on the date hereof, to the extent that the lease payment
obligations secured do not exceed $341,859.
7. Lien securing the obligations owed to Summit National Bank, provided that
such Lien is subordinated to the Lien under this Note pursuant to a
subordination agreement in form and substance reasonably satisfactory to Lender.
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<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE COMMON STOCK
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, ASCEND
COMMUNICATIONS, INC. ("HOLDER") is entitled to purchase Four Hundred Thousand
(400,000) paid and nonassessable shares of the Common Stock (the "SHARES") of
WEBSITE MANAGEMENT COMPANY, INC. dba FLASHNET COMMUNICATIONS (the "COMPANY") at
the price of one cent ($.01) per Share (the "WARRANT PRICE"), as adjusted
pursuant to Article 2 of this Warrant, subject to the provisions and upon the
terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole
or in part, into a number of Shares determined by dividing (a) the aggregate
Fair Market Value of the Shares issuable upon exercise of this Warrant minus
the aggregate Warrant Price of such Shares by (b) the Fair Market Value of
one Share. The Fair Market Value of the Shares shall be determined pursuant
to Section 1.3.
1.3 FAIR MARKET VALUE. If the Shares are traded in a public market, the
Fair Market Value of the Shares shall be the closing price of the Shares
reported for the business day immediately before Holder delivers its Notice
of Exercise to the Company. If the Shares are not traded in a public market,
the Board of Directors of the Company shall determine Fair Market Value in
its reasonable good faith judgment.
1.4 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
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1.5 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of
an indemnity agreement reasonably satisfactory in form and amount to the
Company, and, in the case of mutilation, on surrender and cancellation of
this Warrant, the Company at its expense shall execute and deliver, in lieu
of this Warrant, a new warrant of like tenor.
1.6 MERGER OR CONSOLIDATION OF THE COMPANY.
(a) "ACQUISITION". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of
the assets of the Company, or any reorganization, consolidation, or merger of
the Company where the holders of the Company's securities before the
transaction beneficially own less than 50% of the outstanding voting
securities of the surviving entity after the transaction.
(b) ASSUMPTION OF WARRANT. Upon the closing of any Acquisition,
the successor entity shall assume the obligations of this Warrant, and this
Warrant shall be exercisable for the same securities, cash, and property as
would be payable for the Shares issuable upon exercise of the unexercised
portion of this Warrant as if such Shares were outstanding on the record date
for the Acquisition and subsequent closing. The Warrant Price shall be
adjusted accordingly.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock payable in common stock, or other securities,
subdivides the outstanding common stock into a greater amount of common
stock, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the
Shares of record as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon
exercise or conversion of this Warrant, the number and kind of securities and
property that Holder would have received for the Shares if this Warrant had
been exercised immediately before such reclassification, exchange,
substitution, or other event. Such an event shall include any automatic
conversion of the outstanding or issuable securities of the Company of the
same class or series as the Shares to common stock pursuant to the terms of
the Company's Articles of Incorporation upon the closing of a registered
public offering of the Company's common stock. The Company or its successor
shall promptly issue to Holder a new Warrant for such new securities or other
property. The new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the
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adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this section
shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased and
the number of Shares acquirable hereunder shall be proportionately decreased.
2.4 NO IMPAIRMENT. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed under this Warrant by the Company,
but shall at all times in good faith assist in carrying out of all the
provisions of this Article 2 and in taking all such action as may be
necessary or appropriate to protect Holder's rights under this Article
against impairment. If the Company takes any action affecting the Shares or
its common stock other than as described above that adversely affects
Holder's rights under this Warrant, the Warrant Price shall be adjusted
downward and the number of Shares issuable upon exercise of this Warrant
shall be adjusted upward in such a manner that the aggregate Warrant Price of
this Warrant is unchanged.
2.5 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share
interest arises upon any exercise or conversion of the Warrant, the Company
shall eliminate such fractional share interest by paying Holder an amount
computed by multiplying the factional interest by the Fair Market Value of a
full Share.
2.6 ADJUSTMENT OF WARRANT PRICE AND SHARES PURCHASABLE.
(a) ADJUSTMENTS FOR DILUTIVE ISSUANCES.
(1) ADJUSTMENT PROCEDURE. Upon each Issuance of Common Stock
after the date hereof (which, as indicated in the definition of "Actual
Issuance of Common Stock", shall not encompass any exercise of an Option
granted, or which the Company has an obligation to grant, prior to the date
hereof or any conversion of a Convertible Security issued prior to the date
hereof) without consideration or for a consideration per share less than the
Measuring Price in effect immediately prior to such Issuance of Common Stock
(a "DILUTIVE ISSUANCE"), the number of shares of Common Stock issuable upon
exercise of the Conversion Right shall be increased by the number of shares
of Common Stock determined under the following formula:
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Where: X= The increase in the number of shares of Common Stock acquirable
hereunder
B= The shares of Common Stock acquirable hereunder immediately prior
to the Issuance of Common Stock
A= The Measuring Price in effect immediately prior to the Issuance
of Common Stock
C= The Adjusted Share Value
For purposes hereof, the Adjusted Share Value, upon the closing of any
Issuance of Common Stock, shall be the amount equal to the sum of (i) the
amount obtained by multiplying the Common Stock Outstanding immediately prior
to the Issuance of Common Stock by the Measuring Price in effect immediately
prior to the Issuance of Common Stock, and (ii) the Aggregate Consideration
that the Company receives from the Issuance of Common Stock, and dividing the
resulting sum by the Common Stock Outstanding immediately after the Issuance
of Common Stock. In addition, the Measuring Price as of any date is the
Original Measuring Price, as adjusted from time to time in accordance with
the terms hereof. The Original Measuring Price is Eight Dollars ($8.00). Upon
each Issuance of Common Stock described in this section, the Measuring Price
shall be adjusted to the Adjusted Share Value resulting from such Issuance of
Common Stock. The Measuring Price shall be adjusted in accordance with
Sections 2.1 and 2.3, concurrent with any adjustment of the Warrant Price, in
the same proportion and manner as the Warrant Price is adjusted thereunder.
For example, if the Warrant Price is doubled under Section 2.3 as a result of
a combination of the Common Stock, then the Measuring Price shall be
concurrently doubled.
Concurrent with each adjustment in the number of Shares acquirable hereunder
as a result of a Dilutive Issuance, the Warrant Price shall be adjusted to
the amount equal to the price obtained by multiplying the Warrant Price in
effect immediately prior to the Dilutive Issuance by a fraction, the
numerator of which is the number of Shares acquirable hereunder immediately
prior to the Dilutive Issuance and the denominator of which is the number of
Shares acquirable hereunder immediately after the Dilutive Issuance.
Adjustments in the number of Shares under this section shall not occur with
respect to Issuances of Common Stock while the Company is a Reporting
Company. Under no circumstances shall the aggregate Warrant Price payable by
Holder upon exercise of this Warrant increase as a result of any adjustment
arising from a Dilutive Issuance.
(2) SPECIAL PROVISIONS. Notwithstanding the provisions of
subsection (1) of this section, the following provisions shall govern the
adjustment formula set forth in subsection (1):
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(a) DEEMED ISSUANCES OF COMMON STOCK. Whenever an adjustment
is made in the shares of Common Stock acquirable hereunder and the Warrant
Price pursuant to subsection (1) based upon a Deemed Issuance of Common
Stock, except as provided in paragraph (c) of this subsection, no further
adjustment in the shares of Common Stock acquirable hereunder and the Warrant
Price shall be made upon the subsequent actual issuance of the shares of
Common Stock subject to the applicable Convertible Securities or Options, nor
shall the exercise of any Convertible Security or Option included in such
Deemed Issuance of Common Stock constitute an issuance of securities for
which an adjustment in the number of shares of Common Stock and the Warrant
Price may be made under this section.
(b) CHANGE IN EXERCISE PRICE OR CONVERSION RATE. If,
subsequent to any Deemed Issuance of Common Stock, there is a change (other
than a change required by anti-dilution provisions of any Convertible
Security or Option intended to serve the same purpose as the provisions of
this section) in (i) the purchase or exercise price provided for in any
Option included in such Deemed Issuance of Common Stock (an "EXERCISE PRICE")
or (ii) the conversion price or exchange ratio (a "CONVERSION RATE") of any
Convertible Security included in such Deemed Issuance of Common Stock, such
that the changed Exercise Price or Conversion Rate, as the case may be, had
it been in effect at the time of such Deemed Issuance of Common Stock, would
have resulted in an increase in the number of shares of Common Stock
acquirable hereunder as a result of such Deemed Issuance of Common Stock
resulting in a lower Aggregate Consideration or greater number of shares of
Common Stock Outstanding, then (A) the Aggregate Consideration and/or number
of shares of Common Stock Outstanding shall be recalculated and the shares of
Common Stock acquirable hereunder then in effect shall forthwith be
readjusted to such number of shares of Common Stock acquirable as would have
been in effect at such time had all of such Options or Convertible Securities
that remain outstanding at the time of such change (or that may be issued
upon the exercise of any Option or Convertible Securities included in such
Deemed Issuance of Common Stock and that then remain outstanding) provided
for such changed Exercise Price or Conversion Rate, as the case may be, at
the time of such Deemed Issuance of Common Stock and (B) each other
adjustment, if any, made to the shares of Common Stock acquirable hereunder
subsequent to such Deemed Issuance of Common Stock based on subsequent
Issuances of Common Stock shall be recalculated, utilizing for such purpose
the Common Stock Outstanding, Deemed Consideration and the shares of Common
Stock acquirable as recalculated or as readjusted pursuant to clause (A) of
this paragraph (b).
(c) EXPIRATION OF OPTION OR CONVERTIBLE RIGHT. With respect
to any Deemed Issuance of Common Stock, effective as of the close of business
on the first business day on which no share of Common Stock may thereafter be
issued upon an exercise of an Option or Convertible Security included in such
Deemed Issuance of Common Stock (whether by reason of (i) the full exercise
of all Options and/or Convertible Securities Included in such Deemed Issuance
of Common Stock or (ii) the expiration or termination of any right to
exercise any Options and/or Convertible Securities included in such Deemed
Issuance of Common
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Stock that have not theretofore been exercised and/or (iii) the purchase by
the Company and cancellation or retirement of some or all Options and/or
Convertible Securities included in such Deemed Issuance of Common Stock that
have not theretofore been exercised), the shares of Common Stock then
acquirable shall be adjusted by (A) recalculating pursuant hereto the
adjustment of the Warrant Price and the shares of Common Stock acquirable
immediately prior to such Deemed Issuance of Common Stock, basing such
recalculation on each issuance of shares of Common Stock upon an exercise of
an Option or Convertible Security included in such Deemed Issuance of Common
Stock, rather than the Common Stock Outstanding on which the original
calculation was based and (B) recalculating each other adjustment, if any,
made to the Warrant Price and the shares of Common Stock acquirable
subsequent to such Deemed Issuance of Common Stock based on subsequent
Issuances of Common Stock, utilizing the Warrant Price and the shares of
Common Stock acquirable as adjusted pursuant to clause (A) of this paragraph
(c) and including in Common Stock Outstanding for such purpose only the
shares of Common Stock actually issued upon the exercise of Options and/or
Convertible Securities included in such Deemed Issuance of Common Stock in
place of the shares of Common Stock Outstanding in respect of such Deemed
Issuance of Common Stock as utilized in the original calculations of those
adjustments.
(d) WARRANT PRICE ADJUSTMENT. Concurrent with each adjustment
in the number of shares of Common Stock acquirable hereunder pursuant to
paragraphs (b) and (c) of this subsection, the Warrant Price shall be
adjusted to the amount equal to the price obtained by multiplying the Warrant
Price in effect immediately prior to such adjustment by a fraction, the
numerator of which is the number of shares of Common Stock acquirable
hereunder immediately prior to the adjustment and the denominator of which is
the number of shares of Common Stock acquirable hereunder immediately after
the adjustment.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price and the number of Shares acquirable hereunder, the Company, at its
expense, shall promptly compute such adjustment and furnish Holder with a
certificate of its Chief Financial Officer setting forth such adjustment and
the facts upon which such adjustment is based. The Company shall, upon
written request, furnish Holder a certificate setting forth the Warrant Price
in effect on the date thereof and the number of Shares acquirable hereunder
on such date and the series of adjustments leading to such Warrant Price and
Share number.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder that all Shares which may be issued upon the exercise
of the purchase right represented by this Warrant, shall, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable, and free of
any liens and encumbrances except for restrictions on transfer provided for
herein or under applicable federal and state securities laws.
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3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class
or series of its stock any additional shares of stock of any class or series
or other rights; (c) to effect any reclassification or recapitalization of
common stock; or (d) to merge or consolidate with or into any other
corporation, or sell, lease, license, or convey all or substantially all of
its assets, or to liquidate, dissolve or wind up, then, in connection with
each such event, the Company shall give Holder (1) prompt prior written
notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of common stock will be entitled thereto) or for determining rights
to vote, if any, in respect of the matters referred to in (c) and (d) above;
and (2) in the case of the matters referred to in (c) and (d) above, prompt
prior written notice of the date when the same will take place (and
specifying the date on which the holders of common stock will be entitled to
exchange their common stock for securities or other property deliverable upon
the occurrence of such event).
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder:
(a) as soon as practicable after the end of each calendar month,
and in any event within thirty (30) days thereafter, an unaudited balance
sheet of the Company as of the end of such month, cash flow statements and an
unaudited statement of operations of the Company for the portion of the
Fiscal Year ended with such month prepared and certified by the chief
financial officer of the Company, subject, however, to the exclusion of
footnotes and to normal year-end audit adjustments, and a comparison of such
statements to the Company's operating plan or budget then in effect;
(b) as soon as practicable after the end of each Fiscal Year, and
in any event within one hundred twenty (120) days thereafter, a copy of its
audited financial statements accompanied by a report thereon by a firm of
independent certified public accountants selected by the Company, which
report shall state that such financial statements fairly present the
Company's financial position at the end of such Fiscal Year;
(c) as soon as available, and in any event within sixty (60) days
prior to the commencement of each Fiscal Year, a budget and business plan for
the Company for such Fiscal Year;
(d) promptly upon their becoming available, one copy of each
report, notice or proxy statement sent by the Company to its shareholders
generally and of each regular or periodic report or registration statement,
prospectus or written communication (other than transmittal letters) filed by
the Company with the Securities and Exchange Commission or any securities
exchange on which the Company's securities are listed; and
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<PAGE>
(e) with reasonable promptness, such other information as from
time to time may be reasonably requested by Holder. The Company's delivery
obligations under this section shall terminate upon the Company becoming a
Reporting Company.
3.4 AUTOMATIC EXERCISE. If, as of the last day of the term hereof, this
Warrant has not been fully exercised, then as of such date this Warrant shall
be automatically converted, in full, in accordance with Section 1.2, without
any action or notice by the Holder.
ARTICLE 4. REGISTRATION RIGHTS.
4.1 PIGGYBACK REGISTRATION RIGHTS.
(a) If the Company determines to Register any of its securities
either for its own account or the account of a shareholder(s) exercising
demand Registration rights, other than a Registration relating solely to
employee benefit plans, or a Registration relating solely to a transaction
pursuant to Rule 145 promulgated under the Securities Act or a Registration
on any Registration form which does not permit secondary sales or does not
include substantially the same information as would be required to be
included in a Registration statement covering the sale of the Shares, the
Company shall promptly give to Holder written notice thereof and include in
such Registration (and any related qualification under blue sky laws), and in
any underwriting involved therein, the number of Shares specified in a
written request made by Holder within ten (10) days after receipt of such
written notice from the Company.
(b) If the Registration of which the Company gives notice is for a
Registered public offering involving an underwriting, Holder's right to
Registration shall be conditioned upon (i) Holder's participation in such
underwriting and (ii) the inclusion of Holder's Shares in the underwriting
pursuant to an underwriting agreement in customary form with the underwriter
or underwriters selected by the Company; PROVIDED, HOWEVER, that in the event
of any reduction in the securities to be included in the Registration, the
securities that may be included in the Registration and underwriting shall be
allocated (1) first, to the Company, and (2) second, among the Holder and the
other security holders distributing their securities through such
underwriting, in proportion (as nearly as practicable) to the number of
shares owned by each such party.
4.2 FORM S-3 REGISTRATION RIGHTS. If the Company receives from Holder a
written request or requests that it effect a Registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities of Holder, the Company shall:
(a) promptly give written notice of the proposed Registration, and
any related qualification or compliance, to all other holders; and
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<PAGE>
(b) as soon as practicable, effect such Registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of the
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other shareholder(s)
joining in such request as are specified in a written request given within
twenty (20) days after receipt of such written notice from the Company;
PROVIDED, HOWEVER, that the Company shall not be obligated to effect any such
Registration, qualification or compliance, pursuant to this section:
(1) if Form S-3 is not available for such offering by Holder
and the other shareholder(s);
(2) if Holder, together with the holders of any other
securities of the Company entitled to inclusion in such Registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than Five Hundred Thousand Dollars ($500,000);
(3) if the Company furnishes to Holder and the shareholder(s)
proposing to participate in such Registration, a certificate signed by the
Company's President stating that, in the good faith judgment of the Company's
Board of Directors, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 Registration statement for a period of not more than one hundred twenty
(120) days after receipt of Holder's request under this section; PROVIDED,
HOWEVER, that the Company shall not utilize this right more than once in any
twelve (12) month period;
(4) if the Company has, within the twenty-four (24) month
period preceding the date of such request, already effected two (2)
Registrations on Form S-3 for Holder pursuant to this section; or
(5) in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to
service of process in effecting such Registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall use its best
efforts to file a registration statement covering the Registrable Securities
and other securities so requested to be Registered as soon as practicable
after receipt of Holder's request.
4.3 EXPENSES OF COMPANY REGISTRATIONS. The Company shall bear all
Registration Expenses incurred in connection with any Registration,
qualification or compliance pursuant to this Article 4 (exclusive of Selling
Expenses).
4.4 REGISTRATION PROCEDURES. In the case of each Registration,
qualification or compliance effected by the Company pursuant hereto, the
Company shall keep Holder advised in writing as to the initiation of each
Registration, qualification and
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<PAGE>
compliance and as to the completion thereof. At its expense, the Company
shall:
(a) Keep such Registration, qualification or compliance effective
for a period of one hundred twenty (120) days or until Holder has completed
the distribution described in the registration statement relating thereto,
whichever first occurs;
(b) Furnish such number of prospectuses and other documents
incident thereto as Holder from time to time may reasonably request;
(c) Prepare and file with the Securities and Exchange Commission
such amendments and supplements to such Registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement;
(d) Use its best efforts to Register and qualify the securities
covered by such registration statement under such other securities or blue
sky laws of such jurisdictions as Holder reasonably requests; PROVIDED,
HOWEVER, that the Company shall not be required in connection therewith or as
a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Holder shall
also enter into and perform its obligations under such an agreement;
(f) Notify Holder at any time when a prospectus relating to Shares
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing;
(g) Provide a transfer agent and registrar for all Registrable
Securities Registered pursuant to such registration statement and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such Registration; and
(h) Furnish, at Holder's request, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with such Registration, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such Registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, and (ii) a letter, dated such
date, from the Company's independent certified public accountants, in form
and substance as is customarily given by
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<PAGE>
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.
4.5 INDEMNIFICATION.
(a) The Company shall indemnify Holder, each of Holder's
directors, officers, employees and agents, and each entity or person
controlling Holder within the meaning of Section 15 of the Securities Act,
with respect to which Registration, qualification or compliance has been
effected pursuant to this Article 4, and each underwriter, if any, and each
entity or person who controls any underwriter within the meaning of Section
15 of the Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident
to any such Registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, or any violation
by the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company and relating to action or inaction required of the
Company in connection with any such Registration, qualification or
compliance, and shall reimburse Holder, each of Holder's directors, officers,
employees and agents, and each entity or person controlling Holder, each such
underwriter and each entity or person who controls any such underwriter, for
any legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability
or action, provided that the Company shall not be liable to Holder or an
underwriter in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by Holder or an underwriter and stated to be specifically for
use therein.
(b) Holder shall, if Shares are included in the securities as to
which a Registration, qualification or compliance has been effected pursuant
to this Article 4, indemnify the Company, each of its directors and officers,
each underwriter, if any, of the Company's securities covered by such
Registration, qualification or compliance, each entity or person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each of its directors, officers, employees and agents,
against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of
any litigation commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or
any amendment or supplement thereto, incident to any such Registration,
qualification or compliance or based on any omission (or alleged omission) to
state therein a material
11
<PAGE>
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
with any such Registration, qualification, or compliance, and shall reimburse
the Company, such directors, officers, employees, agents, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document or any amendment or supplement thereto in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by Holder and stated to be
specifically for use therein; PROVIDED, HOWEVER, that Holder's obligations
hereunder shall be limited to an amount equal to the proceeds Holder received
for Shares sold as contemplated herein.
(c) Each party entitled to indemnification under this section (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in
such defense at its own expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this section unless such failure
resulted in actual detriment to the Indemnifying Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party a release
from all liability in respect of such claim or litigation.
If the indemnification provided for in this section is held by a court
of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim, damage,
or expense in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage, or expense, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified
12
<PAGE>
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
ARTICLE 5. DEFINITIONS.
"ACTUAL CONSIDERATION" means the aggregate consideration that the
Company receives with respect to an Actual Issuance of Common Stock.
"ACTUAL ISSUANCE OF COMMON STOCK" means any issuance by the Company
of Common Stock other than pursuant to conversion of a Convertible Security
or exercise of an Option.
"AGGREGATE CONSIDERATION" means with respect to an Issuance of
Common Stock, an amount equal to (i) the Actual Consideration received with
respect to Common Stock, if any, issued and (ii) the Deemed Consideration
received with respect to the Options and Convertible Securities, if any,
issued.
"COMMON STOCK OUTSTANDING" means as of any date (i) all shares of
Common Stock that are outstanding as of such date, PLUS (ii) all shares of
Common Stock issuable upon conversion of Convertible Securities outstanding
as of such date, whether or not convertible as of such date, PLUS (iii) all
shares of Common Stock issuable upon exercise of Options outstanding as of
such date, whether or not such Options are exercisable as of such date
(assuming for this purpose that Convertible Securities acquirable upon
exercise of any such Options are converted into Common Stock as of such date).
"CONVERTIBLE SECURITIES" means evidence of indebtedness, shares of
stock or other securities which are convertible into or exchangeable for,
with or without payment of additional consideration, shares of Common Stock,
either immediately or upon the arrival of a specified date or the happening
of a specified event or both.
"DEEMED CONSIDERATION" means the aggregate consideration received
or deemed received by the Company with respect to a Deemed Issuance of Common
Stock, determined by adding (i) the aggregate amount, if any, received or
receivable by the Company as consideration in respect of the issuance of
Options and/or Convertible Securities constituting such Deemed Issuance of
Common Stock, and (ii) the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the full exercise of the
Options (and if Options to acquire Convertible Securities, upon full exercise
of the conversion rights with respect to such Convertible Securities) and
upon full conversion of the Convertible Securities in order to acquire the
underlying shares of Common Stock.
"DEEMED ISSUANCE OF COMMON STOCK" means an issuance by the Company
of a Convertible Security or an Option.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
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"FISCAL YEAR" means the fiscal year of the Company.
"ISSUANCE OF COMMON STOCK" means (i) an Actual Issuance of Common
Stock or (ii) a Deemed Issuance of Common Stock.
"OPTION" means any right, warrant or option to subscribe or
purchase shares of Common Stock or Convertible Securities.
"REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of the effectiveness of
such registration statement.
"REGISTRABLE SECURITIES" means (i) the Shares, and (ii) shares of
Common Stock issued as a dividend or other distribution with respect to or in
exchange for or in replacement of the Shares; PROVIDED, HOWEVER, that any
shares described in the foregoing clauses that have been resold to the public
shall cease to be Registrable Securities.
"REGISTRATION EXPENSES" means all expenses the Company incurs in
complying with Article 4, including, without limitation, all Registration and
filing fees, printing expenses, fees and disbursements of counsel for the
Company, Blue Sky fees and expenses, and the expenses of any special audits
incident to or required by any such Registration.
"REPORTING COMPANY" means that the Company is subject to the
periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange
Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means (i) all underwriting discounts and selling
commissions applicable to the sale of securities Registered and sold pursuant
to Article 4, (ii) any additional costs and disbursements of counsel for the
Company that result from inclusion of Registrable Securities in the
Registration, and (iii) the expenses of qualifying the securities covered by
the Registration in a jurisdiction to the extent that the jurisdiction
requires such qualification expenses to be borne by the selling security
holders.
ARTICLE 6. MISCELLANEOUS.
6.1 TERM. The term of this Warrant shall commence on the date hereof
and terminate on the later to occur of: (i) 5:00 p.m., Pacific Time on the
tenth (10th) anniversary of the date hereof, or (ii) 5:00 p.m., Pacific Time
on the fifth (5th) anniversary of the closing of the Company's initial sale
and issuance of shares of Common Stock in an underwritten public offering,
pursuant to a Registration.
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<PAGE>
6.2 LEGENDS. This Warrant and the Shares shall be imprinted with a
legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
6.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise of this Warrant may not be transferred or
assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including,
without limitation, the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there
is no material question as to the availability of current information as
referenced in Rule 144(c), Holder represents that it has complied with Rule
144(d) and (e) in reasonable detail, the selling broker represents that it has
complied with Rule 144(f), and the Company is provided with a copy of
Holder's notice of proposed sale.
6.4 TRANSFER PROCEDURE. Subject to the provisions of Section 6.3,
Holder may transfer this Warrant or the Shares issuable upon exercise of this
Warrant by giving the Company notice setting forth the name, address and
taxpayer identification number of the transferee and surrendering this
Warrant to the Company for reissuance to the transferee. Unless the Company
is a Reporting Company, it shall have the right to refuse to transfer this
Warrant or the Shares to any person who directly competes with the Company
and/or its subsidiaries.
6.5 NOTICES. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished by the Company or the
Holder, as the case may be, in writing by the Company or the Holder from time
to time.
6.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
5.7 ATTORNEYS' FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
15
<PAGE>
16
<PAGE>
6.7 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
WEBSITE MANAGEMENT COMPANY INC.
dba FLASHNET COMMUNICATIONS
By /s/ Scott Leslie
-------------------------------
Scott Leslie, President
12/10/97
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<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ________ shares of
the Common Stock of Flashnet pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price of such shares in full.
2. The undersigned hereby elects to convert the attached Warrant
into Shares in the manner specified in the Warrant. This conversion is
exercised with respect to ________________ of the Shares covered by the
Warrant.
[Strike paragraph 1 that does not apply.]
3. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
------------------------
(Name)
------------------------
------------------------
(Address)
4. The undersigned represents it is acquiring the shares solely
for its own account and not as a nominee for any other party and not with a
view toward the resale or distribution thereof except in compliance with
applicable securities laws.
------------------------
(Signature)
- ------------------------
(Date)
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- ------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
by and among
FlashNet Communications, Inc.
and
Apogee Fund LP,
Emmett M. Murphy,
ISP Investors, L.P.,
Scott M. Kleberg,
J. Luther King, Jr.,
Scot C. Hollmann
and
Fourteen Hill Capital, LP
May 7, 1998
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
STOCK PURCHASE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I.
TERMS OF THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II.
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . 2
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYERS. . . . . . . . . . . . . . . .25
ARTICLE V.
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . .28
ARTICLE VI.
SHARE TRANSFER RESTRICTIONS . . . . . . . . . . . . . . . . . . . . . .31
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION. . . . . . . . . . . . . .33
ARTICLE VIII.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
i
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ARTICLE IX.
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
</TABLE>
ii
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of May 7,
1998 by and among (i) FlashNet Communications, Inc., a Texas corporation (the
"Company"), and (ii) Apogee Fund LP, a Delaware limited partnership, (iii)
Emmett M. Murphy, (iv) ISP Investors, L.P., a Texas limited partnership (v)
Scott M. Kleberg, (vi) J. Luther King, Jr., (vii) Scot C. Hollmann, and
(viii) Fourteen Hill Capital, LP, a Delaware limited partnership (each
individually, a "Buyer," and collectively, the "Buyers").
WHEREAS, the Company desires to sell to Buyers, and Buyers desire to
purchase, certain shares of the Company's Preferred Stock, par value $1.00
per share (the "Preferred Stock"), to be issued by the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company and Buyers hereby agree as follows:
ARTICLE I.
TERMS OF THE TRANSACTION
1.1 AGREEMENT TO SELL AND TO PURCHASE SHARES. On the terms and subject
to the conditions set forth in this Agreement, the Company hereby delivers to
each Buyer, and each Buyer hereby purchases and accepts from the Company, the
number of shares of Series A Convertible Preferred Stock, par value $1.00 per
share, of the Company (the "Shares") as set forth beside its name on SCHEDULE
1.1.
1.2 PURCHASE PRICE AND PAYMENT. In consideration of the sale of the
Shares, each Buyer hereby agrees to pay to the Company at the Closing (as
defined below) the purchase price set forth beside its name on SCHEDULE 1.1,
the aggregate of which shall be the "Purchase Price." Each Buyer shall pay
its portion of the Purchase Price to the Company in immediately available
funds by confirmed wire transfer to a bank account heretofore designated by
the Company or in the form of a certified or bank cashier's check payable to
the order of the Company.
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<PAGE>
ARTICLE II.
CLOSING
The closing of the transactions contemplated hereby (the "Closing")
shall take place (i) at the offices of Thompson & Knight, P.C., 801 Cherry
Street, Suite 1600, Fort Worth, TX 76102 at 10:00 a.m., local time, on May 7,
1998, or (ii) at such other time or place or on such other date as the
parties hereto shall agree. The date on which the Closing is required to
take place is herein referred to as the "Closing Date." All Closing
transactions shall be deemed to have occurred simultaneously.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyers that:
3.1 CORPORATE ORGANIZATION. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of Texas and
has all requisite corporate power and corporate authority to own, lease, and
operate its properties and to carry on its business as now being conducted.
No actions or proceedings to dissolve the Company are pending or, to the best
knowledge of the Company, threatened.
3.2 QUALIFICATION. The Company is duly qualified or licensed to do
business as a foreign corporation and is in good standing, or, as designated
on SCHEDULE 3.2, has applied for such qualification or licensing, in each of
the jurisdictions set forth on SCHEDULE 3.2, which are all the jurisdictions
in which it owns, leases, or operates property or in which such qualification
or licensing is required for the conduct of its business.
3.3 CHARTER AND BYLAWS. The Company has made available to Buyers
accurate and complete copies of (i) the charter and bylaws of each of the
Company and the Subsidiaries as currently in effect, (ii) the stock records
of each of the Company and the Subsidiaries, and (iii) the minutes of all
meetings of the respective Boards of Directors of the Company and the
Subsidiaries, any committees of such Boards, and the shareholders of the
Company and the Subsidiaries (and all consents in lieu of such meetings).
Such records, minutes, and consents accurately reflect the stock ownership of
the Company and the Subsidiaries and all actions taken by such Boards of
Directors, committees, and shareholders. Neither the Company nor any
Subsidiary is in violation of any provision of its charter or bylaws, other
than violations which, individually or in the aggregate, do not and will not
have a Material Adverse Effect.
2
<PAGE>
3.4 CAPITALIZATION OF THE COMPANY. The authorized capital stock of the
Company consists of 5,000,000 shares of Common Stock, no par value (the
"Common Stock"), of which, as of the date hereof, 1,613,888 shares are
outstanding and no shares are held in the Company's treasury, and 2,000,000
shares of Preferred Stock of which, as of the date hereof, no shares are held
in the Company's treasury. The Shares constitute all the outstanding shares
of Preferred Stock of the Company. All outstanding shares of capital stock
of the Company have been validly issued and are fully paid and nonassessable,
and no shares of capital stock of the Company are subject to, nor have any
been issued in violation of, preemptive or similar rights. Except as set
forth on SCHEDULE 3.14, all issuances, sales, and repurchases by the Company
of shares of its capital stock have been effected in compliance with all
Applicable Laws, including without limitation applicable federal and state
securities laws. As of the date hereof, an aggregate of 239,857 shares of
Common Stock of the Company are or shall be reserved for issuance and are
issuable upon the exercise of stock options granted under the Company's stock
option plan (such options currently outstanding are to purchase a total of
54,350 shares of Common Stock); furthermore, an aggregate of 504,955 shares
of Common Stock of the Company are reserved for issuance and are issuable
upon the exercise of outstanding warrants (subject to certain anti-dilution
provisions applicable thereto); furthermore, an aggregate of 41,300 shares of
Common Stock are reserved for issuance and are issuable upon the conversion
of outstanding convertible notes. Except as disclosed above in this Section,
there are outstanding (i) no shares of capital stock or other voting
securities of the Company, (ii) no securities of the Company convertible into
or exchangeable for shares of capital stock or other voting securities of the
Company, (iii) no options or other rights to acquire from the Company, and no
obligation of the Company to issue or sell, any shares of capital stock or
other voting securities of the Company or any securities of the Company
convertible into or exchangeable for such capital stock or voting securities,
and (iv) no equity equivalents, interests in the ownership or earnings, or
other similar rights of or with respect to the Company. There are no
outstanding obligations of the Company or any Subsidiary to repurchase,
redeem, or otherwise acquire any of the foregoing shares, securities,
options, equity equivalents, interests, or rights. The Company is not a
party to, and is not aware of, any voting agreement, voting trust, or similar
agreement or arrangement relating to any class or series of its capital stock.
3.5 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has full
corporate power and corporate authority to execute, deliver, and perform this
Agreement and the Ancillary Documents to which it is a party and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery, and performance by the Company of this Agreement and the Ancillary
Documents to which it is a party, and the consummation by it of the
transactions contemplated hereby and thereby, have been duly authorized by
all necessary corporate action of the Company. This Agreement has been duly
executed and delivered by the Company and constitutes, and each Ancillary
Document executed or to be executed by the Company has been, or when executed
will be, duly executed and delivered by the Company and constitute, or when
executed and delivered will constitute, valid and legally binding obligations
of the Company, enforceable against the
3
<PAGE>
Company in accordance with their respective terms, except that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws affecting creditors' rights
generally and (ii) equitable principles which may limit the availability of
certain equitable remedies (such as specific performance) in certain
instances.
3.6 NONCONTRAVENTION. The execution, delivery, and performance by the
Company of this Agreement and the Ancillary Documents to which it is a party
and the consummation by it of the transactions contemplated hereby and
thereby do not and will not (i) conflict with or result in a violation of any
provision of the charter or bylaws of the Company or any Subsidiary, (ii)
conflict with or result in a violation of any provision of, or constitute
(with or without the giving of notice or the passage of time or both) a
default under, or give rise (with or without the giving of notice or the
passage of time or both) to any right of termination, cancellation, or
acceleration under, or require any consent, approval, authorization or waiver
of, or notice to, any party to, any bond, debenture, note, mortgage,
indenture, lease, contract, agreement, or other instrument or obligation to
which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties may be bound or any Permit
held by the Company or any Subsidiary, (iii) result in the creation or
imposition of any Encumbrance upon the properties of the Company or any
Subsidiary, or (iv) assuming compliance with the matters referred to in
Section 3.7, violate any Applicable Law binding upon the Company or any
Subsidiary, except, in the case of clauses (ii), (iii), and (iv) above, for
any such conflicts, violations, defaults, terminations, cancellations,
accelerations, or Encumbrances which would not, individually or in the
aggregate, have a Material Adverse Effect, and except, in the case of clause
(ii) above, for (A) such consents, approvals, authorizations, and waivers
that have been obtained and are unconditional and in full force and effect
and such notices that have been duly given and (B) such consents, approvals,
authorizations, waivers, and notices that are disclosed on SCHEDULE 3.6.
3.7 GOVERNMENTAL APPROVALS. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any
Governmental Entity is required to be obtained or made by the Company or any
Subsidiary in connection with the execution, delivery, or performance by the
Company of this Agreement and the Ancillary Documents to which it is a party
or the consummation by it of the transactions contemplated hereby or thereby,
other than as set forth on SCHEDULE 3.7.
3.8 SUBSIDIARIES.
(a) The Company does not own, directly or indirectly, any capital stock
of, or other equity interest in, any corporation or have any direct or
indirect equity or ownership interest in any other person, other than the
Subsidiaries. SCHEDULE 3.8 lists each Subsidiary, the jurisdiction of
incorporation of each Subsidiary, and the authorized and outstanding capital
stock of each Subsidiary. Each Subsidiary is a corporation duly organized,
validly existing, and in good
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standing under the laws of the jurisdiction of its incorporation. Each
Subsidiary has all requisite corporate power and corporate authority to own,
lease, and operate its properties and to carry on its business as now being
conducted. No actions or proceedings to dissolve any Subsidiary are pending,
or to the knowledge of the Company, threatened.
(b) Except as otherwise indicated on SCHEDULE 3.8, all the outstanding
capital stock or other equity interests of each Subsidiary are owned directly
or indirectly by the Company, free and clear of all Encumbrances. All
outstanding shares of capital stock of each Subsidiary have been validly
issued and are fully paid and nonassessable. No shares of capital stock or
other equity interests of any Subsidiary are subject to, nor have any been
issued in violation of, preemptive or similar rights.
(c) Except as set forth on SCHEDULE 3.8, there are outstanding (i) no
shares of capital stock or other voting securities of any Subsidiary, (ii) no
securities of the Company or any Subsidiary convertible into or exchangeable
for shares of capital stock or other voting securities of any Subsidiary,
(iii) no options or other rights to acquire from the Company or any
Subsidiary, and no obligation of the Company or any Subsidiary to issue or
sell, any shares of capital stock or other voting securities of any
Subsidiary or any securities convertible into or exchangeable for such
capital stock or voting securities, and (iv) no equity equivalents, interests
in the ownership or earnings, or other similar rights of or with respect to
any Subsidiary. There are no outstanding obligations of the Company or any
Subsidiary to repurchase, redeem, or otherwise acquire any of the foregoing
shares, securities, options, equity equivalents, interests, or rights.
3.9 SHARES. The Shares to be issued by the Company pursuant to this
Agreement have been duly authorized for such issuance and, when issued and
delivered by the Company in accordance with the provisions of this Agreement,
will be validly issued, fully paid, and nonassessable. The issuance of the
Shares under this Agreement is not subject to any preemptive or similar
rights. When issued, the Shares will represent 23.8% of the issued and
outstanding shares of capital stock of the Company, on a fully-diluted basis
reflecting all shares issuable upon the exercise of all outstanding rights to
acquire shares of the Company's capital stock.
3.10 FINANCIAL STATEMENTS. The Company has delivered to Buyers
accurate and complete copies of (i) the Company's audited consolidated
balance sheets as of December 31, 1995, 1996 and 1997, and the related
audited consolidated statements of income, stockholders' equity, and cash
flows for each of the years then ended, and the notes and schedules thereto,
together with the reports thereon of Deloitte & Touche, L.L.P., independent
public accountants (the "Audited Financial Statements"), and (ii) the
Company's unaudited consolidated balance sheet as of March 31, 1998 (the
"Latest Balance Sheet"), and the related unaudited consolidated statements of
income, stockholders' equity, and cash flows for the three-month period then
ended (together with the Latest Balance Sheet, the "Latest Financial
Statements"), certified by the Company's chief
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financial officer (collectively, the "Financial Statements"). The Financial
Statements (i) represent actual bona fide transactions, (ii) have been
prepared from the books and records of the Company and its consolidated
Subsidiaries in conformity with U.S. GAAP applied on a basis consistent with
preceding years throughout the periods involved, except that the Latest
Financial Statements are not accompanied by notes or other textual disclosure
required by U.S. GAAP, and (iii) fairly present in all material respects the
Company's consolidated financial position as of the respective dates thereof
and its consolidated results of operations and cash flows for the periods
then ended. Except for a $1,000,000 consulting services fee received by the
Company in 1997 from American Communications Services, Inc., the statements
of income included in the Financial Statements do not contain any items of
special or nonrecurring income, and the balance sheets included in the
Financial Statements do not reflect any write-up or revaluation increasing
the book value of any assets, nor have there been any transactions since
March 31, 1998 giving rise to special or nonrecurring income or any such
write-up or revaluation. All financial projections, forecasts, and other
forward-looking information provided by the Company to Buyers were, as of
their respective dates, prepared in good faith and on a basis that management
of the Company believed to be reasonable.
3.11 ABSENCE OF UNDISCLOSED LIABILITIES. To the best knowledge of the
Company, neither the Company nor any Subsidiary has any liability or
obligation (whether accrued, absolute, contingent, unliquidated, or
otherwise, and whether due or to become due), except (i) liabilities
reflected on the Latest Balance Sheet, (ii) liabilities described in the
notes accompanying the Audited Financial Statements dated as of December 31,
1997, (iii) liabilities which have arisen since the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a material
liability for breach of contract, breach of warranty, tort, or infringement),
(iv) liabilities arising under executory contracts entered into in the
ordinary course of business (none of which is a material liability for breach
of contract), (v) liabilities specifically set forth on SCHEDULE 3.11, and
(vi) other liabilities which, in the aggregate, are not material to the
Company and the Subsidiaries considered as a whole.
3.12 ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE
3.12, since March 31, 1998: (i) there has not been any change, development,
or effect, individually or in the aggregate, that has had, or might
reasonably be expected to have, a Material Adverse Effect on the Company or a
Subsidiary; (ii) the businesses of the Company and the Subsidiaries have been
conducted only in the ordinary course consistent with past practice; (iii)
neither the Company nor any Subsidiary has incurred any material liability,
engaged in any material transaction, or entered into any material agreement
outside the ordinary course of business consistent with past practice; (iv)
neither the Company nor any Subsidiary has suffered any material loss,
damage, destruction, or other casualty to any of its assets (whether or not
covered by insurance); and (v) neither the Company nor any Subsidiary has or
has taken action to:
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(a) amend its charter or bylaws (other than to establish and
designate the Shares);
(b) (i) issue, sell, or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase, or otherwise) any shares of its capital stock of any class or
any other securities or equity equivalents; or (ii) amend in any respect
any of the terms of any such securities outstanding as of the date
hereof;
(c) (i) split, combine, or reclassify any shares of its capital
stock; (ii) declare, set aside, or pay any dividend or other
distribution (whether in cash, stock, or property or any combination
thereof) in respect of its capital stock; (iii) repurchase, redeem, or
otherwise acquire any of its securities or any securities of any
Subsidiary; or (iv) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing a liquidation, dissolution,
merger, consolidation, restructuring, recapitalization, or other
reorganization of the Company or any Subsidiary;
(d) (i) except in the ordinary course of business consistent with
past practice, create, incur, guarantee, or assume any indebtedness for
borrowed money or otherwise become liable or responsible for the
obligations of any other person; (ii) make any loans, advances, or
capital contributions to, or investments in, any other person (other
than to wholly owned Subsidiaries); (iii) pledge or otherwise encumber
shares of capital stock of the Company or any Subsidiary; or (iv) except
in the ordinary course of business consistent with past practice,
mortgage or pledge any of its assets, tangible or intangible, or create
or suffer to exist any lien thereupon;
(e) (i) enter into, adopt, or (except as may be required by law)
amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase, pension, retirement,
deferred compensation, employment, severance, or other employee benefit
agreement, trust, plan, fund, or other arrangement for the benefit or
welfare of any director, officer, or employee; (ii) except for normal
increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Company, increase in any manner
the compensation or fringe benefits of any director, officer, or
employee; or (iii) pay to any director, officer, or employee any benefit
not required by any employee benefit agreement, trust, plan, fund, or
other arrangement as in effect on the date hereof;
(f) acquire, sell, lease, transfer, or otherwise dispose of, directly
or indirectly, any assets outside the ordinary course of business
consistent with past practice or any
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assets that in the aggregate are material to the Company and the
Subsidiaries considered as a whole;
(g) acquire (by merger, consolidation, or acquisition of stock or
assets or otherwise) any corporation, partnership, or other business
organization or division thereof;
(h) make any capital expenditure or expenditures which,
individually, is in excess of $50,000 or, in the aggregate, are in
excess of $250,000;
(i) amend any Tax Return or make any Tax election or settle or
compromise any federal, state, local, or foreign Tax liability material
to the Company and the Subsidiaries considered as a whole;
(j) pay, discharge, or satisfy any claims, liabilities, or
obligations (whether accrued, absolute, contingent, unliquidated, or
otherwise, and whether asserted or unasserted), other than the payment,
discharge, or satisfaction in the ordinary course of business consistent
with past practice, or in accordance with their terms, of liabilities
reflected or reserved against in the Financial Statements or incurred
since January 1, 1998 in the ordinary course of business consistent with
past practice;
(k) enter into any lease, contract, agreement, commitment,
arrangement, or transaction outside the ordinary course of business
consistent with past practice;
(l) amend, modify, or change in any material respect any existing
lease, contract, or agreement, other than in the ordinary course of
business consistent with past practice;
(m) waive, release, grant, or transfer any rights of value, other
than in the ordinary course of business consistent with past practice;
(n) lay off any of its employees;
(o) change any of its banking or safe deposit arrangements;
(p) change any of the accounting principles or practices used by
it, except for any change required by reason of a concurrent change in
U.S. GAAP and notice of which has been given in writing by the Company
to Buyers; or
(q) authorize or propose, or agree in writing or otherwise to
take, any of the actions described in this Section.
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3.13 TAX MATTERS. Except as disclosed on SCHEDULE 3.13:
(a) the Company and each Subsidiary have duly filed all federal,
state, local, and foreign Tax Returns required to be filed by or with
respect to them with the IRS or other applicable Taxing authority, and
no extensions with respect to such Tax Returns have been requested or
granted;
(b) the Company and each Subsidiary have paid, or adequately
reserved against in the Financial Statements, all Taxes due, or claimed
by any Taxing authority to be due, from or with respect to them, except
Taxes that are being contested in good faith by appropriate legal
proceedings and for which adequate reserves have been set aside as
disclosed on SCHEDULE 3.13;
(c) there has been no issue raised or adjustment proposed (and
none is pending) by the IRS or any other Taxing authority in connection
with any of the Tax Returns;
(d) the Company and each Subsidiary have made all deposits
required with respect to Taxes;
(e) no waiver or extension of any statute of limitations as to any
federal, state, local, or foreign Tax matter has been given by or
requested from the Company or any Subsidiary; and
(f) the Company has not filed a consent under Section 341(f) of
the Code.
3.14 COMPLIANCE WITH LAWS. Except as disclosed on SCHEDULE 3.14, to
the best knowledge of the Company, the Company and the Subsidiaries have
complied with all Applicable Laws (including without limitation Applicable
Laws relating to securities, properties, business products and services,
manufacturing processes, advertising and sales practices, employment
practices, terms and conditions of employment, wages and hours, safety,
occupational safety, health, environmental protection, product safety, and
civil rights). Neither the Company nor any Subsidiary has received any
written notice, which has not been dismissed or otherwise disposed of, that
the Company or any Subsidiary has not so complied. Neither the Company nor
any Subsidiary is charged or, to the best knowledge of the Company,
threatened with, or, to the best knowledge of the Company, under
investigation with respect to, any violation of any Applicable Law relating
to any aspect of the business of the Company or any Subsidiary.
3.15 LEGAL PROCEEDINGS. There are no Proceedings pending or, to the
best knowledge of the Company, threatened against or involving the Company or
any Subsidiary (or any of their
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respective directors or officers in connection with the business or affairs
of the Company or any Subsidiary) or any properties or rights of the Company
or any Subsidiary, except (i) as disclosed on SCHEDULE 3.15, (ii) for any
Proceedings that pertain to routine claims by persons other than Governmental
Entities that are fully covered by insurance (subject to applicable insurance
deductibles), (iii) for minor product or service warranty claims arising in
the usual and ordinary course of business which in the aggregate may be
satisfied at nominal cost to the Company, and (iv) for Proceedings which,
individually or in the aggregate, if prosecuted to judgment, would not have a
Material Adverse Effect on the Company. Except as disclosed on SCHEDULE
3.15, any and all potential liability of the Company and the Subsidiaries
under such Proceedings is adequately covered (except for standard deductible
amounts) by the existing insurance maintained by the Company and the
Subsidiaries described in Section 3.31. Neither the Company nor any
Subsidiary is subject to any judgment, order, writ, injunction, or decree of
any Governmental Entity which has had or is reasonably likely to have a
Material Adverse Effect. There are no Proceedings pending or, to the best
knowledge of the Company, threatened seeking to restrain, prohibit, or obtain
damages or other relief in connection with this Agreement or the transactions
contemplated hereby.
3.16 TITLE TO PROPERTIES. Each of the Company and the Subsidiaries has
good and indefeasible title, and in the case of real property insurable
title, to all properties (real, personal, and mixed, tangible and intangible)
it owns or purports to own, including without limitation the properties
reflected in its books and records and in the Latest Balance Sheet, other
than those disposed of after the date of such balance sheet in the ordinary
course of business consistent with past practice, free and clear of all
Encumbrances, except: as disclosed on SCHEDULE 3.16, as set forth in the
Latest Balance Sheet as securing specific liabilities, liens for Taxes not
yet due and payable, statutory liens (including materialmen's, mechanic's,
repairmen's, landlord's, and other similar liens) arising in connection with
the ordinary course of business securing payments not yet due and payable,
and such imperfections or irregularities of title, if any, as (A) are not
substantial in character, amount, or extent and do not materially detract
from the value of the property subject thereto, (B) do not materially
interfere with either the present or intended use of such property, and (C)
do not, individually or in the aggregate, materially interfere with the
conduct of the Company's or any Subsidiary's normal operations. Except as
disclosed on SCHEDULE 3.16, no financing statement (or other instrument
sufficient or effective as a financing statement) under the Uniform
Commercial Code with respect to any properties of the Company or any
Subsidiary has been filed and is effective in any jurisdiction, and the
Company and the Subsidiaries have not signed any such financing statement (or
other instrument) or any mortgage or security agreement authorizing any
secured party thereunder to file any such financing statement (or other
instrument).
3.17 SUFFICIENCY AND CONDITION OF PROPERTIES. The properties owned,
leased, or used by the Company and the Subsidiaries are (i) in the case of
tangible properties, in good operating
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condition and repair (ordinary wear and tear excepted) and have been
maintained in accordance with standard industry practice, (ii) suitable for
the purposes used, and (iii) adequate and sufficient for the normal operation
of the Company's and the Subsidiaries' businesses, as presently conducted.
The Company and the Subsidiaries own or have a valid leasehold interest in,
or otherwise have a valid right to use, all such properties. To the best
knowledge of the Company, such properties and their uses conform in all
material respects to all Applicable Laws, and the Company has not, nor has
any Subsidiary, received any notice to the contrary. All such tangible
properties are in the Company's or a Subsidiary's possession or under their
control.
3.18 REAL PROPERTY.
(a) Set forth on SCHEDULE 3.18 is a list, by street address and (in the
case of owned real property) deed reference, of all real property owned or
leased by the Company or any Subsidiary (for purposes of this Section, the
"Real Property"), a summary description of the principal facilities and
structures (if any) located thereon, and, with respect to leased Real
Property, a summary description of the applicable leases and the material
terms thereof. There are no persons (other than the Company or a Subsidiary)
in possession of any portion of the Real Property as lessees, tenants at
sufferance, or trespassers, nor does any person (other than the Company or a
Subsidiary) have a lease, tenancy, or other right of occupancy or use of any
portion of the Real Property. The Real Property has full and free access to
and from public highways, streets, and roads, and the Company has no
knowledge of any pending or threatened Proceeding or any other fact or
condition which would limit or result in the termination of such access. To
the best knowledge of the Company, there exists no Proceeding or court order,
or building code provision, deed restriction, or restrictive covenant
(recorded or otherwise), or other private or public limitation, which might
in any way impede or adversely affect the continued use of the Real Property
by the Company and the Subsidiaries in the manner it is currently used.
(b) To the best knowledge of the Company, all buildings, improvements,
and fixtures situated on the Real Property conform in all material respects
to all Applicable Laws. All the Real Property is zoned for the various
purposes for which such Real Property is being used, and there exists no
pending or, to the best knowledge of the Company, threatened Proceeding which
might adversely affect the validity of such zoning.
(c) The Real Property is connected to and serviced by water, sewage
disposal, gas, telephone, and electric facilities which are adequate for the
current use of the Real Property and, to the best knowledge of the Company,
are in compliance with all Applicable Laws. To the best knowledge of the
Company, all public utilities required for the operation of the Real Property
enter the Real Property through adjoining public streets or, if they pass
through adjoining private land, do so in accordance with valid public
easements, and all utility lines and mains located on
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the Real Property have been properly dedicated to, and are serviced and
maintained by, the appropriate public or quasi-public entity.
(d) The buildings, improvements, and fixtures situated on the Real
Property are in good condition and repair (excepting ordinary wear and tear
and minor maintenance and repair problems which would normally be associated
with such assets when used in connection with the operation of the Company's
and the Subsidiaries' businesses), free of any patent structural defects of a
material nature.
(e) Neither the whole nor any part of the Real Property is subject to
any pending Proceeding for condemnation or other taking by any Governmental
Entity, and, to the best knowledge of the Company, no such condemnation or
other taking is contemplated or threatened.
(f) There are no unpaid charges, debts, liabilities, claims, or
obligations incurred by or against the Company arising from the construction,
occupancy, ownership, use, or operation of the Real Property, or the
buildings, improvements, or fixtures situated thereon, or the business
operated thereon, which could give rise to any mechanic's or materialmen's or
other statutory lien against the Real Property, or the buildings,
improvements, or fixtures situated thereon, or any part thereof, or for which
the Company or any Subsidiary will be responsible.
(g) Except for the Company's facility at 1800 and 1812 North Forest
Park Boulevard in Fort Worth, Texas, the Real Property is not within any area
determined by the Department of Housing and Urban Development to be flood
prone under the Federal Flood Disaster Protection Act of 1973.
(h) The Company has made available to Buyers accurate and complete
copies of all title insurance policies, title reports, other title documents,
surveys, certificates of occupancy, and Permits in the possession of the
Company relating to the Real Property or the buildings, improvements, or
fixtures situated thereon.
3.19 TANGIBLE PERSONAL PROPERTY. Set forth on SCHEDULE 3.19 is a list,
as of the most recent practicable date, of all furniture, equipment,
machinery, computer hardware, materials, motor vehicles, rolling stock,
apparatus, tools, implements, appliances, and other tangible personal
property (other than spare parts, supplies, and inventory) owned, leased, or
used by the Company or any Subsidiary, except for items having a value
individually of less than $10,000 which do not, in the aggregate, have a
value exceeding $100,000. The motor vehicles and rolling stock owned or
leased by the Company and the Subsidiaries are utilized solely for the
transportation by the Company or a Subsidiary, for its own account and not
for the account of others, of inventories, supplies, and other items relating
to the operation of the Company's and the Subsidiaries' businesses, and such
activities do not require the obtainment of any Permit.
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3.20 LEASED PROPERTY. Set forth on SCHEDULE 3.20 is a list and summary
description of the material terms of all leases under which the Company or
any Subsidiary is the lessee of real or personal property. Each of the
Company and the Subsidiaries has good and valid leasehold interests in all
properties held by it under lease. The lessee under each such lease and its
predecessor under each such lease, if any, has been in peaceable possession
(or remedied any claims relating thereto) of the property covered thereby
since the commencement of the original term of such lease. No waiver,
indulgence, or postponement of the lessee's obligations under any such lease
has been granted by the lessor or of the lessor's obligations thereunder by
the lessee. The lessee under each such lease is not in breach of or in
default under such lease, nor has any event occurred which (with or without
the giving of notice or the passage of time or both) would constitute a
default by the lessee under such lease, and the lessee has not received any
notice from, or given any notice to, the lessor indicating that the lessee or
the lessor is in breach of or in default under such lease. To the best
knowledge of the Company, none of the lessors under such leases is in breach
thereof or in default thereunder. The lessee under each such lease has full
right and power to occupy or possess, as the case may be, all the property
covered by such lease.
3.21 SPECIAL REPRESENTATION REGARDING SUBSCRIBERS. As of March 31,
1998, the Company had a total of approximately 167,000 subscribers under
contract with the Company regarding the provision of Internet services.
3.22 RECEIVABLES. All receivables (including accounts and notes
receivable, employee advances, and accrued interest receivables) of the
Company and the Subsidiaries as reflected on the Latest Balance Sheet or
arising since the date thereof are valid obligations of the respective makers
thereof, have arisen in the ordinary course of business for goods or services
delivered or rendered, are not subject to any valid defenses, counterclaims,
or set offs, and have been collected or are collectible in full at their
recorded amounts in the ordinary course of business without the expectation
of the need to resort to litigation or other extraordinary collection
efforts, net of all cash discounts and doubtful accounts as reflected on the
Latest Balance Sheet (in the case of receivables so reflected) or on the
books of the Company and the Subsidiaries (in the case of receivables arising
since the date thereof). The allowances for doubtful accounts reflected on
the Latest Balance Sheet and on the books of the Company and the Subsidiaries
were determined in accordance with U.S. GAAP and were and are reasonable in
light of historical data and other relevant information.
3.23 INTELLECTUAL PROPERTY. Except for the trademarks, service marks,
and trade names set forth on SCHEDULE 3.23, the Company and the Subsidiaries
do not own, hold, use, or have pending any Intellectual Property. The
Company and the Subsidiaries own or have rights to use all trademarks,
service marks, and trade names, free from burdensome restrictions, that are
necessary for the operation of their respective businesses as presently
conducted. The Company and the Subsidiaries have not received any written
notice or claim of any infringement, violation,
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misuse, or misappropriation by the Company or any Subsidiary of any
Intellectual Property owned or purported to be owned by any other person.
3.24 PERMITS. To the best knowledge of the Company, except for
qualifications or licenses to do business in the states expressly listed on
SCHEDULE 3.2 as states with which the Company has a pending application for
qualification or license, the Company and the Subsidiaries hold all Permits
necessary or required for the conduct of the business of the Company and the
Subsidiaries as currently conducted. Each of such Permits is in full force
and effect, the Company or such Subsidiary is in compliance with all its
obligations with respect thereto, and, to the best knowledge of the Company,
no event has occurred which permits, or with or without the giving of notice
or the passage of time or both would permit, the revocation or termination of
any thereof. Except as disclosed on SCHEDULE 3.24, no notice has been issued
by any Governmental Entity and no Proceeding is pending or, to the best
knowledge of the Company, threatened with respect to any alleged failure by
the Company or a Subsidiary to have any Permit the absence of which would
have a Material Adverse Effect.
3.25 AGREEMENTS.
(a) Set forth on SCHEDULE 3.25 is a list of all the following
agreements, arrangements, and understandings (written or oral, formal or
informal) (collectively, for purposes of this Section, "agreements") to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary or any of their respective properties is otherwise bound:
(i) collective bargaining agreements and similar agreements
with employees as a group;
(ii) employee benefit agreements, trusts, plans, funds, or
other arrangements of any nature;
(iii) agreements with any current or former shareholder,
director, officer, employee, consultant, or advisor or any affiliate of
any such person;
(iv) agreements between or among the Company and any of the
Subsidiaries;
(v) indentures, mortgages, security agreements, notes, loan
or credit agreements, or other agreements relating to the borrowing of
money by the Company or any Subsidiary or to the direct or indirect
guarantee or assumption by the Company or any Subsidiary of any
obligation of others, including any agreement that has the economic
effect although not the legal form of any of the foregoing;
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(vi) agreements relating to the acquisition or disposition
of assets, other than those entered into in the ordinary course of
business consistent with past practice;
(vii) agreements relating to the acquisition or disposition
of any interest in any business enterprise;
(viii) agreements with respect to the lease of real or
personal property;
(ix) agreements concerning the management or operation of
any real property;
(x) any broker, distributor, dealer, manufacturer's
representative, sales, agency, sales promotion, advertising, market
research, marketing, consulting, research and development,
maintenance, service, or repair agreement involving more than $10,000;
(xi) license, royalty, or other agreements relating to
Intellectual Property;
(xii) partnership, joint venture, and profit sharing
agreements;
(xiii) agreements with any Governmental Entity;
(xiv) agreements relating to the release or disposal of
hazardous material (as such term is defined in Section 3.27);
(xv) agreements in the nature of a settlement or a
conciliation agreement arising out of any claim asserted by any other
person;
(xvi) agreements containing any covenant limiting the
freedom of the Company or any Subsidiary to engage in any line of
business or compete with any other person in any geographic area or
during any period of time;
(xvii) powers of attorney granted by the Company or any
Subsidiary in favor of any person;
(xviii) agreements not made in the ordinary course of
business; and
(xix) other agreements, whether or not made in the ordinary
course of business, that are material to the business, assets,
results of operations, condition (financial or otherwise), or
prospects of the Company and the Subsidiaries considered as a whole.
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(b) The Company has made available to Buyers accurate and complete
copies of the agreements listed on SCHEDULE 3.25. Each of such agreements is
a valid and binding agreement of the Company and the Subsidiaries (to the
extent each is a party thereto) and (to the best knowledge of the Company)
the other party or parties thereto, enforceable against the Company and the
Subsidiaries (to the extent each is a party thereto) and (to the best
knowledge of the Company) such other party or parties in accordance with its
terms. Except as set forth on SCHEDULE 3.25, neither the Company nor any
Subsidiary is in breach of or in default under, nor has any event occurred
which (with or without the giving of notice or the passage of time or both)
would constitute a default by the Company or any Subsidiary under, any of
such agreements, and neither the Company nor any Subsidiary has received any
notice from, or given any notice to, any other party indicating that the
Company or any Subsidiary is in breach of or in default under any of such
agreements. To the best knowledge of the Company, no other party to any of
such agreements is in breach of or in default under such agreements, nor has
any assertion been made by the Company or any Subsidiary of any such breach
or default.
(c) Neither the Company nor any Subsidiary has received notice of any
plan or intention of any other party to any agreement to exercise any right
of offset with respect to, or any right to cancel or terminate, any
agreement, and neither the Company nor any Subsidiary knows of any fact or
circumstance that would justify the exercise by any such other party of such
a right other than the automatic termination of such agreement in accordance
with its terms. Neither the Company nor any Subsidiary currently
contemplates, or has reason to believe any other person currently
contemplates, any amendment or change to any agreement, which amendment or
change could have a Material Adverse Effect.
3.26 ERISA.
(a) Set forth on SCHEDULE 3.26 is a list identifying each "employee
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to
any provision of ERISA, (ii) which is maintained, administered, or
contributed to by the Company or any affiliate of the Company, and (iii)
which covers any employee or former employee of the Company or any affiliate
of the Company or under which the Company or any affiliate of the Company has
any liability. The Company has made available to Buyers accurate and
complete copies of such plans (and, if applicable, the related trust
agreements) and all amendments thereto and written interpretations thereof,
together with (i) the three most recent annual reports (Form 5500 including,
if applicable, Schedule B thereto) prepared in connection with any such plan
and (ii) the most recent actuarial valuation report prepared in connection
with any such plan. Such plans are referred to in this Section as the
"Employee Plans." For purposes of this Section only, an "affiliate" of any
person means any other person which, together with such person, would be
treated as a single employer under Section 414 of the Code. The only
Employee Plans which individually or collectively
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would constitute an "employee pension benefit plan" as defined in Section
3(2) of ERISA are identified as such on SCHEDULE 3.26.
(b) Except as otherwise identified on SCHEDULE 3.26, (i) no Employee
Plan constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA
(for purposes of this Section, a "Multiemployer Plan"), (ii) no Employee Plan
is maintained in connection with any trust described in Section 501(c)(9) of
the Code, (iii) no Employee Plan is subject to Title IV of ERISA or to the
minimum funding standards of ERISA and the Code, and (iv) during the past
five years, neither the Company nor any of its affiliates have made or been
required to make contributions to any Multiemployer Plan. There are no
accumulated funding deficiencies as defined in Section 412 of the Code
(whether or not waived) with respect to any Employee Plan. The fair market
value of the assets held with respect to each Employee Plan which is an
employee pension benefit plan, as defined in Section 3(2) of ERISA, exceeds
the actuarially determined present value of all benefit liabilities accrued
under such Employee Plan (whether or not vested) determined using reasonable
actuarial assumptions. Neither the Company nor any affiliate of the Company
has incurred any material liability under Title IV of ERISA arising in
connection with the termination of, or complete or partial withdrawal from,
any plan covered or previously covered by Title IV of ERISA. The Company and
all of the affiliates of the Company have paid and discharged promptly when
due all liabilities and obligations arising under ERISA or the Code of a
character which if unpaid or unperformed might result in the imposition of a
lien against any of the assets of the Company or any Subsidiary. Nothing
done or omitted to be done and no transaction or holding of any asset under
or in connection with any Employee Plan has or will make the Company or any
Subsidiary or any director or officer of the Company or any Subsidiary
subject to any liability under Title I of ERISA or liable for any Tax
pursuant to Section 4975 of the Code that could have a Material Adverse
Effect. There are no pending or, to the best knowledge of the Company,
threatened claims by or on behalf of the Employee Plans, or by any
participant therein, alleging a breach or breaches of fiduciary duties or
violations of Applicable Laws which could result in liability on the part of
the Company, its officers or directors, or such Employee Plans, under ERISA
or any other Applicable Law and there is no basis for any such claim.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified since the date
of its adoption, and each trust forming a part thereof is exempt from Tax
pursuant to Section 501(a) of the Code. Accurate and complete copies of the
most recent IRS determination letters with respect to any such Plans have
been made available to Buyers. Each Employee Plan has been maintained in
compliance with its terms and with the requirements prescribed by all
Applicable Laws, including but not limited to ERISA and the Code, which are
applicable to such Plans.
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(d) There is set forth on SCHEDULE 3.26 a list of each employment,
severance, or other similar contract, arrangement, or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, or other forms of incentive compensation or
post-retirement insurance, compensation, or benefits which (i) is not an
Employee Plan, (ii) is entered into, maintained, or contributed to, as the
case may be, by the Company or any affiliate of the Company, and (iii) covers
any employee or former employee of the Company or any affiliate of the
Company or under which the Company or any affiliate of the Company has any
liability. Such contracts, plans, and arrangements as are described in the
preceding sentence are referred to for purposes of this Section as the
"Benefit Arrangements." Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
Applicable Laws.
(e) Neither the Company nor any affiliate of the Company has performed
any act or failed to perform any act, and there is no contract, agreement,
plan, or arrangement covering any employee or former employee of the Company
or any affiliate of the Company, that, individually or collectively, could
give rise to the payment of any amount that would not be deductible pursuant
to the terms of Section 162(a)(1) or 280G of the Code, or could give rise to
any penalty or excise Tax pursuant to Section 4980B or 4999 of the Code.
(f) Except as disclosed on SCHEDULE 3.26, there has been no amendment,
written interpretation, or announcement (whether or not written) by the
Company or any affiliate of the Company of or relating to, or change in
employee participation or coverage under, any Employee Plan or Benefit
Arrangement which would increase materially the expense of maintaining such
Employee Plan or Benefit Arrangement above the level of the expense incurred
in respect thereof for the most recent fiscal year.
3.27 ENVIRONMENTAL MATTERS.
(a) Except as disclosed on SCHEDULE 3.27:
(i) to the best knowledge of the Company, the properties,
operations, and activities of the Company and the Subsidiaries comply
with all Applicable Environmental Laws (as defined below);
(ii) the Company and the Subsidiaries and the properties,
operations, and activities of the Company and the Subsidiaries are
not subject to any existing, pending, or, to the best knowledge of
the Company, threatened Proceeding under, or to any remedial
obligations under, any Applicable Environmental Laws;
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(iii) to the best knowledge of the Company, all Permits, if
any, required to be obtained by the Company or any Subsidiary under
any Applicable Environmental Laws in connection with any aspect of
the business of the Company or the Subsidiaries, including without
limitation those relating to the treatment, storage, disposal, or
release of a hazardous material (as defined below), have been duly
obtained and are in full force and effect, and the Company and the
Subsidiaries are in compliance with the terms and conditions of all
such Permits;
(iv) to the best knowledge of the Company, the Company and the
Subsidiaries have satisfied and are currently in compliance with all
financial responsibility requirements applicable to their respective
operations and imposed by any Governmental Entity under any
Applicable Environmental Laws, and the Company and the Subsidiaries
have not received any notice of noncompliance with any such financial
responsibility requirements;
(v) to the best knowledge of the Company, there are no
physical or environmental conditions existing on any property owned
or leased by the Company or any Subsidiary or resulting from the
Company's or any Subsidiary's operations or activities, past or
present, at any location, that would give rise to any on-site or
off-site remedial obligations under any Applicable Environmental
Laws;
(vi) to the best knowledge of the Company, since the effective
date of the requirements of Applicable Environmental Laws, all
hazardous materials generated by the Company or any Subsidiary or
used in connection with their respective properties, operations, or
activities have been transported only by carriers authorized under
Applicable Environmental Laws to transport such materials, and have
been disposed of only at treatment, storage, and disposal facilities
authorized under Applicable Environmental Laws to treat, store, or
dispose of such materials, and, to the best knowledge of the Company,
such carriers and facilities have been and are operating in
compliance with such authorizations and are not the subject of any
existing, pending, or threatened Proceeding in connection with any
Applicable Environmental Laws;
(vii) to the best knowledge of the Company, there has been no
exposure of any person or property to hazardous materials, nor has
there been any release of hazardous materials into the environment,
by the Company or any Subsidiary or in connection with their
respective properties, operations, or activities that could
reasonably be expected to give rise to any claim for damages or
compensation; and
(viii) the Company and the Subsidiaries shall make available to
Buyers all internal and external environmental audits and studies and
all correspondence on substantial environmental matters in the
possession of the Company and the Subsidiaries relating to
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any of the current or former properties, operations, or activities of
the Company and the Subsidiaries, provided that the Company and the
Subsidiaries shall not be required to make available any such audits,
studies, or correspondence that may be subject to the attorney-client
privilege or similar privilege.
(b) For purposes of this Agreement, "Applicable Environmental Laws"
means any and all Applicable Laws pertaining to health, safety, or the
environment in effect (currently or hereafter) in any and all jurisdictions
in which the Company or any Subsidiary has conducted operations or activities
or owned or leased property, including, without limitation, the Clear Air
Act, as amended, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, the Rivers and Harbors Act of 1899, as
amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the Resource
Conservation and Recovery Act of 1976, as amended, the Safe Drinking Water
Act, as amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous
Materials Transportation Act, as amended, the Texas Water Code, the Texas
Solid Waste Disposal Act, and other environmental conservation or protection
laws. For purposes of this Agreement, the term "hazardous material" means
(i) any substance which is listed or defined as a hazardous substance,
hazardous constituent, or solid waste pursuant to any Applicable
Environmental Laws and (ii) petroleum (including crude oil and any fraction
thereof), natural gas, and natural gas liquids.
(c) The representations and warranties contained in this Section would
continue to be true and correct following disclosure to the applicable
Governmental Entities of all relevant facts, conditions, and circumstances,
if any, pertaining to the properties, operations, and activities of the
Company and the Subsidiaries.
3.28 LABOR RELATIONS.
(a) Except as disclosed on SCHEDULE 3.28, (i) there are no collective
bargaining agreements or other labor union contracts applicable to any
employees to or by which the Company or any Subsidiary is a party or is
bound, no such agreement or contract has been requested by any employee or
group of employees of the Company or any Subsidiary, and no discussions have
occurred with respect thereto by management of the Company or any Subsidiary
with any such employees; (ii) no employees of the Company or any Subsidiary
are represented by any labor organization, collective bargaining
representative, or group of employees; (iii) no labor organization,
collective bargaining representative, or group of employees claims to
represent a majority of the employees of the Company or any Subsidiary in an
appropriate unit of the Company or any Subsidiary; (iv) neither the Company
nor any Subsidiary is aware of or involved with any representational campaign
or other organizing activities by any union or other organization or group
seeking to become the collective bargaining representative of any of its
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employees; (v) neither the Company nor any Subsidiary is obligated to bargain
collectively with respect to wages, hours, and other terms and conditions of
employment with any recognized or certified labor organization, collective
bargaining representative, or group of employees; and (vi) neither the
Company nor any Subsidiary has experienced or is aware of any strikes, work
stoppages, work slowdowns, or lockouts or any threats thereof by or with
respect to any of its employees.
(b) To the best knowledge of the Company, the Company and the
Subsidiaries are in compliance in all material respects with all Applicable
Laws pertaining to employment and employment practices and wages, hours, and
other terms and conditions of employment in respect of their respective
employees and have no accrued liability for any arrears of wages or any Taxes
or penalties for failure to comply with any thereof. To the best knowledge
of the Company, the Company and the Subsidiaries are not engaged in any
unfair labor practices or unlawful employment practices. There is no pending
or, to the best knowledge of the Company, threatened Proceeding against or
involving the Company or any Subsidiary by or before, and neither the Company
nor any Subsidiary is subject to any judgment, order, writ, injunction, or
decree of or inquiry from, the National Labor Relations Board, the Equal
Employment Opportunity Commission, the Department of Labor, or any other
Governmental Entity in connection with any current, former, or prospective
employee of the Company or any Subsidiary.
(c) The Company believes that relations with the employees of the
Company and the Subsidiaries are satisfactory.
3.29 EMPLOYEES. Set forth on SCHEDULE 3.29 is a list of:
(a) all directors and officers of the Company and the Subsidiaries,
and
(b) the name, social security number, and dates of employment by the
Company or a Subsidiary of each employee, agent, and consultant of the
Company and the Subsidiaries as of March 31, 1998, whose annual rate of
compensation in the current fiscal year will equal or exceed $60,000,
together with the total amounts of salary, bonuses, and other compensation
paid or payable by the Company or any Subsidiary to each such person for
the current fiscal year and the immediately preceding fiscal year.
Except as disclosed on SCHEDULE 3.29, no severance payment, stay-on or
incentive payment, or similar obligation will be owed by the Company or any
Subsidiary to any of their respective directors, officers, or employees upon
consummation of, or as a result of, the transactions contemplated by this
Agreement, nor will any such director, officer, or employee be entitled to an
increase in severance payments or other benefits as a result of the
transactions contemplated by this Agreement in the event of the subsequent
termination of his or her employment.
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3.30 INSIDER INTERESTS. Except as disclosed on SCHEDULE 3.30 no
shareholder, director, officer, or employee of the Company or any Subsidiary
or any associate of any such shareholder, director, officer, or employee is
presently, directly or indirectly, a party to any transaction with the
Company or any Subsidiary, including, without limitation, any agreement,
arrangement, or understanding, written or oral, providing for the employment
of, furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to any such shareholder, director, officer,
employee, or associate. To the best knowledge of the Company, no
shareholder, director, officer, or employee of the Company or any Subsidiary
or any associate of any such shareholder, director, officer, or employee
owns, directly or indirectly, any interest in, or serves as a director,
officer, or employee of, any customer, supplier, or competitor of the Company
or any Subsidiary. For purposes of this Section only, an "associate" of any
shareholder, director, officer, or employee means (i) a spouse, parent,
sibling, child, mother- or father-in-law, son- or daughter-in-law, or
brother- or sister-in-law of such shareholder, director, officer, or employee
or (ii) any corporation, partnership, trust, or other entity in which such
shareholder, director, officer, or employee or associate thereof has a
substantial ownership or beneficial interest (other than an interest in a
public corporation which does not exceed three percent of its outstanding
securities) or is a director, officer, partner, or trustee or person holding
a similar position.
3.31 INSURANCE. The Company and the Subsidiaries maintain with sound
and reputable insurers, and there are currently in full force and effect,
policies of insurance with respect to their respective assets and operations
against such casualties and contingencies of such types and in such amounts
as are customary for corporations of similar size engaged in similar lines of
business. All premiums due and payable with respect to such policies have
been timely paid. No notice of cancellation of, or indication of an intention
not to renew, any such policy has been received by the Company or any
Subsidiary. During the past three years, no application by the Company or
any Subsidiary for insurance with respect to its assets or operations has
been denied for any reason.
3.32 FINANCIAL REQUIREMENTS. Set forth on SCHEDULE 3.32 is a list and
summary description of all bonds, deposits, financial assurance requirements,
and insurance coverage required, to the best knowledge of the Company, to be
submitted to Governmental Entities for the continued ownership and operation
of the business and assets of the Company and the Subsidiaries.
3.33 BANK ACCOUNTS AND POWERS OF ATTORNEY. Set forth on SCHEDULE 3.33
are: (i) the name and address of each bank or other financial institution
with which the Company or any Subsidiary has an account or safe deposit box
or vault, the account and safe deposit box and vault numbers thereof, the
purpose of each thereof, and the names of all persons authorized to draw
thereon or to have access thereto, (ii) the names of all persons authorized
to borrow funds on behalf of the Company or any Subsidiary and the names and
addresses of all entities from which
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they are authorized to borrow funds, and (iii) the names of all persons, if
any, holding proxies, powers of attorney, or other like instruments from the
Company or any Subsidiary. No such proxies, powers of attorney, or other
like instruments are irrevocable.
3.34 INVESTMENTS. The temporary cash investments reflected on the
balance sheets included in the Financial Statements have maturities not more
than 12 months from the date of acquisition by the Company or a Subsidiary
and consist of: (i) securities issued or guaranteed or insured by the United
States of America or any agency or instrumentality thereof; (ii) time deposit
certificates of deposit and banker's acceptances of commercial banks
organized under the laws of the United States of America or any state thereof
with total assets of more than $50,000,000; (iii) commercial paper issued by
any person incorporated in the United States rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least P-2 or the
equivalent thereof by Moody's Investors Service, Inc.; or (iv) shares of
money market funds substantially all of whose assets are comprised of
securities or assets of the type described in clauses (i) through (iii) above.
3.35 BOOKS AND RECORDS. All the books and records of the Company and
the Subsidiaries, including all personnel files, employee data, and other
materials relating to employees, are substantially complete and correct in
all material respects, have been maintained in accordance with good business
practice and, to the best knowledge of the Company, all Applicable Laws, and,
in the case of the books of account, have been prepared and maintained in
accordance with U.S. GAAP. Such books and records fairly reflect, in
reasonable detail, all material transactions, revenues, expenses, assets, and
liabilities of the Company and the Subsidiaries.
3.36 ILLEGAL PAYMENTS. To the best knowledge of the Company, none of
the Company or any Subsidiary or any director, officer, employee, or agent of
the Company or any Subsidiary has, directly or indirectly, paid or delivered
any fee, commission, or other sum of money or item of property however
characterized to any broker, finder, agent, government official, or other
person, in the United States or any other country, in any manner related to
the business or operations of the Company or any Subsidiary, which the
Company or any Subsidiary or any such director, officer, employee, or agent
knows or has reason to believe to have been illegal under any Applicable Law.
3.37 OFFERINGS OF SECURITIES. Except as disclosed on SCHEDULE 3.14,
all securities which have been offered or sold by the Company or any
Subsidiary have been registered pursuant to the Securities Act and applicable
state securities laws or were offered and sold pursuant to valid exemptions
therefrom. No registration statement, prospectus, private offering
memorandum, or other information furnished (whether in writing or orally) to
any offeree or purchaser of such securities, at the time such registration
statement became effective (in the case of a registered offering) or at the
time of delivery of such registration statement, prospectus, private offering
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memorandum, or other information, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading. To
the extent that any such securities were registered under the Securities Act,
the applicable registration statements and prospectuses filed with the
Securities and Exchange Commission pursuant to the Securities Act, at the
time each such registration statement became effective, and at all times when
delivery of a prospectus was required pursuant to the Securities Act,
complied in all material respects with the requirements of the Securities Act
and the rules and regulations thereunder.
3.38 REGISTRATION RIGHTS. Except for demand registration rights
granted to Ascend Communications, Inc. and except for "piggy-back"
registration rights granted to Stephen Bradley Markwardt, Ascend
Communications, Inc., and holders of convertible notes issued by the Company
in 1996, and pursuant to the Registration Agreement (as defined below), the
Company has no obligation to register any of its securities under the
Securities Act.
3.39 BROKERAGE FEES. Except for fees payable to Columbia Capital
Corporation pursuant to an engagement letter with the Company dated September
19, 1997, neither the Company nor any of its affiliates has retained any
financial advisor, broker, agent, or finder or paid or agreed to pay any
financial advisor, broker, agent, or finder on account of this Agreement or
any transaction contemplated hereby. The Company shall indemnify and hold
harmless Buyers from and against any and all losses, claims, damages, and
liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with
respect to any finder's fee, brokerage commission, or similar payment in
connection with any transaction contemplated hereby asserted by any person on
the basis of any act or statement made or alleged to have been made by the
Company or any of its affiliates.
3.40 DISCLOSURE. No representation or warranty made by the Company in
this Agreement, and no statement of the Company contained in any document,
certificate, or other writing furnished or to be furnished by the Company
pursuant hereto or in connection herewith, contains or will contain, at the
time of delivery, any untrue statement of a material fact or omits or will
omit, at the time of delivery, to state any material fact necessary in order
to make the statements contained therein, in light of the circumstances under
which they are made, not misleading. The Company knows of no matter (other
than matters of a general economic character not relating solely to the
Company or any Subsidiary in any specific manner) which has not been
disclosed to Buyers pursuant to this Agreement which has or is reasonably
likely to have a Material Adverse Effect on the Company. The Company has
delivered or made available to Buyers accurate and complete copies of all
agreements, documents, and other writings referred to or listed in this
Article III or any Schedule hereto.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF BUYERS
Each Buyer represents and warrants to the Company, severally and not
jointly, and only with respect to itself, that:
4.1 ORGANIZATION AND FORMATION. Each corporate Buyer is duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
corporate authority to own, lease, and operate its properties and to carry on
its business as now being conducted. Each partnership Buyer is duly formed
and is in good standing (as applicable) under the laws of the jurisdiction of
its formation. No actions or proceedings to dissolve any Buyer are pending
or, to the best knowledge of Buyers, threatened.
4.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each Buyer has full power
and authority to execute, deliver, and perform this Agreement and the
Ancillary Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution, delivery, and performance by
Buyers of this Agreement and the Ancillary Documents to which they are
parties, and the consummation by them of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate or
partnership action, as applicable, of Buyers. This Agreement has been duly
executed and delivered by Buyers and constitutes, and each Ancillary Document
executed or to be executed by Buyers has been, or when executed will be, duly
executed and delivered by each Buyer and constitute, or when executed and
delivered will constitute, valid and legally binding obligations of each
Buyer, enforceable against each Buyer in accordance with their respective
terms, except that such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium, and similar laws
affecting creditors' rights generally and (ii) equitable principles which may
limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
4.3 NONCONTRAVENTION. The execution, delivery, and performance by
Buyers of this Agreement and the Ancillary Documents to which they are
parties and the consummation by them of the transactions contemplated hereby
and thereby do not and will not (i) conflict with or result in a violation of
any provision of the charter or bylaws (or other governing documents), as
applicable, of Buyers, (ii) conflict with or result in a violation of any
provision of, or constitute (with or without the giving of notice or the
passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, or require any consent, approval,
authorization, or waiver of any party to, any bond, debenture, note,
mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which any Buyer is a party or by which any Buyer or any of its
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properties may be bound or any Permit held by a Buyer, (iii) result in the
creation or imposition of any Encumbrance upon the properties of Buyers, or
(iv) violate any Applicable Law binding upon Buyers, except, in the case of
clauses (ii), (iii), and (iv) above, for any such conflicts, violations,
defaults, terminations, cancellations, accelerations, or Encumbrances which
would not, individually or in the aggregate, have a material adverse effect
on the business, assets, results of operations, condition (financial or
otherwise), or prospects of such Buyer and its subsidiaries considered as a
whole or on the ability of such Buyer to consummate the transactions
contemplated hereby.
4.4 GOVERNMENTAL APPROVALS. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any
Governmental Entity is required to be obtained or made by any Buyer in
connection with the execution, delivery, or performance by Buyers of this
Agreement and the Ancillary Documents to which they are parties or the
consummation by them of the transactions contemplated hereby or thereby,
other than as set forth on SCHEDULE 4.4.
4.5 DISCLOSURE OF INFORMATION. Buyers represent that they have had an
opportunity to ask questions of and receive answers from the Company
regarding the Company and its business, assets, results of operation, and
financial condition and the terms and conditions of the issuance of the
Shares. The foregoing, however, shall not limit or modify the
representations and warranties of the Company in Article III, shall not limit
the rights of Buyers prior to and in anticipation of any issuance of the
Shares pursuant hereto, and shall not limit the disclosure requirements of
applicable federal and state securities laws.
4.6 INVESTMENT EXPERIENCE. Each Buyer acknowledges that it is able to
fend for itself, can bear the economic risk of its investment in the Shares,
and has such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of an investment in the
Shares. Each Buyer is an accredited investor as such term is defined in
Regulation D promulgated under the Securities Act.
4.7 RESTRICTED SECURITIES. Each Buyer understands that the Shares will
not have been registered pursuant to the Securities Act or any applicable
state securities laws, that the Shares will be characterized as "restricted
securities" under federal securities laws, and that under such laws and
applicable regulations the Shares cannot be sold or otherwise disposed of
without registration under the Securities Act or an exemption therefrom. In
this connection, each Buyer represents that it is familiar with Rule 144
promulgated under the Securities Act, as currently in effect, and understands
the resale limitations imposed thereby and by the Securities Act. Stop
transfer instructions may be issued to the transfer agent for securities of
the Company (or a notation may be made in the appropriate records of the
Company) in connection with the Shares.
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4.8 FURTHER LIMITATIONS ON DISPOSITION. It is agreed and understood by
each Buyer that the Shares shall be subject to the Company's right of first
offer as set forth in Article VI.
4.9 LEGEND. It is agreed and understood by Buyers that the
certificates representing the Shares shall each conspicuously set forth on
the face or back thereof, in addition to any legends required by Applicable
Law or other agreement, a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED UNLESS THEY ARE FIRST REGISTERED PURSUANT TO THAT ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS THE CORPORATION RECEIVES A
WRITTEN OPINION OF COUNSEL, WHICH OPINION AND COUNSEL ARE
SATISFACTORY TO THE CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION
IS NOT REQUIRED. THE RIGHT TO SELL OR OTHERWISE TRANSFER THE SHARES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS
SET FORTH IN A STOCK PURCHASE AGREEMENT DATED MAY 7, 1998 AMONG THE
CORPORATION AND CERTAIN SHAREHOLDERS, A COPY OF WHICH AGREEMENT IS ON
FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
4.10 INVESTMENT INTENT. Each Buyer is acquiring its portion of the
Shares for its own account for investment and not with a view to, or for sale
or other disposition in connection with, any distribution of all or any part
thereof, except in compliance with applicable federal and state securities
laws.
4.11 LEGAL PROCEEDINGS. There are no Proceedings pending or, to the
best knowledge of Buyers, threatened seeking to restrain, prohibit, or obtain
damages or other relief in connection with this Agreement or the transactions
contemplated hereby.
4.12 BROKERAGE FEES. No Buyer nor any of Buyers' affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed to
pay any financial advisor, broker, agent, or finder on account of this
Agreement or any transaction contemplated hereby. Buyers shall indemnify and
hold harmless the Company from and against any and all losses, claims,
damages, and liabilities (including legal and other expenses reasonably
incurred in connection with investigating or defending any claims or actions)
with respect to any finder's fee, brokerage commission, or similar payment in
connection with any transaction contemplated hereby asserted by any person on
the basis of any act or statement made or alleged to have been made by Buyers
or any of their affiliates.
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4.13 DISCLOSURE. No representation or warranty made by Buyers in this
Agreement, and no statement of Buyers contained in any document, certificate,
or other writing furnished or to be furnished by Buyers pursuant hereto or in
connection herewith, contains or will contain, at the time of delivery, any
untrue statement of a material fact or omits, or will omit, at the time of
delivery, to state any material fact necessary in order to make the
statements contained therein, in the light of the circumstances under which
they are made, not misleading.
ARTICLE V.
ADDITIONAL AGREEMENTS
5.1 CONFIDENTIALITY. Buyers agree that all Confidential Information
(as defined below) shall be kept confidential by Buyers and shall not be
disclosed by Buyers in any manner whatsoever; provided, however, that (i) any
of such Confidential Information may be disclosed to such directors,
officers, employees, and authorized representatives (including without
limitation attorneys, accountants, consultants, bankers, and financial
advisors) of Buyers (collectively, for purposes of this Section, "Buyer
Representatives"), and to potential acquirers of the Shares (other than to
competitors of the Company, as defined according to SCHEDULE 6.1(b), which
shall require the consent of the Company, such consent not to be unreasonably
withheld) as need to know such information for the purpose of evaluating the
transactions contemplated hereby or the condition of the Company, (ii) any
disclosure of Confidential Information may be made to the extent to which the
Company consents in writing, and (iii) Confidential Information may be
disclosed by a Buyer or any Buyer Representative to the United States Small
Business Administration or the extent that a Buyer or Buyer Representative is
legally compelled to do so, provided that, prior to making such disclosure,
such Buyer or Buyer Representative, as the case may be, advises and consults
with the Company regarding such disclosure and provided further that such
Buyer or Buyer Representative, as the case may be, discloses only that
portion of the Confidential Information as is legally required. The term
"Confidential Information," as used herein, means all information
(irrespective of the form of communication) obtained by or on behalf of
Buyers from the Company or their representatives pursuant to Section 5.9
hereof and all similar information obtained from the Company or their
representatives by or on behalf of Buyers prior to the date of this
Agreement, other than information which (i) was or becomes generally
available to the public other than as a result of disclosure by Buyers or any
Buyer Representative, (ii) was or becomes available to Buyers on a
nonconfidential basis prior to disclosure to Buyers by the Company or its
representatives, or (iii) was or becomes available to Buyers from a source
other than the Company and its representatives, provided that such source is
not known by Buyers to be bound by a confidentiality agreement with the
Company.
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5.2 REGISTRATION RIGHTS AGREEMENT. The Company and Buyers shall enter
into a registration rights agreement (the "Registration Agreement") at the
Closing pursuant to which the Company shall agree to register the Common
Stock issuable upon conversion of the Shares under the Securities Act on the
terms and subject to the conditions set forth therein. The Registration
Agreement shall be in substantially the form set forth as EXHIBIT 5.2.
5.3 NONCOMPETITION AGREEMENTS. The Company shall enter into a
noncompetition and nondisclosure agreement (the "Noncompetition Agreement")
at the Closing with each individual listed on SCHEDULE 5.3(a), pursuant to
which such persons shall agree not to compete, directly or indirectly, with
the Company for the period and in the area of interest set forth therein.
Each Noncompetition Agreement shall be in substantially the form set forth as
EXHIBIT 5.3(b).
5.4 NONDISCLOSURE AGREEMENTS. The Company shall enter into a
nondisclosure agreement (the "Nondisclosure Agreement") at the Closing with
each individual listed on SCHEDULE 5.4(a). Each Nondisclosure Agreement
shall be in substantially the form set forth as EXHIBIT 5.4(b).
5.5 PUBLIC ANNOUNCEMENTS. Except as may be required by Applicable Law,
no Buyer, on the one hand, or the Company, on the other, shall issue any
press release or otherwise make any public statement with respect to this
Agreement or the transactions contemplated hereby without the prior written
consent of the other parties (which consent shall not be unreasonably
withheld). Any such press release or public statement required by Applicable
Law shall only be made after reasonable notice to the other parties.
5.6 FEES AND EXPENSES.
(a) The Company shall, promptly after receiving a billing statement
regarding same, pay all reasonable fees and expenses of legal counsel to
Buyers, as incurred in connection with the negotiation and preparation of
this Agreement and the Ancillary Documents and in connection with the
transactions contemplated hereby and thereby; provided, however, that the
Company shall not be required to pay pursuant to this paragraph more than
$40,000 in the aggregate.
(b) Except as otherwise expressly provided in this Agreement, all fees
and expenses, including fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, shall be paid by the
party incurring such fee or expense.
5.7 TRANSFER TAXES. All sales, transfer, filing, recordation,
registration, stamp, and similar Taxes and fees arising from or associated
with the sale and transfer of the Shares as contemplated hereunder, whether
levied on Buyers or Seller, shall be borne by the Company and the Company
shall file all necessary documentation with respect to, and make all payments
of, such Taxes and fees on a timely basis.
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5.8 USE OF PROCEEDS. The Company will use the proceeds from the sale
of the Shares for: (i) capital expenditures associated with the Company's
existing business, (ii) working capital needs, (iii) sales and administrative
expenses, (iv) repayment of existing indebtedness, and (v) general corporate
purposes. However, notwithstanding the foregoing, no portion of such proceeds
shall be used to prepay any of the Company's indebtedness under that certain
Secured Promissory Note dated December 10, 1997 issued by the Company to
Ascend Communications, Inc. in the original principal amount of $6,500,000.
5.9 INFORMATION. Until the consummation of a Qualified IPO or
Qualified Sale:
(a) The Company shall provide to Buyers:
(i) within 120 days after the end of each fiscal year, the audited
consolidated balance sheet of the Company as of the end of such fiscal
year, the related audited consolidated statements of income, stockholders'
equity, and cash flows for the year then ended, and the notes and schedules
thereto, together with the reports thereon of the Company's independent
public accountants;
(ii) within 45 days after the end of each fiscal quarter, an
unaudited consolidated balance sheet of the Company as of the end of such
fiscal quarter and the related unaudited consolidated statements of income,
stockholders' equity, and cash flows for the quarter then ended, together
with a report by senior management of the Company setting forth in
reasonable detail a discussion and analysis of the financial condition and
results of operations of the Company for such period (including a
comparison to the corresponding period in the preceding fiscal year);
(iii) within 30 days after the end of each calendar month, unaudited
financial statements of the Company for such month, with an accompanying
disclosure of variances from the Company's operating plan;
(iv) prior to the beginning of each fiscal year, a copy of the
Company's operating plan for such upcoming year; and
(v) other information and reports which Buyers from time to time
may reasonably request.
(b) Each Buyer shall be entitled, upon reasonable advance notice and at
such Buyer's expense, to inspect the books and records of the Company during
normal business hours.
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(c) The Company shall immediately notify Buyers of the commencement of
any material Proceeding against the Company or upon the Company's knowledge
of any event that might reasonably be expected to create a liability under
ERISA.
5.10 BOARD APPROVAL OF CERTAIN CAPITAL EXPENDITURES. Until the
consummation of a Qualified IPO or Qualified Sale, the Company agrees that
any capital expenditure not expressly contemplated by the Company's capital
budget and that individually exceeds $150,000 shall be subject to the prior
approval of the full Board of Directors of the Company.
5.11 POST-CLOSING AMENDMENT. The Company agrees that during the
two-week period following the Closing, in the event any party desires to
purchase shares of Preferred Stock on the same terms as contained in this
Agreement, then the Company shall execute an amendment to this Agreement in
order to allow such party to make such purchase and to require such party to
become subject to the representations, warranties, covenants and other
provisions contained herein. The Company's obligation to admit additional
purchasers pursuant to this Section shall be limited to an aggregate
investment of $450,000.
5.12 SURVIVAL OF COVENANTS. Except for any covenant or agreement which
by its terms expressly terminates as of a specific date, the covenants and
agreements of the parties hereto contained in this Agreement shall survive
the Closing without contractual limitation.
ARTICLE VI.
SHARE TRANSFER RESTRICTIONS
6.1 RIGHT OF FIRST OFFER.
(a) In the event that any Buyer desires to transfer for value to a
nonaffiliate any shares of the capital stock of the Company, then such Buyer
shall first provide written notice to the Company of such desire and
containing the number shares to be transferred (the "Offered Shares"). Upon
receipt of such notice, the Company shall have five (5) business days in
which to notify the Buyer of the Company's intention to purchase all or part
of the Offered Shares, with such notice containing the nature and timing of
payment and all other material terms and conditions (the "Offer"). The Buyer
in its sole discretion may for any reason decline or accept the Offer, which
shall remain irrevocable for ten (10) business days following receipt by the
Buyer, by providing written notice to the Company. Following the earlier of
(i) the expiration of five (5) business days without Buyer having received an
Offer from the Company, (ii) Buyer providing written notice to the Company of
the Buyer's rejection of the Offer, or (iii) the expiration of ten (10) business
days following Buyer's acceptance of the Offer, without the
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Company having consummated the transactions contemplated by the Offer (as
applicable, the "Transferability Date"), the Buyer may freely transfer
(subject to otherwise applicable restrictions) the Offered Shares to any
party and upon terms and conditions negotiated and agreed to by such Buyer in
its discretion (an "Allowed Transfer"), in which case the transferee must
agree in writing to take the Offered Shares subject to the obligations of the
Buyer-transferor contained in this Agreement. Any Allowed Transfer must take
place on terms and conditions that are more favorable (taking into account
factors such as timing, price, financing, type of consideration, feasibility
of consummation, etc.) than those contained in the Offer. In the event the
Buyer is unable, within ninety (90) days from the Transferability Date, to
agree upon such terms with a third party transferee, then Buyer's ability to
sell the Offered Shares shall again be restricted by the provisions of this
Section in the same manner as applicable immediately prior to the Buyer's
delivery to the Company of the notice regarding the Offered Shares as
required by the first sentence of this paragraph. The Buyer shall remain
subject to this Agreement during the time it retains any of its Shares.
(b) Notwithstanding anything to the contrary set forth in paragraph (a)
of this Section, in the event any Buyer negotiates and agrees on terms and
conditions for the sale of the Offered Shares to a party listed on
SCHEDULE 6.1(b) hereof, such Buyer shall provide written notice to the
Company of its intention to sell the Offered Shares to such party (the
"Transfer Notice"). The Transfer Notice shall include an offer to sell the
Offered Shares to the Company (the "Refusal Offer") on the same terms and
conditions as agreed to with the intended transferee referenced in the
Transfer Notice. The Transfer Notice shall set forth in reasonable detail
the terms and conditions, including number and price per share of the Offered
Shares, the method of payment and the proposed closing date (which shall in
no event be earlier than the expiration of twenty (20) business days
following the receipt by the Company of the Transfer Notice). The Company
shall have five (5) business days from the date it receives the Transfer
Notice to provide to the relevant Buyer a written acceptance or rejection of
the Refusal Offer. If the Company accepts the Refusal Offer, then such
acceptance shall provide the arrangements for closing, which shall occur no
later than the twentieth (20th) business day following the date the Company
received the Transfer Notice. In the event the Transfer Notice contemplates
a portion or all of the consideration to be paid in a form other than cash,
then the Company's right to purchase the Offered Shares shall be for the fair
market value equivalent of all consideration to be paid by the intended
transferee, with the determination of such equivalent to be determined in
good faith by the Board of Directors of the Company and the Buyer. Following
the earlier of: (i) the expiration of five (5) business days without Buyer
having received an acceptance of the Refusal Offer by the Company, (ii) the
written rejection by the Company of the Refusal Offer, (iii) the expiration
of twenty (20) business days without the Company having consummated the
transactions contemplated by the Refusal Offer, or (iv) the inability of the
Company and the relevant Buyer to agree in good faith on the fair market
value of the non-cash consideration to be paid by the Company, then the Buyer
shall be entitled to sell not less than all of the Offered Shares on the
terms described in the Transfer
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Notice, in which case the transferee must agree in writing to take the
Offered Shares subject to the obligations of the Buyer-transferor contained
in this Agreement. The Buyer shall remain subject to this Agreement during
the time it retains any of its Shares.
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS;
INDEMNIFICATION
7.1 SURVIVAL. The representations and warranties of the parties hereto
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto shall survive the Closing for a period of four
(4) years, regardless of any investigation made by or on behalf of any party.
7.2 INDEMNIFICATION BY COMPANY. Subject to the terms and conditions of
this Article VII, the Company shall indemnify, defend, and hold harmless
Buyers from and against any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses), of any nature whatsoever (collectively, "Damages"), asserted
against, resulting to, imposed upon, or incurred by Buyers, directly or
indirectly, by reason of or resulting from any breach by the Company of any
of its representations, warranties, covenants, or agreements contained in
this Agreement or in any certificate, instrument, or document delivered
pursuant hereto.
7.3 INDEMNIFICATION BY BUYERS. Subject to the terms and conditions of
this Article VII, Buyers shall severally indemnify, defend, and hold harmless
the Company from and against any and all Damages asserted against, resulting
to, imposed upon, or incurred by the Company, directly or indirectly, by
reason of or resulting from any breach by a Buyer of any of its
representations, warranties, covenants, or agreements contained in this
Agreement or in any certificate, instrument, or document delivered pursuant
hereto.
7.4 PROCEDURE FOR INDEMNIFICATION. Promptly after receipt by an
indemnified party under Section 7.2 or 7.3 of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to
be made against an indemnifying party under such Section, give written notice
to the indemnifying party of the commencement thereof, but the failure so to
notify the indemnifying party shall not relieve it of any liability that it
may have to any indemnified party except to the extent the indemnifying party
demonstrates that the defense of such action is prejudiced thereby. In case
any such action shall be brought against an indemnified party and it shall
give written notice to the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein and, to the
extent that it may wish, to assume the
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defense thereof with counsel reasonably satisfactory to such indemnified
party. If the indemnifying party elects to assume the defense of such
action, the indemnified party shall have the right to employ separate counsel
at its own expense and to participate in the defense thereof. If the
indemnifying party elects not to assume (or fails to assume) the defense of
such action, the indemnified party shall be entitled to assume the defense of
such action with counsel of its own choice, at the expense of the
indemnifying party. If the action is asserted against both the indemnifying
party and the indemnified party and there is a conflict of interests which
renders it inappropriate for the same counsel to represent both the
indemnifying party and the indemnified party, the indemnifying party shall be
responsible for paying for separate counsel for the indemnified party;
provided, however, that if there is more than one indemnified party, the
indemnifying party shall not be responsible for paying for more than one
separate firm of attorneys to represent the indemnified parties, regardless
of the number of indemnified parties. If the indemnifying party elects to
assume the defense of such action, (a) no compromise or settlement thereof
may be effected by the indemnifying party without the indemnified party's
written consent (which shall not be unreasonably withheld) unless the sole
relief provided is monetary damages that are paid in full by the indemnifying
party and (b) the indemnifying party shall have no liability with respect to
any compromise or settlement thereof effected without its written consent
(which shall not be unreasonably withheld).
7.5 INDEMNIFICATION DESPITE NEGLIGENCE. It is the express intention of
the parties hereto that each person to be indemnified pursuant to this
Article VII shall be indemnified and held harmless from and against all
Damages as to which indemnity is provided for under this Article VII
notwithstanding that any such Damages arise out of or result from the
ordinary, strict, sole, or contributory negligence of such person and
regardless of whether any other person (including the other parties to this
Agreement) is or is not also negligent.
ARTICLE VIII.
MISCELLANEOUS
8.1 NOTICES. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall
be in writing and shall be deemed to have been duly given or made if (i)
delivered personally, (ii) transmitted by first class registered or certified
mail, postage prepaid, return receipt requested, (iii) sent by prepaid
overnight courier service, or (iv) sent by telecopy or facsimile
transmission, answer back requested, to the parties at the following
addresses (or at such other addresses as shall be specified by the parties by
like notice):
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If to Buyers:
Apogee Fund LP
201 Main Street, Suite 2001
Fort Worth, TX 76102
Attention: Emmett M. Murphy
Telefax: 817-335-1822
Emmett M. Murphy
201 Main Street, Suite 2001
Fort Worth, TX 76102
Telefax: 817-335-1822
ISP Investors, L.P.
201 Main Street, Suite 2001
Fort Worth, TX 76102
Attention: John Kleinheinz
Telefax: 817-348-8010
Scott M. Kleberg
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
Telefax: 817-336-7523
J. Luther King, Jr.
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
Telefax: 817-332-4630
Scot C. Hollmann
301 Commerce Street, Suite 1600
Fort Worth, TX 76102
Telefax: 817-332-4630
Fourteen Hill Capital, LP
1700 Montgomery Street, Suite 250
San Francisco, CA 94111
Attention: Chris Rodskog
Telefax: 415-394-9471
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with a copy to:
Thompson & Knight, P.C.
801 Cherry Street, Suite 1600
Fort Worth, TX 76102
Attention: Stephen B. Norris, Esq.
Telefax: 817-347-1799
If to the Company:
FlashNet Communications, Inc.
1812 N. Forest Park Blvd.
Fort Worth, TX 76102
Attention: Scott Leslie, President
Telefax: 817-332-9594
with, a copy to:
Cantey & Hanger, L.L.P.
801 Cherry Street, Suite 2100
Fort Worth, TX 76102
Attention: Dean A. Tetirick, Esq.
Telefax: 817-877-2807
Such notices, requests, demands, and other communications shall be effective
(i) if delivered personally or sent by courier service, upon actual receipt
by the intended recipient, (ii) if mailed, upon the earlier of five days
after deposit in the mail or the date of delivery as shown by the return
receipt therefor, or (iii) if sent by telecopy or facsimile transmission,
when the answer back is received.
8.2 ENTIRE AGREEMENT. This Agreement, together with the Schedules,
Exhibits, Annexes, and other writings referred to herein or delivered
pursuant hereto, constitute the entire agreement between the parties hereto
with respect to the subject matter hereof and supersede all prior agreements
and understandings, both written and oral, between the parties with respect
to the subject matter hereof.
8.3 BINDING EFFECT; ASSIGNMENT; NO THIRD PARTY BENEFIT. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal
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representatives, successors, and permitted assigns. Except as otherwise
expressly provided in this Agreement, neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, except
that a Buyer may assign to any affiliate of such Buyer any of such Buyer's
rights, interests, or obligations hereunder, upon notice to the other party
or parties, provided that no such assignment shall relieve such Buyer of its
obligations hereunder. Except as provided in Article VII, nothing in this
Agreement, express or implied, is intended to or shall confer upon any person
other than the parties hereto, and their respective heirs, legal
representatives, successors, and permitted assigns, any rights, benefits, or
remedies of any nature whatsoever under or by reason of this Agreement.
8.4 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by Applicable Law.
8.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
8.6 FURTHER ASSURANCES. From time to time following the Closing, at the
request of any party hereto and without further consideration, the other party
or parties hereto shall execute and deliver to such requesting party such
instruments and documents and take such other action (but without incurring any
material financial obligation) as such requesting party may reasonably request
in order to consummate more fully and effectively the transactions contemplated
hereby.
8.7 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only, do not constitute a part of this Agreement,
and shall not affect in any manner the meaning or interpretation of this
Agreement.
8.8 GENDER. Pronouns in masculine, feminine, and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires.
8.9 REFERENCES. All references in this Agreement to Articles, Sections,
and other subdivisions refer to the Articles, Sections, and other subdivisions
of this Agreement unless expressly provided otherwise. The words "this
Agreement", "herein", "hereof", "hereby",
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"hereunder", and words of similar import refer to this Agreement as a whole
and not to any particular subdivision unless expressly so limited. Whenever
the words "include", "includes", and "including" are used in this Agreement,
such words shall be deemed to be followed by the words "without limitation".
Each reference herein to a Schedule, Exhibit, or Annex refers to the item
identified separately in writing by the parties hereto as the described
Schedule, Exhibit, or Annex to this Agreement. All Schedules, Exhibits, and
Annexes are hereby incorporated in and made a part of this Agreement as if
set forth in full herein.
8.10 COUNTERPARTS. This Agreement may be executed by the parties hereto
in any number of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement. Each counterpart may
consist of a number of copies hereof each signed by less than all, but together
signed by all, the parties hereto.
8.11 INJUNCTIVE RELIEF. The parties hereto acknowledge and agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement, and shall be entitled to enforce specifically the provisions of this
Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
8.12 SCHEDULES (DISCLOSURE). Each of the Schedules to this Agreement
shall be deemed to include and incorporate all disclosures made on the other
Schedules to this Agreement. It is understood and agreed that the specification
of any dollar amount in the representations and warranties contained in this
Agreement or the inclusion of any specific item in the Schedules is not intended
to imply that such amounts or higher or lower amounts, or the items so included
or other items, are or are not material, and no party shall use the fact of the
setting of such amounts or the fact of the inclusion of any such item in the
Schedules in any dispute or controversy between the parties as to whether any
obligation, item, or matter not described herein or included in a Schedule is or
is not material for purposes of this Agreement.
8.13 SCHEDULES (CONSTRUCTION). The disclosures in the Schedules to this
Agreement, and those in any supplements thereto, shall relate to all of the
representations and warranties in this Agreement to which they substantively
relate and to no other representation or warranty in this Agreement. In the
event of any inconsistency between the statements in the body of this Agreement
and those in the Schedules (other than an exception expressly set forth as such
in the Schedules), those in this Agreement shall control.
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8.14 CONSENT TO JURISDICTION.
(a) The parties hereto hereby irrevocably submit to the jurisdiction of
the courts of the State of Texas and the federal courts of the United States of
America located in Fort Worth, Texas, and appropriate appellate courts
therefrom, over any dispute arising out of or relating to this Agreement or any
of the transactions contemplated hereby, and each party hereby irrevocably
agrees that all claims in respect of such dispute or proceeding may be heard and
determined in such courts. The parties hereby irrevocably waive, to the fullest
extent permitted by Applicable Law, any objection which they may now or
hereafter have to the laying of venue of any dispute arising out of or relating
to this Agreement or any of the transactions contemplated hereby brought in such
court or any defense of inconvenient forum for the maintenance of such dispute.
Each of the parties hereto agrees that a judgment in any such dispute may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. This consent to jurisdiction is being given solely for
purposes of this Agreement and is not intended to, and shall not, confer consent
to jurisdiction with respect to any other dispute in which a party to this
Agreement may become involved.
(b) Each of the parties hereto hereby consents to process being served by
any party to this Agreement in any suit, action, or proceeding of the nature
specified in subsection (a) above by the mailing of a copy thereof in the manner
specified by the provisions of Section 8.1.
8.15 AMENDMENT. This Agreement may not be amended except by an instrument
in writing signed by or on behalf of all the parties hereto.
8.16 WAIVER. The Company, on the one hand, or Buyers, on the other, may:
(i) waive any inaccuracies in the representations and warranties of the other
contained herein or in any document, certificate, or writing delivered pursuant
hereto, or (ii) waive compliance by the other with any of the other's agreements
or fulfillment of any conditions to its own obligations contained herein. Any
agreement on the part of a party hereto to any such waiver shall be valid only
if set forth in an instrument in writing signed by or on behalf of such party.
No failure or delay by a party hereto in exercising any right, power, or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege.
8.17 REMEDIES NOT EXCLUSIVE. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
The rights and remedies of any party based upon, arising out of, or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant, or agreement contained in this Agreement shall, subject to Sections
8.12 and 8.13, in no way be limited by the fact that the act, omission,
occurrence, or
39
<PAGE>
other state of facts upon which any claim of any such inaccuracy or breach is
based may also be the subject matter of any other representation, warranty,
covenant, or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
8.18 SEVERAL LIABILITY OF BUYERS. The liability of Buyers with respect to
the agreements, covenants, representations and warranties of Buyers contained in
this Agreement or in any certificate, instrument, or document delivered pursuant
hereto shall be several (and expressly not joint and several), and each Buyer
shall only be liable with respect thereto to the extent such agreements,
covenants, representations or warranties applies to himself, herself, or itself
and not with respect to any other Buyer.
ARTICLE IX.
DEFINITIONS
9.1 CERTAIN DEFINED TERMS. As used in this Agreement, each of the
following terms has the meaning given it below:
"affiliate" means, with respect to any person, any other person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such person. For the
purposes of this definition, "control" when used with respect to any person
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such person, whether
through the ownership of voting securities, by contract, or otherwise; and
the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Affiliated Group" has the meaning set forth in Section 1504 of the
Code.
"Ancillary Documents" means each agreement, instrument, and document
(other than this Agreement) executed or to be executed in connection with
the transactions contemplated by this Agreement.
"Applicable Law" means any statute, law, rule, or regulation or any
judgment, order, writ, injunction, or decree of any Governmental Entity to
which a specified person or property is subject.
"Code" means the Internal Revenue Code of 1986, as amended.
40
<PAGE>
"Encumbrances" means liens, charges, pledges, options, mortgages,
deeds of trust, security interests, claims, restrictions (whether on
voting, sale, transfer, disposition, or otherwise), easements, and other
encumbrances of every type and description, whether imposed by law,
agreement, understanding, or otherwise.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any federal, state, municipal, or
other governmental body, agency, authority, department, commission,
board, bureau, or instrumentality (domestic or foreign).
"Intellectual Property" means patents, trademarks, service marks,
trade names, service names, brand names, copyrights, trade secrets,
know-how, technology, inventions, computer software (including
documentation and object and source codes), and similar rights, and all
registrations, applications, licenses, and rights with respect to any of
the foregoing.
"IRS" means the Internal Revenue Service.
"Material Adverse Effect" means any change, development, or effect
(individually or in the aggregate) which is, or is reasonably likely to
be, materially adverse (i) to the business, assets, results of
operations, condition (financial or otherwise), or prospects of a party,
or (ii) to the ability of a party to perform on a timely basis any
material obligation under this Agreement or any agreement, instrument,
or document entered into or delivered in connection herewith.
"Permits" means licenses, permits, franchises, consents, approvals,
variances, exemptions, and other authorizations of or from Governmental
Entities.
"person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, enterprise,
unincorporated organization, or Governmental Entity.
"Proceedings" means all proceedings, actions, claims, suits,
investigations, and inquiries by or before any arbitrator or
Governmental Entity.
41
<PAGE>
"Qualified IPO" means a registered underwritten public offering of
the Common Stock: (i) resulting in gross proceeds (before deduction of
underwriters' commissions, discounts or expenses) to the Company of at
least $15,000,000, (ii) resulting in a pre-offering valuation of the
Company's outstanding equity by the underwriters of at least
$50,000,000, and (iii) immediately following the consummation of which
the Company is legally permitted to declare and pay (and the Company
does declare and pay) all accrued and unpaid dividends on the Shares
then outstanding.
"Qualified Sale" means any merger, reorganization, change of
control, or other transaction: (i) resulting in proceeds (before
directly attributable fees and expenses) to the Company or its
shareholders of cash and/or marketable securities having an aggregate
value of at least $38,000,000, and (ii) in which each share of Preferred
Stock is valued for at least $12.14 per share (if during the eighteen
months following the Closing Date) or at least $18.21 per share (if
subsequent to the eighteenth month following the Closing Date), and
(iii) in connection with which or immediately following the consummation
of which the Company is legally permitted to declare and pay (and the
Company does declare and pay) all accrued and unpaid dividends on the
Shares then outstanding.
"reasonable best efforts" means a party's reasonable best efforts
in accordance with reasonable commercial practice and without the
incurrence of unreasonable expense.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation more than 50% of whose
outstanding voting securities, or any general partnership, joint
venture, or similar entity more than 50% of whose total equity
interests, is owned, directly or indirectly, by the Company, or any
limited partnership of which the Company or any Subsidiary is a general
partner.
"Taxes" means any income taxes or similar assessments or any sales,
excise, occupation, use, ad valorem, property, production, severance,
transportation, employment, payroll, franchise, or other tax imposed by
any United States federal, state, or local (or any foreign or
provincial) taxing authority, including any interest, penalties, or
additions attributable thereto.
"Tax Return" means any return or report, including any related or
supporting information, with respect to Taxes.
"to the best knowledge" of a specified person (or similar
references to a person's knowledge) means all information to be
attributed to such person actually or constructively known to (a) such
person in the case of an individual or (b) in the case of a corporation
42
<PAGE>
or other entity, an executive officer or employee who devoted
substantive attention to matters of such nature during the ordinary
course of his employment by such person. A person has "constructive
knowledge" of those matters which the individual involved could
reasonably be expected to have as a result of undertaking an
investigation of such a scope and extent as a reasonably prudent man
would undertake concerning the particular subject matter.
"U.S. GAAP" means generally accepted accounting principles in the
United States of America from time to time.
43
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their duly authorized representatives, all
as of the day and year first above written.
THE COMPANY:
FLASHNET COMMUNICATIONS, INC.
By: /s/ Scott Leslie
------------------------------------
Name: M. Scott Leslie
-----------------------------
Title: President
----------------------------
BUYERS:
APOGEE FUND LP
By: Paradigm Capital
---------------------------------,
its General Partner
By: /s/ Emmett Murphy
-------------------------------
Name: Emmett M. Murphy
--------------------------
Title: President
-------------------------
/s/ Emmett M. Murphy
---------------------------------------
Emmett M. Murphy
ISP Investors, L.P.
By: Kleinheinz Capital Partners, LLC,
its General Partner
By: /s/ John Kleinheinz
-------------------------------
Name: John Kleinheinz
--------------------------
Title: General Partner
-------------------------
44
<PAGE>
/s/ Scott M. Kleberg
---------------------------------------
Scott M. Kleberg
/s/ Luther King
---------------------------------------
J. Luther King, Jr.
/s/ Scot C. Hollmann
---------------------------------------
Scot C. Hollmann
FOURTEEN HILL CAPITAL, LP
By: Fourteen Hill Management, LLC,
its General Partner
By: Point West Capital Corporation,
its General Partner
By: /s/ Chris P. Rodskog
-------------------------------
Name: Chris P. Rodskog
--------------------------
Title: Senior Vice President
-------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT is dated as of May 7, 1998 by and
among FlashNet Communications, Inc., a Texas corporation (together with its
successors and assigns, the "Company"), and each of the parties listed as
Investors on the execution page hereof (such parties are referred to below
collectively as the "Investors" and individually as an "Investor").
1. BACKGROUND. The Company has agreed to issue shares of its
Series A Convertible Preferred Stock, par value $1.00 per share (the
"Preferred Stock"), pursuant to that certain Stock Purchase Agreement dated
as of May 7, 1998 and made by and between the Company and the Investors (the
"Proposed Transaction"). The execution and delivery of this Agreement is a
condition to consummation of the Proposed Transaction.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1. REGISTRATION ON REQUEST.
(a) From time to time after the Initial Registration Date, upon the
written request of the Requisite Holders that the Company effect the
registration under the Securities Act of all or a portion (but not less than
$1,000,000 in aggregate offering price) of such holders' Registrable
Securities and specifying the intended method of disposition thereof and
whether or not such requested registration is to be an underwritten offering,
the parties hereto agree as follows:
(i) The Company will promptly give written notice of such requested
registration to all other holders of Registrable Securities, if any;
(ii) Promptly after the performance of any obligations imposed
under clause (i) of this Section 2.1(a), and subject to the limitations set
forth in subsection (e) of this Section 2.1, the Company will use its best
efforts to effect the registration under the Securities Act of the
Registrable Securities that the Company has been requested to register by
the Requisite Holders and the other holders of Registrable Securities by
written request given to the Company within thirty (30) days after the
giving of such written notice by the Company (which request shall specify
the intended method of disposition of such Registrable Securities), all to
the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to
be registered;
Notwithstanding anything to the contrary set forth in this Section 2.1(a),
the Company shall not be obligated to take any action to notify holders or to
effect any registration or qualification pursuant to this Section 2.1(a) if
the Company shall have furnished to the holders requesting registration a
certificate signed by both the President and the Chief Financial Officer of
the Company stating that, in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company
(with a brief explanation for the basis for such conclusion) for a
registration statement to be filed within the ninety (90) day period
following receipt of the request for registration and that it is therefore
essential and in the best interests of
<PAGE>
the Company and its shareholders to defer the filing of such registration
statement, provided that such filing shall not be deferred beyond the earlier
to occur of ninety (90) days after receipt of the request notice or the
discontinuance of the perceived detriment to the Company.
(b) REGISTRATION OF OTHER SECURITIES. Whenever the Company shall
effect a registration pursuant to this Section 2.1 in connection with an
underwritten offering by one or more holders of Registrable Securities, no
securities other than Registrable Securities shall be included among the
securities covered by such registration unless (i) the managing underwriter
of such offering shall have advised each holder of Registrable Securities to
be covered by such registration in writing that the inclusion of such other
securities would not adversely affect such offering or (ii) the holders of
all Registrable Securities to be covered by such registration shall have
consented in writing to the inclusion of such other securities.
(c) REGISTRATION STATEMENT FORM. Registrations under this Section 2.1
shall be on such appropriate registration form of the Commission (i) as shall
be selected by the Company and as shall be reasonably acceptable to the
Requisite Holders, and (ii) as shall permit the disposition of such
Registrable Securities in accordance with the intended method or methods of
disposition specified in their request for such registration. The Company
agrees to include in any such registration statement all information that
holders of Registrable Securities being registered shall reasonably request.
(d) EXPENSES. The Company will pay all Registration Expenses in
connection with any registration requested pursuant to this Section 2.1.
Each holder of Registrable Securities shall pay all of his or its Selling
Expenses.
(e) LIMITATIONS ON REQUESTED REGISTRATIONS. The Company's obligation
to take or continue any action to effect a requested registration under this
Section 2.1 shall be subject to the proviso that the Company shall not be
required to effect more than two (2) registrations requested pursuant to this
Section 2.1 (or more than one (1) registration within any six (6) month
period); provided that, a registration requested pursuant to this Section 2.1
shall not be deemed to have been effected (A) unless a registration statement
with respect thereto has been declared effective for a period of at least
ninety (90) days, (B) if after a registration statement has become effective,
such registration is interfered with by any stop order, injunction or other
order or requirement of the Commission or other governmental agency or court
for any reason, or (C) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with such
registration are not satisfied, other than as a result of the voluntary
termination of such offering by the Requisite Holders (which shall include
the failure of the Requisite Holders to take action or to refrain from taking
action necessary for the conditions to closing to be satisfied).
(f) SELECTION OF UNDERWRITERS. If a requested registration pursuant to
this Section 2.1 involves an underwritten offering, the underwriter or
underwriters thereof shall be selected by the Company with the approval of
the Requisite Holders.
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<PAGE>
(g) PRIORITY IN REQUESTED REGISTRATIONS. If a requested registration
pursuant to this Section 2.1 involves an underwritten offering, and the
managing underwriter shall advise the Company in writing (with a copy to each
holder of Registrable Securities requesting registration) that, in its
opinion, the number of securities requested to be included in such
registration exceeds the number that can be sold in such offering within a
price range acceptable to the Requisite Holders, the Company will include in
such registration to the extent of the number that the Company is so advised
can be sold in such offering, Registrable Securities requested to be included
in such registration, pro rata among the holders thereof requesting such
registration on the basis of the percentage of the Registrable Securities of
the Company held by the holders of Registrable Securities that have requested
that such securities be included. In connection with any registration as to
which the provisions of this subsection (g) apply, no securities other than
Registrable Securities shall be covered by such registration; moreover, such
registration shall not reduce the number of available registrations under
subsection (e) of this Section 2.1 in the event that the managing underwriter
excludes from registration more than fifty percent (50%) of the aggregate
number of Registrable Securities requested to be included.
2.2. INCIDENTAL REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If the Company at
any time proposes to register any of its securities under the Securities Act
(other than (i) in connection with a registration of securities issuable
under any employee benefit, retirement or similar plan, or (ii) with respect
to a Rule 145 transaction, or (iii) pursuant to Section 2.1), whether or not
for sale for its own account, it will each such time give prompt written
notice to all holders of Registrable Securities of its intention to do so and
of such holders' rights under this Section 2.2. Upon the written request of
any such holder made within thirty (30) days after the receipt of any such
notice (which request shall specify the Registrable Securities intended to be
disposed of by such holder and the intended method of disposition thereof),
the Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities that the Company has been so
requested to register by the holders thereof, to the extent requisite to
permit the disposition (in accordance with the intended methods thereof as
aforesaid) of the Registrable Securities so to be registered, PROVIDED that
if, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement
filed in connection with such registration, the Company shall determine for
any reason not to register or to delay registration of such securities, the
Company may, at its election, give written notice of such determination to
each holder of Registrable Securities and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of any holder or
holders of Registrable Securities entitled to do so to request that such
registration be effected as a registration under Section 2.1, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Registrable Securities, for the same period as the delay in
registering such other securities. No registration effected under this
Section 2.2 shall be deemed to have been effected pursuant to Section 2.1 or
shall relieve the Company of its obligation to effect any registration
-3-
<PAGE>
upon request under Section 2.1. The Company will pay all Registration
Expenses in connection with each registration of Registrable Securities
requested pursuant to this Section 2.2. Each holder of Registrable
Securities shall pay all of his or its Selling Expenses.
(b) PRIORITY IN INCIDENTAL REGISTRATIONS. If the registration of
which the Company gives written notice pursuant to Section 2.2(a) is for a
registered public offering involving an underwriting, the Company shall so
advise the holders of Registrable Securities as a part of such notice. In
such event, the right of any holder to registration pursuant to this
Section 2.2 shall be conditioned upon, and shall not be exercisable by any
holder without, such holder's participation in such underwriting and the
inclusion of such holder's Registrable Securities in the underwriting to the
extent provided herein. If required by the underwriter or underwriters
selected by the Company for such underwriting (collectively, the
"Underwriter"), then (i) all holders proposing to distribute their
Registrable Securities through such underwriting shall, to the extent
required by the Underwriter, enter into an underwriting agreement with the
Underwriter in customary form, and (ii) all holders shall agree not to sell
publicly any of their Registrable Securities for such period as the
Underwriter may reasonably request. Notwithstanding any other provision of
this Section 2.2, if the Underwriter determines that marketing or other
factors require a limitation of the number of securities to be underwritten,
then the Underwriter in its sole discretion may exclude from such
registration and underwriting some or all of the securities requested to be
included in such registration and underwriting by holders of Registrable
Securities and other parties other than the Company; provided, however, that
if all securities requested to be included in such registration and
underwriting by holders of Registrable Securities and parties other than the
Company are not so excluded by the Underwriter, then the number of such
included securities shall be allocated proportionately among all parties
(according to the number of securities requested to be registered) having the
right to request registration of securities (including holders of Registrable
Securities). If securities requested to be registered by holders of
Registrable Securities are excluded pursuant to this Section 2.2(b), such
exclusion shall be apportioned among such holders in the same proportion as
the number of such securities covered by the respective holder's instant
registration request bears to the total number of such securities covered by
the instant registration requests of all persons (including holders of
Registrable Securities). If any holder of Registrable Securities disapproves
of the terms of any underwriting subject to this Section 2.2(b), then such
holder may elect to withdraw therefrom by written notice to the Company and
the Underwriter. Any securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration. The Company shall advise all
persons seeking to include their securities in such registration and
underwriting of the number of each such person's securities that may be so
included.
2.3. REGISTRATION PROCEDURES. If and whenever the Company is
required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Sections 2.1
and 2.2, the Company will as expeditiously as possible:
(i) prepare and (as soon thereafter as possible or in any event no
later than sixty (60) days after the end of the period within which
requests for registration may be given
-4-
<PAGE>
to the Company) file with the Commission the requisite registration
statement to effect such registration and thereafter use its best
efforts to cause such registration statement to become effective,
PROVIDED that the Company may discontinue any registration of its
securities that are not Registrable Securities (and, under the
circumstances specified in Section 2.2(a), its securities that are
Registrable Securities) at any time prior to the effective date of the
registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof set forth in such registration statement;
provided, however, that the Company shall not be required to maintain the
effectiveness of any registration statement for more than one hundred
twenty (120) days;
(iii) furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as each
seller thereof shall reasonably request, to keep such registration or
qualification in effect for so long as such registration statement remains
in effect, and take any other action that may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the securities owned by such seller, except that the
Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to be so
qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller (and underwriters, if any) of:
-5-
<PAGE>
(A) an opinion of counsel for the Company, dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), reasonably
satisfactory in form and substance to such seller, and
(B) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, dated the date of the closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement,
covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' letters delivered to the underwriters in
underwritten public offerings of securities and, in the case of the
accountants' letter, such other financial matters, and, in the case of the
legal opinion, such other legal matters, as such seller may reasonably
request;
(vii) notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made, and at the
request of any such seller promptly prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include 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 in
the light of the circumstances under which they were made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
the period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date of such
registration statement, which earnings statement shall satisfy the provisions
of Section 11(a) of the Securities Act, and will furnish to each such seller
at least five (5) business days prior to the filing thereof a copy of any
amendment or supplement to such registration statement or prospectus and
shall not file any thereof to which any such seller shall have reasonably
objected on the grounds that such amendment
-6-
<PAGE>
or supplement does not comply in all material respects with the
requirements of the Securities Act or of the rules or regulations
thereunder;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement;
(x) use its best efforts to list all Registrable Securities
covered by such registration statement on any securities exchange on which
any of the Registrable Securities is then listed; and
(xi) enter into such agreements and take such other actions as the
Requisite Holders shall reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company such information
regarding such seller and the distribution of such securities as the Company
may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of
the happening of any event of the kind described in the subdivision (vii) of
this Section 2.3, such holder will forthwith discontinue such holder's
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such holder's receipt of the
copies of the supplemented or amended prospectus contemplated by
subdivision (vii) of this Section 2.3 and, if so directed by the Company,
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such holder's possession of the prospectus
relating to such Registrable Securities current at the time of receipt of
such notice.
2.4 UNDERWRITTEN OFFERINGS.
(a) REQUESTED UNDERWRITTEN OFFERINGS. If requested by the
underwriters for any underwritten offering by holders of Registrable
Securities pursuant to a registration requested under Section 2.1, the
Company will enter into an underwriting agreement with such underwriters for
such offering, such agreement to be satisfactory in substance and form to
each such holder and the underwriters and to contain such representations and
warranties by the Company and such other terms as are generally prevailing in
agreements of this type, including, without limitation, indemnities to the
effect and to the extent provided in Section 2.7. The holders of Registrable
Securities to be distributed by such underwriters shall be parties to such
underwriting agreement and may, at their option, require that any or all of
the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be
made to and for the benefit of such holders of Registrable Securities and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement
-7-
<PAGE>
be conditions precedent to the obligations of such holders of Registrable
Securities. Any such holder of Registrable Securities shall not be required
to make any representations or warranties to or agreements with the Company
or the underwriters other than representations, warranties or agreements
regarding such holder, such holder's Registrable Securities and such holder's
intended method of distribution and any other representation required by law.
(b) INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities are to be distributed by or
through one or more underwriters, the Company will, if requested by any
holder of Registrable Securities as provided in Section 2.2 and subject to
the provisions of Section 2.2(b), arrange for such underwriters to include
all the Registrable Securities to be offered and sold by such holder among
the securities to be distributed by such underwriters. The holders of
Registrable Securities to be distributed by such underwriters shall be
parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of,
the Company to and for the benefit of such underwriters shall also be made to
and for the benefit of such holders of Registrable Securities and that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement be conditions precedent to the obligations of
such holders of Registrable Securities. Any such holder of Registrable
Securities shall not be required to make any representations or warranties to
or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder, such
holder's Registrable Securities and such holder's intended method of
distribution and any other representation required by law.
2.5. PREPARATION; REASONABLE INVESTIGATION. In connection with
the preparation and filing of each registration statement under the
Securities Act pursuant to this Agreement, the Company will give the holders
of Registrable Securities registered under such registration statement, and
their counsel and accountants, the opportunity to participate in the
preparation of such registration statement, each prospectus included therein
or filed with the Commission, and each amendment thereof or supplement
thereto, and will give each of them such access to its books and records and
such opportunities to discuss the business of the Company with its officers
and the independent public accountants who have certified its financial
statements as shall be necessary, in the opinion of such holders' counsel, to
conduct a reasonable investigation within the meaning of the Securities Act.
2.6. ADDITIONAL RIGHTS OF HOLDERS. If any registration statement
prepared under this Agreement refers to any holder of Registrable Securities
by name or otherwise as the holder of any securities of the Company, then
such party shall have the right to require (x) the insertion therein of
language, in form and substance satisfactory to such party, to the effect
that the holding by such party of such securities does not necessarily make
such party a "controlling person" of the Company within the meaning of the
Securities Act and is not to be construed as a recommendation by such holder
of the investment quality of the Company's debt or equity securities covered
thereby and that such holding does not imply that such holder will assist in
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<PAGE>
meeting any future financial requirements of the Company, or (y) in the event
that such reference to such holder by name or otherwise is not required by
the Securities Act or any rules and regulations promulgated thereunder, the
deletion of the reference to such party.
2.7. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of any
registration of any securities of the Company under the Securities Act, the
Company will, and hereby does, indemnify and hold harmless the seller of any
Registrable Securities covered by such registration statement, its directors
and officers, each other Person who participates in the offering or sale of
such securities and each other Person, if any, who controls such seller
within the meaning of the Securities Act against any losses, claims, damages
or liabilities, joint or several, to which such seller or any such director
or officer or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such seller and each such director, officer, and controlling person
for any legal or any other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, liability, action or
proceeding; PROVIDED that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for
use in the preparation thereof and, PROVIDED further that the Company shall
not be liable to any Person who participates as an underwriter, in the
offering or sale of Registrable Securities or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, in any
such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of such
Person's failure to send or give a copy of the final prospectus, as the same
may be then supplemented or amended, to the Person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to
such Person if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such seller or any such
director, officer, underwriter or controlling person and shall survive the
transfer of such securities by such seller.
(b) INDEMNIFICATION BY THE SELLERS. The Company may require, as a
condition to including any Registrable Securities in any registration
statement filed pursuant to Section 2.3,
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<PAGE>
that the Company shall have received an undertaking satisfactory to it from
the prospective seller of such securities, to indemnify and hold harmless (in
the same manner and to the same extent as set forth in subdivision (a) of
this Section 2.7) the Company, each director of the Company, each officer of
the Company and each other Person, if any, who controls the Company within
the meaning of the Securities Act, with respect to any statement or alleged
statement in or omission or alleged omission from such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, if such statement
or alleged statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company
through an instrument duly executed by such seller specifically stating that
it is for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement.
Such indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director,
officer or controlling Person and shall survive the transfer of such
securities by such seller.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding subdivisions of this Section 2.7,
such indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to the latter of the
commencement of such action, PROVIDED that the failure of any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under the preceding subdivisions of this Section 2.7,
except to the extent that the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist in respect of such claim, the indemnifying party shall be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall not be liable to
such indemnified party for any legal or other expenses subsequently incurred
by the latter in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the consent of
the indemnified party, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect to such claim or litigation.
(d) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification
of securities under any Federal or state law or regulation of any
governmental authority other than the Securities Act.
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<PAGE>
(e) INDEMNIFICATION PAYMENTS. The indemnification required by
this Section 2.7 shall be made by periodic payments of the amount thereof
during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
2.8. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company
will not effect or permit to occur any combination or subdivision that would
adversely affect the ability of the holders of Registrable Securities to
include such Registrable Securities in any registration of its securities
contemplated by this Section 2 or the marketability of such Registrable
Securities under any such registration.
3. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
COMMISSION: The Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
EXCHANGE ACT: The Securities Exchange Act of 1934, or any similar
Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference
to a particular section of the Securities Exchange Act of 1934 shall
include a reference to the comparable section, if any, of any such
similar Federal statute.
INITIAL REGISTRATION DATE: The first to occur of the following:
(i) the date on which the Company consummates an offering of its
equity securities under a registration statement to be filed with the
Commission with respect to an initial public offering of the Company's
securities pursuant to the Securities Act, or (ii) the effective date
upon which the Company is merged into, consolidated with, or has sold
substantially all of its assets to, another Person who has previously
issued securities registered under the Securities Act.
PERSON: A corporation, an association, a partnership, a business, an
individual, a governmental or political subdivision thereof or a
governmental agency.
REGISTRABLE SECURITIES: All common stock of the Company that is
either: (i) issued by the Company (or a successor thereto) in
redemption or conversion of, or otherwise on account of or in exchange
for, the Preferred Stock issued pursuant to the Proposed Transaction,
or (ii) held from time to time by any Investor, together with any
securities issued or issuable with respect to the foregoing by way of
distribution or in connection with any reorganization or other
recapitalization, merger, consolidation or otherwise. As to any
particular Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (a) a registration statement
with respect to the sale of such securities shall have become
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<PAGE>
effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they
shall have been distributed to the public pursuant to Rule 144 or
Rule 144A (or any successor provision) under the Securities Act,
(c) they shall have been otherwise transferred, new certificates for
them not bearing a legend restricting further transfer shall have been
delivered by the Company and subsequent disposition of them shall not
require registration or qualification of them under the Securities Act
or any similar state law then in force, or (d) they shall have ceased
to be outstanding.
REGISTRATION EXPENSES: All expenses incident to the Company's
performance of or compliance with Section 2.1 or 2.2, including,
without limitation, all registration, filing and National Association
of Securities Dealers fees, all fees and expenses of complying with
securities or blue sky laws, all word processing, duplicating and
printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and
compliance, premiums and other costs of policies of insurance against
liabilities arising out of the public offering of the Registrable
Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but
excluding Selling Expenses, if any, provided that, in any case where
Registration Expenses are not to be borne by the Company, such
expenses shall not include salaries of Company personnel or general
overhead expenses of the Company, auditing fees, premiums or other
expenses relating to liability insurance required by underwriters of
the Company or other expenses for the preparation of financial
statements or other data normally prepared by the Company in the
ordinary course of its business or that the Company would have
incurred in any event.
REQUISITE HOLDERS: Any holder or holders of more than 30% of the
Registrable Securities.
SECURITIES ACT: The Securities Act of 1933, or any similar Federal
statute, and the rules and regulations of the Commission thereunder,
all as of the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933 shall include a
reference to the comparable section, if any, of any such similar
Federal Statute.
SELLING EXPENSES: Underwriting discounts and commissions and stock
transfer taxes relating to securities registered by the Company and
the fees and disbursements incurred by the holders of Registrable
Securities to be registered (including, without limitation, the fees
and disbursements of legal counsel to the holders of such Registrable
Securities).
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<PAGE>
4. RULE 144 AND RULE 144A: If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company will file the reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the Commission thereunder (or, if the Company is not required to
file such reports, will, upon the request of any holder of Registrable
Securities, make publicly available other information) and will take such
further action as any holder of Registrable Securities 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 (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
requirements. After any sale of Registrable Securities pursuant to this
Section 4, the Company will, to the extent allowed by law, cause any
restrictive legends to be removed and any transfer restrictions to be
rescinded with respect to such Registrable Securities. In order to permit
the holders of Registrable Securities to sell the same, if they so desire,
pursuant to Rule 144A promulgated by the Commission (or any successor to such
rule), the Company will comply with all rules and regulations of the
Commission applicable in connection with use of Rule 144A (or any successor
thereto). Prospective transferees of Registrable Securities that are
Qualified Institutional Buyers (as defined in Rule 144A) that would be
purchasing such Registrable Securities in reliance upon Rule 144A may request
from the Company information regarding the business, operations and assets of
the Company. Within five (5) business days of any such request, the Company
shall deliver to any such prospective transferee copies of annual audited and
quarterly unaudited financial statements of the Company and such other
information as may be required to be supplied by the Company for it to comply
with Rule 144A.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and
the Company may take any action herein prohibited or omit to perform any act
herein required to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action or omission to act of
the Requisite Holders. Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked
to indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any
Registrable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its election, be treated as the
holder of such Registrable Securities for purposes of any request or other
action by any holder or holders of Registrable Securities pursuant to this
Agreement or any determination of any number or percentage of Registrable
Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
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<PAGE>
7. NOTICES. All communications provided for hereunder shall be
sent by first-class mail to such party at the address set forth opposite such
parties name on the execution page hereof or at such other address as the
Company shall have furnished to each holder of Registrable Securities at the
time outstanding.
8. ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns. In addition, and whether or not any
express assignment shall have been made, the provisions of this Agreement
that are for the benefit of the parties hereto other than the Company shall
also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities, subject to the provisions respecting the minimum
numbers or percentages of Registrable Securities required in order to be
entitled to certain rights, or take certain actions, contained herein.
9. TERMINATION. This Agreement shall terminate when no
Registrable Securities remain outstanding.
10. DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
11. SPECIFIC PERFORMANCE. The parties hereto recognize and
agree that money damages may be insufficient to compensate the holders of any
Registrable Securities for breaches by the Company of the terms hereof and,
consequently, that the equitable remedy of specific performance of the terms
hereof will be available in the event of any such breach.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICT
OF LAWS OR CHOICE OF LAW.
13. COUNTERPARTS. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed and delivered by their respective
representatives thereunto duly authorized, as of the date first above written.
COMPANY:
FLASHNET COMMUNICATIONS, INC.
By: /s/ M. Scott Leslie
------------------------------------
Name: M. Scott Leslie
-------------------------------
Title: President & Secretary
------------------------------
INVESTORS:
APOGEE FUND LP
By: Paradigm Capital
---------------------------------,
its General Partner
By: /s/ Emmett M. Murphy
-------------------------------
Name: Emmett M. Murphy
--------------------------
Title: President
--------------------------
/s/ Emmett M. Murphy
---------------------------------------
Emmett M. Murphy
ISP Investors, L.P.
By: Kleinheinz Capital Partners, LLC,
its General Partner
By: /s/ John Kleinheinz
-------------------------------
Name: John Kleinheinz
--------------------------
Title: G.P.
--------------------------
/s/ Scott M. Kleberg
---------------------------------------
Scott M. Kleberg
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<PAGE>
/s/ Luther King
---------------------------------------
J. Luther King, Jr.
/s/ Scot C. Hollmann
---------------------------------------
Scot C. Hollmann
FOURTEEN HILL CAPITAL, LP
By: Fourteen Hill Management, LLC,
its General Partner
By: Point West Capital Corporation,
its General Partner
By: /s/ Chris P. Rodskog
-------------------------------
Name: Chris P. Rodskog
--------------------------
Title: Senior Vice President
--------------------------
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<PAGE>
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this "Agreement"), is
made and entered into as of August 3, 1998, by and among: (i) FlashNet
Communications, Inc., a Texas corporation (the "Company"); (ii) Apogee Fund
LP, a Delaware limited partnership ("Apogee"); (iii) Emmett M. Murphy
("Murphy"); (iv) ISP Investors, L.P., a Texas limited partnership ("ISP");
(v) Scott M. Kleberg ("Kleberg"); (vi) J. Luther King, Jr. ("King"); (vii)
Scot C. Hollmann ("Hollmann"); (viii) Fourteen Hill Capital, LP, a Delaware
limited partnership ("FHC"); (ix) Applied Telecommunications Technologies,
Inc., a Delaware corporation ("ATTI"); (x) Paul Castro ("Castro"); (xi) UD
Donna Manning IRA ("Manning"); (xii) Faith Griffin ("Griffin"); (xiii)
Youssef Squali ("Squali"); (xiv) Jeffrey N. Wilkes ("Wilkes"); (xv) George P.
Jenkins Insurance Trust, U/A 6/28/91, James P. Jenkins, Robert N. Jenkins and
Richard G. Jenkins, Trustees ("Jenkins Trust"); (xvi) James P. Jenkins
("Jenkins"); (xvii) Frank A. Klepetko ("Klepetko"); and (xviii) Q Ventures,
L.P., a Texas limited partnership ("Q Ventures").
W I T N E S S E T H:
WHEREAS, the Company, Apogee, Murphy, ISP, Kleberg, King, Hollmann and
FHC (Apogee, Murphy, ISP, Kleberg, King, Hollmann and FHC being collectively
referred to hereinafter as the "First Round Buyers") entered into that
certain Stock Purchase Agreement, dated as of May 7, 1998 (the "Purchase
Agreement"), pursuant to which the First Round Buyers purchased an aggregate
of 749,587 shares (the "First Round Shares") of the Series A Convertible
Preferred Stock, $1.00 par value per share, of the Company ("Series A
Preferred"); and
WHEREAS, subject to the terms and conditions hereof, simultaneously with
the execution of this Agreement, pursuant to the Purchase Agreement and this
Agreement, the Company wishes to issue and sell to ATTI, Castro, FHC, ISP,
Manning, Griffin, Squali, Wilkes, Jenkins Trust, Jenkins, Klepetko, Kleberg,
King, Hollmann and Q Ventures (the "Second Round Buyers"), and the Second
Round Buyers desire to purchase from the Company, an aggregate of 614,498
shares (the "Second Round Shares") of the Series A Preferred;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
SECTION 1
PURCHASE AND SALE OF SECOND ROUND SHARES
AND AMENDMENT TO PURCHASE AGREEMENT
1.01 PURCHASE AND SALE OF SECOND ROUND SHARES. The Company hereby
agrees to issue, sell and deliver to each of the Second Round Buyers, and
each of the Second Round Buyers hereby agrees to purchase and accept from the
Company, the number of shares of the Series A Preferred as set forth beside
the name of each of the Second Round Buyers on Schedule 1.01 of this
Agreement. In consideration for the Second Round Shares, the Second Round
Buyers shall simultaneously with execution hereof pay to the Company by wire
transfer to an account designated by the Company or by personal check an
aggregate purchase price of $3,730,000, the portion of such aggregate
purchase
<PAGE>
price paid by each Second Round Buyer being as set forth beside its name on
Schedule 1.01. The Company shall issue and deliver to the Second Round
Buyers stock certificates in definitive form registered in the name of the
Second Round Buyers evidencing the Second Round Shares.
1.02 AMENDMENTS TO PURCHASE AGREEMENT.
(a) The Purchase Agreement is hereby amended such that the
defined terms "Buyer" and "Buyers" in the Purchase Agreement shall in all
cases include the Second Round Buyers, and the Second Round Buyers, by their
execution of this Agreement, shall: (i) be deemed to have executed and
delivered the Purchase Agreement; (ii) be deemed to have made, as of the date
hereof, the representations and warranties set forth in Article IV of the
Purchase Agreement; and (iii) have all the rights, benefits and obligations
of the Purchase Agreement as if they were original signatories thereof.
(b) The Purchase Agreement is hereby amended such that the
defined term "Shares" in the Purchase Agreement shall in all cases include
the Second Round Shares.
(c) The Purchase Agreement is hereby amended by adding the
following information to Schedule 3.8 thereof:
FlashNet Telecom, Inc.
1812 North Forest Park Blvd.
Fort Worth, Texas 76102
Incorporated in the State of Texas
Shares authorized: 100,000
Shares issued
and outstanding: 100,000
Ownership: All shares issued and outstanding are owned by
FlashNet Communications, Inc.
(d) Section 3.9 of the Purchase Agreement is hereby amended by
changing the percentage figure appearing in such section from 23.8% to 36.24%.
(e) The Purchase Agreement is hereby amended by deleting
Schedules 3.26 and 3.29 thereof in their entirety and substituting in their
place new Schedules 3.26 and 3.29 to this Agreement.
(f) Section 3.39 of the Purchase Agreement is hereby amended by
adding the following language immediately following the date appearing in the
second line thereof:
"...AND TO LAIDLAW GLOBAL SECURITIES, INC. PURSUANT TO AN ENGAGEMENT
LETTER DATED JULY 10, 1998"
- -------------------------------------------------------------------------------
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT PAGE 2
<PAGE>
SECTION 2
WAIVER AND CONSENT OF FIRST ROUND BUYERS
2.01 WAIVER. Section 4 (b) of the Certificate of Designations of the
Series A Preferred (the "Certificate of Designations") provides the First
Round Buyers with certain preemptive rights in respect of offers of equity
securities by the Company. Each of the undersigned First Round Buyers hereby
waives any and all preemptive rights or other similar rights such holder may
have under Section 4(b) of the Certificate of Designations or otherwise in
respect of the Company's issuance and sale of the Second Round Shares.
2.02 CONSENT. Section 9(c) of the Certificate of Designations
prohibits the Company, without the affirmative vote or consent of the holders
of a majority of the shares of the Series A Preferred, from taking certain
actions, including amendment of the Articles of Incorporation, which is
necessary in order for the Company to issue the Second Round Shares. Each of
the undersigned First Round Buyers hereby consents to all corporate action
required to be taken by the Corporation in order for the Corporation to
issue, sell and deliver the Second Round Shares as set forth in this
Agreement.
SECTION 3
MISCELLANEOUS
3.01 SURVIVAL OF AGREEMENTS. All agreements made herein shall survive
the execution and delivery of this Agreement and the issuance, sale and
delivery of the Second Round Shares, and all statements contained in any
certificate or other instrument delivered by the Company pursuant to the
Purchase Agreement shall be deemed to constitute representations and
warranties made, as of the date hereof, by the Company to the Second Round
Buyers and to the First Round Buyers.
3.02 SUCCESSORS AND ASSIGNS. All covenants and agreements contained in
this Agreement by or on behalf of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not.
3.03 NOTICES. All notices, requests, consents and other communications
under the Purchase Agreement to the Second Round Buyers shall be addressed as
follows:
Applied Telecommunications Technologies, Inc.
20 William Street
Wellesley, Massachusetts 02181
Attn: Kevin Stadtler
Telefax: (781) 239-0377
Paul Castro
1453 Third Street Promenade
Suite 513
Santa Monica, California 90401
Telefax: (310) 319-9829
- -------------------------------------------------------------------------------
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT PAGE 3
<PAGE>
Fourteen Hill Capital, LP
1700 Montgomery Street, Suite 250
San Francisco, California 94111
Attn: Chris Rodskog
Telefax: (415) 394-9471
ISP Investors, L.P.
201 Main Street, Suite 2001
Fort Worth, Texas 76102
Attn: John Kleinheinz
Telefax: (817) 348-8010
UD Donna Manning IRA
115 East 67th Street, Apt. 6C
New York, New York 10021
Telefax: (212) 988-4301
Faith Griffin
264 Oak Ridge Avenue
Summit, New Jersey 07901
Telefax: (212) 697-3368
Youssef Squali
180 Berkley Place, Apt. 1C
Brooklyn, New York 11217
Telefax: (212) 697-3368
Jeffrey N. Wilkes
12 Thorpe Lane
Plainview, New York 11803
Telefax: (212) 697-3368
George P. Jenkins Insurance Trust
U/A 6/28/91, James P. Jenkins, Robert N.
Jenkins and Richard G. Jenkins, Trustees
170 Gates Avenue
Montclair, New Jersey 07042-2009
Telefax: (212) 697-3368
James P. Jenkins
30 Sutton Place
New York, New York 10022
Telefax: (212) 697-3368
- -------------------------------------------------------------------------------
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT PAGE 4
<PAGE>
Frank A. Klepetko
14 Wellyn Road
Bronxville, New York 10718
Telefax: (212) 697-3368
Scott M. Kleberg
301 Commerce, Suite 1600
Fort Worth, Texas 76102
Telefax: (817) 336-7523
J. Luther King, Jr.
301 Commerce, Suite 1600
Fort Worth, Texas 76102
Telefax: (817) 332-4630
Scot C. Hollmann
301 Commerce, Suite 1600
Fort Worth, Texas 76102
Telefax: (817) 332-4630
Q Ventures, L.P.
301 Commerce, Suite 2975
Fort Worth, Texas 76102
Telefax: (817) 332-9503
3.04 LAW GOVERNING. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
3.05 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and may not be
modified or amended except in accordance with Section 8.15 of the Purchase
Agreement.
3.06 NO OTHER AMENDMENTS. Except as expressly amended hereby, the
Purchase Agreement shall continue in full force and effect in accordance with
the terms and provisions thereof.
3.07 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
- -------------------------------------------------------------------------------
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT PAGE 5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
THE COMPANY:
FLASHNET COMMUNICATIONS, INC.
By: /s/ M. Scott Leslie
----------------------------------
M. Scott Leslie
President
FIRST ROUND BUYERS:
APOGEE FUND LP
By: Paradigm Capital
---------------------------------,
its General Partner
By: /s/ Emmett M. Murphy
----------------------------
Name: Emmett M. Murphy
----------------------------
Title: President
----------------------------
/s/ Emmett M. Murphy
---------------------------------------
Emmett M. Murphy
ISP Investors, L.P.
By: Kleinheinz Capital Partners, LLC,
its General Partner
By: /s/ John Kleinheinz
----------------------------
Name:
----------------------------
Title:
----------------------------
/s/ Scott M. Kleberg
---------------------------------------
Scott M. Kleberg
/s/ Luther King
---------------------------------------
J. Luther King, Jr.
<PAGE>
/s/ Scot C. Hollmann
---------------------------------------
Scot C. Hollmann
FOURTEEN HILL CAPITAL, LP
By: Fourteen Hill Management, LLC,
its General Partner
By: Point West Capital Corporation,
its General Partner
By: /s/ Chris P. Rodskog
----------------------------
Name: Chris P. Rodskog
----------------------------
Title: Senior VP
----------------------------
SECOND ROUND BUYERS:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES, INC.
By: /s/ Dennis P. Cameron
------------------------------------
Name: Dennis P. Cameron
----------------------------------
Title: President
---------------------------------
/s/ Paul J. Castro
---------------------------------------
Paul Castro
FOURTEEN HILL CAPITAL, LP
By: Fourteen Hill Management, LLC,
its General Partner
By: Point West Capital Corporation,
its General Partner
By: /s/ Chris P. Rodskog
---------------------------------
Name: Chris P. Rodskog
---------------------------------
Title: Senior V.P.
---------------------------------
<PAGE>
ISP INVESTORS, L.P.
By: Kleinheinz Capital Partners, LLC,
its General Partner
By: /s/ John Kleinheinz
----------------------------
Name:
----------------------------
Title:
----------------------------
UD DONNA MANNING IRA
By: /s/ Donna Manning
-----------------------------
Donna (Manning) Horner
/s/ Faith Griffin
----------------------------------
Faith Griffin
/s/ Youssef Squali
----------------------------------
Youssef Squali
/s/ Jeffrey N. Wilkes
----------------------------------
Jeffrey N. Wilkes
GEORGE P. JENKINS INSURANCE TRUST, U/A
6/28/91
By: /s/ James P. Jenkins, Trustee
-----------------------------
James P. Jenkins, Trustee
/s/ James P. Jenkins
----------------------------------
James P. Jenkins
/s/ Frank A. Klepetko
----------------------------------
Frank A. Klepetko
/s/ Scott M. Kleberg
----------------------------------
Scott M. Kleberg
<PAGE>
/s/ Luther King
----------------------------------
J. Luther King, Jr.
/s/ Scot C. Hollmann
----------------------------------
Scot C. Hollmann
Q VENTURES, L.P.
By: Acme Widget, L.P.,
its General Partner
By: Scepter Holdings, Inc.,
its General Partner
By: /s/ Robert McCormick
----------------------------
Name: Robert McCormick
----------------------------
Title: Vice President
----------------------------
<PAGE>
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this "Agreement"),
is made and entered into as of August 3, 1998, by and among: (i) FlashNet
Communications, Inc., a Texas corporation (the "Company"); (ii) Apogee Fund LP,
a Delaware limited partnership ("Apogee"); (iii) Emmett M. Murphy ("Murphy");
(iv) ISP Investors, L.P., a Texas limited partnership ("ISP"); (v) Scott M.
Kleberg ("Kleberg"); (vi) J. Luther King, Jr. ("King"); (vii) Scot C. Hollmann
("Hollmann"); (viii) Fourteen Hill Capital, LP, a Delaware limited partnership
("FHC"); (ix) Applied Telecommunications Technologies, Inc., a Delaware
corporation ("ATTI"); (x) Paul Castro ("Castro"); (xi) UD Donna Manning IRA
("Manning"); (xii) Faith Griffin ("Griffin"); (xiii) Youssef Squali ("Squali");
(xiv) Jeffrey N. Wilkes ("Wilkes"); (xv) George P. Jenkins Insurance Trust, U/A
6/28/91, James P. Jenkins, Robert N. Jenkins and Richard G. Jenkins, Trustees
("Jenkins Trust"); (xvi) James P. Jenkins ("Jenkins"); (xvii) Frank A. Klepetko
("Klepetko"); and (xviii) Q Ventures, L.P., a Texas limited partnership ("Q
Ventures").
W I T N E S S E T H:
WHEREAS, the Company, Apogee, Murphy, ISP, Kleberg, King, Hollmann and FHC
(Apogee, Murphy, ISP, Kleberg, King, Hollmann and FHC being collectively
referred to hereinafter as the "First Round Buyers") entered into that certain
Stock Purchase Agreement, dated as of May 7, 1998 (the "Purchase Agreement"),
pursuant to which the First Round Buyers purchased an aggregate of 749,587
shares (the "First Round Shares") of the Series A Convertible Preferred Stock,
$1.00 par value per share, of the Company ("Series A Preferred"); and
WHEREAS, the Company and the First Round Buyers entered into that certain
Registration Rights Agreement, dated as of May 7, 1998 (the "Registration
Agreement"); and
WHEREAS, simultaneously with the execution of this Agreement, the Company,
the First Round Buyers, ATTI, Castro, Manning, Griffin, Squali, Wilkes, Jenkins
Trust, Jenkins, Klepetko and Q Ventures (ATTI, Castro, FHC, ISP, Manning,
Griffin, Squali, Wilkes, Jenkins Trust, Jenkins, Klepetko, Kleberg, King,
Hollmann and Q Ventures being collectively referred to herein as the "Second
Round Buyers") have entered into that certain First Amendment to Stock Purchase
Agreement and, pursuant to the Purchase Agreement, as amended, the Company has
issued and sold to the Second Round Buyers, and the Second Round Buyers have
purchased from the Company, an aggregate of 614,498 shares (the "Second Round
Shares") of the Series A Preferred; and
WHEREAS, the parties hereto desire that the Second Round Buyers become
parties to the Registration Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agrees as follows:
<PAGE>
SECTION 1
AMENDMENTS TO REGISTRATION AGREEMENT
1.01 DEFINITION OF INVESTORS. The Registration Agreement is hereby
amended such that the defined terms "Investor" and "Investors" in the
Registration Agreement shall in all cases include the Second Round Buyers, and
the Second Round Buyers, by their execution of this Agreement, shall: (i) be
deemed to have executed and delivered the Registration Agreement; and (ii) have
all the rights, benefits and obligations of the Registration Agreement as if
they were original signatories thereof.
1.02 NOTICES. The Registration Agreement is hereby amended by
deleting Section 7 thereof in its entirety and substituting the following in its
place:
7. NOTICES. ALL NOTICES, REQUESTS, DEMANDS, AND OTHER
COMMUNICATIONS REQUIRED OR PERMITTED TO BE GIVEN OR MADE HEREUNDER BY
ANY PARTY HERETO SHALL BE IN WRITING AND SHALL BE DEEMED TO HAVE BEEN
DULY GIVEN OR MADE IF (i) DELIVERED PERSONALLY, (ii) TRANSMITTED BY
FIRST CLASS REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN
RECEIPT REQUESTED, (iii) SENT BY PREPAID OVERNIGHT COURIER SERVICE, OR
(iv) SENT BY TELECOPY OR FACSIMILE TRANSMISSION, ANSWER BACK
REQUESTED, TO THE PARTIES AT THE FOLLOWING ADDRESSES (OR AT SUCH OTHER
ADDRESSES AS SHALL BE SPECIFIED BY THE PARTIES BY LIKE NOTICE):
IF TO INVESTORS:
APOGEE FUND LP
201 MAIN STREET, SUITE 2001
FORT WORTH, TX 76102
ATTENTION: EMMETT M. MURPHY
TELEFAX: 817-335-1822
EMMETT M. MURPHY
201 MAIN STREET, SUITE 2001
FORT WORTH, TX 76102
TELEFAX: 817-335-1822
ISP INVESTORS, L.P.
201 MAIN STREET, SUITE 2001
FORT WORTH, TX 76102
ATTENTION: JOHN KLEINHEINZ
TELEFAX: 817-348-8010
SCOTT M. KLEBERG
301 COMMERCE STREET, SUITE 1600
FORT WORTH, TX 76102
TELEFAX: 817-336-7523
- -------------------------------------------------------------------------------
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT PAGE 2
<PAGE>
J. LUTHER KING, JR.
301 COMMERCE STREET, SUITE 1600
FORT WORTH, TX 76102
TELEFAX: 817-332-4630
SCOT C. HOLLMANN
301 COMMERCE STREET, SUITE 1600
FORT WORTH, TX 76102
TELEFAX: 817-332-4630
FOURTEEN HILL CAPITAL, LP
1700 MONTGOMERY STREET, SUITE 250
SAN FRANCISCO, CA 94111
ATTENTION: CHRIS RODSKOG
TELEFAX: 415-394-9471
APPLIED TELECOMMUNICATIONS TECHNOLOGIES, INC.
20 WILLIAM STREET
WELLESLEY, MASSACHUSETTS 02181
ATTN: KEVIN STADTLER
TELEFAX: (781) 239-0377
PAUL CASTRO
1453 THIRD STREET PROMENADE
SUITE 513
SANTA MONICA, CALIFORNIA 90401
TELEFAX: (310) 319-9829
UD DONNA MANNING IRA
115 EAST 67TH STREET, APT. 6C
NEW YORK, NEW YORK 10021
TELEFAX: (212) 988-4301
FAITH GRIFFIN
264 OAK RIDGE AVENUE
SUMMIT, NEW JERSEY 07901
TELEFAX: (212) 697-3368
YOUSSEF SQUALI
180 BERKLEY PLACE, APT. 1C
BROOKLYN, NEW YORK 11217
TELEFAX: (212) 697-3368
- -------------------------------------------------------------------------------
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT PAGE 3
<PAGE>
JEFFREY N. WILKES
12 THORPE LANE
PLAINVIEW, NEW YORK 11803
TELEFAX: (212) 697-3368
GEORGE P. JENKINS INSURANCE TRUST
U/A 6/28/91, JAMES P. JENKINS, ROBERT N.
JENKINS AND RICHARD G. JENKINS, TRUSTEES
170 GATES AVENUE
MONTCLAIR, NEW JERSEY 07042-2009
TELEFAX: (212) 697-3368
JAMES P. JENKINS
30 SUTTON PLACE
NEW YORK, NEW YORK 10022
TELEFAX: (212) 697-3368
FRANK A. KLEPETKO
14 WELLYN ROAD
BRONXVILLE, NEW YORK 10718
TELEFAX: (212) 697-3368
Q VENTURES, L.P.
301 COMMERCE STREET, SUITE 2975
FORT WORTH, TEXAS 76102
TELEFAX: (817) 332-9503
IF TO THE COMPANY:
FLASHNET COMMUNICATIONS, INC.
1812 N. FOREST PARK BLVD.
FORT WORTH, TX 76102
ATTENTION: SCOTT LESLIE, PRESIDENT
TELEFAX: 817-332-9594
SUCH NOTICES, REQUESTS, DEMANDS, AND OTHER COMMUNICATIONS SHALL BE EFFECTIVE (i)
IF DELIVERED PERSONALLY OR SENT BY COURIER SERVICE, UPON ACTUAL RECEIPT BY THE
INTENDED RECIPIENT, (ii) IF MAILED, UPON THE EARLIER OF FIVE DAYS AFTER DEPOSIT
IN THE MAIL OR THE DATE OF DELIVERY AS SHOWN BY THE RETURN RECEIPT THEREFOR, OR
(iii) IF SENT BY TELECOPY OR FACSIMILE TRANSMISSION, WHEN THE ANSWER BACK IS
RECEIVED.
- -------------------------------------------------------------------------------
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT PAGE 4
<PAGE>
SECTION 2
MISCELLANEOUS
2.01 SUCCESSORS AND ASSIGNS. All covenants and agreements contained
in this Agreement by or on behalf of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not.
2.02 LAW GOVERNING. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas.
2.03 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and may not
be modified or amended except in accordance with Section 5 of the Registration
Agreement.
2.04 NO OTHER AMENDMENTS. Except as expressly amended hereby, the
Registration Agreement shall continue in full force and effect in accordance
with the terms and provisions thereof.
2.05 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
- -------------------------------------------------------------------------------
FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT PAGE 5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
THE COMPANY:
FLASHNET COMMUNICATIONS, INC.
By: /s/ M. Scott Leslie
----------------------------------
M. Scott Leslie
President
FIRST ROUND BUYERS:
APOGEE FUND LP
By: Paradigm Capital
---------------------------------,
its General Partner
By: /s/ Emmett M. Murphy
-------------------------------
Name: Emmett M. Murphy
-----------------------------
Title: President
----------------------------
/s/ Emmett M. Murphy
---------------------------------------
Emmett M. Murphy
ISP Investors, L.P.
By: Kleinheinz Capital Partners, LLC,
its General Partner
By: /s/ John Kleinheinz
-------------------------------
Name:
-----------------------------
Title:
----------------------------
/s/ Scott M. Kleberg
---------------------------------------
Scott M. Kleberg
/s/ Luther King
---------------------------------------
FARRA J. Luther King, Jr.
<PAGE>
/s/ Scot C. Hollmann
---------------------------------------
Scot C. Hollmann
FOURTEEN HILL CAPITAL, LP
By: Fourteen Hill Management, LLC,
its General Partner
By: Point West Capital Corporation,
its General Partner
By: /s/ Chris P. Rodskog
-------------------------------
Name: Chris P. Rodskog
-----------------------------
Title: Senior VP
----------------------------
SECOND ROUND BUYERS:
APPLIED TELECOMMUNICATIONS
TECHNOLOGIES, INC.
By: /s/ Dennis P. Cameron
------------------------------------
Name: Dennis P. Cameron
----------------------------------
Title: President
---------------------------------
/s/ Paul J. Castro
---------------------------------------
Paul Castro
FOURTEEN HILL CAPITAL, LP
By: Fourteen Hill Management, LLC,
its General Partner
By: Point West Capital Corporation,
its General Partner
By: /s/ Chris P. Rodskog
------------------------------------
Name: Chris P. Rodskog
----------------------------------
Title: Senior V.P.
---------------------------------
FARRA
<PAGE>
ISP INVESTORS, L.P.
By: Kleinheinz Capital Partners, LLC,
its General Partner
By: /s/ John Kleinheinz
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
UD DONNA MANNING IRA
By: /s/ Donna Manning
----------------------------------
Donna (Manning) Horner
/s/ Faith Griffin
---------------------------------------
Faith Griffin
/s/ Youssef Squali
---------------------------------------
Youssef Squali
/s/ Jeffrey N. Wilkes
---------------------------------------
Jeffrey N. Wilkes
GEORGE P. JENKINS INSURANCE TRUST, U/A
6/28/91
By: /s/ James P. Jenkins, Trustee
-----------------------------
James P. Jenkins, Trustee
/s/ James P. Jenkins
---------------------------------------
James P. Jenkins
/s/ Frank A. Klepetko
---------------------------------------
Frank A. Klepetko
/s/ Scott M. Kleberg
---------------------------------------
Scott M. Kleberg
FARRA
<PAGE>
/s/ Luther King
---------------------------------------
J. Luther King, Jr.
/s/ Scot C. Hollmann
---------------------------------------
Scot C. Hollmann
Q VENTURES, L.P.
By: Acme Widget, L.P.,
its General Partner
By: Scepter Holdings, Inc.,
its General Partner
By: /s/ Robert McCormick
------------------------------------
Name: Robert McCormick
----------------------------------
Title: Vice President
---------------------------------
<PAGE>
- -------------------------------------------------------------------------------
MASTER LEASE AGREEMENT
No. 9018
-----
This Master Lease Agreement (the "MLA") is entered into by and between Ascend
Credit Corporation ("Lessor"), having its principal place of business at 1275
Harbor Bay Parkway, Alameda, CA 94502 and Website Management Company, Inc.
dba FlashNet Communications ("Lessee"), having its principal place of
business at 2805 West Seventh Street, Fort Worth, TX 76107
1. LEASE AGREEMENT. Lessor agrees to lease to Lessee, and Lessee
agrees to lease from Lessor, the equipment (the "Equipment") referenced in
each of the Schedules (the "Schedule" or "Schedules") which incorporate this
MLA therein (the "Lease").
2. TERM. Each Lease shall be effective upon the execution of the
MLA and the related Schedule by the Lessor and the Lessee. The lease term
(the "Lease Term") of the Equipment referenced in each of the Schedules shall
commence on the rent commencement date specified in each Schedule (the "Rent
Commencement Date"). The Rent Commencement Date shall be the date 30 days
from the date that the Equipment is shipped by the supplier (the "Ship Date")
as evidenced by a shipping document provided by the supplier related to the
Equipment (the "Shipping Document"). Lessor will provide Lessee with a copy
of the Shipping Document evidencing the Ship Date.
3. RENT. The rent (the "Rent") for the Equipment referenced in any
Schedule shall be as stated in such Schedule and shall be payable according
to the provisions of such Schedule. If any amount payable under a Schedule is
not received by Lessor within 10 days of the due date, Lessee agrees to pay
an overdue Charge, as defined herein, with respect to such amount.
4. SELECTION AND ASSIGNMENT. Lessee will select the type, quantity and
Supplier of each item of Equipment designated in a Schedule, and Lessee
hereby assigns to Lessor all of its right, title and interest in and to the
related equipment purchase agreement, a copy of which has been provided to
Lessor by Lessee (the "Agreement"). The Agreement may be amended with the
consent of Lessor. Any such assignment with respect to Equipment shall
become binding upon Lessor when Lessor and Lessee have entered into a Lease
with respect to such Equipment and as of the Rent Commencement Date
referenced in such Lease. Upon such an assignment becoming effective, Lessor
shall be obligated to purchase the Equipment from the Supplier in accordance
with the provisions of the Agreement. It is expressly agreed that Lessee
shall at all times remain liable to Supplier under the Agreement to perform
all duties and obligations of Lessee thereunder, except for the obligation to
purchase the Equipment to the extent expressly assumed by the Lessor
hereunder, and that the Lessee shall be entitled to the same rights of the
purchaser of the Equipment under the Agreement, except such right, title and
interest in the Equipment retained exclusively by the Lessor as owner of the
Equipment. Lessor shall have no liability for a Supplier's failure to meet
the terms and conditions of the Agreement.
5. DELIVERY AND INSTALLATION. Lessee shall be responsible for payment
of all transportation, packing, installation, testing and other charges
associated with the delivery, installation or use of any Equipment which are
not included in the Agreement with respect to such Equipment.
6. WARRANTIES. LESSOR MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND,
EXPRESS OR IMPLIED, WITH RESPECT TO ANY OF THE EQUIPMENT, ITS
MERCHANTABILITY, OR ITS FITNESS FOR A PARTICULAR PURPOSE. LESSOR SHALL NOT BE
LIABLE TO LESSEE OR ANY OTHER PERSON FOR DIRECT, INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING FROM LESSEE'S USE OF THE
EQUIPMENT, OR FOR DAMAGES BASED ON STRICT OR ABSOLUTE TORT LIABILITY OR
LESSOR'S PASSIVE NEGLIGENCE. LESSEE HEREBY ACKNOWLEDGES THAT ANY
MANUFACTURER'S OR SUPPLIER'S WARRANTIES WITH RESPECT TO THE EQUIPMENT ARE FOR
THE BENEFIT OF BOTH LESSOR AND LESSEE. NOTWITHSTANDING THE FOREGOING,
LESSEE'S OBLIGATIONS TO PAY EACH RENT PAYMENT DUE, OR OTHERWISE PERFORM ITS
OBLIGATIONS, UNDER THIS LEASE ARE ABSOLUTE AND UNCONDITIONAL.
7. TITLE TO AND LOCATION OF EQUIPMENT. Lessor shall retain title to
each item of Equipment. Lessee, at its expense, shall protect Lessor's title
and keep the Equipment free from all claims, liens, encumbrances and legal
processes. The Equipment is personal property and is not to be regarded as
part of the real estate on which it may be situated. If requested by Lessor,
Lessee will, at Lessee's expense, furnish a landlord or mortgagee waiver with
respect to the Equipment. The Equipment shall not be removed from the
location specified in the Schedule without the written consent of Lessor.
Lessee shall, upon Lessor's request, affix and maintain plates, tags or other
identifying labels, showing Lessor's ownership of the Equipment in a
prominent position on the Equipment.
8. USE OF EQUIPMENT, INSPECTION AND REPORTS. The use of the Equipment
by Lessee shall conform with all applicable laws, insurance policies, and
warranties of the manufacturer or Supplier of the Equipment. Lessor shall
have the right to inspect the Equipment at the premises where the Equipment
is located. Lessee shall notify Lessor promptly of any claims, liens,
encumbrances or legal processes with respect to the Equipment.
9. FURTHER ASSURANCES. Lessee shall execute and deliver to Lessor such
instruments as Lessor deems necessary for the confirmation of this Lease and
Lessor's rights hereunder. Lessor is authorized to file financing statements
signed only by the Lessor in accordance with the Uniform Commercial Code, or
financing statements signed by Lessor as Lessee's attorney-in-fact. Any such
filing with respect to the Equipment leased pursuant to a true lease shall
not be deemed evidence of any intent to create a security interest under the
Uniform Commercial Code.
10. MAINTENANCE AND REPAIRS. Lessee shall, at its expense, maintain
each item of Equipment in good condition, normal wear and tear excepted.
Lessee shall not make any addition, alteration, or attachment to the
Equipment without Lessor's prior written consent. Lessee shall make no
repair, addition, alteration or attachment to the Equipment which interferes
with the normal operation or maintenance thereof, creates a safety hazard, or
might result in the creation of a mechanic's or materialman's lien.
11. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee fails to
perform any of its obligations under a Lease, Lessor may perform any act or
make any payment which Lessor deems necessary for the maintenance and
preservation of the Equipment subject thereto and Lessor's title thereto. All
sums so paid by Lessor (together with all related Overdue Charges), and
reasonable attorneys' fees incurred by Lessor in connection therewith, shall
be additional rent payable to Lessor on demand. The performance of any such
act or the making of any such payment by Lessor shall not be deemed a waiver
or release of any obligation or default on the part of Lessee.
12. INDEMNIFICATION. Lessee assumes liability for, and hereby agrees to
indemnify, protect and hold harmless, Lessor, and its agents, employees,
officers, directors, partners and successors and assigns, from and against,
all liabilities, obligations, losses, damages, injuries, claims, demands,
penalties, actions, costs and expenses, including, without limitation,
reasonable attorneys' fees, of whatever kind and nature, in contract or in
tort, arising out of the use, condition, operation, ownership, selection,
delivery, leasing or return of any item of Equipment, regardless of when, how
and by whom operated, or any failure on the part of Lessee to perform or
comply with any of its obligations under a Lease, excluding, however, any of
the foregoing which result from the gross negligence or willful misconduct of
Lessor. Such indemnities and assumptions of liabilities and obligations shall
continue in full force and effect, notwithstanding the expiration or other
termination of such Lease. Nothing contained in any Lease shall authorize
Lessee to operate the Equipment subject thereto so as to incur or impose any
liability on, or obligation for or on behalf of, Lessor.
13. NO OFF-SET. All Rents shall be paid by Lessee irrespective of any
off-set, counterclaim, recoupment, defense or other right which Lessee may
have against Lessor, the manufacturer or Supplier of the Equipment or any
other party.
14. ASSIGNMENT BY LESSEE. Lessee shall not, without Lessor's prior
written consent, (a) sell, assign, transfer, pledge, hypothecate, or
otherwise dispose of, encumber or suffer to exist a lien upon or against, any
of the Equipment or any Lease or any interest therein, by operation of law or
otherwise, or (b) sublease or lend any of the Equipment or permit any of the
Equipment to be used by anyone other than Lessee.
15. ASSIGNMENT BY LESSOR. Lessor may assign, sell or encumber its
interest in any of the Equipment and any Lease. Upon Lessor's written
consent, Lessee shall pay directly to the assignee of any such interest all
Rent and other sums due under an assigned Lease. THE RIGHTS OF ANY SUCH
ASSIGNEE SHALL NOT BE SUBJECT TO ANY ABATEMENT, DEDUCTION, OFF-SET,
COUNTERCLAIM, RECOUPMENT, DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE
AGAINST LESSOR OR ANY OTHER PERSON OR ENTITY. Notwithstanding the foregoing,
any such assignment (a) shall be subject to Lessee's right to possess and use
the Equipment subject to a Lease so long as Lessee is not in default
thereunder, and (b) shall not release any of Lessor's obligations hereunder.
16. RETURN OF EQUIPMENT. Unless Lessee has exercised its option, if
any, to renew a lease or purchase the Equipment subject thereto, upon
expiration of the then current Lease Term of such Lease, Lessee shall, at its
expense, cause such Equipment to be removed, disassembled, and placed in the
same condition as when delivered to Lessee (reasonable wear and tear
excepted) and properly crate such Equipment for shipment and deliver it to a
common carrier designated by Lessor. Lessee will ship such Equipment, F.O.B.
destination, to any address specified in writing by Lessor within the
continental United States. All additions, attachments, alterations and
repairs made or placed upon any of the Equipment shall become part of such
Equipment and shall be the property of Lessor.
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
17. EVENTS OF DEFAULT. The occurrence of any of the following shall be
deemed to constitute an Event of Default hereunder; (a) Lessee fails to pay
Rent, any other amount it is obligated to pay under a Lease or any other
amount it is obligated to pay to Lessor and does not cure such failure within
10 days of such amount becoming due; (b) Lessee fails to perform or observe
any obligation or covenant to be performed or observed by Lessee hereunder or
under any Schedule, including, without limitation, supplying all requested
documentation, and does not cure such failure within 10 days of receiving
written notice thereof from Lessor; (c) any warranty, representation or
statement made or furnished to Lessor by or on behalf of Lessee is proven to
have been false in any material respect when made or furnished; (d) the
attempted sale or encumbrance by Lessee of the Equipment, or the making of
any levy, seizure or attachment thereof or thereon; or (e) the dissolution,
termination of existence, discontinuance of business, insolvency, or
appointment of a receiver of any part of the property of Lessee, assignment
by Lessee for the benefit of creditors, the commencement of proceedings under
any bankruptcy, reorganization or arrangement laws by or against Lessee, or
any other act of bankruptcy on the part of Lessee.
18. REMEDIES OF LESSOR. At any time after the occurrence of any Event
of Default, Lessor may exercise one or more of the following remedies: (a)
Lessor may terminate any or all of the Leases with respect to any or all items
of Equipment subject thereto; (b) Lessor may recover from Lessee all Rent and
other amounts then due and to become due under any or all of the Leases; (c)
Lessor may take possession of any or all items of Equipment, wherever the
same may be located, without demand or notice, without any court order or
other process of law and without liability to Lessee for any damages
occasioned by such taking of possession, and any such taking of possession
shall not constitute a termination of any Lease; (d) Lessor may demand that
Lessee return any or all items of Equipment to Lessor in accordance with
Paragraph 16; and (e) Lessor may pursue any other remedy available at law or
in equity, including, without limitation, seeking damages, specific
performance or an injunction.
Upon repossession or return of any item of the Equipment, Lessor shall
sell, lease or otherwise dispose of such item in a commercially reasonable
manner, with or without notice and on public or private bid, and apply the
net proceeds thereof (after deducting the estimated fair market value of such
item at the expiration of the term of the applicable Lease, in the case of a
sale, or the rents due for any period beyond the scheduled expiration of such
Lease, in the case of any subsequent lease of such item, and all expenses,
including, without limitation, reasonable attorneys' fees, incurred in
connection therewith) towards the Rent and other amounts due under such
Lease, with any excess net proceeds to be retained by Lessor.
Each of the remedies under this Lease shall be cumulative, and not
exclusive, and in addition to any other remedy referred to herein or
otherwise available to Lessor in law or in equity. Any repossession or
subsequent sale or lease by Lessor of any item of Equipment shall not bar an
action for a deficiency as herein provided, and the bringing of an action or
the entry of judgment against Lessee shall not bar Lessor's right to
repossess any or all items of Equipment.
19. CREDIT AND FINANCIAL INFORMATION. Within 90 days of the close of
each of Lessee's fiscal years, Lessee shall deliver to Lessor a copy of
Lessee's annual report, if any, and an audited balance sheet and profit and
loss statement with respect to such year. If audited financial statements of
Lessee for such year are not prepared, Lessee may provide financial
statements certified by an officer of Lessee. At Lessor's request, Lessee
shall deliver to Lessor a balance sheet and profit and loss statement for any
of its fiscal quarters, certified by an officer of Lessee.
20. INSURANCE. As of the date that risk of loss for the Equipment
passes from the Supplier to the Lessee under the terms of the Agreement,
Lessee shall obtain and maintain through the end of the Lease Term of each
Lease (and any renewal or extension thereof), at its own expense, property
damage and personal liability insurance and insurance against loss or damage
to the Equipment, including, without limitation, loss by fire (with extended
coverage), theft and such other risks of loss as are customarily insured
against with respect to the types of Equipment leased hereunder and by the
types of businesses in which such Equipment will be used by Lessee. Such
insurance shall be in such amounts, with such deductibles, in such form and
with such insurers as shall be satisfactory to Lessor; provided, however,
that the amount of the insurance against loss or damage to the Equipment
shall not be less than the greater of the replacement value of the Equipment,
from time to time, or the original purchase price of the Equipment. Each
insurance policy shall name Lessee as an insured and Lessor as an additional
insured or loss payee, and shall contain a clause requiring the insurer to
give Lessor at least 30 days prior written notice of any alteration in the
terms of such policy or of the cancellation thereof. Lessee shall furnish to
Lessor a certificate of insurance or other evidence satisfactory to Lessor
that such insurance coverage is in effect; provided, however, that Lessor
shall be under no duty either to ascertain the existence of or to examine
such insurance policy or to advise Lessee in the event such insurance
coverage shall not comply with the requirements hereof. Lessee shall give
Lessor prompt notice of any damage to, or loss of, any of the Equipment, or
any part thereof, or any personal injury or property damage occasioned by the
use of any of the Equipment.
21. TAXES. Lessee hereby assumes liability for, and shall pay when due,
and, on a net after-tax basis, shall indemnify, protect and hold harmless
Lessor against all fees, taxes and governmental charges (including, without
limitation, interest and penalties) of any nature imposed on or in any way
relating to Lessor. Lessee, any item of Equipment or any Lease, except state
and local taxes on or measured by Lessor's net income (other than any such
tax which is in substitution for or relieves Lessee from the payment of taxes
it would otherwise be obligated to pay or reimburse to Lessor as herein
provided) and federal taxes on Lessor's net income. Lessee shall, at its
expense, file when due with the appropriate authorities any and all tax and
similar returns, and reports required to be filed with respect thereto, for
which it has indemnified Lessor hereunder or, if requested by Lessor, notify
Lessor of all such requirements and furnish Lessor with all information
required for Lessor to effect such filings. Any fees, taxes or other charges
paid by Lessor upon failure of Lessee to make such payments shall, at
Lessor's option, become immediately due from Lessee to Lessor and shall be
subject to the Overdue Charge from the date paid by Lessor until the date
reimbursed by Lessee.
22. SEVERABILITY. If any provision of any Lease is held to be invalid
by a court of competent jurisdiction, such invalidity shall not affect the
other provisions of such Lease or any provision of any other Lease.
23. NOTICES. All notices hereunder shall be in writing and shall be
deemed given when sent by certified mail, postage prepaid, return receipt
requested, addressed to the party to which it is being sent at its address
set forth herein or to such other address as such party may designate in
writing to the other party.
24. AMENDMENTS, WAIVERS AND EXTENSIONS. This MLA and each Schedule
constitute the entire agreement between Lessor and Lessee with respect to the
lease of the Equipment subject to such Schedule, and supersede all previous
communications, understandings, and agreements, whether oral or written,
between the parties with respect to such subject matter. No provision of any
Lease may be changed, waived, amended or terminated except by a written
agreement, specifying such change, waiver, amendment or termination, signed
by both Lessee and Lessor, except that Lessor may insert, on the appropriate
schedule, the serial number of Equipment, after delivery of such equipment,
and the Installation Date for the Equipment, after receiving a Certificate of
Installation with respect thereto. No waiver by Lessor of any Event of
Default shall be construed as a waiver of any future Event of Default or any
other Event of Default. At the expiration of the Lease Term with respect to a
Lease, upon notice given by Lessee at least ninety (90) days prior thereto,
(a) such Lease shall be renewed or the Equipment subject thereto shall be
purchased under the terms and conditions set forth herein for a term and rent
amount or purchase price, as the case may be, to be agreed upon, or (b) if no
such agreement is reached prior to the expiration of such Lease Term or such
notice specifies that Lessee intends to return the Equipment, then Lessee
shall return the Equipment to Lessor in the manner prescribed in Paragraph 16
of this MLA. In the absence of Lessor's timely receipt of the notice
contemplated by the preceding sentence, the Lease shall be automatically
extended, on a month-to-month basis, until terminated (upon notice by either
party given at least ninety (90) days prior to the end of the month on which
the termination is to be effective) or until renewed or the Equipment subject
thereto is purchased by agreement of the parties. Unless otherwise agreed,
Lessee shall continue to pay Rent for each month following such Lease Term
until the Equipment subject to such Lease is returned pursuant to Paragraph
16 of this MLA.
25. CONSTRUCTION. This MLA shall be governed by and construed in
accordance with the internal laws, but not the choice of laws provisions, of
the State of California. The titles of the sections of this MLA are for
convenience only and shall not define or limit any of the terms or provisions
hereof. Time is of the essence in each of the provisions hereof.
26. PARTIES. This MLA shall be binding upon, and inure to the benefit
of, the permitted assigns, representatives and successors of the Lessor and
Lessee. If there is more than one Lessee named in this MLA, the liability of
each shall be joint and several.
27. COUNTERPARTS. Each Lease may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
28. OVERDUE CHARGE. Overdue Charge shall mean an amount equal to 2% per
month of any payment under a Lease which is past due, including, without
limitation, any amounts not included in any payment of Rent hereunder, or the
highest charge permitted by law, whichever is lower.
The person executing this MLA on behalf of Lessee hereby certifies that he or
she has read, and is duly authorized to execute, this MLA.
Accepted by:
Website Management Company, Inc.
Ascend Credit Corporation LESSEE: dba FlashNet Communications
------------------------------------
BY: BY: /S/ M. SCOTT LESLIE
------------------------- ----------------------------------------
NAME: NAME: M. SCOTT LESLIE
----------------------- --------------------------------------
PRINT PRINT
TITLE: TITLE: President
----------------------- -------------------------------------
DATE: DATE: June 7, 1996
----------------------- --------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ADDENDUM
This Addendum is to Master Lease Agreement No. 9018, by and between Ascend
Credit Corporation ("Lessor") and Website Management Company, Inc. dba
Flashnet Communications ("Lessee").
In Section 17. EVENTS OF DEFAULT, item (e): the word "insolvency" is replaced
with the words "inability to pay debts when due".
Except as modified by this Addendum, the terms and conditions of the Master
Lease Agreement shall remain in full force and effect.
ACCEPTED BY:
LESSOR: LESSEE:
ASCEND CREDIT CORPORATION WEBSITE MANAGEMENT COMPANY, INC. DBA
FLASHNET COMMUNICATIONS
BY: /s/ Mark E. Alman BY: /s/ M. Scott Leslie
---------------------------- ---------------------------------
NAME: Mark E. Alman NAME: M. Scott Leslie
-------------------------- -------------------------------
TITLE: Corporate Finance Mgr. TITLE: President
------------------------- ------------------------------
DATE: 6/14/96 DATE: June 7, 1996
----------------------- -------------------------------
<PAGE>
ASCEND CREDIT CORPORATION
1275 HARBOR BAY PARKWAY
ALAMEDA, CA 94502
[LOGO]
TEL. (310) 747-2772
FAX (310)337-2668
March 27, 1997
Mr. Scott Leslie
Website Management Company, Inc, dba FlashNet Communications
2805 West Seventh Street
Fort Worth, TX 76107
Re: Master Lease 9018, Schedule No. 1
By signing the acknowledgment below you agree the equipment is operating to
expectations and to the following revision of the above referenced Lease and
Schedule.
Due to equipment problems the Lease and Schedule referenced above have been
amended to reflect the following payment and term restructure. No payments
are due from Website Management Company, Inc, dba FlashNet Communications for
the period December 1, 1996 to March 31, 1997. Monthly rental payments in the
amount of $3,970.20 (net of tax) will resume effective April 1, 1997 and will
continue through September 30, 1998, An interim rent payment of $1,152.66
will be made for the period of October 1, 1998 through October 10, 1998. This
revision extends the original lease term from 24 months to 28 months.
Acknowledged and Accepted
Ascend Credit Corporation Website Management Company, Inc. dba
FlashNet Communications
BY: /S/ MARK E. ALMAN BY: /S/ M. SCOTT LESLIE
------------------------- ---------------------------------
NAME: MARK E. ALMAN NAME: M. SCOTT LESLIE
----------------------- -------------------------------
TITLE: CORP. FINANCE MGR. TITLE: PRESIDENT
---------------------- ------------------------------
DATE: 3-28-97 DATE: 3/27/97
----------------------- -------------------------------
<PAGE>
LEASE SCHEDULE
No. 01
---------
This Schedule and its supplements incorporate by this reference the terms and
conditions of the Master Lease Agreement, Number 9018
-----------------------------
between Ascend Credit Corporation (Lessor) and
Website Management Company, Inc. dba FlashNet Communications (Lessee).
- -------------------------------------------------------------
1. SUPPLIER: Ascend Communications, Inc.
-----------------------------------------------------------------
2. LOCATION OF EQUIPMENT: FlashNet Communications, 2805 West Seventh Street,
---------------------------------------------------
Fort Worth, TX 76107
--------------------------------------------------------------------------
3. EQUIPMENT VALUE: $ 84,924.00 (exclusive of sales and/or use taxes).
----------------
4. LEASE TERM: The Lease Term of the Equipment described in this Schedule
shall begin on the Rent Commencement Date referenced below in Paragraph 6
and its expiration date shall be 24 months after such Rent
-----
Commencement Date.
5. RENT: $ 3,970.20 per month (exclusive of sales and/or use taxes) due and
-------------
payable at the Rent Commencement Date and on the same date of each
succeeding month of the Lease Term. The advance Rent payment shall be
$ 3,970.20. This amount is $ N/A for the first month,
----------- --------------
$ 3,970.20 for the last 1 month(s), of the Lease Term.
-------------- -----
6. RENT COMMENCEMENT DATE: July 10, 1996 .
------------------
7. PURCHASE OPTION: Lessee shall have the option to purchase the Equipment
for Fair Market Value ("FMV"), not to exceed seven percent (7%) of the
Equipment value, on the expiration of this Lease or any renewal term,
provided Lessee is not in default of any of its obligations under this
Lease on such expiration date. This purchase option may only be
exercised by Lessee's written notice to Lessor not earlier than 180 days,
nor later than 90 days, prior to the end of the Lease Term or any
renewal term. The purchase price for such Equipment shall be payable
upon the expiration date of such term. FMV shall be equal to the value
of the Equipment installed and in use, with consideration given to the
age, condition, utility and replacement costs for the Equipment. In the
event that Lessor and Lessee are unable to agree upon the purchase price
for the Equipment, such purchase price will be determined by an
independent appraiser to be selected by Lessor. Lessee shall be
responsible for all applicable sales and/or use taxes on the Equipment.
Upon exercise of this purchase option and payment of the purchase price,
Lessor shall execute and deliver to Lessee such documents as Lessee may
reasonably request in order to vest in Lessee all right, title and
interest in the Equipment.
8. RENEWAL OPTION: Lessee shall have the option to renew this Lease, on the
expiration date of this Lease or any renewal term, for the fair market
rental for the continued use of the Equipment ("FMR") and on such other
terms as may be agreed upon by Lessor and Lessee prior to such
expiration date, provided Lessee is not in default of any of its
obligations under this lease on such expiration date. This renewal
option may only be exercised by Lessee's written notice to Lessor not
earlier than 180 days, nor later than 90 days, prior to the end of the
Lease Term or any renewal term. FMR shall be equal to the value of the
monthly rental of the Equipment installed and in use, with consideration
given to the age, condition, utility and replacement costs for the
Equipment, for the renewal term.
9. TAX BENEFITS: Lessee understands that Lessor intends to claim the "Tax
Benefits", consisting of the maximum Modified Accelerated Cost Recovery
System deductions for the minimum useful life applicable to each item of
Equipment, as provided by Sections 168(b) and (c) of the Internal
Revenue Code of 1986, and analogous benefits under state law, with
respect to the Equipment. Lessee represents and warrants that: (i)
Lessee has not been, is not now, and during the term of this Lease will
not become, and will not allow the Equipment to be used by or leased to,
a tax-exempt entity or government agency; and (ii) Lessee is not now,
and during the term of this Lease will not become, a public utility.
Without limitation by the preceding sentence, Lessee agrees not to take
any action, fail to take any action, or misstate any fact which may
result in any loss to Lessor of the Tax Benefits.
Lessee agrees to pay promptly to Lessor an amount which will fully
compensate Lessor, on an after-tax basis, for any loss of the Tax
Benefits, plus interest, penalties and additions to tax, any loss in
time value of the Tax Benefits, and any taxes imposed on any such
compensation payment, resulting from Lessee's acts, omissions or
misstatements, including, without limitation, with respect to the
representations and warranties in the preceding paragraph. A loss of Tax
Benefits occurs at the earliest of: (i) the happening of any event
causing the loss; (ii) payment by Lessor of any additional tax resulting
from the loss; or (iii) any adjustment to the tax return of Lessor.
Lessor's right to recovery of a loss of Tax Benefits shall survive the
expiration or termination of this Lease.
10. DESCRIPTION OF EQUIPMENT: See Schedule A which is attached hereto and
made a part hereof by this reference.
The person executing this Schedule on behalf of Lessee hereby certifies that
he or she has read, and is duly authorized to execute, this Schedule
Accepted by:
Ascend Credit Corporation LESSEE: Website Management Company, Inc. dba
FlashNet Communications
------------------------------------
BY: /s/ Mark E. Alman BY: /s/ M. Scott Leslie
------------------------------ ----------------------------------------
NAME: Mark E. Alman NAME: M. Scott Leslie
----------------------------- ---------------------------------------
Print Print
TITLE: Corporate Finance Mgr. TITLE: President
---------------------------- --------------------------------------
DATE: 6/14/96 DATE: June 7, 1996
----------------------------- ---------------------------------------
<PAGE>
[LETTERHEAD] [LOGO]
March 27, 1997
Mr. Scott Leslie
Website Management Company, Inc. dba FlashNet Communications
2805 West Seventh Street
Fort Worth, TX 76107
Re: Master Lease 9018, Schedule No. 2
By signing the acknowledgment below you agree the equipment is operating to
expectations and to the following revision of the above referenced Lease and
Schedule.
Due to equipment problems the Lease and Schedule referenced above have been
amended to reflect the following payment and term restructure. No payments
are due from Website Management Company, Inc. dba FlashNet Communications for
the period December 1, 1996 to March 31, 1997. Monthly rental payments in the
amount of $6,438.18 (net of tax) will resume effective April 1, 1997 and will
continue through September 30, 1998. An interim rent payment of $3,946.02
will be made for the period of October 1, 1998 through October 20, 1998. This
revision extends the original lease term from 24 months to 28 months.
Acknowledged and Accepted
Ascend Credit Corporation Website Management Company, Inc. dba
FlashNet Communications
By: /s/ Mark E. Alman By: /s/ M. Scott Leslie
------------------------------ ------------------------------------
Name: Mark E. Alman Name: M. Scott Leslie
----------------------------- -----------------------------------
Title: Corp. Finance Mgr. Title: President
---------------------------- ----------------------------------
Date: 3-28-97 Date: 3/27/97
----------------------------- -----------------------------------
<PAGE>
LEASE SCHEDULE
No. 02
---------
This Schedule and its supplements incorporate by this reference the terms and
conditions of the Master Lease Agreement, Number 9018,
-----------------------------
between Ascend Credit Corporation (Lessor) and
Website Management Company, Inc. dba FlashNet Communications (Lessee).
- -------------------------------------------------------------
1. SUPPLIER: Ascend Communications, Inc.
-----------------------------------------------------------------
2. LOCATION OF EQUIPMENT: FlashNet Communications, 2805 West Seventh Street,
---------------------------------------------------
Fort Worth, TX 76107
--------------------------------------------------------------------------
3. EQUIPMENT VALUE: $ 137,715.00 (exclusive of sales and/or use taxes).
----------------
4. LEASE TERM: The Lease Term of the Equipment described in this Schedule
shall begin on the Rent Commencement Date referenced below in Paragraph 6
and its expiration date shall be 24 months after such Rent
-----
Commencement Date.
5. RENT: $ 6,438.18 per month (exclusive of sales and/or use taxes) due and
-------------
payable at the Rent Commencement Date and on the same date of each
succeeding month of the Lease Term. The advance Rent payment shall be
$ 6,438.18 . This amount is $ N/A for the first month,
---------------- --------------
$ 6,438.18 for the last 1 month(s), of the Lease Term.
-------------- -----
6. RENT COMMENCEMENT DATE: July 20, 1996
------------------
7. PURCHASE OPTION: Lessee shall have the option to purchase the Equipment
for Fair Market Value ("FMV"), not to exceed seven percent (7%) of the
Equipment value, on the expiration of this Lease or any renewal term,
provided Lessee is not in default of any of its obligations under this
Lease on such expiration date. This purchase option may only be
exercised by Lessee's written notice to Lessor not earlier than 180 days,
nor later than 90 days, prior to the end of the Lease Term or any
renewal term. The purchase price for such Equipment shall be payable
upon the expiration date of such term. FMV shall be equal to the value
of the Equipment installed and in use, with consideration given to the
age, condition, utility and replacement costs for the Equipment. In the
event that Lessor and Lessee are unable to agree upon the purchase price
for the Equipment, such purchase price will be determined by an
independent appraiser to be selected by Lessor. Lessee shall be
responsible for all applicable sales and/or use taxes on the Equipment.
Upon exercise of this purchase option and payment of the purchase price,
Lessor shall execute and deliver to Lessee such documents as Lessee may
reasonably request in order to vest in Lessee all right, title and
interest in the Equipment.
8. RENEWAL OPTION: Lessee shall have the option to renew this Lease, on the
expiration date of this Lease or any renewal term, for the fair market
rental for the continued use of the Equipment ("FMR") and on such other
terms as may be agreed upon by Lessor and Lessee prior to such
expiration date, provided Lessee is not in default of any of its
obligations under this lease on such expiration date. This renewal
option may only be exercised by Lessee's written notice to Lessor not
earlier than 180 days, nor later than 90 days, prior to the end of the
Lease Term or any renewal term. FMR shall be equal to the value of the
monthly rental of the Equipment installed and in use, with consideration
given to the age, condition, utility and replacement costs for the
Equipment, for the renewal term.
9. TAX BENEFITS: Lessee understands that Lessor intends to claim the "Tax
Benefits", consisting of the maximum Modified Accelerated Cost Recovery
System deductions for the minimum useful life applicable to each item of
Equipment, as provided by Sections 168(b) and (c) of the Internal
Revenue Code of 1986, and analogous benefits under state law, with
respect to the Equipment. Lessee represents and warrants that: (i)
Lessee has not been, is not now, and during the term of this Lease will
not become, and will not allow the Equipment to be used by or leased to,
a tax-exempt entity or government agency; and (ii) Lessee is not now,
and during the term of this Lease will not become, a public utility.
Without limitation by the preceding sentence, Lessee agrees not to take
any action, fail to take any action, or misstate any fact which may
result in any loss to Lessor of the Tax Benefits.
Lessee agrees to pay promptly to Lessor an amount which will fully
compensate Lessor, on an after-tax basis, for any loss of the Tax
Benefits, plus interest, penalties and additions to tax, any loss in
time value of the Tax Benefits, and any taxes imposed on any such
compensation payment, resulting from Lessee's acts, omissions or
misstatements, including, without limitation, with respect to the
representations and warranties in the preceding paragraph. A loss of Tax
Benefits occurs at the earliest of: (i) the happening of any event
causing the loss; (ii) payment by Lessor of any additional tax resulting
from the loss; or (iii) any adjustment to the tax return of Lessor.
Lessor's right to recovery of a loss of Tax Benefits shall survive the
expiration or termination of this Lease.
10. DESCRIPTION OF EQUIPMENT: See Schedule A which is attached hereto and
made a part hereof by this reference.
The person executing this Schedule on behalf of Lessee hereby certifies that
he or she has read, and is duly authorized to execute, this Schedule
Accepted by:
Ascend Credit Corporation LESSEE: Website Management Company, Inc. dba
FlashNet Communications
------------------------------------
BY: /s/ Mark E. Alman BY: /s/ M. Scott Leslie
------------------------------ ----------------------------------------
NAME: Mark E. Alman NAME: M. Scott Leslie
----------------------------- ---------------------------------------
Print Print
TITLE: Corporate Finance Mgr. TITLE: President
---------------------------- --------------------------------------
DATE: 6/14/96 DATE: June 7, 1996
----------------------------- ---------------------------------------
<PAGE>
[LETTERHEAD] [LOGO]
March 27, 1997
Mr. Scott Leslie
Website Management Company, Inc. dba FlashNet Communications
2805 West Seventh Street
Fort Worth, TX 76107
Re: Master Lease 9018, Schedule No. 3
By signing the acknowledgment below you agree the equipment is operating to
expectations and to the following revision of the above referenced Lease and
Schedule.
Due to equipment problems the Lease and Schedule referenced above have been
amended to reflect the following payment and term restructure. No payments
are due from Website Management Company, Inc. dba FlashNet Communications for
the period December 1, 1996 to March 31, 1997. Monthly rental payments in the
amount of $3,862.91 (net of tax) will resume effective April 1, 1997 and
will continue through October 31, 1998. An interim rent payment of $1,993.76
will be made for the period of November 1, 1998 through November 17, 1998.
This revision extends the original lease term from 24 months to 28 months.
Acknowledged and Accepted
Ascend Credit Corporation Website Management Company, Inc. dba
FlashNet Communications
By: /s/ Mark E. Alman By: /s/ M. Scott Leslie
------------------------------ ------------------------------------
Name: Mark E. Alman Name: M. Scott Leslie
----------------------------- -----------------------------------
Title: Corporate Finance Mgr. Title: President
---------------------------- ----------------------------------
Date: 3-28-97 Date: 3/27/97
----------------------------- -----------------------------------
<PAGE>
- -------------------------------------------------------------------------------
LEASE SCHEDULE NO. 03
----------
This Schedule and its supplements incorporate by this reference the terms and
conditions of the Master Lease Agreement, Number 9018 between Ascend Credit
Corporation (Lessor) and Website Management Company, Inc. dba FlashNet
Communications (Lessee).
1. SUPPLIER: Ascend Communications, Inc.
2. LOCATION OF EQUIPMENT: FlashNet Communications, 2805 West Seventh
Street, Fort Worth, TX 76107
3. EQUIPMENT VALUE: $82,629.00 (exclusive of sales and/or use taxes).
4. LEASE TERM: The Lease Term of the Equipment described in this Schedule
shall begin on the Rent Commencement Date referenced below in Paragraph
6 and its expiration date shall be 24 months after such Rent
Commencement Date.
5. RENT: $3,862.91 per month (exclusive of sales and/or use taxes) due and
payable at the Rent Commencement Date and on the same date of each
succeeding month of the Lease Term. The advance Rent payment shall be
$3,862.91. This amount is $ N/A for the first month, $3,862.91 for the
last 1 month(s), of the Lease Term.
6. RENT COMMENCEMENT DATE: August 17, 1996
7. PURCHASE OPTION: Lessee shall have the option to purchase the Equipment
for its fair market value for continued use ("FMV"), on the expiration
of this Lease or any renewal term, provided Lessee is not in default of
any of its obligations under this Lease on such expiration date. This
purchase option may only be exercised by Lessee's written notice to
Lessor not earlier than 180 days, nor later than 90 days, prior to the
end of the Lease Term or any renewal term. The purchase price for such
Equipment shall be payable upon the expiration date of such term. FMV
shall be equal to the value of the Equipment installed and in use, with
consideration given to the age, condition, utility and replacement costs
for the Equipment. In the event that Lessor and Lessee are unable to
agree upon the purchase price for the Equipment, such purchase price
will be determined by an independent appraiser to be selected by Lessor.
Lessee shall be responsible for all applicable sales and/or use taxes on
the Equipment. Upon exercise of this purchase option and payment of the
purchase price, Lessor shall execute and deliver to Lessee such
documents as Lessee may reasonably request in order to vest in Lessee
all right, title and interest in the Equipment.
8. RENEWAL OPTION: Lessee shall have the option to renew this Lease, on the
expiration date of this Lease or any renewal term, for the fair market
rental for the continued use of the Equipment ("FMR") and on such other
terms as may be agreed upon by Lessor and Lessee prior to such
expiration date, provided Lessee is not in default of any of its
obligations under this lease on such expiration date. This renewal
option may only be exercised by Lessee's written notice to Lessor not
earlier than 180 days, nor later than 90 days, prior to the end of the
Lease Term or any renewal term. FMR shall be equal to the value of the
monthly rental of the Equipment installed and in use, with consideration
given to the age, condition, utility and replacement costs for the
Equipment, for the renewal term.
9. TAX BENEFITS: Lessee understands that Lessor intends to claim the "Tax
Benefits", consisting of the maximum Modified Accelerated Cost Recovery
System deductions for the minimum useful life applicable to each item of
Equipment, as provided by Sections 168(b) and (c) of the Internal
Revenue Code of 1986, and analogous benefits under state law, with
respect to the Equipment. Lessee represents and warrants that: (i)
Lessee has not been, is not now, and during the term of this Lease will
not become, and will not allow the Equipment to be used by or leased to,
a tax-exempt entity or government agency; and (ii) Lessee is not now,
and during the term of this Lease will not become, a public utility.
Without limitation by the preceding sentence, Lessee agrees not to take
any action, fail to take any action, or misstate any fact which may
result in any loss to Lessor of the Tax Benefits.
Lessee agrees to pay promptly to Lessor an amount which will fully
compensate Lessor, on an after-tax basis, for any loss of the Tax
Benefits, plus interest, penalties and additions to tax, any loss in
time value of the Tax Benefits, and any taxes imposed on any such
compensation payment, resulting from Lessee's acts, omissions or
misstatements, including, without limitation, with respect to the
representations and warranties in the preceding paragraph. A loss of Tax
Benefits occurs at the earliest of: (i) the happening of any event
causing the loss: (ii) payment by Lessor of any additional tax resulting
from the loss; or (iii) any adjustment to the tax return of Lessor.
Lessor's right to recovery of a loss of Tax Benefits shall survive the
expiration or termination of this Lease.
10. DESCRIPTION OF EQUIPMENT: See Schedule A which is attached hereto and
made a part hereof by this reference.
The person executing this Schedule on behalf of Lessee hereby certifies that
he or she has read, and is duly authorized to execute, this Schedule.
Accepted by:
Website Management Company, Inc. dba
Ascend Credit Corporation LESSEE: FlashNet Communications
------------------------------------
BY: /s/ MARK E. ALMAN BY: /s/ M. SCOTT LESLIE
-------------------------- ----------------------------------------
NAME: MARK E. ALMAN NAME: M. SCOTT LESLIE
------------------------ --------------------------------------
PRINT PRINT
TITLE: CORPORATE FINANCE MGR. TITLE: PRESIDENT
------------------------ -------------------------------------
DATE: 7/24/96 DATE: June 16, 1996
------------------------ --------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ASCEND CREDIT CORPORATION
1275 HARBOR BAY PARKWAY
ALAMEDA, CA 94502
[LOGO]
TEL. (310) 747-2773
FAX (310) 337-2668
March 27, 1997
Mr. Scott Leslie
Website Management Company, Inc. dba FlashNet Communications
2805 West Seventh Street
Fort Worth, TX 76107
Re: Master Lease 9018, Schedule No. 4
By signing the acknowledgment below you agree the equipment is operating to
expectations and to the following revision of the above referenced Lease and
Schedule.
Due to equipment problems the Lease and Schedule referenced above have been
amended to reflect the following payment and term restructure. No payments
are due from Website Management Company, Inc. dba FlashNet Communications for
the period September 19, 1996 to March 31, 1997. Monthly rental payments in
the amount of $9,013.45 (net of tax) will resume effective April 1, 1997 and
will continue through March 31, 1999. This revision extends the original
lease term from 24 months to 30 months.
Acknowledged and Accepted
Ascend Credit Corporation Website Management Company, Inc. dba
FlashNet Communications
BY: /s/ MARK E. ALMAN BY: /s/ M. SCOTT LESLIE
----------------------------- ----------------------------------------
NAME: MARK E. ALMAN NAME: M. SCOTT LESLIE
--------------------------- --------------------------------------
TITLE: CORPORATE FINANCE MANAGER TITLE: PRESIDENT
--------------------------- -------------------------------------
DATE: 3/28/97 DATE: 3/27/97
--------------------------- --------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
LEASE SCHEDULE No. 04
---------
This Schedule and its supplements incorporate by this reference the terms and
conditions of the Master Lease Agreement Number 9018 between Ascend Credit
Corporation (Lessor) and Website Management Company, Inc. dba FlashNet
Communications (Lessee).
1. SUPPLIER: Ascend Communications
2. LOCATION OF EQUIPMENT 2805 West Seventh Street, Fort Worth, TX 76107
3. EQUIPMENT VALUE: $192,801.00 (exclusive of sales and/or use taxes).
4. LEASE TERM: The Lease Term of the Equipment described in this Schedule
shall begin on the Rent Commencement Date referenced below in Paragraph
6 and its expiration date shall be 24 months after such Rent
Commencement Date.
5. RENT: $9,013.45 per month (exclusive of sales and/or use taxes) due and
payable at the Rent Commencement Date and on the same date of each
succeeding month of the Lease Term. The advance Rent payment shall be
$9,013.45. This amount is $ N/A for the first month, $9,013.45 for the last
1 month(s), of the Lease Term.
6. RENT COMMENCEMENT DATE: 9/19/96
7. PURCHASE OPTION: Lessee shall have the option to purchase the Equipment
for its Fair Market Value ("FMV"), not to exceed seven percent (7%) of the
Equipment value, on the expiration of this Lease or any renewal term,
provided Lessee is not in default of any of its obligations under this
Lease on such expiration date. This purchase option may only be
exercised by Lessees written notice to Lessor not earlier than 180 days,
nor later than 90 days, prior to the end of the Lease Term or any
renewal term. The purchase price for such Equipment shall be payable
upon the expiration date of such term. FMV shall be equal to the value
of the Equipment installed and in use, with consideration given to the
age, condition, utility and replacement costs for the Equipment. In the
event that Lessor and Lessee are unable to agree upon the purchase price
for the Equipment, such purchase price will be determined by an
independent appraiser to be selected by Lessor. Lessee shall be
responsible for all applicable sales and/or use taxes on the Equipment.
Upon exercise of this purchase option and payment of the purchase price,
Lessor shall execute and deliver to Lessee such documents as Lessee may
reasonably request in order to vest in Lessee all right, title and
interest in the Equipment.
8. RENEWAL OPTION: Lessee shall have the option to renew this Lease, on the
expiration date of this Lease or any renewal term, for the fair market
rental for the continued use of the Equipment ("FMR") and on such other
terms as may be agreed upon by Lessor and Lessee prior to such
expiration date, provided Lessee is not in default of any of its
obligations under this lease on such expiration date. This renewal
option may only be exercised by Lessee's written notice to Lessor not
earlier than 180 days, nor later than 90 days, prior to the end of the
Lease Term or any renewal term. FMR shall be equal to the value of the
monthly rental of the Equipment installed and in use, with consideration
given to the age, condition, utility and replacement costs for the
Equipment, for the renewal term.
9. TAX BENEFITS: Lessee understands that Lessor intends to claim the "Tax
Benefits", consisting of the maximum Modified Accelerated Cost Recovery
System deductions for the minimum useful life applicable to each item of
Equipment, as provided by Sections 168(b) and (c) of the Internal
Revenue Code of 1986, and analogous benefits under state law, with
respect to the Equipment. Lessee represents and warrants that: (i)
Lessee has not been, is not now, and during the term of this Lease will
not become, and will not allow the Equipment to be used by or leased to,
a tax-exempt entity or government agency; and (ii) Lessee is not now,
and during the term of this Lease will not become, a public utility.
Without limitation by the preceding sentence, Lessee agrees not to take
any action, fail to take any action, or misstate any fact which may
result in any loss to Lessor of the Tax Benefits.
Lessee agrees to pay promptly to Lessor an amount which will fully
compensate Lessor, on an after-tax basis, for any loss of the Tax
Benefits, plus interest, penalties and additions to tax, any loss in
time value of the Tax Benefits, and any taxes imposed on any such
compensation payment, resulting from Lessee's acts, omissions or
misstatements, including, without limitation, with respect to the
representations and warranties in the preceding paragraph. A loss of Tax
Benefits occurs at the earliest of: (i) the happening of any event
causing the loss: (ii) payment by Lessor of any additional tax resulting
from the loss; or (iii) any adjustment to the tax return of Lessor.
Lessor's right to recovery of a loss of Tax Benefits shall survive the
expiration or termination of this Lease.
10. DESCRIPTION OF EQUIPMENT: See Schedule A which is attached hereto and
made a part hereof by this reference.
The person executing this Schedule on behalf of Lessee hereby certifies that he
or she has read, and is duly authorized to execute, this Schedule
Accepted by:
Website Management Company, Inc. dba
Ascend Credit Corporation LESSEE: FlashNet Communications
BY: /s/ MARK E. ALMAN BY: /s/ WILLIAM F. KACZYNSKI JR.
-------------------------- ----------------------------------------
NAME: MARK E. ALMAN NAME: WILLIAM F. KACZYNSKI JR.
------------------------ --------------------------------------
PRINT PRINT
TITLE: CORPORATE FINANCE MGR. TITLE: CHIEF FINANCIAL OFFICER
------------------------ -------------------------------------
DATE: 8/24/96 DATE: August 19, 1996
------------------------ --------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ASCEND CREDIT CORPORATION
1275 HARBOR BAY PARKWAY
ALAMEDA, CA 94502
[LOGO]
TEL. (310) 747-2773
FAX (310) 337-2668
March 27, 1997
Mr. Scott Leslie
Website Management Company, Inc. dba FlashNet Communications
2805 West Seventh Street
Fort Worth, TX 76107
Re: Master Lease 9018, Schedule No. 5
By signing the acknowledgment below you agree the equipment is operating to
expectations and to the following revision of the above referenced Lease and
Schedule.
Due to equipment problems the Lease and Schedule referenced above have been
amended to reflect the following payment and term restructure. No payments
are due from Website Management Company, Inc. dba FlashNet Communications for
the period December 5, 1996 to March 31, 1997. Monthly rental payments in the
amount of $5,836.44 (net of tax) will resume effective April 1, 1997 and
will continue through March 31, 2000. This revision extends the original
lease term from 37 months to 41 months.
Acknowledged and Accepted
Ascend Credit Corporation Website Management Company, Inc. dba
FlashNet Communications
BY: /s/ MARK E. ALMAN BY: /s/ M. SCOTT LESLIE
-------------------------- ----------------------------------------
NAME: MARK E. ALMAN NAME: M. SCOTT LESLIE
------------------------ --------------------------------------
TITLE: CORP. FINANCE MGR. TITLE: PRESIDENT
------------------------ -------------------------------------
DATE: 3/28/97 DATE: 3/27/97
------------------------ --------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
LEASE SCHEDULE No. 05
---------
This Schedule and its supplements incorporate by this reference the terms and
conditions of the Master Lease Agreement, Number 9018, between Ascend Credit
Corporation (Lessor) and Website Management Company, Inc. dba FlashNet
Communications (Lessee).
1. SUPPLIER: Ascend Communication, Inc.
2. LOCATION OF EQUIPMENT: FlashNet Communications, 1812 N. Forest Park
Blvd., Fort Worth, TX 76102
3. EQUIPMENT VALUE: $195,264.00 (exclusive of sales and/or use taxes).
4. LEASE TERM: The Lease Term of the Equipment described in this Schedule
shall begin on the Rent Commencement Date referenced below in Paragraph
6 and its expiration date shall be 37 months after such Rent
Commencement Date.
5. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXX. SEE ADDENDUM
6. RENT COMMENCEMENT DATE: 11/5/96.
7. PURCHASE OPTION: Lessee shall have the option to purchase the Equipment
for Fair Market Value ("FMV"), not to exceed five percent (5%) of the
Equipment value, on the expiration of this Lease or any renewal term,
provided Lessee is not in default of any of its obligations under this
Lease on such expiration date. This purchase option may only be
exercised by Lessee's written notice to Lessor not earlier than 180 days,
nor later than 90 days, prior to the end of the Lease Term or any
renewal term. The purchase price for such Equipment shall be payable
upon the expiration date of such term. FMV shall be equal to the value
of the Equipment installed and in use, with consideration given to the
age, condition, utility and replacement costs for the Equipment. In the
event that Lessor and Lessee are unable to agree upon the purchase price
for the Equipment, such purchase price will be determined by an
independent appraiser to be selected by Lessor. Lessee shall be
responsible for all applicable sales and/or use taxes on the Equipment.
Upon exercise of this purchase option and payment of the purchase price,
Lessor shall execute and deliver to Lessee such documents as Lessee may
reasonably request in order to vest in Lessee all right, title and
interest in the Equipment.
8. RENEWAL OPTION: Lessee shall have the option to renew this Lease, on the
expiration date of this Lease or any renewal term, for the fair market
rental for the continued use of the Equipment ("FMR") and on such other
terms as may be agreed upon by Lessor and Lessee prior to such
expiration date, provided Lessee is not in default of any of its
obligations under this lease on such expiration date. This renewal
option may only be exercised by Lessee's written notice to Lessor not
earlier than 180 days, nor later than 90 days, prior to the end of the
Lease Term or any renewal term. FMR shall be equal to the value of the
monthly rental of the Equipment installed and in use, with consideration
given to the age, condition, utility and replacement costs for the
Equipment, for the renewal term.
9. TAX BENEFITS: Lessee understands that Lessor intends to claim the "Tax
Benefits", consisting of the maximum Modified Accelerated Cost Recovery
System deductions for the minimum useful life applicable to each item of
Equipment, as provided by Sections 168(b) and (c) of the Internal
Revenue Code of 1986, and analogous benefits under state law, with
respect to the Equipment. Lessee represents and warrants that: (i)
Lessee has not been, is not now, and during the term of this Lease will
not become, and will not allow the Equipment to be used by or leased to,
a tax-exempt entity or government agency; and (ii) Lessee is not now,
and during the term of this Lease will not become, a public utility.
Without limitation by the preceding sentence, Lessee agrees not to take
any action, fail to take any action, or misstate any fact which may
result in any loss to Lessor of the Tax Benefits.
Lessee agrees to pay promptly to Lessor an amount which will fully
compensate Lessor, on an after-tax basis, for any loss of the Tax
Benefits, plus interest, penalties and additions to tax, any loss in
time value of the Tax Benefits, and any taxes imposed on any such
compensation payment, resulting from Lessee's acts, omissions or
misstatements, including, without limitation, with respect to the
representations and warranties in the preceding paragraph. A loss of Tax
Benefits occurs at the earliest of: (i) the happening of any event
causing the loss; (ii) payment by Lessor of any additional tax resulting
from the loss; or (iii) any adjustment to the tax return of Lessor.
Lessor's right to recovery of a loss of Tax Benefits shall survive the
expiration or termination of this Lease.
10. DESCRIPTION OF EQUIPMENT: See Schedule A which is attached hereto and
made a part hereof by this reference.
The person executing this Schedule on behalf of Lessee hereby certifies that
he or she has read, and is duly authorized to execute, this Schedule
Accepted by:
Ascend Credit Corporation LESSEE: Website Management Company, Inc. dba
FlashNet Communications
BY: /s/ MARK E. ALMAN BY: /s/ WILLIAM F. KACZYNSKI, JR
-------------------------- ----------------------------------------
NAME: MARK E. ALMAN NAME: WILLIAM F. KACZYNSKI, JR
------------------------ --------------------------------------
PRINT PRINT
TITLE: CORP. FINANCE MGR. TITLE: CFO
------------------------ -------------------------------------
DATE: 10/11/96 DATE: 9/30/96
------------------------ --------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
ADDENDUM
This Addendum is to Schedule No. 5 (the "Schedule") to Master Lease
Agreement No. 9018, by and between Ascend Credit Corporation ("Lessor") and
Website Management Company, Inc. dba FlashNet Communications ("Lessee").
Paragraph 5 - Paragraph 5 is deleted and replaced by the following:
"Rent 19,526.40 for the first month (exclusive of sales and/or use taxes),
$5,836.44 for the next thirty-six months (exclusive of sales and/or use
taxes). The advance rental payment shall be $19,526.40. This amount
included $19,526.40 for the first month.
Except as modified by this Addendum, the terms and conditions of the Schedule
shall remain in full force and effect.
Accepted by:
Ascend Credit Corporation Lessee: Website Management Company, Inc. dba
FlashNet Communications
By: /s/ MARK E. ALMAN By: /s/ WILLIAM F. KACZYNSKI JR.
----------------------------- ----------------------------------------
Name: MARK E. ALMAN Name: WILLIAM F. KACZYNSKI JR.
--------------------------- --------------------------------------
Title: CORPORATE FINANCE MANAGER Title: CFO
--------------------------- -------------------------------------
Date: 10/11/96 Date: 9/30/96
--------------------------- --------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
LEASE SCHEDULE No. 06
----------
This Schedule and its supplements incorporate by this reference the terms and
conditions of the Master Lease Agreement, Number 9018, between Ascend Credit
Corporation (Lessor) and Website Management Company, Inc. dba FlashNet
Communications (Lessee).
1. SUPPLIER: Ascend Communication, Inc.
2. LOCATION OF EQUIPMENT: See Attachment A
3. EQUIPMENT VALUE: $2,034,000.00 (exclusive of sales and/or use taxes).
4. LEASE TERM: The Lease Term of the Equipment described in this Schedule
shall begin on the Rent Commencement Date referenced below in Paragraph
6 and its expiration date shall be 36 months after such Rent
Commencement Date.
5. RENT: $60,125.04 per month (exclusive of sales and/or use taxes) due and
payable at the Rent Commencement Date and on the same date of each
succeeding month of the Lease Term. The advance Rent payment shall be
$60,125.04. This amount is $ N/A for the first month and $60,125.04 for the
last 1 month(s), of the Lease Term.
6. RENT COMMENCEMENT DATE: April 29, 1997.
7. PURCHASE OPTION: Lessee shall have the option to purchase the Equipment
for its fair market value for continued use ("FMV"), on the expiration of
this Lease or any renewal term, provided Lessee is not in default of any
of its obligations under this Lease on such expiration date. This
purchase option may only be exercised by Lessee's written notice to Lessor
not earlier than 180 days, nor later than 90 days, prior to the end of
the Lease Term or any renewal term. The purchase price for such Equipment
shall be payable upon the expiration date of such term. FMV shall be
equal to the value of the Equipment installed and in use, with
consideration given to the age, condition, utility and replacement costs
for the Equipment. In the event that Lessor and Lessee are unable to
agree upon the purchase price for the Equipment, such purchase price will
be determined by an independent appraiser to be selected by Lessor.
Lessee shall be responsible for all applicable sales and/or use taxes on
the Equipment. Upon exercise of this purchase option and payment of the
purchase price, Lessor shall execute and deliver to Lessee such documents
as Lessee may reasonably request in order to vest in Lessee all right,
title and interest in the Equipment.
8. RENEWAL OPTION: Lessee shall have the option to renew this Lease, on the
expiration date of this Lease or any renewal term, for the fair market
rental for the continued use of the Equipment ("FMR") and on such other
terms as may be agreed upon by Lessor and Lessee prior to such
expiration date, provided Lessee is not in default of any of its
obligations under this lease on such expiration date. This renewal
option may only be exercised by Lessee's written notice to Lessor not
earlier than 180 days, nor later than 90 days, prior to the end of the
Lease Term or any renewal term. FMR shall be equal to the value of the
monthly rental of the Equipment installed and in use, with consideration
given to the age, condition, utility and replacement costs for the
Equipment, for the renewal term.
9. TAX BENEFITS: Lessee understands that Lessor intends to claim the "Tax
Benefits", consisting of the maximum Modified Accelerated Cost Recovery
System deductions for the minimum useful life applicable to each item of
Equipment, as provided by Sections 168(b) and (c) of the Internal
Revenue Code of 1986, and analogous benefits under state law, with
respect to the Equipment. Lessee represents and warrants that: (i)
Lessee has not been, is not now, and during the term of this Lease will
not become, and will not allow the Equipment to be used by or leased to,
a tax-exempt entity or government agency; and (ii) Lessee is not now,
and during the term of this Lease will not become, a public utility.
Without limitation by the preceding sentence, Lessee agrees not to take
any action, fail to take any action, or misstate any fact which may
result in any loss to Lessor of the Tax Benefits.
Lessee agrees to pay promptly to Lessor an amount which will fully
compensate Lessor, on an after-tax basis, for any loss of the Tax
Benefits, plus interest, penalties and additions to tax, any loss in
time value of the Tax Benefits, and any taxes imposed on any such
compensation payment, resulting from Lessee's acts, omissions or
misstatements, including, without limitation, with respect to the
representations and warranties in the preceding paragraph. A loss of Tax
Benefits occurs at the earliest of: (i) the happening of any event
causing the loss; (ii) payment by Lessor of any additional tax resulting
from the loss; or (iii) any adjustment to the tax return of Lessor.
Lessor's right to recovery of a loss of Tax Benefits shall survive the
expiration or termination of this Lease.
10. DESCRIPTION OF EQUIPMENT: See Schedule A which is attached hereto and
made a part hereof by this reference.
The person executing this Schedule on behalf of Lessee hereby certifies that
he or she has read, and is duly authorized to execute, this Schedule
Accepted by:
Ascend Credit Corporation LESSEE: Website Management Company, Inc. dba
FlashNet Communications
BY: /s/ MARK E. ALMAN BY: /s/ WILLIAM F. KACZYNSKI JR.
-------------------------- ----------------------------------------
NAME: MARK E. ALMAN NAME: WILLIAM F. KACZYNSKI JR.
------------------------ --------------------------------------
Print Print
TITLE: CORP. FINANCE MGR. TITLE: CFO
------------------------ -------------------------------------
DATE: 4/29/97 DATE: 4/28/97
------------------------ --------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
LEASE SCHEDULE No. 07
---------
This Schedule and its supplements incorporate by this reference the terms and
conditions of the Master Lease Agreement, Number 9018, between Ascend Credit
Corporation (Lessor) and Website Management Company, Inc. dba FlashNet
Communications (Lessee).
1. SUPPLIER: Ascend Communications, Inc.
2. LOCATION OF EQUIPMENT: See Attachment A
3. EQUIPMENT VALUE: $ (Confidential treatment has been requested)
(exclusive of sales and/or use taxes).
4. LEASE TERM: The Lease Term of the Equipment described in this Schedule
shall begin on the Rent Commencement Date referenced below in Paragraph
6 and its expiration date shall be 36 months after such Rent
Commencement Date.
5. RENT: $ (Confidential treatment has been requested) per month
(exclusive of sales and/or use taxes) due and payable at the Rent
Commencement Date and on the same date of each succeeding month of
the Lease Term. The advance Rent payment shall be $ (Confidential
treatment has been requested). This amount is $ N/A for the first
month and $ (Confidential treatment has been requested) for the last
1 month(s), of the Lease Term.
6. RENT COMMENCEMENT DATE: July 25, 1997
7. PURCHASE OPTION: Lessee shall have the option to purchase the Equipment
for its fair market value for continued use ("FMV"), on the expiration of
this Lease or any renewal term, provided Lessee is not in default of any
of its obligations under this Lease on such expiration date. This
purchase option may only be exercised by Lessee's written notice to
Lessor not earlier than 180 days, nor later than 90 days, prior to the
end of the Lease Term or any renewal term. The purchase price for such
Equipment shall be payable upon the expiration date of such term. FMV
shall be equal to the value of the Equipment installed and in use, with
consideration given to the age, condition, utility and replacement costs
for the Equipment. In the event that Lessor and Lessee are unable to
agree upon the purchase price for the Equipment, such purchase price will
be determined by an independent appraiser to be selected by Lessor.
Lessee shall be responsible for all applicable sales and/or use taxes on
the Equipment. Upon exercise of this purchase option and payment of the
purchase price, Lessor shall execute and deliver to Lessee such documents
as Lessee may reasonably request in order to vest in Lessee all right,
title and interest in the Equipment.
8. RENEWAL OPTION: Lessee shall have the option to renew this Lease, on the
expiration date of this Lease or any renewal term, for the fair market
rental for the continued use of the Equipment ("FMR") and on such other
terms as may be agreed upon by Lessor and Lessee prior to such
expiration date, provided Lessee is not in default of any of its
obligations under this lease on such expiration date. This renewal
option may only be exercised by Lessee's written notice to Lessor not
earlier than 180 days, nor later than 90 days, prior to the end of the
Lease Term or any renewal term. FMR shall be equal to the value of the
monthly rental of the Equipment installed and in use, with consideration
given to the age, condition, utility and replacement costs for the
Equipment, for the renewal term.
9. TAX BENEFITS: Lessee understands that Lessor intends to claim the "Tax
Benefits", consisting of the maximum Modified Accelerated Cost Recovery
System deductions for the minimum useful life applicable to each item of
Equipment, as provided by Sections 168(b) and (c) of the Internal
Revenue Code of 1986, and analogous benefits under state law, with
respect to the Equipment. Lessee represents and warrants that: (i)
Lessee has not been, is not now, and during the term of this Lease will
not become, and will not allow the Equipment to be used by or leased to,
a tax-exempt entity or government agency; and (ii) Lessee is not now,
and during the term of this Lease will not become, a public utility.
Without limitation by the preceding sentence, Lessee agrees not to take
any action, fail to take any action, or misstate any fact which may
result in any loss to Lessor of the Tax Benefits.
Lessee agrees to pay promptly to Lessor an amount which will fully
compensate Lessor, on an after-tax basis, for any loss of the Tax
Benefits, plus interest, penalties and additions to tax, any loss in
time value of the Tax Benefits, and any taxes imposed on any such
compensation payment, resulting from Lessee's acts, omissions or
misstatements, including, without limitation, with respect to the
representations and warranties in the preceding paragraph. A loss of Tax
Benefits occurs at the earliest of: (i) the happening of any event
causing the loss; (ii) payment by Lessor of any additional tax resulting
from the loss; or (iii) any adjustment to the tax return of Lessor.
Lessor's right to recovery of a loss of Tax Benefits shall survive the
expiration or termination of this Lease.
10. DESCRIPTION OF EQUIPMENT: See Schedule A which is attached hereto and
made a part hereof by this reference.
The person executing this Schedule on behalf of Lessee hereby certifies that he
or she has read, and is duly authorized to execute, this Schedule
Accepted by:
Ascend Credit Corporation LESSEE: Website Management Company, Inc. dba
FlashNet Communications
BY: /s/ MARK E. ALMAN BY: /s/ WILLIAM F. KACZYNSKI JR.
----------------------------- ----------------------------------------
NAME: MARK E. ALMAN NAME: WILLIAM F. KACZYNSKI JR.
--------------------------- --------------------------------------
Print Print
TITLE: CORPORATE FINANCE MANAGER TITLE: CFO
--------------------------- -------------------------------------
DATE: July 30, 1997 DATE: 7/28/97
------------------------ --------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
LEASE SCHEDULE No. 08
---------
This Schedule and its supplements incorporate by this reference the terms and
conditions of the Master Lease Agreement, Number 9018, between Ascend Credit
Corporation (Lessor) and Website Management Company, Inc. dba FlashNet
Communications (Lessee).
1. SUPPLIER: Ascend Communications, Inc.
2. LOCATION OF EQUIPMENT: 1812 N. Forest Park Blvd., Fort Worth, TX 76102
3. EQUIPMENT VALUE: (Confidential Treatment has been requested). (exclusive
of sales and/or use taxes).
4. LEASE TERM: The Lease Term of the Equipment described in this Schedule
shall begin on the Rent Commencement Date referenced below in Paragraph
6 and its expiration date shall be 36 months after such Rent
Commencement Date.
5. RENT: (Confidential Treatment has been requested). per month (exclusive
of sales and/or use taxes) due and payable at the Rent Commencement Date
and on the same date of each succeeding month of the Lease Term.
The advance Rent payment shall be $(Confidential Treatment has been
requested). This amount is $(Confidential Treatment has been requested).
for the first month and $(Confidential Treatment has been requested).
for the last N/A month(s), of the Lease Term.
6. RENT COMMENCEMENT DATE: .
7. PURCHASE OPTION: Lessee shall have the option to purchase the Equipment
for its fair market value for continued use ("FMV"), on the expiration of
this Lease or any renewal term, provided Lessee is not in default of any
of its obligations under this Lease on such expiration date. This
purchase option may only be exercised by Lessee's written notice to
Lessor not earlier than 180 days, nor later than 90 days, prior to the
end of the Lease Term or any renewal term. The purchase price for such
Equipment shall be payable upon the expiration date of such term. FMV
shall be equal to the value of the Equipment installed and in use, with
consideration given to the age, condition, utility and replacement costs
for the Equipment. In the event that Lessor and Lessee are unable to
agree upon the purchase price for the Equipment, such purchase price will
be determined by an independent appraiser to be selected by Lessor.
Lessee shall be responsible for all applicable sales and/or use taxes on
the Equipment. Upon exercise of this purchase option and payment of the
purchase price, Lessor shall execute and deliver to Lessee such documents
as Lessee may reasonably request in order to vest in Lessee all right,
title and interest in the Equipment.
8. RENEWAL OPTION: Lessee shall have the option to renew this Lease, on the
expiration date of this Lease or any renewal term, for the fair market
rental for the continued use of the Equipment ("FMR") and on such other
terms as may be agreed upon by Lessor and Lessee prior to such
expiration date, provided Lessee is not in default of any of its
obligations under this lease on such expiration date. This renewal
option may only be exercised by Lessee's written notice to Lessor not
earlier than 180 days, nor later than 90 days, prior to the end of the
Lease Term or any renewal term. FMR shall be equal to the value of the
monthly rental of the Equipment installed and in use, with consideration
given to the age, condition, utility and replacement costs for the
Equipment, for the renewal term.
9. TAX BENEFITS: Lessee understands that Lessor intends to claim the "Tax
Benefits", consisting of the maximum Modified Accelerated Cost Recovery
System deductions for the minimum useful life applicable to each item of
Equipment, as provided by Sections 168(b) and (c) of the Internal
Revenue Code of 1986, and analogous benefits under state law, with
respect to the Equipment. Lessee represents and warrants that: (i)
Lessee has not been, is not now, and during the term of this Lease will
not become, and will not allow the Equipment to be used by or leased to,
a tax-exempt entity or government agency; and (ii) Lessee is not now,
and during the term of this Lease will not become, a public utility.
Without limitation by the preceding sentence, Lessee agrees not to take
any action, fail to take any action, or misstate any fact which may
result in any loss to Lessor of the Tax Benefits.
Lessee agrees to pay promptly to Lessor an amount which will fully
compensate Lessor, on an after-tax basis, for any loss of the Tax
Benefits, plus interest, penalties and additions to tax, any loss in
time value of the Tax Benefits, and any taxes imposed on any such
compensation payment, resulting from Lessee's acts, omissions or
misstatements, including, without limitation, with respect to the
representations and warranties in the preceding paragraph. A loss of Tax
Benefits occurs at the earliest of: (i) the happening of any event
causing the loss; (ii) payment by Lessor of any additional tax resulting
from the loss; or (iii) any adjustment to the tax return of Lessor.
Lessor's right to recovery of a loss of Tax Benefits shall survive the
expiration or termination of this Lease.
10. DESCRIPTION OF EQUIPMENT: See Schedule A which is attached hereto and
made a part hereof by this reference.
The person executing this Schedule on behalf of Lessee hereby certifies that he
or she has read, and is duly authorized to execute, this Schedule
Accepted by:
Ascend Credit Corporation LESSEE: Website Management Company, Inc. dba
FlashNet Communications
BY: BY: /s/ M. SCOTT LESLIE
-------------------------- ----------------------------------------
NAME: NAME: M. SCOTT LESLIE
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Print Print
TITLE: TITLE: PRESIDENT
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DATE: DATE: 7/31/98
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EX. 10.2
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT dated as of October 31, 1996 between SHIVA
CORPORATION, a Massachusetts corporation ("Lessor"), and FlashNet
Communications corporation ("Lessee").
IN CONSIDERATION of the mutual agreements hereinafter set forth and the
payment of rent as herein provided, the parties hereto agree as follows:
1. PROPERTY LEASED.
Lessor hereby rents, demises and lets to Lessee all of the tangible
personal property (the "Equipment") listed on each equipment schedule
("Equipment Schedule") executed, from time to time, pursuant to this Master
Lease. Each Equipment Schedule shall be substantially in the form of Exhibit A,
shall incorporate therein all of the terms and conditions of this Master
Lease, shall contain such additional terms and conditions as Lessor and
Lessee shall agree and shall constitute a separate, distinct and independent
lease and contractual obligation of Lessee.
2. DEFINITIONS.
2.1 "Acceptance Date" means, as to each Item of Equipment designated on
any Equipment Schedule, the date on which the Certificate of Acceptance with
respect to such Equipment is executed by Lessee.
2.2 "Commencement Date" means, as to each Item of Equipment designated
on any Equipment Schedule, where the Acceptance Date for such Equipment falls
on the first day of the month, that date, or, in any other case, the first
day of the month following the month in which the Installation Date occurs.
2.3 "Event of Default" has the meaning specified in Section 14 hereof.
2.4 "Shiva" means Shiva Corporation or any subsidiary or associated
company thereof.
2.5 "Item" means any individual item or items of Equipment identified
in an Equipment Schedule.
2.6 "Lease" means an Equipment Schedule as it incorporates the terms of
this Master Lease, together with any riders, supplements and amendments to
such Equipment Schedule and Master Lease.
2.7 "Manufacturer" means the manufacturer of the Equipment.
2.8 "Potential Event of Default" means any event which with the lapse
of time or the giving of notice, or both, would constitute an Event of
Default.
3. TERM AND RENEWAL.
3.1 TERM. The term of this Master Lease shall commence on the date set
forth above and shall continue in effect so long as any Equipment Schedule
remains in effect. The lease term for each Item shall commence on the
Acceptance Date for such Item and shall continue for an initial period ending
that number of months from the Commencement Date as is specified in the
applicable Equipment Schedule (the "Initial Term"). On the Acceptance Date
for each Item of Equipment, Lessee shall execute and deliver to Lessor a
Certificate of Acceptance substantially in the form of Exhibit B. The fact
that a Manufacturer's maintenance agreement has been entered into by Lessee
or (where applicable) there is in force a valid Manufacturer's warranty in
respect of an Item shall be conclusive evidence that Lessee finds such Item
complete, in good working order and condition and satisfactory for its
requirements.
3.2 RENEWAL. Upon the expiration of the Initial Term of a Lease, if
Lessee has not exercised the purchase option provided in the applicable
Equipment Schedule, then such Lease automatically shall be renewed for
successive six month periods ("Renewal Terms") until terminated by either
party giving to the other not less than three
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months prior written notice of termination. Any such termination shall be
effective on the last day of the Initial Term or the last day of any Renewal
Term. Each Renewal Term shall be upon the same terms and conditions as those
of the Initial Term. Rent during the Renewal Term shall accrue to Lessor
beginning upon the commencement of the Renewal Term and shall be due and
payable during the Renewal Term and any extensions thereof on the same terms
as during the Initial Term.
4. RENT AND PAYMENT.
Rent shall begin to accrue on the Acceptance Date and Lessee shall pay
to Lessor, as rental for the Equipment during the Initial Term, the rent set
forth in the applicable Equipment Schedule ("Rent"), which shall be due and
payable on the dates ("Rent Payment Dates") specified therein. Rent shall be
paid to Lessor at the address set forth for Lessor in the Equipment Schedule
or at such other place as Lessor shall designate in writing, or if to an
assignee of Lessor, at such place as such assignee shall designate in
writing, and shall be paid free and clear of all claims, demands or setoffs
against Lessor or such assignee. Whenever any payment (of Rent or otherwise)
is not made when due hereunder, Lessee shall pay interest on such amount
until and including the date of payment, at the lesser of (a) 1.5% per month
("the Overdue Rate") and (b) the maximum allowable rate of interest permitted
by law.
5. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
Lessee represents and warrants that it selects the Equipment based on
its own judgement and expressly disclaims any reliance upon statements made
by Lessor. Lessee authorizes Lessor to insert in each Equipment Schedule the
serial numbers and other identifying data of the Equipment. Lessor warrants
to Lessee that, so long as Lessee shall not be in default of any of the
provisions of the applicable Equipment Schedule, neither Lessor nor any
Assignee or Secured Party (as such terms are defined in Section 6.2) of
Lessor will disturb Lessee's quiet and peaceful possession of the Equipment
and Lessee's unrestricted use thereof for its intended purpose LESSOR MAKES
NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT
TO ANY OF THE EQUIPMENT, ITS MERCHANTABILITY, OR ITS FITNESS FOR A PARTICULAR
PURPOSE. LESSOR SHALL NOT BE LIABLE TO LESSEE OR ANY OTHER PERSON FOR DIRECT,
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES BASED ON STRICT OR
ABSOLUTE TORT LIABILITY OR LESSORS PASSIVE NEGLIGENCE. LESSEE HEREBY
ACKNOWLEDGES THAT ANY MANUFACTURER'S OR SUPPLIERS'S WARRANTIES WITH RESPECT
TO THE EQUIPMENT ARE FOR THE BENEFIT OF BOTH LESSOR AND LESSEE.
NOTWITHSTANDING TO FOREGOING, LESSEE'S OBLIGATIONS TO PAY EACH RENT PAYMENT
DUE, OR OTHERWISE PERFORM ITS OBLIGATIONS UNDER THIS LEASE ARE ABSOLUTE AND
UNCONDITIONAL.
6. TITLE AND ASSIGNMENT.
6.1 TITLE. Nothing contained herein or in any Equipment Schedule shall
give or convey to Lessee any right, title or interest in or to the Equipment,
except as a lessee as set forth therein and Lessee represents and agrees that
Lessee shall hold the Equipment subject and subordinate to the rights of
Lessor, any Assignee and any Secured Party and Lessee shall furnish Lessor
with such documentation as Lessor shall reasonably request with respect
thereto. Lessor is hereby authorized by Lessee, at Lessor's expense, to cause
this Master Lease, any Equipment Schedule or any statement or other
instrument in respect of any Equipment Schedule as it may deem necessary or
appropriate showing the interest of Lessor, any Assignee and any Secured
Party in the Equipment to be filed in all jurisdictions deemed by Lessor to
be necessary or appropriate and Lessee agrees to execute and deliver Uniform
commercial Code financing statements reasonably requested
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by Lessor for such purpose. Lessee, at its expense, shall protect and defend
Lessor's title as well as the interest of any Assignee and any Secured Party
against all persons claiming against or through Lessee and shall at all times
keep the Equipment free and clear from any legal process, liens or
encumbrances whatsoever (except any placed thereon by or through Lessor) and
shall give Lessor immediate written notice thereof and shall indemnify and
hold Lessor, any Assignee and any Secured Party harmless from and against any
loss caused thereby.
6.2 ASSIGNMENT BY LESSOR. Lessee acknowledges Lessor's intent to have
the ability to sell and assign its interest, or grant a security interest for
the purpose of securing an obligation, in and to each Equipment Schedule and
the Equipment listed therein in whole or in part to a security assignee (a
"Secured Party") for the purpose of securing a loan to Lessor. Lessor may
also sell and assign its rights as owners and lessor of the Equipment under
any Equipment Schedule to an assignee (an "Assignee") which, at the option of
Lessor or the Assignee, may be represented by a bank or trust company acting
as a trustee in which case such trustee shall be the Assignee. After such
assignments, the term Lessor shall mean, as the case may be, such Assignee or
trustee and any Secured Party. Lessee hereby consents to such assignments and
shall acknowledge such assignment or assignments as shall be designated by
written notice, hereto, given by Lessor to Lessee and further covenants and
agrees that:
(a) Any such Secured Party or Assignee shall have and be entitled to
exercise any and all discretions, rights and powers of Lessor hereunder or
under any equipment Schedule, but such Secured Party or Assignee shall not be
obligated to perform any of the obligations of Lessor hereunder or under any
Equipment Schedule. However, any such Secured Party or Assignee shall
covenant that it will not disturb Lessee's quiet and peaceful possession of
such Equipment or its unrestricted use thereof for its intended purpose
during the term hereof so long as no Event of Default has occurred and is
continuing hereunder.
(b) Lessee shall pay to such Secured Party or Assignee as shall be
designated in such notice, all Rent and any and all other amounts designated
in such notice which are payable by Lessee under any Equipment Schedule,
notwithstanding any defense, counterclaim, recoupment or setoff of whatever
nature, whether by reason of breach of such Equipment Schedule or otherwise,
which it may or might now or hereafter have against Lessor (Lessee reserving
its right to have recourse directly against Lessor on account of any such
defense or claim).
(c) Lessee will execute and deliver such further documentation as such
Secured Party or Assignee may reasonably require to perfect or further the
assignments contemplated by this Section 6.2.
(d) Subject to and without impairment of Lessee's leasehold rights in
and to the Equipment, Lessee holds the Equipment for such Secured Party or
Assignee to the extent of such Secured Party's or Assignee's rights therein.
Notwithstanding the foregoing, upon expiration of the Initial Term or any
extension thereof, Lessee shall return the Equipment pursuant to Section 10
upon the direction of Lessor.
(e) Notwithstanding any assignment of Lessor's rights hereunder to an
Assignee, Secured Party or any other person or entity, Lessor agrees that it
shall remain principally responsible and obligated to perform all of Lessor's
obligations and agreements hereunder.
6.3 ASSIGNMENT BY LESSEE. Lessee shall not assign, transfer, or
sublease any of its rights or obligations in, to, or under this Master Lease
or any Equipment Schedule without the prior written consent of Lessor.
Notwithstanding any such permitted assignment, Lessee shall not be relieved
of any liabilities or obligations hereunder, except by prior written
agreement between Lessee, Lessor, and any other Secured Party or Assignee.
7. NET LEASES; TAXES AND FEES.
7.1 NET LEASE. Each Equipment Schedule constitutes a net lease.
Lessee's obligation to pay all Rent and any and all amounts payable by Lessee
under any Equipment Schedule shall be absolute and unconditional and shall
not be subject to any abatement, reduction, set off, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever, and such
payments shall be and continue to be payable in all events.
7.2 TAXES AND FEES. Lessee covenants and agrees to pay when due or
reimburse and indemnify and hold Lessor harmless from and against all taxes,
fees or other charges of any nature whatsoever (together with any related
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interest or penalties) now or hereafter imposed or assessed during the term
of each Equipment Schedule against Lessor, Lessee or the Equipment by any
federal, state, county or local governmental authority upon or with respect
to the Equipment or upon the ordering, purchase, ownership, delivery,
leasing, possession, use, operation, return or other disposition thereof or
upon the rents, receipts or earnings arising therefrom or upon or with
respect to any Equipment Schedule (except only federal, state and local taxes
based on or measured by the net income of Lessor). To the extent permitted by
applicable law, Lessee shall prepare (in such manner as will show Lessor's
ownership of the Equipment) and timely file all tax returns required in
connection with taxes payable by Lessee hereunder.
8. CARE, USE AND MAINTENANCE; ALTERATIONS AND ATTACHMENTS; AND INSPECTION BY
LESSOR.
8.1 CARE, USE AND MAINTENANCE. Lessee shall, at its sole expense, at
all times during the term of each Equipment Schedule, maintain the Equipment
in good operating order, repair, condition and appearance and protect the
Equipment from deterioration, other than normal wear and tear.
Lessee shall not use the Equipment for any purpose other than that for which
it was designed. Lessee covenants that the Equipment will at all times be
used and operated in accordance with the Manufacturer's instructions and in
compliance with any restriction contained in the Manufacturer's warranties
and the Maintenance Agreement (if applicable) regarding the Equipment and
with any and all statutes, laws, ordinances and regulations of any
governmental agency applicable to the Equipment. Lessee will not, without the
prior written consent of Lessor and subject to such conditions as Lessor may
impose for its protection, affix the Equipment to any real property, if, as a
result thereof, the Equipment will become a fixture under applicable law and
will provide Lessor with such landlord's and mortgagee's waivers as Lessor
may request in connection therewith.
8.2 ALTERATIONS AND ATTACHMENTS. Lessee will not, without prior
written consent of Lessor, affix or install any accessory, equipment or
device on the Equipment leased hereunder which will either impair the
originally intended function or use of such Equipment or cannot be readily
removed without causing material damage to such Equipment. All such
accessories, equipment and devices furnished, attached or affixed to the
Equipment shall thereupon become the property of Lessor (except such as may
be readily removed without causing material damage to the Equipment).
8.3 INSPECTION BY LESSOR. Upon the request of Lessor, Lessee shall, at
reasonable times during business hours and subject to Lessee's normal
security, safety and confidentiality regulations, make the Equipment
available to Lessor for inspection at the place where it is normally located
and shall make Lessee's log and maintenance records pertaining to the
Equipment available to Lessor for inspection.
9. REPRESENTATIONS AND WARRANTIES OF LESSEE AND LESSOR.
9.1 REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents,
warrants and covenants that, with respect to this Master Lease and each
Equipment Schedule executed hereunder:
(a) The execution, delivery and performance thereof by Lessee have been
duly authorized by all necessary corporate action and do not conflict with
Lessee's charter or by-laws or with any indenture, contract or agreement by
which it is bound, or with any statute, judgment, decree, rule or regulation
binding upon it.
(b) Any individual executing this Master Lease or any documents
delivered in connection herewith on behalf of Lessee is duly authorized to do
so.
(c) The Master Lease and each Equipment Schedule constitute legal,
valid and binding agreements of Lessee enforceable in accordance with their
respective terms.
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(d) The Equipment is personal property and when subjected to use by
Lessee will not be or become fixtures under applicable law.
9.2 REPRESENTATIONS AND WARRANTIES OF LESSOR. Lessor represents,
warrants and covenants that, with respect to the Master Lease and each
Equipment Schedule executed hereunder:
(a) The execution, delivery and performance thereof by Lessor have been
duly authorized by all necessary corporate action.
(b) Any individual executing this Master Lease or any documents
delivered in connection herewith on behalf of Lessor is duly authorized to do
so.
(c) The Master Lease and each Equipment Schedule constitute legal,
valid and binding agreements of Lessor enforceable in accordance with their
respective terms.
10. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation to Lessee's
premises (including in-transit insurance) and installation thereat of the
Equipment. Upon termination (by expiration or otherwise) of each Equipment
Schedule, Lessee shall, pursuant to Lessor's instructions and at Lessee's
expense recrate or otherwise suitably package the Equipment and deliver the
Equipment to Lessor at a location to be designated by Lessor which is within
the continental United States. The Equipment shall be returned to Lessor in
the same operating order, repair, condition and appearance as on the
Acceptance Date, reasonable wear and tear only excepted, with the
Manufacturer's then latest engineering and safety changes incorporated
therein to the extent that such changes were applicable to Lessee's business.
11. LABELING.
Lessee covenants and agrees that, upon the request of Lessor, it shall
cause the Equipment to be plainly, permanently and conspicuously marked on
the rear of the Equipment, by stenciling or by metal tag or plate affixed
thereto as supplied by Lessor, indicating Lessor's interest in the Equipment.
Lessee shall replace any such stenciling, tag or plate which may be removed
or destroyed or become illegible. Lessee shall keep all Equipment free from
any marking or labeling which might be interpreted as a claim of ownership
thereof by Lessee or any party other than Lessor or anyone so claiming
through Lessor.
12. INDEMNIFICATIONS.
12.1 LOSS INDEMNIFICATION. Lessee shall and does hereby indemnify and
hold Lessor, any Assignee and any Secured Party harmless from and against any
and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees (a "Claim"), arising out of the ownership,
selection, possession, leasing, renting, operation, control, use, maintenance
or delivery of the Equipment. Notwithstanding the foregoing, Lessee shall not
be responsible under the terms of this Section 12 to a party indemnified
hereunder for any claim occasioned by the gross negligence or willful
misconduct of such indemnified party. Lessee shall immediately notify Lessor
of any Claim arising out of the alleged or improper manufacturing,
functioning or operation of any Item of Equipment, and promptly furnish
Lessor with details thereof and copies of documents pertaining thereto.
13. RISK OF LOSS AND INSURANCE.
13.1 RISK OF LOSS. Lessee hereby assumes the entire risk of loss,
damage, theft or destruction of the Equipment, including during shipment of
the Equipment to Lessee, and ending upon Lessee's delivery of the Equipment
to Lessor as required in Section 10, and no such loss, damage or destruction
shall relieve Lessee of any of its obligations under any Equipment Schedule
executed hereunder. In the event the Equipment is lost, damaged, destroyed or
stolen or title thereto shall be taken by any governmental authority under
power of eminent domain or otherwise (an "Event of Loss"), Lessee shall give
Lessor immediate notice thereof and (a) have the damage repaired at its
expense, without interruption of payments of Rent, or (b) if the Equipment so
damaged cannot be repaired, or if the Equipment was lost,
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destroyed or title thereto taken then, on the next Rent Payment Date, pay to
Lessor the Stipulated Loss Value (as set forth in the applicable Equipment
Schedule) of any irreparably damaged Equipment and all Rent charges and other
charges accrued and unpaid to and including the date of such payment.
Lessee shall give Lessor immediate notice of any damage to, or loss or
destruction of, any Item of Equipment. All proceeds of insurance received by
Lessor or Lessee under the policy referred to in Section 13.2 shall be
applied toward the cost of repair or replacement of the Equipment or, if
applicable, to reimburse Lessee for amounts, representing the Stipulated Loss
Value of the Equipment, that were actually paid by Lessee to Lessor, in
advance of the insurance proceeds.
Upon replacement or payment of the Stipulated Loss Value as provided
hereinabove, title to the irreparably damaged Item or Items of Equipment
shall transfer to Lessee (or Lessee's designee as may be required under the
provisions of an insurance policy or maintenance agreement provided by Lessee
with respect to the Equipment or otherwise) on an "as is" basis, without
recourse or warranty and the Lease with respect to such Item or Items of
Equipment shall terminate.
13.2 INSURANCE. (a) Lessee will, at all times prior to the return of
the Equipment to Lessor, at its own expense, carry and maintain or cause to
be carried and maintained (i) property insurance with respect to the
Equipment, and (ii) public liability insurance with respect to third party
personal and property damage, in each case with no greater deductibles and at
least comparable in amounts and against risk customarily insured against by
Lessee with respect to equipment it owns or leases similar in nature to the
Equipment. Property insurance with respect to the Equipment in any event
shall be in an amount at least equal to the greater of (i) the fair market
replacement value of the Equipment, or (ii) the Stipulated Loss Value, if
any, applicable to the relevant Lease. Public liability insurance with
respect to third party personal and property damage in any event shall be for
an amount not less than $2,000,000 per occurrence. Any policies of insurance
carried in accordance with this Section 13.2 shall (i) require 30 days' prior
notice to Lessor, any Assignee and any Secured Party of cancellation,
invalidation or material change in coverage, (ii) name Lessor, any Assignee
and any Secured Party as additional insured, and (iii) be written by a
company of recognized responsibility which is reasonably acceptable to Lessor.
(b) On or prior to the Installation Date and thereafter not less than
five days prior to any expiration date of a policy required pursuant to this
Section 13.2, Lessee shall deliver to Lessor and any additional insureds
certificates of insurance issued by the insurers thereunder or by an
insurance broker authorized to bind such insurers evidencing the insurance
maintained pursuant to this Section 13.2; provided, however, that if the
delivery of any certificate is delayed, Lessee shall deliver an executed
binder with respect thereto and shall deliver the formal certificate upon
receipt thereof.
(c) Lessee irrevocably appoints Lessor as Lessee's attorney-in-fact to
make claim for, receive payment of, and execute any and all documents that
may be required to be provided to the insurance carrier in substantiation of,
any claim for loss under any insurance policy and to endorse Lessee's name to
any and all drafts or checks in payment of the loss proceeds limited to the
coverage provided for the Equipment described in Exhibit A, the Equipment
Schedule.
(d) Notwithstanding the foregoing provisions of this Section 13.2,
Lessee may self-insure with respect to damage to the Equipment, or third
party personal and property damage, or both, provided that (i) such
self-insurance is consistent with the self-insurance practices of Lessee with
respect to equipment it owns similar in nature to the Equipment, (ii) a
description of such self-insurance practices including any limits or
restrictions on coverage is provided in writing to Lessor and any Assignee or
Secured Party upon request, and (iii) Lessor shall in its sole discretion
agree to accept self-insurance in lieu of the foregoing insurance
requirements set forth in this Section 13.2.
14. DEFAULT.
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14.1 DEFINITION. The occurrence of any one or more of the following
events shall constitute an Event of Default under this Master Lease:
(a) Lessee falls to pay any installment of Rent or other charge payable
by Lessee under any Equipment Schedule when the same becomes due and payable
and such default continues for a period of five days after written notice
thereof to Lessee; or
(b) Lessee falls to perform any other term, covenant or condition of
any Equipment Schedule and such failure continues uncured for a period of
15 days after written notice; or Lessee commences action to cure such default
and proceeds with reasonable diligence.
(c) The making of an assignment by Lessee for the benefit of its
creditors or the admission by Lessee in writing of its inability to pay its
debts as they become due, or the insolvency of Lessee, or the filing by
Lessee of a voluntary petition in bankruptcy, or the adjudication of Lessee
as a bankrupt, or the filing by Lessee of any petition or answer seeking for
itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future
statute, law or regulation, or the filing of any answer by Lessee admitting,
or the failure by Lessee to deny, the material allegations of a petition
filed against it for any such relief, or the seeking or consenting by Lessee
to, or acquiescence by Lessee in, the appointment of any trustee, receiver or
liquidator of Lessee or of all or any substantial part of the properties of
Lessee, or the inability of Lessee to pay its debts when due; or
(d) The failure by Lessee, within 45 days after the commencement of any
proceeding against Lessee seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
any present or future statute, law or regulation, to obtain the dismissal of
such proceeding or, within 45 days after the appointment, without the consent
or acquiescence of Lessee, of any trustee, receiver or liquidator of Lessee
or of all or any substantial part of the properties of Lessee, to vacate such
appointment; or
(e) Any representation or warranty made by Lessee herein or in any
document or certificate delivered by Lessee in connection herewith shall
prove to have been incorrect in any material respect when such representation
or warranty was made or given; or
(f) Lessee shall, or shall attempt to or permit any person to, remove,
sell, transfer, encumber, part with possession of, assign, relocate or sublet
any Item of Equipment (except as expressly permitted by the provisions of
this Master Lease).
(g) Lessee shall consolidate with, or merge with or into any entity, or
shall sell or otherwise transfer all or substantial amount of indebtedness
other than in the ordinary course of its business, or engage in a leverage
buy-out or any other form of corporate reorganization, unless in each case
and before the event in question, the obligations under this Master Lease or
any Equipment Schedule are assumed or guaranteed in a manner reasonably
satisfactory to Lessor or its Assignee or Secured Party by an entity having
in such party's opinion at least as good a financial condition and credit
standing as those of the Lessee immediately before the event.
14.2 REMEDIES. (a) Upon the occurrence of any Event of Default, Lessor
may, at its option:
(i) Proceed by appropriate court action, either at law or in equity,
to enforce performance by Lessee of the applicable terms and covenants of
this Master Lease or any Equipment Schedule or to recover damages for the
breach thereof;
(ii) By notice to Lessee terminate this Master Lease or any Equipment
Schedule;
(iii) Take possession of the Equipment during Lessee's normal working
hours, without demand or notice, wherever such Equipment may be located.
Lessee hereby waives any right it may have for damages occasioned by any
repossession. Any taking of possession pursuant to this subsection shall not
in itself constitute termination of this Master Lease or any Equipment
Schedule and shall not, in any event, relieve Lessee of its obligations
hereunder or thereunder.
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(b) Upon taking of possession of any Equipment pursuant to
Section 14.2(a)(iv), Lessor may, at its option and without notice to Lessee,
lease the repossessed Equipment to any third party on such terms and
conditions as Lessor may determine or sell such Equipment at public auction
or at private sale. In the event that Lessor leases or sells such repossessed
Equipment, the Net Proceeds (as defined below) shall first be credited to
amounts due and owing by Lessee, and shall then be used to reimburse Lessee
for any liquidated damage payment made by Lessee pursuant to
Section 14.2(a)(iii). Any surplus shall be retained by Lessor. Lessee shall
remain liable for any deficiency resulting from an excess of amounts due and
owing by Lessee over Net Proceeds. As used herein "Net Proceeds" shall mean
the sale price of the Equipment, or the aggregate rent payable pursuant to a
re-lease of the Equipment discounted at the Overdue Rate, less all costs and
expenses (including reasonable attorneys' fees and disbursements) incurred by
Lessor as a result of Lessee's default and Lessor's exercise of its remedies
with respect thereto. In calculating Net Proceeds with respect to a re-lease
of the Equipment for a term that extends beyond the Initial Term, only that
portion of the re-lease term which does not extend beyond the Initial Term
shall be used in such calculation.
(c) Notwithstanding Lessor's choice of one or more of the remedies
provided herein, Lessee shall be liable for (i) all sums due and payable for
all periods up to and including the date on which Lessor declared an Event of
Default to exist, and (ii) all costs, charges and expenses, including
reasonable attorneys' fees and disbursements, incurred by Lessor by reason of
the occurrence of any Event of Default or Lessor's exercise of its remedies
hereunder. Any overdue Rent, and any unpaid amounts payable as liquidated
damages pursuant to Section 14.2(a)(iii) shall bear interest at the Overdue
Rate until paid in full.
(d) No remedy referred to herein is intended to be exclusive, but each
shall be cumulative and in addition to any other rights or remedy otherwise
available to Lessor at law or in equity.
15. MISCELLANEOUS.
15.1 ENTIRE AGREEMENT. Lessor and Lessee acknowledge that there are no
agreements or understandings, written or oral, between Lessor and Lessee with
respect to the Equipment, other than as set forth herein and in each
Equipment Schedule and that this Master Lease and each Equipment Schedule
contain the entire agreement between Lessor and Lessee with respect thereto.
Neither this Master Lease nor any Equipment Schedule may be altered,
modified, terminated or discharged except by a writing signed by the party
against whom such alteration, modification, termination or discharge is
sought.
15.2 NO WAIVER; CURE. No omission or delay by Lessor at any time to
exercise or enforce any right or remedy reserved to it, or to require
performance of any of the terms, covenants or provisions hereof by Lessee at
any time designated, shall be a waiver of any such right or remedy to which
Lessor is entitled, nor shall it in any way affect the right of Lessor to
enforce such provisions thereafter. If Lessee fails to perform any of its
obligations under this Master Lease, Lessor or its assigns in addition to
their other rights and remedies may, at the cost and expense of Lessee,
perform such obligations but shall not be obligated to do so. All sums so
paid by Lessor or its assigns shall be immediately due and payable by Lessee
upon demand and shall bear interest at the Overdue Rate.
15.3 BINDING NATURE. Each Equipment Schedule shall be binding upon,
and shall inure to the benefit of, Lessor, Lessee and their respective
successors, legal representatives and assigns, except, in the case of any
Assignee or Secured Party, to the extent set forth in Section 6.2(e) hereof.
15.4 SURVIVAL OF OBLIGATIONS. All agreements, representations and
warranties contained in this Master Lease, any Equipment Schedule or in any
document delivered pursuant hereto or in connection herewith shall be for the
benefit of Lessor and its successors and assigns and shall survive the
execution and delivery of this Master Lease and the expiration or other
termination of this Master Lease.
15.5 NOTICES. Any notice, request or other communication to either
party by the other as provided for herein shall be given in writing and only
shall be deemed received upon the earlier of receipt or three days after
mailing if mailed postage prepaid by registered mail to Lessor or Lessee, as
the case may be, at the address for such party set forth in the appropriate
equipment Schedule or at such changed address as may be subsequently
submitted by written notice of either party.
8
<PAGE>
15.6 APPLICABLE LAW. This Master Lease and each Equipment Schedule
shall be deemed to have been made, executed and delivered in the Commonwealth
of Massachusetts and shall be governed by and construed in accordance with
the internal laws of the Commonwealth of Massachusetts applicable to
contracts made and to be performed entirely within such State.
15.7 SEVERABILITY. If any one or more of the provisions of this Master
Lease or any Equipment Schedule shall for any reason be held invalid, illegal
or unenforceable, the remaining provisions of this Master Lease and any such
Equipment Schedule shall not be affected thereby and shall be enforced to the
fullest extent permitted by law.
15.8 DELAY IN INSTALLATION. Lessee hereby assumes and shall bear the
entire risk of loss arising out of or in connection with delays, partial
performance or nonperformance by the supplier of the Equipment and Lessor
shall not be liable for specific performance of this Lease or for damages if,
for any reason, any supplier delays or fails to fill or improperly fills an
order.
15.9 FURTHER ASSURANCES. Upon Lessor's request, Lessee will deliver to
Lessor, prior to the execution of each Equipment Schedule, a copy of its most
recent Annual Report on Form 10-K filed with the securities and Exchange
Commission (the "SEC") and copies of each of its quarterly reports on Form 10-Q
filed with the SEC subsequent to the filing of such Form 10-K or, if Lessee
does not file such reports with the SEC, copies of its most recent audited
financial statements and its subsequent interim period financial statements.
Lessee also shall furnish in connection with the execution and delivery of
this Master Lease and, upon request by Lessor in connection with each
Equipment Schedule hereunder, an opinion of counsel, a certificate of
incumbency and such other documents as Lessor may reasonably request in form
reasonably acceptable to Lessor. Lessee hereby authorizes Lessor to insert
the serial numbers provided by Shiva for any Shiva Equipment in the Equipment
Schedule, Certificate of Acceptance and UCC-1 financing statements, covering
such Equipment.
15.10 ADDITIONAL MATTERS. (a) Pursuant to Section 1, Lessee and Lessor
may, from time to time mutually agree on additional terms and conditions with
respect to an Equipment Schedule which may be set forth therein or attached
thereto as "Riders" which shall be applicable to and constitute a part
thereof. The form and content of such Riders may be (but are not limited to)
as set forth in the exhibits which are attached hereto.
(a) In the event of any conflict between the terms and conditions of
this Master Lease and the terms and conditions of any Equipment Schedule or
Rider, the terms and conditions of the Equipment Schedule or Rider shall
prevail.
(b) Section headings are for convenience only and shall not be
construed as part of this Master Lease.
(c) Unless otherwise specified, references to Exhibits or Sections
herein shall be references to Exhibits to or Sections of this Master Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease
on or as of the day and year first above written.
SHIVA CORPORATION
as Lessee as Lessor
By: /s/ A.L. Thurburn By:
-------------------------- --------------------------
Title: CEO Title:
9
<PAGE>
HARDWARE WARRANTY
- -------------------------------------------------------------------------------
SHIVA CORPORATION LIMITED WARRANTY ON HARDWARE
Shiva Corporation ("Shiva") warrants the LanRover Access Switch
against defects in materials and workmanship for a period of one
year from the date of original retail purchase. During the
warranty period, Shiva will, at its option, repair, replace, or
refund the purchase price of any defective product at no
additional cost, provided you return it during the warranty
period, transportation charges prepaid, to Shiva. You must attach
your name, address and telephone number, a description of the
problem(s), and a dated proof-of-purchase bearing the serial
number of each product returned for warranty service.
This warranty is limited to the original purchaser of the product
and is not transferable unless otherwise agreed by Shiva in
writing. This warranty does not apply if the product: has been
damaged by accident, abuse, misuse or misapplication; has been
modified without written permission by Shiva; or if any Shiva
serial number has been removed or defaced.
UNDER NO CIRCUMSTANCES SHALL SHIVA'S LIABILITY ARISING OUT OF
OR IN CONNECTION WITH THE PRODUCT OR THE USE OF, OR INABILITY TO
USE, THE PRODUCT IN TORT (INCLUDING NEGLIGENCE), OR OTHERWISE,
EXCEED THE PURCHASE PRICE OF THE PRODUCT. SHIVA MAKES NO WARRANTY
OR REPRESENTATIONS, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO
THE PRODUCT, ITS QUALITY, PERFORMANCE, MERCHANTABILITY, OR
FITNESS IN A PARTICULAR PURPOSE.
ANY IMPLIED WARRANTIES ARE LIMITED IN DURATION TO ONE YEAR FROM
THE DATE OF ORIGINAL PURCHASE OF THE PRODUCT.
THIS WARRANTY AND REMEDIES SET FORTH ABOVE ARE EXCLUSIVE AND IN
LIEU OF ALL OTHERS, ORAL OR WRITTEN, EXPRESSED OR IMPLIED. No
Shiva dealer, agent, or employee is authorized to make any
modification, extension, or addition to this warranty.
SHIVA IS NOT RESPONSIBLE FOR SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES RESULTING FROM ANY BREACH OF WARRANTY, OR
UNDER ANY LEGAL THEORY, INCLUDING LOST PROFITS, DOWNTIME,
GOODWILL DAMAGE TO OR REPLACEMENT OF EQUIPMENT AND PROPERTY, AND
ANY COST OF RECOVERING, REPROGRAMMING, OR REPRODUCING ANY PROGRAM
OR DATA STORED IN OR USED WITH SHIVA PRODUCTS.
Some states do not allow the exclusion of implied warranties or
liability for incidental or consequential damages, so the above
limitation or exclusion may not apply to you. This warranty gives
you specific legal rights, and you may also have other rights
which vary from state to state.
<PAGE>
LEASETEC CORPORATION
OPERATING LEASES FOR TECHNOLOGY EQUIPMENT
December 13, 1996
Mr. Lee Thurburn
Chief Executive Officer
Website Management Co., Inc.
dba FlashNet Communications, Inc.
1812 North Forest Park Blvd.
Fort Worth, TX 76102
Subject: Master Lease Agreement No. 96-101 dated October 31, 1996
(the "Lease")
Dear Mr. Thurburn:
The purpose of this letter is to clarify the legal entity obligated as Lessee
under the above-referenced Lease. The Lease was executed by "FlashNet
Communications" as Lessee. Because "FlashNet Communications" is a "doing
business as" name of Website Management Co., Inc., the Lease should designate
Website Management Co., Inc. as the legal entity subject to all rights and
obligations under the Lease.
By your signature below, you represent and warrant on behalf of Website
Management Co., Inc. that all references to "FlashNet Communications" in the
Lease shall include Website Management Co., Inc. and that Website Management
Co., Inc. is the Lessee under the Lease as if originally set forth therein.
Sincerely,
/s/ Donna Austin
Donna Austin
Program Manager
ACCEPTED AND AGREED:
WEBSITE MANAGEMENT CO., INC.
By: /s/ A.L. Thurburn
----------------------------------
Printed Name: A.L. Thurburn
-------------------------
Title: CEO
--------------------------------
Date: 12/16/96
---------------------------------
1401 PEARL STREET - BOULDER, COLORADO 80302 - (303) 443-8064
<PAGE>
-----------
MASTER LEASE AGREEMENT Lease No. 96-101
EXHIBIT A -----------
EQUIPMENT SCHEDULE Amendment No.
-----------
LESSEE INFORMATION
- --------------------------------------------------------------------------------
FULL LEGAL NAME OF LESSEE FULL LEGAL NAME AND ADDRESS OF LESSOR
FlashNet Communications Shiva Corporation
- ----------------------------------
BUSINESS ADDRESS 28 Crosby Drive
1812 North Forest Park Blvd. Bedford, MA 01730
Fort Worth, TX 76102 Attn: Legal Department
---------------------------------------------
EQUIPMENT LOCATION
- ----------------------------------
PERSON TO CONTACT
Lee Thurburn
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
QTY MODEL NO. EQUIPMENT DESCRIPTION SERIAL NUMBER LIST PRICE TOTAL PRICE
<C> <C> <S> <C> <C> <C>
40 1se-chas Access Switch Chassis 16,400.00 656,000.00
80 1s-crd-tprc2-us Dual Port T1/PRI with CSU 8,400.00 672,000.00
240 1s-crd-288-us-1 Modem Module 8,500.00 2,040,000.00
---------------
Total List Price 3,368,000.00
Less: Discount (2,334,080.00)
---------------
Total Selling Price $ 1,033,920.00
---------------
---------------
</TABLE>
Prices quoted are F.O.B shipping point
Prices quoted do not include installation, training or taxes
- --------------------------------------------------------------------------------
TERMS OF RENTAL PAYMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
TERM OF LEASE MONTHLY PAYMENT ADVANCE PAYMENT PURCHASE OPTION
<C> <C> <S> <C>
36 Months $33,140.86 $ 66,281.72 Representing first and Lesser of 5% of original
last mo. payments, thereafter, price or FMV at expiration if
payments will be made monthly on the Lessee elects to purchase.
first day of each month.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
1. INVOICING INFORMATION
Street Address: 1812 North Forest Park Blvd.
--------------------------
City, State, Zip: Fort Worth, TX 76102
--------------------------
Department:
--------------------------
Contact Person: Lee Thurburn
--------------------------
Telephone: (817)332-8883 x229
--------------------------
Lessee Ref No.
--------------------------
2. PURCHASE OPTION: Upon Expiration of the Lease Term of this Equipment
Schedule, Lessee shall have the option to purchase all, but not less
than all, the items of Equipment subject to and described in this
Equipment Schedule for the aggregate purchase price above, provided that
(i) this Equipment Schedule has not been terminated earlier, (ii) no
default has occurred and is continuing and (iii) Lessee has provided
Lessor with notice of its intention to exercise such option at least
ninety (90) days prior to the expiration of the Lease Term. Upon
payment to Lessor, Lessor shall transfer title to such Equipment to
Lessee all on AS IS, WHERE IS, BASIS WITHOUT RECOURSE TO OR WARRANTY OF
LESSOR, except that Lessor shall represent that it owns such Equipment
free of any lien placed on such Equipment by, through, or under Lessor.
3. STIPULATED LOSS VALUE: The Stipulated Loss Value(s) with respect to
this Equipment Schedule shall be as set forth in the attached Stipulated
Loss Value Table.
4. DEFINITIONS: The terms used in this Equipment Schedule which are not
otherwise defined herein shall have the meanings set forth in the Master
Lease identified above.
5. LEASE TERMS AND CONDITIONS: Lessor and Lessee agree that this Equipment
Schedule shall constitute a lease of the Equipment described above upon
the execution and delivery to Lessor by Lessee of a Certificate of
Acceptance.
ACCEPTED BY:
SHIVA CORPORATION FLASHNET COMMUNICATIONS
- --------------------------------------- -------------------------------------
LESSOR LESSEE
[ILLEGIBLE] 11/15/96 /s/ A.L. Thurburn 10/31/96
- --------------------------------------- -------------------------------------
AUTHORIZED SIGNATURE DATE AUTHORIZED SIGNATURE DATE
CFO CEO
- --------------------------------------- -------------------------------------
TITLE TITLE
<PAGE>
[LOGO]
Lock Box Address:
6201 W. Oakton P. O. Box 95134
Morton Grove, Illinois 60053-2742 Chicago, IL 60694-5134
September 27, 1996
Lee Thurburn, CEO
Website Management Company, Inc.-D.B.A. Flashnet Communications
1812 N Forest Park Blvd
Fort Worth, TX 76102
TOTAL AMOUNT:$1,095,052.10-THIS INCLUDES PRODUCT & TAX FOR P.O.#062896-A
(MODIFIED)
Dear Mr. Thurburn
U. S. Robotics is willing to accept the following schedule of payments for the
attached product and amount. The following represents a 36-month payment
schedule for the product only:
<TABLE>
<CAPTION>
PAYMENT SCHEDULE AMOUNT
---------------- ------
<S> <C>
1st 12 monthly payments $19,777.05
2nd 12 monthly payments $24,721.28
3rd 12 monthly payments $39,801.30
</TABLE>
Payments will be due on the 15th of each Month with the first payment due on
October 15, 1996. Each payment listed above must be forwarded to the U. S.
Robotics Lock Box address shown above, on or before the applicable payment
due date.
The above payment schedule includes only product costs. It does not include
tax costs which will be billed separately and must be paid separately on Net
30 day terms. The total tax cost for the order comes to $83,456.63.
I have included the Invoice for the total tax cost for $83,456.63 which is
due on Net 30 day terms upon receipt.
I HAVE ALSO INCLUDED AN EXPECTED PAYMENT SCHEDULE ON THE NEXT PAGE.
By executing and returning this letter, you indicate your acceptance of
this payment schedule.
/s/ [ILLEGIBLE] CFO 12/23/96
- ---------------------- ----------------- -----------------
Authorized Signature Title Date
Sincerely,
/s/ Randy Perry
Randy Perry
Senior Credit Analyst
U.S. Robotics-Network Systems Division
<PAGE>
COMBINED EXPECTED PAYMENT SCHEDULE
Flashnet Communications
The following COMBINED payment schedule is for P.O.#'s 062896-A(modified),
091996-A and 101896
<TABLE>
<CAPTION>
Payment Date P.O.#062896-A(modified) P.O.#091996-A P.O.#101896 COMBINED
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15-Nov-96 $19,777.05
15-Dec-96 $19,777.05 $17,306.18
15-Jan-97 $19,777.05 $17,306.18
15-Feb-97 $19,777.05 $17,306.18
15-Mar-97 $19,777.05 $17,306.18
15-Apr-97 $19,777.05 $17,306.18
15-May-97 $19,777.05 $17,306.18
15-Jun-97 $19,777.05 $17,306.18
15-Jul-97 $19,777.05 $17,306.18
15-Aug-97 $19,777.05 $17,306.18
15-Sep-97 $19,777.05 $17,306.18
15-Oct-97 $19,777.05 $17,306.18
15-Nov-97 $24,721.28 $17,306.18
15-Dec-97 $24,721.28 $21,632.48
15-Jan-98 $24,721.28 $21,632.48
15-Feb-98 $24,721.28 $21,632.48
15-Mar-98 $24,721.28 $21,632.48
15-Apr-98 $24,721.28 $21,632.48
15-May-98 $24,721.28 $21,632.48
15-Jun-98 $24,721.28 $21,632.48
15-Jul-98 $24,721.28 $21,632.48
15-Aug-98 $24,721.28 $21,632.48
15-Sep-98 $24,721.28 $21,632.48
15-Oct-98 $24,721.28 $21,632.48
15-Nov-98 $39,801.30 $21,632.48
15-Dec-98 $39,801.30 $34,828.84
15-Jan-99 $39,801.30 $34,828.84
15-Feb-99 $39,801.30 $34,828.84
15-Mar-99 $39,801.30 $34,828.84
15-Apr-99 $39,801.30 $34,828.84
15-May-99 $39,801.30 $34,828.84
15-Jun-99 $39,801.30 $34,828.84
15-Jul-99 $39,801.30 $34,828.84
15-Aug-99 $39,801.30 $34,828.84
15-Sep-99 $39,801.30 $34,828.84
15-Oct-99 $39,801.30 $34,828.84
15-Nov-99 $34,828.84
- -----------------------------------------------------------------------------
</TABLE>
PLEASE SEND PAYMENTS TO THE FOLLOWING ADDRESS:
- -----------------------------------------------------------------------------
U.S. Robotics
- -----------------------------------------------------------------------------
ATTN: Lockbox#95134
- -----------------------------------------------------------------------------
311 W Monroe St.
- -----------------------------------------------------------------------------
Chicago, IL 60605
- -----------------------------------------------------------------------------
<PAGE>
US ROBOTICS - SCHEDULE 01
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Original Value $822,492.72 Payment Varied Deposit $0.00 $0.00
Down payment $0.00 Date made 00-Jan-00 00-Jan-00
Term 36 Monthly Use Tax 0.00%
Implied Rate 12.0000% (tax of $83,456.63 paid at inception) Purch. Option $0.00
Notice Due 00-Jan-00
- ----------------------------------------------------------------------------------------------------------------------------------
Lease Pymt. Interest Principal Remaining Use Total Actual Balance
Date Amount Expense Reduction Principal Tax Payment Payment Owed
- ---- ---------- --------- --------- ----------- ------ --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15-Oct-96 $822,492.72
15-Nov-96 X $19,777.05 $8,382.67 $11,394.38 $811,098.34 $0.00 $19,777.05 $19,777.05 $0.00
15-Dec-96 X $19,777.05 $7,999.87 $11,777.18 $799,321.16 $0.00 $19,777.05 $19,777.05 $0.00
15-Jan-97 X $19,777.05 $8,146.51 $11,630.54 $787,690.62 $0.00 $19,777.05 $19,777.05 $0.00
15-Feb-97 X $19,777.05 $8,027.97 $11,749.08 $775,941.54 $0.00 $19,777.05 $19,777.05 $0.00
15-Mar-97 X $19,777.05 $7,142.91 $12,634.14 $763,307.40 $0.00 $19,777.05 $19,777.05 31-Mar-97 $0.00
15-Apr-97 X $19,777.05 $7,779.46 $11,997.59 $751,309.81 $0.00 $19,777.05 $19,777.05
15-May-97 X $19,777.05 $7,410.18 $12,366.87 $738,942.94 $0.00 $19,777.05 n/a
15-Jun-97 X $19,777.05 $7,531.14 $12,245.91 $726,697.03 $0.00 $19,777.05 n/a
15-Jul-97 X $19,777.05 $7,167.42 $12,609.63 $714,087.41 $0.00 $19,777.05 n/a
15-Aug-97 X $19,777.05 $7,277.82 $12,499.23 $701,588.18 $0.00 $19,777.05 n/a
15-Sep-97 X $19,777.05 $7,150.43 $12,626.62 $688,961.56 $0.00 $19,777.05 n/a
15-Oct-97 X $19,777.05 $6,795.24 $12,981.81 $675,979.75 $0.00 $19,777.05 n/a
15-Nov-97 X $24,721.28 $6,889.44 $17,831.84 $658,147.91 $0.00 $24,721.28 n/a
15-Dec-97 X $24,721.28 $6,491.32 $18,229.96 $639,917.95 $0.00 $24,721.28 n/a
15-Jan-98 X $24,721.28 $6,521.90 $18,199.38 $621,718.57 $0.00 $24,721.28 n/a
15-Feb-98 X $24,721.28 $6,336.42 $18,384.86 $603,333.71 $0.00 $24,721.28 n/a
15-Mar-98 $24,721.28 $5,553.98 $19,167.30 $584,166.41 $0.00 $24,721.28 n/a
15-Apr-98 $24,721.28 $5,953.70 $18,767.58 $565,398.82 $0.00 $24,721.28 n/a
15-May-98 $24,721.28 $5,576.54 $19,144.74 $546,254.08 $0.00 $24,721.28 n/a
15-Jun-98 $24,721.28 $5,567.30 $19,153.98 $527,100.10 $0.00 $24,721.28 n/a
15-Jul-98 $24,721.28 $5,198.80 $19,522.48 $507,577.62 $0.00 $24,721.28 n/a
15-Aug-98 $24,721.28 $5,173.12 $19,548.16 $488,029.46 $0.00 $24,721.28 n/a
15-Sep-98 $24,721.28 $4,973.89 $19,747.39 $468,282.07 $0.00 $24,721.28 n/a
15-Oct-98 $24,721.28 $4,618.67 $20,102.61 $448,179.46 $0.00 $24,721.28 n/a
15-Nov-98 $39,801.30 $4,567.75 $35,233.55 $412,945.91 $0.00 $39,801.30 n/a
15-Dec-98 $39,801.30 $4,072.89 $35,728.41 $377,217.50 $0.00 $39,801.30 n/a
<PAGE>
15-Jan-99 $39,801.30 $3,844.52 $35,956.78 $341,260.72 $0.00 $39,801.30 n/a
15-Feb-99 $39,801.30 $3,478.05 $36,323.25 $304,937.47 $0.00 $39,801.30 n/a
15-Mar-99 $39,801.30 $2,807.10 $36,994.20 $267,943.27 $0.00 $39,801.30 n/a
15-Apr-99 $39,801.30 $2,730.82 $37,070.48 $230,872.78 $0.00 $39,801.30 n/a
15-May-99 $39,801.30 $2,277.10 $37,524.20 $193,348.59 $0.00 $39,801.30 n/a
15-Jun-99 $39,801.30 $1,970.57 $37,830.73 $155,517.85 $0.00 $39,801.30 n/a
15-Jul-99 $39,801.30 $1,533.87 $38,267.43 $117,250.43 $0.00 $39,801.30 n/a
15-Aug-99 $39,801.30 $1,194.99 $38,606.31 $78,644.12 $0.00 $39,801.30 n/a
15-Sep-99 $39,801.30 $801.52 $38,999.78 $39,644.34 $0.00 $39,801.30 n/a
15-Oct-99 $39,801.30 $156.96 $39,644.34 $0.00 $0.00 $39,801.30 n/a
---------- ------- ----------
$1,011,595.56 $189,102.84 $822,492.72
</TABLE>
<PAGE>
[LOGO]
Lock Box Address:
6201 W. Oakton P. O. Box 95134
Morton Grove, Illinois 60053-2742 Chicago, IL 60694-5134
October 14, 1996
Lee Thurburn, CEO
Website Management Company, Inc.-D.B.A. Flashnet Communications
1812 N Forest Park Blvd
Fort Worth, TX 76102
Total Amount: $885,210.00-This includes Product for P.O.#091996-A
Dear Mr. Thurburn
U. S. Robotics is willing to accept the following schedule of payments for the
attached product and amount. The following represents a 36-month payment
schedule for the product only:
<TABLE>
<CAPTION>
PAYMENT SCHEDULE AMOUNT
---------------- ------
<S> <C>
1st 12 monthly payments $17,306.18
2nd 12 monthly payments $21,632.48
3rd 12 monthly payments $34,828.84
</TABLE>
Payments will be due on the 15th of each Month with the first payment due
on December 15, 1996. Each payment listed above must be forwarded to the U. S.
Robotics Lock Box address shown above, on or before the applicable payment due
date.
The above payment schedule includes only product costs. It does not include tax
costs which will be billed separately and must be paid separately on Net 30 day
terms. The total tax cost for the order comes to $73,079.33.
I have included the Invoice for the total tax cost for $73,079.33 which is due
on Net 30 day terms upon receipt.
I HAVE ALSO INCLUDED AN EXPECTED PAYMENT SCHEDULE ON THE NEXT PAGE.
By executing and returning this letter, you indicate your acceptance of
this payment schedule.
[ILLEGIBLE] CFO 12/23/96
- ----------------------- ----------------------- ----------------------
Authorized Signature Title Date
Sincerely,
/s/ Randy Perry
Randy Perry
Senior Credit Analyst
U.S. Robotics-Network Systems Division
<PAGE>
COMBINED EXPECTED PAYMENT SCHEDULE
Flashnet Communications
The following COMBINED payment schedule is for P.O.#'s 062896-A(modified),
091996-A and 101896
<TABLE>
<S> <C> <C> <C> <C>
PAYMENT DATE P.O.#062896-A(modified) P.O.#091996-A P.O.#101896 COMBINED
15-Nov-96 $19,777.05
15-Dec-96 $19,777.05 $17,306.18
15-Jan-97 $19,777.05 $17,306.18
15-Feb-97 $19,777.05 $17,306.18
15-Mar-97 $19,777.05 $17,306.18
15-Apr-97 $19,777.05 $17,306.18
15-May-97 $19,777.05 $17,306.18
15-Jun-97 $19,777.05 $17,306.18
15-Jul-97 $19,777.05 $17,306.18
15-Aug-97 $19,777.05 $17,306.18
15-Sep-97 $19,777.05 $17,306.18
15-Oct-97 $19,777.05 $17,306.18
15-Nov-97 $24,721.28 $17,306.18
15-Dec-97 $24,721.28 $21,632.48
15-Jan-98 $24,721.28 $21,632.48
15-Feb-98 $24,721.28 $21,632.48
15-Mar-98 $24,721.28 $21,632.48
15-Apr-98 $24,721.28 $21,632.48
15-May-98 $24,721.28 $21,632.48
15-Jun-98 $24,721.28 $21,632.48
15-Jul-98 $24,721.28 $21,632.48
15-Aug-98 $24,721.28 $21,632.48
15-Sep-98 $24,721.28 $21,632.48
15-Oct-98 $24,721.28 $21,632.48
15-Nov-98 $39,801.30 $21,632.48
15-Dec-98 $39,801.30 $34,828.84
15-Jan-99 $39,801.30 $34,828.84
15-Feb-99 $39,801.30 $34,828.84
15-Mar-99 $39,801.30 $34,828.84
15-Apr-99 $39,801.30 $34,828.84
15-May-99 $39,801.30 $34,828.84
15-Jun-99 $39,801.30 $34,828.84
15-Jul-99 $39,801.30 $34,828.84
15-Aug-99 $39,801.30 $34,828.84
15-Sep-99 $39,801.30 $34,828.84
15-Oct-99 $39,801.30 $34,828.84
15-Nov-99 $34,828.84
</TABLE>
PLEASE SEND PAYMENTS TO THE FOLLOWING ADDRESS:
U.S. Robotics
ATTN: Lockbox#95134
311 W Monroe St.
Chicago, IL 60605
<PAGE>
US ROBOTICS - SCHEDULE 02
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Original Value $719,518.25 Payment Varied Deposit $0.00 $0.00
Down payment $0.00 Date made 00-Jan-00 00-Jan-00
Term 36 Monthly Use Tax 0.00%
Implied Rate 12.0000% (tax of $73,029.83 paid at inception) Purch. Option $0.00
Notice Due 00-Jan-00
- -----------------------------------------------------------------------------------------------------------------------------------
Lease Pymt. Interest Principal Remaining Use Total Actual Balance
Date Amount Expense Reduction Principal Tax Payment Payment Date Owed
- ---- ---------- -------- --------- --------- --- ------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15-Nov-96 $719,518.25
15-Dec-96 X $17,306.18 $7,096.62 $10,209.56 $709,308.69 $0.00 $17,306.18 $17,306.18 $0.00
15-Jan-97 X $17,306.18 $7,229.12 $10,077.06 $699,231.63 $0.00 $17,306.18 $17,306.18 $0.00
15-Feb-97 X $17,306.18 $7,126.42 $10,179.76 $689,051.86 $0.00 $17,306.18 $17,306.18 $0.00
15-Mar-97 X $17,306.18 $6,343.05 $10,963.13 $678,088.74 $0.00 $17,306.18 $17,306.18 31-Mar-97 $0.00
15-Apr-97 X $17,306.18 $6,910.93 $10,395.25 $667,693.49 $0.00 $17,306.18 n/a
15-May-97 X $17,306.18 $6,585.47 $10,720.71 $656,972.78 $0.00 $17,306.18 n/a
15-Jun-97 X $17,306.18 $6,695.72 $10,610.46 $646,362.32 $0.00 $17,306.18 n/a
15-Jul-97 X $17,306.18 $6,375.08 $10,931.10 $635,431.22 $0.00 $17,306.18 n/a
15-Aug-97 X $17,306.18 $6,476.18 $10,830.00 $624,601.22 $0.00 $17,306.18 n/a
15-Sep-97 X $17,306.18 $6,365.80 $10,940.38 $613,660.83 $0.00 $17,306.18 n/a
15-Oct-97 X $17,306.18 $6,052.55 $11,253.63 $602,407.20 $0.00 $17,306.18 n/a
15-Nov-97 X $17,306.18 $6,139.60 $11,166.58 $591,240.62 $0.00 $17,306.18 n/a
15-Dec-97 X $21,632.48 $5,831.41 $15,801.07 $575,439.56 $0.00 $21,632.48 n/a
15-Jan-98 X $21,632.48 $5,864.75 $15,767.73 $559,671.83 $0.00 $21,632.48 n/a
15-Feb-98 X $21,632.48 $5,704.05 $15,928.43 $543,743.40 $0.00 $21,632.48 n/a
15-Mar-98 $21,632.48 $5,005.42 $16,627.06 $527,116.34 $0.00 $21,632.48 n/a
15-Apr-98 $21,632.48 $5,372.25 $16,260.23 $510,856.12 $0.00 $21,632.48 n/a
15-May-98 $21,632.48 $5,038.58 $16,593.90 $494,262.22 $0.00 $21,632.48 n/a
15-Jun-98 $21,632.48 $5,037.41 $16,595.07 $477,667.15 $0.00 $21,632.48 n/a
15-Jul-98 $21,632.48 $4,711.24 $16,921.24 $460,745.91 $0.00 $21,632.48 n/a
15-Aug-98 $21,632.48 $4,695.82 $16,936.66 $443,809.25 $0.00 $21,632.48 n/a
15-Sep-98 $21,632.48 $4,523.21 $17,109.27 $426,699.97 $0.00 $21,632.48 n/a
15-Oct-98 $21,632.48 $4,208.55 $17,423.93 $409,276.04 $0.00 $21,632.48 n/a
15-Nov-98 $21,632.48 $4,171.25 $17,461.23 $391,814.81 $0.00 $21,632.48 n/a
15-Dec-98 $34,828.84 $3,864.47 $30,964.37 $360,850.45 $0.00 $34,828.84 n/a
15-Jan-99 $34,828.84 $3,677.71 $31,151.13 $329,699.32 $0.00 $34,828.84 n/a
<PAGE>
15-Feb-99 $34,828.84 $3,360.22 $31,468.62 $298,230.70 $0.00 $34,828.84 n/a
15-Mar-99 $34,828.84 $2,745.36 $32,083.48 $266,147.22 $0.00 $34,828.84 n/a
15-Apr-99 $34,828.84 $2,712.51 $32,116.33 $234,030.89 $0.00 $34,828.84 n/a
15-May-99 $34,828.84 $2,308.25 $32,520.59 $201,510.30 $0.00 $34,828.84 n/a
15-Jun-99 $34,828.84 $2,053.75 $32,775.09 $168,735.21 $0.00 $34,828.84 n/a
15-Jul-99 $34,828.84 $1,664.24 $33,164.60 $135,570.61 $0.00 $34,828.34 n/a
15-Aug-99 $34,828.84 $1,381.71 $33,447.13 $102,123.47 $0.00 $34,828.84 n/a
15-Sep-99 $34,828.84 $1,040.82 $33,788.02 $68,335.45 $0.00 $34,828.84 n/a
15-Oct-99 $34,828.84 $673.99 $34,154.85 $34,180.61 $0.00 $34,828.84 n/a
15-Nov-99 $34,828.84 $648.23 $34,180.61 $0.00 $0.00 $34,828.84 n/a
---------- --------- ----------
$885,210.00 $165,691.75 $719,518.25
</TABLE>
<PAGE>
EMC CORPORATION LESSEE NO. 11564
2
EMC
MASTER LEASE AGREEMENT
This MASTER LEASE AGREEMENT (hereinafter called the "Master Agreement") is
entered into by and between EMC Corporation, a Massachusetts corporation
(hereinafter called "Lessor"), having its principal place of business at 171
South Street, Hopkinton, MA 01748, and Website Management Company, Inc. dba
Flashnet (hereinafter called "Lessee"), having a principal place of business at
1812 North Forest Park Blvd., Fort Worth, TX 76102.
I. THE LEASE
1.1 LEASE OF EQUIPMENT. In accordance with the terms and conditions of
this Master Agreement, Lessor agrees to lease to Lessee, and Lessee
agrees to lease from Lessor, the units of personal property (hereinafter
individually called a "Unit" and collectively called "Equipment")
described in supplement(s) which are executed pursuant to and
incorporate the terms of this Master Agreement (each hereinafter, a
"Supplement"). Each Supplement shall constitute a separate, distinct,
and independent lease and contractual obligation of Lessee. The term
"Lease" as used hereinafter shall refer to an individual Supplement
which incorporates the terms of this Master Agreement. Lessor or its
assignee shall retain the full legal title to the Equipment, it being
expressly agreed by both parties that this Master Agreement and each
Lease shall constitute an agreement of lease only. Each Lease shall be
binding upon Lessor and Lessee from the date of acceptance and execution
of the applicable Supplement, by Lessor at its headquarters.
1.2 TERMS OF LEASE. The original term of lease for each Unit (hereinafter
the "Original Term") shall commence on the date specified in the
applicable Supplement and, subject to Section 2.5 below, shall terminate
as specified in such Supplement. No Lease may be canceled by Lessee for
any reason whatsoever.
1.3 DISCLAIMERS; WARRANTIES. LESSEE ACKNOWLEDGES AND AGREES THAT LESSOR
MAKES NO EXPRESS OR IMPLIED WARRANTIES ARISING OUT OF OR RELATED TO
LESSEE'S USE OR OPERATION OF THE EQUIPMENT. LESSOR EXPRESSLY DISCLAIMS
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE FOR THE EQUIPMENT OR OTHER PRODUCTS, DOCUMENTATION AND SERVICES
PROVIDED HEREIN. IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY INDIRECT,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR
ASSOCIATED WITH THE EQUIPMENT OR THE LEASE THEREOF EVEN IF ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
1.4 RENTAL PAYMENTS. Lessee shall pay rental to Lessor for the Unit(s) in
the amounts and on the dates specified in the applicable Supplement. If
any rental or other amount due hereunder is not paid within five (5)
days of the due date thereof, Lessee shall pay to Lessor on demand, as
additional rental, interest thereon from the due date until payment at a
rate equal to the lesser of (i) eighteen (18%) per annum, or (ii) the
maximum rate permitted by law. All rental and other amounts payable by
Lessee to Lessor hereunder shall he paid to Lessor at the address
specified above, or at such other place as Lessor may designate in
writing to Lessee. Time is of the essence with respect to all of
Lessee's obligations under any Lease.
1.5 RETURN OF EQUIPMENT. Upon expiration of the Original Term, Lessee will
immediately return the Equipment to Lessor as provided in Section 2.3
below. Should Lessee not return the Equipment at the end of the Original
Term, the Equipment shall continue to be held and leased hereunder, and
the Lease shall thereupon be extended for successive three (3) month
terms, at the same monthly rental, subject to the right of either Lessee
or the Lessor to terminate the Lease upon ninety (90) days written
notice, whereupon the Lessee shall forthwith deliver the Equipment to
the Lessor. If Lessee fails to return the Equipment upon demand therefor
by Lessor, Lessee shall pay Lessor, as the reasonable measure of
Lessor's damages, the value, at replacement cost, of the Equipment so
converted.
II. COVENANTS OF LESSEE
2.1 PAYMENT OF RENTAL AND OTHER MONIES. Each lease is a net lease and Lessee
acknowledges and agrees that Lessee's obligation to pay all rental and
other sums payable hereunder, and the rights of Lessor in and to such
payments, shall be absolute and unconditional and shall not be subject
to any abatement, reduction, setoff, counterclaim or other defense for
any reason whatsoever. It being the intent of Lessor, and an inducement
to Lessor, to enter into the Lease, to claim all available tax benefits
of ownership with respect to the Equipment, Lessee acknowledges and
agrees that (i) no right, title or interest in the Equipment has been
or is intended to be passed to Lessee, other than the right to maintain
possession and use of the Equipment for the Original Term, conditioned
on Lessee's performance of the terms and conditions of the Lease, (ii)
Lessee has not taken and will not at any time during the Original Term
take any action which shall cause Lessor to lose any tax benefits of
ownership, and (iii) the Stipulated Loss Values (defined in the
applicable Lease) agreed to under this Lease are intended to provide
recovery by Lessor of such lost tax benefits of ownership.
2.1.1 ACCEPTANCE OF EQUIPMENT. Lessee's acceptance of the Equipment shall be
conclusively and irrevocably evidenced by Lessee executing the
Certificate of Delivery and Acceptance and upon acceptance the Lease of
such Equipment shall be noncancellable for the Original Term unless
otherwise agreed to in writing by Lessor.
<PAGE>
2.2 USE OF EQUIPMENT. Lessee shall use the Equipment solely in the conduct
of its business, in a manner and for the use contemplated by the
manufacturer thereof, and in compliance with all laws, rules and
regulations of every governmental authority having jurisdiction over the
Equipment and with the provisions of all policies of insurance carried
by Lessee pursuant to Section 2.6 below; provided, however, Lessee shall
have the right to allow third parties, under Lessee's supervision, to
use the Equipment, so long as Lessee shall retain uninterrupted
possession and control of the Equipment. Lessee shall pay all costs,
expenses, fees and charges incurred in connection with the use and
operation of the Equipment.
2.3 DELIVERY, INSTALLATION, MAINTENANCE AND REPAIR. Lessee shall be solely
responsible, at its own expense, for the delivery of the Equipment to
Lessee, the packing, rigging and delivery of the Equipment back to
Lessor upon expiration of the Original Term in good repair, condition,
and working order, ordinary wear and tear excepted, at the location(s)
within the continental United States specified by Lessor. Lessee is also
solely responsible for the installation, de-installation, maintenance
and repair of the Equipment. Lessee shall, at its expense, (a) keep the
Equipment in good repair, condition and working order, ordinary wear and
tear excepted, and (b) at the expiration of the Original Term or any
renewal term have the Equipment inspected and certified as acceptable
for maintenance service by the manufacturer. Lessor shall be entitled to
inspect the Equipment at Lessee's location at reasonable times.
2.4 TAXES. Lessee agrees to pay, and to indemnify and hold Lessor harmless
from, all license fees, assessments, and sales, use, property, excise and
other taxes and charges ("Imposts")(other than those measured by
Lessor's net income) now or hereafter imposed by any governmental body
or agency upon or with respect to (a) the Equipment or the possession,
ownership, use or operation thereof or (b) this Master Agreement, any
Lease, or the consummation of the transactions herein contemplated. All
required personal property tax returns relating to the Equipment shall
be filed by Lessee unless otherwise provided in writing. Lessee shall
reimburse Lessor promptly upon demand for the amount of any Imposts
remitted by Lessor which are required hereunder to be borne by Lessee.
2.5 LOSS OF EQUIPMENT. Lessee shall bear the entire risk of the Equipment
being lost, destroyed or otherwise rendered permanently unfit or
unavailable for use from any cause whatsoever (hereinafter called an
"Event of Loss") after its delivery to Lessee. If an Event of Loss shall
occur with respect to any Unit, Lessee shall promptly and fully notify
Lessor thereof. On the rental payment date following such notice Lessee
shall pay to Lessor an amount equal to the rental payment or payments
due and payable for such Unit on such date plus a sum equal to the
Stipulated Loss Value (as defined in the applicable Supplement) of such
Unit as of the date of such payment set forth in such Supplement. Upon
the making of such payment by Lessee regarding any Unit, the rental
obligation for such Unit shall cease, the Lease as to such Unit shall
terminate and (except in the case of loss, theft or complete
destruction) Lessor shall be entitled to recover possession of such Unit
at Lessee's expense in accordance with the provisions of Section 2.3
above. Provided that Lessor has received the Stipulated Loss Value for
any Unit, Lessee shall be entitled to the proceeds of any recovery in
respect of such Unit from insurance or otherwise.
2.6 INSURANCE. Lessee shall obtain and maintain for the entire term of the
Lease, at its own expense, property damage and liability insurance and
insurance against loss or damage to the Equipment including, without
limitation, loss by fire (including so-called extended coverage), theft
and such other risks of loss as are required on the type of Equipment
leased hereunder and by businesses in which Lessee is engaged in such
amounts in such form and with such insurers as shall be satisfactory to
Lessor, provided however, that such insurance for loss or damage of any
Unit shall always be at a minimum, the amount of the Stipulated Loss
Value of such Unit. Each insurance policy will name Lessee as insured
and Lessor as an additional insured and loss payee thereof as Lessor's
interests may appear and shall provide that it may not be canceled or
altered without at least 30 days prior written notice to Lessor or its
successors and assigns. Lessee shall provide to Lessor a certificate of
insurance as evidence of insurance coverage prior to delivery of any
Unit.
2.7 INDEMNITY. Lessee shall and does hereby indemnify Lessor and its
successors and assigns against, and hold Lessor and its successors and
assigns harmless from, any and all claims, demands, actions and suits,
proceedings, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, hereinafter ("Claims"), arising out of,
connected with or resulting from this Master Agreement, any Lease, or
the Equipment, including, without limitation, the selection, ownership,
control, maintenance, lease, purchase, delivery, possession, condition,
use, operation, or return of the Equipment. Lessee shall give Lessor
immediate notice of any Claim and Lessee shall satisfy, pay and
discharge any and all judgments and fines that may be recovered against
Lessor in connection with any such Claim. Lessor shall give Lessee
written notice of any such Claim of which Lessor has knowledge.
2.8 POSSESSION; ASSIGNMENT; PLEDGE. Without the prior written consent of
Lessor, which such consent as it pertains to subsections (a) and (d),
shall not be unreasonably withheld or delayed, Lessee shall not (a)
sublease the Equipment, or any part thereof, provided, that Lessee may,
without the prior written consent of Lessor, permit any parent or
subsidiary of Lessee to use the Equipment, or any part thereof, in the
ordinary course of its business, (b) assign this Master Agreement or any
Lease or its interest hereunder or thereafter, (c) create or incur any
lien or encumbrance with respect to the Equipment, or any part thereof,
(d) move the Equipment, or any part thereof, or permit any of the
Equipment to be moved from the location at which it is first installed,
or (e) permit the Equipment, or any part thereof, to be removed outside
the continental limits of the United States.
2.9 IDENTIFICATION. At any time during the term of a Lease, Lessor may
require Lessee to legibly mark each Unit subject to such Lease in a
reasonably prominent location with a label, disc or other marking
stating that the Equipment is owned by Lessor.
2.10 ALTERATIONS OR MODIFICATIONS. Lessee shall not make any alternations of
or additions to the Equipment without the prior written consent of
Lessor. At any time during the Original Term, of any Lease there may be
added to such Lease additional Units of the same type as are rented
thereunder for a term equal to the remaining Original Term and, subject
to the terms and conditions hereof, at the rental rates applicable to
such Equipment and term in effect at the time the order is placed,
provided that the order is in writing and accepted by Lessor. Such
acceptance shall be at the sole discretion of Lessor. All additions,
attachments or accessories to or improvements of the Equipment shall
immediately belong to and become property of the Lessor unless, at the
request of Lessor, such additions, attachments or accessories to or
improvements of the Equipment are removed prior to the return of said
Equipment by Lessee. Lessee shall be responsible for the costs of such
removal and shall restore the Equipment to the same operating condition
as when it became subject to the Lease.
2.11 EQUIPMENT TO BE PERSONAL PROPERTY. Lessee agrees that the Equipment
shall be and remain personal property notwithstanding the manner in
which it may be attached or affixed to realty, and Lessee shall do all
acts and enter into all agreements necessary to ensure that the
Equipment remains personal property.
<PAGE>
2.12 FINANCIAL STATEMENTS. Lessee shall promptly furnish, or cause to be
furnished, to Lessor such financial or other statements respecting the
condition and operations of Lessee or respecting the Equipment as Lessor
may from time to time reasonably request.
2.13 LESSEE REPRESENTATIONS. Lessee hereby represents, warrants and covenants
that with respect to this Master Agreement and each Lease entered into
hereunder:
(a) The execution, delivery and performance thereof by the Lessee
have been duly authorized by all necessary corporate action;
(b) The individual executing such was duly authorized to do so;
(c) This Master Agreement and each Lease constitute the legal, valid
and binding obligations of the Lessee enforceable in accordance
with their respective terms.
III. DEFAULT AND REMEDIES
3.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default hereunder: (a) Lessee shall fail to pay
on the due date any rental or other payment due under any lease, (b) any
provision of this Master Agreement or any Lease or any provision in any
document provided by Lessee for this Master Agreement or any Lease, or
in any document furnished pursuant to the provisions hereof or
otherwise, shall prove to have been false or misleading in any material
respect as of the date when it was made, (c) Lessee shall fail to
perform any provision, covenant, condition or agreement made by it under
this Master Agreement or Lease, and such failure shall continue for ten
(10) days after notice thereof from Lessor to Lessee or (d) bankruptcy,
receivership, insolvency, reorganization, dissolution, liquidation, or
other similar proceedings shall be instituted by or against Lessee or
all or any part of its property under the Federal Bankruptcy Code or
other law of the United States or of any state law, and if against
Lessee it shall consent thereto or shall fail to cause the same to be
discharged within twenty (20) days, or (e) Lessee shall default under
any agreement with respect to the purchase or installation of the
Equipment, or (f) if Lessee or any guarantor of Lessee's obligations
hereunder shall default under any other agreement with Lessor.
3.2 REMEDIES. If an Event of Default hereunder shall occur and be
continuing, Lessor may exercise any one or more of the following
remedies: (a) immediately terminate this Master Agreement and any or all
Leases and Lessee's rights hereunder and thereunder, (b) proceed, by
appropriate court action or actions either at law or in equity, to
enforce performance by Lessee of the applicable covenants of the Lease
or to recover damages for the breach thereof, (c) by notice in writing
to Lessee, recover all amounts due on or before the date of the event of
default, plus, as liquidated damages for loss of a bargain and not as a
penalty, accelerate, and declare to be immediately due and payable all
rentals and other sums payable under any or all such Leases, without any
presentment, demand, protest or further notice (all of which hereby are
expressly waived by Lessee), whereupon the same shall be and become
immediately due and payable, and (d) personally, or by its agents take
immediate possession of the Equipment, or any part thereof, from Lessee
and for such purpose, enter upon Lessee's premises where any of the
Equipment is located with or without notice or process of law and free
from all claims by Lessee. The exercise of any of the foregoing remedies
by Lessor shall not constitute a termination of any Lease unless Lessor
so notifies Lessee in writing.
3.3 DISPOSITION OF EQUIPMENT. In the event Lessor repossesses Equipment,
Lessor may (a) lease the Equipment, or any portion thereof, in such a
manner, for such time and upon such term(s) as Lessor may determine or
(b) sell the Equipment, or any portion thereof, at one or more public or
private sales, in such manner, and at such times and upon such terms as
Lessor may determine. In the event that Lessor leases any such Units,
any rentals received by Lessor for the Remaining Lease Term(s) (the
period ending on the date when the Original Term for the Unit(s) would
have expired if an Event of Default had not occurred) for such Units
shall be applied to the payment of (i) all costs and expenses (including
attorneys' fees) incurred by Lessor in retaking possession of, and
removing, storing, repairing, refurbishing and leasing such Units, and
(ii) the rentals for the remainder of the Original Term and all other
sums, including past due rentals, remaining unpaid under the Lease. The
balance of such rentals, if any, shall be applied first to reimburse
Lessee for any sums previously paid by Lessee as liquidated damages, and
any remaining amounts shall be retained by Lessor. All rentals received
by Lessor for the period commencing after the expiration of the
Remaining Lease Term(s) shall be retained by Lessor. Lessee shall remain
liable to Lessor to the extent that the aggregate amount of the sums
referred to in clauses (i) and (ii) above shall exceed the aggregate
rentals received by Lessor under such leases for the respective
Remaining Lease Term(s) applicable to the Units covered by such leases.
In the event that Lessor shall sell or otherwise dispose of (other than
pursuant to a lease) any such Unit, the proceeds thereof shall be
applied to the payment of (i) all costs and expenses (including
reasonable attorneys' fees) incurred by Lessor in retaking possession
of, and removing, storing, repairing, refurbishing and selling or
otherwise disposing of such Unit(s), (ii) the rentals that either did or
would have accrued under the Lease but are unpaid up to the time of such
sale or other disposition, (iii) any and all other sums (other than
rentals) then owing to Lessor by Lessee under, and (iv) the Stipulated
Loss Value of such Unit(s) determined as of the date of such sales or
other disposition in accordance with the schedule set forth in the Lease
for such Unit(s). The balance of such proceeds, if any, shall be applied
first to reimburse Lessee for any sums previously paid by Lessee as
liquidated damages, and any remaining amounts shall be retained by
Lessor. Lessee shall remain liable to Lessor to the extent that the
aggregate amount of the sums referred to in clauses (i) through (iv)
above shall exceed the aggregate proceeds received by Lessor in
connection with the sale or disposition of the Equipment (other than
pursuant to a lease).
IV. MISCELLANEOUS
4.1 PERFORMANCE OF LESSEE'S OBLIGATIONS. Upon Lessee's failure to pay any
sum or perform any obligation hereunder when due, Lessor shall have the
option, but shall in no case be obligated, to pay such sum or perform
such obligation, whereupon such sum or the cost of such performance
shall immediately become due and payable as additional rent from Lessee
to Lessor with interest at the highest legal rate from the date payment
or performance was due.
4.2 ASSIGNMENT. No right, obligation or interest of Lessee with respect to
this Master Agreement, any Lease or Equipment shall, without the prior
written consent of Lessor, be assignable by Lessee or by operation of
law, and any such purported assignment, transfer or succession shall be
null and void. Lessor may, at anytime, without the consent of Lessee,
assign the Master Agreement and any Lease or any interest herein or
therein to any party. In the event of any assignment of Lessor, the
assignee shall have all of Lessor's rights hereunder, but none of its
obligations, and upon receipt by Lessee of written notice of any such
assignment, Lessee shall make all payments thereafter becoming due under
any assigned Lease to such assignee without regard to any set-off,
defense or counter clam that Lessee may have against Lessor.
<PAGE>
4.3 QUIET ENJOYMENT. So long as Lessee shall not be in default hereunder and
Lessor continues to receive all rent and other sums payable by Lessee
hereunder in accordance with the terms hereof, neither Lessor nor its
assignee, shall interfere with Lessee's right of quiet enjoyment and use
of the Equipment.
FURTHER ASSURANCES. Lessee agrees that at any time, and from time to
time, after the execution and delivery of this Lease, it shall, upon the
request of Lessor, execute and deliver such further documents and do
such further acts and things as Lessor may reasonably request in order
fully to effect the purposes of this Lease including without limitation,
the filing of financial and confirmation statements. Lessee authorizes
Lessor to file a financing statement or any confirmation statements
signed only by Lessor in accordance with the Uniform Commercial Code or
signed by Lessor as Lessee's attorney in fact.
4.5 RIGHTS, REMEDIES, POWERS. Each and every right, remedy and power
granted to Lessor hereunder shall be cumulative and in addition to any
other right, remedy or power herein specifically granted or now or
hereafter existing in equity, at law, by virtue of statute or otherwise,
and may be exercised by Lessor from time to time concurrently or
independently and as often and in such order as Lessor may deem
expedient. And any failure or delay on the part of Lessor in exercising
any such right, remedy or power, or abandonment or discontinuance of
steps to enforce the same, shall not operate as a waiver thereof or
affect Lessor's right thereafter to exercise the same, and any single or
partial exercise of any such right, remedy or power shall not preclude
any other or further exercise thereof or the exercise of any other
right, remedy or power.
4.6 NOTICES. Any notice, request, demand, consent, approval or other
communication provided or permitted hereunder shall be in writing and
shall be conclusively deemed to have been received by a party hereto on
the day it is delivered to such party at its address set forth above (or
at such other address as such party shall specify to the other party in
writing), or if sent by registered or certified mail, return receipt
requested, on the third business day after the day on which mailed,
addressed to such party at such address.
4.7 SECTION HEADINGS. Section headings are inserted for convenience only and
shall not affect any construction or interpretation of any Lease.
4.8 BINDING EFFECT. Each Lease, subject to the provisions of Sections 2.8
and 4.3 hereof, shall be binding upon and shall inure to the benefit of
the respective successors and assigns of the Lessee and Lessor.
4.9 GOVERNING LAW. Each Lease shall be governed in all respects by the laws
of the Commonwealth of Massachusetts.
4.10 ENTIRE LEASE. Each Lease, consisting of the terms and conditions of this
Master Agreement, a Supplement, and any Amendments, Schedules or Riders
to either of them, constitutes the entire agreement between Lessor and
Lessee. No waiver, consent, modification or change of terms of this
Lease shall bind either party unless in writing signed by both parties,
and then such waiver, consent, modification or change shall be effective
only in the specific instance and for the specific purpose given. There
are no understandings, agreements, representations or warranties,
express or implied, not specified therein regarding any Lease or the
Equipment leased thereunder. Any terms and conditions of any purchase
order or other document (with the exception of Supplements) submitted by
Lessee in connection with any Lease which are in addition to or
inconsistent with the terms and conditions of such Lease will not be
binding on Lessor and will not apply to the Lease. LESSEE BY THE
SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE ACKNOWLEDGES THAT IT
HAS READ THIS MASTER AGREEMENT, UNDERSTANDS IT, AND AGREES TO BE BOUND
BY ITS TERMS AND CONDITIONS WITH RESPECT TO ANY LEASE ENTERED INTO
HEREUNDER.
LEASE ACCEPTED BY:
EMC CORPORATION, (Lessor) Website Management Company, Inc.
dba Flashnet (Lessee)
-------------------------
BY: /s/ Paul W. Wainwright BY: /s/ G.B. Elrod
------------------------------- --------------------------------
TITLE: MANAGER OF LEASE OPERATIONS TITLE: CFO
------------------------------- ------------------------------
<PAGE>
2
EMC CORPORATION EMC Supplement No. 1
MASTER LEASE AGREEMENT SUPPLEMENT
This Supplement to Master Lease Agreement Number 11564 (hereinafter called the
"Master Agreement") between Lessor and the Lessee whose name appears below,
together with the Master Agreement, constitutes a lease of the Equipment
described below (hereinafter, collectively, this "Lease"). All the terms and
conditions of the Master Agreement apply to this Lease with the same force and
effect as if all said terms and conditions were fully set forth herein and said
terms and conditions are incorporated herein and made part hereof by reference.
All capitalized terms not defined in this Supplement shall have the meanings
given such terms in the Master Agreement. It is the intent of the parties that
this Supplement be separately enforceable as a complete and independent lease,
independent of all other Supplements to the Lease.
EQUIPMENT DESCRIPTION:
<TABLE>
<CAPTION>
ITEM QTY. EQUIPMENT MONTHLY ORIGINAL EQUIPMENT
RENT TERM COST
(MOS.)
<S> <C> <C> <C> <C> <C>
1. 1 Symmetrix 3500-9032 $9,023.00 42 $350,000.00
2. 2 OSD4 Included Included
3. 1 3000-98 Included Included
4. 1 OSYMGR-BAS Included Included
------- --------
$9,023.00 $350,000.00
</TABLE>
Equipment Location: 1812 North Forest Park Blvd., Fort Worth, TX 76102
Monthly Rent: The first payment of monthly rent is due and payable on the
Commencement Date. Subsequent payments of monthly rent are due and payable on
the same date of each succeeding month. The Lease Term for each Unit will
automatically extend for successive three (3) month periods after the expiration
of the Original Term in accordance with all the terms and conditions of this
Lease including the same monthly rent, until either party shall give the other
party at least ninety (90) days prior notice of its intent not to extend or
renew this Supplement.
SUPPLEMENT ACCEPTED BY:
EMC CORPORATION (Lessor) Website Management Company, Inc.
dba Flashnet (Lessee)
----------------------------------
BY: /s/ Paul W. Wainwright BY: /s/ G. B. Elrod
- ----------------------------- ----------------------------------
(Authorized Signature) (Authorized Signature)
PAUL W. WAINWRIGHT
MANAGER OF LEASE OPERATIONS CFO
- ----------------------------- ----------------------------------
(Name/Title) (Name/Title)
6/12/97 5/8/97
- ----------------------------- ----------------------------------
(Date) (Date)
(Continued on reverse)
<PAGE>
COMMENCEMENT DATE: The Commencement Date shall be the first day of the month
following the day on which all of the Equipment listed above is installed and is
accepted by Lessee, unless the acceptance date is the first day of the month in
which case the first day off that month shall be the Commencement Date.
INTERIM RENT: Lessee shall pay interim rental at a rate of 1/30th of the monthly
rent per day from and including the acceptance date to the Commencement Date.
Payments of interim rent are due and payable upon Lessee's receipt of invoice
from Lessor.
CHATTEL PAPER: To the extent this Lease may be considered "chattel paper" as
defined in the Uniform Commercial Code, this original executed Supplement,
incorporating the terms of the Master Agreement, shall constitute the original
Lease, and Lessor's interests herein my be transferred only by transfer of
possession of this original Supplement.
STIPULATED LOSS VALUES: The Stipulated Loss Value for each Unit, as of any date,
shall be an amount equal to the product of (i) the cost of the Unit (as
specified on the reverse side hereof) and (ii) the percentage indicated below
opposite the period of time in which such date occurs.
<TABLE>
<CAPTION>
MONTH OF ORIGINAL TERM
BEGINNING
FROM COMMENCEMENT
DATE PERCENTAGE
---------------------- ----------
<S> <C>
1st through 12th month 107%
13th through 24th month 85%
25th through 36th month 70%
37th through 48th month 50%
49th through 60th month 30%
</TABLE>
After the 60th month of the Original Term of the Lease for each Unit, and until
each Unit has been surrendered to Lessor, as provided in the Agreement, the
Stipulated Loss Value of each Unit shall be 20% of the cost thereof.
<PAGE>
SUPPLEMENT NO. 2
EMC CORPORATION
2
EMC
MASTER LEASE AGREEMENT SUPPLEMENT
This Supplement to Master Lease Agreement Number 11564 (hereinafter called the
"Master Agreement") between Lessor and the Lessee whose name appears below,
together with the Master Agreement, constitutes a lease of the Equipment
described below (hereinafter, collectively, this "Lease"). All the terms and
conditions of the Master Agreement apply to this Lease with the same force and
effect as if all said terms and conditions were fully set forth herein and said
terms and conditions are incorporated herein and made part hereof by reference.
All capitalized terms not defined in this Supplement shall have the meanings
given such terms in the Master Agreement. It is the intent of the parties that
this Supplement be separately enforceable as a complete and independent lease,
independent of all other Supplements to the Lease.
EQUIPMENT DESCRIPTION:
<TABLE>
<CAPTION> ORGINAL
MONTHLY TERM EQUIPMENT
ITEM QTY. EQUIPMENT RENT (MOS.) COST
- ---- ---- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1. (Confidential 3000-92 (Confidential 36 (Confidential
treatment has treatment has treatment has
been requested) been requested) been requested)
2. 1 MEM512-UPG
3. 1 OSD4
</TABLE>
THIS LEASE IS INTENDED TO BE A COTERMINOUS UPGRADE TO SUPPLEMENT #1, TO BE
COTERMINOUS SUPPLEMENT NO. 2 MUST COMMENCE 1/1/98.
EQUIPMENT LOCATION: 1812 NORTH FOREST PARK BLVD, FORT WORTH, TX 76102
MONTHLY RENT: The first payment of monthly rent is due and payable on the
Commencement Date. Subsequent payments of monthly rent are due and payable on
the same date of each succeeding month. The Lease Term for each Unit will
automatically extend for successive three (3) month periods after the expiration
of the original term in accordance with all the terms and conditions of this
Lease including the same monthly rent, until either party shall give the other
party at least ninety (90) days prior notice of its intent not to extend or
renew this Supplement.
SUPPLEMENT ACCEPTED BY:
EMC CORPORATION (Lessor) WEBSITE MANAGEMENT COMPANY, INC.
D/B/A FLASHNET (Lessee)
<TABLE>
<CAPTION>
<S> <C>
By: By: /s/ G. B. Elrod
-------------------------- --------------------------
(Authorized Signature) (Authorized Signature)
G. B. Elrod, CFO
- ----------------------------- --------------------------
(Name/Title) (Name/Title)
Jan. 30, 1998
- ----------------------------- --------------------------
(Date) (Date)
</TABLE>
(Continued on reverse)
<PAGE>
SUPPLEMENT NO. 3
EMC CORPORATION
2
EMC
MASTER LEASE AGREEMENT SUPPLEMENT
This Supplement to Master Lease Agreement Number 11564 (hereinafter called the
"Master Agreement") between Lessor and the Lessee whose name appears below,
together with the Master Agreement, constitutes a lease of the Equipment
described below (hereinafter, collectively, this "Lease"). All the terms and
conditions of the Master Agreement apply to this Lease with the same force and
effect as if all said terms and conditions were fully set forth herein and said
terms and conditions are incorporated herein and made part hereof by reference.
All capitalized terms not defined in this Supplement shall have the meanings
given such terms in the Master Agreement. It is the intent of the parties that
this Supplement be separately enforceable as a complete and independent lease,
independent of all other Supplements to the Lease.
EQUIPMENT DESCRIPTION:
<TABLE>
<CAPTION> ORGINAL
MONTHLY TERM EQUIPMENT
ITEM QTY. EQUIPMENT RENT (MOS.) COST
- ---- ---- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
1. (Confidential 3000-92 (Confidential 33 (Confidential
treatment has treatment has treatment has
been requested) been requested) been requested)
</TABLE>
THIS LEASE IS INTENDED TO BE A COTERMINOUS UPGRADE TO SUPPLEMENT #1, TO BE
COTERMINOUS SUPPLEMENT NO. 3 MUST COMMENCE 4/1/98.
EQUIPMENT LOCATION: 1812 NORTH FOREST PARK BLVD, FORT WORTH, TX 76102
MONTHLY RENT: The first payment of monthly rent is due and payable on the
Commencement Date. Subsequent payments of monthly rent are due and payable on
the same date of each succeeding month. The Lease Term for each Unit will
automatically extend for successive three (3) month periods after the expiration
of the original term in accordance with all the terms and conditions of this
Lease including the same monthly rent, until either party shall give the other
party at least ninety (90) days prior notice of its intent not to extend or
renew this Supplement.
SUPPLEMENT ACCEPTED BY:
EMC CORPORATION (Lessor)
<TABLE>
<CAPTION>
WEBSITE MANAGEMENT COMPANY, INC.
D/B/A FLASHNET (Lessee)
<S> <C>
By: By: /s/ G. B. Elrod
-------------------------- --------------------------
(Authorized Signature) (Authorized Signature)
G. B. Elrod, CFO
- ----------------------------- --------------------------
(Name/Title) (Name/Title)
Jan. 30, 1998
- ----------------------------- --------------------------
(Date) (Date)
</TABLE>
(Continued on reverse)
<PAGE>
ORIGINAL
2
EMC
MASTER LEASE AGREEMENT SUPPLEMENT
CERTIFICATE OF DELIVERY AND ACCEPTANCE
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION OF EQUIPMENT SERIAL NUMBER
- -------- ------------------------ -------------
<S> <C> <C>
(Confidential 3000-92
Treatement has
been requested)
</TABLE>
Supplement No. 3 is intended to be a coterminous upgrade to
Supplement No. 1; to be coterminous Supplement No. 3 must commence 4/1/98.
EQUIPMENT LOCATION: 1812 NORTH FOREST PARK BLVD., FORT WORTH, TX 76102
I hereby certify that the following Equipment, listed in SUPPLEMENT NUMBER 3 TO
MASTER LEASE AGREEMENT NUMBER 11564 between Lessor and Lessee (hereinafter,
collectively, the "Lease") was delivered, found satisfactory, and is accepted by
Lessee for all purposes of said Lease as of the 1ST DAY OF APRIL, 1998.
WEBSITE MANAGEMENT COMPANY, INC.
D/B/A FLASHNET (Lessee)
BY: /s/ G. B. Elrod
-------------------------------
(Authorized Signature)
CFO
-------------------------------
(Name/Title)
<PAGE>
ORIGINAL
2
EMC
MASTER LEASE AGREEMENT SUPPLEMENT
CERTIFICATE OF DELIVERY AND ACCEPTANCE
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION OF EQUIPMENT SERIAL NUMBER
- -------- ------------------------ -------------
<S> <C> <C>
(Confidential 3000-92
treatment has
been requested)
1 MEM512-UPG
1 OSD4
</TABLE>
THIS LEASE IS INTENDED TO BE A COTERMINOUS UPGRADE TO SUPPLEMENT #1, TO BE
COTERMINOUS SUPPLEMENT NO. 2 MUST COMMENCE 1/1/98.
EQUIPMENT LOCATION: 1812 NORTH FOREST PARK BLVD, FORT WORTH, TX 76102
I hereby certify that the following Equipment, listed in SUPPLEMENT NUMBER 2 TO
MASTER LEASE AGREEMENT NUMBER 11564 between Lessor and Lessee (hereinafter,
collectively, the "Lease") was delivered, found satisfactory, and is accepted by
Lessee for all purposes of said Lease as of the FIRST DAY OF JANUARY, 1998.
WEBSITE MANAGEMENT COMPANY, INC.
D/B/A FLASHNET (Lessee)
BY: /s/ G. B. Elrod
-------------------------------
(Authorized Signature)
CFO
-------------------------------
(Name/Title)
<PAGE>
2
EMC
CERTIFICATE OF INCUMBENCY
I, SCOTT LESLIE the undersigned, Secretary of WEBSITE MANAGEMENT
COMPANY, INC. D/B/A FLASHNET (the "Company"), a TEXAS Corporation, do hereby
certify that the following person is duly elected or appointed, qualified and
acting officer(s) of the company holding the office(s) set forth opposite
each such officers respective name below, and that the signature appearing
opposite each such name is the genuine signature of such person:
<TABLE>
<CAPTION>
NAME OFFICE SIGNATURE
- ---- ------ ---------
<S> <C> <C>
SCOTT LESLIE President & Secretary
- -------------- ------------------------ -------------------
GENE B. ELROD Chief Financial Officer /s/ Gene B. Elrod
- -------------- ------------------------ -------------------
- -------------- ------------------------ -------------------
</TABLE>
IN WITNESS WHEREOF, I have executed this certificate this 4th day of
February 1998
_____________________
Secretary
I, the undersigned, GENE B. ELROD, Officer of WEBSITE MANAGEMENT COMPANY, INC.
D/B/A FLASHNET do hereby certify that SCOTT LESLIE is the duly elected,
qualified and acting Secretary of the Company, and that his signature on the
foregoing certificate is his genuine signature.
/s/ G. B. ELROD, CFO
- -------------------
Title of Officer
<PAGE>
[LETTERHEAD]
PROPRIETARY AND CONFIDENTIAL
July 31, 1996
Mr. A. Lee Thurburn
Chief Executive Officer
FlashNet Communications
2805 West Seventh Street
Fort Worth, Texas 76107
Re: Warrant Letter Agreement
Dear Lee:
This letter is intended to confirm the agreement between ACSI Advanced
Technologies, Inc. ("ACSI"), a wholly-owned subsidiary of American
Communications Services, Inc. ("Parent"), and Website Management Company,
Inc., d.b.a. FlashNet Communications ("FlashNet"), regarding FlashNet's
intentions to grant Parent a warrant for up to five percent (5%) of
FlashNet's outstanding capital stock upon the satisfaction of certain
conditions.
FlashNet agrees that, at such time that Parent meets certain covenants
contained in certain indentures between Parent and its bondholders, FlashNet
will grant Parent a warrant (the "Warrant"), at Parent's option, for five
percent (5%) of FlashNet's then outstanding capital stock. Parent shall
provide FlashNet written evidence that Parent meets such covenants as a
condition to FlashNet's grant of the Warrant to Parent. The Warrant shall
vest on a pro rata basis in accordance with ACSI's satisfaction of a
$1,000,000 Equipment Purchase Obligation (herein so called) pursuant to that
certain Equipment Agreement (herein so called) dated July 31, 1996 by and
between ACSI and FlashNet. For example, if at such time Parent meets
such covenants ACSI has satisfied 50 percent of the Equipment Purchase
Obligation, Parent shall then be vested in that portion of the Warrant that
represents two and a half percent (2.5%) of FlashNet's then outstanding
capital stock. The strike price for the Warrant shall be $0.01 per share. The
Warrant shall expire at the later of (i) the end of the term of the Equipment
Agreement or (ii) three years from the date of the Equipment Agreement, and
may be exercised in whole or in part, on one or more occasions, on or before
such expiration date, at Parent's option.
Notwithstanding the preceding sentence, in the event FlashNet completes
an underwritten public offering of its capital stock, the Warrant shall
expire ten days after the date on which the registration statement filed by
FlashNet pursuant to the Securities Act of 1933, as amended, relating to the
sale of its capital stock is declared effective by the Securities and
Exchange Commission; provided, however, that FlashNet has given Parent
written notice of the filing of such registration statement. The Warrant
shall contain customary antidilution provisions so that, when fully
exercised, it shall at all times represent five percent (5%) of the then
outstanding capital stock of FlashNet, except that such antidilution
provisions shall expire at the earlier of the settlement date of an
underwritten public offering of FlashNet's capital stock or three years from
the date of the Equipment Purchase Agreement. Notwithstanding the foregoing,
the Warrant may be diluted by up to fifteen percent (15%) by FlashNet's
adoption and implementation of a qualified employee stock option program.
<PAGE>
Warrant Letter Agreement Between ACSI and FlashNet
July 31, 1996
Page 2
In the event ACSI is in default under the Equipment Agreement after
notice and failure to cure as provided in Section 5 of such Equipment
Agreement prior to the earlier of (i) ACSI's satisfaction of 67% of the
Equipment Purchase Obligation under the Equipment Agreement or (ii) 180 days
after the date of the Equipment Agreement, any Warrant issued shall be
terminated and, to the extent the Warrant may have been exercised, Parent
agrees to transfer to FlashNet any stock owned by Parent that was issued
pursuant to the exercise of any Warrant. Parent agrees not to transfer the
Warrant or any stock obtained as a result of exercise thereof until ACSI's
satisfaction of the Equipment Purchase Obligation under the Equipment
Agreement.
Any notice required to be given by FlashNet to ACSI or Parent hereunder
shall be delivered via overnight delivery to 131 National Business Parkway,
Suite 100, Annapolis Junction, Maryland 20701, to the attention of Riley M.
Murphy
Sincerely,
/s/ George M. Tronsrue, III
George M. Tronsrue, III
Chief Operating Officer
AGREED WITNESS
/s/ A. Lee Thurburn /s/ [illegible]
- -------------------------------- -----------------------
A. Lee Thurburn
Chief Executive Officer
Website Management Company, Inc.
<PAGE>
June 17, 1997
Mr. M. Scott Leslie
WebSite Management Company
d/b/a FlashNet Communications
1812 North Forest Park Boulevard
Fort Worth, TX 76102
RE: MASTER MANAGED SERVICES AGREEMENT, DATED AS OF JULY 31, 1996; EQUIPMENT
AGREEMENT, DATED AS OF JULY 31, 1996; WARRANT LETTER AGREEMENT, DATED AS OF
JULY 31, 1996 AND RIGHT OF FIRST REFUSAL AGREEMENT, DATED AS OF JULY 31,
1996; ADDENDUM TO EQUIPMENT AGREEMENT, DATED AS OF NOVEMBER 26, 1996;
MASTER MANAGED SERVICE AGREEMENT, DATED AS OF DECEMBER 24, 1996; EQUIPMENT
AGREEMENT, DATED DECEMBER 24, 1996; AND SERVICE AGREEMENT, DATED DECEMBER
24, 1996; ALL BETWEEN ACSI ADVANCED TECHNOLOGIES, INC. (OR ADVANCED DATA
SERVICES, INC., AS TO THE AGREEMENTS DATED DECEMBER 24, 1996) ("ACSI") AND
WEBSITE MANAGEMENT COMPANY, INC. D/B/A FLASHNET COMMUNICATIONS
("FLASHNET").
Dear Mr. Leslie:
This letter sets forth the agreement of ACSI Advanced Data Services, Inc.
(successor corporation to ACSI Advanced Technologies, Inc.) ("ACSI") and
FlashNet to amend or nullify the above referenced agreements as follows:
1. The Equipment Agreement, dated as of November 26, 1996, is hereby
terminated and is now null and void. The parties' respective purchase
and payment obligations with regard to the equipment identified
therein are hereby modified, as provided below, and incorporated into
the provisions of the Equipment Agreement between the parties dated as
of July 31, 1996. The parties hereby release one another from all
other rights and obligations under said agreement.
2. The Equipment Agreement dated as of December 24, 1996, is hereby
terminated and is now null and void. The parties' respective purchase
and payment obligations with regard to the equipment identified
therein are hereby modified, as provided below, and incorporated into
the provisions of the Equipment Agreement between the parties dated as
of July 31, 1996. The parties hereby release one another from all
other rights and obligations under said agreement.
3. The Service Agreement, dated as of December 24, 1996, is hereby
terminated and is now null and void. The parties' respective purchase
and payment obligations with regard to the equipment identified
therein are hereby modified, as provided below, and incorporated into
the provisions of the Equipment Agreement between the parties dated as
of July 31, 1996. The parties hereby release one another from all
other rights and obligations under said agreement.
<PAGE>
4. The parties hereby agree that ACSI's obligations to purchase Shiva
Access Switches from the Shiva Corporation, as described in the
Services Agreement dated as of December 24, 1996, shall be limited to
the purchase of twenty-four (24) Switches already purchased from Shiva
and deployed by FlashNet. The purchase and payment obligations with
respect to said Shiva Access Switches shall be as identified in
Schedules D and E to the Equipment Agreement dated as of July 31,
1996, as modified herein.
5. The Equipment Agreement dated as of July 31, 1996, is modified as
follows:
a. In Section 2, replace all references to "$1.0 million" with
"$681,136.47 (six hundred eighty-one thousand, one hundred
thirty-six dollars and forty-seven cents)."
b. Add the following language as additional paragraphs in Section 2:
"The parties hereby acknowledge and agree that ACSI has met its
Equipment Purchase Obligation. ACSI shall have no further
obligation to purchase additional Equipment from FlashNet or from
third parties on FlashNet's behalf.
"In addition to the Equipment purchased from ACSI from FlashNet
as identified in Schedule A, ACSI has additionally purchased
Equipment identified in Schedules B, C & D."
"The payment terms for the Equipment identified in Schedules B, C
and D shall be as detailed in Schedule E hereto."
c. Add Schedules B, C, D and E attached hereto as new Schedules B,
C, D and E of such agreement.
6. The parties hereby agree that the current annual Service Fee specified
in the Master Managed Services Agreement, dated as of July 31, 1996,
is $162,401.28 and that there will be no further increases of such
Service Fee. The Service Fee is now payable in four quarterly
installments of $40,600.32 with only the August 1 and November 1
payments remaining to be paid in 1997, four quarterly payments in
1998, and two quarterly payments in 1999.
7. Exhibit A of the above described Master Managed Services Agreement,
dated as of July 31, 1996, is hereby replaced and superseded by the
Exhibit A attached to this letter agreement.
8. The Right of First Refusal letter agreement between the parties, dated
as of July 31, 1996, is hereby terminated and is now null and void.
<PAGE>
9. The Warrant letter agreement between the parties, dated as of July 31,
1996, is hereby modified by capping the number of shares underlying
the Warrant referred to therein at 52,885 shares of FlashNet's common
stock. In recognition of ACSI's satisfaction of the "Equipment
Purchase Obligation," ACSI shall be considered fully vested in the
Warrant. Such Warrant letter agreement is further modified by
eliminating all references therein to antidilution provisions of the
Warrant, it being understood that the antidilution provisions of the
Warrant will be the same as antidilution provisions of options issued
to FlashNet's employees under FlashNet's 1997 Stock Incentive Plan.
10. The Master Managed Services Agreement, dated as of December 24, 1996,
is hereby terminated and is now null and void. With regard to the
telecommunications services identified therein, the parties hereby
agree to enter into separate agreements, mutually satisfactory to the
parties and customary in the industry, under which ACSI will sell to
FlashNet certain telecommunications services that ACSI sells as a
reseller, or under which ACSI is the customer of record for those
telecommunications services.
11. The parties agree that for each vendor from which FlashNet purchases
telecommunications services, they shall execute Two Party Transfer of
Service agreements in a form substantially similar to the form
attached hereto as Schedule F, and shall file same with the
appropriate communications carrier referenced therein, and thereby
establish ACSI as the customer of record with the communications
carrier.
12. The parties agree that notwithstanding the terms set forth in the
applicable Two Party Transfer of Service agreement, ACSI shall reserve
for FlashNet the exclusive right to make any changes, additions,
deletions, or to otherwise contact the local exchange carrier
regarding the services provided on the lines identified in the
applicable Two Party Transfer of Service agreement. ACSI agrees that
it will take any and all actions necessary to ensure that FlashNet has
the exclusive right to contact the communications carrier with any and
all matters regarding services on the telephone lines identified in
the applicable Two Party Transfer of Service agreement. ACSI further
agrees that it will not make any contact with the communications
carrier with regard to any changes, additions, deletions or any other
modifications relating to the services provided on the telephone lines
identified in the applicable Two Party Transfer of Service agreement
without FlashNet's prior written approval. ACSI agrees that if as
customer of record with the local exchange carrier ACSI receives from
the local exchange carrier any credits, refunds, or other forms of
monetary adjustments relating to the services on the telephone lines
identified in Schedule F, that ACSI shall pass such credits, refunds,
or other forms of monetary adjustments on to FlashNet. The parties
agree that the term of all such Two Party Transfer of Service
agreements shall remain in effect until December 31, 1997, and shall
thereafter continue on a month-to-month basis. At any time after
December 31, 1997, FlashNet may
<PAGE>
terminate any or all of the Two Party Transfer of Service agreements
upon forty-eight hours written notice to ACSI. ACSI agrees that on
this same day and in consideration of FlashNet's unilateral
termination privilege, ACSI shall execute a second Two Party Transfer
of Service agreement, and deliver the same to FlashNet which FlashNet
may file with the communications carrier, thereby reestablishing
FlashNet as the customer of record with regard to the lines
identified in the applicable Two Party Transfer of Service agreement.
Please indicate FlashNet's agreement to the foregoing by signing this letter
below. The original signed letter should be returned by overnight mail to:
Juliette Williams Pryor, American Communications Services, Inc., 131 National
Business Parkway, Suite 100, Annapolis Junction, MD 20701.
<PAGE>
Sincerely,
ACSI Advanced Data Services, Inc.
By: /s/ Vernon Irvin
-------------------------------------
Name: Vernon Irvin
Title: Senior Vice President ADS ACSI
Acknowledged and Agreed to:
Website Management Company, Inc.
d/b/a FlashNet Communications
By: /s/ M. Scott Leslie
-------------------------------------
Name: M. Scott Leslie
Title: President
<PAGE>
SCHEDULE A
Equipment Purchased on 7/31/96
A copy of the list of equipment purchased on July 31, 1996 is retained
elsewhere.
<PAGE>
SCHEDULE B
Equipment Purchased on 11/26/96
A copy of the list of equipment purchased on November 26, 1996 is retained
elsewhere.
<PAGE>
SCHEDULE C
EQUIPMENT PURCHASED ON 12/24/96
<TABLE>
<CAPTION>
Collateral Vendor Month of Serial
Quantity Description Purchase Number
<S> <C> <C> <C>
1 Cisco 7507 Router Solid Systems Sep-96 S/N 76008988
1 Cisco 7513 DirectNet Nov-96 S/N 73000154
3 Sun E-4000 Stonebridge Sep-96 S/N 82117924
Servers Tech.
(w/peripheral Solid Systems Sep-96 S/N 8394433
items)
S/N 8491857
1 Sun Sparc 5 StorNet Sep-96 S/N 8297744
Servers
S/N 8132444
1 Sun Sparc 5 CREAM, Inc. Sep-96 S/N 9078702
Servers
1 Integrix Sparc CREAM, Inc. Nov-95 S/N 9078978
Server
1 Ultra Sparc Sever CREAM. Inc. Mar-96 S/N 7811968
1 Ultra Sparc Sever CREAM, Inc. May-96 S/N 7999372
</TABLE>
<PAGE>
SCHEDULE D
Shiva Access Purchase
<TABLE>
<CAPTION>
DATE UNIT SERIAL NUMBER LOCATION
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
1/20/97 5 LAS003013 Houston
LAS003252
LAS003485
LAS0027811
LAS002905
2/10/97 1 LAS002905 Fort Worth
7 LAS002717 New York
LAS002701
LAS003467
LAS002968
LAS002973
LAS003173
LAS002072
2/25/97 6 LAS002734 Fort Worth
LAS002703
LAS002722
LAS002928
LAS002985
LAS002921 Defective, Returned to SHIVA 3/3
2/27/97 Shiva sent replacement for 2921 LAS04071 Defective, not Returned to SHIVA
2/28/97 Shiva sent replacement for 4071 LAS01538
2/27/97 3 LAS003085 Austin
LAS003125
LAS0027816 Defective, not Returned to SHIVA
3/3/97 1 LAS002709 Austin
</TABLE>
<PAGE>
SCHEDULE E
PAYMENT SCHEDULE
FOR
EQUIPMENT PURCHASED UNDER SCHEDULES A, B, C & D
ACSI shall invoice FlashNet on a monthly basis and FlashNet shall make payments
to ACSI within thirty days of ACSI's invoice for the Equipment based on the
following schedule.
<TABLE>
<CAPTION>
FOR EQUIPMENT IDENTIFIED IN SCHEDULE A
QUARTERLY PAYMENT AMOUNT FINAL PAYMENT DATE
- ------------------------ ------------------
<S> <C>
$40,600.32 July 1999
<CAPTION>
FOR EQUIPMENT IDENTIFIED IN SCHEDULE B
MONTHLY PAYMENT AMOUNT FINAL PAYMENT DATE*
- ---------------------- ------------------
<S> <C>
$11,193.53 November 1999
<CAPTION>
FOR EQUIPMENT IDENTIFIED IN SCHEDULE C
MONTHLY PAYMENT AMOUNT FINAL PAYMENT DATE*
- ---------------------- ------------------
<S> <C>
$16,227.09 December 1999
<CAPTION>
FOR EQUIPMENT IDENTIFIED IN SCHEDULE D
MONTHLY PAYMENT AMOUNT FINAL PAYMENT DATE*
- ---------------------- ------------------
$26,531.43 June 1999
</TABLE>
* Assumes all intermediate monthly/quarterly payments are made.
<PAGE>
SCHEDULE F
TWO PARTY TRANSFER OF SERVICE AGREEMENT
CURRENT CUSTOMER
Since Southwestern Bell Telephone Company retains all ownership and property
rights in all telephone numbers it assigns to customers, it is understood that
this transfer is subject to all rules and regulations and tariffs of
Southwestern Bell Telephone Company.
Subject to these limitations, I hereby transfer my use of and responsibility for
telephone number _____________________ to American Communications Services, Inc.
Thereby relinquishing all claims, responsibility and use I may have in this
number. I understood that I forfeit credit for all items which carry a one time
charge and will not be entitled to credit on future orders.
- ---------------------------------- --------------------------------------------
Date (Current Customer Signature)
--------------------------------------------
(Current Customer Name - Please Print)
--------------------------------------------
Title (If signed on behalf of corporation or
partnership)
THE STATE OF TEXAS
COUNTY OF_____________
Before me _____________________ a notary public, on this day personally appeared
_______________________ known to me or braved to me on the oath of ____________
to be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that he executed the same for the purposes and consideration
therein expressed.
Given under my hand and seal of office-day of ___________ 19___.
--------------------------------------------
Notary Public Signature
--------------------------------------------
Notary Public Printed or Typed Name
My Commission Expires:
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<PAGE>
MANAGEMENT CONSULTING SERVICES AGREEMENT
This Management Consulting Services Agreement (hereinafter "Agreement") is
made and entered into as of this 17th day of June, 1997 (The "Effective
Date") by and between ACSI Advanced Data Services, Inc., a Delaware
Corporation, ("ACSI") and WebSite Management Company, Inc., doing business as
FLASHNET Communications ("FLASHNET"), a Texas Corporation.
WHEREAS, FLASHNET is a corporation with experience in the provision of
internet services to commercial customers;
WHEREAS, ACSI is a corporation engaged in the provision of local
telecommunications services;
WHEREAS, ACSI wishes to utilize the services of FLASHNET in the development
of certain specialized product offerings, and in the creation of an
integrating billing process for such product offerings;
NOW THEREFORE, in consideration of the mutual promises, covenants, and
Agreements set forth below, the parties agree as follows:
1. TERM AND TERMINATION.
1.1. This Agreement shall be as of the Effective Date specified
above, and shall remain in full force and effect for a period of one year.
1.2. This Agreement may be terminated by FLASHNET only for failure
of ACSI to make payments as provided herein.
1.3. This Agreement may be terminated by ACSI upon 60 days advance
written notice to FLASHNET, for FLASHNET's failure to fulfill any of its
consulting service responsibilities or to meet any of its Performance
Criteria (as defined below) provided if such failure is continuing at the end
of such period.
1.4. Upon any termination of this Agreement, both parties agree to
return all data, materials, and properties belonging to the other by the
termination date.
2. PRICES. The flat rate fee for one year of management consulting services
provided for hereunder shall be one million dollars ($1,000,000.00).
3. FLASHNET'S RESPONSIBILITIES. FLASHNET shall provide ACSI with management
consulting services consisting of advice as to:
3.1. the structuring of special offerings to other potential
internet service providers;
3.2. testing and implementation of the packaging and provisioning
of a customized or bundled package consisting of ACSI's local
service offering and FLASHNET's internet service offering to
be offered for sale to FLASHNET's customer base;
3.3. integrated billing services for certain ACSI data customers
and for the customized or bundled package of ACSI/FLASHNET
product offerings;
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<PAGE>
3.4. management of all moves, adds and changes as relates to any
and all local telephone service that FLASHNET purchases from
ACSI;
3.5. methodology for joint sales calls by FLASHNET with ACSI for
special offerings to ACSI customers; and
3.6. development of a product offering for consumer internet
services in markets where neither FLASHNET nor ACSI currently
provide services.
4. ACSI RESPONSIBILITIES. ACSI shall cooperate with FLASHNET by providing
access to all information, materials, personnel, equipment, and networks as
may be reasonably necessary for FLASHNET to perform its duties as defined
hereunder and shall comply with reasonable requests of FLASHNET in the
performance of its duties hereunder.
5. PAYMENT SCHEDULE. Contingent upon FLASHNET's successful fulfillment of
the Performance Criteria, as described in section 6, or ACSI's waiver of the
same, ACSI shall make payment in US dollars to FLASHNET in the following
increments:
5.1. two hundred and fifty thousand dollars ($250,000.00) paid
before June 30, 1997;
5.2. five hundred thousand dollars ($500,000.00) paid on or before
July 15, 1997; and
5.3. two hundred and fifty thousand dollars ($250,000.00) paid on
or before September 1, 1997.
6. PERFORMANCE CRITERIA. FLASHNET's successful performance of its
obligations under this Agreement shall be measured by FLASHNET's fulfillment
of the following Performance Criteria (herein so called):
6.1. Within thirty (30) days of the Effective Date of this
Agreement, FLASHNET will provide ACSI with a document that
defines a suggested process to be used in structuring special
offerings to other internet service providers.
6.2. Within sixty (60) days of the Effective Date of this
Agreement, FLASHNET will provide ACSI with a written proposal
describing a suggested customized or bundled package
consisting of ACSI/FLASHNET product offerings.
6.3. Within ninety (90) days of the Effective Date of this
Agreement, FLASHNET will submit to ACSI a written proposal
describing a process which may be used as an integrated
billing system for the customized or bundled product offering
referred to above.
6.4. Within one hundred twenty (120) days of the Effective Date of
this Agreement, FLASHNET will submit to ACSI a tentative
marketing plan which may be used for a consumer internet
services offering to be made available in new markets.
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<PAGE>
FLASHNET will be deemed to have fulfilled such individual Performance
Criteria listed above so long as the document or written proposal therein
mentioned is provided within the specified time frame; regardless of whether
the relevant offering, product, system or plan is actually implemented,
accepted or created by ACSI (and FLASHNET, where applicable). Each document
or written proposal referenced above shall be in such format, content or
length and shall have such other characteristics as FLASHNET shall determine
appropriate in its reasonably exercised sole and absolute discretion.
7. TAXES, DUTIES AND SIMILAR LIABILITIES. ACSI shall be liable for all
taxes or duties applicable to any products or services purchased from
FLASHNET under this Agreement.
8. CONFIDENTIALITY AND NON-DISCLOSURE. Except as authorized in advance by
the other party, neither FLASHNET nor ACSI shall disclose confidential or
proprietary information that is property of the other. Confidential or
proprietary information means confidential business, technical or data
processing information, trade secret, or other proprietary information
clearly identified by the providing party as confidential or proprietary
information acquired by the receiving party in the course of carrying out the
tasks defined in this Agreement. Confidential or proprietary information does
not include matters of public knowledge previously disclosed by the owning
party, information disclosed under operation of law, information in the
possession or within the knowledge of the receiving party prior to receipt
from the providing party, or information disclosed by either party with the
prior written consent of the other.
9. FORCE MAJEURE. Neither party shall be liable or deemed to be in default
for any delay or failure in performance or disruption in service under this
Agreement resulting directly or indirectly by reason of fire, flood,
earthquake, explosion or other casualty, strikes or labor disputes,
disruptions of telecommunications systems, inability to obtain supplies or
power, war or other violence, any law, order, proclamation, regulation,
ordinance, demand or requirement of any government agency, or any other act
or condition whatsoever beyond the reasonable control of the affected party,
provided the party so affected shall take all reasonable steps to avoid or
remove such cause of nonperformance and shall resume performance hereunder
with dispatch whenever such causes are removed. Notwithstanding the above, a
party materially adversely affected by said delay, failure or interruption
may terminate this Agreement if said delay, failure or interruption should
exceed ninety (90) days, but the terminating party shall not be entitled to
any damages or other relief except termination. In no event shall Force
Majeure be an excuse for nonpayment of monetary obligations payable by one
party to the other.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
11. WARRANTY AND TITLE. FLASHNET does not make any warranties,
representations or guarantees regarding the services or products to be
provided hereunder other than those expressly contained in this Agreement.
FLASHNET DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
FLASHNET shall have no duty to correct any errors in data provided pursuant
to this Agreement unless ACSI notices FLASHNET of such error within sixty
(60) days after the expiration of this Agreement and the error was caused
solely by FLASHNET.
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<PAGE>
12. INDEPENDENT CONTRACTOR. FLASHNET represents that it is an independent
contractor and neither it nor its employees or subcontractors shall be, or
deemed for any purpose to be, an employee or agent of ACSI.
13. DISPUTE RESOLUTION. If either party wishes to commence litigation in
connection with a dispute concerning this Agreement, then either before or
promptly after doing so, that party shall notify the other party in writing
by overnight courier service or facsimile transmission of a request for a
meeting. The request shall contain a description of the problem. Within
fourteen (14) days of receipt of the letter requesting the meeting, the
parties shall meet at a mutually convenient location. The meeting shall be
attended by an executive of each company having the authority to resolve the
dispute. Each party may bring technical staff or other representatives having
information bearing on the problem; however, neither party may bring an
attorney or be represented in the meeting by an executive who is an attorney
unless agreed to in advance, in writing, by the other party.
In the event the parties are unable to reach a resolution utilizing the
negotiating methods first above-mentioned, the parties hereto agree to submit
such dispute for resolution by binding arbitration under the Commercial
Arbitration Rules of the American Arbitration Association in effect at the
time arbitration is demanded. In no event shall the demand for arbitration be
made later than one (1) year after the claim, dispute, controversy or other
matter in question accrued or arose.
14. LIMITATION OF LIABILITY. In no event shall FLASHNET's liability to ACSI
for damages resulting from any claims arising from or relating to any acts or
omissions in the performance of this Agreement, including, without
limitation, liability for patent or copyright infringement, exceed the total
amount of compensation received by FLASHNET under this Agreement. FLASHNET
shall not be liable to ACSI for any claims for lost profits, or indirect or
consequential damages arising from or related to FLASHNET's acts or omissions
in the performance of this Agreement.
15. MODIFICATIONS. No waiver, alteration, or modification of this Agreement
will be binding or effective unless in writing and signed by a duly
authorized representative of both FLASHNET and ACSI.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among
the parties and supersedes all other oral or written agreements,
communications and documents between the parties with respect to the subject
matter hereof.
17. NOTICES. Any notices to be given hereunder by either party to the other may
be effected either by personal delivery in writing or by mail or overnight
courier service. Mailed notices shall be addressed to the individuals indicated
below, but each party may change the address by written notice in accordance
with this paragraph.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or caused
it to be executed in their name and on behalf by their duly authorized
representatives.
WebSite Management Company, Inc. ACSI Advanced Data Services, Inc.
d/b/a FLASHNET Communications
- ------------------------------- ---------------------------------
M. Scott Leslie Vernon Irvin
- ------------------------------- ---------------------------------
Name Name
President S R.V.P.
- ------------------------------- ---------------------------------
Title Title
/s/ M. Scott Leslie /s/ [ILLEGIBLE]
- ------------------------------- ---------------------------------
Signature Signature
6/18/97 6/18/97
- ------------------------------- ---------------------------------
Date Date
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<PAGE>
WEBSITE MANAGEMENT COMPANY, INC.
1997 STOCK INCENTIVE PLAN
_________________, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH HEADING PAGE
- --------- ------- ----
<S> <C> <C>
SECTION 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2 THE STOCK INCENTIVE PLAN . . . . . . . . . . . . . . . . . . . . . . 3
2.1 The Purpose of the Plan . . . . . . . . . . . . . . . . . . . . 3
2.2 Stock Subject to the Plan . . . . . . . . . . . . . . . . . . . 3
2.3 Administration of the Plan. . . . . . . . . . . . . . . . . . . 4
2.4 Eligibility and Limits. . . . . . . . . . . . . . . . . . . . . 4
SECTION 3 TERMS OF STOCK INCENTIVES. . . . . . . . . . . . . . . . . . . . . . 5
3.1 Terms and Conditions of All Stock Incentives. . . . . . . . . . 5
3.2 Terms and Conditions of Options . . . . . . . . . . . . . . . . 5
(a) Option Price. . . . . . . . . . . . . . . . . . . . . . . . . . 6
(b) Option Term . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(c) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Conditions to Exercise of an Option . . . . . . . . . . . . . . 6
(e) Nontransferability of Options . . . . . . . . . . . . . . . . . 6
(f) Termination of Incentive Stock Option . . . . . . . . . . . . . 6
(g) Special Provisions for Certain Substitute
Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 Terms and Conditions of Stock Appreciation
Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Conditions to Exercise. . . . . . . . . . . . . . . . . . . . . 7
(c) Nontransferability of Stock Appreciation
Right. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Terms and Conditions of Restricted Stock Awards . . . . . . . . 8
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<PAGE>
SECTION 4 RESTRICTIONS ON STOCK. . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Escrow of Shares. . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Forfeiture of Shares. . . . . . . . . . . . . . . . . . . . . . 8
4.3 Repurchase by the Company . . . . . . . . . . . . . . . . . . . 8
4.4 Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . 9
(a) Limitations on Transfer . . . . . . . . . . . . . . . . . . . . 9
(b) Right of First Refusal. . . . . . . . . . . . . . . . . . . . . 9
4.5 Extension of or Early Termination of Right of
Repurchase by the Company and Termination of
Restrictions on Transfer . . . . . . . . . . . . . . . . . . . 9
(a) Extension . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Early Termination . . . . . . . . . . . . . . . . . . . . . . . 9
4.6 Pledging of Stock . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 5 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . .10
5.1 Withholding . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.2 Changes in Capitalization; Merger;
Liquidation. . . . . . . . . . . . . . . . . . . . . . . . . .10
5.3 Cash Awards . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.4 Compliance with Code. . . . . . . . . . . . . . . . . . . . . .12
5.5 Right to Terminate Employment . . . . . . . . . . . . . . . . .12
5.6 Restrictions on Delivery and Sale of Shares;
Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.7 Termination and Amendment of the Plan . . . . . . . . . . . . .12
5.8 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . .12
5.9 Effective Date of Plan. . . . . . . . . . . . . . . . . . . . .13
</TABLE>
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<PAGE>
WEBSITE MANAGEMENT COMPANY, INC.
1997 STOCK INCENTIVE PLAN
SECTION 1 DEFINITIONS
1.1 DEFINITIONS. Whenever used herein, the masculine pronoun shall be
deemed to include the feminine, and the singular to include the plural,
unless the context clearly indicates otherwise, and the following capitalized
words and phrases are used herein with the meaning thereafter ascribed:
(a) "BOARD OF DIRECTORS" means the board of directors of the Company.
(b) "CAUSE" means conduct amounting to (1) fraud or dishonesty against
the Company, (2) Participant's willful misconduct, repeated refusal to follow
the reasonable directions of the Board of Directors, or knowing violation of
law in the course of performance of the duties of Participant's employment
with the Company, (3) repeated absences from work without a reasonable
excuse, (4) repeated intoxication with alcohol or drugs while on the
Company's premises during regular business hours, (5) a conviction or plea of
guilty or NOLO CONTENDERE to a felony or a crime involving dishonesty, or (6)
a breach or violation of the terms of any employment or other agreement to
which Participant and the Company are parties.
(c) "CHANGE IN CONTROL" means the consummation of a (1) dissolution or
liquidation of the Company, (2) merger of the Company into another
corporation, or any consolidation, share exchange, combination,
reorganization, or like transaction in which the Company is not the survivor,
(3) sale or transfer (other than as security for the Company's obligations)
of at least a majority of the assets of the Company or (4) sale or transfer
of 50% or more of the issued and outstanding Stock by the holders thereof in
a single transaction or in a series of related transactions.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means the committee appointed by the Board of Directors
to administer the Plan or, in the absence of appointment of such committee,
the Board of Directors.
(f) "COMPANY" means Website Management Company, Inc., a Texas
corporation.
(g) "DISABILITY" means (1) the inability of Participant to
perform the duties of Participant's employment due to physical or
emotional incapacity or illness, where such inability is expected to
be of long-continued and indefinite duration or (2) Participant shall
be entitled to (i) disability retirement benefits under the federal
Social Security Act or (ii) recover benefits under any long-term
disability plan or policy maintained by the Company. In the event of
a dispute, the determination of Disability shall be made by the Board
of Directors and shall be supported by advice of a physician
competent in the area to which such Disability relates.
<PAGE>
(h) "DISPOSITION" means any conveyance, sale, transfer,
assignment, pledge or hypothecation, whether outright or as security,
inter vivos or testamentary, with or without consideration, voluntary
or involuntary.
(i) "FAIR MARKET VALUE" means fair market value of a share of
Stock (on a fully diluted basis) as determined by the Board of
Directors. In making such determination, the Board of Directors may
take into account factors that it, in good faith, deems relevant to
such valuation, including the absence of a trading market, the
minority status of the Stock, and such other facts and circumstances
deemed by the Board of Directors to be material to the value of the
Stock in the hands of the Participant; provided, however, for
purposes of determining the Option price per share for an Incentive
Stock Option, Fair Market Value shall be determined by the Board of
Directors without regard to any restriction other than a restriction
which, by its terms, will never lapse. The Fair Market Value as
determined by the Board of Directors shall be final, binding, and
conclusive on each Participant.
(j) "INCENTIVE STOCK OPTION" means an incentive stock option,
as defined in Code Section 422, awarded under the Plan.
(k) "NON-QUALIFIED STOCK OPTION" means a stock option awarded
under the Plan not qualifying as an Incentive Stock Option.
(l) "OPTION" means a Non-Qualified Stock Option or an Incentive
Stock Option.
(m) "OVER 10% OWNER" means an individual who at the time an
Incentive Stock Option is granted owns Stock possessing more than 10%
of the total combined voting power of the Company or one of its
Parents or Subsidiaries, determined by applying the attribution rules
of Code Section 424(d).
(n) "PARENT" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if (with
respect to Incentive Stock Options, at the time of granting of the
Option) each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(o) "PARTICIPANT" means an individual who receives a Stock
Incentive hereunder.
(p) "PLAN" means this stock incentive plan.
(q) "RESTRICTED STOCK AWARD" means a restricted stock award
under the Plan.
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<PAGE>
(r) "STOCK" means the Company's common stock, without par value.
(s) "STOCK APPRECIATION RIGHT" means a stock appreciation right
awarded under the Plan.
(t) "STOCK INCENTIVE AGREEMENT" means an agreement between the
Company and a recipient evidencing an award of a Stock Incentive.
(u) "STOCK INCENTIVES" means Incentive Stock Options,
Non-Qualified Stock Options, Restricted Stock Awards, and Stock
Appreciation Rights.
(v) "SUBSIDIARY" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if
(with respect to Incentive Stock Options, at the time of the granting
of the Option) each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of
the other corporations in the chain.
(w) "TERMINATION OF EMPLOYMENT" means the termination of the
employee-employer relationship between a Participant and the Company
(and its Parents and Subsidiaries), regardless of the fact that
severance or similar payments are made to the Participant, for any
reason, including, but not by way of limitation, a termination by
resignation, discharge, death, Disability or retirement. The
Committee shall, in its absolute discretion, determine the effect of
all matters and questions relating to Termination of Employment,
including, but not by way of limitation, the question of whether a
leave of absence constitutes a Termination of Employment, or whether
a Termination of Employment is for Cause.
SECTION 2 THE STOCK INCENTIVE PLAN
2.1 THE PURPOSE OF THE PLAN. The Plan is intended to provide
an opportunity for directors, officers, key employees, and
consultants of the Company to acquire shares of Stock, or to receive
compensation which is based upon appreciation in the value of Stock.
The Plan provides for the grant of Incentive Stock Options,
Non-Qualified Stock Options, Restricted Stock Awards and Stock
Appreciation Rights to aid the Company in retaining and obtaining key
personnel of outstanding ability.
2.2 STOCK SUBJECT TO THE PLAN. Subject to adjustment in
accordance with Section 5.2 hereof, 54,000 shares of Stock (the
"Maximum Plan Shares") are hereby reserved exclusively for issuance
pursuant to Stock Incentives. At no time shall the Company have
outstanding Stock Incentives and shares of Stock issued in respect of
Stock Incentives in excess of the Maximum Plan Shares minus shares of
Stock acquired by
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<PAGE>
the Company pursuant to Sections 4.2 and 4.3 hereof. The shares of
Stock issued under the Plan may be either authorized and unissued
Stock or Stock held in the treasury of the Company, as shall be
determined by the Committee. If an Option or Stock Appreciation Right
expires or terminates for any reason without being exercised in full,
or shares of Stock issued under a Restricted Stock Award are
transferred back to the Company pursuant to the restrictions thereon
other than pursuant to the Company's call right pursuant to Section
4.2 hereof or the Company's right of first refusal pursuant to
Section 4.3 hereof, the unpurchased shares subject to such Option or
Stock Appreciation Right, or the shares transferred back to the
Company shall again be available for purposes of the Plan.
2.3 ADMINISTRATION OF THE PLAN. The Plan shall be administered
by the Committee. The Committee shall have full authority in its
discretion to determine the directors, officers, key employees, and
consultants of the Company to whom Stock Incentives shall be granted
and the terms and provisions of Stock Incentives, subject to the
Plan. Subject to the provisions of the Plan, the Committee shall
have full and conclusive authority to interpret the Plan; to
prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the respective Stock
Incentive Agreements and to make all other determinations necessary
or advisable for the proper administration of the Plan. The
Committee's determinations under the Plan need not be uniform and may
be made by it selectively among persons who receive, or are eligible
to receive, awards under the Plan (whether or not such persons are
similarly situated). The Committee's decisions shall be final and
binding on all Participants.
After the first registration by the Company of an equity
security under Section 12 of the Securities Exchange Act of 1934, the
Committee shall consist of two or more directors, each of whom is
not, during the one year period prior to service as a member of the
Committee, granted or awarded equity securities of the Company or an
affiliate of the Company pursuant to the Plan or any other plan of
the issuer or an affiliate, except as may be permitted under Rule
16b-3(c)(2)(ii) under the Securities Exchange Act of 1934.
2.4 ELIGIBILITY AND LIMITS. Stock Incentives may be granted only
to directors, officers, key employees, and consultants of the Company
or a corporation, or a parent or subsidiary corporation of such
corporation, issuing or assuming a Stock Incentive in a transaction
to which Code Section 424(a) applies; provided, however, that an
Incentive Stock Option may only be granted to an employee of any such
entity. In the case of Incentive Stock Options, the aggregate Fair
Market Value (determined as of the time an Incentive Stock Option is
granted) of stock with respect to which stock options intended to
meet the requirements of Code Section 422 become exercisable for the
first time by an individual during any calendar year under all plans
of the Company and its Parents and Subsidiaries shall not exceed
$100,000.
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<PAGE>
SECTION 3 TERMS OF STOCK INCENTIVES
3.1 TERMS AND CONDITIONS OF ALL STOCK INCENTIVES.
(a) The number of shares of Stock as to which a Stock Incentive
shall be granted shall be determined by the Committee in its sole discretion,
subject to the provisions of Section 2.2 hereof as to the total number of
shares available for grants under the Plan.
(b) Each Stock Incentive shall be evidenced by a Stock Incentive
Agreement executed by the Company and the Participant, which shall be in such
form and contain such terms and conditions as the Committee in its discretion
may, subject to the provisions of the Plan, from time to time determine.
(c) The date a Stock Incentive is granted shall be the date on
which the Committee has approved the terms and conditions of the Stock
Incentive Agreement and has determined the recipient of the Stock Incentive
and the number of shares covered by the Stock Incentive and has taken all
such other action necessary to complete the grant of the Stock Incentive.
(d) Notwithstanding any vesting provisions established pursuant to
Sections 3.2, 3.3, or 3.4 of the Plan, the Committee may provide that any
unexpired Option may be exercised upon a Change in Control or that any Stock
Appreciation Right may become payable upon a Change in Control as to the full
number of shares of Stock covered by the Option or Stock Appreciation Right
without regard to the date of grant of the Option or Stock Appreciation Right
or that any Restricted Stock Award which has not been previously forfeited
shall be fully vested upon a Change in Control.
3.2 TERMS AND CONDITIONS OF OPTIONS. At the time any Option is
granted, the Committee shall determine whether the Option is to be an
Incentive Stock Option or a Non-Qualified Stock Option, and the Option shall
be clearly identified as to its status as an Incentive Stock Option or a
Non-Qualified Stock Option. At the time any Incentive Stock Option is
exercised, the Company shall be entitled to place a legend on the
certificates representing the shares of Stock purchased pursuant to the
Option to clearly identify them as shares of Stock purchased upon exercise of
an Incentive Stock Option. An Incentive Stock Option may only be granted
within ten (10) years from the earlier of the date the Plan is adopted or
approved by the Company's shareholders.
(a) OPTION PRICE. Subject to adjustment in accordance with Section
5.2 hereof and the other provisions of this Section 3.2, the exercise price
(the "Exercise Price") per share of Stock purchasable under any Option shall
be as set forth in the applicable Stock Incentive Agreement. With respect to
each grant of an Incentive Stock Option to a Participant who is not an Over
10% Owner, the Option price per share shall not be less than the Fair Market
Value on
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<PAGE>
the date the Option is granted. With respect to each grant of an Incentive
Stock Option to a Participant who is an Over 10% Owner, the Option price per
share shall not be less than 110% of the Fair Market Value on the date the
Option is granted.
(b) OPTION TERM. Any Incentive Stock Option granted to a
Participant who is not an Over 10% Owner shall not be exercisable after the
expiration of ten (10) years after the date the Option is granted. Any
Incentive Stock Option granted to an Over 10% Owner shall not be exercisable
after the expiration of five (5) years after the date the Option is granted.
(c) PAYMENT. Payment for all shares of Stock purchased pursuant to
exercise of an Option shall be made in cash or, if the Stock Incentive
Agreement provides, by delivery to the Company of a number of shares of Stock
which have been owned by the holder for at least six (6) months prior to the
date of exercise having an aggregate Fair Market Value of not less than the
product of the Exercise Price multiplied by the number of shares the
Participant intends to purchase upon exercise of the Option on the date of
delivery. In addition, the Stock Incentive Agreement may provide for cashless
exercise through a brokerage transaction following registration of the
Company's equity securities under Section 12 of the Securities Exchange Act
of 1934. Except as provided in subparagraph (g) below, payment shall be made
at the time that the Option or any part thereof is exercised, and no shares
shall be issued or delivered upon exercise of an option until full payment has
been made by the Participant. The holder of an Option, as such, shall have
none of the rights of a stockholder.
(d) CONDITIONS TO EXERCISE OF AN OPTION. Each Option granted under
the Plan shall be exercisable at such time or times, or upon the occurrence
of such event or events, and in such amounts, as the Committee shall specify
in the Stock Incentive Agreement; provided, however, that subsequent to the
grant of an Option, the Committee, at any time before complete termination of
such Option, may accelerate the time or times at which such Option may be
exercised in whole or in part.
(e) NONTRANSFERABILITY OF OPTIONS. Except as provided in
subparagraph (g) below, an Option shall not be transferable or assignable
except by will or by the laws of descent and distribution and shall be
exercisable, during the Participant's lifetime, only by the Participant, or
in the event of the Disability of the Participant, by the legal
representative of the Participant.
(f) TERMINATION OF INCENTIVE STOCK OPTION. With respect to an
Incentive Stock Option, in the event of Termination of Employment of a
Participant, the Option or portion thereof held by the Participant which is
unexercised shall expire, terminate, and become unexercisable no later than
the expiration of three (3) months after the date of Termination of
Employment; provided, however, that in the case of a holder whose Termination
of Employment is due to death or Disability, one year shall be substituted
for such three (3) month period. For purposes of this subparagraph (f),
Termination of Employment of the Participant shall not be
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deemed to have occurred if the Participant is employed by another corporation
(or a parent or subsidiary corporation of such other corporation) which has
assumed the Incentive Stock Option of the Participant in a transaction to
which Code Section 424(a) is applicable.
(g) SPECIAL PROVISIONS FOR CERTAIN SUBSTITUTE OPTIONS.
Notwithstanding anything to the contrary in this Section 3.2, any Option in
substitution for a stock option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computed in
accordance with such Code Section and the regulations thereunder and may
contain such other terms and conditions as the Committee may prescribe to
cause such substitute Option to contain as nearly as possible the same terms
and conditions (including the applicable vesting and termination provisions)
as those contained in the previously issued option being replaced thereby.
3.3 TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right may be granted in connection with all or any portion of a
previously or contemporaneously granted Option or not in connection with an
Option. A Stock Appreciation Right shall entitle the Participant to receive
upon exercise or payment the excess of (1) the Fair Market Value of a
specified number of shares of the Stock at the time of exercise over (2) a
specified price which shall be not less than the Option exercise price for
that number of shares in the case of a Stock Appreciation Right granted in
connection with a previously or contemporaneously granted Option, or in the
case of any other Stock Appreciation Right not less than one hundred percent
(100%) of the Fair Market Value of that number of shares of Stock at the time
the Stock Appreciation Right was granted. A Stock Appreciation Right granted
in connection with an Option may only be exercised to the extent that the
related Option has not been exercised. The exercise of a Stock Appreciation
Right shall result in a pro rata surrender of the related Option to the
extent the Stock Appreciation Right has been exercised.
(a) PAYMENT. Upon exercise or payment of a Stock Appreciation
Right, the Company shall pay to the Participant the appreciation in cash or
shares of Stock (at the aggregate Fair Market Value on the date of payment or
exercise) as provided in the Stock Incentive Agreement or, in the absence of
such provision, as the Committee may determine.
(b) CONDITIONS TO EXERCISE. Each Stock Appreciation Right granted
under the Plan shall be exercisable at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee
shall specify in the Stock Incentive Agreement; provided, however, that
subsequent to the grant of a Stock Appreciation Right, the Committee, at any
time before complete termination of such Stock Appreciation Right, may
accelerate the time or times at which such Stock Appreciation Right may be
exercised in whole or in part.
(c) NONTRANSFERABILITY OF STOCK APPRECIATION RIGHT. A Stock
Appreciation Right shall not be transferable or assignable except by will or
by the laws of descent and
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distribution and shall be exercisable, during the Participant's lifetime,
only by the Participant, or in the event of the Disability of the
Participant, by the legal representative of the Participant.
3.4 TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS. Shares awarded
pursuant to Restricted Stock Awards shall be subject to restrictions for
periods determined by the Committee. The Committee shall have the power to
permit, in its discretion, an acceleration of the expiration of the
applicable restriction period with respect to any part or all of the shares
awarded to a Participant. The Committee may require a cash payment from the
Participant in an amount no greater than the aggregate Fair Market Value of
the shares of Stock awarded determined at the date of grant in exchange for
the grant of a Restricted Stock Award or may grant a Restricted Stock Award
without the requirement of a cash payment.
SECTION 4 RESTRICTIONS ON STOCK
4.1 ESCROW OF SHARES. Any certificates representing the shares of Stock
issued under the Plan shall be issued in the Participant's name, but shall be
held by a custodian designated by the Committee (the "Custodian"). Each Stock
Incentive Agreement shall appoint the Custodian as the attorney-in-fact for
the Participant for a term specified in the Stock Incentive Agreement, with
full power and authority in the Participant's name, place, and stead to
transfer, assign, and convey to the Company any shares of Stock held by the
Custodian for such Participant, if the Participant forfeits the shares or the
Company repurchases the shares pursuant to its call right pursuant to a Stock
Incentive Agreement. During the period that the Custodian holds the shares
subject to this paragraph, the Participant shall be entitled to all rights,
except as provided in the Stock Incentive Agreement, applicable to shares of
Stock not so held.
4.2 FORFEITURE OF SHARES. Notwithstanding any vesting schedule set
forth in any Stock Incentive Agreement, in the event the Participant's
employment is terminated by the Company for Cause or in the event that the
Participant violates a noncompetition agreement as set forth in the Stock
Incentive Agreement, all Stock Incentives and shares of Stock issued to the
holder pursuant to the Plan shall, at the election of the Company, be
forfeited; provided, however, that, in the event of forfeiture, the Company
shall return to the holder the lesser of any consideration paid by the
Participant in exchange for Stock issued to the Participant pursuant to the
Plan or the then Fair Market Value of the Stock forfeited hereunder.
4.3 REPURCHASE BY THE COMPANY. Except as provided in Section 4.5
hereof, in the event of the Termination of Employment of the Participant for
any reason other than Cause, the Company shall have the right to repurchase,
for one (1) year following the effective date of Termination of Employment,
the vested shares of Stock issued pursuant to the Plan at their aggregate
Fair Market Value.
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4.4 RESTRICTIONS ON TRANSFER.
(a) LIMITATIONS ON TRANSFER. The Participant shall not have the
right to make or permit to exist any Disposition of the shares of Stock
issued pursuant to the Plan except as provided in the Plan or the Stock
Incentive Agreement. Any Disposition of the shares of Stock issued under the
Plan by the Participant not made in accordance with the Plan or the Stock
Incentive Agreement shall be void. The Company shall not recognize, or have
the duty to recognize, any Disposition not made in accordance with the Plan
and the Stock Incentive Agreement, and the shares so transferred shall
continue to be bound by the Plan and the Stock Incentive Agreement.
(b) RIGHT OF FIRST REFUSAL. Except as provided in Section 4.5
hereof, at any time after the one (1) year period commencing on the effective
date of Termination of Employment, the Participant may make a Disposition of
shares issued pursuant to the Plan provided that the Participant first shall
afford the Company a right of first refusal with regard to such shares as
provided in the Stock Incentive Agreement.
4.5 EXTENSION OF OR EARLY TERMINATION OF RIGHT OF REPURCHASE BY THE
COMPANY AND TERMINATION OF RESTRICTIONS ON TRANSFER.
(a) EXTENSION. If the Company is or becomes a party to an
agreement which prohibits the Company from making the election to purchase or
from exercising the right of repurchase in Section 4.3 hereof or the right of
first refusal in Section 4.4(b) hereof, or, if the exercise of such rights
would cause the Company to breach any financial or other covenants in any
agreement in which the Company is a party, the one (1) year period set forth
in those paragraphs shall be extended until the first anniversary of the date
the Company is no longer subject to, or obtains a waiver of, such prohibition
or covenant.
(b) EARLY TERMINATION. The restrictions contained in Sections 4.3
and 4.4 hereof shall terminate on the effective date of the first Public
Offering, as hereinafter defined. "Public Offering" shall mean the offering
for sale by the Company of securities of the same class as the shares of
Stock pursuant to a registration statement filed in accordance with the
Securities Act of 1933, as amended, or any comparable law then in effect, and
the effective date of any such Public Offering shall be the first day on
which the securities covered thereby may lawfully be offered and sold
pursuant to such registration statement.
4.6 PLEDGING OF STOCK. The Company may require a Participant to pledge
for the benefit of lenders of the Company any Stock issued pursuant to the
Plan if all other shareholders of the Company have either pledged their
shares of Stock or have been asked to pledge their shares of Stock.
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SECTION 5 GENERAL PROVISIONS
5.1 WITHHOLDING. Whenever the Company proposes or is required to issue
or transfer shares of Stock under the Plan or upon the vesting of any
Restricted Stock Award, the Company shall have the right to require the
recipient to remit to the Company an amount sufficient to satisfy any
federal, state and local withholding tax requirements prior to the delivery
of any certificate or certificates for such shares or the vesting of such
Restricted Stock Award. A Participant may pay the withholding tax in cash,
or he may elect to have the number of shares of Stock he is to receive
reduced by, or with respect to a Restricted Stock Award, tender back to the
Company, the smallest number of whole shares of Stock which, when multiplied
by the fair market value of the Shares determined as of the Tax Date (defined
below), is sufficient to satisfy federal, state, and local, if any,
withholding taxes arising from exercise of the Option (a "Withholding
Election"). A Participant may make a Withholding Election only if both of
the following conditions are met:
(a) The Withholding Election must be made on or prior to the date
on which the amount of tax required to be withheld is determined (the "Tax
Date") by executing and delivering to the Company a properly completed notice
of Withholding Election as prescribed by the Committee; and
(b) Any Withholding Election made will be irrevocable; however,
the Committee may in its sole discretion disapprove and give no effect to the
Withholding Election.
5.2 CHANGES IN CAPITALIZATION: MERGER; LIQUIDATION.
(a) The number of shares of Stock reserved for the grant of
Options, Stock Appreciation Rights and Restricted Stock Awards and the number
of shares of Stock reserved for issuance upon the exercise of each
outstanding Option, upon the exercise or payment of each Stock Appreciation
Right, and upon vesting of each outstanding Restricted Stock Award, and the
Exercise Price of each outstanding Option and the specified number of shares
of Stock to which each outstanding Stock Appreciation Right pertains shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock resulting from a subdivision or combination of shares or the
payment of a stock dividend in shares of Stock to holders of outstanding
shares of Stock or any other increase or decrease in the number of shares of
Stock outstanding effected without receipt of consideration by the Company.
(b) If the Company shall be the surviving corporation in any
merger or consolidation, recapitalization, reclassification of shares or
similar reorganization, an appropriate adjustment shall be made in each Stock
Incentive Agreement such that the Participant shall be entitled to purchase
or receive, as the case may be, at the same times and upon the same terms and
conditions as are then provided in the Stock Incentive Agreement, the number
and class of securities to which a holder of the number of shares of Stock
subject to the Stock Incentive
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Agreement at the time of such transaction would have been entitled to receive
as a result of such transaction, and a corresponding adjustment shall be made
in the Exercise Price of each outstanding Option and the specified number of
shares of Stock to which each outstanding Stock Appreciation Right pertains.
In the event of any such changes in capitalization of the Company, the
Committee may make such additional adjustments in the number and class of
shares of Stock or other securities with respect to which outstanding Options
are exercisable or Stock Appreciation Rights are exercisable or payable or
Restricted Stock Awards have been granted and with respect to which future
Stock Incentives may be granted as the Committee in its sole discretion shall
deem equitable or appropriate, subject to the provisions of Section 5.7
hereof. Any adjustment pursuant to this Section 5.2 may provide, in the
Committee's discretion, for the elimination of any fractional shares that
might otherwise become subject to any Stock Incentive without payment
therefor.
(c) In the event of a Change in Control, provision shall be made
to cause each outstanding Option and Stock Appreciation Right to become
exercisable prior to a Change in Control and to terminate upon the
consummation of any Change in Control.
(d) Except as expressly provided in this Section 5.2, the holder
of an Option or Stock Appreciation Right shall have no rights by reason of
any subdivision or combination of shares of Stock of any class or the payment
of any stock dividend or any other increase or decrease in the number of
shares of Stock of any class or by reason of any Change in Control or
distribution to the Company's shareholders of assets or stock of another
corporation. Except as expressly provided herein and except for any
distributions or adjustments made with respect to shares of Stock issued
under the Plan in connection with a distribution or adjustment made with
respect to all other outstanding shares of Stock, any issue by the Company of
shares of stock of any class, or securities convertible into shares of stock
of any class, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Stock subject to any
Stock Incentive. The existence of the Plan and the Stock Incentives granted
pursuant to the Plan shall not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification, reorganization
or other change in its capital or business structure, any merger or
consolidation of the Company, any issue of debt or equity securities having
preferences or priorities as to the Stock or the rights thereof, the
dissolution or liquidation of the Company, any sale or transfer of all or any
part of its business or assets, or any other corporate act or proceeding.
5.3 CASH AWARDS. The Committee may, at any time and in its discretion,
grant to any holder of a Stock Incentive the right to receive, at such times
and in such amounts as determined by the Committee in its discretion, a cash
amount which is intended to reimburse such person for all or a portion of the
federal, state and local income taxes imposed upon such person as a
consequence of the receipt of the Stock Incentive or the exercise of rights
thereunder.
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5.4 COMPLIANCE WITH CODE. All Incentive Stock Options to be granted
hereunder are intended to comply with Code Section 422, and all provisions of
the Plan and all Incentive Stock Options granted hereunder shall be construed
in such manner as to effectuate that intent.
5.5 RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or in
any Stock Incentive shall confer upon any Participant the right to
continue as an employee of the Company or any of its Parents or
Subsidiaries or affect the right of the Company or any of its Parents
or Subsidiaries to terminate the Participant's employment at any tune.
5.6 RESTRICTIONS ON DELIVERY AND SALE OF SHARES; LEGENDS. Each
Stock Incentive is subject to the condition that if at any time the
Committee, in its discretion, shall determine that the listing,
registration or qualification of the shares covered by such Stock
Incentive upon any securities exchange or under any state or federal
law is necessary or desirable as a condition of or in connection with
the granting of such Stock Incentive or the purchase of delivery of
shares thereunder, the delivery of any or all shares pursuant to such
Stock Incentive may be withheld unless and until such listing,
registration or qualification shall have been effected. If a
registration statement is not in effect under the Securities Act of
1933 or any applicable state securities laws with respect to the
shares of Stock purchasable or otherwise deliverable under Stock
Incentives then outstanding, the Committee may require, as a
condition of exercise of any Option or as a condition to any other
delivery of Stock pursuant to a Stock Incentive, that the Participant
or other recipient of a Stock Incentive represent, in writing, that
the shares received pursuant to the Stock Incentive are being
acquired for investment and not with a view to distribution and agree
that the shares will not be disposed of except pursuant to an
effective registration statement, unless the Company shall have
received an opinion of counsel that such disposition is exempt from
such requirement under the Securities Act of 1933 and any applicable
state securities laws. The Company may endorse on certificates
representing shares delivered pursuant to a Stock Incentive such
legends referring to the foregoing representations or restrictions or
any other applicable restrictions on resale as the Company, in its
discretion, shall deem appropriate.
5.7 TERMINATION AND AMENDMENT OF THE PLAN. The Plan may be terminated,
modified or amended by the Board of Directors of the Company; provided,
however, that no such termination, modification or amendment without the
consent of the holder of a Stock Incentive shall adversely affect the rights
of a Participant under such Stock Incentive.
5.8 SHAREHOLDER APPROVAL. The Plan shall be submitted to the
shareholders of the Company for their approval within twelve (12) months
before or after the adoption of the Plan by the Board of Directors of the
Company. If such approval is not obtained, any Stock Incentive granted
hereunder shall be void.
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5.9 EFFECTIVE DATE OF PLAN. The Plan shall become effective on
_________, 1997, the date of its adoption by the Board of Directors and
shareholders.
WEBSITE MANAGEMENT COMPANY, INC.
By:
----------------------------
Title:
-------------------------
Attest:
- ---------------------------- [CORPORATE SEAL]
Secretary
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OFFICE LEASE
TERMS AND DEFINITIONS
DATE: June 14, 1996
LANDLORD: Colonial Savings, F.A.
LANDLORD'S ADDRESS: 2626 West Freeway
P.O. Box 2988
Fort Worth, Texas 76102
TENANT: Website Management Co., Inc.
d/b/a Flashnet Communications
TENANT'S ADDRESS: 1812 N. Forest Park Boulevard
Fort Worth, Texas 76102
PREMISES
Approximate Square Feet: 14,280
Street Address/Suite: 1812 N. Forest Park Boulevard
City, State, Zip: Fort Worth, Texas 76102
TERM (MONTHS): 36 months
COMMENCEMENT DATE AND BASE RENT: The date on which Southwestern Bell
Telephone installs fiber optics on the premises or August 1, 1996, whichever
occurs first, is the "Commencement Date". From the Commencement Date until
October 31, 1996 base rent will be $5,966.00 per month. From November 1,
1996 until the end of one year from the Commencement Date, base rent will be
$10,710.00 per month; base rent will be $11,305.00 per month for the second
lease year which commences one year after the Commencement Date, and will be
$11,900.00 per month for the third lease year.
RENTS ABOVE BASE RENTS: 1996 taxes and insurance premiums paid by Landlord
will be deemed base taxes and base insurance premiums. During the term of
this lease, subsequent to 1996, Tenant agrees to pay Landlord, on demand, as
additional rents, the amount, if any, by which the taxes and/or insurance
premiums for the subsequent years exceed the taxes and/or insurance premiums
for 1996. Upon the expiration of the Lease, said additional rents, if any,
will be prorated to include only the portion of the year during which the
extension was in effect or the portion of the year during which Tenant
occupied the premises, whichever was the last to occur.
TERMINATION DATE: 36 months after the Commencement Date
SECURITY DEPOSIT: None
USE: Communications provider
Page 1 of 9 pages.
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AMOUNT OF LIABILITY INSURANCE
Death/Bodily Injury: $1,000,000.00
"Rent" means base rent plus any other sums of money due Landlord by Tenant.
"Landlord" means Landlord and its agents, employees, invitees, licensees or
visitors.
"Tenant" means Tenant and its agents, employees, invitees or visitors.
"Essential Services" means heating, ventilating, air conditioning, water, and
the usual utility connections reasonably necessary for occupancy of the premises
for the use stated above. This term does not include the means for connecting
fiber optics, and such connections will be done at the sole cost of Tenant.
"Common Areas" means all facilities and areas of the building that are intended
and designated by Landlord from time to time for the common, general and
nonexclusive use of all tenants of the building. Landlord shall have the
exclusive control over and right to manage the common areas.
"Parking Lot" means the 126 parking spaces closest to this building, but does
not include the 68 parking spaces adjacent to the red barn-style building
located at 1800 N. Forest Park Boulevard, which building has been leased to
Cowtown Corrals, Ltd. under a Lease Agreement which gives Tenant, Tenant's
invitees and sub-tenants permission to use, as additional parking, the parking
area at 1812 N. Forest Park Boulevard after 6:00 p.m. Monday through Friday, and
all day on Saturdays, Sundays and business holidays.
LEASE CLAUSES AND COVENANTS
A. TENANT AGREES TO:
1. Lease the premises for the entire term beginning on the commencement date
and ending on the termination date.
2. Construct and install tenant improvements to the premises in a good and
workmanlike manner.
3. Obey all laws, ordinances, orders and rules and regulations applicable to
the use, condition and occupancy of the premises, including the rules and
regulations of the building and parking lot, if any, adopted by Landlord,
and to honor the lease of Cowtown Corrals, Ltd. which is referred to above
in the paragraph concerning "Parking Lot".
Page 2 of 9 pages.
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4. Pay monthly, in advance, on the first day of the month, the base rent to
Landlord at Landlord's address; if the commencement date is other than the
first day of a month, the base rent for the part of the month from the
commencement date to the first day of the next month shall be prorated and
paid on or before the commencement date.
5. Pay, as additional rent, all other sums due under this lease.
6. Pay a late charge of 5% (five percent) of any rent not received by Landlord
by the fifteenth (15th) day of the month in which it is due.
7. Pay for all utility services used by Tenant.
8. Upon reasonable advance notice to Tenant (except for emergencies), allow
Landlord to enter the premises to perform Landlord's obligations, inspect
the premises and during the last six (6) months of the term, show the
premises to prospective purchasers or tenants; provided, however, no such
non-emergency entry shall interfere with Tenant's normal operations.
9. Repair, replace and maintain any part of the premises that Landlord is not
obligated to repair, replace or maintain, normal wear excepted.
10. Repair any damage to the premises and the parking lot caused by Tenant.
11. Submit in writing to Landlord any request for repairs, replacement and
maintenance that are the obligations of Landlord.
12. Maintain commercial general liability insurance, including contractual
liability coverage, for the premises and the conduct of Tenant's business,
naming Landlord as an additional insured, in the amounts stated above in
the basic lease terms and definitions.
13. Maintain insurance on Tenant's personal property.
14. Deliver certificates of insurance to Landlord before the commencement date
and thereafter when requested.
15. Indemnify, defend and hold Landlord harmless from any loss, attorney's
fees, expenses or claims arising out of use of the premises occasioned or
alleged to be occasioned in whole or in part by any act or omission on the
part of Tenant.
16. Vacate the premises and return all keys to the premises on termination of
this lease.
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17. On request, execute an estoppel certificate that states the commencement
and termination dates of the lease, identifies any amendments to the lease,
describes any rights to extend the lease term or purchase rights, lists
defaults by Landlord and provides any other information reasonably
requested.
B. TENANT AGREES NOT TO:
1. Use the premises for any purpose other than that stated in the basic lease
terms and definitions.
2. (a) Create a nuisance, (b) interfere with any other tenant's normal
business operations or Landlord's management of the building, (c) permit
any waste or (d) use the premises in any way that is extra hazardous, would
increase insurance premiums, or would void insurance on the building.
3. Change Landlord's lock system after initial re-keying of the
premises. With Landlord's written consent, Tenant can add another lock
system or security system.
4. Alter the premises after commencement of the term of this lease without
Landlord's consent which will not be unreasonably withheld.
5. Allow a lien to be placed on the premises.
6. Assign this lease or sublease any portion of the premises without
Landlord's written consent.
C. LANDLORD AGREES TO:
1. Lease to Tenant the premises for the entire term beginning on the
commencement date and ending on the termination date.
2. Obey all laws, ordinances, orders, and rules and regulations applicable to
the use, condition and occupancy of the building and the parking lot, if
any.
3. Provide normal utility-service connections to the building.
4. Warrant the HVAC system and plumbing for ninety (90) days after the
commencement date.
5. Repair, replace and maintain the (a) foundation, (b) parking lot and common
areas, (c) structural soundness of the exterior walls, doors, corridors and
windows and (d) the roof system.
6. Insure the building and any parking facility against all risks of direct
physical loss in an amount equal to at least 90 percent of the full
replacement cost of the same as of the date of the loss
Page 4 of 9 pages.
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and liability; Tenant will have no claim to any proceeds of Landlord's
insurance policy, but the policy will be endorsed to include a waiver of
subrogation in favor of Tenant.
7. Provide Tenant, on request, with an annual accounting of the insurance
premiums, property taxes and assessments paid by Landlord on the land and
building of which the premises are a part.
D. LANDLORD AGREES NOT TO:
1. Interfere with Tenant's possession of the premises as long as Tenant is not
in default.
2. Unreasonably withhold consent to a proposed assignment of sub-lease.
E. LANDLORD AND TENANT AGREE TO THE FOLLOWING:
1. Alterations. Any physical additions or improvements to the premises made
by Tenant will become the property of Landlord. Landlord may require that
Tenant, at termination of this lease and at Tenant's expense, repair any
alterations and restore the premises to the condition existing at the
commencement date, normal wear excepted.
2. Abatement. Tenant's covenant to pay rent and Landlord's covenants are
independent of each other. Except as otherwise provided, Tenant shall not
be entitled to abate rent for any reason.
3. Release of Claims/Subrogation. Landlord and Tenant release each other from
any claim, by subrogation or otherwise, for any damage to the premises, the
building, the parking facility, if any, or personal property within the
building, by reason of fire or the elements, regardless of cause, including
negligence of Landlord or Tenant, provided however, this release applies
only to the extent that it is permitted by law, the damage is covered by
insurance proceeds, and the release does not adversely affect any insurance
coverage.
4. Notice to Insurance Companies. Landlord and Tenant will notify the issuing
insurance companies of the release set forth in the preceding paragraph and
will have the insurance policies endorsed, if necessary, to prevent
invalidation of the insurance coverage.
5. Casualty/Total or Partial Destruction. (a) If the premises are damaged by
casualty and can be restored within ninety days, Landlord will, at its
expense, restore the premises to substantially the same condition as they
existed before the casualty.
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If Landlord fails to complete restoration within ninety days from the date
of written notification by Tenant to Landlord of the casualty, Tenant may
terminate this lease by written notice to Landlord. (b) If the premises
cannot be restored within ninety days, Landlord has an option to restore or
not to restore the premises. If Landlord chooses not to restore, this
lease will terminate. If Landlord chooses to restore, it will notify
Tenant of the estimated time to restore and give Tenant an option to
terminate this lease by notifying Landlord within ten days. If Tenant does
not terminate this lease, it shall continue and Landlord shall restore the
premises as provided in (a) above. (c) To the extent the premises are
untenantable after the casualty and the damage was not caused by Tenant,
the rent will be adjusted as may be fair and reasonable.
6. Condemnation/Substantial or Partial Taking. (a) If the premises cannot be
used for the purposes contemplated by this lease because of condemnation or
purchase in lieu of condemnation, this lease will terminate. (b) If there
is a condemnation or purchase in lieu of condemnation and this lease is not
terminated, Landlord will, at Landlord's expense, restore the premises, and
the rent payable during the unexpired portion of the term will be adjusted
as may be fair and reasonable. (c) Tenant will have no claim to the
condemnation award or proceeds in lieu of condemnation.
7. Default by Landlord/Events. Defaults by Landlord are (a) failing to comply
with any provision of this lease within thirty days after written notice or
(b) failing to provide essential services to Tenant within three days after
written notice.
8. Default by Landlord/Tenant's Remedies. Tenant's remedies for Landlord's
default are to (a) sue for damages, and (b) if Landlord does not provide an
essential service for thirty days after default, terminate this lease.
9. Default by Tenant/Events. Defaults by Tenant are (a) failing to pay timely
rent, (b) abandoning or vacating a substantial portion of the premises, or
(c) failing to comply within ten days after written notice with any
provision of this lease other than the defaults set forth in (a) and (b)
above.
10. Default by Tenant/Landlord's Remedies. Landlord's remedies for Tenant's
default are, after giving Tenant ten days prior written notice of the
default and such default continues, to (a) enter and take possession of the
premises, after which Landlord may re-let the premises on behalf of Tenant
and receive the rent directly by reason of the re-letting, and Tenant
agrees to reimburse Landlord for any expenditures made in order to re-let;
(b) enter the premises and perform tenant's obligations; or (c) terminate
this lease by written notice and sue for damages. Landlord may enter and
take possession of the premises by self-help, by picking or changing locks
if necessary, and may lock out
Page 6 of 9 pages.
<PAGE>
Tenant or any other person who may be occupying the premises, until the
default is cured, without being liable for damages. Landlord shall not be
required to give prior written notice of Tenant's default(s) more often
than three times in any lease year.
11. Default/Waiver/Mitigation. It is not a waiver of default if the
nondefaulting party fails to declare immediately a default or delays in
taking any action. Pursuit of any remedies set forth in this lease does
not preclude pursuit of other remedies in this lease or provided by law.
Landlord and Tenant have a duty to mitigate damages.
12. Holdover. If Tenant does not vacate the premises following termination of
this lease, Tenant shall be a tenant at will and shall vacate the premises
on receipt of notice from Landlord. No holding over by Tenant, whether
with or without the consent of Landlord, will extend the term.
13. Alternative Dispute Resolution. Landlord and Tenant shall submit in good
faith to mediation before filing a suit for damages.
14. Attorney's Fees. If either party retains an attorney to enforce this
lease, the prevailing party is entitled to recover reasonable attorney's
fees.
15. Venue. Venue is in the county in which the premises are located.
16. Entire Agreement. This lease, together with the attached exhibits and
riders, if any, is the entire agreement of the parties, and there are no
oral representations, warranties, agreements or promises pertaining to this
lease or to the expressly mentioned exhibits and riders not incorporated in
writing in this lease.
17. Amendment of Lease. This lease may be amended only by an instrument in
writing signed by Landlord and Tenant.
18. Limitation of Warranties. There are no implied warranties of
merchantability, of fitness for a particular purpose, or of any other kind
arising out of this lease, and there are no warranties that extend beyond
those expressly stated in this lease.
19. Notices. Any notice required by this lease shall be deemed to be delivered
(whether or not actually received) when deposited with the United States
Postal Service, postage prepaid, certified mail, return receipt requested,
and addressed to Landlord or Tenant at their addresses.
20. Abandoned Property. Landlord may retain, destroy or dispose of any
property left on the premises at the end of the term.
Page 7 of 9 pages.
<PAGE>
21. Signage. Tenant may place signage on the exterior of the building and on
the lawn outside of the building as mutually agreed upon by Landlord and
Tenant.
22. Subordination. Tenant accepts this lease subject and subordinate to any
mortgage, deed of trust or other mortgage, deed of trust or other lien
presently existing or hereafter placed upon the leased premises and to any
renewals and extensions thereof; provided that any Mortgagee will execute
and deliver to Tenant a nondisturbance agreement stating that Tenant's
right of possession during the term will not be disturbed as long as Tenant
is not in default under this lease. Tenant agrees that any mortgagee
and/or beneficiary of any such deed of trust or other lien ("Landlord's
Mortgagee") and/or Landlord shall have the right (but shall not be
obligated) at any time to subordinate such mortgage, deed of trust, or
other lien to this lease on such terms and subject to such conditions as
Landlord's Mortgagee may deem appropriate in its discretion. Upon demand,
Tenant agrees to execute promptly such further instruments subordinating
this lease, as Landlord may request, and such nondisturbance and attornment
agreements, as any such Landlord's Mortgagee shall request, in a form
satisfactory to Landlord's Mortgagee. In the event that Tenant shall fail
to execute any such instrument promptly as requested, Tenant hereby
irrevocably constitutes Landlord as attorney-in-fact to execute such
instrument in Tenant's name, place and stead, it being stipulated by
Landlord and Tenant that such agency is coupled with an interest in
Landlord and is, accordingly, irrevocable.
23. Extension Option. If Landlord does not take the subject property for
Landlord's own use or for the use of any of Landlord's affiliates, Tenant
shall have the option to extend the term for one additional three (3) year
term at a rate to be mutually agreed upon by Landlord and Tenant at that
time. Tenant will give Landlord written notice of its desire to extend the
term at least ninety (90) days prior to the expiration of the initial three
(3) year term.
24. Landlord agrees from time to time and upon reasonable request from Tenant
to execute and deliver to Tenant a document which subordinates Landlord's
statutory or contract lien and/or security interest upon personal property
of Tenant, which is located within the leased premises, for the purpose of
Tenant's financing and/or leasing of such personal property, in a form
which is reasonably acceptable to Tenant's lenders and/or equipment
lessors.
25. List of Exhibits.
a. property plat
b. building floor plan
Page 8 of 9 pages.
<PAGE>
LANDLORD: COLONIAL SAVINGS, P.A.
By: /s/ James E. DuBose
--------------------------------------------------
James E. Dubose President
------------------------------------------------------
(Name) (Title)
TENANT: WEBSITE MANAGEMENT CO., INC. d/b/a FLASHNET COMMUNICATIONS
By: /s/ Scott Leslie
--------------------------------------------------
Scott Leslie President
------------------------------------------------------
(Name) (Title)
Page 9 of 9 pages.
<PAGE>
EXHIBIT A
Property Plat
A copy of the property plat is retained elsewhere.
<PAGE>
EXHIBIT B
Building Floor Plan
A copy of the building floor plan is retained elsewhere.
<PAGE>
ADDENDUM TO OFFICE LEASE
Date: May 23, 1997
Landlord: Colonial Savings, F.A.
Landlord's Address: 2626 West Freeway
P. O. Box 2988
Fort Worth, TX 76102
Tenant: Website Management Co., Inc.
d/b/a Flashnet Communications
Tenant's Address: 1812 N. Forest Park Blvd.
Fort Worth, TX 76102
Additional Premises: 1800 N. Forest Park Blvd., Fort Worth, TX 76102
containing approximately 8,800 square feet
WHEREAS, Landlord and Tenant entered into one certain OFFICE LEASE dated June
14, 1996 concerning the premises located at 1812 N. Forest Park Boulevard,
Fort Worth, Texas; and
WHEREAS, Landlord and Tenant desire to enter into an agreement for the lease of
the building referred to above as the Additional Premises upon substantially the
same terms and conditions as are contained in the said OFFICE LEASE dated June
14, 1996;
NOW THEREFORE, in consideration of the premises it is agreed as follows:
1. The Additional Premises shall be leased to Tenant for a term beginning
July 7, 1997 and ending July 31, 1999.
2. In addition to the rent payable under the terms of the OFFICE LEASE,
Tenant will pay additional rent for the additional premises at the rate of
$5,000.00 per month, payable in advance each month. 1997 taxes and insurance
premiums paid by Landlord will be deemed base taxes and base insurance premiums.
During the term of this agreement, subsequent to 1997. Tenant agrees to pay
Landlord, on demand, as additional rents, the amount, if any, by which the taxes
and/or insurance premiums for the subsequent years exceed the taxes and/or
insurance premiums for 1997. Upon the expiration of this agreement, said
additional rents, if any, will be prorated to include only the portion of the
year during which the extension was in effect or the portion of the year during
which Tenant occupied the premises, whichever was the last to occur.
3. Tenant shall furnish Landlord with evidence, by endorsement or
otherwise, showing that Tenant's liability insurance policy in an amount of at
least $1,000,000.00 includes coverage on the additional premises.
<PAGE>
4. The term "Parking Lot" as defined in the OFFICE LEASE is hereby amended
to include all parking spaces located at 1812 N. Forest Park Blvd. and all
parking spaces at 1800 N. Forest Park Blvd.
5. Landlord will maintain the heating and air conditioning equipment
located on the Additional Premises from July 7, 1997 through October 5, 1997,
after which date the maintenance of such equipment will be at Tenant's expense.
6. Tenant will contact Sonitrol of Fort Worth at 8 Campus Circle, Suite
150, Fort Worth, TX 76262 (817) 491-0606 to arrange to either have the leased
security system transferred to Tenant's name or to have it removed.
7. Landlord and Cowtown Corrals, Ltd. have a LEASE AGREEMENT concerning the
Additional Premises which is dated June 3, 1996 for a term which expires on July
2, 1997. On May 16, 1997 Landlord sent a written request to Cowtown Corrals,
Ltd. demanding that it peaceably surrender possession of the subject premises at
midnight on July 2, 1997. In the event that Cowtown Corrals, Ltd. fails or
refuses to surrender possession as demanded, Tenant (herein) agrees that it will
hold Landlord harmless until such time as Landlord is able to deliver possession
of the Subject premises to Tenant, except, however, that should Tenant be
unable to occupy the subject premises for a period of time greater than thirty
(30) days, Tenant shall have the right to terminate this Addendum with no
further obligation. The term of this Addendum shall commence upon Tenant's
possession of the subject premises, in the event of a delay.
Except as herein modified and amended, the said OFFICE LEASE of June 14, 1996 is
hereby affirmed so that its terms will not only apply to the property located at
1812 N. Forest Park Blvd., but also will apply to the Additional Premises
located at 1800 N. Forest Park Blvd. This ADDENDUM shall be attached to and
shall be made a part of said OFFICE LEASE.
AGREED AND ACCEPTED as of the date first mentioned above.
LANDLORD: COLONIAL SAVINGS, F.A.
By: /s/ James E. DuBose
---------------------------------
James E. DuBose, President
TENANT: WEBSITE MANAGEMENT CO., INC. d/b/a FLASHNET COMMUNICATIONS
By: /s/ Scott Leslie
---------------------------------
Scott Leslie, President
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, made by and between LEONARD PROPERTIES, a
partnership, hereinafter called Lessor, and FLASHNET COMMUNICATIONS, INC.
hereinafter called Lessee.
WITNESSETH:
1. LOCATION AND TERM: Lessor does hereby demise, let and lease unto Lessee
the following described property:
Approximately 9,810 square feet of space in Lessor's 33,810
square foot building situated on Lot 5, Block 2, Midway
Industrial Park, City of Richland Hills, Tarrant County, Texas,
said space also known as 7435 Airport Freeway, Fort Worth, Texas
76118;
hereinafter called premises, for a term of twelve (12) months, commencing on
March 1, 1998 and ending on February 28, 1999 to be used as an office for
accounting and custom care call center, and warehouse and kit assembly
facility and not otherwise, under the following terms and conditions:
2. RENT: Lessee agrees to pay to the Lessor at the principal office of the
Lessor in Fort Worth, Tarrant County, Texas, a rental in the amount of
(Confidential treatment has been requested), for each month of the term
hereof, payable in advance without demand on the first day of each month, and
rent shall begin upon delivery of possession of the premises to Lessee with
the first payment to be made on the first day of the following month.
Payments not made within ten (10) days of said due date shall be subject to a
late charge of $.10 for each one dollar of each installment more than (10)
days past due to cover the extra handling expense. If delivery of the
premises is made on other than the first day of the month, then rental for
that month will be prorated. Prior delivery of possession shall not affect
the expiration date of the term of the lease.
3. USE OF PREMISES: Lessee agrees that its use of the premises and all
improvements thereon shall comply with all of the rules, regulations,
ordinances and laws of all governmental authorities applicable to said
premises and the business conducted therein, and will hold the Lessor
harmless from all claims and causes of action arising out of the Lessee's
occupancy and use of the premises during the term of this agreement. Lessee
agrees that it will not perform any acts or carry on any practices which will
injure the building or the use of the premises or constitute a nuisance to
other tenants or neighboring property owners. The Lessee shall keep the
interior and exterior of the premises in a good, clean and orderly manner.
Outside storage will not be permitted except by prior written permission of
Lessor.
4. REPAIRS BY LESSOR: Lessor shall, at its expense, maintain and keep in good
repair the structural portions of the exterior walls, foundation and roof of
the building except that the Lessor shall not be required to maintain or
repair the windows, overhead doors or plate glass in the building. Lessor
shall keep the common area, including the landscaping, parking lot, and
common lighting in good order and repair.
The Lessee shall give the Lessor written notice of defects or the need
for repairs. The Lessor shall not be responsible for any damages to property
or person caused by any portion of the building becoming out of repair until
the Lessor has had reasonable opportunity to have the same repaired after
being notified of such need by the Lessee. After repairs are commenced, they
shall be completed promptly in a good and workmanlike manner.
The Lessor shall not be obligated to repair any damage caused by the
acts of the Lessee, its agents, employees, customers, invitees or guests. The
Lessor shall not be obligated to make any other improvements or repairs of
any kind except as herein provided.
5. REPAIRS BY LESSEE: All maintenance and repairs with respect to the
leased premises and any fixtures attached thereto which are not the
obligation of the Lessor shall be made by the Lessee. The Lessee's obligation
to maintain and repair includes, but is not limited to, the plumbing,
electrical wiring and equipment, heating and air-conditioning equipment,
plate and window glass, overhead doors, pest control and other interior
improvements. The Lessee covenants to take good care of the property and the
fixtures and suffer no waste.
<PAGE>
6. ALTERATIONS AND REMODELING: Lessee shall have the right, at its sole cost
and expense, during the term of this lease to alter or remodel the demised
premises provided that the alterations or remodeling does not change the
exterior design of the building or result in a structural change of the
building.
Any alteration, addition or improvement resulting in a change in the
exterior design of the building or resulting structural change of the
building shall not be made without the prior written approval of the Lessor.
All alterations, additions and improvements, including light fixtures,
air-conditioning and heating equipment, which may be made on or attached to
the premises shall become a part and remain upon and be surrendered with the
premises at the end of the lease; provided, however, that if Lessor so elects
and notifies the Lessee ten (10) days before the termination of the lease,
the Lessee shall, at its expense, remove such alterations and additions from
the premises and restore the premises as near as practicable to the condition
it was in at the beginning of this lease, which removal shall occur before
vacating the premises.
7. TAXES: Lessor agrees to pay all ad valorem taxes and special assessments
levied against the demised premises. Lessee shall render and pay all personal
property taxes and all other occupational or use taxes or license fee which
may accrue as a result of the use of the demised premises.
8. UTILITIES: Lessee shall pay for all water, electricity, gas and other
utilities used in the premises. At the option of Lessor, Lessor may furnish
water, electricity or gas to Lessee in which case Lessee shall pay Lessor
upon invoice, for such utilities used at the same rate that Lessee would pay
if Lessee purchased such utility services direct from a public utility
company.
9. INSURANCE: Lessor agrees to obtain and retain in force a policy of hazard
insurance providing fire and extended coverage protection on the demised
premises with the proceeds payable to the Lessor. Lessee agrees that it shall
not keep anything on the premises or use or occupy the premises in such a
manner as will result in an increase in the rates for fire and extended
coverage above the rates customarily charged for building of this type
construction.
Lessee shall be responsible for insuring its personal property.
10. ASSIGNMENTS: Lessee shall not assign this lease agreement or sublease
all or any part of the premises without the prior written consent of the
Lessor, which consent will not be unreasonably withheld, or occupy or permit
the same to be occupied for any business or purpose deemed extra hazardous on
account of fire. Should the Lessee request permission to assign or sublease
the demised premises and such consent is granted, then it is specifically
understood and agreed that Lessee herein shall remain as fully liable for the
fulfillment of every condition of this lease regardless of assignment or
sublease.
Lessor shall have the right to transfer or assign this lease in whole or
in part but shall remain fully liable for the covenants and obligations
imposed on the Lessor herein.
11. DESTRUCTION OF PREMISES: If any part of the leased premises shall be
damaged by fire, the elements ______erwise, but is not thereby rendered
untenable or unfit for occupancy, then the Lessor shall, at its expense,
cause such damage to be repaired ___________ shall not be abated and the
insurance proceeds from such damaged shall be paid to and retained by the
Lessor.
If the leased premises shall be damaged by fire, the elements, casualty
or otherwise so that the leased premised are rendered partially untenable or
unfit for occupancy, then the Lessor, at is expense, shall cause the damage
to be repaired and the rent shall be abated proportionately from the time of
the damage until the leased premises are repaired and fit for occupancy, and
the insurance proceeds from such damage shall be paid to and retained by the
Lessor.
If the leased premises shall be damaged by fire, the elements, casualty
or otherwise so that the leased premises are totally destroyed or rendered
more than 70% unfit for occupancy, then either party reserves the right to
cancel this lease within 30 days after the casualty occurs, and if either
party exercises such option, then this lease shall come to an end in the same
manner as though the term had expired, and the insurance proceeds from such
damage shall be paid to and retained by the Lessor. In the event the lease is
not canceled, then the Lessor shall, at its expense, rebuild the leased
premises to substantially the same condition they were in prior to the
casualty and the rent shall be abated during the time that they are unfit for
occupancy, and the insurance proceeds shall be paid and retained by the
Lessor.
12. MORTGAGES: Lessor shall have the right to mortgage the demised premises
and all its rights hereunder. The Lessee covenants and agrees to execute and
deliver upon request by the Lessor, its successors or assigns, such further
instrument subordinating this lease to any such mortgage lien if such
subordination provides that the mortgagee shall recognize the validity and
continuance of the lease in the event of a foreclosure of the Lessor's
interest.
The mortgagee or trustee under any mortgage or deed of trust and the
owner and holder of the indebtedness secured hereby shall not become
personally liable upon the covenants of this lease until they or their
assigns shall become the owner of the Lessor's interest hereunder.
13. DEFAULT BY LESSOR: In the event the Lessor fails to perform any of the
covenants under this lease within ten (10) days after written notice from the
Lessee, then the Lessee may cure such default for the account and at the
expense of the Lessor by deducting such amount from the rent with interest at
ten (10%) percent per annum.
<PAGE>
14. DEFAULT BY LESSEE: If the Lessee fails to pay the rent when due or
defaults in the performance of the agreements, conditions, covenants or terms
contained herein, then the Lessor may enforce performance of this lease in
any of the modes provided by law; and this lease may be forfeited at Lessor's
option if such default continues for a period of ten (10) days after the
Lessor notifies the Lessee of such default and of its intention to declare
the lease forfeited; and thereafter (unless the Lessee shall have completely
removed or cured said default) this lease shall cease and come to an end as
if that were the day originally fixed herein for the expiration of the term;
and the Lessor, its agent, attorney or those claiming under it, shall have
the right, without further notice or demand, to re-enter and remove all
persons and all of the Lessee's property therefrom without being deemed
guilty in any manner of trespass and without prejudice to any remedies for
arrears of rent or breach of covenant.
If any of the events described in the preceding paragraph should occur
and Lessor resumes possession of the premises, then Lessor may re-lease the
premises for the remainder of the term at the best rent the Lessor may
obtain, and Lessee agrees that, notwithstanding the termination of this lease
and possession regained by the Lessor, Lessee will indemnify the Lessor
against any and all loss of rent which the Lessor may sustain during the
remainder of the term of the lease by reason of such termination.
The Lessor shall have a statutory lessor's lien and in addition, Lessor
is given an express lien as security for the rent described herein upon all
the chattels, implements, fixtures, furniture, tools, machinery, or other
personal property which the Lessee now or at any time during the term of the
lease may place upon the demised premises.
If on account of any breach or default by the Lessee of any of Lessee's
obligations contained herein it shall become necessary for the Lessor to
employ an attorney to enforce or defend any of the Lessor's rights or
remedies hereunder, then Lessor shall be entitled to recover a reasonable
attorney's fee from the Lessee.
In the event the Lessee should default in the performance of any
agreement, covenant, condition or term contained herein, then Lessor may
perform the same for Lessee's account, and any amount paid or any expense of
liability incurred by Lessor in the performance of same shall be deemed
additional rent payable by Lessee with interest at ten (10%) percent from
date of payment by Lessor until repayment by Lessee.
15. SURRENDER OF PREMISES: Upon the termination of this lease, the Lessee
shall deliver the demised premises clean and in good order and condition with
natural deterioration only accepted. Upon the termination of this lease,
Lessee shall promptly remove all trade fixtures and personal property and
shall repair any damage caused by such removal unless otherwise agreed upon
in writing by the Lessor.
16. HOLDING OVER BY LESSEE: In the event Lessee holds over after the
expiration of this lease, it shall be deemed to be occupying said premises as
a lessee from month-to-month at 150% of the rental rate of the last month of
the lease term just ended, and subject to all of the conditions, provisions
and obligations of this lease insofar as the same are applicable to a
month-to-month tenancy.
17. PARKING: Lessor grants to the Lessee the right to park motor vehicles
and the right of ingress and egress for itself and its employees, customers,
patrons, invitees and guests over the parking area serving the leased
premises, said area to be specified by Lessor. Lessee agrees that its motor
vehicles and those of its employees will be parked only in this specified
area. Lessor reserves the right of ingress and egress to itself and the other
tenants of Lessor on this and adjacent premises.
18. SIGNS: Lessee shall not place or paint any signs at, on, or about the
premises or paint the exterior walls of the building without the prior
written consent of the Lessor; and the Lessor shall have the right to remove
any sign or signs in order to paint the building or premises or to make any
other repairs or alterations.
19. POSSESSION AND ENJOYMENT: The Lessor covenants that the Lessee, upon
making the payments and performing the conditions and covenants prescribed
herein, shall have peaceful and quiet enjoyment of the leased premises. It is
agreed that by occupying the premises, that Lessee accepts the premises and
acknowledges that they are in the condition called for in this lease, and
that all conditions precedent to Lessee's occupying the premises have been
fulfilled by Lessor.
20. COVENANT TO HOLD HARMLESS: Lessor shall not be liable to the Lessee or
to the Lessee's employees, customers, invitees or visitors for any damage to
person or property caused by an act, omission or neglect of Lessee, and the
Lessee agrees to hold the Lessor harmless from all claims from any such
damage whether the injury occurs on or off the demised premises.
21. ACCESS BY LESSOR: Lessor shall have the right to enter upon the premises
at all reasonable hours to inspect the same or to clean and make repairs to
the premises or any property owned or controlled by the Lessor. Commencing
ninety (90) days prior to the termination of this lease, Lessor may place
"For Lease" signs in and about the premises and may have reasonable access to
the premises for the purpose of exhibiting same to prospective tenants.
22. WAIVER: No waiver by the Lessor of any default or breach of any term,
covenant, condition or provision hereof shall be treated as a waiver of any
subsequent default or breach of the same or any other term, covenant,
condition or provision hereof.
<PAGE>
23. NOTICE: Any notice provided for herein shall be considered sufficient if
the letter containing the same is deposited in the United States mail with
postage prepaid addressed to the Lessor at 7457 Airport Freeway, Fort Worth,
Texas, 76118, or addressed to the Lessee at 7435 AIRPORT FREEWAY, FORT WORTH,
TEXAS 76118.
24. SECURITY DEPOSIT: Lessor hereby acknowledges receipt of a security
deposit in the amount of FIVE THOUSAND SEVEN HUNDRED TWENTY TWO AND 50/100
DOLLARS ($5.722.50) that will be refunded to Lessee upon completion of the
lease provided Lessee is not in default under any terms of the lease. Lessor
shall have the right to apply the funds in the security deposit to pay the
rent, any expenses or correct any default by the Lessee which the Lessee
fails to pay or correct after ten (10) days notice in writing from the
Lessor. If at any time the deposit with the Lessor becomes less than the
amount specified above, then the Lessee shall replenish such security deposit
upon request by the Lessor.
25. OPERATIONS ESCALATOR: Lessee shall pay to Lessor, annually, Lessee's
prorata part of operating expenses for the building in which the premises
leased to Lessee are located to the extent that the total of those expenses
exceeds seventy-three cents ($.73) per square foot. For this purpose,
"operating expenses" include ad valorem taxes on the building and the tract
of land on which it is located, the cost of fire and extended coverage
insurance and liability insurance, any utilities paid by Lessor that are
common to the building, common area maintenance, including parking lot
sweeping, yard and landscape maintenance, sprinkler system maintenance, and
maintenance of exterior lighting fixtures and equipment. Lessor shall bill
Lessee for Lessee's prorata part of annual operating expenses, and payment of
Lessee's prorata part will be due within thirty days after receipt of
Lessor's billing. Lessee's prorata part of operating expenses shall be
determined as follows:
a) After year end, Lessor shall determine the total annual operating
expenses;
b) The total annual operating expenses shall be divided by 33,810,
being the number of square feet in the building to arrive at the
total annual operating expenses per square foot;
c) The amount, if any, by which total annual operating expenses per
square foot exceeds seventy-three cents ($.73) shall be
multiplied by 9,810, being the number of square feet in the
premises leased to Lessee, and the product of this multiplication
will be Lessee's prorata part of operating expenses to be paid to
Lessor.
If total annual operating expenses per square foot are seventy-three
cents ($.73) or less, no payment for operating expenses will be due
from Lessee to Lessor.
26. OTHER: Lessor will warrant the air conditioning units for major repairs
or replacement of compressors and heat exchangers for the entire term of the
lease. Normal maintenance and minor repairs shall be the responsibility of
the Lessee. The units will be in good working order on occupancy.
27. SIGN BAND: The exterior lighting for the sign band is on one meter.
Lessor will pay this bill for the entire center and prorate the expenses to
the individual tenants. Lessee's share of this expense is 4/14 of the entire
bill.
IN WITNESS WHEREOF, the parties have executed this instrument in
triplicate on this the 13th day of February, 1998.
LESSOR:
LEONARD PROPERTIES
By /s/ James N. Ford
--------------------------------
James N. Ford, General Manager
LESSEE:
FLASHNET COMMUNICATIONS, INC.
By /s/ [illegible]
--------------------------------
<PAGE>
MERCHANT BANK CARD AGREEMENT
FIRST CHARTER BANK N.A.
THIS AGREEMENT ("Agreement") is made by and between First Charter Bank, N.A.
("Bank") and the undersigned merchant ("Merchant").
DEFINITIONS: For purposes of this Agreement, the following definitions shall
apply: (a) "Merchant Services": the services provided to Merchant by Bank under
this Agreement; (b) "Application": the document titled Merchant Bank Card
Application, executed and delivered to Bank by Merchant, upon which Merchant's
acceptability for Merchant Services was evaluated; (c) "Card": an unexpired Visa
or MasterCard credit card; (d) "Cardholder": the individual whose name is
embossed on a Card; (e) "Sales Draft": Merchant's record of Cardholder purchase;
(f) "Credit Voucher": Merchant's record of return or refund to be credited to
Cardholder's account; (g) "Card Issuing Bank": the bank or other financial
institution that issued the card to the cardholder; (h) "Authorization": coded
approval number provided by Card Issuing Bank confirming that transaction amount
is within Cardholder's spending limit and Card has not been report lost or
stolen, and thereby authorizing Merchant to honor Card; (i) "Terminal": an
electronic device utilized to obtain Authorizations and facilitate the capture,
reconciliation and transmission of Card data; (j) "Merchant Account(s)": the
deposit account(s) of Merchant designated for use by Bank in conjunction with
Merchant Services including any Reserve Account as defined below; (k) "Visa" and
"MC": Visa U.S.A. and MasterCard International; (l) "ACH": the Federal Reserve
Bank's Automated Clearing House network.
WHEREAS: Bank is a member of Visa and MC provides Merchant Services to
businesses accepting Cards.
WHEREAS: Merchant is engaged in the business of providing merchandise, services
or both and desires that Bank provide Merchant Services to Merchant on the terms
and conditions set forth herein.
NOW, THEREFORE: in consideration of the above and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
1. HONORING CARDS: Merchant shall honor without discrimination any valid Card
when properly presented as payment by a Cardholder in connection with the
provisions of goods or services or both by Merchant to Cardholder. Merchant
will not establish minimum or maximum sale amounts as a condition for honoring
cards or impose any surcharge on Card transactions. Discounts for payments in
cash are permitted.
2. PERMITTED TRANSACTIONS: "Permitted Transactions" shall be deemed to mean
those Card transactions by Merchant only for the type of business activity
described on the Application and only where all products and services transacted
with a Cardholder and processed under this Agreement shall have been provided in
full by Merchant at the time of the transaction (except upon prior written
approval of Bank). Merchant is prohibited from submitting to Bank any Sales
Drafts or Credit Vouchers for any transaction that are not Permitted
Transactions, including but not limited to, cash advances in any amount to a
Cardholder, a Card transaction for which a principal of Merchant is also the
Cardholder, or any transaction which Merchant knew or should have known to be
fraudulent or not authorized by the Cardholder.
3. AUTHORIZATION: Prior to honoring any Card, Merchant agrees to obtain a
single Authorization for the total amount of the transaction. Terminal shall be
used as the primary method for obtaining Authorizations. Voice Authorization
services are for use only (a) upon receiving such instruction in response to an
Authorization request, or (b) during Terminal down-time periods. Unauthorized
use of voice Authorization services may result in additional charges for such
use being assessed to Merchant. Card information shall be entered into Terminal
by physically sliding the Card's magnetically encoded strip through the
Terminal's Card reader. Merchant may utilize the Terminal's keypad to input
Card information only in the following instances: (a) the magnetic strip on Card
is damaged and therefore unreadable by Terminal; or (b) the Terminal's card
reader is inoperative, in which case Merchant shall immediately advise Bank.
Merchant shall make an imprint of Card and record all authorization and
applicable reference numbers on Sales Draft to facilitate the timely and
accurate retrieval of documentation as requested by Bank.
NOTE: An authorization is NOT A GUARANTEE AGAINST IMMUNITY FROM CHARGEBACKS (see
Paragraph 11.) OR ASSURANCE OF PAYMENT. Authorization merely signifies that at
the time the Authorization is obtained, the Card has not been reported as stolen
to the Card Issuing Bank and that there is sufficient account credit to
accommodate the transaction, absent chargeback privileges. The Merchant and, if
applicable, any guarantor(s) remain financially responsible for all resulting
chargebacks on transaction processed.
4. CARDHOLDER IDENTIFICATION: Merchant shall compare Cardholder's signature on
the Sales Draft to the signature that appears on Card's signature panel. In the
event the two signatures do not bear a reasonable resemblance, Merchant will not
honor the Card.
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MERCHANT BANK CARD AGREEMENT
5. DRAFT CAPTURE AND TRANSMISSION: If Merchant utilizes Merchant Services
whereby, at the time of Authorization, Card and transaction data are stored in
Terminal's memory thereby requiring Merchant to initiate a subsequent deposit
transmission, Merchant shall (a) initiate such deposit transmissions to Bank's
designated processing center on a daily basis; and (b) prior to such deposit
transmissions, Merchant shall reconcile Card and transaction data, thereby
correcting erroneous data prior to transmission. Merchants utilizing Merchant
Services whereby Card and transaction data is stored at the host computer at the
time of Authorization shall reconcile Card and transaction data and transmit any
corrections no later than one day following the original transaction date.
6. DOCUMENTING A CARD TRANSACTION: To document each Card transaction, a Sales
Draft or Credit Voucher on a form approved by Bank shall be completed by
Merchant, and a copy delivered to Cardholder. Each such form shall be legibly
imprinted with (a) Merchant's name and number, (b) the information embossed on
the Card, (c) the date of the transaction, (d) a brief description of the goods
or services comprising the transaction, (e) the total amount of the sale or
credit (including any applicable taxes), and (f) the signature of the
Cardholder. For each transaction where the Terminal's keypad is used to enter
the Card number, Merchant must make a legible imprint of the information
embossed on the Card. In the event the required information does not legibly
imprint on the form, Merchant must legibly print at least the following
information on the form; (1) Cardholder's name; (2) Card number; (3) expiration
dates; and (4) the name (or trade style) of the Card Issuing Bank. For each
non-imprint transaction, whether or not an Authorization is obtained, Merchant
shall be deemed to warrant to Bank the Cardholder's identity as an authorized
user of the Card. Merchant hereby acknowledges that Merchant's failure to
properly document Card transactions may result in penalties being assessed to
Bank by Visa and/or MC. Merchant hereby accepts responsibility for and
authorizes Bank to debit Merchant Account for penalties assessed to Bank due to
merchant's failure to properly document Card transactions.
7. MULTIPLE SALES DRAFTS: Merchant must include on a single Sales Draft the
entire amount of each transaction unless: (a) Cardholder is paying a portion of
the total amount in cash or by check; or (b) Merchant has written authorization
from Bank to accept a deposit for products or services to be provided at a later
date. In such instance, Merchant shall note on the Sales Drafts the words
"deposit" or "balance" as appropriate, and shall not transmit the "balance"
Sales Draft to Bank until all the goods are delivered and/or all the services
are performed.
8. RETURNED MERCHANDISE: Merchant will establish a fair policy for the return
of merchandise, and will initiate credit for all such returns by issuance of
Credit Vouchers to Cardholders. On the same day a Credit Voucher is issued,
Merchant will process such credit for inclusion in Merchant's daily transmission
of Card transactions. At Bank's option and in its sole discretion, Bank may
reject Credit Vouchers and require Merchant to advise Cardholders to obtain
credits through a chargeback request. Merchant may restrict its refund or
return policy if Merchant discloses such restriction at the time of sale by
printing a notice, such as "no refunds or exchanges" in letters at least one
fourth of an inch in height, on all copies of the Sales Draft prior to obtaining
Cardholder's signature on the Sales Draft. No cash refunds may be given on any
item originally charged to a Card, except with the prior written consent of
Bank.
9. STORAGE AND RETRIEVAL OF TRANSACTION RECORDS: Merchant must retain original
transaction documents (Sales Drafts, Credit Vouchers, etc.) for a minimum of
three years from the transaction dates. Such documents shall be stored in a
manner permitting retrieval and submission of legible copies to Bank on the same
day that Merchant receives a request for such documentation from Bank. Since a
Card Issuing Bank may, over a period of time, request duplicate copies of the
same Sales Draft, Merchant must retain at least one legible copy of each Card
transaction. Merchant acknowledges that such duplicate requests are beyond
Bank's control. Merchant will insure that Bank possesses a current listing of
retrieval contacts at each Merchant location where Sales Drafts are being
stored.
10. ON-GOING RESPONSIBILITY: In instances where Merchant acquires a business
currently processing with Bank, Merchant agrees to assume responsibility for
previous owner's liabilities, fees, billing, chargebacks and other obligations
to Bank under the previous owner's agreement with Bank.
11. CHARGEBACKS: Merchant will accept the liability for all claims against
Merchant resulting from; (a) failure of Merchant to provide Bank with a legible
copy of Sales Draft or Card imprint, and/or failure of Merchant to meet
retrieval deadlines set under the rules and regulations of Visa and MC; (b) the
exercise of chargeback rights by a Cardholder, Card Issuing Bank or other
intermediary pursuant to applicable law, rule,
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MERCHANT BANK CARD AGREEMENT
regulation, Visa or MC regulations, or agreements, or (c) Card transaction(s)
not made in compliance with all terms and conditions of this Agreement, as well
as all applicable laws, rule or regulations. Merchant irrevocable authorizes
Bank, without prior notice, to directly debit Merchant Account for any
chargebacks. Merchant will reimburse Bank immediately for any shortfall that
occurs as a result of such chargebacks. If Merchant has the right to dispute a
chargeback, Merchant shall submit all documentation regarding such dispute to
Bank within fifteen days of receipt of the chargeback from Bank. Merchant
agrees that failure to dispute a chargeback within such period shall constitute
a waiver of all rights of Merchant to dispute the chargeback. Merchant is
prohibited from re-depositing Sales Drafts that have been previously charged
back. This prohibition applies whether or not Merchant has obtained
Cardholder's consent to re-deposit such Sales Drafts.
12. USE OF VISA AND MC PROGRAM MARKS: Merchant shall adequately display the
appropriate Visa or MC program marks on promotional materials to inform the
public which Cards will be honored at the Merchant's place of business.
Merchant's use of such program marks shall fully comply with specifications
contained in applicable Visa or MC operating regulations, and shall not indicate
directly or indirectly that Visa, MC or any other organization endorses
Merchant's products or services. Upon termination of this Agreement, Merchant
shall promptly return to Bank any equipment or materials provided by Bank
pursuant to this Agreement.
13. NO FACTORING/LAUNDERING OF SALES DRAFTS: Merchant shall not transmit to Bank
any Sales Draft or Credit Voucher which does not arise from a Permitted
Transaction and which is not the result of a legitimate business transaction
directly and solely between Cardholder and Merchant. In particular, Merchant is
aware of and shall comply with federal law regarding the prohibition on
laundering of Sales Drafts. Merchant hereby accepts full financial
responsibility for any transactions involving a third party and further agrees
to allow the entire amount of such third party transactions to remain on deposit
at Bank in a non-interest bearing account for a reasonable time but not less
than one hundred eighty (180) days from the transaction posting dates. If not
already on deposit in Merchant Account, Merchant will deposit this amount to an
account designated by Bank immediately upon demand by Bank.
14. CARD RECOVERY: Merchant shall use its best efforts, by reasonable and
peaceful means, to recover any Card when: (a) Merchant is advised to recover
Card in response to an Authorization request or (b) Merchant has reasonable
grounds to believe that the Card is counterfeit, fraudulent or stolen. Merchant
shall take no actions to recover a Card that results in a breach of the peace.
15. ACCESS TO MERCHANT ACCOUNT: For use in conjunction with Merchant Services.
Merchant shall maintain the Merchant Account initially identified in paragraph
42 and as subsequently required by Bank pursuant to this Agreement. Merchant
authorizes Bank to initiate credits and debits to, and freeze or setoff funds in
any Merchant account in order to facilitate the settlement of Sales Drafts,
Credit Vouchers, chargebacks, adjustments, fees, charges, etc. pursuant to the
terms of this Agreement. This authorization shall remain in effect following
the termination of this Agreement by either party for a reasonable time but not
less than one hundred and eighty (180) business days from the date of last
activity relating to Merchant, including but not limited to any Chargebacks.
16. SETTLEMENT: Bank shall pay to Merchant the total face amount of all Sales
Drafts transmitted by Merchant less the sum of Merchant's: (a) applicable
Discount Fees, (b) chargebacks, (c) Credit Vouchers, and, (d) any adjustments
allowed by this Agreement. Merchant acknowledges that all credits to Merchant
Account are provisional and subject to chargeback.
17. AVAILABILITY OF FUNDS: Merchant must transmit Card transactions by 11:59
P.M. CST to allow Bank to process those transactions and post those funds to
Merchant Account at Bank on the second banking day following (but not including)
the day of Merchant's transmission to Bank. Should Merchant be authorized by
Bank to maintain Merchant Account at a bank other than Bank, funds will be
posted to such Merchant Account on the third banking day following (but not
including) the day of Merchant's transmission to Bank. Withdrawals may not be
negotiated against funds until credit is posted to Merchant Account.
18. AMENDMENTS: Bank may amend this Agreement at any time if it deems itself at
risk. Otherwise, Bank will give Merchant written notice thirty (30) days prior
to the effective date of any amendment. Amendments become effective unless
Merchant terminates this Agreement before such effective date.
19. LAWS. RULES AND REGULATIONS: Merchant agrees to comply with all existing
and future regulations issued by Visa or MC regarding Card transactions, all of
which regulations are expressly incorporated herein
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MERCHANT BANK CARD AGREEMENT
by reference and made a part of this Agreement. Merchant further agrees to
comply with all applicable state or federal laws, rules or regulations relating
to Merchant's business, the use of Cards, and Merchant's transactions with
Cardholders and Bank. Merchant assumes full and sole responsibility for
obtaining, reviewing, implementing, and complying with all such laws, rules,
regulations, and VISA and MC regulations.
20. WARRANTY OF APPLICATION; NOTICE OF MATERIAL CHANGES: In connection with this
Agreement, Merchant has executed and delivered an Application to Bank
containing, among other things, information describing the nature of Merchant's
business and the individuals who are the principal owners of Merchant. Merchant
warrants to Bank that all information and statements contained in such
Application are true, correct and complete. Merchant further agrees to notify
Bank promptly in writing of any and all changes which may occur from time to
time regarding any information contained in such Application, including but not
limited to, the identity of principal owners, type of goods and services
provided, and how sales are completed (i.e. by telephone, mail order or in
person at the Merchant's place of business). Merchant shall also notify Bank in
writing immediately of (a) any material adverse changes in the financial or
business condition of Merchant or Merchant's principals and (b) any pending or
threatened claims, litigation, investigation, governmental proceeding, or
assessments against Merchant or Merchant's principals. In addition to any other
rights or remedies, Bank may immediately and without notice cease all processing
for Merchant, freeze all Merchant Accounts, and/or terminate this Agreement,
based upon the information reported by Merchant or discovered by Bank. Bank may
impose a monthly administration fee on such frozen accounts.
21. TERMINATED MERCHANT FILE: Merchant acknowledges that Bank is required to
report the business name of the Merchant and the names and identification of its
principals to the Visa and MC Combined Terminated Merchant File when a Merchant
is terminated due to, but not limited to, reasons such as fraud, counterfeit
paper, unauthorized transactions, excessive chargebacks or highly suspect
activity. Merchant expressly agrees and consents to all such reporting by Bank.
22. TERMINATION OF AGREEMENT; REMEDIES: This Agreement may be terminated by
either party without cause upon thirty (30) days' prior written notice to the
other, such termination to become effective on the date specified by such
notice. In addition, upon any breach by Merchant in any representation,
warranty, covenant, promise or term of this Agreement, Bank may immediately and
without notice do any or all of the following: (a) suspend all processing for
Merchant, (b) freeze all funds in all deposit accounts of Merchant, (c)
foreclose on Bank's security interest as defined below, (d) terminate this
Agreement, and (e) initiate litigation to enforce Bank's rights under this
Agreement and under applicable law. All obligations of Merchant and any
guarantors under this Agreement shall survive any termination of this Agreement.
Merchant specifically agrees to maintain on deposit at Bank for a reasonable
time but not less than 180 business days following the date of last activity
relating to Merchant, including but not limited to any chargebacks, an amount
sufficient, in Bank's sole and absolute discretion, to cover all chargebacks,
Fees and Charges, attorney's fees, or other costs that may be charged against or
incurred by Bank as a result of Card transactions by Merchant. In addition,
Merchant irrevocably authorizes Bank to freeze all funds in all Merchant
Accounts and other deposit accounts of Merchant at Bank and to retain any other
collateral Bank may have for a reasonable time but not less than 180 business
days following the date of last activity relating to Merchant, including but not
limited to any chargebacks. No usage of Merchant Services by Merchant for a
sixty day period may be considered, by Bank, as Merchant's voluntary termination
of this Agreement. Merchant is then subject to requalification for continuation
of Merchant Services.
23. PARAGRAPH HEADINGS: All paragraph headings contained herein are for
descriptive purposes only.
24. CONFIDENTIALITY: Merchant will not disclose Cardholder information to third
parties, other than Bank's or Merchant's agents for the purposes of assisting
Merchant in completing a Card transaction, or as specifically required by law.
Merchant, in an area limited to select personnel, and prior to discarding, shall
destroy in a manner rendering data unreadable all material containing Card
numbers.
25. NOTICES: Any notice required or permitted hereunder shall be in writing and
shall be deemed given three (3) business days after deposit in the United States
mail, and one (1) business day after deposit for overnight delivery with an
appropriate delivery service such as Federal Express or similar courier, postage
prepaid, addressed to the respective parties at the addresses set forth below,
or at such other address as the receiving party may have provided by notice to
the other.
26. ASSIGNABILITY: Merchant may not, voluntarily or involuntarily, assign any
rights or delegate any duties arising under this Agreement without the prior
written consent of Bank. Merchant also acknowledges that
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MERCHANT BANK CARD AGREEMENT
Bank may sell, assign or otherwise transfer this Agreement to any financial
institution that Bank, at its sole discretion, deems appropriate. Merchant
agrees that a primary purpose of this Agreement is to provide Merchant with
funds as a result of Card transactions based on Sales Drafts submitted to Bank
by Merchant. The funds provided by Bank to Merchant are provisional only and
subject to chargeback rights of Cardholders, among other things. Bank is not
purchasing Sales Drafts or giving final credit or settlement to Merchant upon
the processing of Sales Drafts. Merchant therefore agrees that this Agreement
is primarily an agreement to provide financial accommodations to Merchant
within the meaning of Section 365 of the U.S. Bankruptcy Code and that this
Agreement may not be assumed by any party in a bankruptcy proceeding affecting
Merchant whether by Merchant as a debtor in possession or by any bankruptcy
trustee.
27. ATTORNEY'S FEES: Merchant shall be liable for and shall indemnify and
reimburse Bank for any and all attorney's fees and other costs and expenses paid
or incurred by Bank in the enforcement hereof, or in collecting any amounts due
from Merchant to Bank or resulting from any breach by Merchant of any of the
terms or conditions of this Agreement.
28. NO WAIVER OF RIGHTS: No delay or omission on the part of Bank in exercising
any of its rights or remedies shall operate as a waiver, estoppel or other
preclusion against the exercise of such rights or remedies at any time. A
waiver of any right or remedies by Bank on any one occasion shall not serve as a
waiver for any subsequent or prior occasions. All waivers must be in writing.
29. RIGHT TO INFORMATION/AUDIT: From time to time, Bank may (a) obtain credit
information on Merchant from other (such as lenders and credit reporting
agencies): (b) furnish information on Bank's experience with Merchant to others
seeking such information, (c) require Merchant, Merchant's principals, and any
guarantors to submit financial statements, tax returns, and related information
to Bank in form and content satisfactory to Bank, and (d) examine and verify, at
any reasonable time, all the records of Merchant pertaining to Sales Drafts and
Credit Vouchers transmitted to and processed by Bank. Merchant shall make the
originals of all such records available to Bank upon request and shall provide
Bank with complete, legible, and accurate copies of all such records upon
request. Merchant shall be responsible for all costs and fees of Bank incurred
in connection with such audit.
30. JURISDICTION; CHOICE OF LAW; VENUE: This Agreement will be governed by and
interpreted in accordance with the laws of the State of California and, to the
extent applicable, the laws of the United States of America. The parties agree
that all performances due and transactions undertaken pursuant to this Agreement
shall be deemed to be due or have occurred in Beverly Hills, California, and
that the entry into and performance hereof by Merchant shall be conclusively
deemed to be the transaction of business within the State of California. Any
litigation or arbitration between the parties shall occur exclusively in the
County of Los Angeles, California. Merchant and any guarantors hereby consent
to the full personal jurisdiction of any state or federal court in California
and agree that, in addition to any other lawful method, service of process may
be effected by depositing pleadings in the U.S. mail, certified mail, postage
prepaid, and addressed to Merchant or guarantors at their respective addresses
as set forth in the Application or any other address of which Bank has been
notified in writing.
31. ENTIRE AGREEMENT: This Agreement, together with Merchant's Application,
constitutes a fully integrated agreement and the entire Agreement between the
parties with respect to its subject matter. All prior or contemporaneous
agreements, understandings or representations are merged herein.
32. RECURRING TRANSACTIONS: For any recurring transactions, Merchant must obtain
a written request from Cardholder for such goods and services to be charged to
the Cardholder's account, which written request must specify the transaction
amounts to be charged to the Cardholder's account, the frequency of the
recurring charge and the duration of time during which such charges may be made.
Merchant shall not complete any recurring transaction after receiving a
cancellation notice from the Cardholder, the Bank, or a response to an
Authorization request which indicates that the Card is not to be honored.
Merchant shall type or legibly print the words "Recurring Transaction" on the
signature line of the Sales Draft.
33. NON-MAGNETIC TRANSACTIONS: Any transaction where the Card number is not
obtained by passing the Card's magnetic strip through the Card reader of a
Terminal is hereby considered a non-magnetic transaction. Merchant shall not
solicit or accept non-magnetic transactions without prior written permission
from Bank, and then only for such products/services, solicited in such manner
and in such amounts as allowed in Bank's written authorization. When so
authorized, non-magnetic transactions must be directly between the Cardholder
and Merchant. Unless specifically authorized in Bank's written authorization,
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MERCHANT BANK CARD AGREEMENT
Merchant shall not utilize the services of any third party in soliciting or
accepting orders. Telephone orders are permitted only upon prior written
authorization of Bank and only to the extent that the contact is initiated by
the Cardholder. Merchant expressly agrees that in all cases, the complete
shipment of goods and/or provision of services to Cardholder will be no later
than the next business days following the date on which the Sales Draft was
transmitted to Bank to process for deposit to Merchant Account.
34. RESERVE ACCOUNT: As a condition of continued processing and in Bank's sole
and absolute discretion, Bank may require Merchant to fund and maintain a
separate deposit account ("Reserve Account") with Bank which Merchant agrees
shall not be used for its operating funds. Contributions to the Reserve Account
shall be made as set forth in the reserve acknowledgment, but in no event shall
the balance of the Reserve Account fall below the Minimum Reserve Balance as
defined in the Reserve Addendum attached hereto and incorporated herein. Upon
demand by Bank, Merchant shall immediately deposit sufficient funds to the
Reserve Account to maintain the Minimum Reserve Balance and shall continue to
contribute funds to the Reserve Account as a percentage of processed Sales
Drafts as defined in the Reserve Addendum. Merchant's obligation to maintain
the Reserve Account with Bank shall survive the termination of this Agreement
for a reasonable time but not less than one hundred eighty (180) business days
following the date of last activity relating to Merchant, including but not
limited to any chargebacks.
35. SECURITY INTEREST: Merchant hereby grants Bank a security interest in all
present and future (a) Merchant Accounts (whether at Bank or another financial
institution), (b) deposit accounts of Merchant at Bank, whether or not expressly
designated as Merchant Accounts, and (c) additions, deposits, income, interest,
dividends, and proceeds relating to all such Merchant Accounts and deposit
accounts. This security interest is given to secure all present and future
obligations of Merchant to Bank. Bank may enforce such security interest
without notice or demand. Merchant hereby irrevocably appoints Bank as its
attorney in fact to sign, file, record, give, send, or receive any security
agreements, financing statements, notices, or other documents in the name of
Merchant or Bank to create, perfect, collect, enforce, or maintain the security
interest granted herein. A copy of this Agreement may be used as a financing
statement.
36. FEES AND CHARGES: In consideration of Merchant Services provided by Bank,
Merchant agrees to pay the Fees and Charges detailed in Addendum A attached
hereto and incorporated herein and as amended from time to time by Bank. The
Base Discount Fee percentage is applied to the total amount of Sales Drafts
processed and is collected daily prior to deposit of funds to Merchant Account.
All other fees and charges are collected monthly. Incremental Discount Fees are
charged as applicable for businesses and/or transactions not qualified for the
lowest Visa/MC clearing rates. The Transaction Fee is charged for each
transmission initiated from Merchant's Terminal to Bank. The Installation Fee
is a one-time fee for programming of Merchant's equipment. The ACH fee is
charged monthly, or for any part thereof, for utilization of the Federal
Reserve's Automated Clearing House network to access Merchant Account. The
Statement Fee is charged monthly. Merchant acknowledges that the sum of Base
Discount Fees, Incremental Discount Fees, Transaction Fees and ACH fees for each
Merchant location is subject to a Minimum Monthly Billing, initially identified
in Addendum A attached hereto and incorporated herein, during each billing
cycle. In the event that a Merchant location does not reach the required
Minimum Monthly Billing amount, such location shall be assessed a Minimum
Processing Fee equal to the difference between the actual billing for that
location and the Minimum Monthly Billing amount. Other fees such as supplies
orders, shipping charges, Terminal lease or rental payments, etc. will be
assessed to Merchant as incurred. From time to time as set forth in this
Agreement relating to amendments, Bank may add, delete, or change Fees and
Charges or the terms relating thereto. Unless otherwise agreed, in writing,
Fees and Charges are collected by Bank via electronic debit from Merchant
Account. Merchant is fully responsible for payment of all Fees and Charges
whether or not sufficient funds are available in the Merchant Account to pay
such Fees and Charges. Merchant is responsible for detecting and notifying Bank
of errors in the assessment of fees and charges within sixty days of such
erroneous assessment.
37. CONTINUING GUARANTY: The undersigned hereby unconditionally guarantees the
payment and performance of all of the obligations of "Merchant" to "Bank",
whether now existing or hereafter arising under the Merchant Agreement and any
modifications, extensions, renewals, replacements, or other agreements relating
thereto. The undersigned hereby waives notice of and gives advance consent to
(i) the acceptance of this Continuing Guaranty, (ii) the release, discharge, or
incapacity of Merchant or any obligor, co-maker, guarantor, or surety, (iii) the
modification, extension, renewal, increase, or decrease in any of the
obligations
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MERCHANT BANK CARD AGREEMENT
arising under the Fee Agreement or other guaranty, (iv) acceptance,
release, substitution, sale, or abandonment of any collateral securing the
obligations of Merchant or any obligor, co-maker, guarantor, or surety, (v) any
adverse change in the financial or other condition of Merchant or any obligor,
co-maker, guarantor, or surety, (vi) the extension, maintenance, or increase of
any credit granted by Bank to Merchant. The undersigned waives any right to
require Bank to first proceed against Merchant, any other person, or any
collateral before proceeding against the undersigned. The undersigned shall
bear the sole responsibility for remaining informed about the financial and
other condition of Merchant and about the balance and status of Merchant's
account with Bank. This Continuing Guaranty shall be binding on and shall inure
to the benefit of the successors, assigns, and personal representatives of the
undersigned and Bank. If any action is taken to enforce this Continuing
Guaranty, the prevailing party shall be entitled to recover all of its costs in
connection therewith, including actual attorney's fees. This Continuing
Guaranty may only be revoked in a writing delivered to Bank. Revocation shall
be effective three (3) business days after receipt by Bank of written notice of
revocation. Revocation shall not affect the liability of the undersigned for
all obligations of Merchant as they shall exist on the effective date of
revocation and any renewals, extensions, replacements, or modifications relating
thereto. If any of the obligations guaranteed hereby are or become secured by
real property, the undersigned waives any defenses or remedies arising from the
antideficiency or one form of action doctrines under California law. In
addition to and not in derogation of any of the waivers by the undersigned
contained herein, the undersigned agrees to the following waiver as set forth in
section 2856(b) of the California Civil Code: "Guarantor waives all right and
defenses arising out of an election of remedies by Creditor, even though that
election of remedies, such as a nonjudicial foreclosure with respect to security
for a guaranteed obligation, has destroyed Guarantor's rights of subrogation and
reimbursement against Borrower by Creditor by the operation of Section 580d of
the Code of Civil Procedure or otherwise." Any litigation or arbitration
relating to this Continuing Guaranty shall occur exclusively in the County of
Los Angeles, California. The undersigned consents to the full personal
jurisdiction of any state or federal court in California. California law shall
apply to all aspects of this Continuing Guaranty without regard to any rules on
conflicts of law."
38. ENTIRE UNDERSTANDING: This Agreement contains the entire understanding of
the parties hereto relating to the subject matter contained herein and
supersedes all prior and collateral agreements, understandings, engagements and
negotiations of the parties. Each party acknowledges that no representations,
inducements, promises, or agreements, oral or written, with reference to the
subject matter hereof have been made other than as expressly set forth herein.
This Agreement cannot be changed, rescinded or terminated orally.
39. REMEDIES CUMULATIVE: The rights and remedies of Bank arising hereunder shall
be cumulative to all other rights and remedies arising under any other agreement
or by operation of law. Bank may exercise any or all of its rights and remedies
concurrently or in any order determined in its sole discretion.
40. INDEMNITY: Merchant shall indemnify, hold harmless, and defend Bank from and
against any and all claims, demands, actions, causes of action, suits,
controversies, losses, attorney's fees, costs, expenses, obligations,
liabilities, damages, settlement, judgments, and executions whatsoever, which
may arise, result from, relate to, or be connected with this Agreement, Card
transactions, or any other aspect of Merchant's relationship with Bank. At
Bank's sole option, Bank may choose its own legal counsel in connection
herewith.
41. SEVERABILITY: If any provision of this Agreement, as applied to any party or
to any circumstance, shall be found by a court to be void, invalid or
unenforceable, the same shall in no way affect any other provision of this
Agreement, the application of any such provision in any other circumstance, or
the validity or enforceability of this Agreement.
7
<PAGE>
MEMBER BANK:
--------------------------------------------------------------
SALES REPRESENTATIVE # SALE OFFICE # DATE APPLICATION SENT
--------------------------------------------------------------
FIRST CHARTER BANK N.A.
265 North Beverly Drive
Beverly Hills, California 90210
1-888-222-6868
MERCHANT BANK CARD APPLICATION
BUSINESS INFORMATION
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
LEGAL BUSINESS OR CORPORATE NAME: "DOING BUSINESS AS" NAME:
FlashNet Communications, Inc. FlashNet Communications, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
STOREFRONT ADDRESS: CITY: STATE: ZIP:
1812 N. Forest Park Blvd. Ft. Worth TX 76102
- -----------------------------------------------------------------------------------------------------------------------------------
BILLING ADDRESS: CITY: STATE: ZIP
1812 N. Forest Park Blvd. Ft. Worth TX 76102
- -----------------------------------------------------------------------------------------------------------------------------------
TYPE OF BUSINESS (BE SPECIFIC): BUSINESS MAIL ORDER % PHONE ORDER % OTHER NON-MAG %
Internet Access HOURS 10% 90%
- -----------------------------------------------------------------------------------------------------------------------------------
NO. OF LOCATIONS AGE OF BUSINESS DATE BUSINESS ACQUIRED FEDERAL TAX I.D. NUMBER: BUSINESS TELEPHONE NO.:
1 3 YEARS Nov. 95 75-2614852-7 (817) 332-8883
- -----------------------------------------------------------------------------------------------------------------------------------
CONTACT PERSON: TITLE PHONE NUMBER: FAX NUMBER:
Gene Elrod CFO (817) 332-8883 Ext. 261 (817) 332-9454
- -----------------------------------------------------------------------------------------------------------------------------------
MONTHLY BANK CARD VOLUME: AVERAGE TICKET TYPE OF OWNERSHIP (CIRCLE ONE) LLC LLP
$ 1,400,000.00 $ 135.00 SOLE PROPRIETOR PARTNERSHIP CORPORATION
- -----------------------------------------------------------------------------------------------------------------------------------
EXISTING BANK NAME: ACCOUNT NUMBER:
Summit National Bank 506-460-5 and 506-693-1
- -----------------------------------------------------------------------------------------------------------------------------------
STREET ADDRESS: CITY: STATE: ZIP:
1300 Summit Avenue Ft. Worth TX 76102
- -----------------------------------------------------------------------------------------------------------------------------------
CONTACT: PHONE NUMBER: FAX NUMBER:
Frank Shiels (817) 336-8383 ( )
- -----------------------------------------------------------------------------------------------------------------------------------
OWNER AND/OR OFFICER INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------------
PRESIDENT'S OR OWNER'S NAME: TITLE: % EQUITY OWNERSHIP: SOCIAL SECURITY NO.: DOB/AGE:
1. Scott Leslie President 15.75%
- -----------------------------------------------------------------------------------------------------------------------------------
RESIDENCE ADDRESS: CITY: STATE: ZIP: HOW LONG? / / OWN
/ / RENT
- -----------------------------------------------------------------------------------------------------------------------------------
HOME PHONE: PREVIOUS ADDRESS (IF AT CURRENT ADDRESS LESS THAN 3 YEARS)
( )
- -----------------------------------------------------------------------------------------------------------------------------------
SECOND OFFICER OR CO-OWNER: TITLE: % EQUITY OWNERSHIP: SOCIAL SECURITY NO.: DOB/AGE:
2. Gene B. Elrod CFO 0%
- -----------------------------------------------------------------------------------------------------------------------------------
RESIDENCE ADDRESS: CITY: STATE: ZIP: HOW LONG? / / OWN
/ / RENT
- -----------------------------------------------------------------------------------------------------------------------------------
HOME PHONE: PREVIOUS ADDRESS (IF AT CURRENT ADDRESS LESS THAN 3 YEARS)
( )
- -----------------------------------------------------------------------------------------------------------------------------------
AUTHORIZING RESOLUTION
(MUST BE COMPLETED BY ALL CORPORATIONS, PARTNERSHIPS, LLCS AND LLPS)
- -----------------------------------------------------------------------------------------------------------------------------------
It was resolved that any one of the Officer(s) identified in #1 and #2 above, have the authority to execute the Merchant
Processing Agreement, open and close deposit accounts, and execute any security or other agreements, documents or instruments
related thereto, if required with First Charter Bank N.A., on behalf of the Corporation, Partnership, LLC or LLP.
Date adopted by the Board of directors:
--------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
President: Print name:
----------------------------------------------- -----------------------------------------------
Secretary: Print name:
----------------------------------------------- -----------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
MERCHANT SITE SURVEY
- -----------------------------------------------------------------------------------------------------------------------------------
Type of Building / / Shopping Center / / Office Building / / Residence / / Retail Storefront /X/ Other Separate Buildings
(Photos Required)
Area Zoned: /X/ Commercial / / Industrial / / Residential Square Footage / / 0-250 / / 250-500 / / 500-2,000 /X/ 2,000+
IS THE TYPE AND AMOUNT OF INVENTORY AT THE SITE CONSISTENT WITH THE TYPE OF BUSINESS AND PROJECTED SALES VOLUME? /X/ YES / / NO
If no, explain.
Most Recent 3 Month's Processing Statements Attached: /X/ YES / / NO Accepted Bankcards Before: /X/ YES / / NO
Overall comments by Inspector:____________________________________________________________________________________________________
__________________________________________________________________________________________________________________________________
Please submit at least 2 site photos. Photos must include storefront name and address and inventory.
I hereby certify that I personally visited the above Storefront Address, and that the information contained in this Merchant Site
Survey is correct.
/s/ Steven K. Holt Steven K. Holt 6-25-98
-------------------------- --------------------------- -----------------------
Representative's Signature Representative (Print Name) Date
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST CHARTER BANK N.A.
MERCHANT BANK CARD AGREEMENT
(CONTINUED)
MERCHANT ACCOUNT: / / OPEN SINGLE MERCHANT DDA /X/ VOIDED CHECK ATTACHED FOR ACH DEPOSIT
- -----------------------------------------------------------------------------------------------------------------------------------
MAIL OR TELEPHONE ORDER SALES (COMPLETE IF ANY PORTION OF YOUR SALES ARE GENERATED THROUGH MAIL/TELEPHONE ORDER.)
- -----------------------------------------------------------------------------------------------------------------------------------
PERCENT OF ANNUAL MC/VISA SALES GENERATED THROUGH MAIL ORDER 10 % TELEPHONE ORDER 90 % POS % TOTAL = 100%
------ ------ ----
NUMBER OF DAYS TO PREPARE SHIPMENT FOR DELIVERY TO CUSTOMER FROM DATE OF ORDER 1
-------
PERCENT OF CUSTOMER ORDERS DELIVERED IN 0-7 DAYS 100% 8-14 DAYS 15-30 DAYS % MORE THAN 30 DAYS % = 100%
-------- ----- ----- -----
MC/VISA SALES ARE DEPOSITED (CHECK ONE) / / AT DATE OF ORDER /X/ AT DATE OF DELIVERY / / OTHER
NAME OF FULFILLMENT HOUSE (IF ANY) N/A DELIVERY TIME FRAME N/A
----------------------- --------------------------------------
STREET ADDRESS N/A CITY N/A STATE N/A ZIP N/A
----------------------------------- ----------------------- --------- ---------------------
NAMES OF SHIPPING SERVICE USED N/A DELIVERY TIME FRAME N/A
------------------------------------------- --------------------------------
STREET ADDRESS N/A CITY N/A STATE N/A ZIP N/A
----------------------------------- ----------------------- --------- ---------------------
HOW DO YOU ADVERTISE FOR YOUR MAIL/TELEPHONE ORDER SALES? (CHECK AS APPROPRIATE) / / CATALOG /X/ DIRECT MAIL-LETTER/BROCHURE
/X/ TELEVISION/RADIO
/ / TELEPHONE/TELEMARKETING / / NEWSPAPER/MAGAZINE (SPECIFY NAMES) Bill Boards
-------------------------------------------------------
NOTE: CURRENT COPIES OF THE ABOVE MATERIALS MUST BE ATTACHED.
- -----------------------------------------------------------------------------------------------------------------------------------
REFUND POLICY
- -----------------------------------------------------------------------------------------------------------------------------------
DO YOU HAVE A REFUND POLICY FOR YOUR MASTERCARD/VISA SALES? /X/ YES / / NO
CHECK THE APPLICABLE REFUND POLICY / / CASH / / EXCHANGE / / STORE CREDIT /X/ MASTERCARD/VISA CREDIT
IF MC/VISA CREDIT, WITHIN HOW MANY DAYS DO YOU DEPOSIT CREDIT TRANSACTIONS? 0-3 DAYS X 4-7 DAYS 8-14 DAYS OVER 14 DAYS
--- --- --- ---
- -----------------------------------------------------------------------------------------------------------------------------------
IF THE MERCHANT HAS PREVIOUSLY ACCEPTED CREDIT CARDS, THE LAST 3 MONTHS MERCHANT STATEMENTS MUST BE PROVIDED
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENT CREDIT CARD PROCESSING BANK, IF APPLICABLE
BANK OR PROCESSOR NAME Summit National Bank PHONE # (817) 336-8383
------------------------------------------------------- ------------------------------------
CITY/STATE/ZIP Ft. Worth, TX 76102
-------------------------------------------------------------------------------------------------------------------
REASON FOR CHANGING BANK OR PROCESSOR Lower Rates
---------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
BUSINESS CREDIT REFERENCES
- -----------------------------------------------------------------------------------------------------------------------------------
(1) NAME MFS DataNet, Inc. PHONE (214) 746-5396
------------------------------------------------------------------- --------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
ADDRESS 1950 N. Stemmons Freeway, #5001 CITY/STATE/ZIP Dallas, TX 75207
------------------------------------------------------------------- -----------------------------
CONTACT Steve Stricklin ACCOUNT # N/A
------------------------------------------------------------------- ----------------------------------
(2) NAME S.W. Bell Telephone PHONE (817) 884-8513
------------------------------------------------------------------- --------------------------------------
ADDRESS 1116 Houston Street, Room 606 CITY/STATE/ZIP Ft. Worth, TX
------------------------------------------------------------------- -----------------------------
CONTACT Tolli Lane ACCOUNT # N/A
------------------------------------------------------------------- ----------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
MERCHANT NAME: FlashNet Communications, Inc.
-----------------------------
FIRST CHARTER BANK N.A.
ATTN: ASSISTANT VICE PRESIDENT - BANK CARD DIVISION ADDRESS: 1812 N. Forest Park Blvd.
-----------------------------------
265 NORTH BEVERLY DRIVE
BEVERLY HILLS, CALIFORNIA 90210 CITY, ST. ZIP: Ft. Worth, TX 76102
-----------------------------
CUSTOMER SERVICE: 1-888-222-6868
BANKCARD DIVISION: 1-310-268-1644 "The undersigned merchant certifies, subject
to criminal penalties for false
certification, that all the information set
forth in this Application is true and
correct. The undersigned authorizes Bank
and or its Agents to investigate the
references, obtain credit bureau
information, and to obtain statements from
persons or companies names in this Merchant
Application and Agreement."
BY: SIGNATURE: /s/ Gene B. Elrod
-------------------------------------------------------------------- ----------------------------------
TITLE: NAME (PRINT): GENE B. ELROD
----------------------------------------------------------------- -------------------------------
DATE: TITLE: CFO DATE: 6/29/98
------------------------------------------------------------------ ------------- ---------------
******** NOTICE ******* DO NOT SIGN THIS AGREEMENT WITHOUT READING IT IN TOTAL ******* NOTICE *******
ANY ALTERATION, STRIKEOVER, MODIFICATION OR ADDENDA TO THE PREPRINTED TEXT OR LINE ENTRIES OF THIS MERCHANT BANK CARD AGREEMENT
SHALL BE OF NO EFFECT WHATSOEVER, AND AT BANK'S SOLE DISCRETION, MAY RENDER THIS AGREEMENT INVALID.
GUARANTOR: (DO NOT SIGN WITHOUT READING PARAGRAPH 37)
GUARANTOR SIGNATURE: DATE:
-------------------------------------------------- ---------------------------------------
GUARANTOR SIGNATURE: DATE:
-------------------------------------------------- ---------------------------------------
</TABLE>
<PAGE>
AGREEMENT
This Agreement is entered into effective December 12, 1997, by and
between SUMMIT NATIONAL BANK ("BANK"), 1300 Summit Avenue, Fort Worth, Texas
76102, and WEBSITE MANAGEMENT CO., INC., doing business as FlashNet
Communications ("FLASHNET"), 1812 N. Forest Park Blvd., Fort Worth, Texas
76102. This Agreement amends and restates and replaces in its entirety a
prior agreement between Bank and FlashNet concerning credit card processing.
The Security Agreement among the parties executed simultaneously with such
prior agreement, and the liens and security interests therein granted, are
also hereby terminated and shall no longer be of any further force or effect.
Bank agrees to prepare and submit to FlashNet or FlashNet's designee
termination statements with respect to such liens and security interests on
or before December 17, 1997.
RECITALS
A. FlashNet is an Internet provider. Many of FlashNet's customers
charge the fees payable to FlashNet on credit cards. Bank processes credit
card invoices for FlashNet through First USA. Bank charges FlashNet a fee for
the processing services performed by it (the "FEE").
B. FlashNet's customers may cancel their contract for services within
30 days after initially contracting for such services with FlashNet.
Generally, such cancellations are handled by FlashNet as credit sales. If
FlashNet's customers are not satisfied with the credit process or if a
dispute exists, FlashNet's customers may contest charges made by FlashNet.
Whenever a customer who has made a charge on a credit card processed through
First USA contests the charge, First USA credits the cardholder's account and
charges the amount back to FlashNet by debiting Bank's clearing account at
Bank One, Texas, N.A., Fort Worth, Texas ("BANK ONE"), or by debiting
FlashNet's account at Bank. Those debits are called a "CHARGEBACK" or
collectively the "CHARGEBACKS."
C. Bank and FlashNet desire to enter into this Agreement with respect
to Bank's processing of credit card charges through First USA and to provide
for security to Bank with respect to contingent liabilities that it has
incurred or may incur for Chargebacks.
AGREEMENT
Now therefore, in consideration of the mutual covenants and agreements
of the parties herein contained, and for valuable consideration, the receipt
and sufficiency of which are acknowledged, Bank and FlashNet agree as follows:
1. Whenever Bank's clearing account for credit card processing at Bank
One or FlashNet's account at the Bank is debited by First USA, the amount of
the Chargeback shall immediately be due and payable by FlashNet to Bank to
the extent that available, collected funds are not directly debited from
FlashNet's operating account to cover the Chargeback. All amounts owing under
this paragraph that are not paid when due shall bear interest from the date
that First USA debits the account (or such other date as Bank may pay or
become indebted for a Chargeback) at the rate of 18% per annum until paid.
<PAGE>
2. FlashNet agrees to indemnify and hold harmless Bank from all
liability, loss, damage and expense incurred by Bank with respect to
Chargebacks.
3. The failure of FlashNet to pay Bank the amount of any Chargeback
within five (5) days after notice thereof shall constitute a default
hereunder. Without limitation upon its other remedies, Bank, at its election,
may recoup the amount of any Chargeback from FlashNet's operating checking
account, from any other account of FlashNet with Bank, or from the Reserve
Account provided for below.
4. FlashNet agrees to establish and maintain a reserve account
("RESERVE ACCOUNT") with Bank throughout the period provided herein. The
Reserve Account shall bear interest accruing at a fluctuating rate equal to
Bank's money market rate for similar accounts. The amount of the Reserve
Account shall be determined by Bank monthly on or before the 20th day of each
month. The amount of the Reserve Account shall be equal to:
(a) the product of three (3) times the total of Chargebacks during the
three (3) most-recent calendar months (excluding the month in which the
determination is made); plus
(b) fifteen thousand dollars ($15,000) per month beginning December 31,
1997 and continuing until one (1) year after Bank ceases processing credit
card charges for FlashNet.
The initial Reserve Account is $98,040.21 as of December 1, 1997.
Whenever the Reserve Account is deficient for any reason, FlashNet shall
within five (5) days after notice thereof deposit sums necessary to restore
the Reserve Account to the required level. The failure of FlashNet to do so
shall constitute a default hereunder. Notwithstanding any subsequent decline
in the amount of Chargebacks, FlashNet will not be entitled to withdraw any
sums from the Reserve Account until permitted under Section 8 of this
Agreement. FlashNet further agrees to maintain its primary operating
depository accounts at Bank until Bank releases the Reserve Account pursuant
to Section 8 below.
5. All sums payable by FlashNet to Bank or to the Reserve Account
shall be payable at Bank's office in Fort Worth, Tarrant County, Texas.
6. The Fee will be changed by Bank from time to time, upon written
notice to FlashNet by Bank, without further consent by FlashNet.
7. Bank's agreement to process credit card charges for FlashNet may be
terminated by Bank at any time upon a default under this Agreement or, if no
default, with thirty-days written notice, and will terminate immediately and
automatically upon any sale by FlashNet of all or any substantial portion of
its Internet provider business or assets, or upon the sale by shareholders of
FlashNet of a majority interest in the issued and outstanding voting shares
in FlashNet, or upon foreclosure or conveyance in lieu of foreclosure of a
substantial portion of FlashNet's assets. In addition, this Agreement will
automatically terminate upon a filing by FlashNet of a voluntary petition or
an involuntary petition filed against FlashNet under any applicable
liquidation, conservatorship, receivership, bankruptcy, moratorium,
rearrangement, insolvency,
AGREEMENT - Page 2
<PAGE>
FlashNet's assets. In addition, this Agreement will automatically terminate
upon a filing by FlashNet of a voluntary petition or an involuntary petition
filed against FlashNet under any applicable liquidation, conservatorship,
receivership, bankruptcy, moratorium, rearrangement, insolvency,
reorganization, or similar laws affecting the rights or remedies of creditors
generally, as in effect from time to time. Subject to the obligations of
FlashNet regarding the Reserve Account that remain until Bank releases the
Reserve Account in accordance with Section 8 below, FlashNet may terminate
this Agreement at any time in connection with procurement of credit card
processing services from a third party by giving Bank thirty (30) days prior
written notice thereof.
8. Notwithstanding the termination of Bank's agreement to process
credit card charges for FlashNet (including specifically the termination of
this Agreement by FlashNet), the Reserve Account shall be maintained at the
required level until Bank shall have been released by First USA from any
liability for Chargebacks and any other liability relating to credit card
charges made for FlashNet services, or for a period of two (2) years after
Bank ceases processing credit card charges for FlashNet, whichever comes
first. Upon Bank's release by First USA or the two-year period set forth
above, Bank will release the Reserve Account. No termination of the Reserve
Account shall release FlashNet of its liability to Bank for Chargebacks or
other indebtedness.
9. FlashNet agrees to pay Bank upon demand, for all reasonable
attorneys fees and related expenses incurred by Bank in relation to the
processing of credit card charges for FlashNet or in relation to the
administration or enforcement of this Agreement. Without limitation, FlashNet
shall pay all costs and expenses (including, without limitation, the
reasonable attorneys fees of Bank's legal counsel) in connection with (i) the
preparation of this Agreement, and any subsequent amendments, supplements, or
modifications thereof, (ii) any action reasonably required in the course of
processing of credit card charges, (iii) resolution of any disputes with
FlashNet, First USA, Ascend Communications, Inc., or any other party, related
to this Agreement, and (iv) any action in the enforcement of the Bank's
rights under this Agreement.
10. FlashNet hereby represents to Bank as follows; (a) The execution,
delivery, and performance of this Agreement by FlashNet have been duly
authorized by the FlashNet's board of directors and constitutes a legal,
valid, and binding obligation of FlashNet, enforceable in accordance with its
terms; and (b) the execution, delivery, and performance of this Agreement and
the consummation of the transaction contemplated, do not require the consent,
approval, or authorization of any third party and do not and will not
conflict with, result in a violation of, or constitute a default under (i)
any provision of FlashNet's articles of incorporation or bylaws, or (ii) any
other agreement or instrument binding upon FlashNet, or (iii) any law,
governmental regulation, court decree, or order applicable to FlashNet.
11. FlashNet agrees that it shall (a) (i) maintain its existence in
good standing in the state of its incorporation, maintain its authority to do
business in all other states in which it is required to qualify, and maintain
full legal capacity to perform all its obligations under this
AGREEMENT - Page 3
<PAGE>
Agreement, (ii) continue to operate its business as presently conducted,
(iii) not permit a material change in its ownership, control, or management,
(iv) not permit its dissolution, liquidation, or other termination of
existence or forfeiture of right to do business, and (v) not form any
subsidiary or permit a merger or consolidation or acquire all or
substantially all of the assets of any other entity; and (b) promptly inform
Bank of (i) any and all material adverse changes in FlashNet's financial
condition, (ii) all litigation and claims which could materially affect the
financial condition of FlashNet, (iii) all actual or contingent material
liabilities, (iv) the occurrence of any default under the loans to FlashNet
from Ascend Communications, Inc., or (v) any change in name, identity, or
structure of FlashNet.
12. To the extent that any provision of this Agreement conflicts with
the provisions of the merchant services agreement or any other agreement
between Bank and FlashNet, this Agreement will control.
THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES CONCERNING
THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
SUMMIT NATIONAL BANK
By: /s/ Frank W. Shiels
------------------------------------
Frank W. Shiels, Senior Vice President
WEBSITE MANAGEMENT CO., INC.,
doing business as FlashNet
Communications
By: /s/ M. Scott Leslie
------------------------------------
President
AGREEMENT - Page 4
<PAGE>
NETSCAPE COMMUNICATIONS CORPORATION
NETWORK SERVICE PROVIDER DISTRIBUTION AGREEMENT
COVER SHEET
<TABLE>
<CAPTION>
<S> <C>
Website Management Company, Inc.
d/b/a Flashnet Communications
- ----------------------------------
Full legal name of Network Service NSP is incorporated in the state/
Provider ("NSP") country of Texas
2805 West Seventh Street
- ---------------------------------- If NSP is not a corporation, please
Address of Principal Place of specify form of organization
Business
---------------------------------------------
Ft. Worth TX 76107
- ----------------------------------
City State Zip Nondisclosure Agreement Signed / / Yes /X/ No
Telephone (817) 332-8893 If yes, date unsure if signed
- ---------------------------------- --------------------------------
Fax (817) 332-9594
- ----------------------------------
Name and Description of Internet Access Service
or other network service ("Netscape Service"):
------------------------------------
</TABLE>
Check Applicable: / / Netscape Navigator LAN /X/ Netscape Dial-Up Kit
IMPORTANT NOTICE: THIS NETSCAPE COMMUNICATIONS CORPORATION NETWORK SERVICE
PROVIDER DISTRIBUTION AGREEMENT GIVES YOU THE RIGHT TO MAKE AND DISTRIBUTE
COPIES OF THE NAVIGATOR SOFTWARE CHECKED ABOVE AT THE PRICING SET FORTH IN
ATTACHMENT D HERETO. THE NAVIGATOR SOFTWARE MUST BE OFFERED TO END USERS AS A
PACKAGED PRODUCT WITH YOUR NETWORK SERVICE AND MAY NOT BE OFFERED AS A
STANDALONE PRODUCT. THE NAVIGATOR SOFTWARE IS ONLY TO BE OFFERED TO END
USERS IN THE TERRITORY NOTED BELOW. THE NAVIGATOR SOFTWARE MAY BE OFFERED AS
PACKAGED ABOVE TO END USERS IN THE TERRITORY THROUGH ONE TIER OF RETAIL
DISTRIBUTION. YOU MUST PROVIDE QUARTERLY POINT OF SALE REPORTS TO NETSCAPE.
CAREFULLY REVIEW THE REST OF THIS AGREEMENT FOR OTHER IMPORTANT TERMS.
FAILURE TO COMPLY WITH THIS AGREEMENT MAY RESULT IN TERMINATION.
TERRITORY (Country): United States of America
------------------------------------------------------------
NETWORK SERVICE PROVIDER NETSCAPE COMMUNICATIONS CORPORATION
By: /s/ M. Scott Leslie By: (ILLEGIBLE)
---------------------------------- -------------------------------
Name: M. Scott Leslie Name:
-------------------------------- ---------------------------
Conway (Todd) Rulon-Miller
Title: President Title: VP Sales
-------------------------------- ---------------------------
Date: Feb. 19, 1996 Date of Acceptance: 3/26/96
-------------------------------- -------------
NSP Technical Contract NETSCAPE AUTHORIZED AGENT
Primary: Bryan Smith Company Name:
----------------------------- -------------------
Phone: (817) 332-8883 By:
------------------------------- -----------------------------
Fax: (817) 332-8883 Name:
-------------- --------------------------
e-mail: [email protected]
----------------
Alternate: Everett Harper Title:
--------------------------- --------------------------
Phone: (817) 332-8883 Date:
------------------------------- ---------------------------
Fax: (817) 332-9594
--------------
e-mail [email protected]
------------------
<PAGE>
NETSCAPE COMMUNICATIONS CORPORATION
NETWORK SERVICE PROVIDER DISTRIBUTION AGREEMENT
This Network Service Provider Distribution Agreement ("Agreement") is entered
into by and between Netscape Communications Corporation, a Delaware corporation
("Netscape"), with principal offices at 501 East Middlefield Road, Mountain
View, CA 94043, U.S.A. and the NSP listed and identified on the cover sheet to
this Agreement ("Cover Sheet") as of the date of acceptance by Netscape
("Effective Date") listed on the Cover Sheet.
WHEREAS, NSP markets and provides internet access services or other network
services.
WHEREAS, NSP desires to obtain rights to use and distribute Netscape's
Navigator selected on the Cover Sheet in accordance with the terms and
conditions of this Agreement.
NOW, THEREFORE, the parties agree to the following terms and conditions:
SECTION 1. DEFINITIONS
For purposes of this Agreement, the following terms shall have the following
meanings:
1.1. "Attachment(s)" means the attachments to this Agreement which are
attached hereto and incorporated herein:
1.1.1 Attachment A (End User License Agreement) which sets forth
Netscape's terms and conditions of licensing applicable to an end
user customer.
1.1.2 Attachment B (Maintenance and Support for the Navigator) which sets
forth Netscape's maintenance and support obligations.
1.1.3 Attachment C (Quarterly Point of Sale Report) which sets forth the
form and information NSP must provide to Netscape each quarter.
1.1.4 Attachment D (Navigator Pricing) which sets forth Netscape's pricing
for the current release (as of the Effective Date) of the Navigator
selected on the Cover Sheet by NSP, as amended by Netscape from time
to time.
1.2 "Derivative Work(s)" means a revision, modification, translation,
abridgment, condensation or expansion of the Navigator or Documentation
or any form in which the Navigator or Documentation may be recast,
transferred, or adapted which, if prepared without the consent of
Netscape, would be a copyright infringement.
1.3 "Documentation" means the Navigator user manuals, reference manuals and
installation guides, or portions thereof, which Netscape provides with
the Navigator either in hard copy or electronic copy, as updated by
Netscape from time to time.
1.4 "End User" means any third party licensed by NSP pursuant to this Agreement
to use but not to further distribute, the Navigator except that if such
third party is a corporation or other entity, then "End User" means each
individual within such corporation or entity licensed by NSP pursuant to
this Agreement to use, but not to further distribute, the Navigator.
1.5 "Major and Minor Updates" mean updates, if any, to the Navigator. Any
Minor Update to the Netscape Dial-Up Kit, if generally available, shall
mean a Minor Update to only the Navigator portion of such kit. Major
Updates involve additions of substantial functionality while Minor Updates
do not. Major Updates are designated by a change in the number to the left
of the decimal point of the number appearing after the product name while
Minor Updates are designated by a change in such number to the right of the
decimal point Netscape is the sole determiner of the availability and
designation of an update as a Major or Minor Update. Netscape has no
obligation to provide any Updates under this Agreement. Major Updates
exclude software releases which are reasonably designated by Netscape as
new products. Where used herein "Updates" shall mean Major Updates or
Minor Updates interchangeably.
-1-
<PAGE>
1.6 "NAA" means the applicable Netscape authorized distributor or
value added reseller who has entered into a Netscape Authorized Agent
Agreement with Netscape to act as a Netscape Authorized Agent in
connection with this Agreement solely for administrative purposes on
behalf of Netscape, all in accordance with the terms of the Netscape
Authorized Agent Agreement and this Agreement. All references in this
Agreement to "Netscape/NAA" shall mean the NAA if this Agreement is
entered into among Netscape, NSP and an NAA.
1.7 "Navigator" means the executable version (but not the source code version)
of the web browser software Netscape markets under the name Netscape
Navigator LAN and/or Netscape Dial-Up Kit, as selected on the Cover
Sheet, which Netscape may update and provide hereunder from time to time.
1.8 "Program Errors" means one or more reproducible deviations in the
Navigator from the applicable specifications shown in the Documentation.
1.9 "NSP's Product" means NSP's internet access service or other
network service, as described on the Cover Sheet, with which the
Navigator is bundled and distributed.
SECTION 2. GRANT OF LICENSES AND RIGHTS
2.1 Licenses
2.1.1 License. Subject to the terms and conditions of this Agreement,
Netscape hereby grants to NSP, and NSP hereby accepts, a
nonexclusive and nontransferable right and license, in the
territory set forth on the Cover Sheet (the "Territory"), to (a)
use and reproduce, without change, the Navigator (in executable
form only) on any tangible medium and (b) distribute by
sublicense such Navigator copies solely to End Users in the
Territory and solely when bundled as a packaged product with
NSP's Product, together with the End User License Agreement
attached hereto as Attachment A. NSP may distribute the Navigator
as packaged above either directly to End Users in the Territory
or indirectly to such End Users through one her of retail
distribution. Notwithstanding the foregoing, in the event that
NSP is located in a Member State of the European Union, (i) NSP
shall be entitled to distribute the Navigators, subject to the
terms and conditions contained herein, to End Users located
outside of the Territory but within the European Community, and
(ii) NSP acknowledges that its primary focus shall be on End
Users located in the Territory. Any reproduction pursuant to this
license shall occur only at the location of NSP's principal office
set forth in the Cover Sheet unless an alternate location is
otherwise specified in writing to Netscape. NSP shall not
distribute the Navigator or Documentation as a standalone product
2.1.2 Source Code Restrictions. NSP agrees not to decompile, reverse
engineer, disassemble, or otherwise determine or attempt to
determine source code for the executable code of the Navigator or
to create any Derivative Works based upon the Navigator or
Documentation, and agrees not to permit or authorize anyone else
to do so; provided, however, that if NSP's address set forth on
the Cover Sheet is located within a Member State of the European
Community, then such activities shall be permitted solely to the
extent, if any, permitted by Article 6 of the Council Directive
of 14 May 1991 on the legal protection of computer programs, and
implementing legislation thereunder.
2.1.3 Documentation License. Subject to the terms and conditions of
this Agreement, Netscape hereby grants and NSP hereby accepts a
nonexclusive and nontransferable right and license to (a) use the
Documentation in the Territory, and (b) reproduce the
Documentation without change except as set forth in Section 3.4,
and to distribute the Documentation solely in conjunction with
the Navigator as set forth in Section 2.1.1 above. Such
reproductions shall occur only at NSP's principal office first
set forth above, unless an alternate location is otherwise
specified in writing to Netscape.
2.1.4 Licenses Dependent on Bundling. The licenses granted in Section
2.1.1 are conditional upon marketing and bundling each Navigator
as required therein. If NSP fails to so bundle the Navigators,
the licenses shall be immediately revocable by Netscape in
addition to any other remedies Netscape may have.
2.1.5 Configuration Guide. If NSP has selected the Netscape Dial-Up Kit
on the Cover Sheet, Netscape hereby grants to NSP, and NSP hereby
accepts, a nonexclusive and nontransferable
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right and license, in the Territory, to use (with no right to sub
license) the configuration guide for the Netscape Dial-Up Kit
(the "Configuration Guide") to preconfigure the dial-up
parameters and Netscape preferences specified therein solely for
NSP's Product and for no other network service.
2.2 Export
NSP shall comply fully with all then current applicable laws,
rules and regulations relating to the export of technical data,
including, but not limited to any regulations of the United States
Office of Export Administration and other applicable governmental
agencies and NSP acknowledges that by virtue of certain security
technology embedded in the Navigator, that export of such software
may not be Legal. Netscape agrees to cooperate in providing
information requested by NSP as necessary to obtain any required
licenses and approvals. When distributing the Navigator and
Documentation in countries where an enforceable copyright law
covering the same does not exist, NSP shall obtain a written
agreement signed by the End User prohibiting the End User from
making unauthorized copies of the same.
2.3 Compliance with Laws
2.3.1 At its own expense, NSP shall make, obtain, and
maintain in force at all times during the term of this
Agreement, all applicable filings, registrations,
reports, licenses, permits and authorizations (collectively
"Authorizations") in the Territory in order for NSP to perform
its obligations under this Agreement Netscape/NAA shall provide
NSP with such assistance as NSP may reasonably request in making
or obtaining any such Authorizations. In the event that the
issuance of any Authorization is conditioned upon an amendment
or modification to this Agreement which is unacceptable to
Netscape, Netscape shall have the right to terminate this
Agreement without liability or further obligation whatsoever to
NSP.
2.3.2 NSP shall comply with all laws, regulations and other legal
requirements that apply to this Agreement, including tax and
foreign exchange legislation; advise Netscape/NAA of any
legislation, rule, regulation or other law (including but not
limited to any customs, tax, trade, intellectual property or
tariff law) which is in effect or which may come into effect in
the Territory after the Effective Date of this Agreement and
which affects the importation of the Navigator into, or the use
and the protection of the Navigator and the intellectual property
rights within, the Territory, or which has a material effect on
any provision of this Agreement NSP will provide Netscape/NAA
with the assurances and official documents that Netscape/NAA
periodically may request to verify NSP's compliance with this
subsection.
2.3.3 NSP shall not, together with its employees and agents, in
conformity with the United States Foreign Corrupt Practices Act
and with Netscape's established corporate policies regarding
foreign business practices, directly or indirectly make and offer
payment, promise to pay, or authorize payment, or offer a gift,
promise to give, or authorize the giving of anything of value for
the purpose of influencing an act or decision of an official of
any government within the Territory or of the United States
Government (including a decision not to act) or inducing such a
person to use his influence to affect any such governmental act
or decision in order to assist Netscape in obtaining, retaining
or directing any such business.
2.4 Third Party Licenses. If all or any part of the Navigators
delivered to NSP has been Licensed to Netscape by a third party
software supplier then, notwithstanding anything to the contrary
contained in this Agreement, NSP is granted a sublicense to the third
party software subject to the same terms and conditions as those
contained in the agreement between Netscape and such third party
software supplier. In addition, Netscape reserves the right to
substitute any third party software in the Navigators so long as the
new third party software does not materially affect the functionality
of the Navigators. Netscape represents that current releases of the
Navigators contain no third party software which would require NSP to
agree to any terms and conditions in addition to those set forth in
this Agreement.
SECTION 3. MARKETING AND DISTRIBUTION
3.1 Nonexclusivity. NSP understands that Netscape may enter into arrangements
similar to this Agreement with third parties.
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3.2 Distribution to Government Agencies. NSP agrees to comply with
all applicabLe laws, rules and regulations to preclude the acquisition
of unlimited rights to technical data, software and documentation
provided with the Navigator to a governmental agency, and ensure the
inclusion of the appropriate "Restricted Rights" or "Limited
Rights" notices required by the U.S. Government agencies or other
applicable agencies.
3.3 End User License Agreements. NSP shall distribute the Navigator
to End Users pursuant to the End User License Agreement (wherein
"Licensor" shall mean NSP) attached here to as Attachment A or in
the Post Script file provided with the Documentation. NSP shall use
commercially reasonable efforts to enforce each End User License
Agreement with at least the same degree of diligence used in enforcing
similar agreements governing others, which in any event shall be that
sufficient to adequately enforce such agreements. NSP shall use
commercially reasonable efforts to protect Netscape's copyright, shall
notify Netscape/NAA of any breach of a material obligation of an End
User License Agreement, and will cooperate with Netscape in any legal
action to prevent or stop unauthorized use, reproduction or
distribution of the Navigator.
3.4 Documentation. If NSP has selected the Netscape Dial-Up Kit on
the Cover Sheet, NSP will be permitted to change the Documentation
only to the extent necessary to reflect the preconfigured dial-up
parameters and default preferences in the Getting Started portion of
the Documentation. NSP shall have no right to make any other changes
to the Documentation.
3.5 Not for Export Versions. NSP shall conspicuously mark all
packaging containing Navigators identified by Netscape as not for
export with a "Not for Export" notice.
3.6 Third Party Requirements. In the event that Netscape is required
by a third party software supplier to cease and to cause its licensees
to cease reproduction and distribution of a particular revision of the
Navigator, NSP agrees to comply herewith provided Netscape/NAA
provides NSP with thirty (30) days prior written notice and further
provided Netscape replaces such affected Navigator with a functionally
equivalent Navigator as soon as commercially practicable.
3.7 Indemnification. NSP agrees to indemnify and hold Netscape
harmless from any claims and damages arising out of defective
duplication by NSP of copies of the Navigator and/or Documentation
distributed by NSP. In addition, NSP agrees to indemnify, defend and
hold Netscape harmless from and against any claims arising from or out
of NSP's business activities with its customers pursuant to this
Agreement, including any claims that may arise from NSP's failure to
comply with Section 3.5 above.
3.8 Front-line Support. NSP, and not Netscape/NAA, will provide
front-line, or first and second level, technical support to its End
Users. NSP shall employ at least two (2) fully trained full time
support personnel and provide support five days a week between 8:00 am
to 5:00 pm local time. Such support includes call receipt, entitlement
verification, call screening, installation assistance, problem
identification and diagnosis, product defect determination, efforts to
create a repeatable demonstration of the Program Error and, if
applicable, the distribution of any defective media. NSP agrees that
any documentation or packaging distributed by NSP shall clearly and
conspicuously state that End Users shall call NSP for technical
support for the Navigator and shall not reference Netscape/NAA in any
manner with respect to support. Netscape/NAA will have no obligation to
furnish any assistance, information or documentation with respect to
the Navigator to any End User. If Netscape/NAA customer support
representatives are being contacted by a significant number of End
Users then, upon Netscape's/NAA's request, NSP and Netscape (or NAA)
will cooperate to minimize such contact. In the event Netscape/NAA is
able to identify any End User obtaining front-line support from
Netscape/NAA as a customer of NSP NSP hereby agrees to pay Netscape or
NAA then current charges for such support.
3.9 Updates. Netscape/NAA will provide Minor Updates to NSP as part
of the back-end support described in Attachment B. Major Updates, if
any, will be provided to NSP, or directly by Netscape to End Users, at
Netscape's then current applicable license fee.
SECTION 4. FEES AND PAYMENT
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4.1 License Fees. NSP shall pay to Netscape/NAA, within thirty (30)
days of the date of Netscape's/NAA's invoice, the non-refundable
prepaid license fee associated with the annual volume option
("Tier") selected by NSP as shown on Attachment D ("Prepaid License
Fee"). The Prepaid License Fee shall be credited against the
applicable per copy License fee accruing under this Agreement. Upon
exhaustion of the Prepaid License Fee, NSP shall pay to Netscape/NAA,
within thirty (30) days of the date of Netscape's/NAA's invoice, the
applicable per copy license fee set forth in Attachment D for each
license granted by NSP to End Users in connection with the
distribution of all or any portion of the Navigator and/or Updates.
Netscape/NAA will invoice NSP on a quarterly basis for accrued but
unpaid license fees based on NSF's Quarterly Point of Sale Reports
submitted in accordance with Section 4.3 below. Per copy license fees
will accrue in the applicable corresponding quantity upon: (a) the
initial date of NSP's internal use of a Navigator; (b) distribution,
direct or indirect, by NSP of a Navigator copy to an End User; (c) any
authorization by NSP to increase the authorized number of copies of a
Navigator or Update; and (d) the initial date of NSF's internal use or
distribution by NSP to an End User, direct or indirect, of an Update.
4.2 Payment and Taxes. All payments shall be made in United States
dollars at Netscape's/NAA's address as indicated in this Agreement or
at such other address as Netscape/NAA may from time to time indicate
by proper notice hereunder or by wire transfer to a bank and account
number designated by Netscape/NAA. All fees are exclusive of all
taxes, duties or levies, however designated or computed. NSP shall be
responsible for and pay all taxes based upon the transfer, use or
distribution of the Navigator, or the program storage media, or upon
payments due under this Agreement including, but not limited to,
sales, use or value-added taxes, duties, withholding taxes and other
assessments now or hereafter imposed on or in connection with this
Agreement or with any sublicense granted hereunder, exclusive of taxes
based upon Netscape's (or NAA's) net income. In lieu thereof, NSP
shall provide to Netscape/NAA a tax or other levy exemption
certificate acceptable to the taxing or other levying authority. If
any applicable law requires NSP to withhold amounts from any payments
to Netscape/NAA hereunder, NSP shall effect such withholding, remit
such amounts to the appropriate taxing authorities and promptly
furnish Netscape/NAA with tax receipts evidencing the payments of such
amounts. Any past due amount shall bear interest at the rate of one
percent (1%) per month or the maximum rate allowed by applicable law,
whichever is less, until paid in full.
4.3 Quarterly Point of Sale Reports. NSP shall maintain accurate
records of End Users, including the information (broken down by month)
required in the Quarterly Point of Sale Report attached hereto as
Attachment C, and any further information as Netscape/NAA may from
time to time reasonably request. Irrespective of the Effective Date,
NSP shall submit Quarterly Point of Sale Reports electronically in
ASCII tab or comma delimited fields format to Netscape/NAA on March
10, June 10, September 10 and December 10 of each year for the
quarters December through February, March through May, June through
August, and September through November, respectively.
4.4 Audit of Records. NSP shall keep and maintain full, true, and
accurate records containing all data reasonably required, for
verification of NSP's compliance with the terms of this Agreement,
amounts to be paid, and the quantity of Navigator and/or Updates
distributed. Netscape and NAA each shall have the right, during normal
business hours upon at least five (5) business days prior notice, to
direct its auditors to audit and analyze the relevant records of NSP
to verify compliance with the provisions of this Agreement. The audit
shall be conducted at Netscape's (or NAA's) expense unless there is
inadequate record keeping or the results of such audit establish that
inaccuracies in the Quarterly Point of Sale Reports have resulted in
underpayment to Netscape/NAA of more than five percent (5%) of the
amount actually due in any quarter, in which case NSP shall pay any
additional license fees resulting from the audit and bear the expenses
of the audit.
SECTION 5. DELIVERABLES, UPDATES, AND TECHNICAL SUPPORT
Upon receipt by Netscape/NAA of the Prepaid License Fee, Netscape/NAA
shall provide NSP with one (1) gold master of the release of the
Navigator as of the Effective Date (as selected on the Cover Sheet)
and the applicable Documentation as of the Effective Date
("Deliverables"). If NSP has selected the Netscape Dial-Up Kit on
the Cover Sheet, NSP will receive, in addition to the Deliverables,
the Configuration Guide. All deliveries under this Agreement shall
be F.C.A. Netscape, Freemont,
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California, U.S.A. or F.C.A. NAA origin, as applicable. "F.C.A."
means Free Carrier Alongside and shall have the definition set forth
in INCOTERMS 1990. Netscape/NAA shall provide NSP with maintenance and
support upon the terms and conditions specified in Attachment B hereto.
SECTION 6. TRADEMARKS AND TRADE NAMES
NSP shall use, and is hereby granted a non-transferable and
non-exclusive restricted license to use in the Territory with no right
to sublicense, "Netscape Navigator Included" in any advertising,
marketing, technical, packaging or other materials related to the
Navigator which are distributed by NSP in connection with this
Agreement in accordance with Netscape's then current trademark usage
guidelines to be provided and updated by Netscape from time to time.
Other than the use of "Netscape Navigator included," NSP shall not
use "Netscape" or "Netscape Navigator" or "Personal Edition" in
any NSP advertising, marketing collateral and/or packaging relating
to NSP's Product. NSP need not use Netscape's trademarks and trade
names in any country in which their connotation is offensive and will
consult with Netscape as to the foreign translation of Netscape
trademarks and trade names so that Netscape can help ensure uniformity
with their use by Netscape or third parties. NSP shall clearly
indicate Netscape's ownership of such trademarks or trade names. All
such usage shall inure to Netscape's benefit. NSP agrees not to
register any Netscape trademarks or trade names without Netscape's
express prior written consent. Upon Netscape's/NAA's request from time
to time NSP agrees to provide Netscape/NAA with copies of goods
bearing Netscape's trademarks and trade names so that Netscape can
ensure that the quality of NSP's use of Netscape's trademarks and trade
names are comparable to the quality of Netscape's use thereof. NSP
shall suspend use of Netscape trademarks and trade names if such
quality is reasonably deemed inferior by Netscape until NSP has taken
such steps as Netscape may reasonably require to solve the quality
deficiencies.
SECTION 7. PROPRIETARY RIGHTS
7.1 Proprietary Rights. Title to and ownership of the Navigator
software and Documentation whether in machine-readable or printed
form, and including, without limitation, Derivative Works,
compilations, or collective works thereof and all related technical
know-how and all rights therein (including without limitation rights
in patents, copyrights, and trade secrets applicable thereto), are and
shall remain the exclusive property of Netscape and/or its suppliers.
NSP shall not take any action to jeopardize, limit or interfere in any
manner with Netscape's ownership of and rights with respect to the
Navigator and Documentation. NSP shall have only those rights in or to
the Navigator and Documentation granted to it pursuant to this
Agreement.
7.2 PROPRIETARY NOTICES
7.2.1 No Alteration of Notices. NSP and its employees and
agents shall not remove or alter any trademark, trade name,
copyright, or other proprietary notices, legends, symbols, or
labels appearing on or in copies of the Navigator and
Documentation delivered to NSP by Netscape/NAA and shall use the
same notices, legends, symbols, or labels in and on copies of
the Navigator and Documentation made pursuant to Sections 2.1.1
and 2.1.3 as are contained in and on the master copy.
7.2.2 Notice. Each portion of the Navigator and Documentation reproduced
by NSP shall include the intellectual property notice or notices
appearing in or on the corresponding portion of such materials as
delivered by Netscape/NAA hereunder. NSP shall ensure that all
copies of the Navigator made pursuant to this Agreement
conspicuously display a notice substantially in the following form:
Copyright -C- 1994 Netscape Communications Corporation.
All Rights Reserved.
If NSP is unsure of the appropriate year(s), it shall consult
Netscape/NAA to obtain the correct designation. Such notice
shall be on labels on all media containing the Navigator. If the
copyright symbol "-C-" cannot technically be reproduced, NSP
shall use the word "Copyright" followed by the notation
"(c)" in its place.
SECTION 8. CONFIDENTIAL INFORMATION AND DISCLOSURE
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8.1 Confidential Information. The parties agree that all disclosures of
confidential and/or proprietary information relating to this Agreement
shall be governed by the Nondisclosure Agreement identified on the Cover
Sheet. If there is no Nondisclosure Agreement identified on the Cover
Sheet, then for purposes of this Agreement "Confidential Information" shall
mean Netscape information of a confidential and/or proprietary nature
including, without limitation, computer programs, code, algorithms, names
and expertise of employees and consultants, know-how, formulas, processes,
ideas, inventions (whether patentable or not), schematics and other
technical, business, financial and product development plans, forecasts,
strategies and information of like nature. NSP agrees to take all
reasonable precautions, but in no event less than due and reasonable care,
to prevent any unauthorized disclosure or use of Confidential Information
including, without limitations disclosing Confidential Information only to
its employees (a) with a need to know to further permitted uses of such
information hereunder and (b) who are parties to appropriate agreements
sufficient to comply with this Section 8, and (c) who are informed of the
nondisclosure/non-use obligations imposed by this Section 8. The foregoing
restrictions on disclosure and use shall survive for three (3) years
following any termination of this Agreement, but shall not apply to any
information which through no fault of NSP becomes publicly available.
8.2 Confidentiality of Agreement. Unless required by law, and except to assert
its rights hereunder or for disclosures to its own employees on a "need to
know" basis, both parties agrees not to disclose the terms of this
Agreement or matters relating thereto without the prior written consent of
the other party, which consent shall not be unreasonably withheld.
SECTION 9. WARRANTIES
9.1. Limited Warranty. Subject to the limitations set forth in this Agreement,
Netscape warrants only to NSP that the Navigator when properly adapted,
installed, and used will substantially conform to the specifications in the
Documentation in effect when the Navigator is shipped to NSP. Netscape's
warranty and obligation shall extend for a period of ninety (90) days
("Warranty Period") from the date the Navigator is shipped to NSP. All
warranty claims not made in writing or not received by Netscape/NAA within
this 90-day period shall be deemed waived. Netscape's warranty and
obligation is solely for the benefit of NSP, who has no authority to
extend this warranty to any other person or entity. NETSCAPE MAKES NO
WARRANTY THAT ALL ERRORS OR FAILURES WILL BE CORRECTED.
9.2 EXCLUSIVE WARRANTY. THE EXPRESS WARRANTY SET FORTH IN SECTION 9.1
CONSTITUTES THE ONLY WARRANTY MADE BY NETSCAPE. NETSCAPE MAKES NO OTHER
REPRESENTATION OR WARRANTY OF ANY KIND WHETHER EXPRESS OR IMPLIED (EITHER
IN FACT OR BY OPERATION OF LAW) WITH RESPECT TO THE NAVIGATOR OR
DOCUMENTATION, INCLUDING BUT NOT LIMITED TO THE WARRANTIES OR CONDITIONS OF
MERCHANTABILITY, NONINFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE.
NETSCAPE DOES NOT WARRANT THAT THE NAVIGATOR IS ERROR-FREE OR THAT
OPERATION OF THE NAVIGATOR WILL BE SECURE OR UNINTERRUPTED AND HEREBY
DISCLAIMS ANY AND ALL LIABILITY ON ACCOUNT THEREOF. SOME JURISDICTIONS DO
NOT ALLOW LIMITATIONS ON HOW LONG AN IMPLIED WARRANTY LASTS, SO THE ABOVE
LIMITATION MAY NOT APPLY TO NSP.
9.3 Defects Not Covered by Warranties. Netscape shall have no obligations under
the warranty provisions set forth in Section 9.1 if any nonconformance is
caused by: (a) NSP's incorporation, attachment or otherwise engagement of
any attachment, feature, program, or device to the Navigator, or any part
thereof; or (b) accident; transportation; neglect or misuse; alteration,
modification, or enhancement of the Navigator by NSP; failure to provide a
suitable installation environment; use of supplies or materials not meeting
specifications; use of the Navigator for other than the specific purpose
for which the Navigator is designed; use of the Navigator on any systems
other than the specified hardware platform for such Navigator; or NSP's
use of defective media or defective duplication of the Navigator.
9.4 Exclusive Remedy. If NSP finds what it believes to be errors or a failure
of the Navigator to meet specifications which significantly affects
performance, and provides Netscape/NAA with a written report during the
Warranty Period, Netscape/NAA will use reasonable efforts to correct
promptly, at no
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charge to NSP, any such errors or failures. This is NSP's sole and
exclusive remedy for breach of any express or implied warranties
hereunder.
SECTION 10. LIMITATION OF LIABILITY
IN NO EVENT SHALL NETSCAPE OR ITS SUPPLIERS (INCLUDING NAA) BE LIABLE FOR
ANY LOSS OF PROFITS, LOSS OF BUSINESS, LOSS OF USE OR DATA, INTERRUPTION OF
BUSINESS, OR FOR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY KIND, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
NEITHER NETSCAPE NOR ITS SUPPLIERS (INCLUDING NAA) SHALL BE LIABLE FOR ANY
CLAIM AGAINST NSP BY ANY END USER OR THIRD PARTY. IN NO EVENT WILL NETSCAPE
(INCLUDING NAA) BE LIABLE FOR (a) ANY REPRESENTATION OR WARRANTY MADE TO
ANY END USER OR THIRD PARTY BY NSP, OR ANY AGENT OF NSP; (b) FAILURE OF THE
NAVIGATOR TO PERFORM EXCEPT AS, AND TO EXTENT, OTHERWISE EXPRESSLY PROVIDED
HEREIN; (c) FAILURE OF THE NAVIGATOR TO PROVIDE SECURITY; (d) ANY USE OF
THE NAVIGATOR OR THE DOCUMENTATION; OR (e) THE RESULTS OR INFORMATION
OBTAINED OR DECISIONS MADE BY END USERS OF THE NAVIGATOR OR THE
DOCUMENTATION. THE REMEDIES PROVIDED IN THIS AGREEMENT ARE NSP'S SOLE AND
EXCLUSIVE REMEDIES. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, NETSCAPE'S (INCLUDING NAA'S) ENTIRE LIABILITY TO NSP FOR DAMAGES
CONCERNING PERFORMANCE OR NONPERFORMANCE BY NETSCAPE (INCLUDING NAA) OR IN
ANY WAY RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT, AND REGARDLESS OF
WHETHER THE CLAIM FOR SUCH DAMAGES IS BASED IN CONTRACT OR IN TORT, SHALL
NOT EXCEED THE AMOUNT RECEIVED BY NETSCAPE (INCLUDING NAA) FROM NSP DURING
THE TWELVE (12) MONTHS PRIOR TO SUCH CLAIM. SOME JURISDICTIONS DO NOT ALLOW
THE EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE
ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO NSP.
TERM OF AGREEMENT
Unless sooner terminated under the provisions of Section 12, or otherwise
rightfully terminated: (a) this Agreement shall remain in effect for a
period of one (1) year from the Effective Date; and (b) thereafter, it
shall automatically renew for successive one (1) year terms if during the
immediately preceding twelve (12) months NSP has paid Netscape (including
NAA) for at least the minimum number of copies of the Navigator in the
Tier. For any renewal, NSP has the option to renew at the Tier's per copy
license fee and prepaid license fee or a higher-volume tier. After the
initial one (1) year term of this Agreement, either party may terminate
this Agreement for convenience upon at least sixty (60) days prior written
notice.
SECTION 12. DEFAULT AND TERMINATION
12.1 Termination for Default. If either party defaults in any of its obligations
under this Agreement, the non-defaulting party, at its option shall have
the right to terminate this Agreement by written notice unless, within
thirty (30) calendar days after written notice of such default, the
defaulting party remedies the default, or, in the case of a default which
cannot with due diligence be cured within a period of thirty (30) calendar
days, the defaulting party institutes within the thirty (30) calendar days
steps necessary to remedy the default and thereafter diligently prosecutes
the same to completion. This Agreement may be terminated immediately by
Netscape or NAA in the event of any breach of Sections 2.1 or 8 hereof.
12.2 Bankruptcy. Either party shall have the right to automatically terminate
this Agreement if the other party ceases to do business in the normal
course, becomes or is declared insolvent or bankrupt, is the subject of any
proceeding relating to its liquidation or insolvency which is not dismissed
within ninety (90) calendar days, or makes an assignment for the benefit of
its creditors.
12.3 Effect on Rights
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12.3.1 Termination of this Agreement by either party shall not act as a
waiver of any breach of this Agreement and shall not act as a
release of either party from any liability for breach of such
party's obligations under this Agreement.
12.3.2 Except as specified in Sections 12.4 and 12.5 below, upon
termination or expiration of this Agreement, all licenses for the
Navigator and Documentation granted under this Agreement shall
terminate.
12.3.3 Except where otherwise specified, the rights and remedies granted
to a party under this Agreement are cumulative and in addition
to, and not in lieu of, any other rights or remedies which the
party may possess at law or in equity, including without
limitation rights or remedies under applicable patent, copyright,
trade secrets, or proprietary rights laws, rules or regulations.
12.4 Return or Destruction of Navigator. Within thirty (30) calendar days after
termination of this Agreement, NSP shall either deliver to Netscape/NAA or
destroy all copies of the Navigator and Documentation (except as provided
in Section 12.5) and any other materials provided by Netscape/NAA to NSP
hereunder in its possession or under its control, and shall furnish to
Netscape/NAA an affidavit signed by an officer of NSP certifying that, to
the best of its knowledge, such delivery or destruction has been fully
effected. Notwithstanding the foregoing, and provided NSP fulfills its
obligations specified in this Agreement with respect to such items, NSP may
continue to use and retain copies of the Navigator and Documentation to the
extent, but only to the extent, necessary to support Navigators rightfully
distributed to End Users by NSP prior to termination of this Agreement.
12.5 Continuing Obligations
12.5.1 Payment of Accrued Fees. Within thirty (30) calendar days of
termination of this Agreement, NSP shall pay to Netscape/NAA all
sums then due and owing. Any other such sums shall subsequently
be promptly paid as they become due and owing.
12.5.2 Continuance of Sublicenses. Notwithstanding the termination of
this Agreement, all End User sublicenses which have been properly
granted by NSP pursuant to this Agreement prior to its
termination shall survive subject to compliance with their terms
and conditions.
12.5.3 Other Continuing Obligations. Any termination of this Agreement
will be without prejudice to any other rights or remedies of the
parties under this Agreement or at law and will not affect any
accrued rights or liabilities of either party at the date of
termination.
SECTION 13. GENERAL PROVISIONS
13.1 Notices. Any notice, request, demand, or other communication required or
permitted hereunder shall be in writing and shall be deemed to be properly
given upon the earlier of (a) actual receipt by the addressee or (b) five
(5) business days after deposit in the mail, postage prepaid, when mailed
by registered or certified airmail, return receipt requested, or two (2)
business days after being sent via private industry courier to the
respective parties at the addresses set forth in the Cover Sheet or to such
other person or address as the parties may from time to time designate in a
writing delivered pursuant to this Section 13.1. Notices to Netscape shall
be to the attention of: Legal Department.
13.2 Waiver and Amendment. The waiver by either party of a breach of or a
default under any provision of this Agreement, shall not be construed as a
waiver of any subsequent breach of the same or any other provision of the
Agreement, nor shall any delay or omission on the part of either party to
exercise or avail itself of any right or remedy that it has or may have
hereunder operate as a waiver of any right or remedy. No amendment or
modification of any provision of this Agreement shall be effective
unless, in writing and signed by a duly authorized signatory of Netscape
and NSP.
13.3 Assignment. This Agreement and the licenses granted hereunder are to a
specific legal entity or legal person, not including corporate subsidiaries
or affiliates of NSP, and are not assignable by NSP, nor are the
obligations imposed or NSP delegable. Any attempt to sublicense (except as
expressly permitted herein) assign or transfer any of the rights, duties or
obligations under this Agreement in derogation hereof shall be null and
void.
13.4 Governing Law. This Agreement is entered into in the State of California,
U.S.A., and shall be governed by and construed in accordance with the laws
of the State of California, U.S.A., without reference to its
-9-
<PAGE>
conflicts of law provisions. Any dispute regarding this Agreement
shall be subject to the exclusive jurisdiction of the California
state courts in and for Santa Clara County, California, U.S.A. (or,
if there is exclusive federal jurisdiction, the United States
District Court for the Northern District of California), and the
parties agree to submit to the personal and exclusive jurisdiction
and venue of these courts. This Agreement will not be governed by the
United Nations Convention of Contracts for the International Sale of
Goods, the application of which is hereby expressly excluded.
13.5 Relationship of the Parties. No agency, partnership, joint venture,
or employment is created as a result of this Agreement and neither
NSP nor its agents have any authority of any kind to bind Netscape or
NAA in any respect whatsoever. Notwithstanding NAA's designation,
however, NSP acknowledges that NAA is not authorized to bind
Netscape or waive any conditions of this Agreement without Netscape's
express written consent.
13.6 Captions and Section Heading. The captions and section and paragraph
headings used in this Agreement are inserted for convenience only and
shall not affect the meaning or interpretation of this Agreement.
13.7 Severability. If the application of any provision or provisions of
this Agreement to any particular facts of circumstances shall be held
to be invalid or unenforceable by any court of competent
jurisdiction, then (a) the validity and enforceability of such
provision or provisions as applied to any other particular facts or
circumstances and the validity of other provisions of this Agreement
shall not in any way be affected or impaired thereby and (b) such
provision or provisions shall be reformed without further action by
the parties hereto to and only to the extent necessary to make such
provision or provisions valid and enforceable when applied to such
particular facts and circumstances.
13.8 Force Majeure. Either party shall be excused from any delay or
failure in performance hereunder, except the payment of monies by NSP
to Netscape/NAA, caused by reason of any occurrence or contingency
beyond its reasonable control, including but not limited to, acts of
God, earthquake, labor disputes and strikes, riots, war, novelty of
product manufacture or other unanticipated product development
problems, and governmental requirements. The obligations and rights
of the party so excused shall be extended on a day-to-day basis for
the period of time equal to that of the underlying cause of the delay.
13.9 Entire Agreement. This Agreement, including the Attachments hereto
and any Nondisclosure Agreement referenced on the Cover Sheet,
constitutes the entire agreement between the parties concerning the
subject matter hereof and supersedes all proposals or prior
agreements whether oral or written, and all communications between
the parties relating to the subject matter of this Agreement and all
past courses of dealing or industry custom. The terms and conditions
of this Agreement shall prevail, notwithstanding any variance with
any purchase order or other written instrument submitted by NSP,
whether formally rejected by Netscape/NAA.
13.10 English. This Agreement is in the English language only, which
language shall be controlling in all respects, and all versions
hereof in any other language shall not be binding on the parties
hereto. All communications and notices to be made or given pursuant
to this Agreement shall be in the English language. Les parties aux
presentes confirment leur volonte que cette convention de meme que
tous les documents y compris tout avis qui s'y rattache, soient
rediges en langue anglaise.
-10-
<PAGE>
13.11 France. If the Territory includes France, NSP acknowledges that under
French law as of the Effective Date, the importation, distribution
and/or use in France of certain Netscape products may not be
permitted, and NSP is not relying upon any such importation,
distribution or use in entering into this Agreement or in fulfillment
of its obligations herein.
AUTHORIZED SIGNATURES In order to bind the parties to this Agreement,
their duly authorized representatives have executed the Cover Sheet to
this Agreement.
SHIP TO ADDRESS FOR DELIVERABLES: BILL TO ADDRESS:
FLASHNET COMMUNICATIONS SAME
- --------------------------------- -------------------------
2805 W. SEVENTH ST.
- --------------------------------- -------------------------
FT. WORTH, TX 76107
- --------------------------------- -------------------------
Attention: /s/ Scott Leslie Attention: /s/ Bobbi Villaereal
----------------------- ------------------------
Telephone: (817) 332-8883 Telephone: (817) 332-8883
----------------------- ------------------------
Netscape or NAA Sales Rep: /s/ Julie Kim
----------------------
Tel: (415) 528-2971
----------------------------------------------
-11-
<PAGE>
ATTACHMENT A
END USER LICENSE AGREEMENT
BY OPENING THE PACKAGE OR CLICKING ON THE "ACCEPT" BUTTON, YOU ARE CONSENTING
TO BE BOUND BY AND ARE BECOMING A PARTY TO THIS AGREEMENT. IF YOU DO NOT
AGREE TO ALL OF THE TERMS OF THIS AGREEMENT, CLICK THE "DO NOT ACCEPT" BUTTON
OR RETURN THIS PRODUCT TO THE PLACE OF PURCHASE FOR A FULL REFUND.
NETSCAPE NAVIGATOR END USER LICENSE AGREEMENT
GRANT. Licensor hereby grants to you a non-exclusive license to use its
accompanying software product ("Software") and accompanying documentation
("Documentation") on the following terms:
You may:
use the Software on any single computer;
use the Software on a second computer so long as the first and second
computers are not used simultaneously; or
copy the Software for archival purposes, provided any copy must contain all
of the original Software's proprietary notices.
You may not
permit other individuals to use the Software except under the terms listed
above;
modify, translate, reverse engineer, decompile, disassemble (except to the
extent applicable laws specifically prohibit such restriction), or create
derivative works based on the Software or Documentation;
copy the Software or Documentation (except for back-up purposes);
rent, lease, transfer or otherwise transfer rights to the Software or
Documentation; or
remove any proprietary notices or labels on the Software or Documentation.
SOFTWARE. If you receive your first copy of the Software electronically, and
a second copy on media, the second copy may be used for archival purposes
only. This license does not grant you any right to any enhancement or update.
TITLE. Title, ownership rights, and intellectual property rights in and to
the Software and Documentation shall remain in Licensor and/or its suppliers.
The Software is protected by the copyright laws of the United States and
international copyright treaties. Title, ownership rights, and intellectual
property rights in and to the content accessed through the Software is the
property of the applicable content owner and may be protected by applicable
copyright or other law. This License gives you no rights to such content.
LIMITED WARRANTY. Licensor warrants that for a period of ninety (90) days
from the date of acquisition, the Software, if operated as directed, will
substantially achieve the functionality described in the Documentation.
Licensor does not warrant, however, that your use of the Software will be
uninterrupted or that the operation of the Software will be error-free or
secure. In addition, the security mechanism implemented by the Software has
inherent limitations, and you must determine that the Software sufficiently
meets your requirements. Licensor also warrants that the media containing the
Software, if provided by Licensor, is free from defects in material and
workmanship and will so remain for ninety (90) days from the date you
acquired the Software. Licensor's sole liability for any breach of this
warranty shall be, in Licensor's sole discretion: (i) to replace your
defective media; or (ii) to advise you how to achieve substantially the same
functionality with the Software as described in the Documentation through a
procedure different from that set forth in the Documentation; or (iii) if the
above remedies are impracticable, to refund the license fee you paid for the
Software. Repaired, corrected, or replaced Software and Documentation shall
be covered by this limited warranty for the period remaining under the
warranty that covered the original Software, or if longer, for thirty (30)
days after the date (a) of shipment to you of the repaired or replaced
Software, or (b) Licensor advised you how to operate the Software so as to
achieve the functionality described in the Documentation. Only if you inform
Licensor of your problem with the Software during the applicable warranty
period and provide evidence of the date you acquired the Software
-12-
<PAGE>
will Licensor be obligated to honor this warranty. Licensor will use
reasonable commercial efforts to repair, replace advise or refund pursuant to
the foregoing warranty within 30 days of being so notified.
THIS IS A LIMITED WARRANTY AND IT IS THE ONLY WARRANTY MADE BY LICENSOR.
LICENSOR MAKES NO OTHER EXPRESS WARRANTY AND NO WARRANTY OF NONINFRINGEMENT
OF THIRD PARTIES' RIGHTS. THE DURATION OF IMPLIED WARRANTIES, INCLUDING
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A
PARTICULAR PURPOSE, IS LIMITED TO THE ABOVE LIMITED WARRANTY PERIOD; SOME
STATES DO NOT ALLOW LIMITATIONS ON HOW LONG AN IMPLIED WARRANTY LASTS, SO
LIMITATIONS MAY NOT APPLY TO YOU. NO LICENSOR DEALER, AGENT, OR EMPLOYEE IS
AUTHORIZED TO MAKE ANY MODIFICATIONS, EXTENSIONS, OR ADDITIONS TO THIS
WARRANTY. If any modifications are made to the Software by you during the
warranty period; if the media is subjected to accident, abuse, or improper
use; or if you violate the terms of this Agreement, then this warranty shall
immediately be terminated. This warranty shall not apply if the Software is
used on or in conjunction with hardware or Software other than the unmodified
version of hardware and Software with which the Software was designed to be
used as described in the Documentation.
THIS WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS, AND YOU MAY HAVE OTHER LEGAL
RIGHTS THAT VARY FROM STATE TO STATE OR BY JURISDICTION.
LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY,
TORT, CONTRACT, OR OTHERWISE, SHALL LICENSOR OR ITS SUPPLIERS OR RESELLERS BE
LIABLE TO YOU OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES OF ANY CHARACTER INCLUDING, WITHOUT LIMITATION, DAMAGES
FOR LOSS OF GOODWILL, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY
AND ALL OTHER COMMERCIAL DAMAGES OR LOSSES, OR FOR ANY DAMAGES IN EXCESS OF
LICENSOR'S LIST PRICE FOR A LICENSE TO THE SOFTWARE AND DOCUMENTATION, EVEN
IF LICENSOR SHALL HAVE BEEN INFORMED OF THE POSSIBILITY OF SUCH DAMAGES, OR
FOR ANY CLAIM BY ANY OTHER PARTY. THIS LIMITATION OF LIABILITY SHALL NOT
APPLY TO LIABILITY FOR DEATH OR PERSONAL INJURY TO THE EXTENT APPLICABLE LAW
PROHIBITS SUCH LIMITATION. FURTHERMORE, SOME STATES DO NOT ALLOW THE
EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THIS
LIMITATION AND EXCLUSION MAY NOT APPLY TO YOU.
TERMINATION. This license will terminate automatically if you fail to comply
with the limitations described above. On termination, you must destroy all
copies of the Software and Documentation.
EXPORT CONTROLS. None of the Software or underlying information or technology
may be downloaded or otherwise exported or reexported (i) into (or to a
national or resident of) Cuba, Iraq, Libya, North Korea, Yugoslavia, Iran,
Syria or any other country to which the U.S. has embargoed goods; or (ii) to
anyone on the U.S. Treasury Department's list of Specially Designated
Nationals or the U.S. Commerce Department's Table of Denial Orders. By
downloading or using the Software, you are agreeing to the foregoing and you
are representing and warranting that you are not located in, under the
control of, or a national or resident of any such country or on any such list.
In addition, if the licensed Software is identified as a not-for-export
product (for example, on the box, media or in the installation process), then
the following applies: EXCEPT FOR EXPORT TO CANADA FOR USE IN CANADA BY
CANADIAN CITIZENS, THE SOFTWARE AND ANY UNDERLYING TECHNOLOGY MAY NOT BE
EXPORTED OUTSIDE THE UNITED STATES OR TO ANY FOREIGN ENTITY OR "FOREIGN
PERSON" AS DEFINED BY U.S. GOVERNMENT REGULATIONS, INCLUDING WITHOUT
LIMITATION, ANYONE WHO IS NOT A CITIZEN, NATIONAL OR LAWFUL PERMANENT
RESIDENT OF THE UNITED STATES. BY DOWNLOADING OR USING THE SOFTWARE, YOU ARE
AGREEING TO THE FOREGOING AND YOU ARE WARRANTING THAT YOU ARE NOT A "FOREIGN
PERSON" OR UNDER THE CONTROL OF A FOREIGN PERSON.
MISCELLANEOUS. This Agreement represents the complete agreement concerning
this license between the parties and supersedes all prior agreements and
representations between them. It may be amended only by a writing executed by
both parties. THE ACCEPTANCE OF ANY PURCHASE ORDER PLACED BY YOU IS EXPRESSLY
MADE CONDITIONAL ON YOUR ASSENT TO THE TERMS SET FORTH HEREIN, AND NOT
-13-
<PAGE>
THOSE CONTAINED IN YOUR PURCHASE ORDER. If any provision of this Agreement is
held to be unenforceable for any reason, such provision shall be reformed only
to the extent necessary to make it enforceable. This Agreement shall be
governed by and construed under California law as such law applies to
agreements between California residents entered into and to be performed
within California, except as governed by Federal law. The application of the
United Nations Convention of Contracts for the International Sale of Goods is
expressly excluded.
U.S. Government Restricted Rights. Use, duplication or disclosure by the U.S.
Government is subject to restrictions set forth in subparagraphs (a) through
(d) of the Commercial Computer-Restricted Rights clause at FAR 52.227-19 when
applicable, or in subparagraph (c)(1)(ii) of the Rights in Technical Data and
Computer Software clause at DFARS 252.227-7013, and in similar clauses in the
NASA FAR Supplement. Contractor/manufacturer is Netscape Communications
Corporation, 501 East Middlefield Road, Mountain View, CA 94043.
-14-
<PAGE>
ATTACHMENT B
MAINTENANCE AND SUPPORT FOR THE NAVIGATOR
1. MAINTENANCE/MINOR UPDATES. Netscape/NAA will provide to NSP any Minor
Updates made generally available during the term of this Agreement. NSP shall
refer End Users and its retail distributors desiring Minor Updates to the
Netscape FTP (File Transfer Protocol) site. If such FTP site is not
accessible, then NSP and not Netscape/NAA will be responsible for providing
Minor Updates to its End Users and retail distributors. The expenses of any
such distribution will be paid by NSP. NSP and Netscape (or NAA) will
favorably consider electronic or alternative dissemination methods of such
Minor Updates to the extent consistent with policies of both companies. NSP
and Netscape (or NAA) agree to discuss monthly support issues and processes.
2. TECHNICAL SUPPORT. Netscape/NAA will provide NSP with Netscape's/NAA's
backend technical support services as further described herein.
a. BACK-END SUPPORT. Netscape/NAA will provide back-end support to NSP for
Program Errors not resolved by NSP pursuant to NSP's support policies and
in accordance with Section 3.8 of the Agreement. This support includes
efforts to identify defective source code and to provide corrections,
workarounds and/or patches to correct Program Errors. Netscape/NAA will
provide NSP with a telephone number and an e-mail address which NSP may use
to report Program Errors during Netscape's local California business hours
(8am - 5pm Pacific Standard Time) or NAA's local business hours (8am - 5pm
local time), as applicable. For priority 1 or 2 failures, NSP agrees to
notify Netscape/NAA via both telephone and e-mail. NSP will identify one
(1) member of its customer support staff and an alternate to act as the
primary technical liaisons responsible for all communications with
Netscape's/NAA's technical support representatives. Such liaisons will have
sufficient technical expertise, training and/or experience for NSP to
perform its obligations hereunder. NSP will designate its liaison(s) on the
Cover Sheet, and may substitute contacts at any time by providing one (1)
week's prior written and/or electronic notice thereof to Netscape/NAA.
Netscape/NAA will make reasonable efforts to correct significant Program
Errors that NSP identifies, classifies and reports to Netscape/NAA and that
Netscape/NAA substantiates. Netscape/NAA may reclassify Program Errors if
it reasonably believes that NSP's classification is incorrect. NSP will
provide sufficient information for Netscape/NAA to enable Netscape/NAA to
duplicate the Program Error before Netscape's/NAA's response obligations
will commence. Netscape/NAA will not be required to correct any Program
Error caused by (a) NSP's incorporation, attachment of a feature, program,
or device to the Navigator, or any part thereof; (b) any non-conformance
caused by accident, transportation, neglect, misuse, alteration,
modification, or enhancement of the Navigator; (c) the failure to provide a
suitable installation environment; (d) use of the Navigator for other than
the specific purpose for which the Navigator is intended; (e) use of the
Navigator on any systems other than the specified hardware platform for
such Navigator; (f) NSP's use of defective media or defective duplication
of the Navigator; or (g) NSP's failure to incorporate any Minor Update
previously released by Netscape which corrects such Program Error.
Netscape/NAA will use reasonable commercial efforts to resolve each
significant Program Error by providing either a reasonable workaround, an
object code patch or a specific action plan for how Netscape/NAA will
address the problem and an estimate of how long it will take to rectify the
defect. Netscape/NAA reserves the right to charge NSP additional fees at
its then standard rates for services performed in connection with reported
Program Errors which are later determined to have been due to hardware or
software not supplied by Netscape/NAA. Notwithstanding the foregoing,
Netscape/NAA has no obligation to perform services in connection with (i)
Program Errors resulting from hardware or software not supplied by
Netscape/NAA; or (ii) which occur in the Navigator release which is not the
then current release.
-15-
<PAGE>
ATTACHMENT C
QUARTERLY POINT OF SALE REPORT
Network Service Provider Name and address:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
POS Report Contact Name:
--------------------------------
POS Report Contact Phone:
--------------------------------
POS Report Contact e-mail
--------------------------------
Report for (check one):
December through February (due March 10)
- ----
March through May (due June 10)
- ----
June through August (due September 10)
- ----
September through November (due December 10)
- ----
<TABLE>
<CAPTION>
MONTH/YEAR NETSCAPE PRODUCT # QUANTITY/MONTH PRICE/UNIT
- ---------- ------------------ -------------- ----------
<S> <C> <C> <C>
</TABLE>
-16-
<PAGE>
ATTACHMENT D
TIER AND NAVIGATOR PRICING
Annual Volume Commitment: 1000 -
-----------------------------------------------
<TABLE>
<CAPTION>
License Fee Per Copy Prepaid License Fee
(with maintenance)
<S> <C> <C>
Netscape Navigator LAN US$
------------------ -----------
Netscape Dial-Up Kit 23 US$ 12,000.00
------------------ -----------
</TABLE>
-17-
<PAGE>
NETSCAPE COMMUNICATIONS CORPORATION
AMENDMENT
TO
NETWORK SERVICE PROVIDER DISTRIBUTION AGREEMENT
This Amendment (hereinafter "Amendment") to the Network Service Provider
Distribution Agreement (hereinafter "Agreement") entered into by and between
Netscape Communications Corporation, a Delaware corporation, with principal
offices at 501 East Middlefield Road, Mountain View, California 94043, U.S.A.
together with its subsidiaries ("Netscape") and the Network Service Provider
identified below ("NSP") will be effective as of the date of acceptance by
Netscape ("Effective Date").
NSP: Full Name of Company: Website Management Company Inc. dba FlashNet
Communications
-----------------------------------------------
Address of Company: 2805 West Seventh Street, Fort Worth, Texas 76107
-------------------------------------------------
Effective Date of Agreement: March 26, 1996
--------------
Agreement Number: WEB960219N
----------
WHEREAS, the parties wish to modify and supplement the provisions of such
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. On the Cover Sheet, NSP's Internet Access and/or Intranet Access service
("NSP's Product") shall be defined as "FlashNet".
2. Attachment D, Tier and Navigator Pricing, shall be amended as follows:
"Annual Volume Commitment: 100,000
-------
<TABLE>
<CAPTION>
License Fee Per Copy
(with maintenance) Prepaid License Fee
-------------------- -------------------
<S> <C> <C>
Netscape Navigator LAN N/A N/A
Navigator Dial-Up Kit $7.00 $99,995
----- -------
</TABLE>
NSP estimates that 0% of this Prepaid License Fee shall be applied
towards Navigators used by NSP for internal business purposes.
* Reflects a $12,000.00 credit applied from the original purchase of one
thousand (1000) licenses
3. Except as expressly modified, all terms, conditions and provisions of the
Agreement shall continue in full force and effect.
4. In the event of any inconsistency or conflict between the Agreement and
this Amendment, the terms, conditions and provisions of this Amendment
shall govern and control.
5. Nothing contained in this Amendment shall be deemed to be a waiver of any
rights or a release of any obligations that shall have accrued under the
Agreement prior to the Effective Date of this Amendment.
6. This Amendment and the Agreement constitute the entire and exclusive
agreement between the parties with respect to this subject matter. All
previous discussions and agreements with respect to this subject matter
are superseded by the Agreement and this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized representatives.
NETSCAPE COMMUNICATIONS CORPORATION NSP
By: By: /s/ M. Scott Leslie
-------------------------------- --------------------------------
Name: Name: M. Scott Leslie
------------------------------ ------------------------------
Title: Title: President
----------------------------- -----------------------------
Date of Acceptance: Date: Sept. 26, 1996
---------------- ------------------------------
<PAGE>
ATTACHMENT C
NAVIGATOR PRICING
Initial Term Commitment: 100,000
---------------
<TABLE>
<CAPTION>
License Fee Per Copy
(includes Updates during the
Initial Term of this Agreement) Prepaid License Fee
------------------------------- -------------------
<S> <C> <C>
Netscape Navigator LAN US$ *
----- ------
Netscape Dial-Up Kit $7.00 US$99,995*
----- ------
</TABLE>
* NSP estimates that 0% of this Prepaid License Fee shall be applied towards
Navigators used by NSP for internal business purposes.
<PAGE>
CONSENT
This Consent is given by the undersigned ("Company") as of the date set forth
below. Company may terminate this Consent upon written notification to
Netscape Communications Corporation.
Netscape shall have the right from time to time to use Company's name as
follows:
a. Netscape may refer to Company as a reference account and may discuss
which Netscape products were licensed by Company in the course of making
presentations and/or sales calls to other prospective and existing customers.
b. Netscape may use Company's name in any press release issued by
Netscape regarding the licensing of the Netscape products.
c. Netscape may use Company's name and refer to Netscape products
licensed by Company in a Netscape press release where the press release focus
is on Customer's industry segment.
d. Netscape may release Company's name and Netscape products licensed by
Company to other third parties who are establishing programs in which
Netscape believes Company may wish to participate (e.g. user groups).
In order to bind Company to this Consent, a duly authorized representative
has signed below.
COMPANY
Company Name: FlashNet Communications
---------------------------
By: /s/ M. Scott Leslie
-------------------------------------
Signature
Name: M. Scott Leslie
-----------------------------------
Print or Type
Title: President
----------------------------------
Date: Jan. 6, 1997
-----------------------------------
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
[PORTAL LOGO] AGREEMENT NUMBER:_______
SOFTWARE LICENSE AND SUPPORT AGREEMENT
This Software License and Support Agreement dated August 28, 1998,
("Effective Date") is entered into by and between Portal Software, Inc., a
California corporation with principal offices at 20863 Stevens Creek
Boulevard, Suite 200, Cupertino, California, 95014 ("Portal") and Flashnet
Communications, Inc., a Texas corporation with principal offices at 1812
North Forest Park Boulevard, Fort Worth, Texas ("Licensee") and describes the
terms and conditions pursuant to which Portal shall license to Licensee and
support certain Portal Software (as defined below).
1 Definitions
1.1 "Agreement" means this Software License and Support Agreement,
including any and all attached Schedules.
1.2 "Application" means the specific Application set forth in Schedule A
hereto of the Portal Software running on one or more related computers at a
single location, that share the same Portal Software Database.
1.3 "Confidential Information" means this Agreement and all its
Schedules, any addenda hereto signed by both parties, all software listings,
Documentation, information, data, drawings, benchmark tests, specifications,
trade secrets, object code and machine-readable copies of the Portal
Software, and any other proprietary information supplied to Licensee by
Portal or by Licensee to Portal which is clearly marked as "confidential" if
in tangible form, or identified as "confidential" if orally disclosed.
1.4 "Designated Equipment" means the hardware make and model of the
server computer on which the Portal Software will be installed as set forth
on Schedule A.
1.5 "Portal Software" means (i) the software products designated on
Schedule A hereto provided to Licensee by Portal in executable form (but not
the Source Code), (ii) the associated program documentation
("Documentation"), (iii) any source code or object code with Portal in its
sole discretion may provide to Licensee from time to time and (iv) any
Updates, modifications, maintenance releases, bug fixes or work-arounds which
Portal may provide to Licensee from time to time.
1.6 "Portal Software Database" means the customer database associated
with the Portal Software which contains the Customer Records.
1.7 "Production Site" means the address and location of the server
computer on which the Portal Software will be installed as set forth on
Schedule A.
1.8 (Confidential treatment has been requested)
1.9 "Subscriber" means an individual customer record account object
("Customer Record") in the Portal Software Database. The total number of
Subscribers is exactly equal to the number of Customer Records in the Portal
Software Database.
1.10 "Updates" means any updates to the Portal Software licensed
hereunder which Portal, in its discretion, makes generally available to its
Portal Software licensees.
2 Grant of License
2.1 For so long as this Agreement remains in force Portal grants to
Licensee a perpetual, non-exclusive and non-transferable right to use the
Portal Software on the Designated Equipment and on a single Portal Software
Database located at the designated Production Site only for the specified
Application. Licensee may possess only the number of copies of any Portal
Software necessary for the type of use specified above and may use such
copies only in accordance with this Agreement and the Documentation. Portal
shall at all times retain ownership of all Portal Software including any
Documentation and any copies thereof.
2.2 Portal will deliver to Licensee, as soon as is practicable, the
necessary password to enable Licensee to download from Portal's website one
machine-readable copy of the Software, along with one machine-readable copy
of the Documentation. Licensee may not reproduce the Documentation except for
Licensee's internal purposes related to uses of the Portal Software
authorized hereunder.
2.3 Licensee may copy the Portal Software for backup or archival
purposes provided that all titles, trademark symbols, copyright symbols and
legends, and other proprietary markings are reproduced.
2.4 Licensee shall be permitted to create applications using the Policy
Facilities Modules source code and Application Programming Interfaces
("Portal Software Customization Tools") which Portal may, in its sole
discretion, provides to Licensee from time to time.
2.5 Portal grants and Licensee receives no other rights or licenses to
the Portal Software, derivative works (as defined in the United States
copyright Act of 1976, Title 17 USC Section 101 et. Seq.) or any intellectual
property rights related thereto, whether by implication, estoppel or
otherwise, except those rights expressly granted in this Section 2.
3 License Restrictions
3.1 Licensee agrees that it will not itself, or through any parent,
subsidiary, affiliate, agent or other third party:
3.1.1 sell, lease, license, sublicense, encumber or otherwise deal with any
portion of the Portal Software or Documentation;
3.1.2 except to the minimum extent necessary to comply with applicable
legislation, decompile, disassemble, or reverse engineer any portion of the
Portal Software or attempt to discover any source code or underlying ideas or
algorithms of any Portal Software;
3.1.3 other than to the extent permitted by Section 2.4 above, create any
Derivative Work based on the Portal Software or any Portal Confidential
Information;
3.1.4 use the Portal Software to provide processing services to third
parties (Confidential treatment has been requested), commercial timesharing,
rental or sharing arrangements, or on a "service bureau" basis or otherwise
use or allow others to use the Portal Software for the benefit of any third
party;
3.1.5 provide, disclose, divulge or make available to, or permit use of
the Portal Software by persons other than Licensee's employees, consultants
and agents who are under obligations of confidentiality to Licensee
substantially similar to those of Licensee under this Agreement;
3.1.6 use any Portal Software, or allow the transfer, transmission,
export, or re-export of any Portal Software or portion thereof in violation
of any export control laws or regulations administered by the U.S. Commerce
Department, OFAC, or any other government agency. All the limitations and
restrictions on the Portal Software in this Agreement also apply to the
Documentation.
4 Manner of Payment
All payments due hereunder shall be made inside the U.S., in U.S. dollars and
are exclusive of any sales, use or other taxes, fees or duties arising out of
this Agreement. In addition to any remedies Portal may have hereunder or at
law, any payments more than thirty (30) days overdue will bear a late payment
fee of 1.5% per month, or, if lower, the maximum rate allowed by law. Delays
in payment
Portal SLSA 08/28/98 5:04 PM Page 1 of 4
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
will result in a day-for-day delay of the Portal Software implementation
timetable.
5 LICENSE FEE
5.1 In consideration of the rights granted herein, Licensee shall pay
Portal the license fee(s) in accordance with Schedule A.
6 MAINTENANCE AND TECHNICAL SUPPORT
6.1 Upon payment of the annual maintenance and support fee set forth on
Schedule A, Licensee shall be entitled to receive Updates and technical
support in accordance with Portal's Gold Level Support Policy. Portal's
current Gold Level Support Policy appears at Schedule B.
6.2 Portal shall have no obligation to support (a) altered, damaged or
modified Portal Software (except as authorized by Portal) or any portion of
the Portal Software incorporated into other software, (b) Portal Software
that is not the then current or immediately previous sequential release, (c)
problems caused by Licensee's negligence, abuse, or misapplication, or use of
the Portal Software other than as specified in Portal's user documentation or
other causes beyond the control of Portal, or (d) Portal Software installed
on a system that is not supported by Portal. Portal shall have no liability
for any changes in Licensee's hardware which may be necessary to use the
Portal Software.
6.3 Portal reserves the right to change its technical support guidelines
and procedures provided (i) Portal provides Licensee with at least sixty (60)
days prior written notice of such changes, and (ii) such changes do not
diminish Portal's overall technical support obligations to Licensee in any
material regard.
7 TERMINATION
7.1 This Agreement commences on the Effective Date and will remain in
force until it is terminated.
7.2 Licensee may, upon thirty (30) days prior written notice to Portal,
terminate this Agreement. However, no such termination will entitle Licensee
to a refund of any portion of any monies which have been paid to Portal,
except in the case where Licensee terminates this Agreement due to a material
breach by Portal in which case Portal shall refund the licensee fees
specified on Schedule A less one-forty-eighth (1/48) thereof for each month
or portion thereof that this Agreement has been in effect.
7.3 Portal may, by written notice to Licensee, terminate this Agreement if
any of the following events ("Termination Events") occur, provided that no
such termination will entitle Licensee to a refund of any portion which have
been paid to Portal;
7.3.1 Licensee is in breach of this Agreement, which breach, if capable of
being cured, is not cured within thirty (30) days after Portal gives Licensee
written notice of such breach; or Portal may terminate this Agreement
immediately upon notice if Licensee breaches any of its obligations under
Section 3 above;
7.3.2 Licensee terminates its business activities or becomes insolvent,
admits in writing to inability to pay its debts as they mature, makes and
assignment for the benefit of creditors, or becomes subject to direct control
of a trustee, receiver or similar authority.
7.4 Termination will become effective immediately or on the date set forth
in the written notice of termination. Termination of this Agreement will not
affect the provisions regarding Licensee's or Portal's treatment of
Confidential Information, provisions relating to the payments of amounts due,
provisions limiting or disclaiming Portal's liability, and/or provisions
regarding applicable law, which provisions will survive termination of this
Agreement.
7.5 Upon termination, all licenses granted hereunder shall cease to be
effective and Licensee shall immediately cease all use of any affected Portal
Software, Documentation and Portal Confidential Information.
7.6 Within fourteen (14) days of the date of termination or discontinuance
of this Agreement, for any reason whatsoever, Licensee shall return the
Portal Software, derivative works and all copies thereof, in whole or in
part, all related Documentation and all copies thereof, and any other
Confidential Information in its possession, Licensee shall furnish Portal
with a certificate signed by an executive officer of Licensee verifying that
the same has been done.
7.7 Termination is not an exclusive remedy and all other remedies will be
available whether or not termination occurs.
8 INDEMNIFICATION FOR INFRINGEMENT
8.1 Portal shall, at its expense, defend or settle any claim, action or
allegation brought against Licensee that the Portal Software infringes any
patent, trademark, copyright, trade secret or other proprietary right of any
third party and shall pay any final judgment awarded or settlements entered
into; provided that Licensee gives prompt written notice to Portal of any
such claim, action or allegation of infringement and gives Portal the
authority to proceed as contemplated herein. Portal will have the exclusive
right to defend any such claim, action, or allegation and make settlements
thereof at its own discretion, and Licensee may not settle or compromise such
claim, action or allegation, except with prior written consent of Portal.
Licensee shall give such assistance and information as Portal may reasonably
require to settle or oppose such claims at Portal's expense.
8.2 In the event any such infringement, claim, action, or allegation is
brought or threatened, Portal may, at its sole option and expense:
8.2.1 Procure for Licensee the right to continue use of the Portal Software
or the infringing portion thereof;
8.2.2 Modify, amend or replace the Portal Software or infringing part
thereof with other software have substantially the same or better
capabilities;
8.2.3 If neither of the foregoing is commercially practicable, Portal shall
refund the portion of the licensee fee specified on Schedule A related to the
infringing part thereof less one-forty-eighth (1/48) thereof for each month
or portion thereof that this Agreement has been in effect. In the event that
such refund is made, Licensee shall immediately cease using the infringing
portion of the Portal Software and will remove the same from its system and
so certify to Portal.
8.3 THE FOREGOING OBLIGATIONS SHALL NOT APPLY TO THE EXTENT THE
INFRINGEMENT ARISES AS A RESULT OF MODIFICATIONS TO THE PORTAL SOFTWARE MADE
BY ANY PARTY OTHER THAN PORTAL OR PORTAL'S AUTHORIZED REPRESENTATIVE. THIS
SECTION 8 STATES THE ENTIRE LIABILITY OF PORTAL WITH RESPECT TO INFRINGEMENT
OF ANY PATENT, TRADEMARK, COPYRIGHT, TRADE SECRET OR OTHER PROPRIETARY RIGHT.
9 WARRANTY AND LIMITATION OF LIABILITY
9.1 Portal warrants to Licensee that the Portal Software will perform in
substantial accordance with the Documentation for a period of one hundred
eighty (180) days from the Effective Date. Portal represents and warrants that
the Portal Software is designated to be used prior to, during and after the
calendar year 2000 and that the Portal Software will operate during each such
time period without error relating to, or the product of, date data which
references different centuries or more than one century. If the Portal
Software does not perform as warranted, Portal shall undertake to correct the
non-conforming part of the Portal Software, or if correction is reasonably not
possible, replace such non-conforming part of the Portal Software free of
charge as soon as commercially practicable. If neither of the foregoing is
commercially practicable, Portal shall refund the monies paid by Licensee for
that non-conforming part of the Portal Software. In the event that such
refund is made, Portal may amend Schedule A with respect to the non-conforming
part of the software program. The foregoing Year 2000 Warranty shall not
apply to the extent that the Portal Software is used or interfaced with other
software, data or operating systems which are not Year 2000 compliant or if
the Portal Software has been modified in a manner not authorized by Portal.
THE FOREGOING ARE LICENSEE'S SOLE AND EXCLUSIVE REMEDIES FOR BREACH OF
WARRANTY. The warranty set forth above is made to and for the
Portal SLSA 08/28/98 5:04 PM Page 2 of 4
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
benefit of the Licensee only and will be enforceable against Portal only if:
9.1.1 The Portal Software has been properly installed and has been used at
all times in accordance with the Documentation and this Agreement;
9.1.2 All modifications, alterations or additions to the Portal Software,
if any, have been made using Portal Software Customization Tools provided by
Portal to Licensee; and
9.1.3 Licensee has not made or caused to be made modifications,
alterations or additions to the Portal Software that cause it to deviate from
the Documentation.
9.2 Except as set forth above, Portal makes no warranties, whether
express or implied, or statutory regarding or relating to the Portal Software
or the Documentation, or any materials or services furnished or provided to
Licensee under this Agreement. Specifically, Portal does not warrant that the
Portal Software will be error free or will perform in an uninterrupted
manner. To the maximum extent allowed by law, Portal specifically disclaims
all implied warranties of merchantability and fitness for a particular
purpose (even if Portal had been informed of such purpose) with respect to
the Portal Software, Documentation and support and with respect to the use of
any of the foregoing.
9.3 IN NO EVENT WILL PORTAL OR ITS SUBCONTRACTORS BE LIABLE FOR ANY LOSS
OF PROFITS, LOSS OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, COST OF COVER
OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND IN
CONNECTION WITH OR ARISING OUT OF THE FURNISHING, PERFORMANCE OR USE OF THE
PORTAL SOFTWARE OR SERVICES PERFORMED HEREUNDER OR ANY DELAY IN DELIVERY OR
FURNISHING THE PORTAL SOFTWARE OR SAID SERVICES CAUSED BY LICENSEE WHETHER
ALLEGED AS A BREACH OF CONTRACT OR TORTIOUS CONDUCT, INCLUDING NEGLIGENCE,
EVEN IF PORTAL HAD BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE.
9.4 PORTAL'S MAXIMUM AGGREGATE LIABILITY (WHETHER IN CONTRACT, TORT OR
ANY OTHER FORM OF LIABILITY) FOR DAMAGES OR LOSS, HOWSOEVER ARISING OR
CAUSED, WHETHER OR NOT ARISING FROM PORTAL'S NEGLIGENCE, SHALL IN NO EVENT BE
GREATER THAN (A) IN THE EVENT SUCH DAMAGE IS NOT RELATED TO SUPPORT, THE
LICENSE FEE SPECIFIED IN SCHEDULE A RELATED TO THE PARTICULAR PORTAL SOFTWARE
PROGRAM WHICH CAUSED THE DAMAGE OR LOSS, OR (B) IN THE EVENT SUCH DAMAGE OR
LOSS IS RELATED TO SUPPORT, THE SUPPORT FEES PAID BY LICENSEE FOR THE THEN
CURRENT SUPPORT TERM.
9.5 No employee, agent, representative or affiliate of Portal has
authority to bind Portal to any oral representations or warranty concerning
the Portal Software. Any written representation or warranty not expressly
contained in this Agreement is unenforceable.
10 AUDIT RIGHTS/QUARTERLY REPORTS
10.1 Licensee shall keep and maintain full, accurate and detailed records
regarding the License and the number of Subscribers of the Portal Software.
Portal or its representatives shall be entitled to review and audit such
books and records and/or Licensee's compliance with the provisions of this
Agreement at Portal's expense from time to time during normal business hours
upon reasonable notice to Licensee, and shall either be personally delivered
by rapid courier service or mailed by certified or registered mail to a party
at its address as set forth herein or as amended pursuant to this Section 10.1.
10.2 Licensee agrees to provide Portal with written reports setting
forth its total number of Subscribers within thirty (30) days of receipt of a
written request by Portal.
11 ASSIGNMENT/BINDING AGREEMENT
Neither this Agreement nor any rights under this Agreement may be assigned or
otherwise transferred by Licensee, in whole or in part, whether voluntary or
by operation of law, without the prior written consent of Portal, except in
the case of sale of all or substantially all of Licensee's assets in one or
more related transactions, merger or consolidation. Subject to the foregoing,
this Agreement will be binding upon and will inure to the benefit of the
parties and their respective successors and assigns. Notwithstanding the
foregoing, no transfer or assignment of Licensee's rights hereunder shall be
effective unless and until (1) Licensee has paid and remains current on all
amounts due hereunder, and (2) the purported assignee agrees in writing to be
bound by all of the obligations of Licensee hereunder. Further, this
Agreement will not be assigned to any direct competitor of Portal.
12 CONFIDENTIALITY
12.1 Each Party acknowledges that the Confidential Information
constitutes valuable trade secrets and each party agrees that it shall use
the Confidential Information of the other party solely in accordance with the
provisions of this Agreement and it will not disclose, or permit to be
disclosed, the same directly or indirectly, to any third party without the
other party's prior written consent. Each party agrees to exercise due care
in protecting the Confidential Information from unauthorized use and
disclosure. However, neither party bears any responsibility for safeguarding
any information that it can document in writing (1) is in the public domain
through no fault of its own, (ii) was properly known to it, without
restriction, prior to disclosure by Disclosing Party, (iii) was properly
disclosed to it, without restriction, by another person with the legal
authority to do so, (iv) is independently developed by Receiving Party
without use or reference to Disclosing Party's Proprietary Information or (v)
is required to be disclosed pursuant to a judicial or legislative order or
proceeding; provided that, to the extent permitted by and practical under the
circumstances, Receiving Party provides to Disclosing Party prior notice of
the intended disclosure and an opportunity to respond or object to the
disclosure or if prior notice is not permitted or practical under the
circumstances, prompt notice of such disclosure.
12.2 In the event of actual or threatened breach of the provisions of
Section 3 or Section 12.1, the non-breaching party will be entitled to
immediate injunctive and other equitable relief, without bond and without the
necessity of showing actual damage.
13 NOTICE
Any notice required to permitted under the terms of this Agreement or
required by law must be in writing and must be (a) delivered in person, (b)
sent by registered mail, return receipt requested, (c) sent by overnight air
courier, or (d) by facsimile, in each case forwarded to the appropriate
address set forth above. Either party may change its address for notice by
written notice to the other party. Notices will be considered to have been
given at the time of actual delivery in person, three (3) business days after
posting, or one days after (i) delivery to an overnight air courier service
or (ii) the moment of transmission by facsimile.
14 SOURCE CODE ESCROW
14.1 GENERAL. As soon as practicable following the Effective Date Portal
agrees to add Licensee as a Preferred Beneficiary to Portal's Source Code
Escrow Master Agreement with Data Securities International. Licensee shall
pay to Portal an annual source code escrow fees as set forth in Schedule A.
Portal agrees to regularly deposit the most current version of the source
code for the Portal into the escrow account within a reasonable period of
time following first customer shipment of such Portal Software.
14.1 14.2 RELEASE CONDITIONS. In the event Portal (i) ceases its business
operations without a successor, or (ii) seeks protection under Chapter 7
bankruptcy, receivership, trust deed, creditor's arrangement or comparable
proceeding or if any such proceeding is instituted against it and not
dismissed within sixty (60) days and such event(s) causes Portal to fail to
meet its obligations set forth herein, or (iii) if Portal materially breaches
its maintenance support obligations as set forth in Section 6 above and
Schedule B and fails to cure such breach within thirty days of receipt of
written notice thereof, Licensee shall be entitled to receive a copy of the
Source Code of the Portal Software from the Escrow Holder subject to the
restrictions set forth in Section 14.3 below.
14.3 LIMITED LICENSE GRANT. Subject to the foregoing, Licensee is hereby
granted a currently effective non-exclusive non-sublicensable license to use
the Source Code to and only to support and maintain its
Portal SLSA 08/28/98 5:04 PM Page 3 of 4
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
authorized. Subscribers and Licensee covenants that it will not exercise such
license to any extent except if and for so long as the condition for release
occurs and continues. Licensee shall not disclose any source code to any
third party except for its employees who have a "need to know" and are
similarly bound in writing by Licensee's obligations of confidentiality
hereunder. In support of the foregoing, Portal shall deposit the Source
Materials into an escrow account pursuant to the terms of this Agreement and
the Master Source Code Escrow Agreement attached hereto as Schedule C and
incorporated herein by this reference.
15. MISCELLANEOUS.
15.1 FORCE MAJEURE. Neither party will incur any liability to the other on
account of any loss or damage resulting from any delay or failure to perform
all or any part of this Agreement if such delay or failure is caused, in
whole or in part, by event, occurrences, or causes beyond its control and
without negligence of the parties. Such events, occurrences or causes will
include, without limitation, acts of God, strikes, lockouts, riots, acts of
war, earthquakes, fire and explosions, but the ability to meet financial
obligations is expressly excluded.
15.2 WAIVER. Any waiver of the provisions of this Agreement or of a
party's right or remedies under this Agreement must be in writing to be
effective. Failure, neglect or delay by a party to enforce the provisions of
this Agreement or its rights or remedies at any time will not be construed to
be deemed a waiver of such party's rights under this Agreement and will not
in any way affect the validity of the whole or any part of this Agreement or
prejudice such party's right to take subsequent action.
15.3 SEVERABILITY. If any term, condition or provision in this Agreement
is found to be invalid, unlawful or unenforceable to any extent, the parties
shall endeavor in good faith to agree to such amendments that will preserve,
as far as possible, the intentions expressed in this Agreement. If the
parties fail to agree on such an amendment, such invalid term, condition or
provision will be severed from the remaining terms, conditions and
provisions, which will continue to be valid and enforceable to the fullest
extent permitted by law.
15.4 ENTIRE AGREEMENT. This Agreement (including the Schedules and any
addenda hereto signed by both parties) contains the entire agreement of the
parties with respect to the subject matter of this Agreement and supersedes
all previous communications, representations, understandings and agreements,
either oral or written, between the parties with respect to said subject
matter.
15.5 STANDARD TERMS OF LICENSEE. No terms, provisions or conditions of any
purchase order, acknowledgement or other business form that Licensee may use
in connection with the acquisition or licensing of the Portal Software will
have any effect on the rights, duties or obligations of the parties under, or
other otherwise modify, this Agreement, regardless of any failure of Portal
to object to such terms, provisions, or conditions.
15.6 PUBLIC ANNOUNCEMENTS/PUBLICITY. Licensee and Portal agree to
cooperate regarding public relations activities, including public
announcements, joint press releases, and other activities to be mutually
agreed. Neither party will perform such activities without the prior written
consent of the other party, which consent shall not be unreasonably withheld.
15.7 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which so executed will be deemed to be an original and such counterparts
together will constitute one and the same Agreement.
15.8 APPLICABLE LAW. This Agreement will be interpreted and construed in
pursuant to the laws of the State of California and the United States without
regard to conflicts of laws provisions thereof, and without regard to the
United Nations Convention on the International Sale of Goods. Any waivers or
amendments shall be effective only if made in writing. This Agreement is
the complete and exclusive statement of the mutual understanding of the
parties and supersedes and cancels all previous written and oral agreements
and communications relating to the subject matter of this Agreement. The
prevailing party in any action to enforce this Agreement will be entitled to
recover its attorney's fees and costs in connection with such action.
Licensee represents that it is not a government agency and it is not
acquiring the license pursuant to a government contract or with government
funds.
IN WITNESS WHEREOF, the authorized representatives of the parties hereby bind
the parties by signing below:
LICENSEE: FLASHNET COMMUNICATIONS, INC.
By: /s/ M. Scott Leslie
-------------------------------------------
Print Name:
-----------------------------------
Title:
----------------------------------------
Date: 8/28/98
-----------------------------------------
PORTAL SOFTWARE, INC.
By: /s/ John Little
-------------------------------------------
Print Name: John Little
-----------------------------------
Title: President & CEO
----------------------------------------
Date: 8/31/98
-----------------------------------------
Portal SLSA 08/28/98 5:04 PM Page 4 of 4
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
SCHEDULE A
SECTION 1.0 PORTAL SOFTWARE
The following Portal Software products and their associated online
documentation will be provided:
- Infranet, including Infranet Server, Infranet Developer, Infranet
Administrator, Infranet Payment Tool, Infranet Pricing Tool, Policy
Configuration Tool, Invoice Designer Tool, Infranet Insite;
- Terminal Server Manager;
- Mail Server Manager;
SECTION 2.0 APPLICATION DESCRIPTION/EQUIPMENT/INITIAL SUBSCRIBER LIMIT
2.1 APPLICATION: (Confidential treatment has been requested)
2.2 PLATFORM (O/S): SUN SOLARIS - UNIX
2.3 INITIAL SUBSCRIBER LIMIT: (Confidential treatment has been requested)
SECTION 3.0 INSTALLATION SITES
3.1 PRODUCTION SITE: 1812 NORTH FOREST PARK BOULEVARD, FORT WORTH,
TEXAS 76102
3.2 DEVELOPMENT SITE: 1812 NORTH FOREST PARK BOULEVARD, FORT WORTH,
TEXAS 76102
3.3 BACKUP SITE: 1812 NORTH FOREST PARK BOULEVARD, FORT WORTH, TEXAS 76102
SECTION 4.0 LICENSE AND MAINTENANCE SUPPORT SERVICE FEES
4.1 PORTAL SOFTWARE LICENSE FEES
The following Price List describes the price for licensing the
Portal Software for the above-stated Application for the up to (Confidential
treatment has been requested) total Subscribers.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
PORTAL SOFTWARE COMPANIES LIST PRICE DISCOUNT TOTAL PRICE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
INFRANET (Confidential (Confidential (Confidential
treatment has treatment has treatment has
been requested) been requested) been requested)
- --------------------------------------------------------------------------------------
TERMINAL SERVER MANAGER (Confidential (Confidential
treatment has treatment has
been requested) been requested)
- --------------------------------------------------------------------------------------
MAIL SERVER MANAGER (Confidential (Confidential
treatment has treatment has
been requested) been requested)
- --------------------------------------------------------------------------------------
TOTAL (Confidential (Confidential
treatment has treatment has
been requested) been requested)
- --------------------------------------------------------------------------------------
</TABLE>
SLSA SCHEDULE A 08/28/98 4:30 PM Page A-1
<PAGE>
PORTAL PROPRIETARY & CONFIDENTIAL
4.2 ANNUAL GOLD LEVEL SUPPORT SERVICE FEES
Portal will provide Gold Level Maintenance Support Services
pursuant to Attachment B in accordance with the following prices:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
DESCRIPTION ANNUAL FEE PAYMENT DATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
FIRST YEAR GOLD LEVEL SUPPORT $(Confidential treatment $(Confidential treatment
has been requested) has been requested)
- ------------------------------------------------------------------------------------------------------
SECOND YEAR OF GOLD LEVEL SUPPORT $(Confidential treatment $(Confidential treatment
has been requested) has been requested)
- ------------------------------------------------------------------------------------------------------
</TABLE>
After the first two years, Licensee the Annual Gold Level Support Fee will be
calculated as being an amount equal to $(Confidential treatment has been
requested) for each licensed Subscriber (Confidential treatment has been
requested.)
4.3 ADDITIONAL SUBSCRIBER LICENSE AND MAINTENANCE SUPPORT FEES
For up to three (3) years from the Effective Date Licensee ("Option
Period") shall be entitled to license Additional Subscribers at a rate of
$(Confidential treatment has been requested) per each Additional Subscriber
plus a Support Service Fee of $(Confidential treatment has been requested)
for each Additional Subscriber (subject to the Support Services fee cap set
forth in Section 4.2 above). The minimum order size for such Additional
Subscribers is fifty thousand Subscribers. Support Services fees for the
Additional Subscribers will be due at the time such Additional Subscribers
are licensed, however, such Support Service fees will be prorated over the
remainder of the annual support term during which the Additional Subscribers
are added.
4.4 (Confidential treatment has been requested)
SECTION 5.0 PAYMENT SCHEDULE
Licensee agrees to make payment in accordance with the following table:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
DESCRIPTION AMOUNT PAYMENT DUE DATE
- ------------------------------------------------------------------------------------------
<S> <C> <C>
First Half of License Fee $(Confidential (Confidential
treatment has treatment has
been requested) been requested)
- ------------------------------------------------------------------------------------------
Second Half of License Fee $(Confidential (Confidential
treatment has treatment has
been requested) been requested)
- ------------------------------------------------------------------------------------------
First Annual Gold Support Payment $(Confidential (Confidential
treatment has treatment has
been requested) been requested)
- ------------------------------------------------------------------------------------------
First Annual Source Code Escrow Fee $(Confidential (Confidential
treatment has treatment has
been requested) been requested)
- ------------------------------------------------------------------------------------------
TOTAL $(Confidential
treatment has
been requested)
- ------------------------------------------------------------------------------------------
</TABLE>
SLSA SCHEDULE A 08/28/98 4:30 PM Page A-2
<PAGE>
[PORTAL LOGO]
SCHEDULE B
-----------------------
[INFRANET LOGO]
-----------------------
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
PORTAL SOFTWARE, INC.
20863 STEVENS CREEK BOULEVARD
SUITE 200
CUPERTINO, CA 95014
U.S.A.
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
PRODUCT SUPPORT.............................................................. 1
GUIDELINES, POLICIES AND DEFINITIONS......................................... 1
SUPPORT OVERVIEW............................................................. 3
PORTAL ERROR TRACKING SYSTEM (PETS)........................................ 3
WEB-BASED SUPPORT.......................................................... 3
PORTAL ERROR TRACKING SYSTEM (PETS)......................................... 4
PETS TICKET SEVERITY DEFINITIONS:......................................... 4
PETS TICKETS RESPONSE TIME................................................. 6
PHASE DEFINITIONS:......................................................... 6
CHANGING SEVERITY LEVEL OF A PETS TICKET:.................................. 7
STATUS DEFINITIONS IN PETS:................................................ 7
TYPICAL PROGRESSION THROUGH STATUS......................................... 8
CHANGING THE STATUS OF A PETS TICKET....................................... 9
ACTIVITY LOG IN PETS TICKETS............................................... 9
PETS REVIEW CYCLES......................................................... 9
PETS SEVERITY 1 TICKETS.................................................... 9
PETS SEVERITY 2 TICKETS.................................................... 9
PETS SEVERITY 3, 4, 5 AND 10 TICKETS.......................................10
PORTAL WEB-BASED SUPPORT.....................................................10
CASE SUBMISSION............................................................10
TECHNICAL SUPPORT CONTACTS.................................................11
SUPPORT AND ESCALATION PROCESS...............................................11
FOR SEVERITY 1 & 2.........................................................11
FOR GENERAL SUPPORT ISSUES AND ERRORS OF ANY SEVERITY......................12
SOFTWARE ERRORS..............................................................12
FIRST CUSTOMER SHIP RELEASES AND UPDATE RELEASES...........................12
PRODUCT SUPPORT PERIOD.....................................................13
DIRECTIONS FOR PETS..........................................................14
</TABLE>
- -------------------------------------------------------------------------------
PORTAL CONFIDENTIAL AND PROPRIETARY PAGE-B 2 -
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
SUPPORT OVERVIEW
As Portal grows we are committed to continuing to develop our world-class
technical support service organization to provide the best support services
to our customer. The following are procedures that we would like to implement
to ensure that you, as a customer, receive the proper and prompt assistance
when needed.
There are currently two methods of addressing issues raised for support. They
are:
PORTAL ERROR TRACKING SYSTEM (PETS)
Production related errors are defects/bugs of Infranet that occurred during
the execution of a production system and should be reported as such in
Portal's Error Tracking System (PETS).
Please submit an error report for the problem using PETS - www.pin.com (there
are separate instructions for how to logon to PETS and use it). Our response
time for the defect will be based on the severity levels and individual
customer's support contract. If the defect is not resolved in a satisfactory
manner, please escalate the situation per the escalation process.
WEB-BASED SUPPORT
For all those technical, development, non-production related questions,
please start by submitting the question/issue via our WEB-BASED SUPPORT:
www.portal.com/WebSupport/login.htm
Each customer contact is provided with a login ID and unique password. To
obtain your login and password, register by completing our ONLINE
REGISTRATION FORM:
www.portal.com/professional services/plreg.htm
- -------------------------------------------------------------------------------
PORTAL CONFIDENTIAL AND PROPRIETARY PAGE-B 3 -
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
PORTAL ERROR TRACKING SYSTEM (PETS)
PETS TICKET SEVERITY DEFINITIONS:
SEVERITY 1- PRODUCTION ISSUE - Major product defect causing complete loss of
service. Resolution: WORK UNTIL COMPLETE
(Portal found bugs - major product defect that would likely cause full loss of
service to a customer's production system)
EXAMPLES:
- System failure prevents end-users from accepting network service.
- Failover not successful in routing around problems.
- Repeated data loss or data corruption occurs to object data.
- Repeated software failures that result in total interruption of
service.
SEVERITY 2 - PRODUCTION ISSUE/EMERGENCY DEVELOPMENT ISSUE - Serious product
defect causing major but intermittent loss of production service or
preventing imminent deployment of system under development. No workaround is
available, but operation can continue in a restricted fashion. Resolution:
WORK UNTIL COMPLETE.
(Portal found bugs - serious product defect that would likely cause major but
intermittent loss of service at a customer site.)
EXAMPLES:
- System failure prevents end-users from signing up for service, but
allows end users to access network services.
- System failure prevents billing collections from occurring, but
allows end-users to access network service.
SEVERITY 3 - Significant product defect causing loss of service of one or
more functions. Workaround is not available, or functionality loss is critical
to system operation. Resolution: PATCH OR NEXT RELEASE, IF IMMINENT.
EXAMPLES:
- System failure prevents admin users from performing specific
account updates, but all other functions are working. However,
the missing function is critical to determining customer's sales
commissions.
- System failure prevents end-users from accessing web pages for
account information, but allows end-users to access network
service. However, for many users, the web is the only access
available to them.
- -------------------------------------------------------------------------------
PORTAL CONFIDENTIAL AND PROPRIETARY PAGE-B 4 -
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
SEVERITY 4 - Product defect causing loss of service of one or more functions.
Workaround is available, or functionality loss is not critical to system
operation. Resolution: NEXT OR FUTURE RELEASE.
EXAMPLES:
- System failure prevents admin users from performing specific
account updates, but all other system functions are working.
- System failure prevents end-users from accessing web pages for
account information, but allows end-users to access network
service.
SEVERITY 5 - Minor product defect causing little or no end-user visible
loss of service. This category includes cosmetic errors or defects where the
impact to a customer's operation is minor. Resolution: CANDIDATE FOR FUTURE
RELEASE
EXAMPLES:
- Documentation errors requiring correction or clarification.
- Most error message problems.
- System failure that occurs rarely and where failover successfully
routes around the failure.
SEVERITY 10-Enhancement request to Infranet for new feature or modification
to existing feature rendering the feature more effective, complete or easier
to use. Resolution: CANDIDATE FOR FUTURE RELEASE
EXAMPLES:
- Additional summary reports by cycle, accounts, etc.
- Additional screens in the web interface.
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PORTAL CONFIDENTIAL AND PROPRIETARY PAGE-B 5 -
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
PETS TICKETS RESPONSE TIME
<TABLE>
<CAPTION>
SEVERITY LEVEL CALL TARGET RESOLUTION
BACK for
TIME INITIAL
ANALYSIS
IS
- --------------------------------------------------------------------------------------------------
<C><S> <C> <C> <C>
1 Complete loss in production 30 minutes 4 hours work until complete
2 Serious defect causing major 4 hours 8 hours work until complete
but intermittent loss in
production or preventing deployment.
3 Significant defect causing 2 business 5 business Patch or next release
minor loss in production days days
with no workaround
4 Minor defect causing minor loss Via PETS Via PETS Next or future release
with workaround updates updates
5 Minor defect causing no loss Via PETS Via PETS Candidate for future
updates updates release
10 Request for Enhancement Via PETS Via PETS Candidate for future
updates updates release
- --------------------------------------------------------------------------------------------------
</TABLE>
PHASE DEFINITIONS:
- CALL BACK TIME - Initial callback from Portal by a qualified
technical support representative.
- TARGET FOR INITIAL ANALYSIS - Targeted response time for first
detailed analysis of problem, including any possible workaround
and plan for complete resolution.
- RESOLUTION - Estimate of when fix or workaround is available to
customer to eliminate symptoms of problem.
- -------------------------------------------------------------------------------
PORTAL CONFIDENTIAL AND PROPRIETARY PAGE-B 6 -
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
CHANGING SEVERITY LEVEL OF A PETS TICKET:
When a PETS ticket is initially submitted, the submitter makes their best
estimate of the appropriate severity level of the ticket and files it as
such. As Portal and the submitter work on the reported issue, it may become
clear that the severity level should be changed. If the submitter wishes to
change the severity level, they should send an e-mail to
[email protected] listing the PETS id number, what severity level to
change from and to, and why the change is being requested.
If in reviewing the PETS ticket, Portal's analysis is that a change in
severity levels is consistent with the definitions above, Portal will
change the severity level and notify the submitter.
STATUS DEFINITIONS IN PETS:
SUBMITTED - Ticket has been logged into PETS for tracking
PENDING - Not enough information has been logged in the ticket; more
information is needed from the submitter for Portal to further analyze the
problem. Information to include when submitting a PETS ticket includes: how
to reproduce the error, any non-reproducible symptoms and any error
messages. Customers should update the PETS ticket with the additional
information and inform support by sending an e-mail to
[email protected]. Technical support will change the status of the
ticket so that it is continued to be worked on.
QUALIFIED - Infranet Technical Support has reviewed the ticket and
qualified it as warranting Engineering evaluation. If the issue can
be resolved without Engineering evaluation, the Technical Support
personnel will drive resolution rather than qualifying it to pass to
Engineering for evaluation.
ASSIGNED - Engineering resources have been assigned to resolve the error.
EVALUATED - Engineering has evaluated the ticket and considers the ticket
to contain enough information to proceed.
INTEGRATED - The error is fixed and tested. The fix is incorporated into a
release of Infranet.
DELIVERED - The fix is delivered to the customer as either
a patch or a future release. DELIVERED IS THE FINAL STATUS FOR ANY
PETS TICKET THAT REQUIRES CODE CHANGES.
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PORTAL CONFIDENTIAL AND PROPRIETARY PAGE-B 7 -
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
CLOSED - No action needed because the reported issue is a duplicate of an
existing ticket, it turns out not to be an error or it cannot be
reproduced. CLOSED IS THE FINAL STATUS FOR ANY PETS TICKET THAT DOES
NOT REQUIRE CODE CHANGES.
TYPICAL PROGRESSION THROUGH STATUS
The order in which the status indicators are listed in the prior pages is
close to the typical progression through to resolution of a PETS ticket.
All tickets are automatically tagged with a status of Submitted when they
are filed. Infranet Technical Support personnel are the first ones at
Portal to review a PETS ticket. They will do one of three things. 1) They
may see that more information is needed, note what information is needed in
the activity log of the PETS ticket and change the status to Pending until
more information is submitted to [email protected]. 2) They may
determine that this PETS ticket warrants review by Portal Engineering and
mark the status as Qualified. Or 3) they answer the question themselves if
the answer does not require any code changes, and then mark the status as
Closed.
Once a PETS ticket is marked as qualified, then Portal Engineering reviews
it, assigns it to an appropriate engineer and marks the status as Assigned.
When an engineer reviews the PETS ticket, they may do one of three things:
1) Evaluate it, determine they have enough information to reach a
resolution and mark the status as Evaluated. 2) Evaluate it, determine that
more information is necessary, list what information is necessary in the
activity log of the PETS ticket and mark the status as Pending. 3) Evaluate
the ticket, determine that it should be closed for some reason, indicate
the reason (such as duplicate of another PETS ticket, not reproducible or
not an error) and change the status to Closed.
After a Portal engineer has evaluated a PETS ticket and determined that
enough information is available, the engineer will work on a fix for the
error. Once a fix has been implemented, tested and integrated into an
Infranet build, then the engineer will change the status to Integrated.
After the build in which the fix has been integrated is delivered (posted
to the Portal web site) as a Release or an Update, then the PETS ticket
status is changed to Delivered and the activity log is updated with the
name of the Release or Update. Delivered is the final status for any PETS
ticket that requires code change. Closed is the final status for PETS
tickets that do not require code changes.
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PORTAL CONFIDENTIAL AND PROPRIETARY PAGE - B 8-
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
CHANGING THE STATUS OF A PETS TICKET
As the ticket progresses through to resolution, Portal will update the
status of the PETS ticket. If the submitter wishes to update the status of
a ticket, for example when they've provided requested additional
information in response to a status of Pending, the submitter should send
an e-mail to [email protected] requesting the status change.
ACTIVITY LOG IN PETS TICKETS
Portal will add to the activity log of a PETS ticket as it progresses
through to resolution. Any information that is pertinent will be added to
the log. In particular when a ticket's status is changed to Pending,
details of what information is needed is described in the activity log.
PETS REVIEW CYCLES
Portal does a full review of outstanding PETS tickets at least once during
the course of each Infranet release. Since Infranet releases are scheduled
3 times a year, all the outstanding PETS ticket will be reviewed at least
three times a year.
COMMUNICATION
PETS SEVERITY 1 TICKETS
For Severity 1 tickets Portal provides updates to submitter as pertinent
information is available. These updates are provided via phone, fax or
e-mail as the situation warrants. The definition of Severity 1 as complete
loss of service in production will be strictly adhered to and any tickets
that do not fall within this definition either initially or after a work
around has been provided will be reassigned to a lower severity level.
PET SEVERITY 2 TICKETS
For Severity 2 tickets Portal provides updates to submitter as pertinent
information is available. These updates are provided via phone, fax or
e-mail as the situation warrants. The definition of Severity 2 as major
loss of service in production or preventing deployment will be strictly
adhered to and any tickets that do not fall
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PORTAL CONFIDENTIAL AND PROPRIETARY PAGE - B 9-
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
within this definition either initially or after a work around has been
provided will be reassigned to a lower severity level.
PETS SEVERITY 3, 4, 5 AND 10 TICKETS
Portal communicates updates on these tickets via PETS as pertinent
information is available. The PETS system permits users to search for
recently updated tickets and it will also send out an automatic e-mail when
a ticket is changed.
WEB-BASED Support
Technical support is available to all Portal customers with a current
customer support contract. Portal's Web-Based support provides fast and easy
access to all your technical support cases. It allows you to add a new case,
or update and monitor the status of an existing case. Each case is associated
with a case number for reference and tracking purposes.
CASE SUBMISSION:
When you submit a question or issue to us, please make sure you do the
following so we can best serve you:
1. Give us a DETAILED DESCRIPTION OF YOUR PROBLEM.
2. Give us a DETAILED DESCRIPTION OF WHAT YOU HAVE DONE to try to solve the
problem on your own. Have you read the documentation? Have your looked in
the error log?
3. E-mail any configuration or log files to [email protected]. Please include
your case number and company name in the subject header of the email. For
example, "Portal case# 1234; dm_oracle pinlog files"
NOTE: Be aware that when you CC people in your e-mail to us with aliases,
we may not get the full e-mail address of the CC'ed person. If that is the
case, we will be unable to send a reply to them. You will need to forward
our reply to them yourself.
All questions submitted are researched and answered in a timely manner.
Portal will log all questions/issues in the order they are received and will
work on them IN THAT ORDER. Once the question has been understood and
analyzed, an estimate of how long it would take to resolve it will be
provided back to the customer IF an answer or a solution is not available in
a reasonable amount or time.
- --------------------------------------------------------------------------------
PORTAL CONFIDENTIAL AND PROPRIETARY PAGE - B 10-
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
TECHNICAL SUPPORT CONTACTS
To ensure that we provide uniform support to each of our customers, each
customer account is required to designate two senior level contacts to
function as the technical support liaison to Portal. Please send an e-mail to
[email protected] stating the name, phone number and e-mail address of your
contacts. Your designated contacts will be added to our call tracking
database and will be the only individuals allowed to submit issues into
technical support. To change your contact information, please send an e-mail
request to [email protected]. Additional contacts can be negotiated into the
Support Maintenance Contract at additional cost.
SUPPORT AND ESCALATION PROCESS
To ensure our customers are getting the appropriate level of attention and
service, the following are procedures to use when dealing with any Infranet
product defects.
FOR SEVERITY 1 OR 2 ERRORS:
For production defects entered into PETS as severity 1 or 2, please call
our 24-Hour answering service AFTER you have entered the error into PETS so
we can respond to your submittal in a timely manner.
SEVERITY 1 & 2: (408)752-7430
Customers on 7 by 24 hours support, should call at any time, others should
call during our normal business hours between 8:00am - 5pm PST.
An agent with the answering service will receive your call and collect the
following information from you: your name, phone number, company which you
represent, severity, and a brief message. The answering service will
escalate your call to the appropriate Portal individuaL. Our internal
escalation guidelines are as follows:
FOR SEVERITY 1:
1. Page primary on-call support engineer.
2. If primary on-call person does not respond in 10 minutes, page
secondary on-call support engineer.
3. If the secondary on-call person does not respond in 10 minutes
page and call the Technical Support Manager.
4. If the manager does not respond in 10 minutes, page and call the
regional Director and the VP of Portal's Professional Services
Group.
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PORTAL CONFIDENTIAL AND PROPRIETARY PAGE - B 11-
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
FOR SEVERITY 2:
1. Page the primary on-call support engineer.
2. If the primary on-call person does not respond in 1 hour, page
the secondary on-call support engineer.
3. If the secondary on-call person does not respond in 1 hour, page
and call the Technical Support Manager.
4. If the Manager does not respond in 1 hour, page the regional
Director.
5. If the Director does not respond in 1 hour, page the VP of
Portal's Professional Services Group.
FOR GENERAL SUPPORT ISSUES AND ERRORS OF ANY SEVERITY:
If you feel that an error or defect of any severity submitted via PETS is
not being resolved appropriately, please call the Technical Support phone
number at:
Technical Support: (408) 343-4410 (voicemail)
and leave a voicemail with your name, phone number, company which you
represent and brief problem description. A Technical Support engineer will
be paged automatically to assist you. If the Technical Support engineer is
unable to address your needs, please feel free to contact the Technical
Support Manager at:
Technical Support Manager (West): (408) 697-5037 (pager)
Technical Support Manager (East): (888) 550-0405 (pager)
If the problem is not progressing at a speed with which you are satisfied,
you may ask the Technical Support Manager to escalate the issue. S/He will
work with you to set up a conference call with the VP of Portal's
Professional Services Group.
SOFTWARE ERRORS
FIRST CUSTOMER SHIP RELEASES AND UPDATE RELEASES
Portal will work on tickets of severity 1, 2, and 3 until they are
resolved. Fixes for these tickets are targeted to be included in an Update
Release of the currently shipping Infranet release as well as in the
following release.
Portal schedules one Update Release four weeks after the First Customer
Ship (FCS) of an Infranet Release. An Update Release is a full Infranet
release with additional fixes integrated. After the scheduled Update
Release that Portal posts to the web 4 weeks after FCS, any other Update
Releases are posted on an as-needed basis. For example, Portal posted
Infranet 5.1 Update 5. Update Releases
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PORTAL CONFIDENTIAL AND PROPRIETARY PAGE - B 12-
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
contain the cumulative set of fixes available for a given release. Update
Releases should be downloaded and installed in full to ensure that you
have the most recent, supported version of Infranet.
Tickets of severity 4 are targeted for fixing in the next release, severity
5 for fixing in a future release and tickets of severity 10 are candidates
for a future release.
PRODUCT SUPPORT PERIOD
Infranet releases are supported for a period of 6 months after the
subsequent release of Infranet ships. For example, Infranet 5.1 will be
supported for 6 months after the release of Infranet 5.2 or for a total of
10 months after shipping 5.1 (since 5.2 ships 4 months after 5.1, 5.1 is
supported for that 4 months plus an additional 6 months for a total of 10
months). Portal highly encourages customers to upgrade to the latest
release of Infranet in order to benefit from the latest features and fixes.
Yet, we understand that it does take time to migrate to the latest release,
so we have allocated a period of a total of ten months to support a
release: four months until the next release ships (Infranet releases ship
three times a year, every four months) plus six months after the next
release ships.
- --------------------------------------------------------------------------------
PORTAL CONFIDENTIAL AND PROPRIETARY PAGE - B 13-
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
DIRECTIONS TO USING PETS2
GETTING STARTED
You can get to PETS2, login via the www.pin.com web site. Log into this site
using your current user name and password. Once on, click on PETS2. The
system will ask you for another login and password. This is not the same
user login/password that was used in PETS. Support will let you know your new
login. The password is the same as before. When you type in your login and
password, make sure you use capitals when specified. PETS2 is now case
sensitive.
- -------------------------------------------------------------------------------
Select one of the schemas in the list below.
Click on Query OR Submit (or use the buttons which follow the list) to open the
selected schema for Query OR Submit.
<TABLE>
<CAPTION>
<S> <C>
PETS2 PETS:User Comments
</TABLE>
Click on QUERY OR SUBMIT to start working with the selected schema.
- -------------------------------------------------------------------------------
You will see the above when you first login. The PETS2 schema is used for
tickets. The PETS:User Comments schema is used for User Comments.
SEARCHING AND MODIFYING A TICKET
To search or modify a ticket, choose the PETS2 schema and click on QUERY. You
may search on any one of the fields you see. You may select from the pulldown
menu for any or all of these fields. If a field is left blank, that field is
considered a wildcard. If you leave all the fields blank, all wildcards,
you'll set all your tickets in PETS2.
After you've made your search criteria selection, hit RUN QUERY and a list of
all tickets matching your set of criteria will appear. You can either view or
modify those tickets.
SUBMITTING A TICKET
To submit a ticket, choose the PETS2 schema and click on the SUBMIT button at
the top of the page to get a blank ticket. Currently, the only way to get
back to the PETS2 page is to use a bookmark or to hit "back" in your browser.
We are looking into changing that.
There are several fields that are required in submitting a ticket. They are
the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
-Severity -Release -Product -OS -Problem Summary
</TABLE>
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PORTAL CONFIDENTIAL AND PROPRIETARY PAGE - B 14-
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
PRODUCT SUPPORT
GUIDELINES, POLICIES AND DEFINITIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
-Problem Detail -Last Name -Caller ID -Hdwr -DB
</TABLE>
If you don't fill in ALL the fields, you'll get an error message and your
ticket won't be submitted.
After you've filled everything out, click on SUBMIT at the top or bottom of
the screen. The next screen will tell you if the submission was successful.
To get back to the any of the previous screens, just hit "back" on your
browser.
SUBMITTING SUGGESTIONS FOR IMPROVING OR FIXING PETS2
There are two ways to do suggest improvements for PETS2. You can either file
a ticket against PETS2 by following the instructions above and choosing PETS
as a product or you can submit a comment.
To submit a suggestion for improving or changing PETS2 itself, choose the
"PETS:User Comments" schema in the first screen after logging in and click on
SUBMIT. Fill in the Description field and the optional Comments field and
click on SUBMIT.
SEARCHING FOR A USER COMMENT
You can search for a user's comment by filling in any one of the fields. Most
likely, you will only fill in the "Company Name" field. PETS2 is case
sensitive so be sure to fill in the "Company Name" exactly as it appears when
you submitted it. Hit QUERY when you have entered in the field. PETS2 will
give you a list of comments matching your criteria. You can only view the
comment even though it says you can modify it. If you try to modify, it
will give you an error. We will change that for future releases.
THE QUERY BAR
The query bar is used for complex queries. We don't suggest you use it.
PORTAL IS A REGISTERED TRADEMARK IN THE UNITED STATES, AND PORTAL SOFTWARE,
THE PORTAL LOGO, THE REAL TIME - NO LIMITS TAGLINE AND INFRANET ARE
TRADEMARKS OF PORTAL SOFTWARE, INC. COPYRIGHT 1998 PORTAL SOFTWARE, INC.
- --------------------------------------------------------------------------------
PORTAL CONFIDENTIAL AND PROPRIETARY PAGE - B 15-
NOT TO BE DISCLOSED WITHOUT PRIOR WRITTEN
PERMISSION
<PAGE>
SOFTWARE DISTRIBUTION AND LICENSING AGREEMENT
This agreement is made this 24th day of December 1996, by and between
SOLID OAK SOFTWARE, INC. hereinafter referred to as Licensor, a
California Corporation, and WEBSITE MANAGEMENT COMPANY, INC. d/b/a
FLASHNET COMMUNICATIONS, hereinafter referred to as Licensee.
WITNESSETH
WHEREAS, Solid Oak Software desires to license certain software for
distribution to Licensee, an independent contractor, and Licensee and
Solid Oak Software are willing to enter into such an agreement, on
the terms and conditions set forth below:
1. SERVICES
1.1. Solid Oak Software agrees to supply the product described in the item
Project Description attached hereto as Attachment A and by this reference
made a part hereof this agreement.
1.2. Licensor hereby grants to Licensee a non-exclusive license to distribute
the Software as part of the Licensee's client software pack.
1.3. Licensor hereby grants to licensee a non-exclusive license to duplicate
or sub-contract the duplication of the Software for distribution pursuant
to this agreement.
2. INDEPENDENT CONTRACTOR
2.1. The parties are independent contractors hereunder, and neither party
shall be liable for the debts, accounts, obligations or other liabilities
of the other party or its agents, employees or independent contractors,
including without limitation any costs for salaries, overhead,
transportation or communication.
3. PAYMENT
3.1. As full compensation for the distribution rights of the software
provided by the Licensor, Licensee will pay a fee of $1.00 (US) per
packaged copy distributed for the first 20,000 units $.75/unit for 20,001
to 100,000 units, $.50/unit for 101,000 to 250,000 units, and above
250,000 units the individual cost will be $.25(US). For purposes of this
agreement the term PACKAGED COPY shall mean any copy packaged with any
distribution materials or method such as a manual, installation disk or
CD. Licensee may freely distribute the Trial version of the software to
end-users in unlimited quantities, however, Licensee shall only be liable
for payment of the fee for those Full version units actually sold.
3.2. Licensee shall pay said fees on a quarterly basis. Payments shall be due
within 30 days of the close of each quarter.
3.3. All overdue amounts shall bear an interest at the rate of one percent
(1.5%) per month, until paid in full.
Page 1
<PAGE>
3.4. An initial non-refundable payment shall be made for the first 3500
copies in the amount of $3500.00 (US) prior to shipping of the master
disk.
3.5 Licensee will be required to meet a minimum of 5000 units distributed or
make a minimum payment of $5000 per quarter for the first year. The
total sum of non-refundable payments in the first twelve months will be
no less than $20,000(twenty thousand).
4. OWNERSHIP OF SOFTWARE
4.1. For purposes of this agreement the term SOFTWARE shall be considered to
consist of the compiled or executable versions of any and all programs
developed as a result of this agreement, any and all data files necessary
for operation of the executable programs, and any and all documentation
generated as part of this agreement.
4.2. Copyright for all software, subsequent modified software, and related
support files shall remain with Licensor.
5. KNOW-HOW RETENTION.
5.1. Licensee expressly acknowledges and agrees that pursuant to Section 4
(Ownership of Software), it is not acquiring any and all rights to the
know-how with respect to how to perform the Services or develop the
Software.
6. CONFIDENTIALITY - NON-DISCLOSURE
6.1. Solid Oak Software acknowledges and agrees that it may have access to,
or become acquainted with CONFIDENTIAL INFORMATION of Licensee. As used
herein, the term CONFIDENTIAL INFORMATION shall mean (i) any and all
business information of or relating to Licensee that is not known to the
general public and (ii) confidential information disclosed to Licensee by
third parties. Solid Oak Software further acknowledges and agrees that
the Confidential Information constitutes valuable trade secrets of
Licensee.
6.2. Solid Oak Software shall keep all Confidential Information of Licensee
in confidence and shall not publish, disclose or otherwise make
available, directly or indirectly, without the prior written consent of
Licensee, any item of Confidential Information to anyone other than those
of Licensee's employees or contractors who need to know the same in the
performance of their duties for Licensor. Solid Oak Software shall only
use the Confidential Information in connection with the distribution and
support of the Software and for no other purposes.
6.3. Solid Oak Software's confidentiality obligations hereunder shall
continue for each item of Confidential Information until such time as
such item of Confidential Information (i) is or has become publicly
available other than as a result of any act of Solid Oak Software; (ii)
has legally and properly been received by Solid Oak Software by a third
party through no breach of any agreement with Licensor and without
obligation to keep it confidential; or (iii) has been independently
developed by Solid Oak Software. Solid Oak Software's confidentiality
obligations hereunder shall not apply to each item of Confidential
Information that was known by Solid Oak Software, without obligation to
keep it confidential, prior to the receipt of such item of Confidential
Information from Licensor.
6.4. Licensee acknowledges and agrees that it may have access to, or become
acquainted with CONFIDENTIAL INFORMATION of Solid Oak Software. As used
herein, the term CONFIDENTIAL INFORMATION shall mean (i) the Solid Oak
Software's source code of the software, (ii) any and all technical
information of Solid Oak Software including, but without limitation,
product
Page 2
<PAGE>
data and specifications, know-how, formulae, the source code and other
software information, processes, inventions, research projects and
product development, (iii) any and all business information of or
relating to Solid Oak Software that is not known to the general public
and (iv) confidential information disclosed to Solid Oak Software by
third parties. Licensee further acknowledges and agrees that the
Confidential Information constitutes valuable trade secrets of Solid Oak
Software.
6.5. Licensee shall keep all Confidential Information of Solid Oak Software
in confidence and shall not publish, disclose or otherwise make
available, directly or indirectly, without the prior written consent of
Solid Oak Software, any item of Confidential Information to anyone other
than those of Solid Oak Software's employees or contractors who need to
know the same in the performance of their duties for Solid Oak Software.
Licensor shall only use the Confidential Information in connection with
the design and support of the Software and for no other purposes.
6.6. Licensee confidentiality obligations hereunder shall continue for each
item of Confidential Information until such time as such item of
Confidential Information (i) is or has become publicly available other
than as a result of any act of Licensee; (ii) has legally and properly
been received by Licensee by a third party through no breach of any
agreement with Solid Oak Software and without obligation to keep it
confidential; or (iii) has been independently developed by Licensee.
Licensee's confidentiality obligations hereunder shall not apply to each
item of Confidential Information that was known by Licensee, without
obligation to keep it confidential, prior to the receipt of such item of
Confidential Information from Solid Oak Software.
6.4. The parties agree that the confidentiality covenants contained in this
Section 6 shall not restrict either party in the exercise of their
technical skill, provided that others do not benefit in any manner or
form from Confidential Information of the either party.
7. EMPLOYMENT TAXES AND BENEFITS.
7.1. Licensor acknowledges and agrees that it will be solely responsible for
withholding and paying all federal, state and local income taxes, FICA,
FUTA, and state unemployment and disability insurance for it's employees.
8. NON-INFRINGEMENT.
8.1. Licensee represents and warrants to Solid Oak Software that to the best
of its knowledge any other software products that Licensee distributes,
or any part, thereof does not, and will not upon delivery to Client
infringe any US patent right, US copyright, or US trade secret right of
any third party. Licensor provides warranties for the Software as set
forth in the end user Software Distribution and Licensing Agreement which
accompanies each software product. Licensor extends those warranties
contained in the end user Software Distribution and Licensing Agreement
to end users. Licensee is responsible to provide, or cause to be
provided, a copy of the end user Software Distribution and Licensing
Agreement to customers for their review at the time of installation.
8.2. Solid Oak Software will have no liability to Licensee with respect to
any infringement claim which may arise from the combination of the
Software with any other product or program. Under no circumstances shall
either party be held liable for any such claim that may arise from the
other party's software.
Page 3
<PAGE>
8.3. Each party warrants that it has taken all requisite corporate and other
action to approve the execution, delivery and performance of this
agreement, and that it has full power and authority to enter into and
perform its obligations under this agreement.
9. TERM AND TERMINATION
9.1. This Agreement may be terminated at any time by either party,
immediately upon written notice to the other party if such other party
commits or allows any breach of any provision of this Agreement which is
incurable or which is curable but not cured within thirty (30) days after
written notice thereof to such other party; or
9.1.2.By Either party, for any reason or no reason, upon sixty (60) days
prior written notice to the other party.
9.2. Termination of this agreement by either party, for whatever reason,
shall not be considered to mean that unpaid or earned royalties or
payments shall terminate. All moneys due shall be paid to Licensor
through the date of contract termination or to meet any minimum
requirements, and within a period of 30 days.
10. DISCLAIMER; NOTICE OF LIABILITY
10.1. Except for the warranty provided in Section 8.1 hereof, Licensor does
not make any representations or warranties with respect to the Software
other than it's suitability for the purpose described in Attachment A.
10.2. Except as and to the extent provided in Section 8.1 hereof, under no
circumstances shall Licensor be liable to Licensee or any other person
for any special, indirect, incidental or consequential damages, except
when arising out of breach of warranty, breach of contract, tort
(including negligence).
11. NOTICE
11.1. Any notice or other communication hereunder shall be in writing and
shall be deemed given and effective (i) when delivered personally or by
overnight express, or (ii) three (3) days after the postmark date if
mailed by certified or registered mail, postage prepaid, return receipt
requested, addressed to a party at its address stated below or to such
other address as such party may designate by written notice to the other
party in accordance with the provisions of this Section.
<TABLE>
<CAPTION>
Licensor: Licensee:
<S> <C>
Solid Oak Software, Inc. FlashNet Communications
1209 Da La Vina Street 1812 N. Forest Park Blvd.
Santa Barbara, CA 93101 Ft. Worth, Texas 76102
805-967-9853 817-332-8883
FAX 805-967-1614 FAX 817-332-9594
or
P.O. Box 6826
Santa Barbara, CA 93160
</TABLE>
Page 4
<PAGE>
12. MISCELLANEOUS.
12.1. This Agreement, including Attachment A, constitutes the entire agreement
between the parties hereto relating to the subject matter hereof and
supersedes all prior oral and written and all contemporaneous oral
negotiations, commitments and understandings of the parties.
12.2. Except as hereinafter provided, this Agreement may not be changed or
amended except in writing, and executed by both parties.
12.3. Any assignment of this Agreement shall be approved in writing by both
parties.
12.4. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of California excluding conflict of
law rules.
12.5. The parties agree that the state courts located in Santa Barbara County
(California) and the US District Court of the Southern District of
California, Los Angeles Division, shall have exclusive jurisdiction to
determine the validity, construction and performance of this Agreement
and the legal relations between the parties hereto and that venue in such
courts shall be proper.
12.6. No delay or failure by either party to exercise or enforce at any time
any right or provision of this Agreement shall be considered a waiver
thereof or of such party's right thereafter to exercise or enforce each
and every right and provision of this Agreement. A waiver to be valid
shall be in writing, but need not be supported by consideration. No
single waiver shall constitute a continuing or subsequent waiver.
12.7. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which shall constitute but
one and the same instrument. In construing or interpreting this
Agreement, the word or shall not be construed as exclusive, and the word
including shall not be limiting. This Agreement shall be fairly
interpreted in accordance with its terms without any strict construction
in favor of or against either party, and ambiguities shall not be
interpreted against the drafting party.
12.8. If any provision of this Agreement shall be held illegal, invalid or
unenforceable, in whole or in part, such provision shall be modified to
the minimum extent necessary to make it legal, valid and enforceable, and
the legality, validity and enforceability of the remaining provisions
shall not be affected thereby.
12.9. The liability will be limited to what Licensee owes to the Licensor and
no other damages, except in the event of fraud, gross negligence or
willful misconduct.
Page 5
<PAGE>
ACCEPTANCE OF AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written:
SOLID OAK SOFTWARE, INC.:
By: /s/ Marc Kanter
-------------------------------------------
Marc Kanter
SOLID OAK SOFTWARE, INC.
P.O. Box 6826
Santa Barbara, CA 93160
(805)967-9853 FAX (805)967-1614
LICENSEE ACCEPTANCE:
By: /s/ M. Scott Leslie
-------------------------------------------
M. Scott Leslie, President
FLASHNET COMMUNICATIONS
1812 N. Forest Park Blvd.
Ft. Worth, Texas 76102
817-332-8883 FAX 817-332-9594
[email protected]
Page 6
<PAGE>
ATTACHMENT A
PROJECT SCHEDULE
COMMENCEMENT DATE: January 1, 1996
DISTRIBUTION METHOD: Product to be bundled is CYBERsitter-TM- 2.11 for Windows
3.x and Windows95. TRIAL VERSION WHICH WILL BE CONVERTED TO FULL VERSION WITH A
PASSWORD PROVIDED UPON SUBSCRIPTION OF SERVICE OR FULL VERSION, AT THE REQUEST
OF LICENSEE.
A master disk will be provided BY LICENSOR.
SOFTWARE DESCRIPTION:
CYBERsitter - Internet blocking and monitoring application. A master disk and a
master copy of the manual on disk will be provided.
SPECIAL CONDITIONS:
1. Licensee hereby agrees to supply quarterly sales reports to Licensor of
all related sales where Licensee's product is involved.
2. Licensee hereby grants to Licensor the right to audit (at the expense of
the LICENSOR) any and all information that may relate to THE SOFTWARE'S
sales and royalty payments where the LICENSOR'S interests are involved.
IF SUCH AUDIT UNCOVERS A DISCREPANCY IN ROYALTY PAYMENTS DUE TO LICENSOR
TOTALING 5% OR MORE, SUCH BALANCE SHALL BE PAID BY LICENSEE AND
REASONABLE AUDIT EXPENSES SHALL BE PAID BY LICENSEE.
3. Solid Oak Software agrees that it will be a source of technical support
for the end user of said Software.
4. Licensee shall have the right to use the Solid Oak Software and
CYBERsitter logo in all advertising and promotions.
Page 7
<PAGE>
SHOPSITE DISTRIBUTOR AGREEMENT - [Certified Hosting Partner]
AGREEMENT
Covering ShopSite (tm) v3.3 Family of Products
This Agreement is by and between Open Market, Inc., a Delaware corporation with
a place of business at One Wayside Road, Burlington, MA 01803 ("OPEN MARKET"),
and the following Distributor:
Company Name: FlashNet Communications, Inc.
Attn: Scott Leslie, President
Address: 1812 N. Forest Park Blvd.
Phone: 817/332-8883
Fax: 817/870-0296
Email: [email protected]
URL: www.flash.net
WHEREAS, OPEN MARKET developed and owns the store creation and management
software known as "ShopSite v3.3" (the "Licensed Software"), which enables a
user to build commercial Internet storefronts for Merchants (as defined below);
and
WHEREAS, the term, "Web Designer, and/or Merchant," as used in this Agreement,
means a person or entity who is granted a license in accordance with this
Agreement and the Merchant License to access Distributor's Internet server(s) to
license, build, and/or maintain a Licensed Storefront (as defined below) using
the Licensed Software; and
WHEREAS, the term "Licensed Storefront," as used in this Agreement, means an
Internet storefront (as defined below) created and maintained by a Web Designer
or Merchant on Distributor's Internet server(s) pursuant to a license granted in
accordance with this Agreement, for the purpose of marketing and selling to
Shoppers (as defined below) a product or service or a group of related products
and/or services offered by the Merchant; and
WHEREAS, the term "Shopper," as used in this Agreement, means any person or
entity who accesses Distributor's Internet server to browse, view, shop, or
otherwise use a Merchant's Licensed Storefront and the term "storefront" shall
be defined as an Internet site that directs orders to a single location (for
example, an email address or a fax number); PROVIDED, that, if multiple
merchants are to be selling products on a single site where each merchant
requires separate order delivery destinations, then each merchant must have a
separate storefront; and
WHEREAS, OPEN MARKET desires to grant the nonexclusive rights to Distributor to
market, distribute and license the Software to provide Licensed Storefronts to
<PAGE>
Merchants, and Distributor desires to accept such rights on the terms set out in
this Agreement.
THEREFORE, in consideration of the foregoing and of the mutual agreements set
out below, the parties hereby agree as follows:
SECTION 1. APPOINTMENT.
1.1 NON EXCLUSIVE DISTRIBUTOR. OPEN MARKET hereby appoints Distributor as a
nonexclusive distributor of the Licensed Software, and Distributor hereby
accepts such appointment. Under this Agreement, Distributor shall have the
right to market, distribute, and license the Licensed Software to Web Designers
and/or Merchants, but only on terms protective of OPEN MARKET'S proprietary in
the Licensed Software.
1.2 SCOPE OF LICENSE AND RESTRICTIONS. The rights granted to Distributor in
connection with its appointment as a distributor under this Agreement are: (i)
to permit Web Designers and/or Merchants to use the Licensed Software to create
and maintain Licensed Storefronts on Distributor's internet server(s) and (ii)
to use the Licensed Software in connection with Licensed Storefronts, subject to
the following restrictions and limitations:
(a) the Licensed Software may not be reverse engineered, decompiled,
disassembled, modified, adapted, translated, or used for derivative works, by
Distributor, a Web Designer, a Merchant or any other person or entity controlled
by Distributor.
(b) each license granted by Distributor shall be valid for only one (1)
Licensed Storefront. If the Licensed Software ceases to be used by a Merchant or
in connection with a Licensed Storefront for any reason, Distributor shall not
have the right to resell the same copy of the Licensed Storefront to another
Merchant to use for another Storefront.
(c) Distributor will receive the object code version of the Licensed Software
and is not entitled to have access to the source code therefor.
1.3 CHANGES IN LICENSED SOFTWARE. OPEN MARKET shall have the right at any time
and from time to time, in its sole discretion, to change the design,
capabilities, or other characteristics of any Licensed Software. If OPEN MARKET
discontinues the production or marketing of any Licensed Software, OPEN MARKET
will give 60 days prior notice to Distributor.
1.4 LICENSE TERMS TO WEB DESIGNERS OR MERCHANTS. Distributor shall provide the
Licensed Software to Web Designers or Merchants only under the terms of a
license
CHP.AGREEMENT - PAGE 2 - 1/98.3.3
<PAGE>
agreement that includes provisions that are legally sufficient to (i)
notify the Web Designers or Merchant that the Licensed Software is protected by
copyright, (ii) notify the Web Designer or Merchant that the Licensed Software
is being licensed (not sold) and that ownership is not being transferred, (iii)
prohibit copying or transfer of the Licensed Software, (iv) restrict use of the
Licensed Software as provided in Section 1.2 of this Agreement, (v) disclaim all
warranties by OPEN MARKET with respect to the use of the Licensed Software,
including but not limited to any warranties of merchantability, fitness for a
particular purpose, or warranties arising from usage of trade or course of
dealing, and (vi) disclaim any liability of OPEN MARKET related to the Licensed
Software. In no event, however, does Distributor offer any assurances to Open
Market that such provisions will prohibit Web Designers or Merchants from
violating the provisions hereof.
1.5 UPGRADES. This Agreement applies only to the version of the Licensed
Software indicated in the preamble. OPEN MARKET may provide upgrades and/or
enhancements of the Licensed Software to Distributor from time to time, subject
to the payment of an upgrade license fee or pursuant to a separate maintenance
agreement, but it shall have no obligation to do so. Upgrades and enhancements
to the Licensed Software that are provided to Distributor shall automatically be
deemed included in the Licensed Software unless OPEN MARKET notifies Distributor
otherwise.
SECTION 2. DISTRIBUTOR'S DUTIES.
2.1 OBLIGATIONS RELATING TO WEB DESIGNERS OR MERCHANTS. Distributor shall be
solely responsible for marketing the Licensed Software to Web Designers or
Merchants and for providing any technical assistance, service, or support that
may be offered to Web Designers or Merchants relating to the Licensed Software.
Distributor may, however, refer Web Designers or Merchants to OPEN MARKET's
website.
2.2 TECHNICAL AND SALES CAPABILITIES. Distributor shall at all times during the
term of this Agreement, at its expense, endeavor (i) to provide technical
assistance, service, and support to Web Designers or Merchants, (ii) to explain
to Web Designers or Merchants the features and capabilities of the Licensed
Software, and (iii) to carry out its obligations under this Agreement.
2.3 MARKETING PLAN. Distributor shall be responsible for developing and
implementing its own marketing plan and system for distributing the Licensed
Software.
2.4 MARKETING PRACTICES. Distributor shall at all times conduct its business in
a manner that reflects favorably on the Licensed Software and upon OPEN MARKET'S
good name, goodwill, and reputation. Distributor shall not intentionally engage
in any deceptive, misleading, or unethical practices that may be detrimental to
OPEN MARKET.
CHP.AGREEMENT - PAGE 3 - 1/98.3.3
<PAGE>
2.5 LICENSED SOFTWARE LITERATURE/WEB MATERIALS. Distributor shall have the
right to copy and use content from OPEN MARKET'S web page (www.OPEN MARKET.com)
in any web-based or printed marketing materials; provided that Distributor shall
use reasonable efforts to notify OPEN MARKET of all such uses and shall comply
with reasonable requests of OPEN MARKET relating to Distributor's use of the
content. As an authorized Distributor, Distributor does not have the right to
use the OPEN MARKET in their URL nor OPEN MARKET logo or trademarks on their
pages. OPEN MARKET encourages Distributor to the use the ShopSite product logo
in any marketing material in support of the sell and promotion of the Licensed
Software.
2.6 COMPLIANCE WITH LAWS. Distributor shall conduct its business in
compliance with all applicable laws and regulations in any way related to the
Licensed Software and to the performance of Distributor's and OPEN MARKET'S
respective duties under this Agreement. Without limiting the generality of
the foregoing, Distributor and OPEN MARKET shall not distribute or license
any Licensed Software in violation of any United States law relating to the
export or re-export of goods or technical information, including without
limitation, the Export Administration Act of 1979 as amended from time to
time and any regulations promulgated thereunder.
SECTION 3. TECHNICAL ASSISTANCE.
3.1 LICENSED SOFTWARE INFORMATION. OPEN MARKET shall make available to
Distributor such technical information as it makes available to its other
distributors generally, including phone support for Distributor's technical
support personnel, subject to such requirements and limitations as OPEN MARKET
may establish from time to time. Distributor is not entitled to receive any
other technical information relating to the Licensed Software.
3.2 ASSISTANCE TO WEB DESIGNERS AND MERCHANTS. OPEN MARKET shall not be
obligated to provide technical assistance of any kind to Distributor's Web
Designers and Merchants. So long as OPEN MARKET makes e-mail technical support
available to its customers, OPEN MARKET shall make such support available to
Distributor's Web Designers and Merchants, but OPEN MARKET shall have the right,
in its sole discretion, to determine the scope of such support.
3.3 ADDITIONAL ASSISTANCE. In the event OPEN MARKET and Distributor agree on
the need to provide special assistance to Distributor related to technical
aspects of the Licensed Software or related to the preparation of literature,
technical materials, or promotional materials, Distributor shall promptly
reimburse OPEN MARKET for any out-of-pocket expenses approved in writing in
advance by Distributor and incurred by OPEN MARKET in connection with rendering
such assistance. OPEN MARKET may also charge reasonable hourly or per diem rates
for some or all of the services rendered
CHP.AGREEMENT - PAGE 4 - 1/98.3.3
<PAGE>
under this provision, provided that OPEN MARKET and Distributor agree in
writing on the nature and cost of those services prior to their delivery.
SECTION 4. TERMS AND CONDITIONS
4.1 ACCESS TO SOFTWARE. Distributor shall have access to a single copy of the
Licensed Software in binary code and to a single authorization code for each
unit of the Licensed Software sold.
4.2 AUTHORIZATION KEYS. When Distributor sells 10 units or more per month for a
period of three consecutive months, OPEN MARKET shall set up a special password
protected area on its Internet server where Distributor will be able to generate
software authorization keys that will unlock a copy of the Licensed Software to
a specific URL. The keys will be used by Distributor to grant access to Web
Designers and Merchants to the Licensed Software pursuant to a license agreement
in accordance with this Agreement.
4.3 LICENSE FEES. Distributor shall pay a license fee, as set out in Schedule A
for each license granted to a Web Designer or Merchant. Distributor shall become
obligated to pay the license fee immediately upon generating a software
authorization key for the license.
4.4 BILLING AND TERMS OF PAYMENT.
(a) OPEN MARKET shall invoice Distributor on a monthly basis for license fees
payable under this Agreement, according to the quantity of URLs that are
captured by the OPEN MARKET automatic authorization generator, as adjusted for
errors and duplications by OPEN MARKET billing. Distributor shall as soon as
reasonably possible notify OPEN MARKET of any discrepancies or claimed
discrepancies between OPEN MARKET's invoice and the number of authorization keys
generated by Distributor.
(b) Payment shall be made by Distributor within thirty (30) days after
Distributor's receipt of OPEN MARKET's invoice. Distributor shall pay interest
on all late payments at a rate of eighteen percent (18%) per annum, compounded
annually.
(c) If any payment (except those disputed in good faith) under this Agreement
is more than thirty (30) days late, after written notice from OPEN MARKET, OPEN
MARKET shall have the right to immediately terminate this Agreement and all
licenses granted hereunder that relate to the late payment and to disable the
automatic authorization generator. Distributor shall indemnify and hold harmless
OPEN MARKET from and against any and all liabilities and expenses that may be
incurred by OPEN MARKET arising out of or related to termination of this
Agreement under this Paragraph, including
CHP.AGREEMENT - PAGE 5 - 1/98.3.3
<PAGE>
but not limited to any and all liabilities and expenses arising out of or
related to claims asserted by Web Designers or Merchants.
(d) Distributor shall be responsible for all reasonable costs of collection
incurred after written notice of late payment, including reasonable legal fees.
SECTION 5. TRADEMARKS AND INTELLECTUAL PROPERTY.
5.1 OWNERSHIP OF THE LICENSED SOFTWARE. OPEN MARKET retains all rights, title
and ownership in and to the Licensed Software, including but not limited to the
current version of the Licensed Software and any and all modifications,
upgrades, bug fixes, modules, additions, templates, and corrections related to
the Licensed Software, whether created by OPEN MARKET, third parties, or any
other person or entity. This Agreement shall not be construed to transfer or
sell to Distributor any rights, title, ownership, or other interest in or to the
Licensed Software or any part thereof, except for the limited license granted
hereunder.
5.2 USE OF OPEN MARKET'S TRADEMARKS. Distributor may use OPEN MARKET's
trademarks, service marks, logos, and designations (all referred to in this
Agreement as "Trademarks") to refer to the Licensed Software in accordance with
such guidelines as OPEN MARKET may provide to Distributor. Distributor shall not
use such Trademarks except as specifically provided in this Agreement.
Distributor shall not (i) dispute or deny the validity of any of the Trademarks,
(ii) claim any right, title, or interest in or to any such Trademarks (including
but not limited to any attempt to register the same in any jurisdiction), or
(iii) knowingly do anything that could adversely affect OPEN MARKET's rights in
such Trademarks. Upon expiration or termination of this Agreement, Distributor
shall immediately cease all use of the Trademarks and shall not thereafter use
any of them or any confusingly similar trademarks.
5.3 TRADEMARK AND COPYRIGHT NOTICE. Distributor shall not remove or alter any
of the Trademarks, copyright notices, confidentiality legends, or other
intellectual property notices that are included in the Licensed Software. The
only exception to this provision is the OPEN MARKET logo in the bottom lefthand
corner of the footer in the back office of the Licensed Software. This logo, and
only this logo, may be removed and replaced by an icon that the Distributor, Web
Designer or Merchant chooses.
5.4 USE OF CONFIDENTIAL INFORMATION. Each party acknowledges that it, as
"Recipient", may receive during the term of this Agreement, certain confidential
information belonging to the other (as "Discloser"), including any and all
information relating to Discloser, its business, or its products or services
that is not generally known to the public at the time disclosed or thereafter
("Confidential Information"). Recipient shall hold Discloser's Confidential
Information in confidence and shall not use or disclose any Confidential
information, or permit any person to examine or copy any confidential
Information
CHP.AGREEMENT - PAGE 6 - 1/98.3.3
<PAGE>
except as necessary for the exercise of Recipient's rights under this
Agreement. All obligations of Recipient relating to Discloser's Confidential
Information shall survive the expiration or termination of this Agreement.
The obligations in this Section 5.4 will not apply to the extent that the
Recipient can demonstrate that the Confidential Information (i) was generally
available to the public at the time of disclosure; (ii) became generally
available to the public after its disclosure other than through any act or
omission of the Recipient in breach of this Agreement, (iii) can be
established by written evidence to have been in the possession of Recipient at
the time of disclosure or to have been independently developed by the
Recipient without the use of the Disclosure's Confidential Information; or
(iv) is received, other than under an obligation of confidentiality, from a
third party not under a duty of confidentiality to the Discloser and without
breach of this Agreement; or it is ordered to disclose the disclosed
information in judicial proceedings pursuant to applicable federal, state or
local law, regulation, court order or other legal process or law, provided
that prior to such disclosure the Recipient shall give notice to the other
party so that the other party may take reasonable steps to oppose or limit
such disclosure. All Confidential Information furnished under this Agreement
shall remain the property of the Discloser and shall be returned to it or
destroyed promptly at its request together with all copies made of such
Confidential Information by the Recipient. Such destruction shall be
certified in writing to the Discloser by an authorized officer of the
Recipient.
5.5 PROTECTION OF LICENSED SOFTWARE. Distributor shall endeavor to keep the
Licensed Software in a secure place under access and use restrictions reasonably
adequate to ensure compliance with all of the terms of this Agreement relating
to Distributor's use of the Software and to prevent copying thereof.
5.6 INFRINGEMENT CLAIMS. Distributor shall promptly notify OPEN MARKET of any
known or suspected breach of OPEN MARKET's proprietary rights relating to the
Licensed Software and shall cooperate without charge in OPEN MARKET'S efforts to
protect such proprietary rights. OPEN MARKET shall indemnify Distributor and
defend at OPEN MARKET's sole cost including reasonable attorney's fees any
action brought against Distributor based on an allegation that any Licensed
Software, copyright or trademark infringes a United States copyright or trade
secret, and OPEN MARKET shall pay all costs and damages made in settlement or
awarded as a result of any such action. If a final injunction shall be obtained
in any such action restraining use of the Licensed Software by any customer of
Distributor, or if OPEN MARKET believes that any Licensed Software may become
the subject of a claim of infringement, OPEN MARKET shall, at its option and at
its expense, (i) procure for Distributor's customer the right to continue using
the Licensed Software, (ii) replace or modify the Licensed Software so that it
becomes non-infringing or (iii) refund to Distributor all license fees actually
paid by Distributor to OPEN MARKET during the immediately preceding twelve (12)
months or period in which the Licensed Software was found or suspected to be
infringing, whichever is later, whereupon Distributor shall cease distributing
the
CHP.AGREEMENT - PAGE 7 - 1/98.3.3
<PAGE>
Licensed Software. Notwithstanding the foregoing, OPEN MARKET shall have no
obligation with respect to any action brought against Distributor based on an
allegation of copyright or trade secret infringement unless OPEN MARKET is
notified by Distributor in writing of such action and is allowed reasonable
control of the defense of such action and all negotiations for its settlement
or compromise at OPEN MARKET'S sole cost. OPEN MARKET shall have no liability
or obligation with respect to any infringement if such infringement is caused
by (i) compliance with designs, guidelines, plans or specifications of
Distributor; (ii) use of the Licensed Software by Distributor in an
application or environment other than as specified in the instructions for
installing and using the Licensed Software; (iii) modification of the
Licensed Software by any party other than OPEN MARKET or the combination,
operation or use of the Licensed Software with other product(s) not supplied
by OPEN MARKET; or (iv) use of the Licensed Software with other products or
services where the Licensed Software would not by itself be infringing.
Distributor agrees to indemnify and hold harmless OPEN MARKET from and
against all liabilities, obligations, costs, expenses and judgments,
including court costs, reasonable attorneys fees and expert fees, arising out
of any of the circumstances stated in items (i) - (iii) of this section 5.6.
Except where OPEN MARKET is obligated to indemnify Distributor hereunder, and
without limiting any other obligation of Distributor to indemnify OPEN MARKET
hereunder, Distributor shall indemnify, defend and hold OPEN MARKET harmless
from any and all claims, damages, losses, liabilities, costs and expenses
(including reasonable attorney's fees) directly or indirectly brought against
OPEN MARKET by any third party using Distributor's services, arising out of
Distributor's breach of this Agreement. These provisions state OPEN MARKET's
entire liability with respect to infringement of copyrights, trade secrets or
other third party intellectual property rights.
5.7 EQUITABLE REMEDIES. Distributor acknowledges that OPEN MARKET will be
irreparably harmed by any material breach by Distributor of the material
provisions of this Section 5. Therefore, in addition to any other remedies that
OPEN MARKET may have, OPEN MARKET shall be entitled to an injunction, issued by
any court having jurisdiction, restraining any such violation of this Section 5
or specific performance if applicable. Distributor hereby waives, with respect
to any future such dispute related to this Section 5, any defense based on the
arguement that OPEN MARKET will not be irreparably harmed by a material breach
or that OPEN MARKET has available to it an adequate remedy at law for such
breach.
SECTION 6. WARRANTIES AND REMEDIES
6.1 WARRANTY. OPEN MARKET warrants to Distributor that the Licensed Software
will conform substantially to any technical documentation provided to
Distributor under this Agreement for a period of thirty days following
installation. OPEN MARKET does not warrant that the Licensed Software will be
error free or operate without interruption. OPEN MARKET shall not be
responsible for any software other than the Licensed
CHP.AGREEMENT - PAGE 8 - 1/98.3.3
<PAGE>
Software and shall not be responsible for defects in the Licensed Software
that are attributable or related to the use of any product not created by
OPEN MARKET or the improper use of, modifications or changes made to, the
Licensed Software by the Distributor or any third party. This warranty is
made solely to Distributor and Distributor shall be responsible for any
Warranty to, or claims by, any Merchant, Web Designer or Shopper.
Distributor's sole remedy, and OPEN MARKET's sole obligation for any breach
of warranty shall be the repair or replacement of defective Licensed
Software. THE WARRANTIES SET OUT IN THIS AGREEMENT ARE PROVIDED IN LIEU OF
ALL OTHER EXPRESS OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
CONFORMANCE TO ANY MERCHANT'S SPECIFICATIONS, WHICH ARE HEREBY SPECIFICALLY
DISCLAIMED.
6.2 LIMITATION OF LIABILITY. IN NO EVENT SHALL OPEN MARKET'S LIABILITY UNDER
THIS AGREEMENT EXCEED THE AGGREGATE AMOUNT OF FEES RECEIVED BY OPEN MARKET
HEREUNDER FROM. NEITHER PARTY SHALL BE LIABLE FOR DIRECT, INDIRECT,
CONSEQUENTIAL, SPECIAL, OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATED TO THE
LICENSING OR USE OF ThE LICENSED SOFTWARE, DEFECTS IN THE LICENSED SOFTWARE, OR
ANY PERSON'S INABILITY TO USE ThE LICENSED SOFTWARE FOR ANY REASON, INCLUDING
BUT NOT LIMITED TO DAMAGES RELATING TO LOSS OF DATA, DOWN TIME, TRANSACTION
ERRORS, OR OTHER LOSSES TO THE WEB DESIGNERS, MERCHANTS, SHOPPERS, OR ANY OTHER
PERSON.
6.3 NO WARRANTY TO WEB DESIGNERS OR MERCHANTS. Neither party will warrant the
Licensed Software to Web Designers, Merchants or Shoppers, and each party shall
be solely responsible for any representations or warranties made to Web
Designers, Shoppers or Merchants by it with respect to the operation of the
Software.
6.4 INDEMNIFICATION. Each party agrees to indemnify (as the "Indemnifying
Party") and hold harmless the other (the "Indemnified Party") from and against
any and all claims, damages, liabilities, costs, and expenses (including
reasonable attorney's fees) resulting from, arising out of, or related in any
way to (i) any relationship between the Indemnifying Party and Web Designers or
Merchants, (ii) any representation made by Indemnifying Party to a Web Designer
or Merchant, (iii) any Web Designer's, Merchant's or Shopper's use of
Distributor's Internet server, or (iv) any failure of Indemnifying Party to
comply with any of its obligations under this Agreement. Notwithstanding the
above, neither party shall be required to indemnify and hold harmless the other
for claims, damages, liabilities, costs and expenses resulting from, arising out
of, or related in any way to the gross negligence or willful misconduct of the
other party. Nothing in this
CHP.AGREEMENT - PAGE 9 - 1/98.3.3
<PAGE>
section 6.4 shall be construed to mean that Distributor will in any way
indemnify OPEN MARKET for the failure of OPEN MARKET's products to perform in
accordance with the instructions for installing and using the Licensed
Software.
SECTION 7. TERM AND TERMINATION.
7.1 TERM AND RENEWAL. This Agreement shall continue in full force and effect
for a period of one year from its execution by both parties and shall
automatically renew for additional one-year terms thereafter, unless either
party gives written notice of its desire not to renew the Agreement at least
thirty (30) days prior to the end of the then-current term.
7.2 TERMINATION UPON BREACH. Either party may terminate this Agreement if the
other party breaches its obligations hereunder and fails to cure the breach
within thirty (30) days (or, in the case of any non-payment hereunder, within
ten (10) days) after receiving written notice from the non-breaching party
specifying the nature of the breach.
7.3 SUSPENSION OF PERFORMANCE. Immediately upon any material breach by
Distributor and after written notice to Distributor therefor, OPEN MARKET shall
have the right to suspend its performance hereunder and to reasonably restrict
Distributor's access to additional authorization keys.
7.4 EFFECT OF TERMINATION UPON MERCHANTS. Termination of this Agreement shall
not affect the validity of any licenses granted to Web Designers or Merchants in
accordance with this Agreement prior to the effective date of termination.
7.5 LIABILITY UPON TERMINATION. Neither party shall have any liability to the
other by reason of the expiration or termination of this Agreement for
compensation, reimbursement, or damages of any kind, including without
limitation any loss of prospective profits on anticipated sales, loss of
goodwill, or investments made in reliance on this Agreement. Each party
acknowledges that neither has received assurances from the other that its
business relationship will continue beyond any given one year term established
in this Agreement, that it will obtain any anticipated amount of profits in
connection with this Agreement, or that it will recoup its investment in the
promotion of the Licensed Software.
SECTION 8. GENERAL PROVISIONS.
8.1 RELATIONSHIP BETWEEN THE PARTIES. Neither party to this Agreement and none
of their respective agents, employees, representatives, or independent
contractors shall (i) be considered an agent, employee, or representative of the
other party for any purpose whatsoever, (ii) have any authority to make any
agreement or commitment for the other
CHP.AGREEMENT - PAGE 10 - 1/98.3.3
<PAGE>
party or to incur liability or obligation in the other party's name or on its
behalf; or (iii) represent to third parties that any of them has any right to
bind the other party hereto. Nothing contained in this Agreement shall be
construed or interpreted as creating an agency, partnership, or joint venture
relationship between the parties.
8.2 NOTICES. Without precluding any other sufficient form of notice, all
notices, demands, or other communications under this Agreement shall be deemed
given if sent by first class, certified mail (return receipt requested), fax,
electronic mail, or overnight courier, to the address of the party as set out in
this Agreement or to another address specified by the party.
8.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties pertaining to its subject matter, and it supersedes any and all
written or oral agreements previously existing between the parties with respect
to such subject matter hereof. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by both parties.
8.4 WAIVER. Either party's failure to insist on strict performance of any
provision of this Agreement shall not be deemed a waiver of any of its rights
or remedies, nor shall it relieve the other party from performing any
subsequent obligation strictly in accordance with the terms of this
Agreement. No waiver shall be effective unless it is in writing and signed by
the party against whom enforcement is sought. Such waiver shall be limited to
provisions of this Agreement specifically referred to therein and shall not
be deemed a waiver of any other provision. No waiver shall constitute a
continuing waiver unless the writing states otherwise.
8.5 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of, and
shall be binding upon, the respective heirs, legal representatives, successors,
and assigns of each of the parties.
8.6 ASSIGNMENT. This Agreement may not be assigned by either party without the
prior written consent of the other; provided, however, that no such consent
shall be required in connection with the assignment of this Agreement by OPEN
MARKET to a successor to all or substantially all of the business to which this
Agreement relates. Any attempted assignment in violation of this provision shall
be void and shall be deemed a breach of this Agreement.
8.7 SECTION HEADINGS. The section headings in this Agreement are included for
convenience only and shall not be deemed to limit or otherwise affect the
construction of any of its provisions.
8.8 SEVERABILITY. In the event that any of the provisions of this Agreement
shall be held by a court or other tribunal of competent jurisdiction to be
unenforceable, such provision
CHP.AGREEMENT - PAGE 11 - 1/98.3.3
<PAGE>
will be enforced to the maximum extent permissible and the remaining
portions of this Agreement shall remain in full force and effect.
8.9 PARTIES IN INTEREST. Nothing in this Agreement is intended to confer any
rights or remedies on any persons other than the parties to it. This Agreement
shall not be construed to relieve or discharge any obligations or liabilities of
third persons, nor shall it be construed to give third persons any right of
subrogation or action over against any party to this Agreement.
8.10 FORCE MAJEURE. Neither party shall be responsible for any failure to
perform due to unforeseen circumstances or to causes beyond that party's
reasonable control, including but not limited to acts of God, war, riot,
embargoes, acts of civil or military authorities, compliance with governmental
laws, rules, or regulations, accidents, strikes, labor disputes, power outages,
or shortages. Failure to perform shall be excused during the continuance of
such circumstances, but this Agreement shall otherwise remain in effect.
8.11 CHOICE OF LAW; CHOICE OF FORUM. This Agreement shall be governed by and
construed in accordance with the law of the Commonwealth of Massachusetts
(except that body of laws controlling conflict of laws). Each of the parties
consents to the jurisdiction of the courts located in the Commonwealth of
Massachusetts with respect to all matters relating to this Agreement and agrees
that all litigation relating to this Agreement shall take place in courts
located in the Commonwealth of Massachusetts.
IN WITNESS OF THE FOREGOING, the parties have caused this Agreement to be
executed on the dates indicated below. This Agreement shall be deemed effective
on the date it is signed by OPEN MARKET.
CHP.AGREEMENT - PAGE 12 - 1/98.3.3
<PAGE>
OPEN MARKET, INC. /s/ FlashNet Communications
----------------------------------------
Distributor
By /s/ Greg Gibson By /s/ M. Scott Leslie
------------------------------- -----------------------
Name: Greg Gibson Name: M. Scott Leslie
---------------------------- --------------------
Title: Director Title: President
--------------------------- -------------------
hereunto duly authorized hereunto duly authorized
Date: 6/11/98 Date: 6/11/98
---------------------------- --------------------
CHP.AGREEMENT - PAGE 13 - 1/98.3.3
<PAGE>
SCHEDULE A
To join the ShopSite Certified Hosting Partner program, OPEN MARKET
requires upon execution of this Agreement a sign-up fee of $(Confidential
treatment has been requested), for which OPEN MARKET shall provide 8 copies
of ShopSite Manager or $(Confidential treatment has been requested) in credit
for an equivalent mix of Manager and Pro, one day of training for both
internal tech support personnel and external Web Designers associated with
Distributor's reseller's program, ability to participate in OPEN MARKET'S
discount program, plus other program elements detailed in OPEN MARKET's CHP
program explanation document.
All discounts are based on OPEN MARKET's announced List price for ShopSite v3.3
family of products. OPEN MARKET reserves the right to change the List price of
ShopSite v3.3 family of products, but agrees to give Distributor 30 days notice
prior to that change following ?????????????????????????????? beginning with
v3.4 and later. OPEN MARKET and Distributor shall negotiate a separate price
schedule to cover ShopSite v3.4 family of products and any new products that
OPEN MARKET introduces.
OPEN MARKET offers three discount rates for ShopSite Manager and Pro to
its Distributors. Level I is (Confidential treatment has been requested) off
List; Level II is (Confidential treatment has been requested) off List; Level
III is (Confidential treatment has been requested) off List.
OPEN MARKET applies the following point value to each product
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------
SS Pro = 10 points SS Manager = 5 points SS Express = 0 points
- ------------------------------------------------------------------
</TABLE>
1) The first 90 days of the contract, ShopSite v3.3 family of products
licenses will be sold at the Level III discount price.
2) After the close of the first 90-day period and moving forward, OPEN MARKET
evaluates price Level based on a rolling 90-day period. If 50 points or
less are sold on a rolling 90-day period, then the discount drops to the
Level I price. If sales are 51 points or more for that 90-day rolling
period, then the discount holds at the Level II discount price. To maintain
the Level II discount price, the Distributor must maintain a unit sales
volume of between 51 and 600 units, calculated on a rolling 90-day basis.
If Distributor moves more than 601 units in a rolling 90-day period, then
Level III discount is applied.
SHOPSITE MANAGER AND PRO DISCOUNT LEVELS ARE CALCULATED ON A ROLLING 90-DAY
BASIS:
CHP.AGREEMENT - PAGE 14 - 1/98.3.3
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Level I =(Confidential off list Level II =(Confidential off list Level III =(Confidential off list
treatment has treatment has treatment has
been requested) been requested) been requested)
- --------------------------------------------------------------------------------------------------------------
1 to 50 points 51-600 points 601 and > points
- --------------------------------------------------------------------------------------------------------------
PRODUCT POINTS
- --------------------------------------------------------------------------------------------------------------
Pro = 10 points Manager = 5 points Express = 1 point
- --------------------------------------------------------------------------------------------------------------
</TABLE>
2) Example:
1/97 through 3/97: good faith starter discount - Level II, (Confidential
treatment has been requested) off list
4/2/97: discount calculated by looking at points from 4/1/97
through 3/3/97 (rolling 90 days); if 50 or less, it
drops to Level I; if 51 or greater, it holds at Level II.
3) Beginning with the second 90-day period and beyond, if unit sales exceed
600 points sold during a rolling 90-day period the discount moves to the
Level III discount price.
SHOPSITE EXPRESS PRICE SCHEDULE:
1) OPEN MARKET will allow Distributor to have unlimited copies of Express at
(Confidential treatment has been requested) during the term of this
contract.
CHP.AGREEMENT - PAGE 15 - 1/98.3.3
<PAGE>
[LOGO]
WHOLESALE USAGE AGREEMENT
PSINET INC. RETAILER: FLASHNET COMMUNICATIONS, INC.
510 Huntmar Park Drive Address: 1812 N. Forest Park Blvd.
Herndon, VA 20170 Ft. Worth, TX 76102
Phone:800.827.7482ext1713 Phone: 817.332.8883
Facsimile:703.397.5318 Facsimile: 817.332.9594
[email protected] Electronic Mail: [email protected]
BUSINESS CONTACT: RONALD BOWMAN BUSINESS CONTACT: SCOTT LESLIE
Title: ACCOUNT EXECUTIVE Title: PRESIDENT
TECHNICAL CONTACT: BOB CONANT TECHNICAL CONTACT: CHRIS BELLOMY EXT. 242
Title: Wholesale Support Coordinator LEE THURBURN EXT. 229
Phone: 703.904.4100 ----------------------
Title: V.P. Sys Ops
----------------------
Phone: 888 FLASHNET,
---------------------
Fax: 817 332-9594
---------------------
- -------------------------------------------------------------------------------
THIS AGREEMENT is made by and between PSINet Inc., a State of New York
corporation. ("PSINet") and the wholesale dialup services customer
("Retailer") of PSINet's wide-area computer network system in order for
Retailer to obtain from PSINet access to the PSINet's network and the
Internet for the benefit of Retailer's individual customers desiring dialup
or "switched" network access ("Access") as further described below. In
consideration of the mutual promises and covenants contained herein, the
parties agree, intending to be legally bound, as follows:
1. DEFINITIONS. The following terms shall have the following meanings for
purposes of this Agreement:
1.1 "AUTHORIZED USER" shall mean any person authorized by a Subscriber to
have an account on a Host. Retailer may not permit any person or entity
other than an Authorized User to Access to the Network, except with the
written consent of PSINet. No person may be authorized to use the Network
by means of a connection between a Host owned or leased by a Subscriber and
a Host owned or leased by a person other than a Subscriber.
1.2 "EFFECTIVE DATE" of this Agreement is the date accompanying the last
Party to sign's signature.
1.3 "HOST" shall mean a computer with a network (or IP) address.
1.4 "MARK" is any name, logo, trade name, trademark, copyright, service
mark or other intellectual property right owned by PSINet or its Suppliers.
1.5 "NETWORK" shall mean the combination of computer hardware, computer
software programs and data transmission facilities operated by PSINet (or
its duly authorized subcontractors) which will permit computers operated by
Subscribers to communicate with computers at remote locations which are
operated by others via the TCP/IP communications protocol and to provide
access to Internet.
1.6 "POP" shall mean a Network point-of-presence where PSINet equipment
will be located and these POPs will be positioned throughout the world in
order to provide Authorized Users Access via telephone calls.
1.7 "SUBSCRIBER" shall mean any individual person authorized by Retailer
to have Access to the Network, although this Access is not to be used with
Local Area Network (LAN) applications. Retailer may not permit any entity
other than a Subscriber to have Access to the Network, except with the
written consent of PSINet.
PSINET WHOLESALE USAGE AGREEMENT WITH FLASHNET
1 of 8
<PAGE>
2. PSINET OBLIGATIONS.
2.1 GENERAL. PSINet agrees to provide Retailer with Access for Subscribers
to the Network and the Internet. The fees to be paid by Retailer to PSINet
for such Access services are set forth below in Section 4.
2.2 PROVISION OF ACCESS. Throughout the term of this Agreement, PSINet
shall provide Subscribers with Access at the levels then provided and
supported by PSINet. A recent estimated listing of Network POPs can be
retrieved through access to PSINet's world-wide web site at
'http://www.psi.net'. PSINet reserves the right to install new POPs and/or
to close existing POPs as it, in its sole discretion, deems appropriate. In
the event PSINet deems it necessary to close an existing POP, PSINet shall
provide Retailer with thirty (30) days written notice thereof. Retailer may
order such Access on behalf of its present or future Subscribers and there
shall be no limit on the number of Subscribers who may use the Network;
provided, however, that PSINet may refuse service to Retailer because there
is insufficient capacity on the Network or in the POP to provide the Access
amount requested. In the event PSINet determines there to be such lack of
capacity, then the provisions of Section 4.10 herein do not apply to the
effected POP during any month for which such insufficient capacity occurs.
2.3 ISDN SERVICE. PSINet shall also make ISDN 64k and 128k Internet
connection services available to Retailer for Subscribers. The fees to be
paid by Retailer for such services are set forth below.
2.4 QUALITY OF SERVICE. PSINet shall provide to Retailer (for its
Subscribers) Internet connection services that meet reasonable commercial
standards, including, but not limited to, accessibility, latency, packet
loss, and throughput. PSINet shall keep and maintain its Network in good
condition and repair. The Network shall be properly maintained, serviced
and upgraded by PSINet as it, in its sole discretion, shall determine is
necessary in order to ensure connectivity to Subscribers. PSINet shall
maintain its Network to ensure at least 99% availability.
2.5 REPORTS AND INFORMATION REGARDING SERVICE.
2.5.1 ACCESS TO NETWORK MONITORING SYSTEMS. PSINet shall provide
Retailer with read-only access to all applicable network monitoring
systems used by PSINet to monitor the Network.
2.5.2 PSINET NETWORK OUTAGES. PSINet shall provide to Retailer
prompt notification of any Network outages that affect Subscribers.
When possible, at least three days in advance notice of planned
outages shall be given to Retailer so that Subscribers may be alerted.
2.6 PSINET TECHNICAL SUPPORT. PSINet agrees to provide Retailer, at no
additional charge, reasonable back-end technical support and problem
escalation support for Access and Network WHICH SHALL BE AVAILABLE 24X7.
However, under no circumstances is PSINet obligated to provide technical
support and problem escalation support to Subscribers.
2.7 TERMINATION OF ACCESS. PSINet shall terminate the Access rights of any
Subscriber as soon as is reasonably practicable upon written notice from
Retailer to do so or upon mutually agreed upon electronic process with
receipt confirmed, but shall have no liability in connection therewith.
SUCH ELECTRONIC PROCESS SHALL PROVIDE RETAILER WITH THE ABILITY TO ADD OR
DELETE SUBSCRIBERS IN A NEAR REAL-TIME BASIS.
Further, Retailer and its Subscribers are required to comply with
PSINet's Net-Abuse Policy ("Policy") as currently set forth on PSINet's
Web site (http://www.psi.net/csg/netabuse.html) and as the Policy may be
modified by PSINet in its sole discretion from time to time. Any
content, material, message, or data made available or transmitted
through the Network, wherever it is sent from, viewed, received, or
retrieved, that is in violation of (i) any local, state, federal or
international law, regulation or treaty; (ii) the Policy; or (iii) any
community standard or accepted Internet policy is prohibited. In the
event of violation of the foregoing by any Subscriber, PSINet will
advise Retailer accordingly, and PSINet reserves the right, in its sole
discretion, to terminate such Subscribers Access immediately with
written notice to Retailer. In the event of violation of the foregoing
by Retailer THEMSELVES, PSINet may deem such violation a material breach
of this Agreement and may, in its sole discretion, terminate this
Agreement with written notice to Retailer, but without the cure period
specified in Section 5 below.
3. RETAILER OBLIGATIONS.
PSINET WHOLESALE USAGE AGREEMENT WITH FLASHNET
2 of 8
<PAGE>
3.1 RETAILER RESPONSIBILITY FOR ITS SUBSCRIBERS. Retailer shall be
responsible for all customer support, pricing and service plans, billing
and collections with respect to its own Subscribers.
3.2 RETAILER CONNECTION TO THE NETWORK. Retailer shall provide, at its own
expense, the telecommunications circuit for its connection to the Network
which shall run between the best suited PSINet POP (as determined by
PSINet) and the Retailer's operations center (which includes the local
telephone company or Competitive Access Provider circuits). In addition,
Retailer shall provide an estimate of the traffic it anticipates between
Retailer's network and PSINet's Network.
3.3 SUBSCRIBER EQUIPMENT. PSINet shall not be responsible for the
installation, operation or maintenance of any computer equipment or
computer software programs provided by Retailer or any Subscriber.
3.4 OPTIONAL PEERING. In addition to the connection of Retailer's network
and PSINet's Network as set forth in Section 3.2, Retailer may, but shall
not be obligated to, provide telecommunications circuits interconnecting
Retailer's network with the Network at a location or locations agreed upon
by the parties. The parties will use these circuits only for traffic
originating within one party's network (or the networks of its Subscribers)
and destined only to the other party's network (or the networks of its
Subscribers) in accordance with PSINet's "ISP Peering Agreement" which
shall be incorporated herein in the event of such optional peering.
3.5 REQUIRED FORECAST. RETAILER SHALL PROVIDE TO PSINET, ON A MONTHLY
BASIS A FOUR-MONTH ROLLING FORECAST OF THE ESTIMATED NUMBER OF SUBSCRIBERS
THAT WILL BE SERVED BY EACH POP. RETAILER AGREES TO PROVIDE PSINET WITH
THE FORECAST NO LATER THAN FIRST OF EACH MONTH DURING THE TERM OF THIS
AGREEMENT. RETAILER AND PSINET WILL WORK CLOSELY TO ENSURE ACCURACY OF
THESE FORECASTS. IF RETAILER CHANGES THE CURRENT USAGE PLANS OR IMPLEMENTS
NEW ONES, THE PARTIES AGREE TO NEGOTIATE IN GOOD FAITH ANY APPROPRIATE
CHANGES IN THE INDEX FACTORS TO REFLECT SUCH CHANGES.
4. PRICE AND PRICING TERMS.
4.1 ADVANCED PAYMENT. Retailer agrees to pay to PSINet in advance of
Retailer's first Subscriber subscribing to the Network a one-time,
non-refundable fee of (Confidential treatment has been requested). This
fee shall be applied to future, monthly Base Charge payments after the
Ramp Period as set forth below in this Section.
4.2 BASE CHARGE. Upon the Effective Date, and on the first day of each
month thereafter throughout the initial or any successive terms of this
Agreement, Retailer agrees to pay PSINet for each Subscriber who is then
or was at any time during the immediately preceding month authorized to
use the Network a Base Charge pursuant to the following schedule and
subject to adjustments as provided below:
TOTAL # OF SUBSCRIBERS USING THE NETWORK APPLICABLE BASE CHARGE
(Confidential treatment (Confidential treatment
has been requested) has been requested)
additional adjustment
ADDITIONAL ISDN CHARGES:
Initial-B-channel ISDN line (64Kbps)
for up to 100 hours per month Same as above
Additional Hours (above 100) Same as above
(Confidential treatment (Confidential treatment
has been requested) has been requested)
(Confidential treatment
has been requested) (all
usage)*
PSINET WHOLESALE USAGE AGREEMENT WITH FLASHNET
3 of 8
<PAGE>
* In one-minute increments rounded upward
* ISDN pricing will be in addition to the applicable Base Charges.
The applicable Base Charge above is to be applied to all Subscribers
irrespective of the rate that previously was applied to that group of
Subscribers. For example, if there are a sufficient number of Subscribers
to satisfy the second-tier pricing requirement, the applicable Base Charge
shall apply to all Subscriber Base Charges. Should the amount of
Subscribers subsequently fall below such tier, incurring a higher Base
Charge, the applicable Base Charge shall be adjusted to the higher Base
Charge for all Subscribers as indicated in this section.
The payment to be made for the initial month of Access for any Subscriber
shall include (i) an amount equal to the applicable Base Charge for such
initial month, prorated in the case of a partial month, and (ii) an amount
equal to such Base Charge as payment in advance for the next month of
Access. If one of the Subscribers cancels service within any month, there
will either be no charge or a pro-rated charge depending upon the time of
that Subscriber's service cancellation within that month.
4.3 ADJUSTMENTS TO BASE CHARGE.
4.3.1 INTERNATIONAL CHARGES. Retailer and its Subscribers may also
have Access from any PSINet POP in Canada for an additional fee of
(Confidential treatment has been requested) US per hour added to the
Base Charge (calculated in one minute increments rounded upward), and
from any PSINet POP outside of the US and Canada for an additional
fee of (Confidential treatment has been requested) US per hour added
to the Base Charge (calculated in one minute increments rounded
upward).
4.3.2 "TOLL-FREE" CHARGES. Retailer and its Subscribers may also
access the Network using a "toll free" PSINet POP (for example, using
an 800 or 888 number) within the contiguous 48 states of the United
States for an additional fee of $(Confidential treatment has been
requested) per hour added to the Base Charge (calculated in one
minute increments rounded upward).
4.3.3 ADDITIONAL ADJUSTMENT. Once the number of Subscribers using
the Network exceeds (Confidential treatment has been requested), the
parties will negotiate in good faith to agree upon an appropriate
adjustment to the applicable Base Charge.
4.4 MINIMUM COMMITMENT.
4.4.1 RAMP PERIOD. The initial ten (10) months from the Effective
Date hereinafter defines the "Ramp Period". The minimum number of
Subscribers on a monthly basis during the Ramp Period shall be
projected as follows:
<TABLE>
<S> <C> <C> <C>
Month 1:(Confidential Month 2:(Confidential Month 3:(Confidential Month 4:(Confidential
treatment has treatment has treatment has treatment has
been requested) been requested) been requested) been requested)
Month 5:(Confidential Month 6:(Confidential Month 7:(Confidential Month 8:(Confidential
treatment has treatment has treatment has treatment has
been requested) been requested) been requested) been requested)
Month 9:(Confidential Month 10:(Confidential
treatment has treatment has
been requested) been requested)
</TABLE>
PSINet and Retailer agree that these numbers will serve as a gauge of
the success of the program during the Ramp Period.
4.4.2 MINIMUM AMOUNTS. The minimum monthly revenue from Retailer
for Access provided by PSINet for Subscribers pursuant to this
Agreement shall be (Confidential treatment has been requested) after
the Ramp Period mentioned above. In the event PSINet's gross revenues
from Retailer (Confidential treatment has been requested).
In the event that PSINet chooses not to purchase the subscribers and
Retailer chooses not to remit to PSINet the amount stated above in
subparagraph (a), this Agreement shall be terminated; provided,
however, that PSINet shall continue to service, and Retailer shall
continue to pay for, the Subscribers at the highest Base Charge
specified in Section 4.2 hereof for a period of sixty (60) days
following such failure by Retailer to provide the minimum monthly
revenue payment in order to assure a smooth transition for said
Subscribers.
PSINET WHOLESALE USAGE AGREEMENT WITH FLASHNET
4 of 8
<PAGE>
4.5 TAXES. Retailer shall be liable for and shall reimburse PSINet for all
taxes and related charges however designated resulting from the
transactions contemplated HEREIN BY RETAILER OR SUBSCRIBERS (except those
relating to PSINet's gross income), including federal, state, provincial or
local sales, use or value-added taxes (VAT) and excise taxes, imposed in
connection with or arising from the provision of Access.
4.6 INVOICES. PSINet shall invoice Retailer monthly in advance for all
charges under this Agreement. All invoices will be payable within thirty
(30) days of receipt of invoice. Invoices not paid by their due date shall
be subject to a 1.5% per month interest fee, or the maximum extent allowed
by applicable laws, whichever is less, on all past-due balances. In the
event PSINet incurs additional fees as a result of any collection activity,
such as collection agencies or legal fees, Retailer shall reimburse PSINet
for all such fees. In the event Retailer shall fail to pay PSINet any
amount due under this Agreement for a period of thirty (30) days, PSINet,
in addition to charging applicable delinquency fees, may discontinue
providing Access to Retailer and its Subscribers UPON ONE (1) WEEK prior
written notice by overnight courier or certified mail to Retailer. PSINet
shall resume providing Access immediately upon receipt of such payment and
in such event Retailer shall pay PSINet a reasonable reconnection fee.
4.7 SUBSCRIBER CHARGES. Retailer is solely responsible for establishing
and collecting its Subscriber charges for services it offers its
Subscribers through the Network and for preparing and mailing invoices to
its Subscribers. Retailer is responsible for payment of the total amounts
invoiced it by PSINet (except for any amounts disputed by Retailer in good
faith) regardless of whether Retailer is paid by its Subscribers.
4.8 PORT QUANTITIES. PSINET WILL MAKE BEST EFFORTS THAT IF ACTUAL NUMBER OF
SUBSCRIBERS ON A GIVEN POP AT THE BEGINNING OF THE MONTH MULTIPLIED BY THE
INDEX FACTORS (THE "ACTUAL INDEXED NUMBER") IS NO MORE THAN TEN PERCENT
GREATER THAN THE FORECASTED INDEXED NUMBER PROVIDED SIXTY (60) DAYS PRIOR
TO THE BEGINNING OF SUCH MONTH, THEN SUBSCRIBERS IN THAT PSINET POP WILL
ENCOUNTER NO MORE THAN TEN (10) BUSY SIGNALS AS A RESULT OF FACTORS
REASONABLY WITHIN THE CONTROL OF PSINET.
5. USE OF MARKS. NEITHER PARTY IS AUTHORIZED THROUGH THIS AGREEMENT TO USE
THE OTHER PARTY'S MARKS IN CONNECTION WITH THEIR SALES, ADVERTISEMENTS AND
PROMOTION OF ITS SERVICES TO SUBSCRIBERS, EXCEPT IN MATERIALS EITHER PROVIDED
OR APPROVED BY THE AUTHORIZED USER OF THE MARK PRIOR TO IT'S USE. EACH PARTY
SHALL SEND TO THE OTHER PARTY A COPY OF ANY PRINTED MATERIAL USING THE OTHER
PARTY'S MARK OR OTHER COPYRIGHTED MATERIAL, AND THE AUTHORIZED PARTY SHALL
HAVE THE RIGHT TO DISAPPROVE SUCH USE (ALTHOUGH APPROVAL SHALL NOT BE
UNREASONABLY WITHHELD OR DELAYED). UPON TERMINATION OF THIS AGREEMENT, EACH
PARTY SHALL CEASE TO USE ANY SUCH MARKS OR COPYRIGHTED MATERIAL AND SHALL,
WITHIN A REASONABLE TIME AGREEABLE TO THE AUTHORIZED PARTY, REMOVE ANY
REFERENCE TO AUTHORIZED PARTY FROM ITS ADVERTISING AND PROMOTIONAL MATERIAL.
6. TERM/EXTENSION/TERMINATION. The term of this Agreement shall be two (2)
years, commencing on the last day of the Ramp Period as defined above, and,
unless either party notifies the other in writing not less than ninety (90)
days prior to the end of the initial term or any extension thereof, this
Agreement shall be automatically renewed annually thereafter for a period of
one year.
Either party may terminate this Agreement if such other party has materially
breached this Agreement and has failed to cure such breach within thirty (30)
days after receiving written notice clearly specifying such breach; provided,
however, that this notice period shall not apply to a termination by PSINet
in accordance with the provisions of Section 2.7, 4.4.2 and/or 4.6.
6. WARRANTIES EXCLUDED. EXCEPT AS EXPRESSLY PROVIDED HEREIN, PSINET MAKES
NO WARRANTIES IN CONNECTION WITH ITS NETWORK OR THE PROVISION OF ACCESS AS
CONTEMPLATED HEREIN, WHETHER WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION THE WARRANTY OF MERCHANTABILITY, THE WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE OR USE AND NON-INFRINGEMENT OF THIRD PARTY
RIGHTS.
7. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING CONTAINED IN THIS
AGREEMENT TO THE CONTRARY, THE PARTIES AGREE THAT PSINET SHALL IN NO EVENT BE
LIABLE TO RETAILER, ITS SUBSCRIBERS OR ANY OTHER PERSON FOR ANY ACTUAL,
DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL, RELIANCE, PUNITIVE OR
ANY OTHER DAMAGES OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT
LIMITATION, DAMAGES FOR THE LOSS OF DATA, GOODWILL OR PROFITS) REGARDLESS OF
THE FORESEEABILITY THEREOF, ARISING OUT OF THE PROVISION OF ACCESS OR IN ANY
WAY ARISING OUT OF THIS AGREEMENT, WHETHER IN AN ACTION ARISING OUT OF
PSINET WHOLESALE USAGE AGREEMENT WITH FLASHNET
5 of 8
<PAGE>
BREACH OF CONTRACT, BREACH OF WARRANTY, DELAY, NEGLIGENCE, STRICT TORT
LIABILITY, PATENT MATTERS OR ANY OTHER THEORY. NO ACTION OR PROCEEDING
AGAINST PSINET MAY BE COMMENCED MORE THAN TWO YEARS AFTER THE SERVICES ARE
RENDERED. THIS CLAUSE SHALL SURVIVE FAILURE OF AN EXCLUSIVE REMEDY.
7. INDEMNIFICATION.
7.1 BY RETAILER. RETAILER SHALL INDEMNIFY AND HOLD HARMLESS PSINET AND
PSINET'S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND ADVISORS FROM AND
AGAINST ANY AND ALL CLAIMS OF OTHER PERSONS OR ENTITIES ARISING OUT OF
MATERIAL, DATA, INFORMATION OR OTHER CONTENT TRANSMITTED BY SUBSCRIBERS OR
OTHER ACTS OR OMISSIONS OF RETAILER AND/OR ITS SUBSCRIBERS.
7.2 BY PSINET. PSINET SHALL INDEMNIFY AND HOLD HARMLESS RETAILER AND ITS
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND ADVISORS FROM AND AGAINST ANY
AND ALL CLAIMS OF OTHER PERSONS OR ENTITIES ARISING OUT OF ACTS OR
OMISSIONS OF PSINET.
10. CONFIDENTIAL INFORMATION. The provisions in the Bilateral Nondisclosure
Agreement executed between the parties shall apply to the terms of this
Agreement and shall survive the execution and termination of this Agreement
for any reason.
11. MISCELLANEOUS.
11.1 INDEPENDENT PARTIES/NO AGENCY. The relationship of PSINet and Retailer
shall be that of independent third parties. Except as otherwise expressly
provided in this Agreement, this Agreement does not Constitute either party
as the agent or legal representative of the other party and does not create
a partnership or joint venture between the parties. Except as otherwise
expressly provided in this Agreement, neither party shall have any
authority to contract for or bind any other party in any manner whatsoever.
This Agreement confers no rights of any kind upon any third party.
11.2 FORCE MAJEURE. PSINet shall not be liable for failure to fulfill its
obligations hereunder if such failure is due to causes beyond its
reasonable control, including, without limitation, actions or failures to
act of Retailer or any Subscriber, acts of God, fire, catastrophe,
governmental prohibitions or regulations, viruses which did not result from
the acts or omissions of PSINet, its employees or agents, national
emergencies, insurrections, riots or wars, or strikes, lockouts, work
stoppages or other labor difficulties. The time for any performance
required hereunder shall be extended by the delay incurred as a result of
such act of force majeure, and PSINet shall act with diligence to correct
such force majeure.
11.3 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power
or remedy accruing to a party under this Agreement shall impair any such
right, power or remedy of such party nor shall it be construed to be a
waiver of any such breach or default; or an acquiescence therein, or of or
in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of either party of any breach
or default under this Agreement, or any waiver on the part of either party
of any provisions or conditions of this Agreement must be made in writing
and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to a party, shall be cumulative and not alternative.
11.4 BENEFIT AND ASSIGNMENT. NEITHER PARTY MAY SELL, TRANSFER, OR ASSIGN
THIS AGREEMENT, EXCEPT TO ENTITIES COMPLETELY CONTROLLING OR CONTROLLED BY
THAT PARTY, OR TO ENTITIES ACQUIRING ALL OR SUBSTANTIALLY ALL OF ITS
ASSETS, WITHOUT THE PRIOR WRITTEN CONSENT OF THE OTHER, WHICH CONSENT SHALL
NOT BE UNREASONABLY WITHHELD OR DELAYED. ANY ACT IN DEROGATION OF THE
FOREGOING SHALL BE NULL AND VOID; PROVIDED, HOWEVER, THAT ANY SUCH
ASSIGNMENT SHALL NOT RELIEVE THE ASSIGNING PARTY OF ITS OBLIGATIONS
HEREUNDER. BOTH PARTIES SHALL REQUIRE WRITTEN NOTICE IN THE EVENT OF ANY
ASSIGNMENT BY THE OTHER PARTY. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns as permitted hereunder. No person or entity other
than the parties hereto is or shall be entitled to bring any action to
enforce any provision of this Agreement against any of
PSINET WHOLESALE USAGE AGREEMENT WITH FLASHNET
6 of 8
<PAGE>
the parties hereto, and the covenants and agreements set forth in this
Agreement shall be solely for the benefit of, and shall be enforceable
only by, the parties hereto or their respective successors and assigns as
permitted hereunder.
11.5 ADDITIONAL ACTIONS, DOCUMENTS AND INFORMATION. Each of the parties
hereto agrees that it will, at any time, prior to, at or after the date
hereof, take or cause to be taken such further actions, and execute,
deliver and file or cause to be executed, delivered and filed such further
documents and instruments and obtain such consents, as may be reasonably
requested in order to fully effectuate the purposes, terms and conditions
of this Agreement.
11.6 NOTICES.
(a) All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by certified or
registered mail (return receipt requested), express air courier,
charges prepaid, or facsimile addressed as follows:
To Retailer: as specified above.
To PSINet:
<TABLE>
<CAPTION>
<S> <C>
PSINet Inc. with copy to PSINet Inc.
510 Huntmar Park Drive 510 Huntmar Park Drive
Herndon, Virginia 20170 Herndon, Virginia 20170
Facsimile: 703.397.5318 Facsimile: 703.904.4200
Attn: John Kraft, Vice President, Attn: General Counsel
Carrier & ISP Division
</TABLE>
or to such other address as either party shall have furnished to
the other in writing.
(b) If a notice is given by either party by certified or
registered mail, it will be deemed received by the other party on
the third business day following the date on which it is
deposited for mailing. If a notice is given by either party by
air express courier, it will be deemed received by the other
party on the next business day following the date on which it is
provided to the air express courier. If a notice is given by
facsimile, it will be deemed received by the other party after
confirmation of receipt. Notwithstanding the foregoing, any
payments made under this Agreement shall be deemed received only
when actually received.
11.7 COMPLIANCE WITH LAW. BOTH PARTIES ARE responsible for complying with
all applicable rules, regulations, statutes, codes, ordinances and other
requirements, whether federal, state, provincial, local, international or
otherwise in connection with the matters contemplated by this Agreement.
11.8 SEVERABILITY/SURVIVAL/WAIVERS. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, such provision shall
be construed so as to render it enforceable and effective to the maximum
extent possible in order to effectuate the intention of this Agreement; and
if such provision shall be wholly invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby. The parties' rights
and obligations that, by their nature, would continue beyond the
termination, cancellation, or expiration of this Agreement, shall survive
such termination, cancellation or termination. The waiver or failure of
either party to exercise in any respect any right provided for in this
Agreement shall not be deemed a waiver of any further right under this
Agreement.
11.9 TITLES AND SUBTITLES. The titles of the Sections of this Agreement are
for convenience of reference only and are not to be considered in
construing this Agreement.
11.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE
SUBSTANTIVE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS
PRINCIPLES OF CONFLICTS OF LAW.
11.11 ENTIRE AGREEMENT/AMENDMENTS. This Agreement represents the
complete agreement and understanding of the parties with respect to the
subject matter herein, and supersedes any other agreement or understanding,
written or oral. In the event of any conflict arising between Customer's
purchase order terms and this Agreement, this Agreement shall take
precedence. This Agreement may be modified only in writing signed by both
parties.
PSINET WHOLESALE USAGE AGREEMENT WITH FLASHNET
7 of 8
<PAGE>
BOTH PARTIES REPRESENT AND WARRANT THAT THEY HAVE FULL CORPORATE POWER AND
AUTHORITY TO EXECUTE AND DELIVER THIS AGREEMENT AND TO PERFORM THEIR
OBLIGATIONS HEREUNDER, AND THAT THE PERSON WHOSE SIGNATURE APPEARS BELOW IS
DULY AUTHORIZED TO ENTER INTO THIS AGREEMENT ON BEHALF Of THE PARTY.
IN WITNESS WHEREOF, THE PARTIES HAVE ENTERED INTO AGREEMENT AS OF THE DATE SET
FORTH:
/s/ M. Scott Leslie, President
- ---------------------------------------------------------------
Authorized Retailer Representative/Title (please type or print)
/s/ [illegible] 2/13/98
- ---------------------------------------------------------------
Retailer Signature Date
John F. Kraft, VP, Carrier and ISP Sales
- ---------------------------------------------------------------
Authorized PSINet Representative (please type or print)
/s/ [illegible] 2/17/98
- ---------------------------------------------------------------
PSINet Representative Signature Date
- ---------------------------------------------------------------
PSINet
PSINET WHOLESALE USAGE AGREEMENT WITH FLASHNET
8 of 8
<PAGE>
AMENDMENT TO WHOLESALE USAGE AGREEMENT
This amendment (the "Amendment") to the Wholesale Usage Agreement (the
"Agreement") dated February 17, 1998, effective on the last date signed below,
between PSINet Inc., a New York corporation, and Flashnet Communications, Inc.,
a _____________ corporation.
RECITALS
WHEREAS, the parties wish to further amend the Amended Agreement to reflect
certain revisions they have discussed and agreed upon;
NOW, THEREFORE, in consideration of the mutual obligations in this Second
Amendment and for other good consideration, the receipt and sufficiency of which
are acknowledged, the parties agree as follows:
1. Change Section 4.4.1 Ramp Period to read as follows:
"4.4.1 RAMP PERIOD. The initial sixteen (16) months from the Effective
Date hereinafter defines the "Ramp Period". The minimum number of
Subscribers on a monthly basis during the Ramp Period shall be projected
as follows:
Month 1: ____ Month 2: _____ Month 3: _____ Month 4: _______
Month 5: ____ Month 6: _____ Month 7: _____ Month 8: _______
Month 9: ____ Month 10: ____ Month 11: ____ Month 12: ______
Month 13: ___ Month 14: ____ Month 15: ____ Month 16: 50,000
PSINet and Retailer agree that these numbers will serve as a gauge of the
success of the program during the Ramp Period."
2. Add a new Section 4.4.2 that reads as follows:
(Confidential Treatment has been requested)
3. All provisions of the Agreement, except as modified by this Amendment,
shall remain in full force and effect and are hereby reaffirmed.
IN WITNESS WHEREOF, the duly authorized representatives of the parties hereto
have executed this Amendment as of the last date specified below, with said
Addendum effective on that date.
FLASHNET COMMUNICATIONS, INC. PSINET INC.
By: By:
--------------------------- ----------------------------------------
John Kraft
Vice President, Carrier and ISP Services
510 Huntmar Park Drive
Herndon, Virginia 20170
Date: Date:
-------------------------- --------------------------------------
<PAGE>
NONCOMPETITION AND NONDISCLOSURE AGREEMENT
THIS NONCOMPETITION AND NONDISCLOSURE AGREEMENT (this "AGREEMENT") is
made as of the 7th day of May, 1998, by and between FlashNet Communications,
Inc., a Texas corporation (the "COMPANY"), and A. Lee Thurburn, an individual
("EMPLOYEE").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase Agreement dated as of
the date hereof between the Company and ISP Investors, L.P., Fourteen Hill
Capital, LP, Scott M. Kleberg, J. Luther King, Jr., Scot C. Hollmann, Apogee
Fund LP, and Emmett M. Murphy (the "INVESTORS"), the Investors have agreed to
make an equity investment in the Company on the terms and conditions
specified in such Stock Purchase Agreement (the "INVESTMENT");
WHEREAS, in connection with the Investment and as a condition precedent
to the effectiveness of the Stock Purchase Agreement, the Investors are
requiring Employee to enter into this Agreement with the Company;
WHEREAS, the protections afforded by this Agreement are necessary in
order for the Company to protect its goodwill and other business interests,
in which the Investors are making a substantial investment pursuant to the
terms of the Stock Purchase Agreement;
WHEREAS, as a result of such investment by the Investors, the Company
directly and the Employee indirectly are reaping substantial benefits and,
therefore, are willing to enter into this Agreement; and
WHEREAS, Employee acknowledges and agrees that this Agreement places on
him limitations as to the business or investment activities he may pursue as
well as the time during which and the geographic area over which such
limitations will remain in effect, which limitations are deemed by him to be
reasonable and no greater than are necessary under the circumstances to
protect the goodwill and other business interests of the Company and the
investment of the Investors therein;
NOW, THEREFORE, in consideration of the premises, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Company and Employee,
intending to be legally bound, agree as follows:
1
<PAGE>
1. NONCOMPETITION AND PROTECTION OF CONFIDENTIAL INFORMATION.
(a) Employee agrees that during his employment by the Company and the
one (1) year period thereafter (the "RESTRICTED PERIOD"), Employee shall not,
directly or indirectly, and regardless of the reason for his engaging in any
such activities:
(i) within the United States of America, own, manage, operate,
control, invest or acquire an interest in, or otherwise engage or
participate in (whether as a proprietor, owner, member, partner,
stockholder, director, officer, employee, consultant, joint venturer,
investor, sales representative or other participant) any business or entity
that manages or operates any business or for-profit entity that is engaged
primarily in the provision of Internet access connectivity to consumers and
the small office/home office market offering delivery of the service via
the Public Switched Telephone Network; PROVIDED, HOWEVER, that: (i) unless
the Company timely pays the Payment (as defined below), the foregoing
restriction on the activities of Employee shall not apply following the
involuntary termination of Employee's employment without Cause (as defined
below) or following Employee's resignation for Good Reason (as defined
below), and (ii) the foregoing provisions shall not prohibit Employee from
being a passive investor in any publicly traded entity, as long as any such
investment does not exceed 1% of the outstanding equity securities of such
entity;
(ii) attempt in any manner to solicit from any customer or other
party the business of the type performed by the Company or its affiliates
for such party or to persuade any such party to cease to do business or to
reduce the amount of business which any such party has customarily done or
contemplates doing with the Company or its affiliates, whether or not the
relationship between the Company and any such party was originally
established in whole or in part through the efforts of Employee; PROVIDED,
HOWEVER, that unless the Company timely pays the Payment (as defined
below), the foregoing restriction on the activities of Employee shall not
apply following the involuntary termination of Employee's employment
without Cause (as defined below) or following Employee's resignation for
Good Reason (as defined below);
(iii) employ or attempt to employ (or assist anyone else to employ)
any person who is an employee of or exclusive consultant to the Company or
its affiliates; PROVIDED, HOWEVER, that unless the Company timely pays the
Payment (as defined below), the foregoing restriction on the activities of
Employee shall not apply following the involuntary termination of
Employee's employment without Cause (as defined below) or following
Employee's resignation for Good Reason (as defined below); or
(iv) render to or for any customer or other party to a business
relationship of the Company or its affiliates any services of the type
rendered by the Company or its affiliates; PROVIDED, HOWEVER, that unless
the Company timely pays the Payment (as defined below), the foregoing
restriction on the activities of Employee shall not apply following
2
<PAGE>
the involuntary termination of Employee's employment without Cause (as
defined below) or following Employee's resignation for Good Reason (as
defined below).
(b) Employee further agrees that, he will not at any time (whether
during the Restricted Period or thereafter) disclose to anyone any
confidential information or trade secrets of the Company or any proprietary
information of a customer or other party to a business relationship of the
Company, or utilize such confidential information or trade secrets for his
own benefit, or for the benefit of third parties and all memoranda, notes,
records or other documents compiled by him or made available to him prior to
the date hereof pertaining to the Company and/or its customers or other
business relationships shall be the property of the Company and shall be
delivered to the Company at any time upon request by the Company.
(c) If Employee commits a breach or is about to commit a breach of any
of the provisions of Sections 1(a) or (b) above, the Company shall have the
right to have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction without being required to post bond or other
security and without having to prove the inadequacy of any other available
remedies, it being acknowledged and agreed that any such breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company. In addition, the Company may take all such
other actions and remedies available to it in law or in equity and shall be
entitled to such damages as it or they can show it or they have sustained by
reason of such breach.
(d) The parties acknowledge that the type and periods of restriction
imposed in the provisions of clauses Sections 1(a) and (b) above, are fair
and reasonable and are reasonably required for the protection of the Company,
its business and goodwill, and the substantial investment by the Investors
therein. Further, the time, scope, geographic area and other provisions of
this Section 1 have been specifically negotiated by sophisticated parties,
each of whom have been represented by competent legal counsel, and are given
as an integral part of the Investment. If any of the covenants in Sections 1(a)
or (b) above, or any part thereof, is hereafter construed to be invalid or
unenforceable, it is the intention of the parties that the same shall not
affect the remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid portions. If any of the covenants
contained in Sections 1(a) or (b), or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall
reduce the duration and/or areas of such provision such that, in its reduced
form, said provision shall then be enforceable.
(e) In the event the Company terminates Employee without Cause or
Employee resigns from the Company for Good Reason, then in order for the
covenants contained in Section 1(a) hereof to remain in effect, the Company
must, within five (5) business days following such termination or
resignation, pay to Employee a lump sum cash payment equal to the greater of
(i) Employee's actual aggregate cash salary and bonus received during the
twelve (12) months preceding termination or resignation, as applicable, and
(ii) the sum of Employee's annualized
3
<PAGE>
salary as in effect immediately preceding such termination or resignation, as
applicable, and the cash bonus for the fiscal year earned by Employee through
the date of termination or resignation (the "PAYMENT").
2. CONSIDERATION. In partial consideration of Employee's performance
of his obligations hereunder, concurrently with his execution and delivery of
this Agreement: (i) the Company is executing and delivering the Stock
Purchase Agreement to facilitate the Investment, (ii) the Investors are
paying to the Company the cash sum specified under the Stock Purchase
Agreement, to which this Agreement is ancillary, and (ii) the parties to the
Stock Purchase Agreement are making their respective covenants,
representations and warranties thereunder.
3. NOTICES. Any notice or communication required or permitted
hereunder shall be given in writing and shall be (a) sent by first class
registered or certified United States mail, postage prepaid, (b) sent by
overnight or express mail or expedited delivery service, (c) delivered by
hand or (d) transmitted by wire or telefax, to the proper address provided in
the Stock Purchase Agreement or to such other address or to the attention of
such other person as hereafter shall be designated in writing by the
applicable party sent in accordance herewith. Any such notice or
communication shall be deemed to have been given as of the date received.
4. SEVERABILITY. Every provision in this Agreement is intended to be
severable. In the event that any provisions of this Agreement shall be held
to be invalid, the same shall not affect in any respect whatsoever the
validity of the remaining provisions of this Agreement.
5. HEADINGS. The headings of the this Agreement are for convenience
and shall not by themselves determine the interpretation of this Agreement.
6. NO WAIVER. The failure of any party to insist upon strict
performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall
not be a waiver of such party's right to demand strict compliance in the
future. No consent or waiver, express or implied, to or of any breach or
default in the performance of any obligation hereunder shall constitute a
consent or waiver to or of any other breach or default in the performance of
the same or any obligation hereunder.
7. AMENDMENT. This Agreement may be changed, modified or amended only
by an instrument in writing duly executed by all of the parties hereto. Any
such amendment shall be effective as of such date as may be determined by the
parties hereto.
8. CHOICE OF LAW. This Agreement and the rights and obligations of the
parties hereunder shall be governed by the laws of the State of Texas,
without regard to the principles of conflicts of laws thereof.
4
<PAGE>
9. DEFINED TERMS. As used herein:
(a) "CAUSE" shall mean by reason of any of the following: (A) Employee's
conviction of, or plea of NOLO CONTENDERE to, any felony, or to any crime or
offense causing substantial harm to the Company or any of its affiliates
(whether or not for personal gain) or involving acts of theft, fraud,
embezzlement, moral turpitude or similar conduct, (B) Employee's violation of
the Company's substance abuse policy, if any, as such may apply from time to
time, (C) malfeasance in the conduct of Employee's duties, including, but not
limited to, (1) willful and intentional misuse or diversion of the Company's
or any of its affiliate's funds, (2) embezzlement, and/or (3) fraudulent,
willful or material misrepresentations or concealments on any written reports
submitted to the Company or any of its affiliates, (D) material failure to
follow or comply with the reasonable and lawful directives of the chief
executive officer or Board of Directors of the Company, (E) a material breach
by Employee of this Agreement, (F) mental or physical incapacity or inability
of Employee to perform his duties for a consecutive period of ninety (90) days
or a non-consecutive period of one hundred twenty (120) days during any twelve
month period, or (G) the death of Employee.
(b) "GOOD REASON" shall mean a significant and material change in the
nature or scope of Employee's duties to duties that are, taken as a whole,
inconsistent with the position in the Company then occupied by Employee or
inconsistent with Employee's range and duration of experience; provided,
however, that Good Reason shall not exist solely by virtue of Employee having
been relieved of the title and duty of only one of the offices of Chairman of
the Board or Chief Executive Officer of the Company.
10. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which shall constitute one
and the same instrument
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf by its duly authorized officer, and Employee has executed this
Agreement, as of the date first above written.
FLASHNET COMMUNICATIONS, INC.
By: /s/ A. Lee Thurburn
--------------------------------------
Name: A. Lee Thurburn
--------------------------------
Title: CEO
-------------------------------
/s/ A. Lee Thurburn
-----------------------------------------
A. Lee Thurburn
5
<PAGE>
NONCOMPETITION AND NONDISCLOSURE AGREEMENT
THIS NONCOMPETITION AND NONDISCLOSURE AGREEMENT (this "AGREEMENT") is
made as of the 7th day of May, 1998, by and between FlashNet Communications,
Inc., a Texas corporation (the "COMPANY"), and M. Scott Leslie, an individual
("EMPLOYEE").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock Purchase Agreement dated as of
the date hereof between the Company and ISP Investors, L.P., Fourteen Hill
Capital, LP, Scott M. Kleberg, J. Luther King, Jr., Scot C. Hollmann, Apogee
Fund LP, and Emmett M. Murphy (the "INVESTORS"), the Investors have agreed to
make an equity investment in the Company on the terms and conditions
specified in such Stock Purchase Agreement (the "INVESTMENT");
WHEREAS, in connection with the Investment and as a condition precedent
to the effectiveness of the Stock Purchase Agreement, the Investors are
requiring Employee to enter into this Agreement with the Company;
WHEREAS, the protections afforded by this Agreement are necessary in
order for the Company to protect its goodwill and other business interests,
in which the Investors are making a substantial investment pursuant to the
terms of the Stock Purchase Agreement;
WHEREAS, as a result of such investment by the Investors, the Company
directly and the Employee indirectly are reaping substantial benefits and,
therefore, are willing to enter into this Agreement; and
WHEREAS, Employee acknowledges and agrees that this Agreement places on
him limitations as to the business or investment activities he may pursue as
well as the time during which and the geographic area over which such
limitations will remain in effect, which limitations are deemed by him to be
reasonable and no greater than are necessary under the circumstances to
protect the goodwill and other business interests of the Company and the
investment of the Investors therein;
NOW, THEREFORE, in consideration of the premises, the mutual promises
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the Company and Employee,
intending to be legally bound, agree as follows:
1. NONCOMPETITION AND PROTECTION OF CONFIDENTIAL INFORMATION.
(a) Employee agrees that during his employment by the Company and the
one (1) year period thereafter (the "RESTRICTED PERIOD"), Employee shall not,
directly or indirectly, and regardless of the reason for his engaging in any
such activities:
1
<PAGE>
(i) within the United States of America, own, manage, operate,
control, invest or acquire an interest in, or otherwise engage or
participate in (whether as a proprietor, owner, member, partner,
stockholder, director, officer, employee, consultant, joint venturer,
investor, sales representative or other participant) any business or entity
that manages or operates any business or for-profit entity that is engaged
primarily in the provision of Internet access connectivity to consumers and
the small office/home office market offering delivery of the service via
the Public Switched Telephone Network; PROVIDED, HOWEVER, that: (i) unless
the Company timely pays the Payment (as defined below), the foregoing
restriction on the activities of Employee shall not apply following the
involuntary termination of Employee's employment without Cause (as defined
below) or following Employee's resignation for Good Reason (as defined
below), and (ii) the foregoing provisions shall not prohibit Employee from
being a passive investor in any publicly traded entity, as long as any such
investment does not exceed 1% of the outstanding equity securities of such
entity;
(ii) attempt in any manner to solicit from any customer or other
party the business of the type performed by the Company or its affiliates
for such party or to persuade any such party to cease to do business or to
reduce the amount of business which any such party has customarily done or
contemplates doing with the Company or its affiliates, whether or not the
relationship between the Company and any such party was originally
established in whole or in part through the efforts of Employee; PROVIDED,
HOWEVER, that unless the Company timely pays the Payment (as defined
below), the foregoing restriction on the activities of Employee shall not
apply following the involuntary termination of Employee's employment
without Cause (as defined below) or following Employee's resignation for
Good Reason (as defined below);
(iii) employ or attempt to employ (or assist anyone else to employ)
any person who is an employee of or exclusive consultant to the Company or
its affiliates; PROVIDED, HOWEVER, that unless the Company timely pays the
Payment (as defined below), the foregoing restriction on the activities of
Employee shall not apply following the involuntary termination of
Employee's employment without Cause (as defined below) or following
Employee's resignation for Good Reason (as defined below); or
(iv) render to or for any customer or other party to a business
relationship of the Company or its affiliates any services of the type
rendered by the Company or its affiliates; PROVIDED, HOWEVER, that unless
the Company timely pays the Payment (as defined below), the foregoing
restriction on the activities of Employee shall not apply following the
involuntary termination of Employee's employment without Cause (as defined
below) or following Employee's resignation for Good Reason (as defined
below).
(b) Employee further agrees that, he will not at any time (whether
during the Restricted Period or thereafter) disclose to anyone any
confidential information or trade secrets of the Company or any proprietary
information of a customer or other party to a business relationship
2
<PAGE>
of the Company, or utilize such confidential information or trade secrets for
his own benefit, or for the benefit of third parties and all memoranda,
notes, records or other documents compiled by him or made available to him
prior to the date hereof pertaining to the Company and/or its customers or
other business relationships shall be the property of the Company and shall
be delivered to the Company at any time upon request by the Company.
(c) If Employee commits a breach or is about to commit a breach of any
of the provisions of Sections 1(a) or (b) above, the Company shall have the
right to have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction without being required to post bond or other
security and without having to prove the inadequacy of any other available
remedies, it being acknowledged and agreed that any such breach will cause
irreparable injury to the Company and that money damages will not provide an
adequate remedy to the Company. In addition, the Company may take all such
other actions and remedies available to it in law or in equity and shall be
entitled to such damages as it or they can show it or they have sustained by
reason of such breach.
(d) The parties acknowledge that the type and periods of restriction
imposed in the provisions of clauses Sections 1(a) and (b) above, are fair
and reasonable and are reasonably required for the protection of the Company,
its business and goodwill, and the substantial investment by the Investors
therein. Further, the time, scope, geographic area and other provisions of
this Section 1 have been specifically negotiated by sophisticated parties,
each of whom have been represented by competent legal counsel, and are given
as an integral part of the Investment. If any of the covenants in Sections 1(a)
or (b) above, or any part thereof, is hereafter construed to be invalid or
unenforceable, it is the intention of the parties that the same shall not
affect the remainder of the covenant or covenants, which shall be given full
effect, without regard to the invalid portions. If any of the covenants
contained in Sections 1(a) or (b), or any part thereof, is held to be
unenforceable because of the duration of such provision or the area covered
thereby, the parties agree that the court making such determination shall
reduce the duration and/or areas of such provision such that, in its reduced
form, said provision shall then be enforceable.
(e) In the event the Company terminates Employee without Cause or
Employee resigns from the Company for Good Reason, then in order for the
covenants contained in Section 1(a) hereof to remain in effect, the Company
must, within five (5) business days following such termination or
resignation, pay to Employee a lump sum cash payment equal to the greater of
(i) Employee's actual aggregate cash salary and bonus received during the
twelve (12) months preceding termination or resignation, as applicable, and
(ii) the sum of Employee's annualized salary as in effect immediately
preceding such termination or resignation, as applicable, and the cash bonus
for the fiscal year earned by Employee through the date of termination or
resignation (the "PAYMENT").
3
<PAGE>
2. CONSIDERATION. In partial consideration of Employee's performance
of his obligations hereunder, concurrently with his execution and delivery of
this Agreement: (i) the Company is executing and delivering the Stock
Purchase Agreement to facilitate the Investment, (ii) the Investors are
paying to the Company the cash sum specified under the Stock Purchase
Agreement, to which this Agreement is ancillary, and (ii) the parties to the
Stock Purchase Agreement are making their respective covenants,
representations and warranties thereunder.
3. NOTICES. Any notice or communication required or permitted
hereunder shall be given in writing and shall be (a) sent by first class
registered or certified United States mail, postage prepaid, (b) sent by
overnight or express mail or expedited delivery service, (c) delivered by
hand or (d) transmitted by wire or telefax, to the proper address provided in
the Stock Purchase Agreement or to such other address or to the attention of
such other person as hereafter shall be designated in writing by the
applicable party sent in accordance herewith. Any such notice or
communication shall be deemed to have been given as of the date received.
4. SEVERABILITY. Every provision in this Agreement is intended to be
severable. In the event that any provisions of this Agreement shall be held
to be invalid, the same shall not affect in any respect whatsoever the
validity of the remaining provisions of this Agreement.
5. HEADINGS. The headings of the this Agreement are for convenience
and shall not by themselves determine the interpretation of this Agreement.
6. NO WAIVER. The failure of any party to insist upon strict
performance of a covenant hereunder or of any obligation hereunder,
irrespective of the length of time for which such failure continues, shall
not be a waiver of such party's right to demand strict compliance in the
future. No consent or waiver, express or implied, to or of any breach or
default in the performance of any obligation hereunder shall constitute a
consent or waiver to or of any other breach or default in the performance of
the same or any obligation hereunder.
7. AMENDMENT. This Agreement may be changed, modified or amended only
by an instrument in writing duly executed by all of the parties hereto. Any
such amendment shall be effective as of such date as may be determined by the
parties hereto.
8. CHOICE OF LAW. This Agreement and the rights and obligations of the
parties hereunder shall be governed by the laws of the State of Texas,
without regard to the principles of conflicts of laws thereof.
9. DEFINED TERMS. As used herein:
(a) "CAUSE" shall mean by reason of any of the following: (A) Employee's
conviction of, or plea of NOLO CONTENDERE to, any felony, or to any crime or
offense causing substantial harm to the Company or any of its affiliates
(whether or not for personal gain) or involving acts of theft, fraud,
embezzlement, moral turpitude or similar conduct, (B) Employee's violation of
the
4
<PAGE>
Company's substance abuse policy, if any, as such may apply from time to
time, (C) malfeasance in the conduct of Employee's duties, including, but not
limited to, (1) willful and intentional misuse or diversion of the Company's
or any of its affiliate's funds, (2) embezzlement, and/or (3) fraudulent,
willful or material misrepresentations or concealments on any written reports
submitted to the Company or any of its affiliates, (D) material failure to
follow or comply with the reasonable and lawful directives of the chief
executive officer or Board of Directors of the Company, (E) a material breach
by Employee of this Agreement, (F) mental or physical incapacity or inability
of Employee to perform his duties for a consecutive period of ninety (90) days
or a non-consecutive period of one hundred twenty (120) days during any
twelve month period, or (G) the death of Employee.
(b) "GOOD REASON" shall mean a significant and material change in the
nature or scope of Employee's duties to duties that are, taken as a whole,
inconsistent with the position in the Company then occupied by Employee or
inconsistent with Employee's range and duration of experience.
10. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which shall constitute one
and the same instrument
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
on its behalf by its duly authorized officer, and Employee has executed this
Agreement, as of the date first above written.
FLASHNET COMMUNICATIONS, INC.
By: /s/ A. Lee Thurburn
--------------------------------------
Name: A. Lee Thurburn
--------------------------------
Title: CEO
-------------------------------
/s/ M. Scott Leslie
-----------------------------------------
M. Scott Leslie
5
<PAGE>
November 3, 1998
Mr. Andrew N. Jent
6427 Velasco Avenue
Dallas, Texas 75214
RE: Employment Offer
Dear Andrew.
I am excited about the prospect of having you join our company on a full time
basis, and I look forward to the valuable contribution you will make to the
success of FlashNet Communications in the coming months. A large measure of our
future success will depend upon your work here with our company, and in this
regard I would like to offer the following compensation plan to you:
Position: Executive Vice resident and Chief Financial Officer
General Job Duties: As with most senior management positions, you will be
largely responsible for developing your job description
on an ongoing basis. In a general sense, you will be
responsible for the items outlined in the Ray &
Berndtson Position Description.
Base Salary: $4,807.69 per pay period (bi-weekly), which calculates
to $125,000 on an annual basis.
Bonus: As we do not currently have a bonus structure in place
at the present time, this is to be determined during
the coming months. The Compensation Committee, which
is comprised of non-management members from FlashNet's
Board of Directors, has ultimate decision authority
with regard to compensation of senior management,
however you will be involved in management's
recommendation to this Committee. Subject to the
Compensation Committee's decision, your targeted bonus
will not be below 40% of your base salary.
Common Stock: Subject to the terms and conditions of Website
Management Company's Non-Qualified Stock Option
Agreement (which agreement is a part of the 1997 Stock
Incentive Plan), and fall execution of
<PAGE>
such agreement, the Company hereby grants options to
acquire 37,645 shares, which equals one percent (1%)
of the outstanding shares on a fully diluted basis.
Such shares to be fully vested in stages over sixty
(60) months, according to the following vesting
schedule:
15,058 shares at $12.00 per share to vest on your 24
month anniversary
7,529 shares at $12.00 per share to vest on your 36
month anniversary
7,529 shares at $12.00 per share to vest on your 48
month anniversary
7,529 shares at $12.00 per share to vest on your 60
month anniversary
This shall not serve to limit the number of shares that
may be awarded to you, as adjustments based upon annual
performance reviews will determine additional options
or awards.
Change In Control: In the event of a chance in control due to: (a) the
sale or exchange of stock: (b) sale of all or
substantially all, Company assets to another
corporatIon; (c) merger; (d) reorganization; or (e)
other similar transactions: all options previously
granted to you will be vested as of the date of the
change of control. If the securities underlying your
options represent less than 1% ownership of the
Company's common stock on a fully diluted basis prior
to the change in control, and the Aggregate Option
Spread (fair market value of the stock less the
weighted average strike price multiplied by the number
of vested shares) is less than $200,000, the Company,
or its successor or assign, will pay to you, in cash,
the difference between $200,000 and the Aggregate
Option Spread within 30 days from the date of such
transaction.
Severance: A severance amount equal to twelve months salary would
be paid if your employment is terminated without Cause
within three years of the date or acceptance of this
employment offer, or if, upon a Change In Control, you
resign for Good Reason. This severance provision shall
be null and void if the Aggregate Option Spread
<PAGE>
exceeds $1,000,000.
"Cause" shall mean by reason of any of the following:
(A) Employee's conviction of, or plea of nolo
contendere to, any felony, or to any crime or offense
causing substantial harm to the Company or any of its
affiliates (whether or not for personal gain) or
involving acts of theft, fraud, embezzlement, moral
turpitude or similar conduct, (B) Employee's violation
of the Company's substance abuse policy, if any, as
such may apply from time to time, (C) malfeasance in
the conduct of Employee's duties, including, but not
limited to, (L) willful and intentional misuse or
diversion of the Company's or any of its affiliate's
funds, (2) embezzlement, and/or (3) fraudulent, willful
or material misrepresentations or concealment on any
written reports submitted to the Company or any of its
affiliates, (4) negligence, insubordination, or
dereliction of responsibility, (D) failure to follow or
comply with the reasonable and lawful directives of the
president or Board of Directors of the Company, (E) a
breach by Employee of this Agreement, (F) mental or
physical incapacity or inability of employee to perform
his duties for a consecutive period of ninety (90) days
or a non-consecutive period of one hundred twenty (120)
days during any twelve month period, or (G) the death
of Employee.
"Good Reason" shall mean a significant and material
change in the nature or scope of Employee's duties to
duties that are, taken as a whole, inconsistent with
the position in the Company then occupied by Employee
or inconsistent with Employee's range and duration of
experience.
Relocation: Relocation expense reimbursements will be made to you
for up to $30,000 in actual expenses incurred during
your move to Ft. Worth. Such reimbursement will be made
according to the submittal of your post-move expense
reimbursement request.
<PAGE>
Sign On Bonus: Upon your arrival to work FlashNet will provide a
One-time signing bonus of $5,000. Such bonus shall be
payable immediately, but shall be considered to vest
over your six months of employment so that in the event
that you separate voluntarily from the Company, you
shall be required to repay the Company a prorated
amount based upon the number of months actually worked.
In no event shall you be required to repay mote than
actually received (i.e. net of withholding taxes).
Vacation: 3 weeks Per 12 month period of employment. All days
taken must be in accordance with flashNet company
policy.
Equipment/Travel: You will be provided with a desktop Pc and a Company
LD Phone Card for company usage only. You will
receive reimbursement from the company for company
use of your Cell Phone based upon itemized billing
records. You will have access to a laptop computer
when travelling. You will be provided with a private
office. When you travel you will travel in coach
class. If upgrades are purchased FlashNet will
compensate you for 50% of the cost of upgrades. When
traveling you will use mid-size to full size cars
such as Ford Taurus. Upgrades to luxury cars will
not be reimbursed.
Health Benefits The company will cover, at no charge to you, the
premium portion of the health plan for you and your
family under the company's existing HMO/PPO policy with
Aetna. Under the company's "key employee" provision,
we will waive the 90 day waiting period for your
participation in the plan, and make your instatement
effective upon your proper application.
I hope that this compensation structure is acceptable to you. If so, please
acknowledge the same by signing below in the space indicated. I look forward to
our success here at FlashNet Communications and to your valued involvement to
make it happen.
Sincerely,
/s/ M. Scott Leslie
<PAGE>
M. Scott Leslie
President
AGREED AND ACCEPTED this 3 day of November, 1998
BY: /s/ Andrew Jent
------------------------------------
Andrew Jent
<PAGE>
June 24, 1998
Mr. Terri Frey
1312 N. Forest Park Blvd.
Ft Worth, Texas 76102
RE: Offer
Dear Terri:
I am excited about the prospect of having you join FlashNet Marketing, Inc. on a
full time basis, and [look forward to the valuable contribution you will make to
our success in the coming months. A large measure of our future success will
depend upon your work here with our company, and in this regard I would like to
offer the following compensation plan to you:
Position: President of FlashNet Marketing, Inc.
General Job Duties: As with most senior management positions, you will be
largely responsible for writing your job description.
In a general sense you will be responsible for helping
FMI build industry prominence and attract new customers
and representatives by implementing network marketing
programs and brand awareness campaigns. You will be
responsible for all aspects of our marketing. This
includes development of concepts, implementation of
specific programs and campaigns, as well as development
and management of a staff that will assist you in these
activities. You will also be responsible for developing
new distribution channels. You will be expected to
develop new strategic relationships that will enhance
our revenue stream through such endeavors.
<TABLE>
<CAPTION>
7/1/98 to 12/31/99 1/1/00 to 12/31/00 1/1/01 and thereafter
- --------------------------------------------------------------------------------
Salary $5,192.31 per pay $2,500.00 per pay -0.00
period which calculates period which calculates
to 135,000.00 annually to $65,000.00 annually
<PAGE>
Target Amount
------ ------
<S> <C>
Recruiting Bonuses: If 1,500 new NR/D (70% Distributors) by 10/1/98 $10,000.00
If 87000 total NR/D (70% Distributors) by 12/1/98 $10,000.00
If 23,000 new NR/D (70% Distributors) by 6/30/99 $25,000.00
If 75,000 new NR/R (70% Distributors) by 12/31/99 $50,000.00
Productivity Bonus: If 50,000 total customers from FMI by 12/31/98 $10,000.00
Time Frame Amount
---------- ------
NCB Commissions: 7/1/98 to 12/31/99 $ 1.00 New Customer Bonus
1/1/99 and thereafter .25% residual which shall vest in
1/3 increments over three years
beginning on your start date
</TABLE>
Disclaimer: Nothing herein shall be construed to create an obligation on
the part of FlashNet Marketing, Inc. to continue your
employment during the time frames listed above, as your
continued employment is strictly performance based. FlashNet
Marketing, Inc. reserves the right to terminate your
employment for any reason, including but not limited to
performance goals and standards of conduct not being met.
Special Conditions: 1. You will no longer receive any financial compensation
from your current downline (which includes the downline of
your partner Kat Hemstock) as of 7/1/98. If you leave
FlashNet for any reason prior to 12/31/98, you shall have
your downline returned along with any growth that has
occurred during that time. You will have a thirty (30) day
transition time with your team.
2. Should you separate from FMI you will not be permitted to
recruit any FlashNet representatives for a period of 12
months following your departure.
Vacation: Two (2) weeks per 12 month period of employment in
accordance with FlashNet company policy. During the second
year of your employment and beyond, you will receive a total
of three (3) weeks. All days taken must be in accordance
with FlashNet company policy.
Equipment/Travel: You will be provided with a desktop PC and a Company LD
phone Card for company usage only. You will receive
reimbursement from the company for company use of your Cell
Phone based upon itemized billing records. You will have
access to a laptop computer when travelling. You will be
provided with a private office. When you travel you will
travel in coach class and use mid-size to full size cars
such as Ford Taurus. Upgrades to luxury cars will not be
reimbursed.
<PAGE>
Health Benefits The company will cover, at no charge to you, the premium
portion of the health plan for you and your family under the
company's existing HMO/PPO policy with Aetna. Under the
company's "key employee" provision, we will waive the 90 day
waiting period for your participation in the plan, and make
your instatement effective Upon your proper application.
Your employment with FlashNet shall also terminate the consulting arrangement in
place at the present time. I hope that this compensation structure is acceptable
to you. If so, please acknowledge the same by signing below in the space
indicated. I look forward to our success here at FlashNet Marketing, Inc. and to
your valued involvement to make it happen.
Sincerely,
/s/ M. Scott Leslie
M. Scott Leslie
President
AGREED AND ACCEPTED this 24th day of June, 1998
BY: /s/ Terri Frey
--------------------------
Terri Frey
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME UNDER WHICH
NAME OF SUBSIDIARY STATE OF INCORPORATION BUSINESS IS CONDUCTED
<S> <C> <C>
FlashNet Marketing, Inc. Texas FlashNet Marketing, Inc.
FlashNet Telecom, Inc. Texas FlashNet Telecom, Inc.
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of FlashNet
Communications, Inc. on Form S-1 of our report dated March 16, 1998,
appearing in the Prospectus, which is part of this Registration Statement
and to the reference to us under the headings "Selected Consolidated
Financial and Operating Data" and "Experts" in such Prospectus.
Fort Worth, Texas
December 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOL.
BALANCE SHEETS AT DEC. 31, 1996 & 1997 & AS OF SEPT. 30, 1998 (UNAUDITED) &
CONSOL. STATEMENT OF OPERATIONS FOR SEPT. 25, 1995 THROUGH DEC. 31, 1995,
YEARS ENDED DEC. 31, 1996 & 1997 & 9 MONTHS ENDED SEPT. 30, 1997 & 1998
(UNAUDITED) & IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIN. STMNTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 3,301,484 1,569,719
<SECURITIES> 0 0
<RECEIVABLES> 664,826 529,538
<ALLOWANCES> 42,536 35,068
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,752,090 2,441,520
<PP&E> 11,587,730 10,936,351
<DEPRECIATION> 4,787,504 2,539,928
<TOTAL-ASSETS> 11,667,385 10,999,993
<CURRENT-LIABILITIES> 23,185,575 17,609,072
<BONDS> 0 0
10,444,860 0
0 0
<COMMON> 810,822 701,910
<OTHER-SE> (22,986,396) (12,470,381)
<TOTAL-LIABILITY-AND-EQUITY> 11,677,385 10,999,993
<SALES> 18,100,839 18,324,731
<TOTAL-REVENUES> 18,100,839 18,324,731
<CGS> 0 0
<TOTAL-COSTS> 9,003,386 9,027,284
<OTHER-EXPENSES> 15,042,372 19,483,384
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,931,521 714,266
<INCOME-PRETAX> (7,876,440) (10,900,202)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,876,440) (10,900,202)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,876,440) (10,900,202)
<EPS-PRIMARY> (6.80) (6.50)
<EPS-DILUTED> (6.80) (6.50)
</TABLE>
