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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1998
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NET GROCER INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 5411 13-3873142
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
333 SEVENTH AVENUE
NEW YORK, NEW YORK 10001
(212) 244-0031
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
DANIEL NISSAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NET GROCER INC.
333 SEVENTH AVENUE
NEW YORK, NEW YORK 10001
(212) 244-0031
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
----------------
with copies to:
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SHELDON G. NUSSBAUM, ESQ. DAVID C. DRUMMOND, ESQ.
FULBRIGHT & JAWORSKI L.L.P. WILSON SONSINI GOODRICH & ROSATI
666 FIFTH AVENUE 650 PAGE MILL ROAD
NEW YORK, NEW YORK 10103 PALO ALTO, CALIFORNIA 94304
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), 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 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT MAXIMUM AGGREGATE
OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING AMOUNT OF
REGISTERED REGISTERED (1) PER SHARE (2) PRICE (1)(2) REGISTRATION FEE
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Common Stock, $.01 par value per share ......... $ $ $37,950,000 $ 11,195.25
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(1) Includes shares to be sold upon exercise of the Underwriters'
over-allotment option. See "Underwriting".
(2) Estimated solely for purpose of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
<PAGE>
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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JULY 30, 1998
SHARES
[LOGO]
COMMON STOCK
----------------
All of the shares of Common Stock offered hereby are being issued and sold
by Net Grocer Inc. ("NetGrocer" or the "Company"). Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between $
and $ per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. Application has
been made to have the Common Stock approved for quotation on the Nasdaq
National Market under the symbol "NTGR."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
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<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
---------- -------------- ------------
<S> <C> <C> <C>
Per Share ......... $ $ $
Total(3) .......... $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering payable by the Company
estimated at $ .
(3) The Company has granted an option to the Underwriters, exercisable within
30 days of the date hereof, to purchase up to an aggregate of additional
shares of Common Stock for the purpose of covering over-allotments, if
any. If the Underwriters exercise such over-allotment option in full, the
total Price to Public, Underwriting Discount and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
----------------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to
withdraw, cancel or reject orders in whole or in part and subject to certain
other conditions. It is expected that delivery of the certificates representing
the shares will be made against payment on or about , 1998 at the office
of CIBC Oppenheimer Corp., CIBC Oppenheimer Tower, World Financial Center, New
York, New York 10281.
----------------
CIBC OPPENHEIMER VOLPE BROWN WHELAN & COMPANY
The date of this Prospectus is , 1998
<PAGE>
[Pictures]
FORWARD-LOOKING STATEMENTS
All statements other than statements of historical fact included in this
Prospectus, including without limitation statements under "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," regarding the Company's financial position,
business strategy and plans and objectives of management of the Company for
future operations, are forward-looking statements. When used in this
Prospectus, words such as "anticipate," "believe," "estimate," "expect,"
"intend" and similar expressions, as they relate to the Company or its
management, identify forward-looking statements. Such forward-looking
statements are based on the beliefs of the Company's management as well as
assumptions made by and information currently available to the Company's
management. Actual results could differ materially from those contemplated by
the forward-looking statements as a result of certain factors such as those
disclosed under "Risk Factors." Such statements reflect the current views of
the Company with respect to future events and are subject to these and other
risks, uncertainties and assumptions relating to the operations, results of
operations, growth strategy and liquidity of the Company.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SHORT POSITIONS AND THE IMPOSITIONS OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read
in conjunction with, the more detailed information and financial statements
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus (i) assumes that the underwriters'
over-allotment option has not been exercised, (ii) assumes the exercise of
warrants issued by the Company to purchase shares of Common Stock, (iii)
assumes the conversion of convertible debentures issued by the Company into
shares of Common Stock and (iv) reflects a 10-for-1 stock split effected
September 2, 1997 and a subsequent -for-1 stock split to be effected before
the consummation of the Offering. Prospective investors should carefully
consider the information set forth under the heading "Risk Factors."
THE COMPANY
NetGrocer is the only nationwide, Internet supermarket offering customers
dry grocery and related consumer products shipped directly to homes and
offices. Through a virtual supermarket on the World Wide Web at www.
netgrocer.com, the Company offers competitively priced products, online
convenience and comprehensive product information, all to help shoppers reduce
grocery bills, save time and shop more effectively. The NetGrocer Internet
supermarket never closes. Twenty-four hours a day, seven days a week, NetGrocer
customers can shop at their convenience, browsing from aisle to aisle and
making selections from full-color product images. Orders are then carefully
packaged and shipped from the Company's central distribution center primarily
via FedEx. One of the Company's unique advantages is its ability to sell a
variety of higher margin consumer products, such as housewares, toys and
baby-related items with its dry grocery product offerings at no additional
shipping charge to the customer and at minimal additional shipping cost to the
Company. The Company recently entered into marketing relationships with various
Internet sites and services which the Company believes will provide it with a
further competitive advantage over its current and potential competitors with
respect to customer acquisition efforts. One such relationship is the Company's
exclusive marketing alliance with the America Online service, to which 47% of
all U.S. interactive households subscribe. In addition, the Company has
exclusive agreements with AOL.COM, Yahoo! Inc. and Excite, Inc., which have an
unduplicated combined reach of approximately 75% of U.S. Web users and are each
among the top six most visited Web sites. As part of its relationship with the
Company, America Online, Inc. ("AOL") also has agreed, subject to certain
conditions, to make a strategic investment in the Company in a private
placement occurring contemporaneously with the consummation of this offering.
According to Progressive Grocer's 1998 Annual Report of the Grocery
Industry (the "Progressive Grocer Report"), the retail grocery industry is the
largest retail category in the U.S., representing 18%, or $436 billion, of the
$2.4 trillion spent on retail goods in 1997. The "dry grocery" segment,
comprised of items such as snack food, beverages, soups, pet food, personal
care and health and beauty products, and household products, represented more
than $217 billion of the retail grocery market. Jupiter Communications
estimates that consumers spent approximately $85 million in 1997 on groceries
purchased online and that these purchases will increase to $6.6 billion by
2002. The Company is leveraging the dramatic growth and inherent economic
advantages of the Internet as a commerce medium to create a model that
significantly reduces the high overhead and fixed costs associated with
traditional grocery retailers, satisfies consumers' increasing demand for
convenience and service, and provides an attractive medium for consumer product
manufacturers to effectively and efficiently market their products to specific
demographic groups.
Through its virtual supermarket and centralized distribution strategy,
NetGrocer has effectively re-engineered the traditional supply chain and
substantially reduced the real estate, inventory and personnel costs typically
associated with a "brick and mortar" retail store. NetGrocer is redefining and
improving the traditional grocery shopping experience for the consumer as well
by providing added convenience, time savings, easily accessible and
comprehensive product information and high quality customer service.
Furthermore, NetGrocer's re-engineered supply chain benefits consumer product
manufacturers through improved distribution, marketing and promotion of grocery
and related consumer
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<PAGE>
products. NetGrocer's systems enable it to (i) collect a wide variety of
information about the Company's customers to provide research and marketing
services to consumer product manufacturers, (ii) permit the marketing of
products by consumer product manufacturers to desired demographic groups or
customers on a one-to-one basis and (iii) reduce the costs to consumer product
manufacturers of market research and sampling, and new product introductions.
The Company recently entered into a marketing agreement with Unilever Foods,
the second largest consumer product manufacturer in the world, to provide such
services.
NetGrocer's objective is to be the leading online retailer of dry grocery
products and its customers' most frequently visited store for the purchase of
dry grocery and related consumer products. The Company plans to achieve this
objective by (i) creating customer loyalty through delivering a superior
shopping experience, (ii) building a national brand identity, (iii) leveraging
its superior economic model, (iv) maintaining a superior technology platform,
(v) capitalizing on aggregation opportunities to enhance its margins and (vi)
leveraging its customer database information to generate marketing revenues.
NetGrocer has grown rapidly since it commenced sales operations in July
1997. Monthly visits to the NetGrocer site have grown from approximately 84,000
in December 1997 to approximately 580,000 in June 1998. Despite the Company's
limited operating history and rapid acquisition of new customers, however, the
Company already experiences significant customer loyalty, with repeat customers
generally shopping 1.5 to 2 times per month and accounting for over 60% of
revenues during the first six months of 1998.
NetGrocer was incorporated in Delaware on October 27, 1995. The Company
maintains its principal executive offices at 333 Seventh Avenue, New York, New
York 10001. Its telephone number is (212) 244-0031.
-----------------
THE OFFERING
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<S> <C>
Common Stock Offered by the Company ................ shares
Common Stock to be Outstanding After the Offering(1) shares
Use of Proceeds .................................... To fund strategic marketing relationships
and other capital expenditures and for
general corporate purposes, including
working capital. See "Use of Proceeds."
Proposed Nasdaq StockMarket Symbol ................. "NTGR"
</TABLE>
- ----------
(1) Excludes: (i) shares of Common Stock issuable upon exercise of
outstanding options at a weighted average exercise price of per
share; and (ii) shares of Common Stock reserved for issuance upon
exercise of options that may be granted in the future under the Company's
1996 Stock Option Plan (the "Stock Option Plan"). Includes shares of
Common Stock reserved for issuance pursuant to the exercise of two
warrants issued by the Company to AOL (assuming an initial public offering
price of $ per share) and shares of Common Stock issuable upon
the conversion of two convertible debentures issued by the Company to
Cendant Corporation (including its predecessors, HFS Incorporated and CUC
International Inc., "Cendant"). See "Management--Employment Agreements"
and "--Stock Option Plans," "Certain Transactions," "Description of
Capital Stock" and Notes 6 and 7 of Notes to Financial Statements.
4
<PAGE>
SUMMARY FINANCIAL DATA
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<CAPTION>
QUARTERS ENDED
YEAR ENDED -----------------------------------------------------------------
DEC. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
STATEMENT OF OPERATIONS DATA: --------------- ------------- ------------- --------------- ---------------
(AUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales ............................. $ 281,160 $ -- $ 83,511 $ 197,649 $ 406,639
Gross deficit ......................... (283,370) -- (103,324) (180,046) (285,726)
Loss from operations .................. (3,552,759) (431,935) (567,494) (2,110,337) (2,967,398)
Net loss .............................. (3,584,570) (431,935) (568,064) (2,140,889) (3,043,102)
Basic loss per share ..................
Diluted loss per share ................
Weighted average number of
shares outstanding (basic) ...........
Weighted average number of
shares outstanding (diluted) .........
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------------
ACTUAL AS ADJUSTED(1)
BALANCE SHEET DATA: --------------- ---------------
(UNAUDITED)
<S> <C> <C>
Working capital (deficit) ......... $ 7,120,988 $
Total assets ...................... 9,350,153
Convertible debentures ............ 12,000,000
Stockholders' deficit ............. (3,929,647)
</TABLE>
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(1) Adjusted to give effect to the sale by the Company of the shares of
Common Stock offered hereby at an assumed initial public offering price
of $ per share and after deducting the estimated underwriting discount
and offering expenses. See "Use of Proceeds" and "Capitalization."
RISK FACTORS
Purchasers of Common Stock in the Offering should carefully consider the
risk factors set forth under the caption "Risk Factors" and the other
information included in this Prospectus prior to making an investment decision.
See "Risk Factors."
NetGrocer (Trade Mark) is a trademark of the Company for which
registration applications have been filed with the United States Patent and
Trademark Office. All other trademarks and tradenames referenced in this
Prospectus are the property of their respective owners.
5
<PAGE>
RISK FACTORS
The statements in this Prospectus that relate to future plans, events or
performance are forward-looking statements. The Company's future operations,
financial performance, business and share price may be affected by a number of
factors, including the factors listed below, any of which could cause actual
results to vary materially from anticipated results. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only
as of the date hereof. The Company undertakes no obligation to publicly release
any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Limited Operating History. The Company was founded in October 1995 and
began selling dry grocery and related consumer products on its Web site in July
1997. Accordingly, the Company has a limited operating history on which to base
an evaluation of its business and prospects. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets such as online commerce. These
risks include, but are not limited to, an evolving and unpredictable business
model and the ability to manage growth. To address these risks, the Company
must, among other things, maintain and increase its customer base, implement
and successfully execute its business and marketing strategy, continue to
develop and upgrade its technology and transaction-processing systems, improve
its Web site, provide superior customer service and order fulfillment, respond
to competitive developments, and attract, retain and motivate qualified
personnel. There can be no assurance that the Company will be successful in
addressing these risks, and the failure to do so could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Accumulated Deficit; Negative Gross Margins; Anticipated Losses. Since
inception, the Company has incurred significant losses, and as of March 31,
1998 had an accumulated deficit of approximately $7.2 million. In addition, the
Company has incurred a gross margin deficit in each quarterly period since it
began selling groceries on its Web site. Since the Company's cost of shipping
orders exceeds the amount the Company charges to its customers for delivery, it
is unlikely that the Company will achieve positive gross margins with its
current business strategy without the opening of additional distribution
centers in other parts of the country in order to reduce shipping distances.
However, it is unlikely the Company will open any additional distribution
centers in the next 12 months and there can be no assurance the Company will
successfully open additional distribution centers at any point in the future or
that, if opened, such additional distribution centers will enable the Company
to achieve positive gross margins. The Company also believes that it will
continue to have a negative gross margin until such time as it is able to,
among other things, realize other efficiencies and economies of scale, improve
product mix and realize certain purchasing economies.
The Company currently intends to continue to invest in pursuing strategic
alliances, marketing and promotion, site development and technology, and
infrastructure development. Achieving profitability given planned investment
levels will depend upon the Company's ability to substantially increase its
customer base and revenue levels, improve its product mix by increasing its
sales of higher margin consumer products, reduce shipping costs, primarily
through opening additional distribution centers, attract advertising dollars
and reduce its merchandise costs through volume discounts and direct purchases
from manufacturers. As a result, the Company believes that it will incur
substantial operating losses for the foreseeable future and that the rate at
which such losses will be incurred will increase significantly from current
levels. Although the Company has experienced significant revenue growth in
recent periods, such growth rates are not sustainable and are expected to
decline in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Need for Additional Funds. The Company anticipates that the net proceeds
from this offering, together with other available resources, will be sufficient
to fund the Company's operations for the next 12 months. In addition, the
Company is committed to make fixed payments over the next two to three years
aggregating approximately $23.8 million under agreements entered into with its
strategic marketing partners, of which, the Company is obligated to pay
approximately $16 million over the next 12 months. However, the Company's
capital requirements depend on several factors, including the rate of market
acceptance, the ability to expand the Company's customer base and retain
existing customers, the level of expenditures for sales and marketing, the
level of expenditures for planned capital facilities expansion and increased
inventory, the level of and need to fund future operating losses, the cost of
Web site upgrades and other factors. If capital requirements vary materially
from those currently planned, the
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Company may require additional financing sooner than anticipated. In addition,
in order to achieve profitability, the Company will be required to make
additional capital expenditures for the opening of additional distribution
centers for which additional funds will be required. There can be no assurance
that financing will be available in amounts or on terms acceptable to the
Company, if at all. If equity securities are issued in connection with a
financing, dilution to the Company's stockholders may result. To the extent
additional funds are raised through the incurrence of debt, the Company may
become subject to certain restrictions on its operations and finances. See "Use
of Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Ability to Attract and Retain Customers. The market for the Company's
Internet-based grocery service has only recently begun to develop and is
rapidly evolving. There is significant uncertainty regarding whether this
market will ultimately prove to be viable or, if it becomes viable, that it
will grow. The Company's future growth, if any, will be dependent on the
willingness of consumers to purchase groceries over the Internet and the
Company's ability to generate higher levels of traffic to its site, increase
the percentage of visitors who purchase products and increase the number of
repeat purchasers. Although the Company is pursuing a number of strategies
designed to accomplish these objectives, including its relationships with AOL,
Yahoo!, Excite and other Web sites, there can be no assurance that the Company
will be successful in this regard. If the market for the Company's service
fails to develop or develops more slowly than expected, if consumers do not
accept the Company's service, or if the Company is unable to retain its
customers, the Company's business, results of operations and financial
condition would be materially and adversely affected.
Increased Reliance Upon Strategic Alliances. The Company increasingly is
relying on certain strategic alliances to attract users to its Web site. The
Company has entered into exclusive strategic alliances with AOL, Yahoo! and
Excite with respect to certain areas on their respective Web sites and
services. The Company's ability to generate revenues will depend on increased
traffic and purchases that the Company expects to generate through these
efforts. There can be no assurance that these efforts will generate a
substantial number of new customers or sales or that the Company's
infrastructure will be sufficient to handle the resulting increased traffic.
The Company has invested, and expects that it will continue to invest,
significant resources in its strategic marketing alliances. The Company is
obligated to make fixed payments of approximately $16 million to AOL, Yahoo!
Inc. ("Yahoo!"), Excite, Inc. ("Excite") and iVillage, Inc. ("iVillage") over
the next 12 months in connection with such marketing alliances, and is required
to pay an additional $7.8 million in fixed payments over the life of these
agreements. There can be no assurance that the Company will generate sufficient
sales to realize economies of scale that justify the Company's significant
obligations to AOL, Yahoo!, Excite, and iVillage. The failure of the Company to
do so would likely have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, none of the AOL,
Yahoo! or Excite agreements provides the Company with automatic renewal rights
upon expiration of their respective terms. There can be no assurance that such
agreements will be renewed on an exclusive basis or on terms favorable to the
Company or at all. Furthermore, the Company's significant investment in the
AOL, Yahoo! and Excite relationships is based on the continued positive market
presence, reputation and anticipated growth of their respective Web sites and
services, as well as the commitment by each of AOL, Yahoo! and Excite to
deliver the number of impressions and/or guaranteed traffic required by the
agreements. Any decline in these sites' market presence, business or reputation
or the failure by one or more of them to deliver the number of impressions
and/or guaranteed traffic required by the agreements will reduce the value of
these strategic alliances to the Company and will likely have a material
adverse effect on the business, financial condition and results of operations
of the Company. Additionally, to the extent the Company generates significant
revenues from its relationship with any particular third party Internet site,
the Company could be adversely affected by such third party's inability to
maintain efficient and uninterrupted operation of its computer and
communications hardware systems. See "Business-- Marketing."
Reliance on FedEx. The Company relies on FedEx for delivery of
substantially all of the packages shipped to the Company's customers. There can
be no assurance that FedEx will not experience labor difficulties in the future
which would have a significant impact on the Company's ability to do business.
The Company's agreement with FedEx provides for certain shipping volume
discounts and other matters
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but does not commit FedEx to carry the Company's packages at any particular
price or at all. As a consequence, there can be no assurance that FedEx will
retain its existing pricing structure. Any substantial increase in the prices
charged by FedEx to the Company, or any refusal or inability by FedEx to act as
the Company's delivery service would have an immediate material and adverse
effect on the Company's business, financial condition and results of
operations. See "Business--Distribution and Order Fulfillment."
Fluctuations of Future Operating Results. The Company expects to
experience significant fluctuations in its revenues due to a variety of
factors, many of which are outside the Company's control. Factors that could
have a material adverse effect on the business, financial condition and results
of operations of the Company include: (i) the Company's ability to retain
existing customers, attract new customers at a steady rate and maintain
customer satisfaction; (ii) the mix of products sold; (iii) price competition;
(iv) the mix of revenues derived from its relationships with strategic partners
such as AOL, Yahoo!, Excite and iVillage versus those derived from the
Company's other marketing efforts; (v) the termination of its relationships
with strategic partners; (vi) changes in shipping costs for delivery of the
Company's packages; (vii) the amount of advertising or other incremental
revenues received during a period; (viii) the level of use of the Internet and
online services and consumer acceptance of the Internet and other online
services for the purchase of consumer products such as those offered by the
Company; (ix) the Company's ability to upgrade and develop its systems and
infrastructure and attract new personnel in a timely and effective manner; (x)
technical difficulties, system downtime or Internet brownouts; (xi) the failure
of Internet bandwidth to increase significantly over time and/or an increase in
the cost to consumers of obtaining or using Internet bandwidth; (xii) the
amount and timing of costs and capital expenditures relating to expansion of
the Company's business, operations and infrastructure; (xiii) certain
government regulations; and (xiv) general economic conditions and economic
conditions specific to the Internet and online commerce. In addition, the
Company's current and future expense levels are based largely on its investment
plans and estimates of future revenues and, to a large extent, are fixed.
Accordingly, any significant shortfall in revenues in relation to the Company's
planned expenditures would have an immediate adverse effect on the Company's
business, financial condition and results of operations.
Due to the foregoing factors, the Company's annual or quarterly operating
results may fall below the expectations of securities analysts and investors.
In such event, the trading price of the Common Stock likely would be materially
and adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risks Associated with Distribution Strategy. The Company's fulfillment and
customer service operations are currently located at a single 125,000 square
foot facility in North Brunswick, New Jersey. Consequently, the Company's
ability to fulfill customer orders is subject to the risk of certain events
affecting such facility including fire, weather related disruptions and similar
catastrophic events. Any impairment of the Company's ability to make use of
this facility would have a material adverse effect on the Company's business,
financial condition and results of operations. Additionally, to the extent the
Company opens additional distribution facilities in the future, it may face
significant logistical and inventory management issues.
Competition. The retail grocery industry is intensely competitive. In
addition, the electronic commerce market is new, rapidly evolving and intensely
competitive. The Company currently or potentially competes with a variety of
other companies, including: (i) traditional "brick and mortar" grocery
retailers, such as neighborhood grocery stores, supermarket chains, warehouse
clubs, drug stores, mass merchants and discount stores, some of whom already
fulfill orders obtained via telephone, fax or computer; (ii) various regional
online grocery delivery services, such as HomeGrocer, HomeRuns, Peapod, Inc.
and Streamline; (iii) prospective national online grocery delivery services;
and (iv) other online or catalogue retailers of products sold by the Company
(including certain high margin products such as housewares, toys and
baby-related items).
The Company believes that the principal competitive factors in its market
are price, convenience, functionality and reliability of the shopping and
ordering system, product selection, level and accessibility
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of information regarding products offered, general brand awareness, reliability
and professionalism of delivery operations, available technology and level of
customer service. Many of the Company's current and potential competitors have
longer operating histories, larger customer bases, greater brand recognition
and significantly greater revenue, financial, marketing and other resources
than the Company. In addition, online retailers of products sold by the Company
may be acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Certain of the Company's
competitors may be able to secure merchandise from suppliers on more favorable
terms, devote greater resources to marketing and promotional campaigns, adopt
more aggressive pricing or inventory availability policies, obtain more
favorable shipping rates and devote substantially more resources to Web site
and systems development than the Company. Increased competition may result in
reduced operating margins, loss of market share and a diminished brand
awareness. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, or that failure to
successfully deal with competitive pressures faced by the Company will not have
a material adverse effect on the Company's business, financial condition and
results of operations. Further, as a strategic response to changes in the
competitive environment, the Company may from time to time make certain
pricing, service or marketing decisions or acquisitions that could have a
material adverse effect on its business, financial condition and results of
operations. See "Business--Competition."
Risk of Inability to Manage Potential Growth. The Company has rapidly
expanded its operations. This expansion has placed, and is expected to continue
to place, a significant strain on the Company's management, fulfillment and
other operations, systems and financial resources. To manage further growth,
the Company must improve existing operations and systems and expand and
integrate its employee base. In order to effectively handle the increased
number of customer orders associated with the level of growth the Company needs
to achieve, the Company also will be required to substantially increase the
automation of its warehouse facility and fulfillment system. Additionally, to
the extent the Company opens regional distribution facilities in the future, it
will face significant logistical and inventory management issues. From December
31, 1995 to June 30, 1998, the Company has grown from 3 to 63 employees, and
several members of the Company's senior management have only recently joined
the Company. The Company's recently hired employees also include a number of
key managerial, technical and operations personnel, and the Company expects to
add additional key personnel in the near future. In addition, certain of the
Company's executive officers have limited or no experience in managing a public
company. The inability to manage growth effectively could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Risk of System Failure. The Company's success, in particular its ability
to successfully receive and fulfill orders and provide high-quality customer
service, largely depends on the efficient and uninterrupted operation of its
computer and communications hardware systems. Substantially all of the
Company's computer and communications hardware is located at two facilities.
Additionally, certain of the Company's servers are maintained and operated by a
third party contractor. The Company's systems and operations and those of such
contractor are vulnerable to damage or interruption from fire, flood, power
loss, telecommunications failure, computer viruses, break-ins and similar
events. The Company presently does not have redundant systems or a formal
disaster recovery plan. Any system interruptions that result in the
unavailability of the Company's Web site or reduced order fulfillment
performance would decrease the volume of goods sold and the attractiveness of
the Company's product and service offerings. The Company has experienced
periodic system interruptions from time to time and there can be no assurance
system interruptions will not occur in the future. Despite the implementation
of network security measures by the Company, its servers potentially are
vulnerable to computer viruses or electronic break-ins and similar disruptions,
which could lead to interruptions, delays, loss of data or the inability to
accept and fulfill customer orders. The occurrence of any of the foregoing
risks could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Technology."
Risk of Capacity Constraints; Reliance on Internally Developed Systems;
System Development Risks. A key element of the Company's strategy is to
generate a high volume of traffic on, and use of,
9
<PAGE>
its Web site. Accordingly, the satisfactory performance, reliability and
availability of the Company's Web site, transaction-processing systems and
network infrastructure are critical to the Company's reputation and its ability
to attract and retain customers and maintain adequate customer service levels.
The Company's revenues depend on the number of visitors who shop on its Web
site and the volume of orders it fulfills. Any substantial increase in the
volume of traffic on the Company's Web site or the number of orders placed by
customers will require the Company to expand and upgrade further its
technology, transaction processing systems and network infrastructure. There
can be no assurance that the Company will be able to accurately project the
rate or timing of increases, if any, in the use of its Web site or timely
expand and upgrade its systems and infrastructure to accommodate such
increases. Any inability to do so may cause unanticipated system disruptions,
slower response times, lower levels of customer service, impaired quality and
slower order fulfillment and could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's transaction processing systems are not integrated with the
remainder of the Company's accounting and financial systems. As a result, the
Company's current management information system, which produces frequent
operational reports, is inefficient with respect to traditional accounting-
oriented reporting and requires a significant amount of manual effort to
prepare information for financial and accounting reporting. Any future
inability by the Company to add additional software and hardware or to develop
and upgrade further its existing technology, transaction processing systems or
network infrastructure to accommodate increased traffic on its Web site or
increased sales volume through its transaction processing systems may cause
delays in reporting accurate financial information. There can be no assurance
that the Company will be able to effectively upgrade and expand its transaction
processing systems in a timely manner or to integrate smoothly any newly
developed or purchased modules with its existing systems. See
"Business--Technology."
Dependence on Continued Growth of Electronic Commerce. The Company's
long-term viability is dependent in part upon the widespread consumer
acceptance and use of the Internet as a medium of commerce. Use of the Internet
as a means of effecting retail transactions is at an early stage of
development, and demand and market acceptance for recently introduced services
and products over the Internet is uncertain. The Company cannot predict the
extent to which consumers will be willing to shift their purchasing habits from
traditional retailers to online retailers. The Internet may not become a viable
commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure, delayed
development of enabling technologies and inadequate performance improvements.
In addition, the Internet's viability as a commercial marketplace could be
adversely affected by delays in the development of services or due to increased
government regulation. Changes in or insufficient availability of
telecommunications services to support the Internet also could result in slower
response times and adversely affect usage of the Internet in general. Moreover,
adverse publicity and consumer concern about the security of transactions
conducted on the Internet and the privacy of users also may inhibit the growth
of commerce on the Internet. If the use of the Internet does not continue to
grow or grows more slowly than expected, or if the infrastructure for the
Internet does not effectively support growth that may occur, the Company would
be materially adversely affected.
Risks Related to Security of Electronic Commerce. A significant barrier to
the acceptance and viability of electronic commerce is concern regarding the
security of transmission of confidential information. The Company generally
relies on encryption and authentication technology licensed from third parties
that is designed to facilitate the secure transmission of confidential
information, such as customer credit card numbers. Nevertheless, the Company's
infrastructure and that of their current or future third party contractors are
potentially vulnerable to physical or electronic computer break-ins, viruses
and similar disruptive problems. A party who is able to circumvent the
Company's security measures could misappropriate proprietary information or
cause interruptions in the Company's operations. To the extent that activities
of the Company or its third-party contractors involve the storage and
transmission of proprietary information, such as credit card numbers, security
breaches could damage the Company's reputation and expose the Company to a risk
of loss or litigation and possible liability. Therefore, the Company may be
required to expend significant capital and other resources to protect
10
<PAGE>
against such security breaches or to alleviate problems caused by such
breaches. There can be no assurance that the Company's security measures will
prevent security breaches or that failure to prevent such security breaches
will not have a material adverse effect on the Company. See "--Regulation;
Privacy Issues" and "Business--Technology."
Rapid Technological Change. To remain competitive, the Company must
continue to enhance and improve the functionality and features of the NetGrocer
supermarket service. The Internet and the online commerce industry are
characterized by rapid technological change, changes in user and customer
requirements and preferences, frequent new product and service introductions
embodying new technologies and the emergence of new industry standards and
practices that could render the Company's existing Web site and proprietary
technology and systems inadequate or obsolete. Additionally, the rapid roll-out
of unproven or inadequately tested software packages occasionally results in
the Company making changes to its site, potentially resulting in the users of
such software being unable to successfully communicate or otherwise interface
with the Company's site. The Company's success will depend, in part, on its
ability to license leading technologies useful in its business, enhance its
existing services, develop new services and technology that address the
increasingly sophisticated and varied needs of its prospective customers, and
respond to technological advances and emerging industry standards and practices
on a cost-effective and timely basis. The development of Web site and other
proprietary technology entails significant technical and business risks. There
can be no assurance that the Company will successfully use new technologies
effectively or adapt its Web site, proprietary technology and
transaction-processing systems to customer requirements or emerging industry
standards. If the Company is unable, for technical, legal, financial or other
reasons, to adapt in a timely manner in response to changing market conditions
or customer requirements, its business, financial condition and results of
operations would be materially adversely affected. See "Business--Technology."
Trademarks and Proprietary Rights. The Company regards its copyrights,
service marks, trademarks, trade dress, trade secrets and similar intellectual
property as critical to its success, and relies on trademark and copyright law,
trade secret protection and confidentiality and/or license agreements with its
employees, customers, partners and others to protect its proprietary rights.
The Company has applied for the registration of certain of its trademarks. The
Company has licensed in the past, and expects that it may license in the
future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to ensure that the
quality of its brand is maintained by such licensees, there can be no assurance
that such licensees will not take actions that might materially adversely
affect the value of the Company's proprietary rights or reputation, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate or that third
parties will not infringe or misappropriate the Company's copyrights,
trademarks, trade dress and similar proprietary rights. In addition, there can
be no assurance that other parties will not assert infringement claims against
the Company. Due to the fact that material may be downloaded from Web sites and
subsequently distributed to others, there is a potential that claims will be
made against the Company for negligence, copyright or trademark infringement,
or other theories based on the nature and content of such material. Although
the Company carries general liability insurance, the Company's insurance may
not cover potential claims of this type or may not be adequate to cover all
costs incurred in defense of potential claims or to indemnify the Company for
all liability that may be imposed. Costs or the imposition of liabilities that
are not covered by insurance or are in excess of insurance coverage could have
a material adverse effect on the Company. See "Business--Intellectual
Property."
Governmental Regulation and Legal Uncertainties. The Company is not
currently subject to direct regulation by any domestic or foreign governmental
agency, other than regulations applicable to businesses generally, and laws or
regulations directly applicable to access to electronic commerce. However, due
to the increasing popularity and use of the Internet and other online services,
it is possible that a number of laws and regulations may be adopted with
respect to the Internet or other online services covering issues such as user
privacy, pricing, content, copyrights, distribution and characteristics and
quality of products and services. Furthermore, the growth and development of
the market for electronic commerce may prompt calls for more stringent consumer
protection laws that may impose additional
11
<PAGE>
burdens on those companies conducting business online. The adoption of any
additional laws or regulations may decrease the growth of the Internet or other
online services, which could, in turn, decrease the demand for the Company's
products and services and increase the Company's cost of doing business, or
otherwise have an adverse effect on the Company's business, financial condition
and results of operations. Moreover, the applicability to the Internet and
other online services of existing laws in various jurisdictions governing
issues such as property ownership, sales and other taxes, liable and personal
privacy is uncertain and may take years to resolve. Any such new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to the Company's business, or the application of
existing laws and regulations to the Internet and other online services could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Sales and Other Taxes. The Company currently is not required to collect
sales or other similar taxes in respect of shipments of goods into states other
than New York and New Jersey. However, one or more states may seek to impose
sales tax collection obligations on out-of-state companies such as the Company
which engage in electronic commerce. In addition, any operations subsequently
commenced in states outside New York and New Jersey could subject shipments
into these states to state sales taxes under current or future laws. A
successful assertion by one or more states that the Company should collect
sales or other taxes on the sale of merchandise could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Risk Associated with the Year 2000. The so-called Year 2000 problem is the
result of computer programs being written using two digits rather than four to
define the applicable year. In other words, date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000, with a
similar problem in each year going forward. This could result in system
failures or miscalculations causing disruptions of operations, including, among
others, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. The Company does not believe that it has
material exposure to any Year 2000 problems with respect to its own information
systems since its existing systems correctly define the year 2000 and beyond.
The Company currently is unable to predict the extent to which Year 2000
problems will affect its suppliers or service providers, or the extent to which
it would be vulnerable to suppliers' failure to remediate any Year 2000
problems on a timely basis. The failure of a major supplier or service provider
which has a Year 2000 problem to convert its systems on a timely basis or a
conversion that is incompatible with the Company's systems could have a
material adverse effect on the Company. In addition, most of the purchases from
the Company's online supermarket are made with credit cards and the Company's
operations may be materially adversely affected to the extent its customers are
unable to use their credit cards due to Year 2000 problems that are not
rectified by their credit card vendors.
Regulation; Privacy Issues. The online services industry is new and
rapidly changing, and federal and state regulation relating to the Internet and
online services is evolving. The Company is aware of certain industry requests
of the Federal Communications Commission (the "FCC") to review the impact of
Internet usage on U.S. telecommunications service providers, in particular, the
generally lower cost structure for data transmission versus voice transmission.
FCC regulatory review and rulemaking could result in new regulation of the
Internet and online industry, changes in current rules governing
telecommunications or both. In turn, this could result in increased
telecommunications costs for the Internet and online industry. These or other
regulatory initiatives could have a material adverse effect on the Company's
business, results of operation or financial condition.
There has been a growing concern about privacy and the collection,
distribution and use of information about individuals, and the Company is
subject to various federal and state regulations concerning such activities.
Although the Company's compliance with such federal and state regulations has
not had a material adverse effect on the Company, no assurance can be given
that additional federal or state laws or regulations (including antitrust and
consumer privacy laws) will not be enacted or applied to the Company or certain
of its customers, in particular, users of interactive marketing services. A
component of the Company's business strategy is the value it can provide to
consumer product manufacturers through the Company's ability to accumulate
demographic and purchasing data from its customers. Any such guidelines, laws
or regulations could adversely affect the ability of the Company or
12
<PAGE>
its clients to collect, distribute or use consumer information, or could
otherwise have a material adverse effect on the Company's business, results of
operations or financial condition. The Company has adopted policies to address
certain privacy concerns, including restricting access to its database,
limiting the type of information that the Company provides to third parties,
and implementing data security systems at the Company's data center. However,
there can be no assurance that such policies and arrangements will be
effective, and to the extent that they are not effective, the Company's
business, results of operations or financial condition could be materially and
adversely affected.
Dependence on Key Personnel. The Company is highly dependent upon the
efforts of the members of its management team, particularly those of its
President and Chief Executive Officer, Daniel Nissan, and its Executive Vice
President and Chief Operating Officer, Richard D. Falcone. The loss of the
services of one or more of these individuals might impede the Company's
execution of its business strategy and the achievement of its business
objectives. Additionally, there can be no assurance that the Company will be
able to continue to attract and retain the qualified personnel necessary for
the development of its business. Loss of the services of, or failure to
recruit, key personnel could adversely affect the Company's business, operating
results and financial condition. See "Business--Employees" and "Management--
Executive Officers, Key Employees and Directors."
No Prior Public Market; Possible Volatility of Stock Price. Prior to this
offering, there has been no public market for the Common Stock. The initial
public offering price per share of the Common Stock will be determined by
negotiations between the Company and the Underwriters. See "Underwriting."
Application has been made for the Common Stock to be quoted on the Nasdaq
National Market; however, there can be no assurance that an active trading
market will develop and be sustained subsequent to this offering. The market
price of the Common Stock may fluctuate substantially because of a variety of
factors, including operating results, growth rates, changes in distribution
costs, changes in earnings estimates by analysts, sales of Common Stock by
existing holders, loss of key personnel and other factors. In addition, the
stock market in general, and the market for Internet-related stocks in
particular, historically has been subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, class action securities litigation
has often been instituted against such a company. Any such litigation
instigated against the Company could result in substantial costs and diversion
of management's attention and resources, which could have a material adverse
effect on the Company's business, financial condition and operating results.
Immediate and Substantial Dilution. The initial public offering price per
share of Common Stock is substantially higher than the net tangible book value
per share of the Common Stock. Purchasers of shares of Common Stock in this
offering will experience immediate and substantial dilution of $ in the
pro forma net tangible book value per share of Common Stock. To the extent
outstanding warrants and options to purchase Common Stock are exercised, there
will be further dilution. See "Dilution."
Control by Certain Principal Stockholders. Following consummation of this
offering, the Company's executive officers and directors and their affiliated
entities as a group will beneficially own approximately % of the outstanding
Common Stock. As a result, NetGrocer's executive officers, directors and
principal stockholders as a group will have the ability to control the outcome
of all matters submitted to a vote of the Company's stockholders, including the
election of directors and significant corporate transactions. Due to the number
of shares of Common Stock beneficially owned by the Company's executive
officers, directors and affiliates, as well as the ability of the Board of
Directors to issue shares of preferred stock without further vote or action by
the stockholders, any change in control of the Company could be delayed,
deferred or prevented without further action by the Company's stockholders.
Consequently, the market price of the Common Stock may be less likely to
reflect a "premium for control." See "--Availability of Preferred Stock for
Issuance; Anti-Takeover Provisions" and "Principal Stockholders."
Availability of Preferred Stock for Issuance; Anti-Takeover
Provisions. The Company's Certificate of Incorporation, as it is proposed to be
amended and restated before the consummation of this offering, authorizes the
Board of Directors of the Company, without stockholder approval, to issue
additional
13
<PAGE>
shares of Common Stock and to fix the rights, preferences and privileges of and
issue up to 1,000,000 shares of preferred stock with voting, conversion,
dividend and other rights and preferences that could adversely affect the
voting power or other rights of the holders of Common Stock. The issuance of
preferred stock, rights to purchase preferred stock or additional shares of
Common Stock may have the effect of delaying or preventing a change in control
of the Company. In addition, the possible issuance of preferred stock or
additional shares of Common Stock could discourage a proxy contest, make more
difficult the acquisition of a substantial block of the Common Stock or limit
the price that investors might be willing to pay for shares of the Common
Stock. Further, the Company's Certificate of Incorporation provides that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. Special meetings of the stockholders of
the Company may be called only by the Chairman of the Board of Directors, the
President of the Company, or by a majority of the Board of Directors pursuant
to a resolution adopted by a majority of the total number of authorized
directors. These and other provisions contained in the Certificate of
Incorporation and the Company's By-Laws, as well as certain provisions of the
Delaware General Corporation Law, could delay or make more difficult certain
types of transactions involving an actual or potential change in control of the
Company or its management (including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices)
and may limit the ability of stockholders to remove current management of the
Company or approve transactions that stockholders may deem to be in their best
interests and, therefore, could adversely affect the price of the Common Stock.
See "Description of Capital Stock--Preferred Stock" and "--Delaware
Anti-Takeover Law and Certain Charter Provisions."
Shares Eligible for Future Sale. Upon consummation of this offering, the
Company will have shares of Common Stock outstanding (assuming no
exercise of outstanding options or warrants). Of these shares, the
shares sold pursuant to this offering will be freely tradable without
restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except those shares acquired by "affiliates" of
the Company within the meaning of the Securities Act which will be subject to
the resale limitations of Rule 144 promulgated thereunder. The remaining
shares (the "Restricted Shares") will be restricted securities within the
meaning of Rule 144 and may be sold only if registered under the Securities Act
or sold in accordance with an applicable exemption from registration, such as
Rule 144. The Company, its executive officers, directors and all of its
stockholders have agreed, subject to certain exceptions, not to offer, sell,
contract to sell, pledge, grant any option to purchase or otherwise transfer or
dispose (a "Disposition") of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, subject to
certain limited exceptions, until 360 days after the effective date of this
Prospectus (the "Lock-Up Period"), without the prior consent of CIBC
Oppenheimer Corp., except that certain non-management employees are restricted
from making a Disposition for a period of 180 days. However, CIBC
Oppenheimer Corp. may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements.
Commencing at the end of the Lock-Up Period, shares will be eligible for
sale in the public market, subject to compliance with Rule 144. Of such shares,
will be eligible for sale, without limitation, pursuant to Rule 144(k).
The remaining shares of Common Stock held by existing stockholders will
become eligible for sale at various times over a period of two years. The
Company has granted to certain security holders demand and piggyback
registration rights covering an aggregate of shares of Common Stock. The
Company expects to file a Registration Statement on Form S-8 registering shares
of Common Stock reserved for issuance upon exercise of options granted under
the Company's 1996 Stock Option Plan following consummation of the Offering.
Sales of substantial amounts of shares of Common Stock in the public market or
the availability of such shares for future sale could adversely affect the
market price of these shares of Common Stock and the Company's ability to raise
additional capital at a price favorable to the Company. See "Shares Eligible
for Future Sale" and "Underwriting."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company hereby, at an assumed initial public
offering price of $ per share, and after deducting underwriting discounts
and commissions and other estimated offering expenses, are estimated to be
approximately $ .
The Company intends to use the net proceeds from this offering over the
next 12 months, primarily to fund sales and marketing expenditures, including
aggregate fixed payments of approximately $16 million to its strategic
marketing partners, approximately $4 to $5 million to fund capital expenditures
associated with the expansion, build-out and further automation of the
Company's distribution capabilities, including the opening of an additional
distribution center, approximately $2 to $3 million to continue to upgrade its
technology and transaction-processing systems and the remaining net proceeds
for general corporate purposes, including working capital. The Company will
require additional capital in periods following the next 12 months in order to
fund these expenditures and its other long-term business strategies. For
example, the Company is committed to make fixed payments over the next two
to three years aggregating approximately $23.8 million under agreements entered
into with its strategic marketing partners. See "Risk Factors--Need for
Additional Funds" and "Business--Marketing." The amounts actually expended by
the Company for working capital purposes may vary significantly depending upon
a number of factors, including future revenue growth, if any, and the amount of
cash, if any, generated by the Company's operations.
The amounts actually expended for each purpose, other than the payments
due to its strategic marketing partners as described above, will be determined
at the discretion of the Company. The Company's future capital requirements and
the allocation of the net proceeds of this offering, will depend on many
factors, including the entrance into new strategic alliances, increases in
advertising and promotions, growth of the Company's customer base and revenues,
and other factors. Accordingly, the actual amount of proceeds devoted to each
purpose may vary substantially from the amount set forth above.
Pending such uses, the Company intends to invest the net proceeds in money
market funds or other short-term, investment grade, interest-bearing
securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that any future earnings will be
retained by the Company for the development and operations of its business.
Accordingly, the Company does not anticipate paying cash dividends on the
Common Stock in the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 (i) on a historical basis and (ii) as adjusted to give effect to
the sale by the Company of the Common Stock offered hereby and the application
of the net proceeds therefrom, and the sale of shares of Common Stock to
AOL immediately prior to the consummation of this offering. See "Use of
Proceeds." The information set forth below should be read in conjunction with
the Company's Financial Statements and related Notes thereto and other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- ------------
(DOLLAR AMOUNTS IN
THOUSANDS)
<S> <C> <C>
Convertible debentures (1) ................................... $ 12,000 $
Stockholders' deficit:
Preferred Stock, $.01 par value; 1,000,000 shares authorized;
none issued and outstanding ............................... --
Common Stock, $.01 par value; 30,000,000 shares authorized;
shares issued and outstanding; shares issued and
outstanding, as adjusted (2) .............................. 1
Additional paid-in capital .................................. 3,461
Deferred compensation ....................................... (138)
Accumulated deficit ......................................... (7,172)
Receivable from stock option exercise ....................... (81)
--------
Total stockholders' deficit ................................. (3,929)
--------
Total capitalization ...................................... $ 8,071 $
======== =========
</TABLE>
- ----------
(1) Represents two convertible debentures issued by the Company to Cendant
Corporation, convertible into an aggregate of shares of Common Stock
(the "Convertible Debentures"). The Company has the right to require the
conversion of the Convertible Debentures to Common Stock beginning in
March 2002. The Convertible Debentures may be converted by Cendant at any
time. The number of shares into which the Convertible Debentures is
convertible is fixed regardless of the time of conversion or the amount
of interest accrued at that time.
(2) Excludes: (i) shares of Common Stock reserved for issuance pursuant
to the Company's 1996 Stock Option Plan, of which shares are
issuable upon exercise of stock options outstanding as of March 31, 1998
with a weighted average exercise price of per share; and (ii)
shares of Common Stock issuable upon the conversion the Convertible
Debentures. Includes shares of Common Stock reserved for issuance
pursuant to the exercise of warrants issued by the Company to AOL. See
"Description of Share Capital," "Management--Stock Option Plans,"
"Certain Transactions," "Description of Capital Stock" and
"Underwriting."
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<PAGE>
DILUTION
The net tangible book value (deficiency) of the Company at June 30, 1998,
was approximately $ million, or $ per share of Common Stock. Net
tangible book value (deficiency) per share represents the amount of total
tangible assets of the Company less total liabilities, divided by the number of
shares of Common Stock outstanding at June 30, 1998. After giving effect to
the sale by the Company of the Common Stock offered hereby at the initial
public offering price of $ per share and deducting the underwriting
discount and estimated expenses and the sale of shares of Common Stock to AOL
at the initial public offering price, the net tangible book value of the
Company at June 30, 1998 would have been approximately $ million, or $
per share. This represents an immediate increase in net tangible book value of
$ per share to existing stockholders and an immediate dilution of $ per
share to new investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ....................... $
Net tangible book value (deficiency) per share at June 30, 1998 ..... $
Increase in net tangible book value per share attributable to new
investors ..........................................................
---------
Net tangible book value per share after this offering .................
---------
Dilution per share to new investors ................................... $
=========
</TABLE>
The following table summarizes, as of June 30, 1998, the differences in
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the Company's
existing stockholders and the new investors in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... % $ % $
New investors ................. % $ % $
-------- --------- ---------- ---------
Total ........................ % $ %
======== ========= ========== =========
</TABLE>
The foregoing computations exclude shares of Common Stock reserved
for issuance pursuant to the Company's 1996 Stock Option Plan, of which
shares are issuable upon exercise of stock options outstanding as of June 30,
1998 with a weighted average exercise price of $ per share. The exercise of
such options would result in further dilution to new investors. See
"Management--Stock Option Plans."
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are derived from the Company's
Financial Statements. The Financial Statements for the period of October 27,
1995 (inception) through December 31, 1996 and the year ended December 31, 1997
have been audited by PricewaterhouseCoopers LLP and their report dated March 6,
1998, except note 1 (Basis of Presentation) as to which the date is July 6,
1998 appears elsewhere herein. Data for the three months ended March 31, 1998
have been derived from unaudited Financial Statements included elsewhere in
this Prospectus and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of operations for the periods presented. Results
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the full year ending December 31, 1998. This data is
qualified by the more detailed Financial Statements and Notes thereto included
elsewhere in this Prospectus and should be read in conjunction with such
Financial Statements and Notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, QUARTER ENDED
------------------------------- MARCH 31,
1996 1997 1998
------------- --------------- ----------------
STATEMENT OF OPERATIONS DATA:
- ------------------------------------------------ (UNAUDITED)
<S> <C> <C> <C>
Net sales ...................................... $ -- $ 281,160 $ 406,639
Cost of sales .................................. -- 564,530 692,365
---------- ------------ ------------
Gross deficit .................................. -- (283,370) (285,726)
Operating expenses:
Selling and marketing ......................... 64,559 1,058,037 632,711
Systems operating and development ............. 305,435 674,630 311,896
General and administrative .................... 173,876 1,536,722 1,737,065
---------- ------------ ------------
Loss from operations ........................... (543,870) (3,552,759) (2,967,398)
Interest expense, net .......................... -- 30,552 75,014
---------- ------------ ------------
Loss before provision for income taxes ......... (543,870) (3,583,311) (3,042,412)
Provision for income taxes ..................... 688 1,259 690
---------- ------------ ------------
Net loss ....................................... $ (544,558) $ (3,584,570) $ (3,043,102)
========== ============ ============
Basic loss per share ...........................
Diluted loss per share .........................
Weighted average number of shares outstanding
(basic) .......................................
Weighted average number of shares outstanding
(diluted) .....................................
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1996 1997 1998
------------- --------------- ---------------
BALANCE SHEET DATA:
- ----------------------------------- (UNAUDITED)
<S> <C> <C> <C>
Working capital (deficit) ......... $ (89,577) $ 3,169,430 $ 7,120,988
Total assets ...................... 104,406 4,917,195 9,350,153
Convertible debentures ............ -- 5,000,000 12,000,000
Stockholders' deficit ............. (44,558) (1,129,128) (3,929,647)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion contains forward-looking statements which involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in such 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 Financial Data" and the Financial Statements and notes thereto
included elsewhere in this Prospectus.
OVERVIEW
NetGrocer is the only nationwide, Internet supermarket offering customers
dry grocery and related consumer products shipped directly to homes and
offices. The Company was incorporated in October 1995 and for the period from
inception through July 1997, the Company's operating activities related
primarily to the initial planning, development and design of the NetGrocer
Internet supermarket, the development of the necessary systems infrastructure,
vendor relationships, and logistics and operations. In July 1997, the Company
commenced offering products for sale on its Web site and began to recognize
revenues. Since the commencement of sales, the Company has been focused on
continuously improving the functionality and speed of its Internet supermarket,
expanding the selection of products offered, building the NetGrocer brand and
customer base by attracting and retaining customers, and providing the highest
level of customer service. As a result, net sales and the number of customers
have increased in each quarter since July 1997.
Net sales are comprised of the selling price of the dry grocery and
related consumer products sold, net of product credits and other discounts
(which have not been significant to date), and outbound shipping charges. Net
sales increased 106% to $406,639 for the quarter ended March 31, 1998 as
compared to $197,649 for the quarter ended December 31, 1997 (the Company's
first full quarter of sales). At the end of June 1998, the Company had over
14,000 customers in 48 states. The Company's future sales growth will depend on
its ability to attract and retain a growing number of customers and increase
the frequency with which such customers place orders. The Company recently
entered into marketing relationships with various Internet sites and services
which the Company believes will provide it with a further competitive advantage
over its current and potential competitors with respect to customer acquisition
efforts. One such relationship is the Company's exclusive marketing alliance
with the America Online service (the "AOL Service"), to which 47% of all U.S.
interactive households subscribe. In addition, the Company has exclusive
agreements with AOL.COM, Yahoo! and Excite, which have an unduplicated combined
reach of approximately 75% of U.S. Web users and are each among the top six
most visited Web sites. As part of its relationship with the Company, AOL also
has agreed, subject to certain conditions, to make a strategic investment in
the Company contemporaneously with the consummation of this offering. The
Company expects these alliances to drive increased traffic to the NetGrocer
online supermarket, enhance awareness of the NetGrocer brand and provide an
important customer acquisition channel.
Costs of sales consist primarily of cost of merchandise sold, inbound and
outbound shipping costs and direct cost of order fulfillment. As the Company
achieves higher levels of sales, the Company expects the gross deficit as a
percentage of net sales to decrease as it reduces average order shipping cost
through increasing geographic density of customers, the opening of additional
distribution centers and realizing other efficiencies and economies of scale.
In addition, the Company expects gross product margins to improve as it seeks
to increase the mix of higher margin products and realizes increased purchasing
economies. The Company also expects overall gross margins to increase as it
attracts advertising and marketing dollars from consumer product manufacturers.
See "Risk Factors--Accumulated Deficit; Negative Gross Margins; Anticipated
Losses."
Operating expenses consist of selling and marketing expenses, systems
operating and development expenses, and general and administrative expenses.
Selling and marketing expenses consist primarily of costs related to strategic
marketing alliances, advertising, public relations and promotional
expenditures, as well as payroll and related expenses of sales and marketing
personnel. Selling and marketing expenditures are expected to increase
significantly principally due to increased costs related to strategic
19
<PAGE>
alliances. The Company has minimum aggregate commitments to AOL, Yahoo!, Excite
and iVillage of approximately $16 million over the next 12 months. Systems
operating and development expenses consist primarily of payroll and related
expenses for Web site design and development, network operations and
maintenance, and costs relating to systems and telecommunications
infrastructure. The Company expects such expenses to increase in future periods
but to decrease as a percentage of net sales as it continues to improve the
functionality and speed of the NetGrocer Internet supermarket and make
enhancements to its system. General and administrative expenses consist of
payroll and related expenses for executive, accounting, warehousing costs,
recruiting, professional fees and other general corporate purposes. The Company
expects such expenses to increase in future periods but to decrease as a
percentage of net sales as it expands its staff and incurs additional overhead
costs to support the growth of its business and the costs related to being a
public company.
The Company has a limited operating history on which to base an evaluation
of its business and prospects. The Company's prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in their initial stage of operations, particularly companies in new
and rapidly evolving markets such as online commerce. Due to its limited
operating history, the Company does not have a basis to determine the impact,
if any, of seasonality on its results of operations. Certain of these risks
have been addressed in detail under the heading "Risk Factors" in this
Prospectus.
At March 31, 1998, the Company's accumulated deficit was approximately
$7.2 million. The Company believes that it will incur substantial operating
losses for the foreseeable future and that the rate at which such losses will
be incurred will increase significantly from current levels. Since the Company
has relatively low gross margins on certain product lines, the ability of the
Company to generate and enhance profitability given planned investment levels
depends upon its ability to substantially increase its customer base and
revenue levels, improve its product mix by increasing its sales of higher
margin consumer products, reduce shipping costs, attract advertising dollars
and reduce its merchandise costs through volume discounts and direct purchases
from manufacturers. There can be no assurance that the Company will be able to
generate sufficient revenues from the sales of its products to achieve or
maintain profitability on a continuing basis.
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data for
the Company's four most recent quarters and the year ended December 31, 1997.
The quarterly information has been derived from the Company's unaudited
Financial Statements. In management's opinion, this unaudited information has
been prepared on the same basis as the annual Financial Statements and includes
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the information for the quarters presented. This
information should be read in conjunction with the Financial Statements and
Notes thereto included elsewhere in this Prospectus. The operating results for
any quarter are not necessarily indicative of results for any future period and
comparisons of results from quarter to quarter, are not necessarily meaningful.
Additionally, the discussion following the table contains comparisons of the
quarter ended December 31, 1997 to the quarter ended March 31, 1998 since
management believes that comparisons of the first quarter of 1998 with quarters
prior to the fourth quarter of 1997 are not necessarily meaningful.
20
<PAGE>
<TABLE>
<CAPTION>
QUARTERS ENDED (UNAUDITED)
YEAR ENDED -----------------------------------------------------------
DEC. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
--------------- ------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net sales .................................. $ 281,160 $ -- $ 83,511 $ 197,649 $ 406,639
Cost of sales .............................. 564,530 -- 186,835 377,695 692,365
------------ ---------- ---------- ------------ ------------
Gross deficit .............................. (283,370) -- (103,324) (180,046) (285,726)
Operating expenses:
Selling and marketing ..................... 1,058,037 106,797 186,606 687,236 632,711
Systems operating and development ......... 674,630 97,361 97,846 271,374 311,896
General and administrative ................ 1,536,722 227,777 179,718 971,681 1,737,065
------------ ---------- ---------- ------------ ------------
Loss from operations ....................... (3,552,759) (431,935) (567,494) (2,110,337) (2,967,398)
Interest expense, net ...................... 30,552 -- -- 30,552 75,014
------------ ---------- ---------- ------------ ------------
Loss before provision for income taxes ..... (3,583,311) (431,935) (567,494) (2,140,889) (3,042,412)
Provision for income taxes ................. 1,259 -- 570 -- 690
------------ ---------- ---------- ------------ ------------
Net loss ................................... $ (3,584,570) $ (431,935) $ (568,064) $ (2,140,889) $ (3,043,102)
============ ========== ========== ============ ============
</TABLE>
Net Sales. Net sales for the year ended December 31, 1997 and the quarters
ended December 31, 1997 and March 31, 1998 were $281,160, $197,649 and
$406,639, respectively. In July 1997, the Company commenced offering products
for sale on its Web site and began to recognize revenues. Subsequent to July
1997, net sales increased in all periods presented as a result of increased
product sales due primarily to an increase in the number of customers.
Cost of Sales and Gross Deficit. Cost of sales for the year ended December
31, 1997 and the quarters ended December 31, 1997 and March 31, 1998 was
$564,530, $377,695 and $692,365, respectively. Gross deficit for the year ended
December 31, 1997 and the quarters ended December 31, 1997 and March 31, 1998
was $283,370, $180,046 and $285,726, respectively. The gross deficit for these
periods is primarily due to shipping costs exceeding the amount charged by the
Company to its customers, personnel costs, the relatively low volume of sales
relative to available capacity maintained to support anticipated sales growth,
the transfer of the Company's warehouse and distribution operations from an
outsourced facility in Texas to a Company-operated facility in New Jersey, and
a lower margin product mix during the initial phase of the Company's sales
operations caused by the limited number of products available for sale during
that period.
Selling and Marketing Expenses. Selling and marketing expenses for the
year ended December 31, 1997 and the quarters ended December 31, 1997 and March
31, 1998 were $1,058,037, $687,236, and $632,711, respectively. The Company
expects selling and marketing expenses to increase over the next 24 to 36
months due to committed expenditures in connection with the Company's various
strategic marketing alliances.
Systems Operating and Development Expenses. Systems operating and
development expenses for the years ended December 31, 1997 and the quarters
ended December 31, 1997 and March 31, 1998 were $674,630, $271,374 and
$311,896, respectively. The increase in such expenses during the quarter ended
March 31, 1998 versus the quarter ended December 31, 1997 was due primarily to
the release of a new version of the Company's Web site, as well as other
infrastructure enhancements.
General and Administrative Expenses. General and administrative expenses
for the year ended December 31, 1997 and the quarters ended December 31, 1997
and March 31, 1998 were $1,536,722, $971,681 and $1,737,065, respectively. The
increase in such expenses during the quarter ended March 31, 1998 versus the
quarter ended December 31, 1997 was due primarily to increased salaries and
related expenses associated with the hiring of additional personnel, increases
in warehousing costs and increases in professional fees.
Interest Expense, Net. Interest expense, net for the year ended December
31, 1997 and the quarters ended December 31, 1997 and March 31, 1998 was
$30,552, $30,552 and $75,014, respectively. Interest expense consists primarily
of accrued interest on a convertible debenture issued by the Company, net of
interest earned on the Company's cash and cash equivalents. Under the terms of
the convertible debenture, interest is payable upon maturity unless the
convertible debenture is converted into shares of Common Stock. The convertible
debenture matures in 2002.
21
<PAGE>
Income Taxes. Income taxes for the year ended December 31, 1997 and the
quarters ended December 31, 1997 and March 31, 1998 were $1,259, $0 and $690,
respectively. The Company incurred a net loss for each period since inception.
As of December 31, 1997, the Company had approximately $3.4 million of C
corporation net operating loss carryforwards for federal income tax purposes.
The Company has provided a full valuation allowance on the related deferred tax
asset of approximately $1.6 million, relating primarily to net operating loss
carryforwards, due to uncertainty regarding the realizability of this asset.
See Note 4 of Notes to Financial Statements. For the period January 1, 1998,
until June 12, 1998, the Company elected to be taxed as an S corporation and,
accordingly, net operating losses incurred during that period are not available
to be used by the Company to offset any future income. The Company does not
expect the conversion from an S corporation to a C corporation to have a
material impact on its financial condition.
LIQUIDITY AND CAPITAL RESOURCES
From inception to June 30, 1998, the Company has financed its operations
primarily through cash investments aggregating $18.0 million. In November 1997
and March 1998, the Company received $5.0 million and $7.0 million,
respectively, upon the issuance of convertible debentures. Both convertible
debentures have a five year maturity and bear interest at the prime rate
reported in The Wall Street Journal (8.5% at June 30, 1998). The two
convertible debentures, including any accrued interest, are convertible into an
aggregate of 64,584 shares of Common Stock. Through June 30, 1998, the Company
raised an aggregate of $6.0 million from the issuance of Common Stock to its
founders and other stockholders.
Net cash used in operating activities was $393,905 in 1996 and
approximately $3.1 million in 1997. Cash used in operating activities in 1996
was attributable to a net loss of $544,558, offset in part by increases of
$148,964 in accounts payable to third parties and a related party. In 1997,
cash used in operating activities resulted from a net loss of approximately
$3.6 million, and increases in inventories of $359,655, other assets of
$126,391 and accounts receivable of $38,046 and amounts due from a related
party of $209,567, offset in part by an increase of approximately $1.0 million
in accounts payable to third parties and an increase of $144,808 in
depreciation and amortization.
Net cash used in operating activities was approximately $2.7 million in
the quarter ended March 31, 1998. Cash used in operating activities during the
first quarter of 1998 was attributable to a net loss of approximately $3.0
million, and increases in inventory of $167,159, accounts receivable of $74,722
and other assets of $72,575, offset by an increase in accounts payable and
accrued expenses of $233,479 and charges of $242,583 for compensation related
to the issuance of stock options and $76,007 for depreciation and amortization
expense.
As of March 31, 1998, the Company had approximately $7.8 million of cash
and cash equivalents. In addition to committed payments to its strategic
marketing partners and its obligations under operating and capital leases, the
Company expects to make capital expenditures for the expansion, build-out and
further automation of the Company's distribution capabilities, including the
opening of additional distribution centers, and the continued upgrade of its
technology and transaction-processing systems. The Company also anticipates a
substantial increase in its capital expenditures, inventory requirements and
lease commitments consistent with anticipated growth in its customer base,
operations and infrastructure.
The Company believes that the net proceeds from this offering, together
with its current cash and cash equivalents, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for the
next 12 months. The Company recently entered into exclusive marketing
agreements with the AOL Service, AOL.COM, Yahoo!, Excite and iVillage, pursuant
to which the Company is obligated to pay an aggregate of approximately $16
million over the next 12 months, and is required to pay an additional $7.8
million in fixed payments over the life of these agreements. However, the
Company's capital requirements depend on several factors, including the rate of
market acceptance, the ability to expand the Company's customer base and retain
existing customers, the level of expenditures for sales and marketing expenses
and alliances, the level of expenditures for planned capital facilities
expansion and increased inventory, the level of and need to fund future
operating losses, the cost of Web site upgrades and other factors. If capital
22
<PAGE>
requirements vary materially from those currently planned, the Company may
require additional financing sooner than anticipated. In addition, in order to
achieve profitability, the Company will be required to make additional capital
expenditures for the opening of additional distribution centers for which
additional funds will be required. The Company has no commitments for any
additional financing, and there can be no assurance that any such commitments
can be obtained on favorable terms, if at all. Any additional equity financing
may be dilutive to the Company's stockholders, and debt financing, if
available, may involve restrictive covenants with respect to dividends, raising
future capital and other financial and operational matters which could restrict
the Company's operations or finances. If the Company is unable to obtain
additional financing as needed, the Company may be required to reduce the scope
of its operations or its anticipated expansion, which would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Risk Factors--Need for Additional Funds" and "Use of
Proceeds."
RISKS ASSOCIATED WITH THE YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
The Company does not believe that it has material exposure to the Year
2000 issue with respect to its own information systems since its existing
systems correctly define the year 2000. The Company intends to conduct an
analysis in 1998 to determine the extent to which its major suppliers' systems
(insofar as they relate to the Company's business) are subject to the Year 2000
issue. The Company currently is unable to predict the extent to which the Year
2000 issue will affect its suppliers, or the extent to which it would be
vulnerable to its suppliers' failure to remediate any Year 2000 issues on a
timely basis. The failure of a major supplier subject to a Year 2000 issue to
convert its systems on a timely basis or on a basis that is compatible with the
Company's systems could have a material adverse effect on the Company. In
addition, most of the purchases from the Company's online supermarket are made
with credit cards, and the Company's operations may be materially adversely
affected to the extent its customers are unable to use their credit cards due
to any Year 2000 issues that are not rectified by their credit card vendors.
See Notes to Financial Statements for information regarding recently
adopted accounting standards and recently issued accounting standards.
23
<PAGE>
BUSINESS
NetGrocer is the only nationwide, Internet supermarket offering customers
dry grocery and related consumer products shipped directly to homes and
offices. Through a virtual supermarket on the World Wide Web at www.
netgrocer.com, the Company offers competitively priced products, online
convenience and comprehensive product information, all to help shoppers reduce
grocery bills, save time and shop more effectively. The NetGrocer Internet
supermarket never closes. Twenty-four hours a day, seven days a week, NetGrocer
customers can shop at their convenience, browsing from aisle to aisle and
making selections from full-color product images. Orders are then carefully
packaged and shipped from the Company's central distribution center primarily
via FedEx. A variety of higher margin consumer products, such as housewares,
toys and baby-related items. One of the Company's unique advantages is its
ability to sell a variety of higher margin consumer products, such as
housewares, toys and baby-related items, with its dry grocery product offerings
at no additional shipping charge to the customer and at minimal additional
shipping cost to the Company. The Company recently entered into marketing
relationships with various Internet sites and services which the Company
believes will provide it with a further competitive advantage over its current
and potential competitors with respect to customer acquisition efforts. One
such relationship is the Company's exclusive marketing alliance with the AOL
Service, to which 47% of all U.S. interactive households subscribe. In
addition, the Company has exclusive agreements with AOL.COM, Yahoo! and Excite,
which have an unduplicated combined reach of approximately 75% of U.S. Web
users and are each among the top six most visited Web sites. As part of its
relationship with the Company, AOL also has agreed, subject to certain
conditions, to make a strategic investment in the Company contemporaneously
with the consummation of this offering.
Through its virtual supermarket and centralized distribution strategy,
NetGrocer has effectively re-engineered the traditional supply chain and
substantially reduced the real estate, inventory and personnel costs typically
associated with a "brick and mortar" retail store. NetGrocer is redefining and
improving the traditional grocery shopping experience for the consumer as well
by providing added convenience, time savings, easily accessible and
comprehensive product information and high quality customer service.
Furthermore, NetGrocer's re-engineered supply chain benefits consumer product
manufacturers through improved distribution, marketing and promotion of grocery
and related consumer products. NetGrocer's systems enable it to (i) collect a
wide variety of information about the Company's customers to provide research
and marketing services to consumer product manufacturers, (ii) permit the
marketing of products by consumer product manufacturers to desired demographic
groups or customers on a one-to-one basis and (iii) reduce the costs to
consumer product manufacturers of market research and sampling, and new product
introductions. For example, the Company recently entered into a marketing
agreement with Unilever Foods, the second largest consumer product manufacturer
in the world, to provide such services.
NetGrocer has grown rapidly since it commenced sales operations in July
1997. Monthly visits to the NetGrocer site have grown from approximately 84,000
in December 1997 to approximately 580,000 in June 1998. Despite the Company's
limited operating history and rapid acquisition of new customers, however, the
Company already experiences significant customer loyalty, with repeat customers
generally shopping 1.5 to 2 times per month and accounting for over 60% of
revenues during the first six months of 1998.
INDUSTRY BACKGROUND
Growth of the Internet
The Internet and the Web are experiencing dramatic growth. International
Data Corporation ("IDC") estimates that at the end of 1997, there were 38
million Web users in the U.S. and that by the end of 2002, the number of Web
users in the U.S. will increase to over 135 million. A 1997 report by the U.S.
Department of Commerce estimates that overall data traffic on the Internet is
doubling every 100 days. In addition, Web users are spending an increasing
amount of time on the Web. The growth in the number of Web users and the amount
of time users spend on the Web is being driven primarily by the increasing
importance of the Internet as a sales and distribution channel, a
communications medium and an information resource, as well as the generally
decreasing cost of personal computers, consumer awareness and technological
advances.
24
<PAGE>
Growth of Electronic Commerce
The Internet is dramatically affecting the distribution channels through
which consumers and businesses have traditionally bought and sold goods and
services. The Web provides online merchants with the ability to reach a global
audience and to operate with minimal infrastructure, reduced overhead and
greater economies of scale, while providing consumers with a broad selection,
increased pricing power and unparalleled convenience. As a result, a growing
number of consumers are transacting business on the Web, including buying
groceries and consumer goods, trading securities, paying bills and purchasing
airline tickets. Jupiter Communications estimates that in 1997, over 25% of
adult Web users purchased goods or services over the Web and that 50% of adult
Web users will make online purchases in 2000. Jupiter Communications also
estimates that retail consumer purchases of goods and services over the
Internet will increase from $2.6 billion in 1997 to $37.5 billion in 2002. With
respect to grocery products, Jupiter Communications estimates that consumers
spent approximately $85 million in 1997 on groceries over the Internet and that
this market will increase to approximately $6.6 billion by 2002, which
represents less than 1.5% of the total amount expected to be spent on groceries
in the U.S.
Traditional Retail Grocery Industry
The retail grocery industry is the largest retail category in the U.S.,
representing 18% of the $2.4 trillion spent on retail goods in 1997. According
to the Progressive Grocer Report, U.S. consumers spent approximately $436
billion on groceries during 1997. The dry grocery segment alone, comprised of
items such as snack food, beverages, soups, pet food, personal care and health
and beauty products, and household products, represented more than $217 billion
of the retail grocery market. The retail grocery industry is highly fragmented.
According to the Progressive Grocer Report, there were approximately 126,000
grocery store locations in the U.S. at the beginning of 1998, with the largest
supermarket chain accounting for less than 6% of industry revenues.
LIMITATIONS OF THE TRADITIONAL GROCERY RETAIL MODEL
Limitations Facing Retailers. Traditional "brick and mortar" grocery
retailers face significant economic limitations in their business models since
they must make substantial investments for each retail location in real estate,
store set-up costs, other fixed assets and inventory, and have high ongoing
expenses relating to personnel. According to the Food Market Institute ("FMI"),
13% to 14% of a traditional grocery retailer's operating costs in 1997 were
related to real estate alone and the median supermarket increased its floor
space by 25% between 1990 and 1996. Additionally, the typical supermarket
stocks approximately 30,000 different grocery products in each location,
resulting in relatively high inventory costs and low inventory turns. Finally,
traditional supermarkets require high levels of personnel in order to handle a
wide range of duties, such as displaying, pricing and replenishing products,
operating cash registers and assisting customers. According to FMI, labor costs
typically represent 57% of operating costs in the traditional supermarket
industry. Supermarkets also are forced to balance the benefit of maintaining
extended store hours to accommodate shoppers' increasingly busy time schedules
with the cost of remaining open during low sales volume hours. These
limitations contribute to the narrow net margins achieved in the retail grocery
industry which average just over 1%, according to FMI.
Limitations Facing Consumers. The Company believes consumers are
increasingly time constrained and are searching for conveniences to make their
daily living easier. According to the Progressive Grocer Report, the typical
consumer visits the supermarket twice per week and spends an average of $18 per
visit and, unlike many other types of shopping, surveys show that consumers
consider grocery shopping a chore. The structure of the retail grocery industry
forces the consumer to spend significant amounts of time and effort in the
traditional store searching for desired products, comparing prices and
nutritional content of products, standing in long checkout lines and carrying
heavy packages. A recent study showed that the average "stock up" trip to the
supermarket took 47 minutes, excluding the time required for driving to and
from the store, parking, and loading and unloading packages. As a result of the
foregoing, the Company believes that consumers increasingly are interested in
alternative grocery shopping channels.
25
<PAGE>
Limitations Facing Consumer Product Manufacturers. Consumer product
manufacturers incur substantial marketing and promotional costs in order to
create demand and differentiate their products from the products of other
manufacturers. In 1997, these manufacturers spent approximately $38.6 billion
on marketing, promotion and research, including approximately $14.5 billion on
national advertising, $6.0 billion on free-standing insert coupon programs,
$5.5 billion on market data and research, and $12.6 billion on
point-of-purchase materials. Despite these significant expenditures, however,
consumer product manufacturers are not able to efficiently target specific
consumer groups. For example, consumer product manufacturers may want to target
discounts and other incentives to only those consumers who have never purchased
their products. As a result of their difficulty in marketing on a one-to-one
basis, these manufacturers incur significant expenditures on national and other
marketing programs (e.g. a coupon program) but achieve limited response rates
and minimal return on investment. Another limitation faced by consumer product
manufacturers is the substantial marketing and promotional expenses required to
introduce new products. In order to introduce new products on a national basis,
these companies must make significant expenditures on inventory to stock
individual retail outlets on a national basis, or manufacturers must instead
opt to introduce new products into selected markets only.
THE NETGROCER SOLUTION
NetGrocer is the only nationwide, Internet supermarket offering customers
dry grocery and related consumer products shipped directly to homes and
offices. Through a virtual supermarket on the World Wide Web at
www.netgrocer.com, the Company offers competitively priced products, online
convenience and comprehensive product information, all to help shoppers reduce
grocery bills, save time and shop more effectively. At the same time, the
Company provides the level of high-quality and personalized customer service
typically associated with friendly neighborhood markets. NetGrocer is
leveraging the dramatic growth and inherent economic advantages of the Internet
as a commerce medium to create a model that significantly reduces the high
overhead and fixed costs associated with traditional grocery retailers,
satisfies consumers' increasing demand for convenience and service, and
provides an attractive medium for consumer product manufacturers to effectively
and efficiently market their products to specific demographic groups.
Online Store Economics. Through its virtual supermarket and centralized
distribution strategy, NetGrocer has effectively re-engineered the traditional
supply chain by substantially reducing the real estate, inventory and personnel
costs typically associated with a "brick and mortar" retail store. As a result
of its online business and centralized distribution model, the Company is
required to make only a limited investment in real estate. Additionally, the
Company expects to reduce inventory costs by maintaining an inventory of
approximately 10,000 to 15,000 stock keeping units ("SKUs") compared with the
approximately 30,000 SKUs carried by the typical supermarket. Based on industry
data, less than half of the SKUs carried by traditional supermarkets account
for the majority of unit sales volume, careful selection of its products and
sizes should provide the majority of online shoppers with the product selection
they desire. As a result of the Company's ability to operate without the need
for a "brick and mortar" retail store, its personnel requirements also are
substantially lower than those of a traditional supermarket, even though the
Company's Internet supermarket remains open twenty-four hours a day, seven days
a week. An added economic advantage for the Company comes from its ability to
offer certain higher margin products, such as housewares, toys and baby-related
items, that can be directly marketed to the customer and aggregated with the
regular delivery of groceries at minimal additional shipping cost to the
Company.
Benefits to Consumers. NetGrocer is re-engineering the traditional grocery
shopping experience for the consumer by providing added convenience, time
savings, easily accessible and comprehensive product information and high
quality customer service. The NetGrocer Internet supermarket never closes.
Twenty-four hours a day, seven days a week, NetGrocer customers can shop at
their convenience, browsing from aisle to aisle and making selections from
full-color product images. Unlike the traditional grocery store shopper, the
NetGrocer shopper is also able to make use of certain features that only
technology can provide, such as the ability to easily sort products based on a
wide range of criteria, including price per unit, brand name and nutritional
characteristics, to search for specific products, and to immediately access
personal shopping lists and purchasing histories. In addition to all of this
added
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convenience, the NetGrocer Internet supermarket offers products at prices which
on average are competitive to those offered by the traditional retail grocery
store. Shoppers also benefit from Net Grocer's virtual merchandising
capabilities which allow the Company to offer solutions such as event driven
and seasonal shopping aisles like the Company's "Summer Fun" and "Super Bowl"
aisles. Finally, consumers benefit from the Company's ability to ship with
groceries a variety of consumer products, such as housewares, toys, and
baby-related items, increasing convenience to the customer without increasing
shipping charges.
Benefits to Consumer Product Manufacturers. NetGrocer is re-engineering
the distribution, marketing and promotion of grocery products for consumer
product manufacturers. NetGrocer's systems can capture exposures, mouse clicks,
redemptions and sales. As a result, the Company's system permits the tracking
of a wide variety of information about the users of its service and is capable
of providing feedback on the effectiveness of promotions and other advertising
in substantially less time than is currently the case. In addition, the
Company's system will permit consumer product manufacturers to market their
products to desired demographic groups or individual customers on a one-to-one
basis by a number of means, including placing advertisements on pages in the
Company's site visited by purchasers of a particular company's products and
electronic couponing. As the Company's customer base increases, the demographic
and purchasing data accumulated by the Company will enable it to more
effectively help consumer product manufacturers' marketing dollars reach the
targeted audience. The Company recently entered into an agreement with Unilever
Foods, the second largest consumer product manufacturer in the world, to
provide such services. The Company believes that consumer product manufacturers
eventually will also be able to use the NetGrocer online supermarket to
substantially reduce the cost of market research and sampling, as well as the
cost of new product introductions and marketing.
STRATEGY
NetGrocer's objective is to be the leading online retailer of dry grocery
products and its customers' most frequently visited store for the purchase of
dry grocery and related consumer products. The Company plans to achieve this
objective through the following key strategies:
Create Customer Loyalty by Delivering a Superior Shopping Experience. The
Company is committed to offering its customers a superior shopping experience
by combining the benefits of electronic commerce with a dedicated customer
focus. NetGrocer strives to offer its customers compelling value through
competitive pricing, efficient and convenient service, comprehensive product
information in an easy to use format, innovative use of technology, intelligent
product selections, personalized services and various loyalty programs. The
Company believes this strategy will enable it to attract new customers, retain
existing customers, increase order frequency and increase its share of
customers' purchases of products offered by the Company.
Build National Brand Identity. The Company intends to increase its
customer base by building its national brand identity through a variety of
marketing and promotional techniques, including advertising on and forming
strategic alliances with high traffic Web sites, developing other strategic
business alliances and partnerships, advertising through traditional media,
sponsoring contests and engaging in various public relations activities. The
Company recently entered into marketing relationships with various Internet
sites and services which the Company believes will provide it with a further
competitive advantage over its current and potential competitors with respect
to customer acquisition efforts. One such relationship is the Company's
exclusive marketing alliance with the AOL Service, to which 47% of interactive
households subscribe. In addition, the Company has exclusive agreements with
AOL.COM, Yahoo! and Excite, which have an unduplicated combined reach of
approximately 75% of U.S. Web users and are each among the top six most visited
Web sites. As part of its relationship with the Company, AOL also has agreed,
subject to certain conditions, to make a strategic investment in the Company
contemporaneously with the consummation of this offering. In order to build its
customer base, the Company also has entered into a strategic marketing
agreement with Cendant's "NetMarket" and an exclusive marketing agreement with
iVillage, two leading Internet shopping sites. Additionally, the Company has
non-exclusive marketing arrangements with, among others, Microsoft, Erol's
Internet service, Planet Direct, FreeRide and Earthlink, and will seek to
develop relationships with other major content and service providers.
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Leverage its Superior Economic Model. The Company believes that its lower
cost of operation and reduced need for investment in real estate, personnel and
inventory compared to a physical retail store chain and its ability to generate
certain types of marketing revenues from consumer product manufacturers,
provides the Company with an economic advantage over traditional grocery
retailers. The Company's goal is to capitalize on these advantages by
aggressively building its customer base, thereby driving revenue growth to
achieve economies of scale. The Company believes that its centralized
distribution model provides it with the ability to operate in virtually every
market in the continental U.S. on a cost effective basis. The Company plans to
replicate its current distribution center located in the Northeast to other
regions in the continental U.S. in order to reduce shipping costs and improve
customer service.
Maintain Superior Technology Platform. NetGrocer has expended and will
continue to expend substantial capital and other resources developing,
acquiring and implementing technology-driven enhancements to its Web site and
transaction-processing systems. For the Company, the system manages the sales
process from shopping to fulfillment by linking the interactive and logistics
systems and permits virtual merchandising and one-to-one marketing
possibilities such as the ability to target specific consumer groups with
product and promotional offerings. The Company's intuitive user interface and
software enables the consumer to navigate easily through an environment rich in
information by using tools such as the software's search and personalized
shopping features. For the consumer product manufacturer, the Company's system
permits the tracking and parsing of valuable demographic information regarding
its shoppers.
Capitalize on Aggregation Opportunities to Enhance Margins. In addition to
its selection of dry grocery products, the Company aggregates a variety of
higher margin consumer products, such as housewares, toys and baby-related
items. The Company believes that its ability to aggregate these products with
its dry grocery product offerings at no additional shipping charge to the
customer and at minimal additional shipping cost to the Company gives the
Company a unique advantage over other online retailers of these items. The
Company intends to continue to expand the list of items that customers can buy
from the NetGrocer Internet supermarket.
Leverage Customer Database Information to Generate Marketing
Revenues. NetGrocer's system captures exposures, mouse clicks, redemptions and
sales, and the Company can use this data to provide feedback to consumer
product manufacturers for marketing, promotion and research programs. This
demographic and purchasing data can be mined and marketed to consumer product
manufacturers for use in strategic Web site advertising, targeted promotions,
electronic couponing and national product introductions, thereby enabling these
manufacturers' marketing dollars to reach the desired audience. Additionally,
the Company believes its customer demographic data and site traffic, once
acquired, will create an additional means for marketers to develop brand
loyalty. The Company also believes that as this traffic increases, it will
provide a meaningful opportunity for advertising sales revenues, including from
consumer product manufacturers, and for marketing fees for favorable placement
of products on the NetGrocer site. The Company already has entered into a
relationship with Unilever Foods, the second largest consumer product
manufacturer in the world, to provide such services and will seek to establish
relationships with other consumer product manufacturers to provide similar
services.
THE NETGROCER INTERNET SUPERMARKET
NetGrocer is the only nationwide, Internet supermarket offering customers
dry grocery and related consumer products shipped directly to homes and
offices. Through a virtual supermarket on the World Wide Web at
www.netgrocer.com, the Company offers a wide array of dry grocery items such as
cereals, pasta and grains, paper products, diapers, detergents and soaps,
health and beauty products, pet foods, snacks, beverages and soups, as well as
other consumer products including computer software, office pantry products,
kitchen items, specialty products and photo and video products. NetGrocer
believes it is the only nationwide Internet supermarket offering products
priced competitively with those offered by traditional grocery retailers.
To purchase groceries, a customer may browse through the Company's virtual
supermarket by first selecting the department (e.g. food), then by picking a
specific aisle (e.g. breakfast), and a specific shelf
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(e.g. kids cereals) and may then view pictures of the various kids cereal
product offerings in the main window. The online shopper can sort the various
cereals by any number of criteria, such as product name, price per unit or
nutritional content, and then simply click on the desired product he or she
would like to purchase. Alternatively, the shopper can use one of the Company's
search features to enter a product name or product category and proceed
directly to that product or the shelf on which that product category is
stocked. Once the desired products are selected, these items are automatically
added to the shopper's virtual shopping cart. The shopper can add or remove
merchandise from the shopping cart as he or she browses, prior to making a
final purchase decision, just as in a physical store. Additionally, the shopper
is provided with a running total as to the cost of the merchandise in his or
her cart. The Company's software also ensures that desired items are available
for delivery. The Company's site is updated on a real time basis to reflect
inventory levels at the Company's warehouse--the icon for an item only appears
if that item is in stock.
[Screen shots of Food Department, Breakfast Aisle and Kids Cereals Shelf]
Once a customer finishes shopping, he or she clicks on the Check Out icon
to review his or her order and submit it to NetGrocer. First-time shoppers are
prompted to supply shipping, address and credit card information. This data,
along with personalized shopping lists, is stored securely on the Company's
server for future use by the customer. The Company's system automatically sends
an electronic invoice to shoppers to confirm the order was shipped.
In addition, NetGrocer can enhance the shopping experience by pursuing
virtual merchandising strategies and adapting its Web site's design to the
particular needs of specific customer groups or to specific shopping events and
themes. The Company's system permits it to build new shelves of products or
cross-merchandize certain products to appear in multiple aisles and locations.
In addition, the Company is able to create event driven and seasonal shopping
aisles like the Company's "Summer Fun" and "Super Bowl" aisles.
The NetGrocer online supermarket also contains the following features, all
designed to deliver a superior shopping experience:
Personalized Shopping. NetGrocer can save time for shoppers through its
"Purchase History," recurring order and "Shopping List" features. With the
"Purchase History" feature, a customer can display all of the products that he
or she has ever purchased through the Company's service. The Company's software
also contains a recurring order feature which allows shoppers to maintain a
specified list of products to be sent to them at regular intervals. New
parents, for example, can have baby supplies--diapers, wipes and food--sent
weekly, every two weeks or monthly. The Company's "Shopping List" feature
allows a shopper to enter a list of desired items and the Company's software
then takes the shopper to the shelves where those items are stocked. All
shopping lists are password protected. Over time, the Company intends to
accumulate substantial preference and behavioral information that should allow
it to provide increasingly rich, value-added services to its customers and
consumer product manufacturers.
Sorting. As shoppers click on a selected shelf, pricing and nutritional
information appears, enabling shoppers to sort products based on criteria such
as:
<TABLE>
<S> <C> <C>
Size Calories Sodium
Brand name Total fat Potassium
Price per unit Saturated fat Sugar
Cholesterol Carbohydrates Protein
</TABLE>
This feature, in addition to reducing the time usually spent in a supermarket's
aisles, provides the customer with more easily accessible information. For
instance, it allows shoppers with health problems, such as high blood pressure
or diabetes, to screen out products high in salt or sugar. The Company's sort
feature also permits shoppers to see the true cost per unit--whether it is per
pound, per count or per fluid ounce--and thereby compare product prices
regardless of packaging size.
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Order Fulfillment. All customer orders are paid for by credit card, with
the Company currently accepting Visa (Registered Trademark) , Mastercard
(Registered Trademark) , American Express (Registered Trademark) and Discover
(Registered Trademark) . All transactions are secured through the latest online
SSL technology, which is designed to ensure that no credit card information and
personal data is sent over the Internet unencrypted. All orders are packaged
carefully in rugged boxes and surrounded by layers of form fitting foam for
reliable shipping of products like glass, cans and soft boxes. Orders are
picked up primarily by FedEx from the Company's distribution center in North
Brunswick, New Jersey and generally are delivered in one to three business
days. Other than the price of an order, the only other charge is a NetGrocer
delivery fee, currently $2.99 for orders up to $50 and $4.99 for orders over
$50. To further enhance the convenience of its service, NetGrocer uses a driver
release program under which the driver is instructed to leave packages for
shoppers who are not at home. Replacement of damaged, lost or stolen orders is
guaranteed at no additional charge to the customer. In addition, customers can
check on the status of their orders using the customer service screen of the
Company's Web site which automatically incorporates up-to-date tracking
information from FedEx.
MARKETING
The goal of NetGrocer's marketing strategy is to strengthen NetGrocer's
national brand identity, increase customer traffic to the NetGrocer site,
attract and acquire new customers and build a database of potential customers,
maximize repeat purchases and develop incremental revenue opportunities. The
Company employs a variety of media, program and product development, business
development and promotional activities to achieve these goals:
Strategic Alliances and Internet Advertising. The Company recently
entered into marketing relationships with various Internet sites and services
which the Company believes will provide it with a further competitive advantage
over its current and potential competitors with respect to customer acquisition
efforts. One such relationship is the Company's exclusive marketing alliance
with the AOL Service, to which 47% of all U.S. interactive households
subscribe. In addition, the Company has exclusive agreements with AOL.COM,
Yahoo! and Excite, which have an unduplicated combined reach of approximately
75% of U.S. Web users and are each among the top six most visited Web sites. As
part of its relationship with the Company, AOL also has agreed, subject to
certain conditions, to make a strategic investment in the Company
contemporaneously with the consummation of this offering. The Company has also
entered into non-exclusive marketing arrangements with, among others,
Microsoft, Erol's Internet service, Planet Direct, FreeRide and Earthlink. The
Company's advertisements on these Web sites typically take the form of banners
that encourage users to click through directly to the NetGrocer Internet
supermarket.
The Company believes that its exclusive alliances with AOL, AOL.com,
Yahoo!, Excite and iVillage provide the Company with a significant competitive
advantage over its current and potential competitors with respect to customer
acquisition efforts. Consequently, the Company believes its exclusive alliances
with these sites and services will limit the ability of future online
competitors to reach a significant portion of Internet users. The following is
a brief description of the Company's exclusive marketing agreements:
AOL AND AOL.COM. The Company and AOL have entered into an agreement under
which the Company will be the exclusive marketer of Supermarket Shopping
Delivery Services (as defined in the Agreement to mean the online
promotion, fulfillment of orders and/or retail sale and delivery of a line
or lines of products available in traditional supermarket or grocery
stores) expressly promoted or advertised by AOL on the AOL proprietary
service and AOL.COM, subject to certain limited exceptions. Under the
agreement, AOL and AOL.COM are each required to deliver a minimum number of
impressions during their respective exclusivity periods. The exclusivity
period is 37 months for the AOL proprietary service and 24 months for
AOL.com, each beginning July 1 1998. AOL also has the option to renew the
agreement on an exclusive or non-exclusive basis for three successive one
year renewal periods. Under the agreement, the Company is required to pay
to AOL certain fixed amounts over the next 24 months, as well as certain
contingent payments during the term of the agreement based on certain
advertising and transaction revenues generated under the agreement. The
agreement also ensures certain benefits to customers coming through the AOL
sites, such as requiring prices and other terms and conditions which are no
less favorable than those offered
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generally by the Company to other online customers and which are
competitive with those offered on a regular basis by any of the Company's
competitors, as well as obligating the Company to provide AOL members with
certain exclusive promotions and promotions comparable to those generally
made available by the Company through other channels of distribution. The
agreement also provides for certain cross-promotional obligations between
the Company and AOL. In connection with the marketing arrangement with AOL,
the Company issued AOL a warrant to purchase up to shares of Common
Stock, 17% of which is scheduled to vest over the two-year period following
the date of grant and the remaining 83% of which is scheduled to vest based
upon the number of customers acquired by the Company through AOL, subject
to a minimum threshold. This warrant has an exercise price per share equal
to the initial public offering price of the Common Stock. As part of its
relationship with the Company, AOL also has agreed, subject to certain
conditions, to make a strategic investment in the Company contemporaneously
with the consummation of this offering. See "Certain Transactions" and
"Description of Capital Stock."
YAHOO! The Company and Yahoo! have entered into an agreement under which
the Company is the exclusive online or offline supermarket or grocery store
with the right to purchase banner or promotional advertisements for
packaged grocery goods and/or fresh groceries on the main Yahoo! site and
on selected properties within the Yahoo! service and in the "Merchant
Spotlight" promotion area Food Page of Yahoo!'s Visa Shopping Guide. Yahoo!
also has agreed to place integrated links to the NetGrocer site on certain
pages generated from the Yahoo! Service. The agreement requires Yahoo! to
deliver guaranteed level of traffic during each quarter of the term of the
agreement. The initial term of the Yahoo! agreement expires in April 2000,
unless otherwise terminated by either party and requires the Company to
make substantial cash payments as Yahoo! delivers the guaranteed level of
traffic.
EXCITE. The Company and Excite have entered into an agreement under which
the Company has been designated the exclusive grocery retailer within the
Excite site and has been granted the exclusive right to sponsor targeted
links, advertising banners and specific keywords for online retail grocery
purchases on the Excite Shopping Channel main page and on the home page of
many Excite Shopping Channel promotions. Excite is required to deliver a
minimum number of impressions plus a minimum number of click-throughs
during the term of the agreement. The agreement also requires Excite to
deliver a minimum number of links and banners on the Excite site during
each year of the agreement and limits the ability of Excite to include
advertising or display content promoting other online or offline
supermarkets. The Company's current agreement with Excite terminates upon
the later of December 15, 1999 or Excite's delivery of all required
click-throughs. Over the term of the agreement, the Company is required to
make substantial payments to Excite as well as pay a certain amount in the
event more than a specified level of click-throughs is generated.
IVILLAGE. The Company and iVillage, an online, women's oriented network
of channels located on the World Wide Web and the AOL Service, have entered
into an exclusive agreement through June 2000, under which iVillage is
required to provide its users access, from various locations throughout the
iVillage network, to a customized iVillage Supermarket site on NetGrocer's
servers, designed by both parties. The agreement precludes iVillage from
displaying content or promoting any online or offline supermarket, grocery
store, or similar store which generally offers selections of consumer
packaged grocery goods and/or fresh groceries of a similar nature to those
selections currently offered by the Company. The agreement also precludes
iVillage from otherwise making available online supermarket sales offered
by any NetGrocer competitor, anywhere on the iVillage network. Pursuant to
the agreement, iVillage is required to create and provide links from
certain of its channels to the iVillage Supermarket site, and to deliver a
certain number of impressions throughout relevant areas of the iVillage
network, designed to maximize click-throughs, during each quarter of the
agreement. Over the term of the agreement, the Company is required to
compensate iVillage for new customers coming through the iVillage
Supermarket site, purchases by repeat customers and click-throughs to the
iVillage Supermarket site, with certain minimum fixed quarterly amounts and
production and setup costs.
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The Company also maintains a strategic relationship with Cendant's
NetMarket service. The following is a brief description of the Company's
agreement with NetMarket.
NETMARKET. The Company and NetMarket, an online, membership-based
consumer service operated by Cendant, have entered into an agreement under
which NetMarket is required to provide its customers access, from
NetMarket's home page, to a customized NetGrocer site that is designed to
appear substantially similar to NetMarket's site. This customized Company
Web site serves as the grocery service for NetMarket. Under the agreement,
the Company is required to provide access, from its home page, to
NetMarket's Web site and to pay a commission to NetMarket on revenue
received by the Company from customers acquired through NetMarket, subject
to a maximum aggregate amount per customer acquired. NetMarket is further
required, over the term of the agreement, to pay a fee to the Company from
any membership revenues it receives from the Company's customers. The
Company's agreement with NetMarket terminates on November 17, 1999, and is
automatically renewable for successive one-year terms unless otherwise
terminated by either party.
Promotions, Contests and Rewards Programs. As part of its promotional
efforts, the Company sends e-mails to its customers describing current
promotions and certain product offerings. As the Company's customer base grows,
such e-mails will be directed only to selected customers based on purchasing
patterns. Additionally, the Company currently conducts, and may in the future
conduct, contests for shopping sprees for free merchandise. Through these
contests, the Company is able to obtain the e-mail addresses of participants
and thereby build a database of potential customers. The Company currently is
offering a frequent buyer program which allows shoppers to earn points, based
on the dollar amounts of their purchases, which can be used to obtain discounts
on shipping or to earn frequent flyer miles on certain U.S. airlines.
CUSTOMER SERVICE
The Company believes that its ability to establish and maintain long-term
relationships with its customers and encourage repeat visits and purchases
depends on the satisfaction of its customers. NetGrocer maintains a customer
service page in its Web site where customers can check on the status of their
orders (the Company's system automatically incorporates up-to-date tracking
information from FedEx), update their personalized shopping information, report
problems or complaints, and obtain other information. Shoppers also are free to
contact the Company's staff of customer service representatives via a toll free
number, however, the substantial majority of all feedback is given by e-mail.
The Company's customer service team has real-time information on the status of
customer orders, customer profiles and current promotions, and is responsible
for handling general customer inquiries, answering customer questions about the
ordering process, and investigating the status of orders, shipments and
payments. As part of its commitment to providing superior customer service, the
Company conducts surveys of its shoppers from time to time to identify areas
where improvement may be needed and to determine which features of the
NetGrocer online supermarket are valued by shoppers.
DISTRIBUTION AND ORDER FULFILLMENT
The Company operates and currently fulfills orders from its 125,000 square
foot distribution facility, at which it presently stocks approximately 6,000
SKUs. The Company seeks to keep its prices competitive, in part, by
continuously improving the effectiveness of its distribution and fulfillment
capabilities. In order to achieve this goal, the Company seeks to increase the
level of automation in its fulfillment system by the end of the first quarter
1999. The Company also plans to replicate its current distribution center
located in the Northeast in other regions in the continental U.S. in order to
reduce shipping costs and improve customer service.
The Company relies on FedEx for distribution of substantially all of the
packages shipped to the Company's customers. All orders are packaged carefully
in rugged boxes and surrounded by layers of form fitting foam for reliable
shipping of products like glass, cans and soft boxes. Orders are picked up
primarily by FedEx from the Company's distribution center in North Brunswick,
New Jersey and
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generally are delivered in one to three business days. To further enhance the
convenience of its service, NetGrocer uses a driver release program under which
the driver is instructed to leave packages for shoppers who are not at home.
Lost or stolen orders are replaced at no additional charge to the customer. To
date, the Company has experienced a negligible breakage and order error rate.
Although FedEx has not experienced any work stoppages in the past, it may
experience work stoppages and other labor difficulties in the future which
could significantly impact NetGrocer's ability to do business. The Company's
agreement with FedEx provides for certain shipping volume discounts and other
matters but does not commit FedEx to carry the Company's packages at any
particular price or at all. As a consequence, there can be no assurance that
FedEx will retain its existing pricing structure. Any substantial increase in
the prices charged by FedEx to the Company, or any refusal or inability by
FedEx to act as the Company's distributor, to the extent alternate comparable
arrangements could not be made with another delivery service, would have an
immediate material and adverse effect on the Company's business, financial
condition and results of operations. The Company currently is exploring
alternative means of distribution to attempt to mitigate the potential effects
of such an event actually occurring. See "Risk Factors--Reliance on FedEx."
TECHNOLOGY
NetGrocer has developed technologies and implemented systems to support
distributed, reliable and scalable systems. All technology has been developed
using a combination of proprietary and commercially available licensed
technologies and platforms. The flexibility afforded by this strategy has
allowed the Company to deploy integrated systems utilizing accepted Internet
technologies for online content dissemination, online transaction processing,
object oriented visual merchandising, customer service, market analysis,
logistical control and merchandising. The Company currently plans to continue
to internally develop its interactive and other systems and license
commercially available technology where feasible to enhance the shopping
experience of its customers.
At the core of the Company's system is a centralized database system that
enables virtually all of the Company's systems, including its Web site,
logistics and distribution, merchandising and inventory management systems to
access the same database over industry standard TCP/IP networks. The database
management system affords customers and Company personnel a synchronized view
to and interaction with all data on a real-time basis. The Company currently is
using an enterprise class Microsoft SQL database server.
The Company's hardware systems are based upon industry standard Microsoft
Windows NT 4.0 operating systems. The combination of hardware and software has
allowed NetGrocer to build a scalable, reliable, distributed transaction
processing, maintenance and control system over multiple parallel servers. The
Web site currently is in its third major release and the Company plans to
continue enhancing its functionality in the future, based on customer feedback
and market needs.
The Company's merchandising systems allow for full color visual images to
be seen for only those products which are then in stock. These images are
stored and processed in highly compressed formats and have been optimized to
give a superior brand recognition value, while still being Internet
bandwidth-friendly. By using real-time inventory in this manner, the Company
has significantly reduced the number of orders which are not completely filled.
In addition, the Company's technology will allow it to customize the content
and inventory selection presented to each individual shopper through the use of
customer performance tracking and profiling.
The Company's hardware servers, storage systems, Internet connections,
back-up strategies and networks allow its online supermarket to operate on a
continuous basis. The Company operates its Web site, application and database
servers on enterprise class Compaq servers with fault tolerant characteristics
such as "hot-swappable" components and RAID storage systems. The servers are
co-located at Digex in Beltsville, MD (a tier 1 ISP) with multiple DS-3
connectivity to the Internet backbone. The facility is staffed on a continuous
basis and each server is continuously monitored for performance and hardware
anomalies. In addition to a comprehensive data and application back-up/disaster
recovery plan within the Digex facility, the Company daily replicates its
database and application content to its New York City offices, where it
maintains several servers capable of assuming the role of the co-location
facility
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in 24 to 48 hours. The entire system is deployed behind a proprietary load
balancing system designed to distribute server requests and monitor the server
status and alert the Company's technology department, via pager, of any
potential incidents on a per server basis. This allows the majority of the
Company's servers to continue operating while repairs can be effected to an
offline server.
The Company also has developed customer service and marketing systems
which uses the same database and technology as its interactive, merchandising
and logistic systems. The customer service system is fully integrated with the
transaction processing, inventory management, customer tracking and FedEx
tracking systems, allowing customer service representatives to immediately
access relevant customer information while speaking to a customer on the
telephone or responding to a customer's e-mail inquiry. The marketing systems
allow NetGrocer personnel to determine the source of every visit to its Web
site (for example, from a particular banner on a certain page of another Web
site) and the conversion rate of such visits. The Web site also tracks certain
data regarding customer preferences.
The Company employs commercially available firewall technology to protect
its corporate networks from security breaches and isolates its Internet network
data in such a way that only information which is essential to the operation of
the Web site is publicly accessible. The Company employs SSL encryption
technology on its Web site to ensure the security of confidential customer
data. All management functions are protected by Windows NT integrated security
models deployed at the Web server level, as well as by proprietary
authentication schemes built into the code of certain sensitive applications.
COMPETITION
The retail grocery industry is intensely competitive. In addition, the
electronic commerce market is new, rapidly evolving and highly competitive. The
Company currently or potentially competes with a variety of other companies
including: (i) traditional "brick and mortar" grocery retailers, such as
neighborhood grocery stores, supermarket chains, warehouse clubs, drug stores,
mass merchants and discount stores, some of whom already fulfill orders
received by telephone, fax and computer; (ii) various regional online grocery
delivery services, such as HomeGrocer, HomeRuns, Peapod, Inc. and Streamline;
(iii) prospective national online grocery delivery services; and (iv) other
online or catalogue retailers of products sold by the Company (including
certain high margin products such as housewares, toys and baby-related items).
NetGrocer is the only nationwide, Internet supermarket offering customers dry
grocery and related consumer products shipped directly to homes and offices
nationwide. The Company believes that its superior economic model permits it to
compete effectively with traditional grocery retailers. In the electronic
commerce market, the Company believes that its exclusive alliances with
high-profile and high-traffic Web sites and online services, such as AOL,
AOL.com, Yahoo!, Excite and iVillage, as well as its relationships with
Microsoft, AT&T's WorldNet Service, Planet Direct, FreeRide and Earthlink
present significant barriers to entry to new online retailers.
The Company believes that the principal competitive factors in its market
are price, convenience, functionality and reliability of the shopping and
ordering system, product selection, level and accessibility of information
regarding products offered, general brand awareness, reliability and
professionalism of delivery operations, available technology and level of
customer service. Many of the Company's current and potential competitors have
longer operating histories, larger customer bases, greater brand recognition
and significantly greater revenue, financial, marketing and other resources
than the Company. In addition, online retailers of products sold by the Company
may be acquired by, receive investments from or enter into other commercial
relationships with larger, well-established and well-financed companies as use
of the Internet and other online services increases. Certain of the Company's
competitors may be able to secure merchandise from suppliers on more favorable
terms, devote greater resources to marketing and promotional campaigns, adopt
more aggressive pricing or inventory availability policies, obtain more
favorable shipping rates and devote substantially more resources to Web site
and systems development than the Company. Increased competition may result in
reduced operating margins, loss of market share and a diminished brand
awareness. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, or that failure to
successfully deal with competitive pressures faced by the Company would not
have a material adverse effect on the Company's business, financial condition
and results of operations. Further, as a strategic
34
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response to changes in the competitive environment, the Company may from time
to time make certain pricing, service or marketing decisions or acquisitions
that could have a material adverse effect on its business, financial condition
and results of operations. See "Risk Factors--Competition."
INTELLECTUAL PROPERTY
The Company regards its copyrights, service marks, trademarks, trade
dress, trade secrets and similar intellectual property as critical to its
success, and relies on trademark and copyright law, trade secret protection and
confidentiality and/or license agreements with its employees, customers,
partners and others to protect its proprietary rights. The Company has applied
for the registration of certain of its trademarks and service marks. The
Company has licensed in the past, and expects that it may license in the
future, certain of its proprietary rights, such as trademarks or copyrighted
material, to third parties. While the Company attempts to ensure that the
quality of its brand is maintained by such licensees, there can be no assurance
that such licensees will not take actions that might materially adversely
affect the value of the Company's proprietary rights or reputation, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate or that third
parties will not infringe or misappropriate the Company's copyrights,
trademarks, trade dress and similar proprietary rights. In addition, there can
be no assurance that other parties will not assert infringement claims against
the Company.
EMPLOYEES
As of June 30, 1998, the Company employed 63 employees. None of the
Company's employees is represented by a labor union, and the Company considers
its employee relations to be good. Competition for qualified personnel in the
Company's industry is intense, particularly among software development and
other technical staff. The Company believes that its future success will depend
in part on its continued ability to attract, hire and retain qualified
personnel. See "Risk Factors--Dependence on Key Personnel; Need for Additional
Personnel."
FACILITIES
The Company's principal executive, administrative and marketing facilities
total approximately 9,000 square feet and are located in New York, New York
under a lease that expires in November 2000. The Company's warehousing,
customer service and fulfillment operations are housed in an approximately
125,000 square foot facility in North Brunswick, New Jersey under a lease that
expires in March 2003.
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings that management
believes would have a material adverse effect on the Company's financial
condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following sets forth the name, ages and positions of the executive
officers, key employees and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Executive Officers and Directors:
Uri Evan ........................ 61 Chairman of the Board; Director
Daniel Nissan ................... 31 President; Chief Executive Officer; Director
Richard D. Falcone .............. 45 Executive Vice President; Chief Financial Officer;
Chief Operating Officer; Secretary; Treasurer
Jeffrey A. Steinberg ............ 35 Vice President of Marketing
Frederick R. Adler .............. 72 Director
Philip R. Chapman ............... 37 Director
Yoram Evan ...................... 32 Director
Samuel L. Katz .................. 32 Director
Scot W. Melland ................. 35 Director
Key Employees:
Robert M. Costello .............. 46 Vice President of Merchandising
Michael J. O'Malley ............. 45 Vice President of Logistics Systems
Robert N. Hyland ................ 36 Vice President of Interactive Systems
</TABLE>
Uri Evan founded and has been Chairman of the Board of the Company since
1995 and was the Company's President from 1995 to 1996 and Chief Executive
Officer from 1995 to 1997. Since 1989, Mr. Evan has been Chairman of the Board
of USA Detergents, Inc. ("USA Detergents"), a manufacturer and marketer of
laundry and household cleaning products. Mr. Evan also has served as Chief
Executive Officer of USA Detergents since 1993. From 1991 to 1992, he served as
Chairman and Chief Executive Office of I. Rokeach & Sons Inc., a kosher food
manufacturing and marketing company. From 1970 to 1988, Mr. Evan served as
Chairman of Organization and Management Sciences Consultants Ltd., an Israeli
management and computer sciences firm of which he was a co-founder. Mr. Evan
holds a B.S. in civil engineering and an M.S. in industrial and management
engineering from Technion-Israel Institute of Technology.
Daniel Nissan has been President of the Company since 1996, Chief
Executive Officer of the Company since April 1997 and a director of the Company
since June 1998. From 1993 to 1996, he served as a Vice President of Marketing
for VocalTec Communications, Ltd., a software development company where he was
responsible for the marketing and strategy development of VocalTec's Internet
Phone. Prior to joining VocalTec, Mr. Nissan was the Marketing and MIS Manager
for E&M Computing, Sun Microsystems' representative in Israel. From 1989 to
1992, Mr. Nissan was the co-founder of two software development start-up firms
in Israel, with subsidiaries in the United States.
Richard D. Falcone has been Executive Vice President, Chief Financial
Officer, Chief Operating Officer, Secretary and Treasurer of the Company since
January 1997. From 1994 to 1997, he was the Executive Vice President and Chief
Operating Officer of National Merchants Management Corporation, a book retailer
and wholesaler. From 1990 to 1994, he was Chief Financial Officer of Bed Bath &
Beyond Inc., where he was responsible for its finance, MIS and administration
functions, including during the time of that company's initial public offering.
From 1983 to 1990, Mr. Falcone held several key management positions at Tiffany
& Co., most recently as Director of International Finance and Operations. Mr.
Falcone is a director nominee of LEC, Inc., a publicly traded computer sales,
marketing and leasing company.
Jeffrey A. Steinberg has been Vice President of Marketing of the Company
since February 1997. From 1995 to 1997, he was a manager at A.T. Kearney's, a
management consulting firm, where he was involved
36
<PAGE>
with their consumer products consulting practice where he specialized in
interactive and database marketing. From 1991 to 1995, Mr. Steinberg worked in
the Deloitte & Touche Consulting Group's Retail and Direct Marketing practice,
first as a senior consultant and then as a manager. Since 1994, Mr. Steinberg
has authored three books on interactive marketing, relationship marketing and
database marketing on behalf of the Direct Marketing Association.
Frederick R. Adler has been a director of the Company since 1995. Mr.
Adler is Managing Director of Adler & Company, a venture capital management
firm he organized in 1968, and a general partner of its related investment
funds. Since January 1, 1996, Mr. Adler has been of counsel to the law firm of
Fulbright & Jaworski L.L.P. and, for more than five years prior thereto, was a
senior partner in the firm. Mr. Adler is also Chairman of the Executive
Committee and a director of Data General Corporation, Chairman and a director
of Shells Seafood Restaurants, Inc., and a director of USA Detergents, Prime
Cellular, Inc. and of various private companies.
Philip R. Chapman has been a director of the Company since November 1997.
Mr. Chapman has been a principal of Adler & Company since 1991 and became a
general partner of that firm in 1995. Prior to joining Adler & Company, Mr.
Chapman was a senior consultant with Booz Allen & Hamilton International, a
management consulting company based in London. Mr. Chapman is a director of
Integrated Packaging Assembly Corp., a semi-conductor packaging company, a
director of Global Pharmaceutical Corporation, a manufacturer of generic
pharmaceuticals, a director of Shells Seafood Restaurants, Inc. and various
private companies. Mr. Chapman is the son-in-law of Frederick R. Adler, a
director of the Company.
Yoram Evan has been a director of the Company since November 1997. Since
1997, Mr. Evan has been the Chief Financial Officer of American Value Brands
Inc. ("AVB"), a food marketing company. From 1996 to 1997, Mr. Evan was
president of Millstone Investments Ltd., an investment fund in Israel that
specialized in start-up companies. From 1992 to 1996, Mr. Evan served as an
economist in the Budget Department of the Israeli Ministry of Finance. Mr. Evan
is the son of Uri Evan, the Chairman of the Board of the Company.
Samuel L. Katz has been a director of the Company since June 1998. Since
April 1998, Mr. Katz has served as Executive Vice President, Strategic
Development of Cendant Corporation. From January 1996 to March 1998, Mr. Katz
served as Senior Vice President--Acquisitions of Cendant. From June 1993 to
December 1995, Mr. Katz was a Vice President of Dickstein Partners Inc., a
money management firm. Mr. Katz is a director of Hills Stores Company, a
discount retailer, and SC Direct, a catalogue retailer.
Scot W. Melland has been a director of the Company since November 1997.
Since April 1998, Mr. Melland has served as Senior Vice President of
Interactive Services of Cendant Corporation where he is responsible for
Cendant's NetMarket and Rent Net web sites. From 1996 to 1998, Mr. Melland was
Vice President of Business Development at Cendant. From 1993 to 1996, Mr.
Melland was Vice President of Investments and Alliances at Ameritech
Development Corporation, a wholly owned subsidiary of Ameritech, Inc. From 1990
to 1993, Mr. Melland was a consultant at McKinsey & Company.
Robert M. Costello has been Vice President of Merchandising since May
1998. From 1980 to 1998, Mr. Costello was the Director of Grocery Purchasing
and Merchandising at D'Agostino Supermarkets, a New York-based supermarket
chain, where he was responsible for products, pricing, and store merchandising
for all grocery products at all D'Agostino stores.
Michael J. O'Malley has been Vice President of Logistics Systems since
April 1998. From 1989 to 1998, Mr. O'Malley was the Director of Distribution
for Alpine Distributors, a health and beauty aids and general merchandise
company. While at Alpine, Mr. O'Malley was responsible for implementing
computerized directed-work systems, radio-frequency technology for receiving,
packing and shipping systems, and a perpetual inventory system.
Robert N. Hyland has been Vice President of Interactive Systems since
February 1997. From 1995 to 1997, Mr. Hyland founded and was Chief Operating
Officer of one of the original Web design firms, Hyper-Text Media Ltd. From
1993 to 1995, Mr. Hyland was General Manager of Leo D. Bernstein & Sons, Inc.,
a retail store consulting and equipment manufacturing company. From 1988 to
1993, Mr. Hyland was Chief Financial Officer and Treasurer of Brenner Paper
Products, Co. Inc., a paper products company.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning all cash and
non-cash compensation awarded to, earned by or paid to the Company's Chief
Executive Officer and each of the Company's most highly compensated executive
officers for services rendered to the Company during the fiscal year ended
December 31, 1997 whose total annual compensation for such year exceeded
$100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION
------------------------------------------- SECURITIES
UNDERLYING
OTHER ANNUAL STOCK
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------------- ------ ----------- ---------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Daniel Nissan(1) 1997 $120,000 $45,000 $ 53,700(3) --
President and Chief 1996 24,000 -- 9,540(3) 10,100
Executive Officer 1995 -- -- -- --
Richard D. Falcone(2) 1997 121,212 35,000 12,965(4) 3,340
Executive Vice President, 1996 -- -- -- --
Chief Financial Officer, Chief 1995 -- -- -- --
Operating Officer, Secretary
and Treasurer
Jeffrey A. Steinberg(2) 1997 103,807 -- -- 2,000
Vice President of Marketing 1996 -- -- -- --
1995 -- -- -- --
</TABLE>
- ----------
(1) Commenced employment with the Company during 1996.
(2) Commenced employment with the Company during 1997.
(3) Amount represents housing and life insurance premium payments.
(4) Amount represents automobile allowance payments.
The following table sets forth certain summary information concerning
individual grants of stock options made during the year ended December 31, 1997
to each of the Company's executive officers named in the Summary Compensation
Table.
OPTION GRANTS IN YEAR ENDED
DECEMBER 31, 1997
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SHARES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM(1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -------------------------
NAME GRANTED IN 1997 SHARE DATE 5% 10%
- ------------------------------ ------------ ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Daniel Nissan ................ -- -- -- -- -- --
Richard D. Falcone ........... 3,340 38.2% $ 20.00 1/13/07 $108,817 $173,246
Jeffrey A. Steinberg ......... 2,000 22.9% 20.00 2/14/07 65,040 103,740
</TABLE>
- ----------
(1) These amounts represent assumed rates of appreciation in the price of the
Company's Common Stock during the terms of the options in accordance with
rates specified in applicable federal securities regulations. Actual
gains, if any, on stock option exercises will depend on the future price
of the Common Stock and overall stock market conditions. There is no
representation that the rates of appreciation reflected in this table
will be achieved.
The following table sets forth at December 31, 1997 the number of options
and the value of unexercised options held by each of the executive officers
named in the Summary Compensation Table:
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<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS EXERCISES OPTIONS AT YEAR END AT FISCAL YEAR END (2)
--------------------------- ----------------------------- ----------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ------------- ------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Daniel Nissan ................ 4,040 $-- -- 6,060 $ -- $1,393,800
Richard D. Falcone ........... -- -- 668 2,672 153,640 614,560
Jeffrey A. Steinberg ......... -- -- -- 2,000 -- 460,000
</TABLE>
- ----------
(1) "Value Realized" represents the difference between the estimated fair
market value of the shares underlying the option on the exercise date, as
determined by the Company's Board of Directors, and the aggregate
exercise price of the option.
(2) The value for an "in-the-money" option represents the difference between
the estimated fair market value of the underlying securities at December
31, 1997 of $250 per share, as determined by the Company's Board of
Directors, and the exercise price of the options.
EMPLOYMENT AGREEMENTS
In May, 1996, the Company entered into an employment agreement with Daniel
Nissan which provides for an annual base salary of $120,000, adjusted annually
by the current inflation rate, as well as such bonuses as may be authorized by
the Company's Board of Directors. The agreement has a term of four years,
expiring in May 2000, with automatic extensions for successive one year periods
unless terminated by either party in accordance with the terms of the
agreement. The agreement contains a covenant not to compete for a period of up
to one year following the termination of employment and provides for the
purchase by the Company of a life insurance policy covering Mr. Nissan with the
payment of all proceeds to Mr. Nissan's designee. In the event that Mr.
Nissan's employment is terminated by the Company without "cause" the agreement
provides for the payment to Mr. Nissan of a severance payment equal to one-half
of the entire amount of the base salary remaining due and payable from such
date of termination to the expiration of the agreement.
In January and February, 1997, the Company entered into individual
employment agreements with Richard D. Falcone and Jeffrey Steinberg,
respectively, each of which provides for an annual base salary of $125,000, as
well as such bonuses as may be authorized by the Company's Board of Directors.
Mr. Falcone's agreement also provides for increases in base salary as may be
determined by the Company's Board of Directors from time to time in its sole
discretion. Both agreements have a term of four years, beginning in 1997, with
automatic extensions for successive one year periods unless terminated by
either party in accordance with the terms of the agreements. Each agreement
contains a covenant not to compete for a period of up to two years following
the termination of employment. If Mr. Falcone's or Mr. Steinberg's employment
is terminated by the Company without "cause" his agreement provides for the
payment to that executive of a severance payment equal to the base salary of
the executive for a period of six months, in the case of Mr. Falcone, and three
months, in the case of Mr. Steinberg, from such date of termination. Mr.
Falcone's agreement also provides that if his employment is terminated within
the 12 months succeeding a Change in Control (as defined in the agreement), he
is entitled to receive a payment equal to the greater of his then effective
base salary or his effective base salary at the time of the Change in Control,
for a period of one year from any such date of termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company intends to establish a Compensation Committee prior to the
Offering. All matters concerning executive officer compensation have
historically been addressed by the entire Board of Directors. Uri Evan,
Chairman of the Board (and a principal stockholder of the Company), is also a
director, officer and stockholder of USA Detergents and AVB.
39
<PAGE>
EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company adopted a profit sharing plan (the "401(k) Plan") effective on
January 1, 1998. Employees who have attained age 18 and have completed 1 year
of service with the Company may participate in the 401(k) Plan. Participants in
the 401(k) Plan may defer compensation in an amount not in excess of 15% of the
employee's total annual compensation from the Company, up to the annual
statutory limit ($10,000 in 1998). The Company may make matching contributions
in an amount determined by the Board of Directors. All contributions are
credited to separate accounts maintained in trust for each participant and are
invested, at the participant's direction, in one or more of the investment
funds made available under the 401(k) Plan. Matching contributions become 20%
vested after a participant's second year of service with the Company and are
subject to 20% annual vesting thereafter. The 401(k) Plan is intended to
qualify under Section 401 of the Internal Revenue Code so that contributions to
the 401(k) Plan, and income earned on plan contributions, are not taxable to
employees until withdrawn, and so that the matching contribution will be
deductible by the Company when made.
STOCK OPTION PLANS
1996 Stock Option Plan. Effective in May 1996, the Company adopted the
NetGrocer Inc. 1996 Stock Option Plan (the "Plan"), pursuant to which options
to acquire an aggregate of shares of Common Stock may be granted to
officers, employees and consultants of the Company or a subsidiary of the
Company. The Plan authorizes the Board to issue incentive stock options
("ISO's"), as defined in Section 422A(b) of the Internal Revenue Code (the
"Code"), and stock options that do not conform to the requirements of that Code
section ("Non-ISO's"). The exercise price of each ISO may not be less than 100%
of the fair market value of the Common Stock at the time of grant, except that
in the case of a grant to an employee who owns (within the meaning of Code
Section 422A(b)(6)) 10% or more of the outstanding stock of the Company or any
subsidiary ("10% Stockholder"), the exercise price shall not be less than 110%
of such fair market value. The exercise price of each Non-ISO may not be less
than the par value of the Common Stock. Generally, options will vest over a
three to five year period and may not be exercised after the tenth anniversary
(fifth anniversary in the case of an ISO granted to a 10% Stockholder) of their
grant. Options may not be transferred during the lifetime of an optionholder.
No stock options may be granted under the Plan after 2006.
The Plan is administered by the Stock Option Committee. Subject to the
provisions of the Plan, such Committee has the authority to determine the
individuals to whom the stock options are to be granted, the number of shares
to be covered by each option, the option price, the type of option, the option
period, the restrictions, if any, on the exercise of the option, the terms for
the payment of the option price and other terms and conditions. Payment by
optionholders upon exercise of an option may be made (as determined by the
Committee) in cash, by promissory note or by shares of Common Stock. It is
contemplated that an optionholder will be personally liable on a promissory
note used as payment for the exercise of an option.
Non-Employee Directors' Plan. Effective in June 1998, the Company adopted
a Stock Option Plan for Non-Employee Directors (the "Directors' Plan"),
pursuant to which options to acquire an aggregate of shares of
Common Stock may be granted to directors who are not employees of or
consultants to the Company. The Directors' Plan provides for the automatic
grant to each of the Company's non-employee directors of (1) an option to
purchase shares of Common Stock on the later of the date of such
director's initial election or appointment to the Board of Directors or the
date of adoption of the Directors' Plan, and (2) an option to purchase
shares of Common Stock on each annual anniversary of such election or
appointment, provided that such individual is on that anniversary date a
non-employee director. The options will have an exercise price of 100% of the
fair market value of the Common Stock on the date of grant, or, as to the
initial grant with respect to individuals who were directors at the time of the
consummation of the Company's initial public offering, at the initial public
offering price, and will have a ten-year term and become exercisable in four
equal quarterly installments commencing on the date which is three months after
the date of the grant thereof, subject to acceleration
40
<PAGE>
in the event of a change of control (as defined in the Directors' Plan). The
options may be exercised by payment in cash, check or shares of Common Stock.
DIRECTOR COMPENSATION
Following the consummation of the Offering, each non-employee director of
the Company will receive (i) an annual fee of $ and (ii) $ per day
for each Board of Directors or committee meeting attended, but not more than
$ for any single day, regardless of the number of meetings of the Board
of Directors or any committee thereof attended during that day. In addition,
directors who are not employees of the Company are compensated through stock
options. See "--Non-Employee Directors' Plan." The Company also intends to pay
its Chairman of the Board a monthly fee of $6,000 for his services as Chairman,
a position which is not an officer or employee of the Company.
41
<PAGE>
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
From inception through October 31, 1997, the Company sublet its corporate
office from AVB, an entity of which Messrs. Evan and Adler are directors and
principal stockholders. The facility was leased on a month-to-month basis with
no formal lease agreements between the two companies. In addition, AVB provided
to the Company certain administrative services, such as secretarial support,
telephones, and office supplies. In November 1997, the Company located to new
office space and began subleasing office space to AVB. In addition, the Company
provides certain management and operational services to AVB including office
set-up, equipment and network support.
From inception through December 31, 1996 and the year ended December 31,
1997, AVB charged to the Company $103,077 and $171,851 of operating expenses,
including rent of $31,475 and $35,611, respectively. For the year ended
December 31, 1997, the Company charged to AVB $170,824 of management and
operational services, which includes rental expense charged to AVB of $6,562
for the two month period November 1, 1997 to December 31, 1997. In 1997, AVB
also sold dry good products to the Company in the amount of $12,300.
In 1997, the Company and AVB jointly purchased a computer system and
necessary consulting services for implementation. To date, AVB has paid
approximately $140,000 and NetGrocer has paid approximately $200,000 in
connection with this purchase. Both companies have the right to use the system
and any future costs will be shared based on usage. The Company does not intend
to engage in any future transactions with AVB. As of June 30, 1998, AVB owed
the Company an aggregate of $88,876 for services and facilities provided to
AVB.
The Company is party to a marketing agreement with Cendant pursuant to
which Cendant is required to pay a commission to the Company from any
membership revenues it receives from the Company's customers. In addition, over
the term of the agreement, the Company is required to provide access, from its
home page, to NetMarket's Web site and to pay a commission to NetMarket from
revenue received from NetMarket customers. See "Business--Marketing." Cendant
is the holder of two debentures issued by the Company convertible into
shares of Common Stock. The Company has the right to require the conversion of
the Convertible Debentures to Common Stock beginning in March 2002. The
Convertible Debentures may be converted by Cendant at any time. The number of
shares into which the Convertible Debentures is convertible is fixed regardless
of the time of conversion or the amount of interest accrued at that time. Each
of Messrs. Katz and Melland are employees of Cendant. See "Management" and
"Principal Stockholders." Additionally, the Company and its stockholders are
subject to an Investment and Stockholders Agreement with Cendant pursuant to
which the Company and its stockholders are required to, among other things: (i)
appoint two individuals nominated by Cendant to the Company's Board of Directors
(presently Messrs. Katz and Melland); (ii) allow Cendant to maintain its
percentage interest in the Company in connection with the offering by the
Company of any of its equity securities; and (iii) permit Cendant to purchase
all of the outstanding capital stock of the Company. Each of the foregoing
rights, other than the right to appoint two individuals to the Board of
Directors, lapses upon the consummation of this offering.
In connection with the Company's marketing arrangement with AOL, the
Company issued AOL a warrant to purchase up to shares of Common Stock
(representing approximately 9% of the outstanding Common Stock prior to this
offering), 17% of which is scheduled to vest over the two-year period following
the date of grant and the remaining 83% of which is scheduled to vest based
upon the number of customers acquired by the Company through AOL, subject to a
minimum threshold. This warrant has a term of seven years and an exercise price
per share equal to the initial public offering price of the Common Stock. In
July 1998, the Company entered into an agreement with AOL pursuant to which,
subject to certain limited exceptions, AOL agreed to buy shares of Common Stock
at a price per share equal to the initial public offering price (less the
Underwriters' discount) for an aggregate purchase price of $2,000,000.
Concurrently with AOL's purchase of the shares of Common Stock, the Company
will issue to AOL a warrant for a number of shares of Common Stock equal to 50%
of the number of shares of Common Stock purchased by AOL in this offering at a
per share exercise price equal
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<PAGE>
to 175% of the initial public offering price (less the underwriting discount).
AOL also received certain "piggyback" registration rights with respect to the
shares of Common Stock covered by the warrants issued to AOL. See "Description
of Capital Stock--Registration Rights."
Certain of the Company's stockholders, including Messrs. Evan and Adler,
both directors and principal stockholders of the Company, and Frederick J.
Horowitz and Cendant, both principal stockholders of the Company, have the
right to require the Company to register shares of Common Stock held by them,
subject to certain limitations. See "Description of Capital Stock--Registration
Rights."
In May 1997, Daniel Nissan issued a promissory note to the Company in the
amount of $80,800, with an interest rate of 7.0%. The note was issued as
payment for the exercise by Mr. Nissan of an option to purchase 4,040 shares of
Common Stock at a price of $20.00 per share. The note is to be repaid on the
earlier of the fifth anniversary date of the note or when any of the shares
purchased are sold.
The Company is party to a consulting agreement with Millstone Brands, a
company wholly-owned by Mr. Evan, whereby the Company pays Millstone Brands a
monthly consulting fee of $6,000. The Company has provided notice of its
intention to terminate its consulting agreement with Millstone Brands as of
July 31, 1998.
COMPANY POLICY
It is the Company's policy that any future transactions with officers,
directors and affiliates will be approved by a majority of the disinterested
members of the Board of Directors, and will be made on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of June 30, 1998,
before and after giving effect to the Offering, by: (i) each person known to
the Company to beneficially own more than 5% of the outstanding shares of
Common Stock; (ii) each of the Company's directors; (iii) each named executive
officer; and (iv) all directors and executive officers of the Company as a
group. Unless otherwise indicated below, the persons named below have sole
voting and investment power with respect to the number of shares set forth
opposite their names, subject to community property laws where applicable.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK SHARES OF COMMON
BENEFICIALLY OWNED STOCK BENEFICIALLY
BEFORE OWNED AFTER THE
THE OFFERING (2) OFFERING(2)
-------------------- -------------------
EXECUTIVE OFFICERS AND DIRECTORS (1) SHARES PERCENT SHARES PERCENT
- ----------------------------------------------- -------- --------- -------- --------
<S> <C> <C> <C> <C>
Uri Evan(3) ................................... 20.0%
Daniel Nissan(4) .............................. 3.9
Richard D. Falcone(5) ......................... 1.2
Jeffrey Steinberg(5) .......................... *
Frederick R. Adler
1520 South Ocean Boulevard
Palm Beach, Florida 33480 .................... 14.1
Philip R. Chapman (6) ......................... 2.2
Yoram Evan .................................... *
Samuel L. Katz(7) ............................. *
Scot Melland(7) ............................... *
5% STOCKHOLDERS
- ------------------------------------------------
Cendant Corporation(8)
707 Summer Street
Stamford, CT 06901 ........................... 34.3
Dinah Evan(3) ................................. 20.0
Frederick J. Horowitz (9)
180 South Woodland Street
Englewood, NJ 07631 .......................... 6.4
All directors and executive officers as a group
(9 persons) .................................. 40.8%
</TABLE>
- ----------
* Less than 1.0%
(1) Unless indicated otherwise, the address of the named stockholder is: c/o
NetGrocer Inc., 333 Seventh Avenue, New York, New York 10001.
(2) Percentages of outstanding Common Stock are based upon shares
of Common Stock outstanding before the Offering. After the Offering,
shares of Common Stock will be outstanding. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission (the "Commission"), which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting
power and/or investment power with respect to those securities.
(3) Amounts reflected for Uri Evan and Dinah Evan, who are married to one
another, include (i) shares held by Dinah Evan, (ii)
shares held by UME LLC ("UME"), a limited liability company of which Mr.
Evan is the sole member and (iii) shares held by Mason Patrick
44
<PAGE>
Corp. ("Mason Patrick"), an offshore corporation. Mr. and Mrs. Evan may
each be deemed to beneficially own the shares of Common Stock held by the
other and the shares of Common Stock held by UME and Mason Patrick.
(4) Includes shares acquirable upon the exercise of options.
(5) Amount reflects shares acquirable upon the exercise of options.
(6) Mr. Chapman is deemed to be the beneficial owner of shares held
by his wife Susan R. Chapman.
(7) Does not include shares beneficially owned by Cendant, of which the named
person is an employee.
(8) Amount reflects shares issuable upon the conversion of the Convertible
Debentures.
(9) Includes shares held by a trust of which Mr. Horowitz is the
settlor and his wife and descendants are beneficiaries.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital of the Company consists of 31,000,000 shares
consisting of 30,000,000 shares of Common Stock, $.01 par value, and 1,000,000
shares of preferred stock, $.01 par value (the "Preferred Stock"). On June 30,
1998, there were shares of Common Stock and no shares of Preferred Stock
issued and outstanding.
The following descriptions of the share capital of the Company and the
material provisions of the Company's Certificate of Incorporation and By-Laws
are summaries only and are qualified in their entirety by reference to the
Certificate of Incorporation and By-Laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders. The Common Stock does not have
cumulative voting rights and, as a result, subject to the rights of any
Preferred Stock which may be issued, the holders of a majority of the shares of
Common Stock entitled to vote in any election of directions may elect all of
the directors standing for election. In that event, the holders of the
remaining shares will not be able to elect any directors. Subject to the rights
and preferences of any Preferred Stock which may be issued, the holders of
Common Stock are entitled to receive ratably such period dividends, if any, as
may be declared by the Board of Directors out of funds legally available
therefor and, upon the liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to receive ratably the net assets of
the Company available after the payment of all debts and other liabilities.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Offering will be, when issued and paid for, fully
paid and nonassessable.
PREFERRED STOCK
Pursuant to the Company's Certificate of Incorporation, the Company is
authorized to issue "blank check" Preferred Stock, which may be issued from
time to time in one or more series upon authorization by the Company's Board of
Directors. The Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
and any other rights, preferences, privileges and restrictions applicable to
each series of the Preferred Stock. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, among other things, could adversely affect the voting power
of the holders of Common Stock and, under certain circumstances, make it more
difficult for a third party to gain control of the Company, discourage bids for
the Company's Common Stock at a premium to the prevailing market price or
otherwise adversely affect the market price of the Common Stock.
WARRANTS
In connection with the Company's marketing arrangements with AOL, the
Company issued AOL a warrant to purchase up to shares of Common Stock
(representing approximately 9% of the outstanding Common Stock prior to this
offering), 17% of which is scheduled to vest over the two-year period following
the date of grant and the remaining 83% of which is scheduled to vest based
upon the number of customers acquired by the Company through AOL. This warrant
has a term of seven years and an exercise price per share equal to the initial
public offering price of the Common Stock. Subject to certain conditions, the
Company has agreed to issue to AOL a warrant to purchase a number of shares of
Common Stock equal to 50% of the number of shares of Common Stock purchased by
AOL contemporaneously with the consummation of this offering at a per share
exercise price equal to 175% of the initial public offering price (less the
underwriting discount). See "Certain Transactions."
REGISTRATION RIGHTS
Pursuant to an agreement with Cendant, the Company granted Cendant the
right to demand that the Company file a registration statement under the
Securities Act of 1933, as amended, relating to the shares
46
<PAGE>
of Common Stock beneficially owned by Cendant. Cendant may not, without the
prior written consent of the Company, exercise any of its demand registration
rights until 120 days following the date of the successful consummation of a
public offering of the Common Stock. The Company also granted Cendant
"piggyback" registration rights, subject to certain conditions and
restrictions, with priority over other stockholders in any such registration.
The Company granted AOL "piggyback" registration rights with respect to
the shares of Common Stock issuable upon exercise of the warrants issued to it,
subject to certain conditions and restrictions, with priority over other
stockholders in any such registration. See "--Warrants."
In 1995, Mr. Adler and Mr. Evan also were granted "piggyback" registration
rights with respect to any registration statement filed by the Company, subject
to certain conditions and restrictions. The registration rights agreements with
Messrs. Adler and Evan relating to such registration rights cover all Common
Stock held by them. Messrs. Adler and Evan have waived such registration rights
with respect to the Offering.
Pursuant to his May 1996 employment agreement, Mr. Nissan was granted
"piggyback" registration rights, exercisable at any time after the first
anniversary of the Company's initial public offering, to have the shares of
Common Stock issued to him upon exercise of an option held by him registered in
any public offering initiated by the Company. Such rights also are triggered by
the participation of either of Messrs. Adler or Evan in any public offering of
the Common Stock subsequent to the Company's initial public offering.
In connection with a private placement of shares of Common Stock in
September 1997, the Company granted registration rights to certain
stockholders, including a trust of which Frederick J. Horowitz is the Settlor,
covering shares of Common Stock held by such stockholders on terms no less
favorable than those granted to Cendant. The Company also granted piggyback
registration rights to AOL in connection with the issuance of the AOL Warrant.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Under Section 203 of the Delaware General Corporation Law (the "Delaware
anti-takeover law"), certain "business combinations" between a Delaware
corporation, whose stock generally is publicly traded or held of record by more
than 2,000 stockholders, and an "interested stockholder" are prohibited for a
three-year period following the date that such stockholder became an interested
stockholder, unless (i) the corporation has elected in its certificate of
incorporation or bylaws not to be governed by the Delaware anti-takeover law
(the Company has not made such an election), (ii) the business combination was
approved by the board of directors of the corporation before the other party to
the business combination became an interested stockholder, (iii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the commencement of the transaction (excluding
voting stock owned by directors who are also officers or held in employee stock
plans in which the employees do not have a right to determine confidentially
whether to tender or vote stock held by the plan), or (iv) the business
combination was approved by the board of directors of the corporation and
ratified by 66 2/3% of the voting stock which the interested stockholder did
not own. The three-year prohibition does not apply to certain business
combinations proposed by an interested stockholder following the announcement
or notification of certain extraordinary transactions involving the corporation
and a person who had not been an interested stockholder during the previous
three years or who became an interested stockholder with the approval of a
majority of the corporation's directors. The term "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested stockholder"
is defined generally as a stockholder who becomes beneficial owner of 15% or
more of a Delaware corporation's voting stock. Section 203 could have the
effect of delaying, deferring or preventing a change in control of the Company.
47
<PAGE>
The Company's By-Laws establish an advance notice procedure with regard to
the nomination of candidates for election as directors at any meeting of
stockholders called for the election of directors. The procedure provides that
a notice relating to the nomination of directors must be timely given in
writing to the Secretary of the Company prior to the meeting. To be timely,
notice relating to the nomination of directors for election at an annual
meeting must be delivered not later than the close of business on the later of
the 90th day prior to such annual meeting or the 10th day following the day of
which public announcement of the date of such annual meeting is first made.
Although the Company's By-Laws do not give the Board of Directors any power to
approve or disapprove stockholder nominations for the election of directors or
of any other business desired by stockholders to be conducted at an annual or
any other meeting, the Company's By-Laws (i) may have the effect of precluding
a nomination for the election of directors or precluding the conduct of
business at a particular meeting if the proper procedures are not followed or
(ii) may discourage or deter a third party from conducting a solicitation of
proxies to elect its own slate of directors. The Company's Certificate of
Incorporation provides that any action required or permitted to be taken by
stockholders of the Company must be effected at a duly called annual or special
meeting of stockholders and may not be effected by any consent in writing. In
addition, special meetings of the stockholders of the Company may be called
only by the Chairman of the Board, the President of the Company, by the Board
of Directors pursuant to a resolution adopted by a majority of the total number
of authorized directors. These and other provisions contained in the Company's
Certificate of Incorporation and By-Laws could delay or make more difficult
certain types of transactions involving an actual or potential change in
control of the Company or its management (including transactions in which
stockholders might otherwise receive a premium for their shares over then
current prices) and may limit the ability of stockholders to remove current
management of the Company or approve transactions that stockholders may deem to
be in their best interests and, therefore, could adversely affect the price of
the Common Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation provides that directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability: (i) for any breach of the director's duty of loyalty to the Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware General Corporation Law, relating to prohibited
dividends or distributions or the repurchase or redemption of stock; or (iv)
for any transaction from which the director derives an improper personal
benefit. The provision does not apply to claims against a director for
violations of certain laws, including federal securities laws. If the Delaware
General Corporation law is amended to authorize the further elimination or
limitation of directors' liability, then the liability of directors of the
Company shall automatically be limited to the fullest extent provided by law.
The Company's Certificate of Incorporation and By-Laws also contain provisions
to indemnify the directors, officers, employees or other agents to the fullest
extent permitted by the Delaware General Corporation Law. In addition, the
Company has entered into indemnification agreements with its current directors
and executive officers. These agreements and provisions contained in the
Company's Certificate of Incorporation and By-Laws may have the practical
effect in certain cases of eliminating the ability of stockholders to collect
monetary damages from Directors. The Company believes that these contractual
agreements and the provisions in its Certificate of Incorporation and By-Laws
are necessary to attract and retain qualified persons as directors and
officers.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have shares of
Common Stock outstanding. Of these, shares sold by the Company in the
Offering will be freely tradable without restriction or further registration
under the Securities Act, unless held by an "affiliate" of the Company (as that
term is defined under the Securities Act and the regulations promulgated
thereunder). The remaining shares of Common Stock outstanding were issued
or sold without registration under the Securities Act and may not be resold in
a public distribution except in compliance with the registration requirements
of the Securities Act or pursuant to an exemption therefrom, including the
exemptions provided by Regulation S and Rule 144 promulgated under the
Securities Act.
All shares of Common Stock outstanding immediately prior to consummation
of the Offering will be subject to the resale restrictions of Rule 144 under
the Securities Act and to the lock-up agreements described below. In general,
under Rule 144 as currently in effect, a person (or persons whose shares are
aggregated), including an affiliate of the Company, is entitled to sell within
any three-month period a number of shares beneficially owned for at least one
year that does not exceed the greater of (i) 1% of the then outstanding shares
of Common Stock or (ii) the average weekly trading volume of the outstanding
shares of Common Stock during the four calendar weeks preceding such sale.
Sales under Rule 144 also are subject to certain requirements as to the manner
of sale, notice and the availability of current public information about the
Company. However, a person (or persons whose shares are aggregated) who is not
an affiliate of the Company during the 90 days preceding a proposed sale by
such person and who has beneficially owned "restricted securities" for at least
two years is entitled to sell such shares under Rule 144 without regard to the
volume, manner of sale or notice requirements. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly controls, or
is controlled by, or is under common control with such issuer.
The Company, its executive officers and directors and certain of its
stockholders have agreed, subject to certain exceptions, not to make a
Disposition of any shares of Common Stock or securities convertible into or
exercisable or exchangeable for Common Stock, subject to certain limited
exceptions, until 180 days after the effective date of this Prospectus, without
the prior consent of CIBC Oppenheimer Corp. In addition, certain of the
Company's stockholders holding an aggregate of shares of Common Stock (or
securities convertible into Common Stock) have agreed not to make a Disposition
for a period of 360 days after the effective dates of this Prospectus.
Options to purchase shares of Common Stock are outstanding under the
Stock Option Plan. An additional shares will remain available for future
option grants under the Stock Option Plan. The Company intends to file a
registration statement under the Securities Act after consummation of the
Offering to register for resale the shares of Common Stock reserved for
issuance under the Stock Option Plan. Such registration statement will become
effective automatically upon filing. Shares issued under the Stock Option Plan
after the registration statement is filed may thereafter be sold in the open
market, subject, in the case of the various holders, to the Rule 144 volume
limitations or prospectus delivery requirements applicable to affiliates and
any transfer restrictions imposed on the date of grant or otherwise.
Prior to this offering, there has been no public market for the Common
Stock. No predictions can be made of the effect, if any, that future sales of
Common Stock, options to acquire shares of Common Stock, or the availability of
shares for future sale, will have on the market price prevailing from time to
time. Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales may occur, could have a material adverse effect on
the market price of the Common Stock. See "Risk Factors--Immediate and
Substantial Dilution" and "--No Prior Public Market; Possible Volatility of
Stock Price."
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the Underwriters named below, and each of
the Underwriters, for whom CIBC Oppenheimer Corp., Inc. and Volpe Brown Whelan
& Company, LLC are acting as Representatives, has severally agreed to purchase
from the Company, the respective number of shares of Common Stock set forth
opposite the name of each Underwriter below.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---- ------
<S> <C>
CIBC Oppenheimer Corp. ....................
Volpe Brown Whelan & Company, LLC .........
--------
Total ..................................
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to
the public initially at the public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers at such price less
a concession of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other brokers
and dealers. After the shares of Common Stock are released for sale to the
public, the offering price and other selling terms may from time to time be
varied by the Representatives. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any are taken.
The Company has granted to the Underwriters an option, exercisable for up
to 30 days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock to cover over-allotments, if any. If
the Underwriters exercise such option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them bears to the
shares of Common Stock offered hereby. 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.
The Company has agreed to indemnify the Representatives of the
Underwriters and the several Underwriters against certain liabilities,
including, without limitation, liabilities under the Securities Act, and to
contribute to certain payments that the Underwriters may be required to make in
respect thereof.
The Company, its executive officers and directors and certain of its
stockholders have agreed, subject to certain exceptions, not to offer, sell,
contract to sell, pledge, grant any option to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, subject to certain limited
exceptions, until 360 days after the effective date of this Prospectus, without
the prior consent of CIBC Oppenheimer Corp., except that certain non-management
employees are restricted from making a Disposition for a period of only 180
days.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales in excess of 5% of the shares offered hereby to any
account over which they exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined by negotiations between the Company and the Representatives. Among
the factors considered in determining the initial public offering price were
prevailing market and economic conditions, revenues and earnings of the
Company, estimates of the business potential and prospects of the Company, the
present state of the Company's business operations, the Company's management
and other factors deemed relevant.
50
<PAGE>
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing the market price for
Common Stock. The Underwriters also may create a short position for the account
of the Underwriters by selling more Common Stock in connection with the
offering than they are committed to purchase from the Company and the Selling
Stockholders, and in such case may purchase Common Stock in the open market
following completion of the offering to cover all or a portion of the Common
Stock or by exercising the Underwriters' overallotment option referred to
above. In addition, CIBC Oppenheimer Corp., on behalf of the Underwriters, may
impose "penalty bids" under contractual arrangements with the Underwriters
whereby it may reclaim from an Underwriter (or dealer participating in the
offering) for the account of the other Underwriters, the selling concession
with respect to Common Stock that is distributed in the offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in
this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Fulbright &
Jaworski L.L.P., New York, New York. Frederick R. Adler, who is a retired
partner of and of counsel to the firm, is a director of the Company and owns
shares of Common Stock. Certain legal matters relating to the Offering
will be passed upon for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Palo Alto, California.
EXPERTS
The Financial Statements of Net Grocer Inc. as of December 31, 1997 and
1996, and for the period of October 27, 1995 (inception) through December 31,
1996 and the year ended December 31, 1997, appearing in this Prospectus and in
the Registration Statement, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission 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, certain provisions of which are omitted as permitted by
the rules and regulations of the Commission. For further information pertaining
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. Statements contained
in this Prospectus regarding the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
Upon consummation of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information, as well as the Registration Statement and the exhibits and
schedules thereto, may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048, and
Citicorp Center, 500
51
<PAGE>
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such materials can also be inspected at the offices of the Nasdaq
National Market System at 1735 K Street, N.W., Washington, D.C. 20006 or on the
Commission's Web site on the Internet at http://www.sec.gov.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants ..................................................... F-2
Balance Sheets at December 31, 1996 and 1997, and at March 31, 1998 (unaudited)........ F-3
Statements of Operations for the period from October 27, 1995 (inception) through
December 31, 1996, the year ended December 31, 1997 and the quarters ended
March 31, 1997 and March 31, 1998 (unaudited) ........................................ F-4
Statement of Stockholders' Deficit for the period from October 27, 1995 (Inception)
through December 31, 1996, the year ended December 31, 1997 and the quarter ended
March 31, 1998 (unaudited) ........................................................... F-5
Statement of Cash Flows for the period from October 27, 1995 (inception) through
December 31, 1996, the year ended December 31, 1997 and the quarters ended
March 31, 1997 and March 31, 1998 (unaudited) ........................................ F-6
Notes to Financial Statements ......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Net Grocer Inc.
We have audited the accompanying balance sheet of Net Grocer Inc. (the
"Company") as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' deficit and cash flows for the period October 27,
1995 (inception) through December 31, 1996 and the year ended December 31,
1997. We have audited the financial statement schedule listed in Item 16(b).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule 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.
The aforementioned financial statements have been prepared assuming that
the Company will continue as a going concern. Our report on our audit of such
financial statements was issued originally under date of March 6, 1998. Such
report was based upon the facts and circumstances as they existed at the time,
including that substantial doubt did not exist as to the Company's ability to
continue as a going concern through December 31, 1998. Subsequent to the
issuance of our report, the Company has entered into several strategic
marketing and promotional alliances with Internet Web sites (as described in
Note 1--Basis of Presentation), pursuant to which the Company is required to
make payments aggregating approximately $11.6 million and $10.8 million in 1998
and 1999, respectively. The effect of such subsequent strategic alliances and
related payments indicate that the availability of funds to sustain the
Company's activities as a going concern through 1999 is uncertain.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Net Grocer Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the period October 27, 1995 (inception) through December 31, 1996 and
the year ended December 31, 1997, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 6, 1998, except Note 1
(Basis of Presentation)
as to which the date is
July 6, 1998
F-2
<PAGE>
NET GROCER INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1996 1997 1998
ASSETS: ------------- --------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 59,387 $ 3,849,652 $ 7,763,164
Receivables, net of allowance of $1,000 at December 31, 1997
and $3,000 at March 31, 1998................................. -- 37,046 109,768
Inventory, net ................................................ -- 314,655 446,814
Prepaids and other current assets ............................. -- 14,400 81,042
---------- ------------ ------------
Total current assets ........................................ 59,387 4,215,753 8,400,788
---------- ------------ ------------
Due from related party ......................................... -- 106,490 106,020
Property and equipment, net .................................... 42,502 228,997 512,403
Capitalized software, net of accumulated amortization of $74,376
at December 31, 1997 and $115,176 at March 31, 1998............ -- 252,027 211,227
Other assets ................................................... 2,517 113,928 119,715
---------- ------------ ------------
Total assets ................................................ $ 104,406 $ 4,917,195 $ 9,350,153
========== ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT:
Current liabilities:
Accounts payable and accrued expenses ......................... $ 45,887 $ 1,046,323 $ 1,279,800
Due to related party .......................................... 103,077 -- --
---------- ------------ ------------
Total current liabilities ................................... 148,964 1,046,323 1,279,800
---------- ------------ ------------
Convertible debentures ......................................... -- 5,000,000 12,000,000
Commitments and contingencies
Stockholders' deficit:
Common stock; 1,000,000 shares authorized; $0.01 par value;
25,000, 114,040 and 114,040 shares issued and outstanding,
at December 31, 1996, 1997 and March 31, 1998,
respectively ................................................ 250 1,140 1,140
Additional paid-in capital .................................... 499,750 3,079,660 3,460,660
Deferred compensation ......................................... -- -- (138,417)
Accumulated deficit ........................................... (544,558) (4,129,128) (7,172,230)
---------- ------------ ------------
(44,558) (1,048,328) (3,848,847)
Receivable from stock option exercise ......................... -- (80,800) (80,800)
---------- ------------ ------------
Total stockholders' deficit ................................... (44,558) (1,129,128) (3,929,647)
---------- ------------ ------------
Total liabilities and stockholders' deficit ................... $ 104,406 $ 4,917,195 $ 9,350,153
========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
NET GROCER INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
OCTOBER 27,
1995 (INCEPTION)
THROUGH YEAR ENDED QUARTER ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------------
1996 1997 1997 1998
----------------- --------------- ------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ..................................... $ -- $ 281,160 $ $ 406,639
--
Cost of sales ................................. -- 564,530 -- 692,365
------------- ------------ ----------- ------------
Gross deficit............................... -- (283,370) -- (285,726)
Operating expenses:
Selling and marketing ........................ 64,559 1,058,037 77,398 632,711
Systems operating and development ............ 305,435 674,630 208,049 311,896
General and administrative ................... 173,876 1,536,722 157,546 1,737,065
------------- ------------ ----------- ------------
Loss from operations ....................... (543,870) (3,552,759) (442,993) (2,967,398)
Other expenses:
Interest expense, net ........................ -- 30,552 -- 75,014
------------- ------------ ----------- ------------
Loss before provision for income taxes ..... (543,870) (3,583,311) (442,993) (3,042,412)
Provision for income taxes .................... 688 1,259 689 690
------------- ------------ ----------- ------------
Net loss ................................... $ (544,558) $ (3,584,570) $ (443,682) $ (3,043,102)
============= ============ =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
NET GROCER INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD OCTOBER 27, 1995 (INCEPTION) THROUGH DECEMBER 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1997 AND THE QUARTER ENDED
MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
RECEIVABLE
COMMON STOCK ADDITIONAL FROM
------------------- PAID-IN ACCUMULATED DEFERRED STOCK OPTION
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION EXERCISE TOTAL
---------- -------- ------------ --------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 27, 1995
(inception) ..................
Issuance of common stock ...... 25,000 $ 250 $ 499,750 $ 500,000
Net loss ...................... -- -- -- $ (544,558) (544,558)
------ ------ ---------- ------------ ------------
Balance, December 31, 1996 .... 25,000 250 499,750 (544,558) (44,558)
------ ------ ---------- ------------ ------------
Issuance of common stock ...... 85,000 850 2,499,150 -- 2,500,000
Exercise of stock options ..... 4,040 40 80,760 -- $ (80,800) --
Net loss ...................... -- -- -- (3,584,570) -- (3,584,570)
------ ------ ---------- ------------ --------- ------------
Balance, December 31, 1997 .... 114,040 $1,140 $3,079,660 $ (4,129,128) $ (80,800) $ (1,129,128)
------- ------ ---------- ------------ --------- ------------
Unearned compensation
related to issuance of stock
options (unaudited) .......... -- -- 381,000 -- $ (381,000) -- --
Amortization of unearned
compensation related to
issuance of stock options
(unaudited) .................. -- -- -- -- 242,583 -- 242,583
Net loss (unaudited) .......... -- -- -- (3,043,102) -- -- (3,043,102)
------- ------ ---------- ------------ ---------- --------- ------------
Balance, March 31, 1998
(unaudited) .................. 114,040 $1,140 $3,460,660 $ (7,172,230) $ (138,417) $ (80,800) $ (3,929,647)
======= ====== ========== ============ ========== ========= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
NET GROCER INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD OCTOBER 27,
1995 (INCEPTION)
THROUGH YEAR ENDED QUARTER ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------------
1996 1997 1997 1998
------------------- ---------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ......................................... $ (544,558) $ (3,584,570) $ (443,682) $ (3,043,102)
Adjustment to reconcile net loss to net cash
used in operating activities:
Provision for accounts receivable allowance..... -- 1,000 -- 2,000
Provision for inventory valuation .............. -- 45,000 -- 35,000
Depreciation and amortization .................. 4,588 144,808 9,705 76,007
Compensation related to issuance of stock
options ....................................... -- -- -- 242,583
Write-off on disposal of fixed assets .......... -- -- -- 90,811
Increase in inventory .......................... -- (359,655) (94,111) (167,159)
Increase in accounts receivable ................ -- (38,046) -- (74,722)
Increase in other assets ....................... (2,899) (126,391) (14,000) (72,575)
Increase in accounts payable and accrued
expenses ...................................... 45,887 1,000,436 38,066 233,479
Increase/(decrease) in due from/to related
party ......................................... 103,077 (209,567) 11,806 470
---------- ------------ ---------- ------------
Net cash used in operating activities .......... (393,905) (3,126,985) (492,216) (2,677,208)
---------- ------------ ---------- ------------
Cash flows from investing activities:
Purchase of property and equipment ............... (46,708) (256,347) (18,207) (409,280)
Capitalized software ............................. -- (326,403) (19,620) --
---------- ------------ ---------- ------------
Net cash used in investing activities .......... (46,708) (582,750) (37,827) (409,280)
---------- ------------ ---------- ------------
Cash flows from financing activities:
Proceeds from issuance of convertible
debenture ...................................... -- 5,000,000 -- 7,000,000
Proceeds from issuance of common stock ........... 500,000 2,500,000 800,000 --
---------- ------------ ---------- ------------
Net cash provided by financing activities ...... 500,000 7,500,000 800,000 7,000,000
---------- ------------ ---------- ------------
Net increase in cash ........................... 59,387 3,790,265 269,957 3,913,512
Cash, beginning of period ......................... -- 59,387 59,387 3,849,652
---------- ------------ ---------- ------------
Cash, end of period ............................... $ 59,387 $ 3,849,652 $ 329,344 $ 7,763,164
========== ============ ========== ============
Supplemental disclosure of cash flow
information:
Issuance of $80,800 promissory note in
connection with stock option exercise
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
NET GROCER INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPAL BUSINESS ACTIVITIES
Net Grocer Inc. (the "Company") was incorporated on October 27, 1995, in
the state of Delaware for the purposes of providing interactive retail shopping
services via Internet access. The Company conducts it business within one
industry segment.
From inception through July 1997 the Company was in the development stage.
During this period substantially all of the Company's operations were focused
on the research and development of its Internet site and technology, market
development and raising capital. Beginning in July 1997 the Company's principal
operations commenced. The Company's results of operations from inception to
December 31, 1995 have been combined with the results of operations for the
year ended December 31, 1996 due to the Company's limited activity during such
period. During this period the Company had no material operations.
BASIS OF PRESENTATION
Since inception the Company has incurred significant losses and, as of
December 31, 1997, had accumulated losses of $4,129,128 and a stockholders'
deficit of $1,129,128. The Company intends to invest heavily in marketing and
promotion, web site development, technology, and development of its
administrative organization. In support of its growth objectives, the Company
has entered into strategic marketing and promotional alliances with America
Online, Inc. ("AOL"), Yahoo! Inc. ("Yahoo!"), iVillage, Inc. ("iVillage") and
Excite, Inc. ("Excite"). Under the terms of such alliances, the Company is
required to make payments aggregating approximately $11.6 million and $10.8
million in 1998 and 1999, respectively. As a result, the Company believes that
it will incur substantial operating losses for the foreseeable future, and that
the rate at which such losses will be incurred will increase significantly from
current levels. Because many product lines carry relatively low direct margins,
achieving profitability given planned investment levels will depend upon the
Company's ability to substantially increase its customer base and revenue
levels, improve its product mix by increasing its sales of higher margin
consumer products, reduce shipping costs, attract advertising dollars and
reduce its merchandise costs through volume discounts and direct purchases from
manufacturers.
In order to make the investments necessary to expand its business and to
meet its cash flow requirements, including those under its strategic marketing
alliances, the Company intends to raise capital through an initial public
offering of its common stock. If successfully completed, the Company believes
that the net proceeds from the Offering, together with other available
resources, would be sufficient to fund the Company's operations for the next
twelve months after this offering. If capital requirements vary materially from
those currently planned, the Company may require additional financing sooner
than anticipated. The effect of Company's subsequent strategic marketing and
promotional alliances and related payments indicate that the availability of
funds to sustain the Company's activities as a going concern through 1999 is
uncertain.
Based on the cash balance at December 31, 1997, additional credit that may
be obtained from key vendors and management's belief that additional debt and
equity financing can be obtained, the Company believes that it has the ability
to continue its business through December 31, 1998.
REVENUE RECOGNITION
Net sales, which consist primarily of dry good groceries sold over the
Internet, net of product credits and other discounts, and outbound shipping
charges, are recognized when the products are shipped. The Company records a
reserve for estimated credits and returns.
INVENTORY
Inventory is valued at lower of average cost or market. Reserves are
established for slow moving or obsolete inventory.
F-7
<PAGE>
NET GROCER INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COST OF SALES
Cost of Sales consist principally of cost of merchandise sold, inbound and
outbound shipping costs, and direct costs of order fulfillment. Warehouse costs
are included in general and administration expenses.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid short-term investments purchased
with an original maturity date of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Maintenance and repairs are
charged to expense as incurred; costs of major additions and betterments are
capitalized. When property and equipment is sold or otherwise disposed of, the
cost and related accumulated depreciation are eliminated from the accounts and
any resulting gain or loss is reflected in income.
DEPRECIATION
Depreciation is provided for using the straight-line method over the
estimated useful lives of the related assets as follows:
<TABLE>
<S> <C>
Computer equipment .............. 3 years
Purchased software .............. 3 years
Furniture and fixtures .......... 7 years
Leasehold improvements .......... 5 years
Machinery and equipment ......... 7 years
</TABLE>
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company has capitalized certain incurred software development costs in
connection with its electronic commerce Internet web site. The costs associated
with research and development of such technology were expensed as incurred.
Software development costs incurred subsequent to establishing technological
feasibility have been capitalized. Technological feasibility is established
upon the completion of a detailed program design (in the absence of any high
risk issues or uncertainties). Capitalized software costs are being amortized
over a period of two years. Maintenance and enhancement costs incurred
subsequent to the initiation of the Company's electronic commerce web site are
being expensed as incurred.
LONG LIVED ASSETS
The Company reviews for impairment its long lived assets, principally
equipment and capitalized software, whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. In the event that
facts and circumstances indicate that the value of assets may be impaired an
evaluation of recoverability is performed. The evaluation compares the
estimated future cash flows associated with the asset to the asset's carrying
amount to determine if measurement of an adjustment is required.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to their short maturity, the carrying amounts of financial instruments
including cash, accounts receivable, payables and accrued expenses approximate
fair value. Management believes that the carrying value of the Company's
convertible debenture approximates fair value due to its variable interest rate
and relatively recent issuance.
F-8
<PAGE>
NET GROCER INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
Company's significant estimates include the useful lives of computer equipment
and capitalized software, and accounts receivable and inventory valuation
reserves.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of temporary cash investments
in excess of financially insured limits. The Company places its temporary cash
investments with high credit quality financial institutions.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and labilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
STOCK BASED COMPENSATION
During 1996, the Company adopted Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
The provisions of SFAS No. 123 allow companies to either expense the estimated
fair value of stock options or to continue to follow the intrinsic value method
set forth in APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB
25"). The Company has elected to continue to apply APB 25 in accounting for its
stock option incentive plans, and has disclosed the pro forma effects on net
income (loss) had the fair value of options been expensed.
STOCK SPLIT
On September 2, 1997, the Company declared a ten for one stock split which
has been given retroactive treatment in the financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial statements as of March 31, 1998 and for the three months
ended March 31, 1997 and 1998 are unaudited but have been prepared in
accordance with generally accepted accounting principles for interim financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. The results of operations of any interim period are not necessarily
indicative of the results of operations for the full year.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"), which establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. SFAS No. 130
offers alternatives for presentation of
F-9
<PAGE>
NET GROCER INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
disclosures required by the standard. As SFAS No. 130 establishes standards for
reporting and display, the adoption of this standard will have no impact on the
Company's results of operations, financial position or cash flows. For the
period ended March 31, 1998, the Company's net loss equaled the comprehensive
net loss required to be displayed under this standard.
In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS No. 131"), which establishes standards for reporting information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. As SFAS No. 131 establishes standards for disclosure, the
adoption of this standard will have no impact on the Company's results of
operations, financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998,
with earlier application encouraged. The SOP provides guidance over accounting
for computer software developed or obtained for internal use including the
requirement to capitalize specified costs and amortization of such costs. The
Company elected early adoption of this SOP effective January, 1998. The
adoption did not have a material effect on the Company's capitalization policy.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment ..................... $ 43,085 $ 130,740 $ 189,074
Furniture and fixtures ................. 1,234 24,041 59,818
Purchased software ..................... 2,389 148,274 69,488
Machinery and equipment ................ -- -- 245,804
Leasehold improvements ................. -- -- 57,340
-------- --------- ----------
46,708 303,055 621,524
Less, accumulated depreciation ......... (4,206) (74,058) (109,121)
-------- --------- ----------
$ 42,502 $ 228,997 $ 512,403
======== ========= ==========
</TABLE>
Depreciation expense was $4,588, $144,808 and $76,007 for the years ended
December 31, 1996 and 1997, and the quarter ended March 31, 1998, respectively.
3. RELATED PARTY TRANSACTIONS
From inception through October 31, 1997, the Company sublet its corporate
office from American Value Brands, Inc., ("AVB"), an entity of which Uri Evan,
Chairman of the Board and director of the Company and Frederick R. Adler,
director of the Company, are directors and principal stockholders. The facility
was leased on a month-to-month basis with no formal lease agreements between
the two companies. In addition, AVB provided to the Company certain
administrative services, such as secretarial support, telephones, and office
supplies. In November 1997, the Company located to new office space and began
subleasing office space to AVB. In addition, the Company provides certain
management and operational services to AVB including office set-up, equipment
and network support.
From inception through December 31, 1996 and the year ended December 31,
1997, AVB charged to the Company $103,077 and $171,851 of operating expenses,
including rent of $31,475 and $35,611,
F-10
<PAGE>
NET GROCER INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
respectively. For the year ended December 31, 1997, the Company charged to AVB
$170,824 of management and operational services, which includes rental expense
charged to AVB of $6,562 for the two month period November 1, 1997 to December
31, 1997. In 1997, AVB also sold dry good products to the Company in the amount
of $12,300.
In 1997, the Company and AVB jointly purchased a computer system and
necessary consulting services for implementation. To date, AVB has paid
approximately $140,000 and the Company has paid approximately $200,000 in
connection with this purchase. Both companies have the right to use the system
and any future costs will be shared based on usage.
The Company is party to a consulting agreement with Millstone Brands, a
company wholly owned by Uri Evan, Chairman of the Company, whereby the Company
pays Millstone a monthly consulting fee of $6,000. The agreement is of
indefinite duration and can be terminated by either party upon 120 days'
notice.
4. INCOME TAXES
The provision for income taxes for the period October 27, 1995 (inception)
through December 31, 1996 and the year ended December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1996 1997
------ --------
<S> <C> <C>
Federal ................. $-- $
--
State and local ......... 688 1,259
---- -------
$688 $1,259
==== =======
</TABLE>
The Company recognizes deferred tax assets for the future tax
deductibility of startup costs which have been incurred prior to commencement
of operations. Such costs will be amortized over sixty months for tax purposes
beginning with the commencement of operations. A valuation allowance is
required if management believes it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The Company has
established a full valuation allowance as of December 31, 1997, based upon its
limited operating history. The need for the valuation allowance is evaluated
periodically by the Company. As of December 31, 1997, the Company had
approximately $3,434,000 net operating loss available for carryforward.
The components of net deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1996 1997
------------- ---------------
<S> <C> <C>
Net operating loss carryforwards ......... $ 61,468 $ 1,301,360
Start up costs ........................... 146,284 271,658
Depreciation ............................. -- (4,880)
Other .................................... -- 17,434
---------- ------------
207,752 1,585,572
Less, valuation allowance ................ (207,752) (1,585,572)
---------- ------------
$ 0 $ 0
========== ============
</TABLE>
For the period January 1, 1998, until June 12, 1998, the Company elected
to be taxed as an S corporation and, accordingly, net operating losses incurred
during that period are not available to be used by the Company to offset any
future income. The Company does not expect the conversion from an S corporation
to a C corporation to have a material impact on its financial condition.
F-11
<PAGE>
NET GROCER INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS
The Company is committed to make certain expenditures under various
operating leases and a strategic marketing agreement with Excite which expire
at various dates through 2003. Operating leases for office facilities and
warehouse space call for scheduled rent increases and increases in the
Company's proportionate share of real estate taxes and other expenses. The
strategic marketing agreement with Excite requires the Company to pay a set up
fee, an annual advertising fee and sponsorship fees in return for ongoing
programming, links, placements, advertisements and promotions. The
nonrefundable set up fee was paid and expensed in 1997. The Company expects to
expense the costs associated with the strategic marketing agreement over the
term of the agreement, primarily based on the rate of delivery of the required
number of click-throughs to be provided during the term of the agreement.
On April 14, 1998, the Company entered into a strategic marketing alliance
with Yahoo! for a two-year period, pursuant to which the Company became the
exclusive retailer of dry grocery products on the shopping page of the Yahoo!
Web site. The agreement requires the Company to pay an annual exclusivity fee,
advertising fee and sponsorship fee for ongoing programming, links, placements,
advertising and promotions. The Company expects to expense the costs associated
with the agreement over the contract term, primarily based on the rate of the
delivery of the specified number of click-throughs to be received during the
contract term.
On June 30, 1998, the Company entered into an exclusive strategic
marketing agreement with iVillage for a two year period, under which iVillage
is required to provide links from various channels and to deliver a certain
number of impressions from relevant areas of the iVillage network. Over the
term of the agreement, the Company is required to compensate iVillage for new
customers, purchases by repeat customers and click-throughs, from certain
iVillage sites, with certain minimum fixed quarterly amounts.
On July 1, 1998 the Company entered into a strategic marketing agreement
with AOL whereby the Company will be the exclusive marketer of supermarket
shopping delivery services on the AOL Service and AOL.COM, subject to certain
limited exceptions. The exclusivity period is 37 months for the AOL Service and
24 months for AOL.COM, each beginning July 1998. Under the agreement, the
Company is required to pay AOL certain fixed amounts over the next 24 months,
as well as certain contingent payments during the term of the Agreement based
on certain advertising and transaction revenues generated under the Agreement.
The Agreement also will require the Company to issue a warrant to purchase
3,121 shares of Common Stock exercisable at the IPO price upon the initiation
of the contract, as well as additional warrants during the term of the
agreement based upon performance. The fair value of the initial warrant
issuance, determined in accordance with FASB No. 123, will be accounted for as
a cost of the contract and will be amortized over the contract term. The fair
value of the performance based warrant will be expensed as earned by the
service provider.
The future minimum required payments pursuant to the above commitments,
exclusive of required payments for increases in the Company's proportionate
share of real estate taxes and other expenses, is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
- ---------------------
<S> <C>
1998 .............. $12,138,612
1999 .............. 11,352,738
2000 .............. 5,312,712
2001 .............. 436,559
2002 .............. 436,559
-----------
$29,677,180
===========
</TABLE>
6. STOCKHOLDERS' EQUITY
COMMON STOCK
In October 1996 the company issued 25,000, $.01 par value, shares of
common stock at $20 per share, resulting in proceeds to the Company of
$500,000. From January 1997 through July 1997 the Company
F-12
<PAGE>
NET GROCER INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
issued 75,000, $.01 par value, shares of common stock at $20 per share
resulting in cash proceeds to the Company of $1,500,000 and a receivable due
from stockholders of $450,000, which was settled prior to December 31, 1997. In
September 1997 10,000, $.01 par value, shares of common stock at $100 per share
were issued to stockholders resulting in proceeds to the Company of $1,000,000.
STOCK OPTION PLAN
In October 1996, the Company adopted its 1996 Stock Option Plan which
provides for the granting of an aggregate of 20,000 stock options to employees
or consultants. The stock options are exercisable at prices ranging from $20 to
$150 and vest over a period of 3 to 4 years. In January 1998, an additional
4,000 shares of common stock were authorized for issuance pursuant to the 1996
Stock Option Plan.
The Company applies APB 25 in accounting for its employee stock options
and, accordingly, recognizes compensation expense for the difference between
the fair value of the underlying common stock and the grant price of the option
at the date of grant. No compensation expense was recognized during 1997 and
1996. During January 1998, the Company issued 3,810 stock options, 2,300 of
which vested immediately and 1,510 vest over 31 months. Such stock options have
an exercise price of $150. The Company recorded compensation expense for the
difference between the exercise price and the deemed fair value of the
Company's common stock. Compensation expense is charged to operations over the
vesting period of the options. Compensation expense for the quarter ended March
31, 1998, amounted to $242,583. As of March 31, 1998, unearned compensation
amounted to $138,417.
If the accounting provisions of SFAS No. 123 were applied, the Company's
net loss would have been approximately $3,595,000 and $563,000 for the years
ended December 31, 1997 and 1996, respectively. The fair value of the options
granted during 1997 and 1996 was estimated to be approximately $43,000 and
$33,000, respectively. The Company utilized the Black-Scholes option pricing
model to estimate the value of such options based upon the following
assumptions: dividend yield of 0%, volatility of 0%, risk-free interest rate of
6% and expected life of three to four years. The estimated value of the options
will be amortized over a period of three to four years for pro forma accounting
purposes only.
The effect of applying SFAS No. 123 on 1997 and 1996 pro forma net loss,
is not necessarily representative of the effects on pro forma net loss for
future years due to, among other things, (1) the vesting period of the stock
options and (2) the fair value of additional stock options grants in future
years.
Additional information with respect to stock option activity is summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------- QUARTER ENDED
1996 1997 MARCH 31, 1998
-------------------- ----------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- ---------- ----------- ---------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ....... 10,100 $ 20.00 14,808 $ 29.38
Options granted at $20 ................. 10,100 $ 20.00 7,680 20.00 -- --
Options granted at $150 ................ -- -- 1,068 150.00 3,945 150.00
Options exercised ...................... -- -- (4,040) 20.00 -- --
------ ------- ------ ------- ------ -------
Outstanding at end of year ............. 10,100 $ 20.00 14,808 $ 29.38 18,753 $ 54.75
====== ======= ====== ======= ====== =======
Options exercisable at year end ........ 2,020 $ 20.00 668 $ 20.00 4,722 $ 83.33
====== ======= ====== ======= ====== =======
Weighted average contractual life of
shares outstanding at year end ........ 9.42 8.77 8.68
====== ====== ======
</TABLE>
F-13
<PAGE>
NET GROCER INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION EXERCISE
During 1997 an officer of the Company exercised 4,040 vested options. The
board of directors approved the exercise of the options at their original
stated exercise price of $20 per share totaling $80,800. A full recourse
promissory note was issued by the Company for the aggregate cost of the
exercised options. The note bears an interest rate of 7.0%. At December 31,
1997, the Company has accrued approximately $3,400 in interest income. The full
amount of the note receivable has been classified within stockholders' deficit
at December 31, 1997.
7. CONVERTIBLE DEBENTURES
During 1997 the Company issued a convertible debenture in an aggregate
principal amount of $5,000,000. The holder of this debenture has the right to
convert the debenture into 42,458 shares of common stock until such date as
defined in the Investment and Stockholders Agreement dated November 17, 1997.
On or after November 17, 2001, the Company has the right to require that the
holder exercise its conversion right. The debenture bears interest at a rate
equal to the prime rate as reported in the Wall Street Journal (8.5% at
December 31, 1997). At December 31, 1997 the Company has accrued approximately
$52,000 in interest expense. The debenture matures, and the principal balance
and all accrued interest through such time is payable at maturity during the
year ending 2002.
During March 1998, the Company issued a convertible debenture in an
aggregate principal amount of $7,000,000. The holder of this debenture has the
right to convert the debenture into 22,126 shares of common stock until such
date as defined in Investment and Stockholders Agreement. On or after March 30,
2002, the Company has the right to require that the holder exercise its
conversion right. The debenture bears interest at a rate equal to the prime
rate as reported in the Wall Street Journal (8.5% at March 31, 1998). The
debenture matures, and principle balance and all accrued interest through such
time is payable at maturity during the year ending 2003.
8. SUBSEQUENT EVENT
CAPITAL CONTRIBUTION
In June 1998, the Company issued 9,483 shares of common stock at $316.36
per share, generating proceeds to the Company of $3,000,000. The Company
offered these shares to existing, fully-paid stockholders of the Company as of
May 1, 1998, in proportion to their respective percentage ownership interests
in the common stock as of that date. Shares which were not subscribed for
pursuant to the primary subscription right of each stockholder, were allocated
to stockholders who exercised their right of oversubscription pursuant to the
offer, and then to certain existing and new stockholders.
F-14
<PAGE>
===============================================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED BY THE
COMPANY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN SO AUTHORIZED BY THE
COMPANY, THE SELLING STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE COMMON STOCK REFERRED TO BY THIS PROSPECTUS, NOR DOES
IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION TO SUCH PERSON IN ANY
JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY
BE MADE. NEITHER DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Forward Looking Statements ............... 2
Prospectus Summary ....................... 3
Risk Factors ............................. 6
Use of Proceeds .......................... 15
Dividend Policy .......................... 15
Capitalization ........................... 16
Dilution ................................. 17
Selected Financial Data .................. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ......................... 19
Business ................................. 24
Management ............................... 36
Certain Transactions ..................... 42
Principal Stockholders ................... 44
Description of Capital Stock ............. 46
Shares Eligible for Future Sale .......... 49
Underwriting ............................. 50
Legal Matters ............................ 51
Experts .................................. 51
Available Information .................... 51
Index to Financial Statements ............ F-1
</TABLE>
-------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
===============================================================================
===============================================================================
SHARES
[LOGO]
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
CIBC OPPENHEIMER
VOLPE BROWN WHELAN &
COMPANY
, 1998
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereby. All the amounts
shown are estimated, except the SEC registration fee, the NASD filing fee and
the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC Registration Fee ....................... $11,195
NASD Filing Fee ............................ 4,295
Nasdaq National Market Listing Fee ......... *
Printing Expenses .......................... *
Legal Fees and Expenses .................... *
Accounting Fees and Expenses ............... *
Blue Sky Expenses and Counsel Fees ......... *
Transfer Agent and Registrar Fees .......... *
Miscellaneous .............................. *
-------
Total ................................... $ *
=======
</TABLE>
- ----------
* To be provided.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the General Corporation Law of the State of Delaware
("DGCL") provides that a Delaware corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact that
he acted in any of the capacities set forth above, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the corporation unless and only to the extent that the court in which such
action or suit was brought shall determine that despite the adjudication of
liability, such person is fairly and reasonably entitled to be indemnified for
such expenses which the court shall deem proper.
Section 145 of the DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of
any other rights to which the indemnified party may be entitled; and that
II-1
<PAGE>
the corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or enterprise, against any liability asserted
against him or incurred by him in any such capacity or arising out of his
status as such, whether or not the corporation would have the power to
indemnify him against such liabilities under such Section 145.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director: (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for
any transaction from which the director derived an improper personal benefit.
Article Eighth of the Company's Certificate of Incorporation, as amended,
contains substantially the same provisions for indemnification as those
contained in Section 145 of the DGCL. Reference is made to the Certificate of
Incorporation and the By-Laws filed as Exhibits 3.1 and 3.2, respectively.
Article Ninth of the Company's Certificate of Incorporation, as amended,
states that no director of the Company shall be personally liable to the
Company or any of its stockholders for monetary damages for breach of fiduciary
duty owed to the Company or its stockholders owing to such director's position
as a director of the Company.
The Company intends to enter into indemnification agreements with its
current directors and executive officers. The Company intends to insure its
directors and officers against losses arising from any claim against them as
such for wrongful acts or omission, subject to certain limitations.
Under Section of the Underwriting Agreement, the underwriters are
obligated, under certain circumstances, to indemnify officers, directors and
controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act of 1933. Reference is made to the form of
Underwriting Agreement filed as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception in October 1995, the Company has issued and sold
unregistered securities as follows (all share numbers reflect the 10 for 1
stock split effected September 2, 1997):
From October 1996 to July 1997, the Company issued its initial 100,000
shares of Common Stock at $20.00 per share to 12 stockholders for total
consideration of $2,000,000.
In May 1997, the Company issued 4,040 shares of Common Stock to Daniel
Nissan, at a price of $20 per share, upon the exercise by Mr. Nissan of an
option to purchase Common Stock.
In September 1997, the Company issued an aggregate of 10,000 shares of
Common Stock at $100 per share for total consideration of $1,000,000 in cash.
In November 1997, the Company issued a convertible debenture in an
aggregate principal amount of $5,000,000 to Cendant Corporation ("Cendant")
(formerly CUC International Inc.), convertible into 42,458 shares of Common
Stock.
In March 1998, the Company issued a convertible debenture in an aggregate
principal amount of $7,000,000 to Cendant, convertible into 22,126 shares of
Common Stock.
In June 1998, the Company issued and sold 9,483 shares of Common Stock at
$316.36 per share to 23 investors in a private offering, for total
consideration of approximately $3,000,000.
In July 1998, in connection with a marketing agreement entered into by the
Company and America Online, Inc. ("AOL"), the Company issued to AOL a warrant
to purchase 18,726 shares of Common Stock at a price equal to the lowest price
per share paid by any investor in the next financing event (as defined in the
warrant).
II-2
<PAGE>
In July 1998, the Company entered into a Common Stock and Warrant
Subscription Agreement with AOL pursuant to which, in exchange for payment of
$2,000,000, the Company will issue to AOL a number of shares of Common Stock
determined by dividing $2,000,000 by the initial public offering price of the
Common Stock. The Company also is commited pursuant to such agreement to issue
to AOL a warrant to purchase a number of shares of Common Stock equal to 50% of
the shares purchased above at an exercise price equal to 175% of the initial
public offering price of the Common Stock.
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales of Common Stock, warrants and convertible debentures
were made in reliance upon the exemption from registration set forth in Section
4(2) of the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation*
3.2 Amended and Restated By-Laws*
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Fulbright & Jaworski L.L.P.*
10.1 Sublease Agreement between LIT, Inc. and the Company, dated October 21, 1997, for
office space at 333 Seventh Avenue, New York
10.2 Agreement of Lease, between 1112 CR NB, L.L.C. and the Company, dated December 16,
1997, for premises known as 1112 Corporate Road, North Brunswick, NJ
10.3 Lease Agreement between Leasing Edge Corporation and the Company, dated March 1,
1998, for office equipment
10.4 Employment Agreement between the Company and Daniel Nissan, dated May 20, 1996*
10.5 Employment Agreement between the Company and Richard D. Falcone, dated January 15,
1997
10.6 Employment Agreement between the Company and Jeffrey Steinberg, dated February 1,
1997
10.7 Net Grocer Inc. 1996 Stock Option Plan*
10.8 Form of option agreement relating to Net Grocer Inc. 1996 Stock Option Plan*
10.9 Net Grocer Inc. Non-Employee Directors' Stock Option Plan*
10.10 Form of option agreement relating to Net Grocer Inc. Non-Employee Directors' Stock
Option Plan*
10.11 Marketing Agreement between the Company and Cendant Corporation (formerly CUC
International Inc.), dated November 17, 1997+
10.12 Investment and Stockholders Agreement between the Company and Cendant Corporation
(formerly CUC International Inc.), dated November 17, 1997
10.13 Convertible Debenture issued by the Company, dated as of November 17, 1997
10.14 Convertible Debenture issued by the Company, dated as of March 30, 1998
10.15 Sponsorship Agreement, between the Company and Excite, Inc., dated December 15, 1997+
10.16 Advertising Agreement, between the Company and Yahoo! Inc., dated April 14, 1998+
10.17 Interactive Marketing Agreement, between the Company and America Online, Inc., dated
as of July 1, 1998+
10.18 Sponsorship Agreement, between the Company and iVillage, Inc., dated as of May 31,
1998+
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------------------------
<S> <C>
10.19 Common Stock and Warrant Subscription, dated July 28, 1998, between the Company and
America Online, Inc.*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Fulbright & Jaworski L.L.P. (to be included in Exhibit 5.1)*
24.1 Power of Attorney (included in signature page)
27 Financial Data Schedule
</TABLE>
- ----------
* To be filed by amendment
+ Confidential treatment requested.
(b) Financial Statement Schedules. The following financial statement
schedules are filed herewith:
Schedule II Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not required or are not
applicable or the information is included in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York, on July 30,
1998.
NET GROCER INC.
By: /s/ Daniel Nissan
------------------------------------
Daniel Nissan
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below and on the following page constitutes and appoints each of Uri
Evan and Daniel Nissan as his true and lawful attorney-in-fact and agent, each
acting alone, with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, including post-effective amendments,
and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent 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, and hereby ratifies and confirms all that any said
attorney-in-fact and agent, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Uri Evan Chairman of the Board and Director July 30, 1998
- -------------------------
Uri Evan
/s/ Daniel Nissan President, Chief Executive Officer and July 30, 1998
- ------------------------- Director (Principal Executive Officer)
Daniel Nissan
/s/ Richard D. Falcone Executive Vice President, Chief Financial July 30, 1998
- ------------------------- Officer, Chief Operating Officer, Secretary
Richard D. Falcone and Treasurer (Principal Financial and
Accounting Officer)
/s/ Frederick R. Adler Director July 28, 1998
- -------------------------
Frederick R. Adler
/s/ Philip R. Chapman Director July 30, 1998
- -------------------------
Philip R. Chapman
/s/ Yoram Evan Director July 30, 1998
- -------------------------
Yoram Evan
/s/ Samuel L. Katz Director July 30, 1998
- -------------------------
Samuel L. Katz
/s/ Scot W. Melland Director July 28, 1998
- -------------------------
Scot W. Melland
</TABLE>
II-5
<PAGE>
NETGROCER, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
AND RESERVES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
COLUMN COLUMN COLUMN COLUMN COLUMN
A B C D E
- -------------------------------------------------------------------------------------------------------------------
ADDITIONS
=================================
BALANCE AT CHARGED BALANCE
BEGINNING OF TO COSTS CHARGED TO AT END
DESCRIPTION PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year end December 31, 1997
Inventory valuation reserves $-- $45,000 -- -- $45,000
Allowance for accounts
receivable $-- 1,000 -- -- $ 1,000
Year end December 31, 1996:
Not Applicable
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
- -------- -----------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Certificate of Incorporation*
3.2 Amended and Restated By-Laws*
4.1 Specimen Common Stock Certificate*
5.1 Opinion of Fulbright & Jaworski L.L.P.*
10.1 Sublease Agreement between LIT, Inc. and the Company, dated October 21, 1997, for
office space at 333 Seventh Avenue, New York
10.2 Agreement of Lease, between 1112 CR NB, L.L.C. and the Company, dated December 16,
1997, for premises known as 1112 Corporate Road, North Brunswick, NJ
10.3 Lease Agreement between Leasing Edge Corporation and the Company, dated March 1,
1998, for office equipment
10.4 Employment Agreement between the Company and Daniel Nissan, dated May 20, 1996*
10.5 Employment Agreement between the Company and Richard D. Falcone, dated January 15,
1997
10.6 Employment Agreement between the Company and Jeffrey Steinberg, dated February 1,
1997
10.7 Net Grocer Inc. 1996 Stock Option Plan*
10.8 Form of option agreement relating to Net Grocer Inc. 1996 Stock Option Plan*
10.9 Net Grocer Inc. Non-Employee Directors' Stock Option Plan*
10.10 Form of option agreement relating to Net Grocer Inc. Non-Employee Directors' Stock
Option Plan*
10.11 Marketing Agreement between the Company and Cendant Corporation (formerly CUC
International Inc.), dated November 17, 1997+
10.12 Investment and Stockholders Agreement between the Company and Cendant Corporation
(formerly CUC International Inc.), dated November 17, 1997
10.13 Convertible Debenture issued by the Company, dated as of November 17, 1997
10.14 Convertible Debenture issued by the Company, dated as of March 30, 1998
10.15 Sponsorship Agreement, between the Company and Excite, Inc., dated December 15, 1997+
10.16 Advertising Agreement, between the Company and Yahoo! Inc., dated April 14, 1998+
10.17 Interactive Marketing Agreement, between the Company and America Online, Inc., dated
as of July 1, 1998+
10.18 Sponsorship Agreement, between the Company and iVillage, Inc., dated as of May 31,
1998+
10.19 Common Stock and Warrant Subscription, dated July 28, 1998, between the Company and
America Online, Inc.*
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Fulbright & Jaworski L.L.P. (to be included in Exhibit 5.1)*
24.1 Power of Attorney (included in signature page)
27 Financial Data Schedule
</TABLE>
- ----------
* To be filed by amendment
+ Confidential treatment requested.
<PAGE>
SUBLEASE AGREEMENT
The parties agree as follows:
DATE OF THIS October 21, 1997
SUBLEASE:
PARTIES TO THIS Overtenant: LIT, Inc.
SUBLEASE: Address for notices: 21 Penn Plaza,
a/k/a 360 West 31st Street
New York, NY 10019
You, the Undertenant: Net Grocer, Inc.
Address for notices: 11th Floor, 333 Seventh
Avenue
New York, NY 10001
If there are more than one Overtenant or
Undertenant, the words "Overtenant" and
"Undertenant" used in this Sublease includes
them.
INFORMATION FROM OVER- Landlord: 333 7th Ave. Realty Co.
LEASE: Address for notices: 440 Park Avenue South
New York, NY
Overtenant:
Address for notices:
Date of Over-Lease: February 5, 1992
Term: from: February 5, 1992
to: February 28, 2005
A copy of the Over-Lease is attached as an
important part of the Sublease.
TERM: 1. Three years: Zero months:
Beginning: October 1997
ending: November 30, 2000
PREMISES RENTED: 2. All space on the 11th floor
directly accessible from existing glass
door entrance way excluding only building's
common areas measuring approximately 9,000
square feet (the "Premises") in the
building located at 333 Seventh Avenue.
USE OF PREMISES: 3. The premises may be used for general and
executive offices, sales service and
distribution of Undertenant's products
only.
RENT: 4. See Rider
SECURITY: 5.
AGREEMENT TO LEASE AND 6. Overtenant sublets the premises to you, the
PAY RENT: Undertenant, for the Term. Overtenant
states that it has the authority to do so.
You, the Undertenant, agree to pay the Rent
and other charges as required in the
Sublease. You, the Undertenant, agree to do
everything required of you in the Sublease.
NOTICES: 7. All notices in the Sublease shall be sent
by certified mail, "return receipt
requested", by a nationally recognized
overnight courier or hand delivered with
signed receipt.
SUBJECT TO: 8. The Sublease is subject to the Over-Lease.
It is also subject to any agreement to
which the Over-Lease is subject. You, the
Undertenant, state that you have read and
initialed the Over-Lease and will not
violate it in any way.
OVERTENANT'S DUTIES: 9. The Over-Lease describes the Landlord's
duties. The Overtenant is not obligated to
perform the Landlord's duties. If the
Landlord fails to perform, you, the
Undertenant, must send the Overtenant a
notice. Upon receipt of the notice, the
Overtenant shall then promptly notify the
Landlord and demand that the Over-Lease
agreements be carried out. The Overtenant
shall continue the demands until the
Landlord performs.
CONSENT: 10. If the Landlord's consent to the Sublease
is required, this consent must be received
within days from the date of this Sublease.
If the Landlord's consent is not received
within this time, the Sublease will be
terminable at any time thereafter by either
party. In such event all parties are
automatically released and all payments
shall be refunded to you, the Undertenant.
ADOPTING THE 11. The provisions of the Over-Lease are part
OVER-LEASE AND of this Sublease. All the provisions of the
EXCEPTIONS: Over-Lease applying to the Overtenant are
binding on you, the Undertenant, except
these:
a.) These numbered paragraphs of the
Over-Lease shall not apply: 1, 47, 66,
86, 96(k), 100, 125, 126, 127, 128,
133, 135, 29, 30, 42, 51, 75, 81 and
82,
b.) These numbered paragraphs of the
Over-Lease are changed as follows: and
except to the extent that they are
inapplicable or modified by the
provisions of this Sublease.
<PAGE>
NO AUTHORITY: 12. You, the Undertenant, have no authority to
contact or make any agreement with the
Landlord about the premises or the
Over-Lease. You, the Undertenant, may not
pay rent or other charges to the Landlord,
but only to the Overtenant.
SUCCESSORS: 13. Unless otherwise stated, the Sublease is
binding on all parties who lawfully succeed
to the rights or take the place of the
Overtenant, or you, the Undertenant.
Examples are an assign, heir, or a legal
representative such as an executor or your
will or administrator of your estate.
CHANGES: 14. This sublease can be changed only by an
agreement in writing signed by the parties
to the Sublease.
SIGNATURES: OVERTENANT: LIT, Inc.
/s/ Gadi Rosenfeld
-----------------------------------------
-----------------------------------------
You, the UNDERTENANT: Net Grocer, Inc.
/s/ Daniel Nissan
Witness: -----------------------------------------
/s/ Richard D. Falcone Daniel Nissan
- ----------------------------- -----------------------------------------
STATE OF COUNTY OF ss:
On 19 before me personally appeared
to me known and known to me to be the individual(s) described in and who
executed the foregoing Sublease, and duly acknowledged to me that he executed
the same.
-----------------------------------------
GUARANTY OF PAYMENT WHICH IS PART OF THE SUBLEASE
DATE OF GUARANTY: 19
GUARANTOR
AND ADDRESS:
REASON FOR 1. I know that the Overtenant would not rent
GUARANTY: the premises to the Undertenant unless I
guarantee Undertenant's performance. I have
also requested the Overtenant to enter into
the Sublease with the Undertenant. I have a
substantial interest in making sure that
the Overtenant rents the premises to the
Undertenant.
GUARANTY: 2. The following is my Guaranty:
I guaranty the full performance of the
Sublease by the Undertenant. This Guaranty
is absolute and without any condition. It
includes, but is not limited to, the
payment of rent and other money charges.
In addition, I agree to these other terms:
CHANGES IN 3. This Guaranty will not be affected by any
SUBLEASE HAVE NO change in the Sublease, whatsoever. This
EFFECT: includes, but is not limited to, any
extension of time or renewals. The Guaranty
will be binding even if I am not a party to
these changes.
WAIVER OF NOTICE: 4. I do not have to be informed about any
failure of performance by Undertenant. I
waive notice of non-payment or
nonperformance.
PERFORMANCE: 5. If the Undertenant fails to perform under
the Sublease, the Overtenant may require me
to perform without first demanding that the
Undertenant perform.
<PAGE>
WAIVER OF JURY TRIAL: 6. I give up my right to trial by jury in any
claim related by to the Sublease or this
Guaranty.
CHANGES: 7. This Guaranty of payment and performance
can be changed only by written agreement
signed by all parties to the Sublease and
Guaranty.
SIGNATURES: WITNESS: GUARANTOR:
----------------------- -----------------------
-2-
<PAGE>
RIDER to SUBLEASE AGREEMENT
between
LIT, Inc., as Overtenant, and NetGrocer, Inc., as Undertenant
dated October 21, 1997
This RIDER to SUBLEASE AGREEMENT between LIT, Inc., as Overtenant, and
NetGrocer, Inc., as Undertenant, dated October 21, 1997 ("Rider") amends and
modifies the Sublease Agreement entered into by the above parties, as follows:
1. This Sublease Agreement is subject and subordinate to the Overlease
dated February 5, 1992, a copy of which is attached hereto and made a
part hereof, and to the matters to which that Overlease is or shall be
subordinate, and in the event of termination, reentry, or dispossess
by Landlord under that Overlease, Landlord may, at its option take
over all of the right, title and interest of Undertenant to attorn to
Landlord pursuant to then executory provisions of such Sublease,
except that Landlord shall not: (i) be liable for any previous act or
omission of Overtenant under such Sublease; (ii) be subject to any
offset, not expressly provided in such Sublease, that theretofore
accrued to such Undertenant against Overtenant; or (iii) be bound by
any previous modification of such Sublease or by any previous
prepayment of more than one month's fixed rent or any additional rent
then due.
2. The Parties represent that they have dealt with no broker in
connection with this transaction other than Mr. Jeffrey Zund of
Kenneth Zund Realty Associates, Inc. and Mr. Bruce Rothman of Julien
Studley, Inc. and that Overtenant is solely responsible for the
payment of any and all brokerage fees to those brokers pursuant to a
separate agreement to which Undertenant is not a party. The Parties
are entering into this Sublease Agreement in reliance on this
representation by each other. The Overtenant agrees to indemnify and
hold the Undertenant harmless from any claim made by either of the
above brokers against the Undertenant relating to this Sublease
Agreement, and the Parties agree to indemnify and hold each other
harmless from any claim made by any other broker with whom they have
dealt and arising out of a breach of the foregoing representation.
3. The Overtenant's identification number is: 13-3500362. The
Undertenant's identification number is: 13-3873142.
4. This Sublease Agreement is subject to the receipt of Landlord's
consent under Article 96 of the Overlease.
5. Par. 4 of the printed Sublease Agreement form is replaced with the
following:
Rent: 4. The rent for the term of the first 12 months ending
September 30, 1998 is $13,125.00 per calendar month. You, the
Undertenant, will
<PAGE>
RIDER to SUBLEASE AGREEMENT
between LIT, Inc., as Overtenant, and NetGrocer, Inc., as Undertenant
October __, 1997
pay this rent to the Overtenant in equal monthly payments of
$13,125.00. Payments shall be paid in advance on the first
day of each month during the term of the Sublease ending
November 30, 1998.
The yearly rent for the second 12 calendar months of the term
of the Sublease is $163,800.00. You, the Undertenant, will
pay this yearly rent to the Overtenant in twelve equal
monthly payments of $13,650.00. Payments shall be paid in
advance on the first day of each month during the second
calendar year of the Term.
The yearly rent for the third 12 calendar months of the term
of the Sublease is $170,352.00. You, the Undertenant, will
pay this yearly rent to the Overtenant in twelve equal
monthly payments of $14,196.00. Payments shall be paid in
advance on the first day of each month during the third
calendar year of the Term.
In addition, at the time of execution of the Sublease
Agreement, Undertenant shall pay to Overtenant rent for the
month of November, 1997 and shall prepay rent for the month
of November, 2000.
6. Rent Abatement:
Provided that the Undertenant is not in breach of any provision of
this Sublease Agreement beyond any applicable notice and grace period, the
Overtenant will extend to the Undertenant the following concessions:
a. Rent for the month of February, 1998 shall be abated; and
b. Rent for the month of February, 1999 shall be abated.
7. Expansion into Contiguous Space:
a. Commencing as of December 1, 1997, or as soon thereafter as the
contiguous space of approximately 2,000 square feet currently occupied by Sal
Albanese, C.P.A., on the 11th floor of 333 Seventh Avenue, immediately outside
the glass doorway to the original demised premises and being the balance of the
space demised to Overtenant pursuant to the Overlease (the "Additional
Premises") is delivered to the Undertenant (the "Additional Effective Date"),
this Sublease is amended as follows:
-2-
<PAGE>
RIDER to SUBLEASE AGREEMENT
between LIT, Inc., as Overtenant, and NetGrocer, Inc., as Undertenant
October __, 1997
(1) the Premises shall consist both of:
(a) the Original Premises, and
(b) the Additional Premises,
and the term "Premises" in the Sublease, including in this Rider, thenceforth
shall be deemed to include both the Original Premises and the Additional
Premises.
b. As of the Additional Effective Date, the Sublease is hereby amended
as follows:
(1) With respect to the Additional Premises only:
(a) until November 1, 1998, rent shall be payable to the
Overtenant in equal monthly payments of $2,916.67. Payments
shall be paid in advance on the first day of each month during
that period;
(b) the yearly rent for the second 12 calendar months of the term
of the Sublease is $36,400.00. You, the Undertenant, will pay
this yearly rent to the Overtenant in twelve equal monthly
payments of $3,033.33. Payments shall be paid in advance on
the first day of each month during the second calendar year of
the Term.
(c) the yearly rent for the third 12 calendar months of the term
of the Sublease is $37,856.00. You, the Undertenant, will pay
this yearly rent to the Overtenant in twelve equal monthly
payments of $3,154.67. Payments shall be paid in advance on
the first day of each month during the third calendar year of
the Term.
If Overtenant is unable to give possession of the Premises or the
Additional Premises on the Effective or the Additional Effective Date, as the
case may be, because of the holding over or retention of possession of any
tenant, subtenant, undertenant or occupant, or for any other reason, Overtenant
shall not be subject to any liability for failure to give possession on said
date and the validity of the Sublease, or of this provision, shall not be
impaired under such circumstances, nor shall the same be construed in any way
to extend the term of the Sublease. In addition, as respects the Additional
Premises only, in the event that Overtenant is unable to give possession of the
Additional Premises on the Additional Effective Date, as above, and such
inability
-3-
<PAGE>
RIDER to SUBLEASE AGREEMENT
between LIT, Inc., as Overtenant, and NetGrocer, Inc., as Undertenant
October __, 1997
shall continue beyond January 15, 1998, then for each day that possession is
delayed beyond January 15, 1998, fixed rent for the Additional Premises shall
be abated to the extent of one day's rent that would otherwise have been
payable as to the Additional Premises. The provisions of this paragraph are
intended to constitute "an express provision to the contrary" within the
meaning of Section 223-a of the New York Real Property Law.
If the Commencement Date of this Sublease shall be a date other than
the first day of a calendar month, then the fixed rent for any such partial
calendar month during which commencement of the Sublease shall occur shall be
prorated on a per-diem basis. If the Additional Commencement Date shall be a
date other than the first day of a calendar month, then the fixed rent for any
such partial calendar month during which the Additional Commencement Date shall
occur shall be prorated on a per-diem basis.
Notwithstanding the foregoing, Overtenant agrees to use reasonable
efforts to gain possession of the Premises, or the Additional Premises, as the
case may be, on the Effective Date or the Additional Effective Date, as the
case may be.
8. Option to Renew until February 28, 2005:
a. Overtenant grants to Undertenant a right to extend the term of
Sublease to February 28, 2005, provided, however, that during
such extended term, the rent for the Original Premises shall be
as follows:
(1) The yearly rent for the first 12 calendar months of the
extended term of the Sublease, if any, will be $177,166.08.
You, the Undertenant, would pay this yearly rent to the
Overtenant in twelve equal monthly payments of $14,763.83.
Payments would be paid in advance on the first day of each
month during the first calendar year of the extended Term.
(2) The yearly rent for the second 12 calendar months of the
extended term of the Sublease, if any, will be $184,252.72.
You, the Undertenant, would pay this yearly rent to the
Overtenant in twelve equal monthly payments of $15,354.39.
Payments would be paid in advance on the first day of each
month during the second calendar year of the extended Term.
(3) The yearly rent for the third 12 calendar months of the
extended term of the Sublease, if any, is $191,622.83. You,
the Undertenant,
-4-
<PAGE>
RIDER to SUBLEASE AGREEMENT
between LIT, Inc., as Overtenant, and NetGrocer, Inc., as Undertenant
October __, 1997
would pay this yearly rent to the Overtenant in twelve equal
monthly payments of $15,968.57. Payments would be paid in
advance on the first day of each month during the third
calendar year of the extended Term.
(4) The yearly rent for the fourth 12 calendar months of the
extended term of the Sublease, if any, is $199,287.75. You,
the Undertenant, would pay this yearly rent to the
Overtenant in twelve equal monthly payments of $16,607.31.
Payments would be paid in advance on the first day of each
month during the fourth calendar year of the extended Term.
(5) The rent for the remaining 4 months of the extended term of
the Sublease, if any, after the first four years of the
extended term of the Sublease, from October 1, 2004 to
February 28, 2005, would be $86,358.00. You, the
Undertenant, would pay this rent to the Overtenant in five
equal monthly payments of $17,271.60. Payments would be paid
in advance on the first day of each month during the
extended Term.
b. Provided that Overtenant has delivered possession of the
Additional Premises to the Undertenant, the fixed rent for the
Additional Premises shall be as follows:
(1) The yearly rent for the first 12 calendar months of the
extended term of the Sublease, if any, will be $39,370.24.
You, the Undertenant, would pay this yearly rent to the
Overtenant in twelve equal monthly payments of $3,280.85.
Payments would be paid in advance on the first day of each
month during the first calendar year of the extended Term.
(2) The yearly rent for the second 12 calendar months of the
extended term of the Sublease, if any, will be $40,945.05.
You, the Undertenant, would pay this yearly rent to the
Overtenant in twelve equal monthly payments of $3,412.09.
Payments would be paid in advance on the first day of each
month during the second calendar year of the extended Term.
(3) The yearly rent for the third 12 calendar months of the
extended term of the Sublease, if any, is $42,582.85. You,
the Undertenant, would pay this yearly rent to the
Overtenant in twelve equal
-5-
<PAGE>
RIDER to SUBLEASE AGREEMENT
between LIT, Inc., as Overtenant, and NetGrocer, Inc., as Undertenant
October __, 1997
monthly payments of $3,548.57. Payments would be paid in
advance on the first day of each month during the third
calendar year of the extended Term.
(4) The yearly rent for the fourth 12 calendar months of the
extended term of the Sublease, if any, is $44,286.17. You,
the Undertenant, would pay this yearly rent to the
Overtenant in twelve equal monthly payments of $3,690.51.
Payments would be paid in advance on the first day of each
month during the fourth calendar year of the extended Term.
(5) The rent for the remaining 4 months of the extended term of
the Sublease, if any, after the first four years of the
extended term of the Sublease, from October 1, 2004 to
February 28, 2005, would be $19,190.65. You, the
Undertenant, would pay this rent to the Overtenant in five
equal monthly payments of $3,838.13. Payments would be paid
in advance on the first day of each month during the
extended Term.
9. In addition, Undertenant shall pay as additional rent the following:
a. water charges in the amount of $75.00 per month;
b. sprinkler charges in the amount of $75.00 per month; and
c. Undertenant's share (which Overtenant believes to be and
represents is 2.78% in total as to the Premises and Additional
Premises combined, and, as allocated as between the Premises and
the Additional Premises, would be 2.27455% as to the Premises and
0.50545% as to the Additional Premises), pursuant to Overtenant's
lease with Landlord, of any and all increases in Real Estate
Taxes above the Real Estate Taxes for the 1997/1998 New York City
fiscal year (hereinafter referred to as the "Base Tax Year")
imposed on the Property with respect to every Tax Year or part
thereof during the term of this Sublease, whether any such
increase results from a higher tax rate or an increase in the
assessed valuation of the Property, or both. "Property" shall
mean the land and building, including any "air rights," of which
the Premises (Original Premises and Additional Premises) are a
part. "Real Estate Taxes" shall mean taxes and assessments
imposed upon the Property, including any special assessments
imposed thereon for any purpose whatsoever, and also including
taxes payable by Landlord to a ground lessor with respect
-6-
<PAGE>
RIDER to SUBLEASE AGREEMENT
between LIT, Inc., as Overtenant, and NetGrocer, Inc., as Undertenant
October __, 1997
thereto. If due to change in the method of taxation, any
franchise, income, profit, other tax, however designated, shall
be levied against Landlord's interest in the Property in whole or
in part for or in lieu of any tax which would otherwise
constitute Real Estate Taxes, such change in method of taxation
shall be included in the term "Real Estate Taxes" for purposes
hereof. "Tax Year" shall mean each period of twelve months
commencing on the first day of July, subsequent to the Base Tax
Year, in which occurs any part of the term of this Sublease or
such other period of twelve months occurring during the term of
this Sublease as hereafter may be duly adopted as the fiscal year
for real estate tax purposes of the City of New York. All such
payments shall be appropriately pro-rated for any partial Tax
Years occurring during the first and last years of the term of
this Sublease. A copy of the Tax Bill of the City of New York
shall be sufficient evidence of the amount of Real Estate Taxes
and calculation of the amount to be paid by Undertenant.
Only Landlord shall be eligible to institute tax reduction or other
proceedings to reduce the assessed valuation. Should Landlord be successful in
any such reduction proceeding and obtain a rebate for periods during which
Undertenant has paid Undertenant's share of increase, Overtenant shall return
to Undertenant Undertenant's pro-rata share of such rebate except that
Undertenant may not obtain any portion of the benefits which may accrue to
Overtenant from any reduction in Real Estate Taxes for any Tax Year below those
imposed in the Base Tax Year.
The amount due under this provision shall be collected as additional
rent without set-off or deduction and shall be paid in the following manner:
Any adjustment in rent occurring by reason of the Tax Year concerned
and, after Overtenant shall have furnished Undertenant with a statement setting
forth the real estate taxes for the tax year concerned, all monthly
installments of rent shall reflect one-twelfth (1/12th) of the annual amount of
such adjustment until a new adjustment becomes effective pursuant to the
provisions of this paragraph.
If any tax statement is furnished to the Undertenant after the
commencement of the effective date of any such adjustment, there shall be
promptly paid by Undertenant to Overtenant an amount equal to the portion of
such adjustment allocable to that part of the Tax Year which shall have elapsed
prior to the first day of the calendar month next succeeding the calendar month
in which said statement was furnished to Undertenant.
-7-
<PAGE>
RIDER to SUBLEASE AGREEMENT
between LIT, Inc., as Overtenant, and NetGrocer, Inc., as Undertenant
October __, 1997
The Overtenant's failure during the Sublease term to prepare and
deliver any of the tax bills or Overtenant's failure to make a demand, shall
not in any way cause Overtenant to forfeit or surrender its right to collect
any of the additional rent which may have become due during the term of this
Sublease. The Undertenant's liability for the amounts due under this paragraph
shall survive the expiration of the term for a period of no more than two (2)
years.
10. Electric Power Provision and Consumption:
Notwithstanding anything to the contrary that may be provided
elsewhere, Undertenant is solely responsible for the payment of all costs and
expenses to provide electrical service to the Premises, including without
limitation, costs of maintenance, repair and operation.
11. Overtenant's Work and Original Premises and Additional Premises in
As-Is Condition:
Undertenant agrees to take the Premises and Additional Premises in
"as-is" condition, except that Overtenant agrees to repair or replace broken or
missing ceiling tiles, if any, existing at the time of delivery of the Premises
or Additional Premises, as the case may be. Overtenant also agrees to repair
any damaged walls, and to clean any soiled carpet, in the Premises or
Additional Premises, as the case may be, existing at the time of delivery.
12. Access to and Control of Supplemental Air-Conditioning:
Overtenant represents that Undertenant shall have access to the
supplemental air-conditioning servicing the Premises, and that the heating and
air-conditioning servicing the Premises can be controlled from within the
Premises.
13. Square Footage [47]:
The Undertenant does hereby acknowledge that no representations have
been made to the Undertenant by the Overtenant or by anyone acting on behalf of
the Overtenant as to the amount of square footage in the Premises. The
Undertenant has inspected the demised premises and relies upon its own judgment
in computing the square footage of both the Original Premises and the
Additional Premises.
-8-
<PAGE>
RIDER to SUBLEASE AGREEMENT
between LIT, Inc., as Overtenant, and NetGrocer, Inc., as Undertenant
October __, 1997
14. Obligation to Pay Rent and Other Charges [81]:
The Undertenant's obligation to pay basic rent, additional rent and
any other charges hereunder shall survive the expiration or sooner termination
of this Sublease.
15. Additional Rent [82]:
Any charges payable in addition to the basic rent and/or additional
rent specified in this Sublease shall be deemed additional rent hereunder.
16. Maintenance and Repair of Air-conditioning Equipment [86]:
The Undertenant covenants and agrees to obtain and maintain at
Undertenant's sole cost and expense an air-conditioning maintenance contract
for the maintenance of the heating unit and air-cooling units, all of which
serve only the demised premises, with a reputable air-conditioning contractor
acceptable to the Overtenant, at all times during the term of this Sublease,
and to promptly deliver a copy of such contract to the Overtenant.
17. Commencement of Term [127]:
The term of this Sublease shall commence on the date when the
Undertenant shall occupy the Original Premises or when said premises is ready
for occupancy by the Undertenant in accordance with par. 10 and Overtenant so
informs Undertenant and tenders delivery of possession thereof.
18. Agreement to Execute Commencement Memorandum [128]:
The Overtenant and the Undertenant agree to execute a memorandum
setting forth the date of Commencement of this Sublease.
19. Performance by Overtenant:
Notwithstanding any provision of this Sublease to the contrary, as to
obligations contained in this Sublease by incorporation by reference of the
provisions of the Overlease, Overtenant shall have the obligation to pay the
rent and the additional rent due under the Overlease and as to Overtenant's
obligations under the Overlease, upon request of the Undertenant, to request
the Landlord under the Overlease to observe and perform the Landlord's
obligations under the Overlease or, to permit the Undertenant to request or
require that the same be done in the Undertenant's name and stead.
-9-
<PAGE>
RIDER to SUBLEASE AGREEMENT
between LIT, Inc., as Overtenant, and NetGrocer, Inc., as Undertenant
October __, 1997
20. Expiration Date of Contiguous Lease:
Overtenant hereby represents and warrants that (i) the term of the
existing lease between Overtenant and Sal Albanese, C.P.A., dated November,
1992, with respect to the Additional Premises (the "Contiguous Lease") expires
on November 30, 1997, and (ii) Overtenant shall not extend the term of the
Contiguous Lease.
Dated: October __, 1997
LIT, Inc. NETGROCER, INC.
/s/ Gadi Rosenfeld /s/ Daniel Nissan
- ----------------------------- -----------------------------
By: Gadi Rosenfeld By: Daniel Nissan
- ----------------------------- -----------------------------
Its: President Its: President
-10-
<PAGE>
AGREEMENT OF LEASE
FOR AND IN CONSIDERATION of the mutual covenants herein contained, the
parties hereto do hereby agree as follows:
1. INCORPORATED TERMS. The following terms are incorporated by
reference into this Agreement:
(a) DATE OF LEASE:
December 16, 1997
(b) NAME AND ADDRESS OF LANDLORD:
1112 CR NB. L.L.C.,
a New Jersey limited liability company
c/o Sudler Management Company, L.L.C.
Morris Corporate Center I
300 Interpace Parkway
Parsippany, New Jersey 07054-1100
(c) NAME AND ADDRESS OF TENANT:
NET GROCER, INC.
a Delaware corporation
333 Seventh Avenue (11th Floor)
New York, New York 10001
(d) DESCRIPTION OF PROPERTY:
The entire premises known as 1112 Corporate Road, North
Brunswick, New Jersey, on which is located a building
containing approximately 124,731 square feet and shown on
the Plot Plan Rider.
(e) TERM OF LEASE:
Commencing on December 16, 1997, and expiring on
March 31, 2003.
(f) PERMITTED USE:
General warehousing and distribution and ancillary offices
incidental thereto and any other lawful purpose.
SIC Code _______________
(g) SECURITY DEPOSIT:
$101,343.93
(h) BROKER:
Bussel Realty Corp. and Samson Realty Corp., commission to
be paid by Landlord pursuant to separate agreement.
(i) RIDERS TO LEASE:
Plot Plan Rider
Rent Rider
Landlord's Work Rider
Extension Option Rider
<PAGE>
2. DESCRIPTION OF PROPERTY. Landlord hereby leases to Tenant and
Tenant hereby hires from Landlord, the land (the "Land"), building (the
"Building") and other improvements described in Section 1(d), together with all
equipment, fixtures, furnishings and improvements located on the Land
(collectively the "Property").
3. TERM. The term of the Lease (the "Term") shall commence on the date
set forth in Section 1(e) (the "Commencement Date") and terminate on the date
set forth in Section 1(e) (the "Expiration Date"), except as hereinafter
provided.
4. BASE RENT. From and after February 1, 1998 (the "Base Rent
Commencement Date"), Tenant shall pay to Landlord at the address set forth in
Section 1(b), or to such other person or at such other place as Landlord may
from time to time designate, without previous demand therefor and without
counterclaim, deduction or set-off, the rent ("Base Rent") set forth on the
Rent Rider annexed hereto, such Base Rent to be payable in monthly installments
as set forth on the Rent Rider in advance on the first day of each month during
the term of the Lease. If the Rent Commencement Date shall be other than the
first day of a calendar month, Tenant shall pay Landlord on the Rent
Commencement Date the proportionate amount of Base Rent for the balance of such
month.
5. NET LEASE. It is the intention of Landlord and Tenant that this is
a net lease and that, except as provided herein, the Base Rent shall be
absolutely net to Landlord and that Tenant shall be solely responsible for and
pay all costs for the use, operation, maintenance, care and repair of the
Property. All obligations with respect to the Property payable by Tenant other
than the Base Rent are additional rent under this Lease. The term "rent" means
the Base Rent and additional rent.
6. REAL PROPERTY TAXES. (a) Tenant shall pay all real property
impositions during the Term, such payment to be made to Landlord in accordance
with paragraph 2 of the Rent Rider. As used herein, the term "real property
impositions" means (i) any tax, assessment or other governmental charge of any
kind which at any time during the Term may be assessed, levied, imposed upon or
become due and payable with respect to the Property; (ii) any tax on the
Landlord's right to receive, or the receipt of rent or income from the
Property, or against Landlord's business of leasing the Property; (iii) any tax
or charge for fire protection, refuse collection, streets, sidewalks or road
maintenance or other services' provided to the Property by any governmental
agency; and (iv) any tax replacing or supplementing in whole or in part any tax
previously included within the definition of real property impositions under
this Lease. During the first and last years of the Term, the real property
impositions payable by Tenant shall be prorated for the fraction of the tax
fiscal year included in the Term.
(b) If an assessment for public improvements is levied against
the Property, Landlord shall be deemed to have elected to pay such assessment
in the maximum number of installments then permitted by law (whether or not
Landlord actually so elects), and Tenant shall pay the installments payable
during or attributable to the Term, together with any interest due as a result
of the installment payments. Any installment for a period during which the
Commencement Date or Expiration Date occurs shall be prorated for the fraction
of the period included in the Term.
(c) Real property impositions do not include Landlord's federal
or state income, franchise, inheritance, personal property or transfer taxes,
except if in substitution for real property impositions.
7. INSURANCE. (a) Throughout the Term, Tenant shall pay to Landlord
the cost of the following policies of insurance, such payment to be made in
accordance with paragraph 2 of the Rent Rider: (i) insurance covering all risk
of physical loss or damage to the Building in the full amount of its
replacement value (including agreed amount endorsement), but in no event less
than the amount reasonably required by any mortgagee of the Property
("Landlord's Mortgagee") (such policy shall provide protection against all
perils included within the classification of fire, extended coverage,
vandalism, malicious mischief, special extended perils, including demolition
and increased cost of construction, water damage, sprinkler leakage, and any
other perils
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which Landlord or Landlord's Mortgagee deems necessary); (ii) rental income
insurance in an amount equal to one year's Base Rent, estimated real property
impositions and insurance premiums; (iii) insurance against loss or damage by
boiler or machinery or internal explosion or breakdown of boilers, equipment or
electrical appurtenances, in an amount required by Landlord or any Landlord's
Mortgagee; (iv) insurance against breakage of all plate glass on the Property;
(v) flood hazard insurance in the amount of the full replacement cost of the
Building, or if such amount of insurance is not obtainable, in the maximum
amount which is obtainable; and (vi) such other insurance as Landlord or any
Landlord's Mortgagee may reasonably require. All proceeds payable under any
such policy shall be paid to Landlord or Landlord's Mortgagee, as their
respective interests may appear. Tenant shall pay all costs of insurance,
including any surcharges or additional premiums assessed in connection with
Tenant's use of the premises.
(b) Throughout the Term, Tenant shall procure and maintain, at
its expense, a policy of comprehensive public liability insurance, including
contractual liability coverage insuring Landlord, Sudler Management Company,
L.L.C., Landlord's mortgagee and Tenant against liability arising out of the
ownership, use, occupancy or maintenance of the Property or in any manner
related to the Property or any act or omission of Tenant. The initial amount of
such insurance shall be at least $5,000,000 in combined single limit with
respect to injury or death in any one accident, and at least $1,000,000 for
damage to property. Such amount shall be subject to periodic increase as
reasonably required by Landlord. However, the amount of such insurance shall
not limit Tenant's liability hereunder. Tenant's insurance shall be written on
an occurrence basis and shall be primary with respect to the Property.
(c) Each insurance policy shall name as insureds Landlord, Sudler
Management Company, L.L.C., Landlord's managing agent and any Landlord's
Mortgagee, as their respective interests may appear. Each policy shall contain
standard mortgagee endorsement clauses. All insurance policies shall be
maintained with insurance companies authorized to transact insurance business
in the state in which the Property is located and holding a "General
Policyholder's Rating" of A or better, as set forth in the most current issue
of "Best's Insurance Guide". The original liability insurance policy (or copy
thereof certified by the insurer) and certificates evidencing other insurance
Tenant is required to maintain hereunder shall be deposited with Landlord at
least ten (10) days prior to the Commencement Date. Evidence of renewals of all
policies shall be deposited with Landlord not less than twenty (20) days prior
to the end of the term of each such policy. Original and renewal policies or
certificates shall be accompanied by proof of payment of the premiums therefor.
Such insurance shall not be subject to cancellation except after at least
twenty (20) days prior written notice to Landlord and Landlord's Mortgagee, and
any loss shall be payable notwithstanding any act or negligence of Tenant or
Landlord.
(d) Tenant shall obtain for each insurance policy procured by it
regarding the Property or any property located thereon, an appropriate clause
therein or endorsement thereto pursuant to which each such insurance company
waives its subrogation rights against Landlord and Sudler Management Company,
L.L.C.
8. UTILITIES. Tenant shall pay, directly to the appropriate supplier
designated from time to time by Landlord, the cost of all light, power, natural
gas, fuel, telephone, refuse disposal and other utilities and services supplied
to the Property. Tenant shall not change or substitute any supplier of light,
power or natural gas without Landlord's prior written consent, which shall not
be unreasonably withheld or delayed. Landlord shall not be liable to Tenant,
and Tenant's obligations under the Lease shall not be abated, in the event of
any interruption or inadequacy of any utility or service supplied to the
Property unless such interruption or inadequacy is caused by the negligence or
willful misconduct of Landlord, and then only to the extent Tenant is not
compensated by any insurance required to be carried by Tenant hereunder or any
other insurance actually carried by Tenant. Tenant shall pay water and sewer
charges as provided in paragraph 2 of the Rent Rider. Landlord warrants that
there is 1,200 Amps of Power into the building. In the event there is not
Landlord will provide such.
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9. USE OF PROPERTY. The Property may only be used for the use set
forth in Section 1(f). Tenant shall not use or permit the Property to be used
for (i) any unlawful purpose; (ii) in violation of any certificate of occupancy
covering the Property; (iii) any use which may constitute a public or private
nuisance or make voidable any insurance in force relating to the Property; or
(iv) any purpose which creates or produces noxious odors, smoke, fumes,
emissions, vibrations, or unreasonable noise. Tenant shall not cause or permit
any overloading of the floors of the Building. Tenant shall not install any
equipment or other items upon or through the roof, or cause openings to be made
in the roof, without Landlord's prior written consent, which consent shall not
be unreasonably withheld. Landlord shall designate the roofer to perform any
permitted work affecting the roof.
(d) No storage of any goods, equipment or materials shall be
permitted outside the Building on the Property other than trash in sealed
containers and construction materials during any permitted Alterations, as
hereinafter defined.
10. EXISTING CONDITIONS. Tenant accepts the Property in its "as is"
condition as of the date hereof, subject only to Landlord's agreement to
perform the work contained on Landlord's Work Rider. Tenant acknowledges that
Landlord has not made any representation as to the condition of the Property or
the suitability of the Property for Tenant's intended use. Notwithstanding the
foregoing, Landlord represents and warrants that on the date hereof, the
Premises complies with all laws, rules, regulations and requirements of all
county, municipal, state, federal and other applicable governmental
authorities.
11. MAINTENANCE AND REPAIRS. (a) Tenant shall keep and maintain the
Property (including roof, all structural and non-structural, exterior,
interior, parking areas and driveways, landscaped and drainage scale areas, and
systems and equipment) in good order, condition and repair during the Term.
Except as provided in section 11(c) hereof, Tenant shall promptly replace any
portion of the Property or any systems or equipment thereof which cannot be
fully repaired (except that Tenant shall not be responsible for replacing the
roof or structure unless the replacement is necessitated by Tenant's negligence
or willful misconduct). All repairs and replacements shall be of substantially
equal quality to the original material or part, and shall be performed in a
good and workmanlike manner. All of Tenant's obligations to maintain and repair
the Property shall be accomplished at Tenant's sole expense.
(b) Tenant shall keep and maintain all portions of the Property
including parking areas, sidewalks and landscaped areas, in an attractive and
clean condition free of dirt and rubbish, and clear the parking areas and
sidewalks of accumulations of snow and ice.
(c) During the Term, Tenant shall procure and maintain the
following service contracts: (i) contract for the inspection, service,
maintenance and repair of all heating, ventilating and air conditioning
equipment installed in the Building (the inspection pursuant to such contract
shall be made at least quarterly); (ii) contract for inspection and maintenance
of the roof of the Building (the inspections pursuant to such contract shall be
made at least semi-annually); (iii) contract for the inspection, maintenance
and repair of sprinkler and fire protection systems, and (iv) contract for
maintenance of the landscaped areas of the Property; (v) inspection, service
and preventative maintenance to control insects, rodents and any and all other
pests. The identity of each contractor and each contract shall be subject to
Landlord's reasonable approval. Copies of reports of inspections made hereunder
shall be promptly supplied to Landlord.
12. ALTERATIONS AND IMPROVEMENTS. (a) Tenant shall not make any
alterations, additions or improvements to the Property (the "Alterations")
without Landlord's prior written consent. The foregoing notwithstanding, Tenant
shall have the right to make minor, non-structural, interior alterations in,
to, or for the Building, including but not limited to the erection and/or
removal of interior wall partitions, work stations, cabinets, interior storage
systems, shelves, racking, painting and interior decorations and other work of
a substantially similar nature. In no event shall Alterations
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permanently reduce the size or cubic content of the Building or reduce the
value of the Property. Tenant shall submit to Landlord detailed plans and
specifications for Alterations requiring Landlord's consent and reimburse
Landlord for all reasonable expenses incurred by Landlord in connection with
its review thereof. Tenant shall also provide to Landlord for its reasonable
approval the identity of the contractor Tenant proposes to employ to construct
the Alterations. All Alterations shall be accomplished in accordance with the
following conditions:
(1) Tenant shall procure all governmental permits and
authorizations for the Alterations, and obtain and provide to Landlord an
official certificate of occupancy and/or compliance upon completion of the
Alterations, if appropriate.
(2) Tenant shall arrange for extension of the general
liability insurance provided for in Section 7(b) to apply to the construction
of the Alterations. Further, Tenant shall procure and maintain Builders Risk
Casualty Insurance in the amount of the full replacement cost of the
Alterations and statutory Workers Compensation Insurance covering all persons
employed in connection with the work. All such insurance shall conform to the
requirements of Section 7(c).
(3) Tenant shall construct the Alterations in a good and
workmanlike manner utilizing materials of first class quality and in compliance
with all laws and governmental regulations.
(b) Upon completion of the Alterations, Tenant shall provide
Landlord with "as built" reproducible transparency plans of the Alterations,
except in the case of minor alterations where plans are not available.
(c) Alterations shall be the property of Tenant and shall be
removed by Tenant on or prior to the termination of the Lease and Tenant shall
restore the Property to its condition prior to such Alterations.
13. COVENANT AGAINST LIENS. Tenant shall not have any right to subject
to Landlord's interest in the Property to any mechanic's lien or any other lien
whatsoever. If any mechanic's lien or other lien, charge or order for payment
of money shall be filed as a result of the act or omission of Tenant, Tenant
shall cause such lien, charge or order to be discharged or appropriately bonded
within thirty (30) days after notice from Landlord thereof, and Tenant shall
indemnify and save Landlord harmless from all liabilities and costs resulting
therefrom.
14. SIGNS. Tenant shall not place any signs on the Property without
Landlord's prior written approval of its design, location and manner of
installation such approval not to be unreasonably withheld or delayed. In no
event shall any sign be installed on the roof or above the parapet height of
the Building. Tenant shall remove its signs upon termination of this Lease and
restore the Property to its condition prior to installation of the signs,
normal wear and tear excepted.
15. TENANT'S COMPLIANCE. Tenant shall take all necessary action to
conform to and comply with all laws, orders and regulations of any governmental
authority now or hereafter applicable to the Property or Tenant's use or
occupancy or requested by Landlord's or Tenant's insurers to comply with their
requirements to maintain the Building as a highly protected risk.
Tenant shall, at its sole cost and expense, obtain all permits, including a
certificate of occupancy, necessary for Tenant's occupancy or use of the
Property. Tenant shall not be responsible for correcting violations of law or
regulation with respect to the roof or structure of the building unless related
to Tenant's occupancy or use of the Property.
16. ENVIRONMENTAL LAW COMPLIANCE. (a) Tenant agrees that it shall, at
its sole cost and expense, fulfill, observe and comply with all of the
applicable terms and provisions of the Industrial Site Recovery Act, N.J.S.A
13:1K-6 et seq., ("ISRA") the Spill Compensation and Control Act, N.J.S.A.
58:10-23.11 et seq., (the "Spill Act") and
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all other federal, state and local environmental laws now in effect or
hereinafter enacted, as any of the same may be amended from time to time, and
all rules, regulations, ordinances, opinions, orders and directives issued or
promulgated pursuant thereto or in connection therewith. Tenant shall, at
Tenant's sole cost and expense, make all submissions to, provide all
information to, and comply with all requirements of, the New Jersey Department
of Environmental Protection ("NJDEP"). If any spill or discharge of Hazardous
Substances or Wastes occurs during the Term, and the Bureau or other division
of NJDEP determines that a cleanup plan be prepared and a cleanup be
undertaken, then Tenant shall, at Tenant's sole cost and expense, prepare and
submit the required plans and financial assurances, and carry out the approved
plans. Such cleanup shall be to the strictest standard required by NJDEP for
nonresidential use. Tenant's obligations under this Section shall arise if
there is any closing, terminating or transferring of operations by any person
or entity of an industrial establishment at the Property pursuant to ISRA,
including an assignment or subletting by Tenant. At no expense to Landlord,
Tenant shall promptly prepare and file non-applicability affidavits. In the
event of a sale, transfer or conveyance of the Property by Landlord, Landlord
shall make application to NJDEP for a letter of nonapplicability, if required,
at Landlord's expense. If the inspection or investigation of Landlord's
application reveals the existence of a spill or discharge of Hazardous
Substances or Wastes, or otherwise uncovers non-compliance by Tenant, then
Tenant shall take such action as is required at Tenant's expense and to the
same extent as if Tenant's obligations had arisen at the closing or terminating
of Tenant's operations. Tenant's obligations pursuant to this Section 16(a)
shall apply to conditions relating to Tenant's operations and/or possession or
use of the Property, and to conditions arising during Tenant's possession or
use of the Property and whether caused directly or indirectly by Tenant.
(b) Tenant shall not, without the prior written consent of
Landlord having been obtained, at any time during the term of this Lease,
install any underground or above-ground tanks for the storage of fuel oil,
gasoline and/or other petroleum products or by-products.
(c) Tenant shall indemnify, defend and hold harmless Landlord
from all fines, suits, procedures, claims and actions of any kind arising out
of or in any way connected with any spills or discharges of Hazardous
Substances or Wastes at the Property which occur during the Term (including any
period of early access pursuant to paragraph 3) unless caused by landlord, its
agents, employees, invitees or contractors, and from all fines, suits,
procedures, claims and actions of any kind arising out of Tenant's failure to
provide all information, make all submissions and take all actions required by
the Bureau or any other division of NJDEP or any other governmental agency with
respect to the Property, as required by the terms of this Lease.
(d) Tenant's obligations under this Section 16 shall survive the
expiration or earlier termination of the term of this Lease.
(e) Landlord represents and warrants to the best of Landlord's
knowledge that on the date hereof (i) the Premises complies with all laws,
rules, regulations and requirements of all county, municipal, state, federal
and other applicable governmental authorities, and (ii) the Premises is in
compliance with all federal, state and local laws, rules and regulations,
guidelines, codes and ordinances which relate to Hazardous Substances and
Waste.
(f) Hazardous Substances and Waste means any substance, material,
waste, gas, or particulate matter which is: (i) defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste," or
"restricted hazardous waste" under any provision of the laws of the State of
New Jersey or the laws of the United States; (ii) petroleum; (iii) asbestos;
(iv) polychlorinated biphenyl; (v) radioactive material; (vi) designated as a
"hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C.
Sec. 12.51 et seq.; (vii) defined as a "hazardous waste" pursuant to Section
1004 of the Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901 et
seq.; or (viii) defined as a "hazardous substance" pursuant
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to Section (14) of the Comprehensive Environmental Response, Compensation, and
Liability Act, 42 U.S.C. Sec. 9601 et seq.
17. LANDLORD'S ACCESS. Landlord and its representatives may enter the
Property at all reasonable times upon prior notice to Tenant in a manner not to
unreasonably interfere with Tenant's intended use of the Property (or at any
time in the event of emergency) for the purpose of inspecting the Property, or
making any necessary repairs, or to show the Property to prospective
purchasers, investors, encumbrances, tenants or other parties, or for any other
reasonable purpose. Landlord may place customary "For Sale" or "For Lease"
signs on the Property.
18. ASSIGNMENT AND SUBLETTING. (a) Tenant shall not assign or encumber
Tenant's interest in this Lease, or sublet any portion of the Property, or
grant concessions or licenses with respect to the Property, without Landlord's
prior written consent which shall not be unreasonably withheld or delayed.
(b) If Tenant desires to assign this Lease or sublet all or any
portion of the Property, Tenant shall submit to Landlord a written request for
Landlord's approval thereof, setting forth the name, principal business
address, and nature of business of the proposed assignee or sublessee; the
financial, banking and other credit information relating to the proposed
assignee or sublease; and the details of the proposed assignment or subletting,
including a copy of the proposed assignment or sublease instrument and plans
for any Alterations required for the proposed assignee or sublessee. Tenant
shall also furnish any other information reasonably requested by Landlord.
Landlord's acceptance of rent from a proposed assignee or sublessee shall not
be construed to constitute its consent to an attempted assignment or
subletting.
(c) In the event of a permitted assignment or subletting, Tenant
shall remit to Landlord as additional rent each month during the remainder of
the Term any mid all rent or other sums received by Tenant from its assignee or
sublessee in excess of the Base Rent and other charges paid by Tenant allocable
to the Property or portion thereof sublet (including, without limitation,
brokerage fees, free rent, lease takeover costs, costs of alteration and
workletter allowances, to the extent any of the foregoing are reasonable and
customary).
(d) Notwithstanding the provisions of this Paragraph 18, Tenant
may, without Landlord's consent, assign this Lease or sublet to (i) the
surviving entity in the event of a merger, consolidation or acquisition of
Tenant, (ii) Tenant's parent corporation, Tenant's subsidiary corporation or
any "affiliate" of Tenant, or (iii) any entity which purchases all or
substantially all of the stock or assets of Tenant.
(e) No assignment or subletting hereunder, whether or not with
Landlord's consent, shall release Tenant from any obligations under this Lease,
and Tenant shall continue to be primarily liable hereunder. If Tenant's
assignee or sublessee defaults under this Lease, Landlord may proceed directly
against Tenant without pursuing its remedies against the assignee or sublessee.
Consent to one assignment or subletting shall not be deemed a consent to any
subsequent assignment or subletting. Landlord may consent to subsequent
assignments or modifications of this Lease or sublettings without notice to
Tenant and Tenant shall not be relieved of liability under this Lease provided
that Landlord shall not enter into any modification of this Lease which would
materially increase Tenant's obligations hereunder without first notifying
Tenant of its intent to do so.
(f) Tenant shall pay to Landlord upon demand all costs, including
reasonable legal fees, which Landlord shall incur in reviewing any proposed
assignment or subletting.
19. CASUALTY. (a) If the Building is damaged by fire or other
casualty, and the Building can be fully repaired within forty-five (45) days
after such casualty occurred, then, except as provided in Section 19(b) below,
this Lease shall remain in effect and Landlord shall repair the damage as soon
as reasonably possible. If the Building cannot be fully repaired within said
forty-five (45) day period, Landlord or Tenant may elect
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to terminate this Lease by giving written notice to the other within twenty
(20) days after becoming aware of the occurrence of the casualty. If this Lease
is not so terminated, Landlord shall repair the damage as soon as reasonably
possible, in which event this Lease shall remain in full force and effect. In
the event this Lease shall remain in full force and effect following a
casualty, there shall be no abatement of the Base Rent or additional rent
payable hereunder, but the proceeds of the rental income insurance described in
Section 7 shall be applied against Tenant's rental obligations as received by
Landlord. Tenant waives the protection of any law which grants a tenant the
right to terminate a lease in the event of the destruction of a leased
property, and agrees that the provisions of this paragraph shall govern in the
event of any destruction of the Building. Landlord shall not be required to
repair improvements or alterations to the Property made by Tenant.
(b) Notwithstanding anything to the contrary contained herein, if
more than thirty-five percent (35%) of the Building is damaged by fire or other
casualty and (i) the insurance proceeds received by Landlord on account of such
damage are insufficient to pay for the necessary repairs, or (ii) Landlord's
mortgagee does not permit Landlord to utilize the insurance proceeds to repair
such damage, Landlord may elect to terminate this Lease by giving Tenant
written notice within twenty (20) days after Landlord becomes aware of the
occurrence of the casualty.
20. CONDEMNATION. If more than twenty-five percent (25%) of the Land
and/or Building shall be taken under the power of eminent domain or sold under
the threat thereof ("Condemnation") and Tenant's use of the Property is
materially adversely affected in the reasonable opinion of Tenant exercised in
good faith, Landlord or Tenant may terminate this Lease as of the date on which
title to the Property or portion thereof shall vest in the condemning
authority. Notice of such election to terminate shall be given to the other
party within thirty (30) days after the party giving such notice becomes aware
of the Condemnation. If this Lease shall remain in effect as to the portion of
the Property not taken, Landlord shall restore the improvements not taken as
nearly as reasonably practicable to their condition prior to the Condemnation,
and the Base Rent shall be reduced proportionately in accordance with the
reduction in the square foot area of the Building following the Condemnation.
Landlord shall be entitled to receive the entire award in any Condemnation
proceeding relating to the Property, except that Tenant may assert a separate
claim to an award for its moving expenses and for fixtures and personal
property installed by Tenant at its expense. It is understood that Tenant shall
have no claim against Landlord for the value of the unexpired Term of this
Lease or any options granted under this Lease. Landlord shall not be required
to restore improvements or alterations to the Property made by Tenant.
21. SURRENDER OF PROPERTY. Upon termination of the Lease, Tenant shall
surrender the Property to Landlord broom clean, maintained and repaired as
required hereunder, and in good order and condition, except only for ordinary
wear and tear, and damage by casualty which Tenant was not obligated to remedy
under Section 19. Tenant shall remove its machinery and equipment and repair
any damage to the Property caused by such removal. Tenant shall not remove any
power wiring or power panels, lighting or lighting fixtures, wall coverings,
blinds or other window coverings, carpets or other floor coverings, heaters or
air conditioners or fencing or gates unless installed by Tenant and required by
Landlord to be removed. All personal property of Tenant remaining on the
Property after Tenant's removal shall be deemed abandoned and at Landlord's
election may either be retained by Landlord or may be removed from the Property
at Tenant's expense.
22. HOLDOVER. In the event Tenant remains in possession of the
Premises after the expiration of the term of this Lease (the "Holdover
Period"), in addition to any damages to which Landlord may be entitled or other
remedies Landlord may have by Law, Tenant shall pay to Landlord during the
first two months of any Holdover Period a monthly rental which is equal to 150%
of the sum of the Base Rent, additional rent and other charges with respect to
the Premises payable by Tenant during the last month of the Term. During any
Holdover Period in excess of two months, Tenant shall pay to Landlord a monthly
rental which is equal to the greater of (i) twice the sum of
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the Base Rent, additional rent and other charges with respect to the Premises
payable by Tenant during the last month of the Term; or (ii) the maximum
holdover charges allowable by law. Nothing herein contained shall be deemed to
give Tenant any right to remain in possession of the Premises after the
expiration of the Tenn of this Lease. The sum due to Landlord hereunder shall
be payable by Tenant upon demand.
23. EVENTS OF DEFAULT; REMEDIES. (a) Tenant shall be in default upon
the occurrence of one or more of the following events (an "Event of Default"):
(i) Tenant fails to pay rent or any other sum of money required to be paid by
Tenant hereunder within ten (10) days of written notice thereof by Landlord;
(ii) Tenant fails to perform any of Tenant's non-monetary obligations under
this Lease within thirty (30) days after written notice thereof from Landlord
(provided that if more than thirty (30) days are required to complete such
performance, Tenant shall not be in default if Tenant promptly commences such
performance and thereafter diligently pursues its completion); or (iii) Tenant
makes an assignment for the benefit of creditors, or if a petition for
adjudication of bankruptcy or for reorganization is filed by or against Tenant
and is not dismissed within thirty (30) days, or if a receiver or trustee is
appointed for a substantial part of Tenant's property and such appointment is
not vacated within thirty (30) days.
(b) On the occurrence of an Event of Default, without limiting
any other right or remedy Landlord may have, without notice or demand, Landlord
may:
(i) Terminate this Lease and Tenant's right to possession of
the Property by any lawful means, in which event Tenant shall immediately
surrender possession of the Property to Landlord. At its option, Landlord may
occupy the Property or cause the Property to be redecorated, altered, divided,
consolidated with other adjoining property, or otherwise prepared for
reletting, and may relet the Property or any part thereof for a term or terms
to expire prior to, at the same time or subsequent to the original Expiration
Date, and receive the rent therefor, applying the sums received first to the
payment of such expenses as Landlord may have incurred in connection with the
recovery of possession, preparing for reletting and the reletting itself,
including brokerage and attorneys' fees, and then to the payment of damages in
amounts equal to the rent hereunder and to the cost and expense of performance
of the other covenants of Tenant under this Lease. Tenant agrees to pay to
Landlord damages equal to the rent and other sums payable by Tenant under this
Lease, reduced by the net proceeds of the reletting, if any, as ascertained
from time to time. In reletting the Property, Landlord may grant rent
concessions, and Tenant shall not be entitled to any credit therefor. Tenant
shall not be entitled to any surplus resulting from any reletting. Landlord
shall use commercially reasonable efforts to re-rent the Property and to take
such other actions to mitigate its damages in the event Tenant is in default
under this Lease.
(ii) Permit Tenant to remain in possession of the Property,
in which event this Lease shall continue in effect. Landlord shall be entitled
to enforce all of Landlord's rights and remedies under this Lease, including
the right to receive the rent as it becomes due under this Lease.
(iii) Pursue any other remedy now or hereafter available
under the laws of the jurisdiction in which the Property is located.
(c) The remedies available to Landlord herein specified are not
intended to be exclusive and prevent Landlord from exercising any other remedy
or means of redress to which Landlord may be lawfully entitled. In addition to
other remedies provided in this Lease, Landlord shall be entitled to restraint
by injunction of any violation or threatened violation by Tenant of any of the
provisions of this Lease. Landlord's exercise of any right or remedy shall not
prevent Landlord from exercising any other right or remedy.
(d) To the extent permitted by law, Tenant, for itself and any
person claiming through or under Tenant, waives any equity or right of
redemption provided by any law.
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(e) Tenant agrees to pay as additional rent all reasonable
attorneys' fees and other expenses incurred by Landlord in the enforcement of
any of the agreements or obligations of Tenant under this Lease.
24. SERVICE FEE; INTEREST. (a) Tenant's failure to pay rent promptly
or make other payments required under this Lease may cause Landlord to incur
unanticipated costs, which are impractical to ascertain. Therefore, if Landlord
does not receive any payment of Base Rent, additional rent or other sums due
from Tenant to Landlord within ten (10) days after it becomes due, Tenant shall
pay Landlord as additional rent a service fee equal to five percent (5%) of the
overdue amount. This service fee shall be in addition to, and not in lieu of,
any other remedy which Landlord may have herein, or by law.
(b) Any amount owed by Tenant to Landlord which is not paid when
due shall bear interest at the rate of fourteen percent (14%) per annum
("Default Interest") from ten days after the due date of such amount. The
payment of Default Interest on such amounts shall not extend the due date of
any amount owed. If the interest rate specified in this Lease shall exceed the
rate permitted by law, the Default Interest shall be deemed to be the maximum
legal interest rate permitted by law.
25. INDEMNIFICATION. (a) Tenant shall indemnify and hold harmless
Landlord, Sudler Management Company, L.L.C. and Landlord's managing agent from
and against all liability, claims or costs, including reasonable legal fees,
arising from (i) Tenant's use of the Property; (ii) any breach of this Lease by
Tenant; (iii) any other act or omission of Tenant; or (iv) any injury to person
or damage to property occurring on or about the Property.
(b) Landlord shall indemnify and hold harmless Tenant from and
against all liability, claims or costs, including reasonable legal fees,
arising from (i) any breach of this Lease by Landlord, and/or (ii) occurring on
the Property resulting from any negligence or misconduct of Landlord or any of
its employees or agents.
26. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT. If Tenant fails to make
any payment or perform any act on its part to be made or performed pursuant to
this Lease, then Landlord, without waiving or releasing Tenant from such
obligation, may make such payment or perform such act on Tenant's part, and the
costs incurred by Landlord in connection with such payment or performance,
together with Default Interest thereon, shall be paid on demand by Tenant to
Landlord as additional rent.
27. WAIVER OF LIABILITY. Landlord shall not be liable for any injury
or damage to the business, equipment, merchandise or other property of Tenant
or any of Tenant's employees or invitees or any other person on or about the
Property, unless caused by Landlord's or its officers', employees' or agents'
negligence or willful misconduct. Tenant and Landlord waive all rights to
recover against Landlord, its officers, directors, shareholders, partners,
members, joint ventures, employees or agents, for any loss or damage arising
from any cause covered by, and to the extent of, any required to be carried by
Tenant or Landlord pursuant to this Lease or any other insurance actually
carried by them. Each policy of such insurance carried by Tenant and Landlord
shall contain a provision that the foregoing release shall not affect the
coverage provided by such insurance.
28. FORCE MAJEURE. If either party is unable to perform any of its
obligations due to events beyond such party's control, the time provided to
that party for performing such obligations shall be extended by a period of
time equal to the duration of such events, and the other party shall not be
entitled to any claim by reason thereof, and the obligation of such other party
to perform all its other obligations under this Lease shall not be affected,
impaired or excused thereby. Events beyond a party's control include, but are
not limited to, acts of God, war, civil commotion, labor disputes, strikes,
casualty, labor or material shortages, government regulation or restriction and
weather conditions.
-10-
<PAGE>
29. NOTICE OF LANDLORD'S DEFAULT. Tenant shall give written notice of
any failure by Landlord to perform any of its obligations under this Lease to
Landlord and any ground lessor or Landlord's Mortgagee whose name and address
have been furnished to Tenant. Landlord shall not be in default under this
Lease unless Landlord (or such ground lessor or Landlord's Mortgagee) fails to
cure such non-performance within thirty (30) days after receipt of Tenant's
notice. If more than thirty (30) days are required to cure such
non-performance, Landlord shall not be in default if such cure is commenced
within such thirty (30) day period and thereafter diligently pursued to
completion.
30. LANDLORD'S LIABILITY LIMITED. There shall be no personal liability
of the Landlord or any member, partner, stockholder, officer, director or other
principal of Landlord in connection with this Lease. Tenant agrees to look
solely to the interest of Landlord in the Property (or the proceeds therefrom)
for the collection of any judgment or other judicial process requiring the
payment of money by Landlord in the event of any default or breach by Landlord
with respect to this Lease or in any way relating to the Property. No other
assets of Landlord or any principal of Landlord shall be subject to levy,
execution or other procedures for the satisfaction of Tenant's remedies.
31. ESTOPPEL STATEMENT; FINANCIAL STATEMENT. (a) Landlord and Tenant
mutually agree, upon the other's request, to execute, acknowledge and deliver
to the other a written statement certifying: (i) the Commencement Date; (ii)
the Expiration Date; (iii) that this Lease is in full force and effect and
unmodified (or if modified, stating the modifications); (iv) the last date of
payment of the Base Rent and other charges and the time period covered by each
payment; (v) that the other party is not in default under this Lease (or, if a
party is claimed to be in default, stating the nature of the default); and (vi)
such other matters as may be reasonably required by either party or any
Landlord's Mortgage. Such statement shall be delivered to the requesting party
within tell (10) days after request therefor. Any such statement may be given
to and relied upon by any prospective purchaser or encumbrancer of the
Property.
(b) Within ten (10) days after Landlord's written request, Tenant
shall deliver to Landlord such financial statements as are reasonably required
by any Landlord's Mortgagee or prospective encumbrancer of the Property, but
otherwise shall be kept confidential by Landlord. Tenant represents to Landlord
that each such financial statement is a true and accurate statement as of the
date of such statement.
32. QUIET ENJOYMENT. (a) Landlord covenants that as long as Tenant
pays the Base Rent and additional rent and performs its other obligations under
this Lease, Tenant shall peaceably and quietly have, hold and enjoy the
Property for the term provided by this Lease, subject to the provisions of this
Lease.
(b) Landlord reserves to itself such access and utility easements
over, under and across the Property as may be required by Landlord from time to
time in connection with the ownership, use or operation of any other property
of Landlord or any affiliated party of Landlord. No such easement shall
materially interfere with Tenant's use of the Property.
33. SUBORDINATION, NONDISTURBANCE AND ATTORNMENT. (a) This Lease is
subject and subordinate to any ground lease or mortgage which may now or
hereafter encumber the Property, and any renewals, modifications,
consolidations, replacements or extensions thereof.
(b) If Landlord's interest in the Property is acquired by
Landlord's Mortgagee, or purchaser at a foreclosure sale, Tenant shall attorn
to the transferee of or successor to Landlord's interest in the Property and
recognize such transferee or successor as landlord under this Lease. Such
transferee or successor shall not be liable for any act or omission of any
prior landlord, or be subject to any offsets or defenses which Tenant might
have against any prior landlord, or be bound by any Base Rent which Tenant
might have paid for more than the current month to any prior landlord, or be
liable for any security deposit under this Lease unless actually transferred to
such transferee or successor.
-11-
<PAGE>
(c) The subordination of this Lease to any future ground lease or
future mortgage shall be subject to Landlord's obtaining from the lessor under
any such future ground lease, or the holder of any such future mortgage said
lessor's or mortgage holder's standard form of non-disturbance, subordination
and attornment agreement.
(d) Tenant agrees that this Lease shall be modified in accordance
with the reasonable request of any institutional Landlord's Mortgagee, so long
as any modification provides a non-disturbance agreement which allows the
Tenant to stay in possession so long as Tenant is not in default of the Lease.
(d) The foregoing provisions shall be self-operative and no
further instrument or act on the part of Tenant shall be necessary to effect
the same. Tenant shall nevertheless sign and deliver any document necessary or
appropriate to evidence the subordination, attornment or agreement above
provided.
34. BROKERAGE. Each party represents to the other that it did not deal
with any real estate broker in connection with this Lease, other than the real
estate broker whose identity is set forth in Section 1(h). The commission of
such broker shall be paid by Landlord pursuant to separate agreement. Tenant
shall indemnify and hold Landlord harmless from any claim for a commission or
other fee made by any broker with whom Tenant has dealt, other than the brokers
identified in Section 1(h).
35. NOTICES. All notices in connection with this Lease or the Property
shall be in writing and shall be personally delivered, or sent by certified
mail, return receipt requested, postage prepaid, or sent by commercial
overnight courier (e.g., Federal Express, Airborne). Notices to Landlord shall
be delivered to the address specified in Section 1(b). Notices to Tenant shall
be delivered to the address specified in Section 1(c). Notices personally
delivered shall be effective upon delivery or attempted delivery in accordance
with this provision; notices by commercial overnight courier shall be effective
one business day after delivery to the courier service; and notices by
certified mail shall be effective three calendar days after mailing. Either
party may change its notice address upon written notice to the other party
given in accordance with this provision.
36. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall
deposit with Landlord the sum set forth in Section 1(g) as security for the
performance by Tenant of its obligations under this Lease (the "Security
Deposit"). Landlord shall have the right to use the Security Deposit to cure
any default of Tenant hereunder, including, but not limited to, payment of
Fixed Rent, additional rent, service fees or other debts of Tenant due
Landlord, or repair or restoration of the Property. Landlord shall hold the
Security Deposit in a separate interest bearing account. If Landlord uses any
part of the Security Deposit, Tenant shall restore the Security Deposit to its
full amount within ten (10) days after Landlord's demand therefor. Provided
Tenant has fully complied with all of the terms of this lease, Landlord shall
remit accrued interest on the Security Deposit to Tenant annually and shall
return the Security Deposit to Tenant with any remaining accrued interest on
the date thirty (30) days after the surrender of the Property by Tenant.
Landlord shall deliver the Security Deposit to the purchaser or other
transferee of Landlord's interest in the Property in the event the Property is
sold or otherwise transferred, and Landlord shall be discharged from any
further liability with respect to the Security Deposit.
37. MEMORANDUM OF LEASE. Tenant shall not record this Lease. However,
either Landlord or Tenant may require that a memorandum of this Lease executed
by both parties be recorded. Such memorandum shall include such portions of
this Lease as either party may reasonably require, but shall not specify the
amount of Base Rent payable hereunder.
38. MISCELLANEOUS. (a) The failure of either party to insist on strict
performance of any provision of this Lease, or to exercise any right contained
herein, shall not be construed as a waiver of such provision or right in any
other instance. All amendments to this Lease shall be in writing and signed by
both parties.
-12-
<PAGE>
(b) The captions in this Lease are intended to assist the parties
in reading this Lease and are not a part of the provisions of this Lease.
Whenever required by the context of this Lease, the singular shall include the
plural and the plural shall include the singular. The masculine, feminine and
neuter genders shall each include the other.
(c) Landlord and Tenant hereby waive trial by jury in any legal
proceeding brought by either of them against the other with respect to any
matters arising out of or in any way connected with this Lease or the Property.
(d) The laws of The State of New Jersey shall govern this Lease.
(e) If Tenant is a corporation or partnership, each person
signing this Lease on behalf of Tenant represents that he has full authority to
do so and that this Lease binds the corporation or partnership, as the case may
be.
(f) Tenant shall not use, nor shall Tenant interfere with or
obstruct, any railroad line or spur on the Property;
(g) Landlord shall not be liable for consequential damages
arising from any negligence, tortious act, breach of any term, covenant or
obligation under this Lease, or any other act or omission affecting this Lease.
(h) This Lease is binding upon any party who legally acquires any
rights or interest in this Lease from Landlord or Tenant; provided, however,
Landlord shall have no obligation to Tenant's successor unless the interest of
Tenant's successor in this Lease is acquired in accordance with Section 18.
(i) The submission of this Lease to Tenant shall not be deemed to
be an offer and shall not bind either party until duly executed by Landlord and
Tenant.
(j) This Lease may be executed in counterparts, and, when all
counterpart documents are executed, the counterparts shall constitute a single
binding instrument.
(k) A determination by a court of competent jurisdiction that any
provision of this Lease or any part thereof is illegal or unenforceable shall
not invalidate the remainder of this Lease or such provision, which shall
continue to be in effect.
-13-
<PAGE>
The riders enumerated in Section 1(i) are attached hereto and made a
part of this lease as fully as if set forth herein at length. The terms used in
the rider have the same meanings as set forth in the Lease. The provisions of a
rider shall prevail over any provisions of the lease which are inconsistent or
conflict with the provisions of the rider.
IN WITNESS WHEREOF, the parties hereby have duly executed this Lease
as of the date set forth in Section 1(a).
LANDLORD:
WITNESS: 1112 CR NB, L.L.C.
/s/ Eileen N. Sudler By: /s/ Peter D. Sudler
- ---------------------------- -----------------------------
Peter D. Sudler
Its: Manager
TENANT:
ATTEST: NET GROCER, INC.
By:/s/ Daniel Nissan By: /s/ Richard D. Falcone
-------------------------- -----------------------------
Daniel Nissan Its: Executive V.P.
----------------------------
-14-
<PAGE>
RENT RIDER
Date of Lease: December 16, 1997
Landlord: 1112 CR NB, L.L.C.
Tenant: NET GROCER, INC.
Property: 1112 Corporate Road, North Brunswick, New Jersey
1. The Base Rent payable by Tenant to Landlord during the Term shall
be at the annual amounts and for the periods and be payable in the monthly
installments as follows:
<TABLE>
<CAPTION>
Monthly Annual
Period PSF Installment Amount
- ------ --- ----------- ------
<S> <C> <C> <C>
February 1, 1998 - $3.25 $33,781.31 $405,375.72
December 31, 1999
January 1, 2000 - $3.50 $36,379.88 $436,558.56
March 31, 2003
</TABLE>
2. Escrow Payments. Tenant shall pay real property impositions,
insurance, water and sewer charges to Landlord in monthly installments in
advance on an estimated basis as determined from time to time by Landlord
sufficient to pay such real property impositions, insurance, water and sewer
charges before the same become due. Within thirty (30) days of the expiration
of this lease, in the event Tenant has paid more than the amount due from
Tenant hereunder upon expiration of the term, the excess amount shall be
refunded to Tenant.
Initials:
/s/ PDS
-----------------------------
Landlord
/s/ RDF
-----------------------------
Tenant
-15-
<PAGE>
LANDLORD'S WORK RIDER
Date of Lease: December 16, 1997
Landlord: 1112 CR NB, L.L.C.
Tenant: NET GROCER, INC.
Property: 1112 Corporate Road, North Brunswick, New Jersey
Landlord shall perform the following work:
1. Construct four (4) 140 square foot offices (totaling 560 sf)
2. Construct two (2) 800 square foot rooms (totaling 1,600 sf)
3. Construct one (1) conference room 12' x 18' (totaling 216 sf)
4. Construct additional lavatory facilities as required by applicable code to
accommodate a total of 100 people.
Work not included: Any and all work not specifically included in this
Landlord's Work Rider.
Miscellaneous:
1. Landlord reserves the right (subject to approval by Tenant, which
approval shall not be unreasonably withheld) to make changes,
additions and/or deletions in Landlord's Work which are deemed
necessary or advisable based upon special job conditions, and
availability of material and any changes to meet requirements of any
governmental authority or agency having jurisdiction of the Property.
2. Tenant may request change, addition or alteration in Landlord's Work,
subject to the reasonable approval of Landlord ("Tenant Extras").
Substitutions of materials requested by Tenant in place of materials
set forth in the Plans and additions of quantities of materials
requested by Tenant in excess of quantities of materials set forth on
the Plans shall be deemed Tenant Extras. Landlord agrees that Tenant
may require Landlord to construct up to an additional 1,500 square
feet of office area within the Premises. The cost of constructing such
additional office area shall be calculated at Forty Dollars ($40.00)
per square foot and shall be added to the Base Rent due to Landlord,
amortized over the period of February 1, 1998 - March 31, 2003.
3. Tenant shall be responsible for, and pay any and all expenses incurred
by Landlord in connection with delay in the completion of Landlord's
Work or Tenant Extras, and any increase in the cost of Landlord's Work
or Tenant Extras, caused by (i) Tenant's requirement of Tenant Extras;
(ii) the postponement of any Landlord's Work required to perform
Tenant Extras; and (iii) any other delay requested or caused by
Tenant.
4. Nothing contained in this Rider shall be deemed to amend or modify the
Commencement Date as set forth in Paragraph 1(e) of the Lease.
5. Landlord shall perform Landlord's Work in a good and workmanlike
manner utilizing materials of first class quality and in compliance
with all laws and governmental regulations.
Initials: /s/ PDS /s/ RDF
---------------------------- ----------------------------
Landlord Tenant
-16-
<PAGE>
PLOT PLAN RIDER
Date of Lease: December 16, 1997
Landlord: 1112 CR NB, L.L.C.
Tenant: NET GROCER, INC.
Property: 1112 Corporate Road, North Brunswick, New Jersey
CHART
-17-
<PAGE>
EXTENSION OPTION RIDER
Date of Lease: December 16, 1997
Landlord: 1112 CR NB, L.L.C.
Tenant: NET GROCER, INC.
Property: 1112 Corporate Road, North Brunswick, New Jersey
1. Grant of Option. Subject to the provisions of Section 3 of this
Rider, Landlord hereby grants to Tenant one (1) option (the "Option") to extend
the Term following the expiration of the original term hereof (the "Initial
Term") for an additional term of five (5) years (hereinafter referred to as the
"Extension Term").
2. Exercise of Option. The Option shall be exercised only by written
notice (the "Extension Notice") delivered to Landlord in accordance with Par.
35 of the Lease at least nine (9) months before the expiration of the Initial
Term. Time shall be of the essence with respect to delivery of the Extension
Notice and if Tenant fails to deliver the Extension Notice within the specified
time period, the Option related thereto shall lapse, and Tenant shall have no
further right to extend the Term.
3. Conditions Precedent to Option. The Option shall be exercisable by
Tenant and the Lease shall continue for the Extension Term provided that the
time Landlord receives the Extension Notice and at the commencement of the
Extension Term, Tenant shall not be in default of any monetary obligations
under any of the provisions of the Lease beyond any applicable grace period.
4. Extension Term Provisions. The Extension Term shall be on all of
the same terms and conditions set forth in the Lease and applicable to the
Initial Term, except that the Base Rent payable by Tenant to Landlord during
the Extension Term shall be at the annual amount and for the periods and be
payable in the monthly installments as follows:
<TABLE>
<CAPTION>
Monthly Annual
Period PSF Installment Amount
- ------ --- ----------- ------
<S> <C> <C> <C>
April 1, 2003 -
March 31, 2008 $4.00 $41,577.00 $498,924.00
</TABLE>
Initials:
/s/ PDS
------------------------------
Landlord
/s/ RDF
------------------------------
Tenant
-18-
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE, made as of the 31 day of March, 1998,
by and between 1112 CR NB, L.L.C., a New Jersey limited liability company
having an address c/o Sudler Management Company, L.L.C., Morris Corporate
Center I, 300 Interpace Parkway, Parsippany, New Jersey 07054-1100 ("Landlord")
and NET GROCER, INC., a Delaware corporation having an office at 333 Seventh
Avenue (11th Floor), New York, New York 10001 ("Tenant").
WHEREAS, Landlord and Tenant entered into a certain lease dated
December 16, 1997 (the "Lease") covering premises known as 1112 Corporate Road,
North Brunswick, New Jersey (the "Premises"); and
WHEREAS, the parties are desirous of amending the Lease;
NOW THEREFORE, in consideration of the above premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. Pursuant to Miscellaneous Paragraph 2 of Landlord's Work Rider to
the Lease, Tenant has notified Landlord that Tenant requires Landlord to
construct 1,500 square feet of office area on the terms and conditions set
forth in Landlord's Work Rider. In consideration therefor, Tenant shall pay to
Landlord, in addition to the Base Rent set forth on the Rent Rider to the Lease
and any other additional rent provided for in the Lease, the sum of Sixty
Thousand Dollars ($60,000.00), payable in 60 equal monthly installments of
$1,000.00 per month commencing on February 1, 1998 and continuing through March
31, 2003.
2. Landlord shall perform, at Tenant's cost and expense, the following
work (the "Additional Work") in addition to the work specified on Landlord's
Work Rider and in the preceding Paragraph 1 of this First Amendment to Lease:
(a) Additional 956 s.f. of new office space within the Premises;
(b) Close two existing openings
(c) Additional toilet fixtures for warehouse personnel
(d) Paint existing offices
(e) Upgrade existing hardware
(f) Carpet existing offices
(g) VCT and base in existing offices
(h) New vision panel in Office #106
(i) Additional paper towel dispensers (2)
(j) New closet in existing office
(k) New vision light in existing door
(l) New ceiling tiles in existing offices
(m) New electric distribution panel
(n) Sanitary napkin dispensers (2)
2. Tenant shall pay for the Additional Work as follows:
(a) Tenant shall pay one-half of the cost of the Additional Work
(determined in accordance with paragraph 2(c) hereof) to Landlord in cash in
advance of Commencement of the Additional Work.
(b) Tenant shall pay the balance of the cost of the Additional
Work (determined in accordance with paragraph 2(c) hereof) to Landlord as
additional rent, amortized on a direct reduction basis in equal monthly
installments beginning with the month following the commencement of the
Additional Work and continuing over the remaining months of the initial term
with interest at 10% per annum on the unpaid balance.
-19-
<PAGE>
(c) Landlord has made a good faith estimate of the cost of the
Additional Work in the amount of $95,599.00. The actual cost of the Additional
Work shall be determined the cost of the construction contracts awarded by
Landlord for the Additional Work, plus architectural and engineering fees,
costs of permits, overhead in an amount equal to ten (10%) percent of the costs
of labor, materials, equipment and subcontracts, and ten (10%) percent thereof
for profit.
(d) As soon as practicable, Landlord shall give Tenant written
notice of: (a) the actual costs for the Additional Work, (b) the amount to be
paid by Tenant in advance; (c) the balance to be amortized; (d) the date the
first amortized payment is due; (e) the number of months over which the balance
is to be amortized; and (e) the amount of the monthly amortization payment.
3. Any unamortized portion of the Sixty Thousand Dollars owed to
Landlord pursuant to Paragraph 1 hereof, and any unamortized portion of the
principal plus accumulated interest for Additional Work pursuant to Paragraph 2
hereof, shall be immediately due and payable upon Tenant's default under the
Lease or upon the expiration or sooner termination of the Lease.
4. Tenant shall pay to the full amount of any increase in real
property taxes and impositions resulting from alterations and improvements to
the Premises.
5. In all other respects, the Lease shall remain in full force and
effect without further modification.
IN WITNESS WHEREOF, the parties hereto have executed this first
Amendment to Lease on the day and year first above written.
LANDLORD:
WITNESS: 1112 CR NB, L.L.C.
/s/ By: /s/ Peter D. Sudler
- ----------------------------- -----------------------------
Peter D. Sudler
Its: Manager
TENANT:
ATTEST: NET GROCER, INC.
By: /s/ Hope Putek By: /s/ Richard D. Falcone
-------------------------- -----------------------------
Asst. Sec. Its: EVP
----------------------------
-20-
<PAGE>
LEASE AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
LESSEE: Netgrocer, Inc. LEASE NO.: NET-002
----------------------------------------------
---------------------------------------------
919 Third Avenue Located: 333 Seventh Avenue--11th Floor
New York, NY 10001
---------------------------------------------
---------------------------------------------
New York, NY 10032
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
A. MONTHLY RENT PAYMENT: $933.00 B. TERM OF LEASE: 24 Months
------------------------ -------------------------
C. COMMENCEMENT DATE: 3/1/98 D. ADVANCE RENTALS: None
------------------------ -------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY DESCRIPTION OF EQUIPMENT SERIAL NUMBER
SEE ATTACHMENT "A"
COST $
---------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
1. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor the
personal property described above and in any schedule signed by the parties
and made a part hereof (herein called "Equipment").
2. The term of this lease shall be the number of months, stated in B,
commencing on the date stated in C. Lessee authorizes Lessor to insert said
commencement date, provided such a date shall not be earlier than the date
of delivery to Lessee of the Equipment or a substantial part thereof.
Lessee or Lessor may terminate any Equipment Schedule effective at the
expiration of the Initial Term thereof, by giving the other party not less
than 90 days prior written notice. If such notice is not given at least 90
days prior to such expiration then the term shall be automatically extended
for an additional period, expiring 90 days after receipt of terminating
party on the same term and conditions then in effect. Any such termination
shall be effective only on the last day on the Initial Term or any such
renewal or extension and no notice of termination may be revoked without
the prior written consent of the other party.
3. The total rent for the term is equal to the monthly rent payment stated in
A multiplied by number of months stated in B. Lessee agrees to pay the
total rent in monthly installments, in advance, each in the amount stated
in A, commencing on the date stated in C and continuing on the same day of
each month thereafter. Payment shall be made to Lessor at its above-stated
address, or as it shall otherwise designate in writing.
4. Lessor makes NO WARRANTIES as to the Equipment and none shall be implied,
including without limitation, its condition, merchantability or fitness for
a particular purpose. Lessee agrees to look solely to the manufacturer,
Seller or carrier of the Equipment for any claim arising from any defect,
breach of warranty, failure or delay in delivery, misdelivery or inability
to use the Equipment for any reason whatsoever and Lessee's obligations to
Lessor hereunder shall not in any manner be affected thereby. Lessor shall
not be liable for any loss, damage or expense caused directly or indirectly
by any item of Equipment, the use, maintenance, repair or servicing
thereof, by any delay or failure to provide same, by any interruption of
service or loss of use, or for any loss of business or damage however
caused.
5. Lessee has selected and requested Lessor to order the Equipment from the
above named Seller. Lessor agrees to order same from said Seller but shall
not be liable for specific performance or damages if for any reason the
Seller delays or fails to fill the order. Lessor has no obligation to
install Equipment.
1
<PAGE>
6. Lessee shall accept the Equipment upon its delivery and authorizes Lessor
to insert herein the serial numbers and any additional description of the
items of Equipment so delivered. Unless Lessee gives Lessor and Seller
written notice of each defect or other proper objection to any item of
Equipment within five (5) business days after delivery thereof, it shall be
conclusively presumed that the Equipment was duly delivered and
unconditionally accepted by Lessee.
7. Lessee shall keep the Equipment at the above-stated address and shall not
remove any of the same therefrom without Lessor's prior written consent.
8. Lessee shall be entitled to unlimited usage of the Equipment without extra
charge by Lessor. So long as Lessee is not in default hereunder, Lessor
shall not interfere with Lessee's quiet enjoyment, use or possession of the
Equipment during the term of this Lease. Lessee shall use the Equipment
within manufacturer's constraint and in a reasonable manner and shall, at
its expense, keep the Equipment in good repair and comply with all laws,
ordinances, regulations or requirements of any governmental authority,
official, board or department relating to its installation possession, use
or maintenance.
9. The Equipment is, and shall at all times remain, the property of Lessor and
Lessee shall have no right, title or interest therein or thereto except as
set forth herein. Upon Lessor's request, Lessee shall affix and keep in a
prominent place on each item of Equipment labels, plates or other markings
indicating that the Equipment is owned by Lessor.
10. Lessee shall not make any modifications, alterations, additions or
improvements to the Equipment without Lessor's prior written consent. All
such additions and improvements shall belong to Lessor. The Equipment shall
remain personal property regardless of its affixation to any realty. Lessor
shall have the right to enter upon reasonable notice in writing, Lessee's
premises during business hours to inspect the Equipment and observe its
use.
11. Lessee shall bear the entire risk of loss, theft, destruction of or damage
to the Equipment or any part thereof from any cause whatsoever and shall
not be relieved of the obligations to pay the total rent or any other
obligations hereunder because of any such occurrence. In the event of
damage to any item of Equipment Lessee, at its sole expense, shall
immediately place the same in good repair. If Lessor determines that any
item of Equipment is lost, stolen, destroyed or damaged beyond repair,
Lessee, at its sole expense and at the option of Lessor, shall to the
extent not covered by insurance (a) replace the same with like equipment in
good repair, or (b) pay Lessor in cash all amounts then due hereunder and
the unpaid balance of the total rent for the unexpired term hereof
attributable to said item. Upon Lessor's receipt of such payment, Lessee
shall be entitled to Lessor's interest in said item and to possession of
same at its then location, as is, and without recourse to Lessor.
12. Lessee shall, at its expense, keep the Equipment fully insured in favor of
Lessor against loss, fire, theft, damage or destruction from any cause
whatever in an amount not less than the total rent thereunder or the full
replacement cost of the Equipment, whichever is greater, and such
additional insurance against injury, loss or damage to persons or property
arising out of the use or operation of the Equipment as is customarily
maintained by the owners of the like property, with companies satisfactory
to Lessor under policies providing for 10 days notice of cancellation to
Lessor. Lessor, shall apply any proceeds of said insurance to replace or
repair the Equipment and/or to Lessee's obligations hereunder. If Lessee
shall fail to provide said insurance or, within ten (10) days after
Lessor's request therefor, shall fail to deliver the policies or
certificates thereof to Lessor, then Lessor, at its option, shall have the
right to procure such insurance and to add the cost thereof to the rent
payment next becoming due which Lessee agrees to pay as additional rent.
13. Lessee covenants and agrees to keep the Equipment free and clear of all
levies, liens and encumbrances other than those attributed to lessor or
lessor's lenders and to pay all charges, taxes and fees which may now or
hereafter be imposed upon the ownership, leasing, rental, sale, purchase,
possession or use of the Equipment except taxes on or measured by Lessor's
income. If any of same shall remain unpaid, when due, Lessor may pay same
and add such payment to the rent payment next becoming due as additional
rent.
14. Lessee agrees to indemnify and save Lessor harmless from any and all
claims, actions, proceedings, expenses, damages and liabilities, including
attorneys' fees, arising out of or in any manner pertaining to the
Equipment or this lease including, without limitation, the ownership,
selection, possession, purchase, deliver, installation, leasing, operation,
use, control, maintenance and return of the Equipment and the recovery of
claims under insurance policies thereon.
15. Lessee shall not assign, pledge, mortgage or otherwise transfer or encumber
any of its rights under this lease or in the Equipment or any part thereof
nor sublet any part thereof, nor permit its use by anyone other than Lessee
and its regular employees, without Lessor's prior written consent. Any such
purported transfer assignment or other action without Lessor's written
consent shall be void. Lessor may, without notice, transfer or assign this
lease or any interest herein and may mortgage, encumber or transfer any of
its rights or interest in and to the Equipment or any part thereof and,
without limitation, each assignee, transferee and mortgage shall have the
right to transfer or assign its interest. Notice would be given after any
such transfer or assignment. Each such assignee, transferee and mortgagee
shall have all of the rights but none of the obligations of Lessor under
this lease and Lessee shall not assert against any of them any defense,
counterclaim or set-off that Lessee may have against Lessor.
16. If Lessee fails to make any payment when due hereunder, or under any other
lease or agreement with Lessor independent of this lease, heretofore or
hereafter made, or breaches any warranty contained herein, or defaults in
performance of any other obligation on its part to be performed and such
default continues for five (5) days after Lessor gives notice thereof to
Lessee, or if Lessee becomes insolvent or makes an assignment for the
benefit of creditors or if any bankruptcy, receivership, reorganization or
insolvency proceedings shall be commenced by or against Lessee, or if any
attachment or levy is made against any of Lessee's property, then, at
Lessor's option, the entire unpaid total rent for the balance of the term
hereof shall be at once due and payable and Lessor may, without demand or
legal process, terminate this lease and enter upon the premises where the
Equipment is located, take possession of and remove same, and exercise any
one or more of the following rights and remedies, without liability to
Lessee therefor and without affecting Lessee's obligations hereunder; (i)
sell, lease or otherwise dispose of the Equipment or any part thereof at
one or more public or private sales, leases or other dispositions, at
wholesale or retail, for such consideration, on such terms, for cash or on
credit, as Lessor may deem advisable, on at least ten (10) days notice to
Lessee of any public sale or of the time after which a private sale, lease
or other disposition may be made (which notice Lessee acknowledges is
reasonable); or (ii) retain the Equipment or any part thereof, crediting
Lessee with the reasonable value thereof; or (iii) pursue any other remedy
granted by any existing or future document executed by Lessee or by law. At
any public sale, Lessor may be the purchaser. Lessee agrees to pay all
Lessor's expenses, including but not limited to the costs of repossessing,
storing, repairing and preparing Equipment for sale or lease, commissions
payable in connection with any sale or lease, and reasonable attorney's
fees if an attorney shall be consulted. The net proceeds realized from any
such sale, lease or another disposition or the exercise of any other
remedy, after deducting all expenses, shall be applied toward payment of
the unpaid balance then due Lessor hereunder, Lessee to remain liable for
any deficiency. Any
2
<PAGE>
amount due Lessor under this paragraph shall be deemed liquidated damages
for the breach hereof and not a penalty. All rights and remedies of Lessor
shall be cumulative and not alternative. Lessor's failure to exercise or
delay in exercising any right or remedy shall not be construed as a waiver
thereof, nor shall a waiver on one occasion be construed to bar the
exercise of any right or remedy on a future occasion.
17. Lessee agrees to pay a late charge of 1 1/2% per month on any rent
installation in default ten (10) days or more not theretofore accelerated.
18. Lessee warrants that the application, statements and credit or financial
information submitted by it to Lessor are true and correct and made to
induce Lessor to enter into this lease and to order the Equipment from
Seller.
19. Upon expiration or termination of this lease and any renewal hereof, Lessee
shall, at its expense, return the Equipment in the same condition as
received, reasonable wear and tear excepted, by delivering same to Lessor
or to a place designated by Lessor, unless Lessor shall elect to abandon
all or part of the Equipment.
20. Lessee hereby waives any right of counterclaim or set-off in any action
involving or arising out of this lease and the parties hereto waive the
right to a jury trial.
21. Any notice to a party hereunder shall be sufficiently given if mailed to
said party by certified mail, return receipt requested, at its address set
forth herein or such other address as either may designate for itself in
such notice to the other.
22. Whenever the sense of this agreement requires, words in the singular shall
be deemed to include the plural, singular. If more than one Lessee is named
herein, the liability of each shall be joint and several.
23. This agreement constitutes the entire mutual understanding of the parties
regarding the within subject matter and may not be modified except in
writing, signed by the party against whom such modification is asserted.
24. Lessee hereby authorizes Lessor, at its option, to file a financing
statement covering the Equipment signed only by Lessor, and agrees to pay
Lessor the actual fee for such filing.
25. This lease shall be construed under the laws of the State of Nevada and
shall not become effective until accepted by Lessor at its above office and
upon such acceptance shall, subject to Paragraph 15 hereof, inure to and
bind the parties, their successors, legal representatives and assigns. No
provision hereof which may be construed as unenforceable shall in any way
invalidate any other provision hereof, all of which shall remain in full
force and effect.
ACCEPTED: DATE: 2/27/98 LESSEE: Netgrocer, Inc.
------------------------------- ----------------------
BY: /s/ Michael F. Daniels BY: /s/ Richard D. Falcone
--------------------------------- --------------------------
Michael F. Daniels Richard Falcone
President & CEO Chief Operating Officer
3
<PAGE>
[LOGO]
LEASE AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
LESSEE: Netgrocer, Inc. LEASE NO.: NET-002
---------------------------------------------- ---------------------------------------------
919 Third Avenue Located: 333 Seventh Avenue--11th Floor
New York, NY 10001
---------------------------------------------
New York, NY 10032
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PURCHASE ORDER
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY DESCRIPTION OF EQUIPMENT SERIAL NUMBER
<S> <C> <C>
SEE ATTACHMENT "A"
COST $
---------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TERMS AND CONDITIONS
1. Seller shall bear the entire risk of loss or damage until the equipment is
delivered and accepted by the Lessee at the location specified hereon.
2. This order shall be subject to acceptance of the equipment by Buyer and
Lessee, either of whom shall have the right to reject and return all or any
part thereof to Seller, at Seller's expense, if same is not in compliance
herewith, in which event Buyer may cancel all or any part hereof.
3. Buyer shall be under no obligation to Seller until Buyer shall have
received Lessee's acknowledgment in writing that the Equipment has been
delivered, and assembled or installed if this order so requires, in
satisfactory working condition nor if Lessee become insolvent before
delivery or is unable to take delivery for any reason beyond its control.
4. All warranties and representations made by Seller to Buyer or Lessee shall
be enforceable by Buyer or by Lessee in its own name. Without limiting the
foregoing Seller expressly represents and warrants to Buyer and Lessee that
the Equipment is new unless otherwise stated hereon; will be merchantable,
of good material and workmanship, fit for the purpose intended and free
from any defects; will have been produced, sold, transported, delivered,
assembled and installed in compliance with all applicable law, ordinances
and regulations; the sale or use thereof will not infringe any patent,
trademark or copyright; that this order has been approved and any other
documents reasonably required by Buyer in connection herewith will be
executed by a duly authorized representative of Lessee.
5. Seller agrees that it will indemnify, defend, protect and save harmless
Buyer, Lessee and any user of the equipment from and against all suits,
damages, claims and demands, including attorneys' fees, arising out of
performance of this contract, any failure of the equipment or any part
thereof, injuries to persons or property caused by defects therein, actual
or alleged infringement of any patent trademark or copyright by reason of
its sale or use, and any other cause whatsoever. Buyer shall give Seller
reasonable written notice of any such claim presented to Buyer.
6. Seller shall not assign any right or interest in this order nor delegate
any obligation hereunder without the written consent of Buyer. Any such
attempted assignment or delegation shall be void.
4
<PAGE>
7. This order is given on Seller's assurance and representation that Lessee
has selected the Equipment described herein and will accept same upon
delivery and that all signatures of Lessee in connection herewith shall be
genuine and duly authorized.
8. All captions and heading hereon are part of this Purchase Order.
9. Subject to all of the terms and conditions hereof, Buyer will pay the Total
Price specified hereon, less discount provided in Seller's invoice.
10. No local, general or trade custom or usage or course of prior dealings
between the parties shall be relevant to supplement or explain any term
used herein.
11. This writing is intended by the parties as a final expression of their
agreement and as a complete and exclusive statement thereof. No variation
of any of the terms and conditions herein shall be effective without Buyers
written consent, irrespective of the wording of Seller's acceptance.
This order is given subject to the term and conditions set forth above. Your
compliance with this order shall be deemed an acceptance of all the terms and
conditions set forth above.
DATE:
-----------------------------------
SELLER: Dell Direct Sales LESSEE: Netgrocer, Inc.
------------------------------------- --------------------
BY: BY: /s/ Richard D. Falcone
------------------------------------- ------------------------
Richard Falcone
Chief Operating Officer
5
<PAGE>
ATTACHMENT "A"
NET-002
Located at: 333 Seventh Avenue - 11th Floor
New York, NY 10001
<TABLE>
<CAPTION>
QTY DESCRIPTION
<S> <C> <C>
(3) 220-0007 Dell PowerEdge 2200 Base, 233 MHz Processor with 512K Cache
(3) 310-0016 Logitec System Mouse, w/Disks Not Factory Installed
(3) 310-7002 Silitek Quiet Key, 104 Key Keyboard, Factory Installed
(3) 311-0246 Dell PowerEdge 2200, 233 MHz, 512K, Second Processor, Single, Factory Installed
(3) 313-0158 12/24X SCSI CD ROM, for Dell PowerEdge Servers, Factory Install
(3) 320-3316 Monitor Option-None
(3) 340-0045 Hard Drive Configuration for Dell PowerEdge 2100 Factory Install
(3) 340-0081 1.44MB FloppyDrive for Dell PowerEdge 2200, Factory Install
(3) 365-1234 ReadyWare Installation Fee per System
(3) 430-0061 3COM 3C905 10/100 Ethernet, PCI Adapter, Twisted Pair Only
(3) 430-2184 Microsoft NTS 4.0 on CD, 10 Client Access Licenses, OEM Packaging, US Version Non-
Factory Install
(3) 900-1700 SelectCare, Initial Year, Next Business Day On-Site Service Contract, DEC
(3) 900-1702 SelectCare, 2 Years Extended, Next Business Day On-Site Service Contract, DEC
</TABLE>
6
<PAGE>
[LOGO]
LEASE AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
LESSEE: Netgrocer, Inc. LEASE NO.: NET-002
----------------------------------------------
---------------------------------------------
919 Third Avenue Located: 333 Seventh Avenue--11th Floor
New York, NY 10001
---------------------------------------------
---------------------------------------------
New York, NY 10032
---------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
DELIVERY AND ACCEPTANCE RECEIPT
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
QUANTITY DESCRIPTION OF EQUIPMENT SERIAL NUMBER
<S> <C> <C>
SEE ATTACHMENT "A"
COST $
---------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In the event of conflict between this receipt and the original Lease, the terms
and conditions of this receipt shall govern.
TO: LEASING EDGE CORPORATION
We hereby acknowledge that the delivery and installation in our premises of
the Equipment described above, leased from you, was satisfactorily completed on
the date stated below; that said Equipment complies in all respects with your
Purchase Order as approved by us: that you have made NO WARRANTIES, expressed
or implied, regarding said Equipment, and that our obligations to you and your
assigns as set forth in the lease of said Equipment are not subject to any
claims, counterclaims, defense or setoffs.
DATED: LESSEE: Netgrocer, Inc.
------------------------ ----------------------------------
BY:
----------------------------------
Richard Falcome
Chief Operating Officer
512928
<PAGE>
ATTACHMENT "A"
NET-002
Located at: 333 Seventh Avenue - 11th Floor
New York, NY 10001
<TABLE>
<CAPTION>
QTY DESCRIPTION
<S> <C> <C>
(3) 220-0007 Dell PowerEdge 2200 Base, 233 MHz Processor with 512K Cache
(3) 310-0016 Logitec System Mouse, w/Disks Not Factory Installed
(3) 310-7002 Silitek Quiet Key, 104 Key Keyboard, Factory Installed
(3) 311-0246 Dell PowerEdge 2200, 233 MHz, 512K, Second Processor, Single, Factory Installed
(3) 313-0158 12/24X SCSI CD ROM, for Dell PowerEdge Servers, Factory Install
(3) 320-3316 Monitor Option-None
(3) 340-0045 Hard Drive Configuration for Dell PowerEdge 2100 Factory Install
(3) 340-0081 1.44MB FloppyDrive for Dell PowerEdge 2200, Factory Install
(3) 365-1234 ReadyWare Installation Fee per System
(3) 430-0061 3COM 3C905 10/100 Ethernet, PCI Adapter, Twisted Pair Only
(3) 430-2184 Microsoft NTS 4.0 on CD, 10 Client Access Licenses, OEM Packaging, US Version Non-
Factory Install
(3) 900-1700 SelectCare, Initial Year, Next Business Day On-Site Service Contract, DEC
(3) 900-1702 SelectCare, 2 Years Extended, Next Business Day On-Site Service Contract, DEC
</TABLE>
8
<PAGE>
ATTACHMENT "A"
NET-002
Located at: 333 Seventh Avenue - 11th Floor
New York, NY 10001
<TABLE>
<CAPTION>
QTY DESCRIPTION
<S> <C> <C>
(3) 220-0007 Dell PowerEdge 2200 Base, 233 MHz Processor with 512K Cache
(3) 310-0016 Logitec System Mouse, w/Disks Not Factory Installed
(3) 310-7002 Silitek Quiet Key, 104 Key Keyboard, Factory Installed
(3) 311-0246 Dell PowerEdge 2200, 233 MHz, 512K, Second Processor, Single, Factory Installed
(3) 313-0158 12/24X SCSI CD ROM, for Dell PowerEdge Servers, Factory Install
(3) 320-3316 Monitor Option-None
(3) 340-0045 Hard Drive Configuration for Dell PowerEdge 2100 Factory Install
(3) 340-0081 1.44MB FloppyDrive for Dell PowerEdge 2200, Factory Install
(3) 365-1234 ReadyWare Installation Fee per System
(3) 430-0061 3COM 3C905 10/100 Ethernet, PCI Adapter, Twisted Pair Only
(3) 430-2184 Microsoft NTS 4.0 on CD, 10 Client Access Licenses, OEM Packaging, US Version Non-
Factory Install
(3) 900-1700 SelectCare, Initial Year, Next Business Day On-Site Service Contract, DEC
(3) 900-1702 SelectCare, 2 Years Extended, Next Business Day On-Site Service Contract, DEC
</TABLE>
9
<PAGE>
ATTACHMENT "A"
NET-002
Located at: 333 Seventh Avenue - 11th Floor
New York, NY 10001
<TABLE>
<CAPTION>
QTY DESCRIPTION
<S> <C> <C>
(3) 220-0007 Dell PowerEdge 2200 Base, 233 MHz Processor with 512K Cache
(3) 310-0016 Logitec System Mouse, w/Disks Not Factory Installed
(3) 310-7002 Silitek Quiet Key, 104 Key Keyboard, Factory Installed
(3) 311-0246 Dell PowerEdge 2200, 233 MHz, 512K, Second Processor, Single, Factory Installed
(3) 313-0158 12/24X SCSI CD ROM, for Dell PowerEdge Servers, Factory Install
(3) 320-3316 Monitor Option-None
(3) 340-0045 Hard Drive Configuration for Dell PowerEdge 2100 Factory Install
(3) 340-0081 1.44MB FloppyDrive for Dell PowerEdge 2200, Factory Install
(3) 365-1234 ReadyWare Installation Fee per System
(3) 430-0061 3COM 3C905 10/100 Ethernet, PCI Adapter, Twisted Pair Only
(3) 430-2184 Microsoft NTS 4.0 on CD, 10 Client Access Licenses, OEM Packaging, US Version Non-
Factory Install
(3) 900-1700 SelectCare, Initial Year, Next Business Day On-Site Service Contract, DEC
(3) 900-1702 SelectCare, 2 Years Extended, Next Business Day On-Site Service Contract, DEC
</TABLE>
10
<PAGE>
HIGHLIGHTS OF LEASE
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------------
LESSEE: Netgrocer, Inc. LESSOR: Leasing Edge Corporation
--------------------------------------------- ------------------------------------------
919 Third Avenue 6540 S. Pecos Road Ste103
--------------------------------------------- ------------------------------------------
New York, NY 10032 Las Vegas, NV 89120
--------------------------------------------- ------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
DESCRIPTION OF EQUIPMENT: SEE ATTACHED "A"
-----------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
ORIGINAL TERM: 24 Months MONTHLY RENT: $933.00 SALES TAX: $79.31
-------------------- ---------------- ---------------
24 Payment Remaining To Be Paid To: Excel Bank, N.A.
------------------- ----------------------------------------------------------------
(ASSIGNEE)
First Payment Due: Excel Bank, N.A. DATE: 3/1/98
---------------------------------- -------------------------
(ASSIGNEE)
Services Included: Insurance Yes No Maintenance Yes No
------------ ---------- -------- --------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
The Undersigned Lessee and Lessor acknowledge and confirm the above Highlights
and Consent Agreement to: Excel Bank, N.A.
Lessee: Netgrocer, Inc. Lessor: Leasing Edge Corporation
By: /s/ Richard D. Falcone By: /s/ Michael F. Daniels
----------------------------- ----------------------------
(Signature) (Signature)
Name: Richard Falcone Name: Michael F. Daniels
----------------------------- ----------------------------
Title: Chief Operating Officer Title: President & CEO
---------------------------- ----------------------------
Date: March 6, 1998 Date: February 27, 1998
---------------------------- ----------------------------
- -------------------------------------------------------------------------------
THIS IS THE ONLY COUNTERPART OF THE LEASE SCHEDULE AND IS THE "ORIGINAL"
COUNTERPART. POSSESSION OF THIS ORIGINAL IS REQUIRED TO PERFECT, BY POSSESSION,
A SECURITY INTEREST IN THIS LEASE SCHEDULE AS CHATTEL PAPER UNDER THE UCC.
11
<PAGE>
CONSENT AND AGREEMENT
Dated: 02/27/98
Excel Bank, N.A.
400 Park Avenue, 17th Floor
New York, NY 10022
Reference is made to the Lease Agreement dated 02/27/98 and Equipment
Supplement No. NET-002 thereto (collectively the "Lease"), between LEASING EDGE
CORPORATION as lessor ("Lessor") and NETGROCER, INC. (the "Company"), as
lessee, the Security Agreement and Assignment of Lease Dated 03/01/98 (the
"Assignment") between Lessor (as the "Borrower") and Excel Bank, N.A. (the
"Lender").
The Company hereby acknowledges and consents to the assignment by Lessor to the
Lender, pursuant to the Assignment, of all of its right, title and interest in
and to the Lease and the equipment leased thereunder, as provided for
therein,including, but without limitation, (a) all amounts of rent payable
under the Lease (commencing with rental payment due on MARCH 1, 1998) insurance
proceeds, indemnity (but specifically excluding any tax indemnity pursuant to
provisions in the Lease or indemnity of expenses incurred by Lessor which
expenses Lessee is obligated to pay under the Lease), or other payments of any
kind by Lessee for or with respect to any personal property which is the
subject of the Lease, and all replacement parts, repairs, additions and
accessories incorporated therein and/or affixed thereto and/or substitutions
therefore (the "Equipment") and, (b) any and all payments or proceeds received
by Borrower both before and after the termination of the Lease with respect to
any item of Equipment as the result of the sale, lease or other disposition
thereof (all such amounts included in (a) and (b) hereinafter referred to as
the "Monies").
The Company agrees, notwithstanding anything to the contrary which may be
contained in the Lease, (i) to remit and deliver all Monies due or to become
due directly to the Lender at the above address without abatement, reduction,
counterclaim, setoff or offset of any nature whatsoever, (ii) to deliver copies
of all notices and other communications given or made by the Company pursuant
to the Lease to the Lender at the address shown above, (iii) that it will not
assert against the Lender any clam or defense it may now or hereafter have
against Lessor, and (iv) that it shall not amend, modify, or terminate the
Lease without the prior written consent of the Lender, and any such attempted
amendment, modification or termination of the Lease without such consent shall
be void. In addition, as of the date hereof, the Company agrees that it has no
defense to its obligations under the Lease.
The Company acknowledges and agrees that Lessor has assigned its rights in (but
not its obligations under) the Lease to the Lender, and that notwithstanding
any breach of the Lease by Lessor including but not limited to a failure by
Lessor to perform any obligations which may be set forth in the Lease, or the
bankruptcy of Lessor, or the breach of any other obligation of Lessor to the
Company (whether arising under the Lease or otherwise), the Company shall be
obligated to perform all the terms and conditions of the Lease, including all
of the Company's obligations with respect to maintenance of the Equipment (as
defined in the Lease) and the Company shall continue to make payment of all
Monies to Lender as scheduled, the Company's remedies for each breach by Lessor
being solely against Lessor.
The Lender agrees, notwithstanding the bankruptcy or insolvency of Lessor, and
so long as no event of default by Company shall have occurred and be continuing
under the Lease, and provided further that the Company shall not be in default
of its obligations hereunder, not to disturb the Company's quiet and peaceful
possession of the Equipment in accordance with the terms of the Lease. It is
understood and agreed that Lender shall have no responsibility for any such
disturbance by a third party, whether claiming by or through Lessor or
otherwise, and any such disturbance shall in no manner restrict or otherwise
limit the obligations of the Company under the Lease and as provided for
hereunder.
12
<PAGE>
The Company represents, warrants and agrees that, (i) it has received
possession of all of the Equipment subject to the Lease, (ii) it has accepted
the same for all purposes under the Lease, (iii) the Lease is in full force and
effect, (iv) no defaults exist on the part of the Company, and (v) as of the
date hereof there are 24 MONTHLY rental installments of $933.00 each due under
the Lease, the next installment being due on MARCH 1, 1998.
IN WITNESS WHEREOF, the Company, the Lender and the Lessor have executed this
Consent and Agreement as of the ___________ day of _______________________,
______.
ACKNOWLEDGED AND AGREED: Netgrocer, Inc. (Lessee)
---------------------------------------------
/s/ Richard D. Falcone
By: ---------------------------------------------------------------------------
Richard Falcone
Title: Chief Operating Officer
----------------------------------------------------------------------
ACKNOWLEDGED AND AGREED: Leasing Edge Corporation (Lessor)
---------------------------------------------
By: /s/ Michael F. Daniels
-------------------------------------------------------------------------
Michael F. Daniels
Title: President & CEO
-----------------------------------------------------------------------
ACKNOWLEDGED AND AGREED: Excel Bank, N.A. (Assignee)
-------------------------------------------
By:
Title:
13
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of January 13, 1997, between Net Grocer Inc., a
corporation with its principal office at 919 Third Avenue, New York, New York
10022 (the "Company"), and Richard Falcone, an individual residing at the
address indicated in the payroll records of the Company from time to time (the
"Executive").
WHEREAS, the parties desire to enter into this Agreement in order to
assure the Company of the services of the Executive and to set forth the duties
and compensation of the Executive, all upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, representations and covenants contained herein, the parties hereto
agree as follows:
1. Duties. The Company shall employ the Executive, and the Executive
shall serve, as Chief Financial Officer and Vice President of Operations of the
Company during the Employment Term (as hereinafter defined). During the
Employment Term, Executive shall perform such duties and functions as the
Company's Board of Directors or Chief Executive Officer shall from time to time
determine and Executive shall comply in the performance of his duties with the
policies of, and be subject to, the direction of the Board of Directors and the
Chief Executive Officer of the Company.
Except as may be expressly otherwise consented to in writing by the
Board of Directors or the Chief Executive Officer of the Company, Executive
covenants and agrees to and shall devote his full working time, attention and
efforts toward the performance of his duties and responsibilities hereunder.
Executive shall not, directly or indirectly, without the prior consent of the
Company's Board of Directors, as owner,
<PAGE>
partner, joint venturer, stockholder, employee, corporate officer or director,
engage or become financially interested in, or be concerned with any other
duties or pursuits which interfere with the performance of his duties
hereunder, or which even if non-interfering, may be inimical or contrary to
the best interests of the Company.
2. Term. The term of this Agreement and the term of employment (the
"Employment Term") of the Executive shall continue for four years from the date
hereof (the "Termination Date") unless sooner terminated in accordance with the
terms hereof; provided, however, that the Termination Date shall be extended
automatically for successive one year periods unless either party hereto gives
the other such party written notice of its or his intention to terminate this
Agreement thirty (30) days prior to the Termination Date (or, if applicable,
any extension of the Termination Date).
If the Company terminates this Agreement without cause (as defined in
Section 5 hereof) at any time other than as set forth in Section 7 hereof, the
parties hereto agree that damages to the Executive shall be difficult to
ascertain in any such event, but in order to limit the liability of the Company
in any such event, the Executive shall be entitled to receive as liquidated
damages and not as a penalty the base salary of the Executive for a period of
six months from any such date of termination.
The Executive is entitled to terminate this Agreement, without any
liability, upon ninety (90) days prior written notice given to the Company
(other than liabilities, if any, resulting from violations of this Agreement by
the Executive occurring prior to such termination or from a violation of
Sections 8 or 9 of this Agreement after such termination and other than as
provided in Section 3(c) above).
-2-
<PAGE>
3. Compensation, etc..
a. Salary. In each of the four years of the Employment Term, the
Executive shall receive a minimum base salary at the rate of $125,000 per annum
as well as such bonuses as may be authorized from time to time by the Board of
Directors as provided in Section 3(b) hereof. The Executive shall be entitled to
such increases in base salary as may be determined by the Company's Board of
Directors from time to time in its sole and absolute discretion. The Executive's
compensation shall be payable in installments in accordance with the Company's
normal salary payment policies, and shall be subject to such payroll deductions
as are required by law.
b. Bonus. The bonus, if any, payable to Executive shall be
determined solely by the Company's Board of Directors from time to time, based
on the Company's evaluation of the performance by Executive of his services to
the Company and on the revenues, profits, and other measures of Company
performance.
c. Senior Management Option Plan. The Executive shall be entitled to
participate in a "senior management option plan" (the "Plan") that the Company
intends to establish. Under the Plan, if established, the Executive shall be
entitled to receive an option (the "Option") to purchase a total of 334 shares
of Company stock available for issuance under the Plan at an exercise price of
two hundred dollars ($200) per share. Except as specifically provided otherwise
herein, 20% of the Option (67 shares) will be immediately exercisable (the
"Initial Portion") and the remainder of the Option (the "Remainder") will
become exercisable in accordance with the following schedule based upon the
period of the Executive's continuous employment or service with the Company
following the date hereof:
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Cumulative
Period Incremental Incremental Percentage
of Continuous Percentage of Number of of
Employment/ Remainder Shares Remainder
Service Exercisable Exercisable Exercisable
Less than 1 year 0% 0 0%
1 year 25% 67 25%
2 years 25% 67 50%
3 years 25% 67 75%
4 or more years 25% 66 100%
Any agreement entered into between the Company and Executive pursuant
to the Plan relating to the Option shall provide that:
(1) if (i) the Company terminates this Agreement for any
reason other than cause (as defined in Section 5 hereof) or (ii)
Executive terminates this Agreement and/or his employment with the
Company any time on or after the first anniversary of the date hereof,
Executive shall be entitled to retain the Initial Portion and the
vested portion of the Remainder as calculated in accordance with the
schedule above, in all instances for a period of two months by which
time Executive must have exercised the Option or the Option (both the
Initial Portion and the Remainder) shall terminate; and
(2) if (i) Executive is terminated for cause or (ii)
terminates this Agreement and/or his employment with the Company at
any time prior to the first anniversary of the date hereof, then (x)
the unexercised portion of the Option shall terminate immediately and
Executive shall not be entitled to exercise any portion of the Option
(both the Initial Portion and the Remainder) so terminated; and (y)
the Company may, it its sole and absolute discretion,
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<PAGE>
repurchase any or all of the shares, if any, purchased by Executive
pursuant to the exercise of the Initial Portion at a per share price
equal to the price paid therefor by Executive for a period of up to
two months from the time of such termination for cause or termination
by Executive.
(3) at any time after any registration statement covering an
initial public offering of Company stock under the Securities Act
shall have become effective, Executive may make a "cashless exercise"
of any portion of the Option then vested, subject to the provisions
contained herein on permitted exercisability of the Option, such that
Executive shall be entitled upon exercise to that number of shares of
Company stock determined by multiplying the number of shares being
exercised by a fraction, the numerator of which shall be the
difference between the then current market price per share of the
Company stock and the Exercise Price, and the denominator of which
shall be the then current market price per share of the Company stock.
d. Expenses. The Company acknowledges and agrees that the
Executive, in rendering the services hereunder, will be required to spend sums
of money for travel to various locations and for the entertainment of various
persons and representatives of companies and organizations with whom the
Company is having, or would like to have, business relationships. In addition
to the base salary provided for in Section 3 hereof, the Company shall
reimburse the Executive, upon presentation by the Executive of documented
expense accounts, for any travel or other reasonable out-of-pocket expenses
incurred by the Executive in rendering the services hereunder on behalf of the
Company and which are incurred pursuant to the Company's expense
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<PAGE>
reimbursement policies; provided however, that Executive shall be entitled to
an advance from the Company for any single expense item greater than $500 in
amount but in no event will Executive be relieved of his obligation to properly
document all expenses. In addition to the foregoing, Executive shall be
entitled to reimbursements for expenses incurred by Executive in commuting to
and from the Company's principal executive offices as required pursuant to
Section 4 hereof, but in no event in an amount in excess of $5,000 per annum;
and provided that all such commuting expenses shall be documented as set forth
above.
e. Vacations. The Executive shall be entitled to 15 business
days of vacation under guidelines established by the Company from time to time.
Vacation time shall not cumulate from year to year.
f. Other Benefits. The Executive shall be entitled to
participate in all benefit plans generally made available to the Company's
other employees including, but not limited to, life insurance, health
insurance, retirement and 401(k) plans; provided that the Company is under no
obligation to adopt any such plan or retain any such plan, if already adopted
or if adopted in the future.
4. Place of Performance. In connection with his employment by the
Company, the Executive shall be based at the principal executive offices of the
Company, except for travel required for Company business.
5. Termination by the Company. The Company may terminate this
Agreement and all of the Company's obligations hereunder for "cause."
Termination by the Company for "cause" shall mean termination because of: (i)
Executive's refusal to perform, or willful breach or neglect of the performance
of any of his duties or
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<PAGE>
obligations hereunder (other than breaches of the covenants set forth in
Sections 1, 8 and 9 hereof which events are governed by clauses (vi) and (vii)
below); (ii) Executive's conviction (which, through lapse of time or otherwise,
is not subject to appeal) of any crime or offense involving money or other
property of the Company or any of its subsidiaries, (iii) Executive's
performance of any act or his failure to act, for which if Executive were
prosecuted and convicted, a crime or offense involving money or property of the
Company or any of its subsidiaries, or which would constitute a felony in the
jurisdiction involved, would have occurred, (iv) any attempt by Executive to
improperly secure any personal profit in connection with the business of the
Company or any of its subsidiaries, (v) chronic alcoholism or drug addiction
unless, in the sole and absolute discretion of the Company, it does not
interfere with the performance of the Executive's duties, (vi) any breach by
Executive of the terms of Section 8 or 9 of this Agreement or (vii) any breach
by Executive of the terms of Section 1 of this Agreement.
6. Death; Disability. If the Executive shall die or become
"permanently disabled" during the term of this Agreement, this Agreement and
all benefits hereunder shall terminate except that such termination shall not
affect any vested rights which the Executive may have at the time of his death
pursuant to any insurance or other death benefit plans or arrangements of the
Company, which rights shall continue to be governed by the provisions of such
plans and agreements. For the purposes of this Agreement, Executive shall be
deemed to be "permanently disabled" if, during the term hereof, because of ill
health, physical or mental disability, or for other causes beyond Executive's
control, Executive shall have been unable or unwilling, or shall have failed
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<PAGE>
to perform his duties hereunder for one hundred twenty (120) consecutive days
or for a total period of one hundred twenty (120) days, whether consecutive or
not.
7. Severance in the Event of a Change in Control
a. In the event that (i) the Company terminates the employment of the
Employee (other than for "cause" as defined in Section 5) within the 12 months
immediately succeeding a Change in Control of the Company (as defined below),
(ii) the Employee terminates his employment with the Company within the 12
months immediately succeeding a Change in Control of the Company as a result of
a material change in the Employee's position within the Company or a
significant modification to the Employee's working conditions or terms of
employment with the Company, the Company shall pay to the Employee the greater
of (x) the then effective base salary of the Employee or (y) the effective base
salary of the Employee at the time of the Change in Control of the Company, in
either instance for a period of one year from any such date of termination (the
"Severance Amount").
b. Notwithstanding anything in paragraph 7a to the contrary, the
Employee shall not be entitled to the Severance Amount if the Employee's
employment with the Company is terminated (i) as a result of the death of the
Employee or the Employee being permanently disabled (as defined in Section 6)
or (ii) for "cause" (as defined in Section 5).
c. (i) For purposes of this Agreement, "Change in
Control of the Company" shall be deemed to occur if
(w) there shall be consummated (A) any consolidation
or merger of the Company in which the Company is not
the continuing or surviving corporation
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<PAGE>
or pursuant to which shares of the Company's common
stock, would be converted into cash, securities or
other property, other than (i) a merger of the
Company in which the holders of the common stock
immediately prior to the merger have the same
proportionate ownership of common stock of the
surviving corporation immediately after the merger,
(ii) a transaction involving American Value Brands
Inc. ("AVB") pursuant to which the Company's
stockholders receive shares of AVB's Common Stock or
of the surviving entity to the transaction based
upon a valuation for the Company's Common Stock
determined by the Company's Board of Directors in
its sole discretion, or (B) any sale, lease,
exchange or other transfer (in one transaction or a
series of related transactions) of all, or
substantially all, of the assets of the Company, or
(x) the stockholders of the Company shall approve
any plan or proposal for liquidation or dissolution
of the Company, or (y) any person (as such term is
used in Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange
Act")) who, at the time of the execution of this
Agreement, does not own 5% or more of the Company's
outstanding Common Stock, shall become the
beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of 40% or more of the
outstanding Common Stock other than pursuant to a
plan or arrangement entered into by such person and
the
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<PAGE>
Company, or (z) during any period of two consecutive
years commencing on the date hereof, individuals who
at the beginning of such period constitute the
entire Board of Directors shall cease for any reason
to constitute a majority thereof unless the
election, or the nomination for election by the
Company's stockholders, of each new director was
approved by a vote of at least two-thirds of the
directors then still in office who were directors at
the beginning of the period; provided, however, that
none of the transactions set forth above shall be
deemed to be a Change in Control of the Company
unless each of Frederick R. Adler and Uri Evan shall
cease to own other such Change of Control at least
80% of the securities of the Company owned by such
person prior to such Change in Control.
8. Protection of Confidential Information. The Executive acknowledges
that his employment by the Company will, throughout the term of this Agreement,
bring him in contact with many confidential affairs of the Company not readily
available to the public, and plans for future developments. In recognition of
the foregoing, the Executive covenants and agrees that he will not use or
disclose to anyone outside of the Company, as the case may be, any material
confidential matters of the Company, which are not otherwise in the public
domain, either during or for a period of twenty-four months after the
termination of his employment with the Company, except with the Company's
written consent or as required by court order, law or subpoena, or other legal
compulsion to disclose.
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<PAGE>
9. Covenant Not To Compete.
a. The Executive agrees that, without the Company's prior written
consent which may be withheld in the Company's sole and absolute discretion,
during the term of this Agreement and, subject to the provisions of the last
paragraph of Section 2 hereof, for the two years immediately following the
Employment Term (including any extensions thereof, as provided herein),
Executive shall not either directly or indirectly, whether by establishing a
new business or by joining an existing one, and whether as a principal,
employee, stockholder, officer, director, agent, consultant or in any other
capacity, compete with the Company or become associated with a business
enterprise which competes with any business operation of the Company, or any
business operation of the Company planned prior to Executive's termination of
employment, in the geographical areas in which the Company is then doing and
plans to do business for the next succeeding twelve month period.
b. Executive and the Company intend that: (i) this covenant not to
compete shall be construed as a series of separate covenants, one for each
county and each product line; (ii) if any portion of the restrictions set forth
in this Section 9 should, for any reason whatsoever, be declared invalid by a
court of competent jurisdiction, the validity or enforceability of the
remainder of such restrictions shall not thereby be adversely affected; (iii)
Executive declares that the territorial and time limitations set forth in this
Section 9 are reasonable and properly required for the adequate protection of
the business in the Company. In the event any such territorial or time
limitation is deemed to be unreasonable by a court of competent jurisdiction,
Executive agrees to the reduction of the territorial or time limitation to the
area or
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<PAGE>
period which such court shall have deemed reasonable; (iv) the existence of any
claim or cause of action by Executive against the Company shall not constitute
a defense to the enforcement by the Company of such restrictions, but such
claim or cause of action shall be litigated separately.
10. Successors; Binding Agreement. This Agreement and all rights of
the Executive hereunder shall inure to the benefit of, and shall be enforceable
by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die while any amount would still be payable to him hereunder
if he had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's devisee, legatee or other designee or, if there be no such
designee, to the Executive's estate. This Agreement shall inure to the benefit
of the successors and assigns of the Company.
11. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered against receipt therefor
or three days after being mailed by United States certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Mr. Richard Falcone
(at the address referenced on the first page of
this Agreement)
If to the Company: Net Grocer Inc.
919 Third Avenue
New York, New York 10022
Attention: President
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<PAGE>
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officers of the Company as may
be specifically designated by its Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
13. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
14. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein, and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto or any
predecessor of any party hereto.
15. Non-Assignability. This Agreement is entered into in consideration
of the personal qualities of the Executive and may not be, nor may any right or
interest hereunder be, assigned by him without the prior written consent of
Company.
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<PAGE>
16. Choice of Law. This Agreement is to be governed by and interpreted
under the laws of the State of New York without regard to its conflict of laws
principles.
17. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
18. Severability. The provisions of Sections 2, 8, 9, 15 (second
paragraph) and 16 of this Agreement shall survive the termination of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first-above written.
NET GROCER INC.
By:/s/ Daniel Nissan
_________________________________
Daniel Nissan, President and
Chief Operating Officer
EXECUTIVE
/s/ Richard D. Falcone
------------------------------------
Richard Falcone
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT made as of February 1, 1997, between Net Grocer Inc., a
corporation with its principal office at 919 Third Avenue, New York, New York
10022 (the "Company"), and Jeffrey Steinberg, an individual residing at the
address indicated in the payroll records of the Company from time to time (the
"Executive").
WHEREAS, the parties desire to enter into this Agreement in order to
assure the Company of the services of the Executive and to set forth the duties
and compensation of the Executive, all upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises, representations and covenants contained herein, the parties hereto
agree as follows:
1. Duties. The Company shall employ the Executive, and the Executive
shall serve, as Vice President of Marketing and Customer Management of the
Company during the Employment Term (as hereinafter defined). During the
Employment Term, Executive shall perform such duties and functions which are
consistent with Executive's title as the Company's Board of Directors or Chief
Executive Officer shall from time to time determine and Executive shall comply
in the performance of his duties with the policies of, and be subject to, the
direction of the Board of Directors and the Chief Executive Officer of the
Company.
Except as may be expressly otherwise consented to in writing by the
Board of Directors or the Chief Executive Officer of the Company, Executive
covenants and agrees to and shall devote his full working time, attention and
efforts toward the performance of his duties and responsibilities hereunder.
Executive shall not, directly
<PAGE>
or indirectly, without the prior consent of the Company's Board of Directors,
as owner, partner, joint venturer, stockholder, employee, corporate officer or
director, engage or become financially interested in, or be concerned with any
other duties or pursuits which interfere with the performance of his duties
hereunder, or which even if non- interfering, may be inimical or contrary to
the best interests of the Company.
2. Term. The term of this Agreement and the term of employment (the
"Employment Term") of the Executive shall continue for four years from February
14, 1997 (the "Termination Date") unless sooner terminated in accordance with
the terms hereof; provided however, that the Termination Date shall be extended
automatically for successive one year periods unless either party hereto gives
the other such party written notice of its or his intention to terminate this
Agreement thirty (30) days prior to the Termination Date (or, if applicable,
any extension of the Termination Date).
In the event the Company terminates this Agreement without cause (as
defined in Section 5 hereof), the parties hereto agree that damages to the
Executive shall be difficult to ascertain in any such event, but in order to
limit the liability of the Company in any such event, the Executive shall be
entitled to receive as liquidated damages and not as a penalty the lesser of
(i) the base salary of the Executive for a period of three months from any such
date of termination or (ii) the entire amount of the base salary remaining due
and payable from any such date of termination to the expiration of this
Agreement, to be paid ratably over the remaining term of the Agreement;
provided however, that in the event Executive is terminated without cause (as
defined in Section 5 hereof) during the first twelve months of the Employment
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<PAGE>
Term, Executive shall be entitled to receive as liquidated damages and not as a
penalty the base salary of Executive for a period of twelve months from any
such date of termination.
The Executive is entitled to terminate this Agreement, without any
liability, upon ninety (90) days prior written notice given to the Company
(other than liabilities, if any, resulting from violations of this Agreement by
the Executive occurring prior to such termination or from a violation of
Sections 7 or 8 of this Agreement after such termination). In the event the
Executive so terminates this Agreement, the covenant not to compete provided
for in Section 8(a) hereof shall be extended for an additional six months (two
years and six months in total from such termination).
3. Compensation, etc.
a. Salary. In each of the three years of the Employment Term, the
Executive shall receive a base salary at the rate of $125,000 per annum as well
as such bonuses as may be authorized from time to time by the Board of
Directors as provided in Section 3(b) hereof. The Executive's compensation
shall be payable in installments in accordance with the Company's normal salary
payment policies, and shall be subject to such payroll deductions as are
required by law.
b. Bonus. The bonus, if any, payable to Executive shall be
determined solely by the Company's Board of Directors from time to time, based
on the Company's evaluation of the performance by Executive of his services to
the Company and on the revenues, profits, and other measures of Company
performance.
c. Senior Management Option Plan. The Executive shall be entitled
to participate in the Company's 1996 Stock Option Plan (the "Plan"). Under
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<PAGE>
the Plan and contemporaneously with the commencement of the Employment Term,
the Executive shall receive an option (the "Option") to purchase 200 shares of
Company stock available for issuance under the Plan at an exercise price of two
hundred dollars ($200) per share (the "Exercise Price"). Except as specifically
provided otherwise herein, the Option will become exercisable in accordance
with the following schedule based upon the period of the Executive's continuous
employment or service with the Company following the date hereof:
Period Incremental Cumulative
of Continuous Percentage of Percentage of
Employment/ Option Option
Service Exercisable Exercisable
Less than 1 year 0% 0%
1 year 25% 25%
2 years 25% 50%
3 years 25% 75%
4 or more years 25% 100%
The Company hereby represents that the Exercise Price was
determined by dividing the contributions of capital to the Company by the
Company's current stockholders by the number of shares deemed issued and
outstanding on the date hereof. Any agreement entered into between the Company
and Executive pursuant to the Plan relating to the Option shall provide that:
(1) in the event (i) the Company terminates this Agreement
for any reason other than cause (as defined in Section 5 hereof) or
(ii) Executive terminates this Agreement and/or his employment with
the Company any time on or after the first anniversary of the date
hereof, Executive shall be entitled to retain the vested portion of
the Option calculated in accordance with the
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<PAGE>
schedule above for a period of three months by which time Executive
must have exercised the Option or the Option shall terminate;
(2) in the event the Company terminates Executive's
employment with the Company without cause, Executive will be credited
with one additional year of continuous employment for purposes of
determining the Cumulative Percentage of Option Exercisable in the
above schedule; provided that Executive shall be credited with a
second year of continuous employment if such event occurs during the
first twelve months of the Employment Term.
(3) in the event Executive (i) is terminated for cause or (ii)
terminates this Agreement and/or his employment with the Company at any
time prior to the first anniversary of the date hereof, the unexercised
portion of the Option shall terminate immediately and Executive shall
not be entitled to exercise any portion of the Option so terminated;
and
(4) at any time after any registration statement covering an
initial public offering of Company stock under the Securities Act
shall have become effective, Executive may make a "cashless exercise"
of any portion of the Option then vested, subject to the provisions
contained herein on permitted exercisability of the Option, such that
Executive shall be entitled upon exercise to that number of shares of
Company stock determined by multiplying the number of shares being
exercised by a fraction, the numerator of which shall be the
difference between the then current market price per share of the
Company stock and the Exercise Price, and the denominator of which
shall be the then current market price per share of the Company stock.
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<PAGE>
d. Expenses. The Company acknowledges and agrees
that the Executive, in rendering the services hereunder, will be required to
spend sums of money for travel to various locations and for the entertainment
of various persons and representatives of companies and organizations with whom
the Company is having, or would like to have, business relationships. In
addition to the base salary provided for in Section 3 hereof, the Company shall
reimburse the Executive, upon presentation by the Executive of documented
expense accounts, for any travel or other reasonable out-of-pocket expenses
incurred by the Executive in rendering the services hereunder on behalf of the
Company and which are incurred pursuant to the Company's expense reimbursement
policies; provided however, that Executive shall be entitled to an advance from
the Company for any single expense item greater than $500 in amount but in no
event will Executive be relieved of his obligation to properly document all
expenses. In addition to the foregoing, Executive shall be entitled to
reimbursements for reasonable expenses, including temporary housing and travel
to the Boston area, incurred by Executive in relocating to the New York area as
required pursuant to Section 4 hereof, but in no event in an amount in excess
of $25,000; and provided that all such relocation expenses shall be documented
as set forth above.
e. Vacations. The Executive shall be entitled to 15
business days of vacation under guidelines established by the Company from time
to time. Vacation time shall not cumulate from year to year.
4. Place of Performance. In connection with his employment by the
Company, the Executive shall be based at the principal executive offices of the
Company, except for travel required for Company business.
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<PAGE>
5. Termination by the Company. The Company may terminate this
Agreement and all of the Company's obligations hereunder for "cause."
Termination by the Company for "cause" shall mean termination because of: (i)
Executive's refusal to perform, or willful breach or neglect of the performance
of any of his duties or obligations hereunder (other than breaches of the
covenants set forth in Sections 1, 7 and 8 hereof which events are governed by
clauses (vi) and (vii) below); (ii) Executive's conviction (which, through
lapse of time or otherwise, is not subject to appeal) of any crime or offense
involving money or other property of the Company or any of its subsidiaries,
(iii) Executive's performance of any act or his failure to act, for which if
Executive were prosecuted and convicted, a crime or offense involving money or
property of the Company or any of its subsidiaries, or which would constitute a
felony in the jurisdiction involved, would have occurred, (iv) any attempt by
Executive to improperly secure any personal profit in connection with the
business of the Company or any of its subsidiaries, (v) chronic alcoholism or
drug addiction, (vi) any breach by Executive of the terms of Section 7 or 8 of
this Agreement or (vii) any breach by Executive of the terms of Section 1 of
this Agreement.
6. Death; Disability. Except as provided herein, or in the Plan or any
agreement made pursuant thereto, if the Executive shall die or become
"permanently disabled" during the term of this Agreement, this Agreement and
all benefits hereunder shall terminate except that such termination shall not
affect any vested rights which the Executive may have at the time of his death
pursuant to any insurance or other death benefit plans or arrangements of the
Company, which rights shall continue to be governed by the provisions of such
plans and agreements. For the purposes of this
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<PAGE>
Agreement, Executive shall be deemed to be "permanently disabled" if, during
the term hereof, because of ill health, physical or mental disability, or for
other causes beyond Executive's control, Executive shall have been unable or
unwilling, or shall have failed to perform his duties hereunder for ninety (90)
consecutive days or for a total period of one hundred twenty (120) days,
whether consecutive or not.
7. Protection of Confidential Information. The Executive acknowledges
that his employment by the Company will, throughout the term of this Agreement,
bring him in contact with many confidential affairs of the Company not readily
available to the public, and plans for future developments. In recognition of
the foregoing, the Executive covenants and agrees that he will not use or
disclose to anyone outside of the Company, as the case may be, any material
confidential matters of the Company, which are not otherwise in the public
domain, either during or for a period of twenty-four months after the
termination of his employment with the Company, except with the Company's
written consent or as required by court order, law or subpoena, or other legal
compulsion to disclose.
8. Covenant Not To Compete.
a. The Executive agrees that during the term of this Agreement and,
subject to the provisions of the last paragraph of Section 2 hereof, for the
two years immediately following the Employment Term (including any extensions
thereof, as provided herein) (the "Covenant Period"), Executive shall not
either directly or indirectly, whether by establishing a new business or by
joining an existing one, and whether as a principal, employee, stockholder,
officer, director, agent, consultant or in any other capacity, compete with the
Company or become associated with a business
-8-
<PAGE>
enterprise which competes with any business operation of the Company, or any
business operation of the Company planned prior to Executive's termination of
employment, in the geographical areas in which the Company is then doing and
plans to do business for the next succeeding twelve month period; provided
however, that in the event the Company terminates Executive's employment with
the Company without cause, the Covenant Period shall be six months unless such
termination occurs during the first twelve months of the Employment Term, in
which case the Covenant Period shall be twelve months.
b. Executive and the Company intend that: (i)
this covenant not to compete shall be construed as a series of separate
covenants, one for each county and each product line; (ii) if any portion of
the restrictions set forth in this Section 8 should, for any reason whatsoever,
be declared invalid by a court of competent jurisdiction, the validity or
enforceability of the remainder of such restrictions shall not thereby be
adversely affected; (iii) Executive declares that the territorial and time
limitations set forth in this Section 8 are reasonable and properly required
for the adequate protection of the business in the Company. In the event any
such territorial or time limitation is deemed to be unreasonable by a court of
competent jurisdiction, Executive agrees to the reduction of the territorial or
time limitation to the area or period which such court shall have deemed
reasonable; (iv) the existence of any claim or cause of action by Executive
against the Company shall not constitute a defense to the enforcement by the
Company of such restrictions, but such claim or cause of action shall be
litigated separately.
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<PAGE>
9. Successors; Binding Agreement. This Agreement and all rights of the
Executive hereunder shall inure to the benefit of, and shall be enforceable by,
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee or other designee or, if there be no such designee, to the Executive's
estate. This Agreement shall inure to the benefit of the successors and assigns
of the Company.
10. Notice. For the purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered against receipt therefor
or three days after being mailed by United States certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: Mr. Jeffrey Steinberg
(at the address referenced on the first page of
this Agreement)
with a copy to: Walter Wekstein, Esq.
Gadsby & Hannah LLP
225 Franklin Street
Boston, MA 02110
If to the Company: Net Grocer Inc.
919 Third Avenue
New York, New York 10022
Attention: President
with a copy to: Sheldon G. Nussbaum, Esq.
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103
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or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.
11. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officers of the Company as may
be specifically designated by its Board of Directors. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
12. Validity. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
13. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto in respect of the subject matter
contained herein, and supersedes all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party hereto or any
predecessor of any party hereto.
14. Non-Assignability. This Agreement is entered into in consideration
of the personal qualities of the Executive and may not be, nor may any right or
interest hereunder be, assigned by him without the prior written consent of
Company.
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15. Choice of Law. This Agreement is to be governed by and interpreted
under the laws of the State of New York without regard to its conflict of laws
principles.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
17. Severability. The provisions of Sections 2, 7, 8, 14 (second
paragraph) and 15 of this Agreement shall survive the termination of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first-above written.
NET GROCER INC.
By:/s/ Daniel Nissan
_________________________________
Daniel Nissan, President and
Chief Operating Officer
EXECUTIVE
/s/ Jeffrey Steinberg
____________________________________
Jeffrey Steinberg
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE
CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND ARE DENOTED BY [*]. THE
CONFIDENTIAL PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
MARKETING AGREEMENT
Marketing Agreement dated as of November 17, 1997 (the "Agreement"),
between CUC International Inc., a Delaware corporation with principal offices
at 707 Summer Street, Stamford, Conn. 06901 ("CUC"), and Net Grocer Inc., a
Delaware corporation with principal offices at 919 Third Avenue, 18th floor,
New York, New York 10022 ("NetGrocer").
WHEREAS, NetGrocer operates an Internet-based service (the "NetGrocer
Service"), currently under the name "NetGrocer", which, among other things,
provides certain supermarket services to individuals, businesses and other
groups (all such users of NetGrocer, the "NetGrocer Users"), and which is
currently located on the World Wide Web at the Uniform Resource Locator ("URL")
address identified as "www.netgrocer.com" (the "NetGrocer Website");
WHEREAS, CUC operates an Internet-based business under the name
"NetMarket" (such business, "NetMarket"), which provides online,
membership-based consumer services, in areas such as travel, shopping, auto and
dining, to its members as well as to other individuals, businesses and groups
(all such users of NetMarket, whether or not they are members of NetMarket, the
"NetMarket Users"), and which is currently located on the World Wide Web at the
URL address identified as "www.netmarket.com" (the "NetMarket Website");
WHEREAS, NetGrocer desires to create, with the cooperation of
NetMarket, a customized version of the NetGrocer Service, which would provide
the same general features as the NetGrocer Service but would be customized to
match the style, layout, colors and general appearance of the NetMarket Website
(the "Customized NetGrocer Service");
WHEREAS, NetMarket desires to establish a separate location within the
NetMarket Website (the "Customized NetGrocer Site") in which the primary
frame(s) of such location would display the Customized NetGrocer Service (which
would be linked on a real-time basis to NetGrocer's computer servers) and which
would offer access to the Customized NetGrocer Service to all NetMarket Users;
WHEREAS, NetGrocer desires to offer access from the NetGrocer Website
to the NetMarket Website to all NetGrocer Users and to otherwise promote use of
the NetMarket Website;
WHEREAS, CUC desires to offer membership in NetMarket to NetGrocer
Users accessing the NetMarket Website from the NetGrocer Website (those
NetGrocer Users who become members in NetMarket as a result of being linked to
the NetMarket Website from the NetGrocer Website pursuant to this Agreement are
hereafter referred to as "Members"); and
<PAGE>
WHEREAS, NetGrocer desires to offer products and services to all
NetMarket Users accessing the Customized NetGrocer Service through the
Customized NetGrocer Site (those NetMarket Users who initially purchase
products or services from NetGrocer as a result of accessing the Customized
NetGrocer Service through the Customized NetGrocer Site, are hereafter referred
to as "Customized NetGrocer Customers").
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and intending to be legally bound hereby, CUC and
NetGrocer agree as follows:
1. Responsibilities of NetGrocer.
(a) Placement of NetMarket Link. Commencing on or prior to December
31, 1997, NetGrocer will feature an icon for NetMarket (the "NetMarket Link")
that shall include a hyperlink from the NetGrocer Website to either (i) a
customized "bridge" page which is displayed on the NetGrocer Website but which
is linked on a real-time basis to NetMarket's computer servers, that explains
the various features of NetMarket and then allows access to NetMarket, or (ii)
certain promotional Internet pages located on the NetMarket Website that
explain the various features of NetMarket and then provide access to NetMarket,
in either case as determined by CUC in its reasonable discretion. The NetMarket
Link shall be displayed on the "home page" of the NetGrocer Website (i.e., on
the primary, top level page of such NetGrocer Website) or on such other
equivalent promotional location on the NetGrocer Website which has at least the
same traffic, exposure and prominence as such home page (such other equivalent
promotional location, the "Equivalent Space"); in particular, the NetMarket
Link will appear on the initial, viewable space of such home page or Equivalent
Space (also known as being placed "above the fold") so that persons viewing
such home page or Equivalent Space do not have to scroll down such home page or
Equivalent Space, or take any other similar action to move around such home
page or Equivalent Space, in order to view such NetMarket Link when they
initially view such home page or Equivalent Space on their computer screen. The
NetMarket Link shall contain a URL (or other similar means), to be provided by
NetMarket, that shall contain a unique marker so that NetMarket can determine
if a NetMarket User entered the NetMarket Website from the NetGrocer Website.
CUC shall provide NetGrocer with a copy of the icon for the NetMarket Link
which shall be initially in a Graphics Interchange Format (a "GIF format");
NetGrocer shall display such icon so that it is at least as large as the icons
or other similar images which are displayed on the NetGrocer Website for any
other third party's services or for any NetGrocer services which are
non-retail-grocery in nature, but in no event smaller than 120 pixels by 40
pixels (or other comparable size measurement representing the same amount of
space). In addition to the placement of the NetMarket Link on its home page,
NetGrocer shall take other reasonable steps to promote NetMarket on the
NetGrocer Website, including, without limitation, (x) placing advertisements
for NetMarket on the NetGrocer Website in a prominent position in front of the
NetGrocer User immediately after the time that a NetGrocer User submits an
order to purchase a product or service through the NetGrocer Website
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(such advertisements, the "Checkout Ads"), and (y) placing occasional "banner"
advertisements, if available, relating to the NetMarket Website or other
similar measures.
(b) Cooperation with respect to the Customized NetGrocer Site.
NetGrocer shall cooperate with CUC in the creation of the Customized NetGrocer
Site, including, without limitation, (i) creating and modifying, from time to
time as required, the Customized NetGrocer Service so that it has the same
general features as the NetGrocer Service (e.g., the same product categories,
the same product prices, quantities, brands, nutritional or health information,
characteristics and visual images, the same sale terms and conditions, the same
customer assistance features, etc.) but is customized to fit the style, layout,
colors and general appearance of the NetMarket Website; (ii) making such
modifications to the Customized NetGrocer Service as may from time to time be
reasonably requested by CUC; (iii) establishing and maintaining the Customized
NetGrocer Service on NetGrocer's computer servers and creating electronic links
between NetMarket and NetGrocer so that NetMarket can obtain instant access to
such Customized NetGrocer Service and is able to display the Customized
NetGrocer Service on the Customized NetGrocer Site and provide the Customized
NetGrocer Service to all NetMarket Users; (iv) creating electronic links
between NetMarket and NetGrocer so that NetMarket can secure direct access to
the applicable NetGrocer database in order to obtain and use any information
relating to each purchase effected through the Customized NetGrocer Site (e.g.,
the dollar amount of each such purchase, the items acquired, the amount of any
rebates or discounts granted with respect to each such purchase, the delivery
status of each such purchase, the name, address, phone number and e-mail
address of each such purchaser, etc.) (such information, the "Data"), subject
to the limitations set forth below in this Section 1(b); (v) processing and
fulfilling all order(s) received by NetGrocer with respect to each person who
purchases any NetGrocer products or services offered through the Customized
NetGrocer Site; and (vi) treating each NetMarket User that utilizes the
Customized NetGrocer Site no less favorably than the manner in which NetGrocer
generally treats each NetGrocer User. In connection with the provisions of
Section 1(b)(iv) above, NetGrocer hereby grants CUC and its affiliates a
non-exclusive, worldwide, royalty-free license to use the Data for any purpose
whatsoever; provided that neither CUC nor any of its affiliates shall be
permitted to sell or license the Data to any third party, or provide such Data
to any of the suppliers of the Company, or use the Data to sell or provide any
consulting services to any third party which competes with the Company with
respect to the NetGrocer Services, in each case without the prior written
consent of NetGrocer (which consent may be withheld by NetGrocer in its sole
discretion).
(c) Review of NetMarket Promotional Content. The parties acknowledge
and agree that CUC will provide to NetGrocer, at NetGrocer's request and for
NetGrocer's advance written approval (which approval shall not be unreasonably
withheld by NetGrocer), copies of the content and design of the NetMarket Link
and the Checkout Ad and all listings, links and other uses of, or references
to, NetMarket or the NetMarket trademark which are to be set forth on the
NetGrocer Website or otherwise
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utilized by NetGrocer in connection with this Agreement (such NetMarket
materials and all other such NetMarket content, designs, trademarks, trade
names, service marks, service names, copyrighted material, listings, links,
uses, references and other information, the "NetMarket Promotional Content").
In the event that NetGrocer proposes to use any NetMarket Promotional Content
which has not been developed by NetMarket or previously reviewed by NetMarket,
NetGrocer shall provide to CUC copies of such NetMarket Promotional Content for
CUC's advance written approval (which approval shall not be unreasonably
withheld by CUC). Notwithstanding anything to the contrary contained in this
Section 1(c), other than with respect to the NetMarket Link, there shall be no
approval requirement with respect to any NetMarket Promotional Content which is
substantially similar to NetMarket Promotional Content which has been
previously-approved by CUC. NetGrocer acknowledges that CUC shall retain full
rights and ownership over, and NetGrocer shall make no claim on, any and all
NetMarket Promotional Content, even if such NetMarket Promotional Content was
developed in whole or in part by NetGrocer. Subject to the provisions of this
Agreement (including, without limitation, the other provisions of this Section
1(c)), during the term of this Agreement, CUC grants to NetGrocer a
non-exclusive, non-assignable, worldwide, royalty-free license to use the
NetMarket Promotional Content in connection with the uses contemplated pursuant
to this Agreement; provided that, unless otherwise agreed to in writing by CUC,
no such permitted use shall (i) be of lower quality than the manner in which
CUC uses generally the particular NetMarket Promotional Content in question;
(ii) be harmful to the public image of CUC and its affiliates in any meaningful
respect; or (iii) violate in any material respect any of the express provisions
of this Agreement.
(d) Responsibilities Relating to Customized NetGrocer Customers.
NetGrocer shall: (i) bill for and collect from Customized NetGrocer Customers
any amounts charged with respect to any products or services purchased by such
persons by or through NetGrocer; (ii) maintain all customer and other records
pertaining to such persons; (iii) provide all NetGrocer products and services
to such persons; and (iv) otherwise service such persons with respect to those
matters which relate to NetGrocer. NetGrocer agrees that in providing products
or services to each Customized NetGrocer Customer, it shall: (x) provide such
products and services in a manner consistent with the way in which such
products or services were advertised or represented by NetGrocer to such
Customized NetGrocer Customer; (y) treat such Customized NetGrocer Customer
fairly and in accordance with reasonable business practices; and (z) comply
with all applicable laws. Except upon the prior written consent of CUC,
NetGrocer shall not make any representation or warranty to any Customized
NetGrocer Customer or to any other party concerning NetMarket, CUC or any of
their respective vendors, representatives or affiliates or concerning any of
their respective products or services. Except as otherwise expressly provided
in this Agreement and except with respect to the NetMarket Promotional Content
and the actual operation of the Customized NetGrocer Site, NetGrocer shall have
complete control over, and all rights and liabilities relating to, the content
set forth on the NetGrocer Website, the content set forth on the Customized
NetGrocer Site which is unique to the NetGrocer Service, the NetGrocer Service,
the Customized NetGrocer Service, the NetGrocer
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relationship with the Customized NetGrocer Customers, and all NetGrocer-related
information collected from the Customized NetGrocer Customers. Notwithstanding
the foregoing and notwithstanding anything to the contrary contained herein,
the parties agree that the Customized NetGrocer Site shall not sell or provide
any non-grocery products or services which at any time compete with any of the
products or services offered through the NetMarket Website (other than those
non-grocery products or services which are offered through the NetGrocer
Website on the date hereof), unless NetGrocer obtains the prior written consent
of CUC (which may be withheld by CUC in its sole discretion); provided that the
foregoing limitation shall not restrict the ability of NetGrocer and its
affiliates to offer any products or services (including non-grocery products or
services) through the NetGrocer Website or through any other Internet location
(other than through the Customized NetGrocer Site).
2. Responsibilities of CUC.
(a) Creation of Customized NetGrocer Site. Commencing on or prior to
December 31, 1997, NetMarket will: (x) create a link from the home page of the
NetMarket Website to the Customized NetGrocer Site and cooperate with NetGrocer
in the creation of the Customized NetGrocer Service and the Customized
NetGrocer Site; and (y) feature an icon for the Customized NetGrocer Service
(the "Customized NetGrocer Link") on the "home page" of its NetMarket Website
(i.e., on the primary, top level page of such NetMarket Website), and on the
initial shopping page of the NetMarket Website, which in each case shall
include a hyperlink to the Customized NetGrocer Site. Such Customized NetGrocer
Link shall be placed in an area of the home page of the NetMarket Website so
that it has the same prominence as the icons identifying other services of
NetMarket, such as the shopping, auto and travel services. Unless otherwise
mutually agreed to by the parties, the Customized NetGrocer Link shall identify
the Customized NetGrocer Site as either the groceries page of the NetMarket
Website or as "NetGrocer," and once a NetMarket User has accessed the
Customized NetGrocer Site, the Customized NetGrocer Site shall be identified as
"NetGrocer". NetMarket may create on the NetMarket Website such other links to
the Customized NetGrocer Site as NetMarket determines in its sole discretion.
In addition to the preceding provisions of this Section 2(a), NetMarket shall
take other reasonable steps to promote the Customized NetGrocer Site from time
to time (e.g., placing occasional "banner" advertisements, if available,
relating to the Customized NetGrocer Site or other similar measures).
(b) Providing Access for NetGrocer Users to the NetMarket Website. CUC
shall permit access to the NetMarket Website to all NetGrocer Users who wish to
visit the NetMarket Website and utilize NetMarket from the NetGrocer Website
(including, without limitation, all NetGrocer Users who wish to enroll as
Members of NetMarket through NetGrocer and all NetGrocer Users who are already
Members and who wish to visit the NetMarket Website).
(c) Review of NetGrocer Promotional Content. With respect to any
NetGrocer Promotional Content (as defined below) which is to be provided by
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NetGrocer to NetMarket pursuant to this Agreement, NetGrocer shall provide to
NetMarket copies of the content and design of such NetGrocer Promotional
Content, for NetMarket's advance written approval (which approval shall not be
unreasonably withheld by NetMarket). In addition, in the event that NetMarket
proposes to use any NetGrocer Promotional Content which has not been developed
by NetGrocer or previously reviewed by NetGrocer, NetMarket shall provide to
NetGrocer copies of such NetGrocer Promotional Content for NetGrocer's advance
written approval (which approval shall not be unreasonably withheld by
NetGrocer). Notwithstanding anything to the contrary contained in this Section
2(c), other than with respect to the Customized NetGrocer Link, there shall be
no approval requirement with respect to any NetGrocer Promotional Content which
is substantially similar to NetGrocer Promotional Content which has been
previously-approved by NetGrocer. CUC acknowledges that NetGrocer shall retain
full rights and ownership over all NetGrocer Promotional Content, even if such
NetGrocer Promotional Content was developed in whole or in part by NetMarket.
For purposes of this Agreement, the term "NetGrocer Promotional Content" shall
mean all content and designs which are unique to NetGrocer or the NetGrocer
Service and all uses of, or references to, any NetGrocer trademarks, trade
names, service marks, service names or copyrighted material which are to be set
forth on the NetMarket Website (including, without limitation, in connection
with the Customized NetGrocer Link) or the Customized NetGrocer Site or which
are otherwise utilized by NetMarket in connection with this Agreement. Subject
to the provisions of this Agreement (including, without limitation, the other
provisions of this Section 2(c)), during the term of this Agreement, NetGrocer
grants to CUC a non-exclusive, non-assignable, worldwide, royalty-free license
to use the NetGrocer Promotional Content in connection with the uses
contemplated pursuant to this Agreement; provided that, unless otherwise agreed
to in writing by NetGrocer, no such permitted use shall (i) be of lower quality
than the manner in which NetGrocer uses generally the particular NetGrocer
Promotional Content in question; (ii) be harmful to the public image of
NetGrocer and its affiliates in any meaningful respect; or (iii) violate in any
material respect any of the express provisions of this Agreement.
(d) Responsibilities Relating to Members. CUC shall: (i) bill for and
collect from NetMarket Users and Members any membership fee amounts owed to
NetMarket as well as all other amounts charged with respect to any products or
services purchased by such persons through NetMarket; (ii) maintain all
membership and other records pertaining to such persons; (iii) provide all
NetMarket products and services to such persons; and (iv) otherwise service
such persons with respect to those matters which relate to NetMarket. CUC may,
at its option, provide NetMarket Users who become Members with a user name and
password in order to access NetMarket and make use of NetMarket's benefits and
in order to allow Network Users to use a credit card to make payment for
merchandise purchased through NetMarket. CUC agrees that in providing products
or services to each Member, it shall: (x) provide such products and services in
a manner consistent with the way in which such products or services were
advertised or represented by NetGrocer to such Member; (y) treat such Member
fairly and in accordance with reasonable business practices; and (z) comply
with all applicable laws. Except as otherwise expressly contemplated pursuant
to this Agreement in
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connection with the operation of the Customized NetGrocer Site, CUC shall not,
without the prior written consent of NetGrocer, make any representation or
warranty to any Member or to any other party concerning NetGrocer or any of its
vendors, representatives or affiliates or concerning any of their respective
products or services (other than those which have already been expressly made
by NetGrocer or any such vendors, representatives or affiliates). Except as
otherwise expressly provided in this Agreement and except with respect to the
NetGrocer Promotional Content, CUC shall have complete control over, and all
rights and liabilities relating to, the content set forth on the NetMarket
Website, the content set forth on the Customized NetGrocer Site which is unique
to NetMarket, the NetMarket service, the NetMarket relationship with the
NetMarket Users and Members, and all NetMarket-related information collected
from the NetMarket Users and Members.
3. Additional Arrangements.
(a) Optional Cross-Promotional Arrangements. NetGrocer and CUC shall,
from time to time, discuss and consider various ways that NetMarket and
NetGrocer might be able to cross-promote each other's products and services, to
the extent commercially feasible.
(b) NetMarket Products Made Available to NetGrocer. Subject to the
mutual agreement of each of the parties as to the specific terms and conditions
of each such arrangement, CUC shall permit NetGrocer to sell, through its
NetGrocer Website, certain of the products which are offered for sale to
NetMarket Users through the shopping area of the NetMarket Website (such
products, the "Wholesale NetMarket Products"); provided that NetGrocer shall
not be permitted to sell such Wholesale NetMarket Products at prices which are
below the prices which NetMarket charges at that time to the members of
NetMarket. NetGrocer shall pay to CUC for such Wholesale NetMarket Products an
amount equal to the prices which NetMarket charges at that time to the members
of NetMarket or such lower price as may be mutually agreed to by the parties.
(c) Further Assistance. Each party (such party, the "Assisting Party")
shall, upon reasonable request by the other party (such other party, the
"Requesting Party"), cooperate with, and use its reasonable efforts to assist,
the Requesting Party and its subsidiaries and affiliates with respect to the
fulfillment of such Requesting Party's obligations hereunder and with respect
to such other matters as may be reasonably contemplated pursuant to this
Agreement; provided that the Requesting Party shall pay any actual
out-of-pocket costs reasonably incurred by the Assisting Party with respect to
its provision of any such assistance.
(d) Certain Customer Service Obligations. In the event that NetMarket
receives any customer service requests from a NetMarket User relating to the
Customized NetGrocer Service by phone or e-mail, it shall forward such requests
to NetGrocer in a reasonably prompt manner (and in any event, shall use its
reasonable
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efforts to forward such requests to NetGrocer within twenty-four hours of
receiving any such request).
4. Commissions Payable by NetMarket.
(a) Commission Payable by NetMarket Relating to Members. During the
term of this Agreement, CUC shall pay NetGrocer a commission equal to [*]
of all Net Membership Revenue (as defined below) received by CUC after the
date of this Agreement from any NetGrocer User who becomes a Member
of NetMarket as a result of initially accessing the NetMarket Website from the
NetGrocer Website pursuant to this Agreement (such commission, the "Membership
Commission"). CUC shall pay such Membership Commission amounts on a quarterly
basis to NetGrocer within twenty (20) days following the end of each calendar
quarter. For purposes of this Agreement, the term "Net Membership Revenue"
shall mean all membership fees received by CUC from NetGrocer Users who become
Members of NetMarket as a result of initially accessing the NetMarket Website
from the NetGrocer Website (not inclusive of revenue from trial period
memberships), minus any credits, refunds, charge backs, discounts and rebates
and minus any applicable sales, use, excise or similar taxes, in each case
payable or incurred by CUC in respect of such membership fees.
(b) Reports to be Provided by CUC to NetGrocer. At the time that CUC
makes its quarterly payment to NetGrocer, CUC shall deliver to NetGrocer a
report showing: (i) the total number of NetGrocer Users who became Members
during the quarter in question; (ii) the total number of visits by NetGrocer
Users who, during the quarter in question, visited the NetMarket Website from
the NetGrocer Website; (iii) the total number of Members who ceased being
Members during the quarter in question; and (iv) the Membership Commission
amounts that are payable with respect thereto. In addition, within twenty (20)
days following the end of each month, CUC shall deliver to NetGrocer a report
showing the same information required to be provided in the quarterly report
referred to in the previous sentence as it pertains to the month in question.
CUC shall also deliver to NetGrocer, upon NetGrocer's reasonable request, such
other information relating to Members or NetGrocer Users visiting the NetMarket
Website.
5. Commissions Payable by NetGrocer.
(a) Commission Payable by NetGrocer on NetMarket-User Revenues. During
the term of this Agreement, NetGrocer shall pay CUC a commission equal to [*]
of all Net Transaction Revenue (as defined below) received by NetGrocer and
its affiliates after the date of this Agreement (such commission, the
"Transaction Commission"). NetGrocer shall pay such Transaction Commission
amounts on a quarterly basis to CUC within twenty (20) days following the end
of each calendar quarter. For purposes of this Agreement, the term "Net
Transaction Revenue" shall mean all revenues received by NetGrocer and its
affiliates from any NetMarket User who purchases products or services either
(x) through the Customized NetGrocer Site or (y) through NetGrocer as a result
of initially registering on the NetGrocer Website
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from the NetMarket Website, minus in either such case any credits, refunds,
charge backs, discounts, rebates and shipping expenses and minus any applicable
sales, use, excise or similar taxes, in each case payable or incurred by
NetGrocer in respect of such revenues. The Transaction Commission shall apply
to those Customized NetGrocer Customers who are both new and repeat customers
of NetGrocer (including subsequent transactions that take place through the
Customized NetGrocer Site, the NetGrocer Website or otherwise); provided that,
notwithstanding the foregoing, NetGrocer shall not be obligated to pay
Transaction Commissions of more than: (i) [*] per each Customized NetGrocer
Customer who was not a member of NetMarket at the time such person originally
became a Customized NetGrocer Customer; and (ii) [*] per each Customized
NetGrocer Customer who was a member of NetMarket at the time such person
originally became a Customized NetGrocer Customer; provided further that in the
case of any Customized NetGrocer Customer covered by clause (i) of this Section
5(a) who subsequently becomes a member of NetMarket, NetGrocer shall not be
obligated to pay Transaction Commissions with respect to such Customized
NetGrocer Customer of more than the greater of (A) [*] or (B) [*]
(b) Reports to be Provided by NetGrocer to CUC. At the time that
NetGrocer makes its quarterly payment to CUC, NetGrocer shall deliver to CUC a
report showing: (i) the total number of NetMarket Users who, during the quarter
in question, purchased products or services through NetGrocer and its
affiliates either (x) through the Customized NetGrocer Site or (y) through
NetGrocer as a result of initially registering on the NetGrocer Website from
the NetMarket Website; (ii) the total number of visits by NetMarket Users who,
during the quarter in question, visited the Customized NetGrocer Site or the
NetGrocer Website from the NetMarket Website, broken down between those persons
covered by clause (i) above and those not covered by such clause(i); (iii) the
amounts purchased by such NetMarket Users; and (iv) the Transaction Commission
amounts that are payable with respect thereto. In addition, within twenty (20)
days following the end of each month, NetGrocer shall deliver to CUC a report
showing the same information required to be provided in the quarterly report
referred to in the previous sentence as it pertains to the month in question.
NetGrocer shall also deliver to CUC, upon CUC's reasonable request, such other
information relating to Customized NetGrocer Customers or NetMarket Users
visiting the NetGrocer Website.
6. Other Payment Provisions.
(a) Rebates to NetMarket Members. During the term of this Agreement,
NetGrocer shall pay to all members of NetMarket (including, without limitation,
the Members) a cash rebate on all amounts paid to NetGrocer by such members for
any products or services purchased by such members through NetGrocer, which
cash rebate shall be equal [*] of the net price (i.e., the price paid by such
customer, excluding any shipping charges and sales tax amounts and after giving
effect to any credits and discounts or any types of rebates (other than the
one referred to in this Section 6(a)) otherwise given at such time to such
customer),
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normally paid at such time by similar customers of NetGrocer (such cash rebate,
the "NetGrocer Rebate"). NetGrocer further agrees that, in order to give full
effect to such NetGrocer Rebate, it shall not charge any members of NetMarket
(including, without limitation, the Members) prices for any products or
services sold through NetGrocer which are higher than the normal retail
purchase price charged at such time for such products or services (calculated
prior to giving effect to the NetGrocer Rebate), and shall not charge such
persons for any other amounts which are not, or deny such persons discounts or
credits or any other rebates which are, normally extended at such time to other
customers of NetGrocer. NetGrocer agrees to pay such NetGrocer Rebate at the
time of each such purchase to the members of NetMarket in such form as
NetMarket may reasonably specify, which form may include (x) transferring
monthly, within 20 days of the end of each month, the cash amount of each
NetGrocer Rebate to NetMarket at such bank accounts as may be specified by
NetMarket, so that such NetGrocer Rebate may be credited by NetMarket towards
such member's account (whether in the form of "netMarket cash" or otherwise);
or (y) the granting of a credit by NetGrocer against the purchase price to be
paid by such member with respect to each such transaction. Notwithstanding the
foregoing, NetGrocer shall not be obligated to pay a NetGrocer Rebate for any
person who ceases to be a member of NetMarket following the date on which such
person ceases to be a member of NetMarket. CUC may also grant members of
NetMarket (including, without limitation, the Members) such other cash rebates
on the amounts paid to NetGrocer by such members for any products or services
purchased by such members through NetGrocer; provided that in the event that
NetGrocer incurs any out-of-pocket costs in connection with such other rebates
(other than the NetGrocer Rebate), CUC shall reimburse NetGrocer on a monthly
basis, within 20 days following the end of each month.
(b) Acceptance of NetMarket Cash. NetGrocer agrees to accept, as
either partial or full payment for any NetGrocer goods or services purchased by
a NetMarket User through the Customized NetGrocer Site, any credit given to
such customer by NetMarket, whether in the form of "netMarket cash" or other
similar form; provided that: (i) NetGrocer shall verify with NetMarket whether
or not such customer is eligible to apply any such credit (whether in the form
of "netMarket cash" or other similar form); (ii) NetMarket and NetGrocer shall
create electronic links between NetMarket and NetGrocer so that NetGrocer can
secure direct access to the applicable NetMarket database in order to verify
automatically whether or not such customer is eligible to apply any such credit
(whether in the form of "netMarket cash" or other similar form); and (iii)
NetMarket shall reimburse NetGrocer, on a monthly basis, within 20 days
following the end of each month, for any such credits which are extended to
eligible NetMarket Users by NetGrocer pursuant to this sentence.
(c) Records; Audit Rights. Each party shall prepare and maintain, for
a period of at least one (1) year from the date in which the particular record
in question was generated, adequate records relating to the obligations which
may be owed by such party pursuant to Sections 4, 5 and 6 of this Agreement,
and each such party shall provide to the other party, at the other party's
option and expense, such records as the other party may reasonably request from
time to time in connection therewith. Upon
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not less than seven (7) business days' prior written notice to the other party,
any party hereto may request that it be given access to and the right to
inspect, during the other party's normal business hours, that portion of the
other party's records which relates to the performance by such other party of
its obligations under Sections 4, 5 and 6 of this Agreement; provided that the
requesting party: (i) must maintain the confidentiality of all non-public
information reviewed by it; (ii) may not unreasonably interfere with the other
party's normal business operations in connection with any such review by the
requesting party; (iii) must reimburse the other party for any out-of-pocket
expenses reasonably incurred by the other party in connection with the
provisions of this sentence (subject to the provisions of this Section 6(c));
and (iv) shall not be entitled to request more than twice per calendar year
access to the other party's records pursuant to this sentence. The requesting
party shall be solely responsible for the cost of any such audit, unless the
audit finds a discrepancy of more than ten percent (10%) in the amount that
should have been paid by the non-requesting party during the periods in
question, in which case the non-requesting party shall (x) pay for the
reasonable costs incurred by the requesting party in connection with such
audit, and (y) not be entitled to reimbursement pursuant to the provisions of
Section 6(c)(iii) above.
(d) No Other Commissions, etc. Payable. Except for the commissions and
other amounts payable pursuant to Sections 4, 5 and 6 of this Agreement, any
payments for products purchased pursuant to Section 3(b) above, any
indemnification amounts owed pursuant to Section 12 below and the cost
reimbursement and other similar provisions expressly set forth in this
Agreement, there shall be no commission or other amounts owed by any party
hereto to the other party hereto (except as otherwise expressly agreed to in
writing by the parties).
7. Term and Termination.
(a) Initial Term; Renewal. The initial term of this Agreement shall
commence on the date hereof and shall terminate on the second anniversary of
the date hereof, unless terminated earlier pursuant to the provisions of
Section 7(b) hereof. Notwithstanding the provisions of the previous sentence,
the term of this Agreement shall, subject to the provisions of Section 7(b)
hereof, automatically renew for an additional one-year period after the second
anniversary of the date hereof and shall automatically renew for successive one
(1) year periods for each year thereafter, unless in any such case either party
gives the other party written notice of its intention not to so renew no later
than ninety (90) days prior to the commencement of any such renewal term.
(b) Termination. Either party may terminate this Agreement at any
time: (i) upon sixty (60) days' written notice upon the material breach by
another party of any of the provisions hereof; or (ii) immediately upon the
commencement of a voluntary or involuntary bankruptcy, insolvency,
reorganization or similar proceeding for, the appointment of a receiver,
trustee, custodian, or similar official for, the winding-up or liquidation of,
or the sale or transfer (other than to a wholly-owned subsidiary of such
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party) or all or substantially all of the assets of, another party; provided
that any notice of proposed termination pursuant to clause (i) of this Section
7(b) must set forth in reasonable detail the nature of the breach which is
being alleged, and the party receiving such notice shall have thirty (30) days
from the date of its receipt of such notice to cure or remedy the alleged
breach, and upon such cure or remedy the notice of proposed termination shall
be deemed to be withdrawn and this Agreement shall continue in full force and
effect.
(c) Survival of Obligations. Upon any termination of this Agreement in
accordance with the provisions of this Section 7, all obligations of the
parties hereto shall terminate without any liability on the part of any party
hereto to the other party (except for any liability of any party then in
breach); provided that any continuing obligations or provisions set forth in
Sections 9 through 13 of this Agreement shall survive any such termination;
provided further that in the event of any termination pursuant to this Section
7, each party shall pay the other party, within thirty (30) days following the
date of such termination, all amounts otherwise owed to the other party
pursuant to this Agreement as of the date of such termination, and there shall
be no further payment obligations owed pursuant to Sections 4, 5 or 6 of this
Agreement from the date of such termination forward. No termination by any
party hereto shall affect or limit any other right or remedy, at law or in
equity, which may otherwise be available to such terminating party with respect
to any other party which is then in breach. No termination or expiration of
this Agreement shall affect CUC's right, at its sole option, to extend or
renew, after the termination or expiration of this Agreement, the NetMarket
membership of any NetGrocer User who is a Member, which right shall continue
until the membership is canceled by either the Member or CUC.
8. Representations, Warranties and Covenants.
(a) Representations, Warranties and Covenants of CUC. CUC represents,
warrants and covenants that:
(i) CUC is a corporation duly organized and validly existing
under the laws of the State of Delaware and has all requisite power and
authority to execute and deliver, and to perform all of its obligations under,
this Agreement.
(ii) This Agreement constitutes the legal, valid and binding
obligation of CUC, enforceable against it in accordance with its terms, except
as such may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and except as may be limited by general principles of equity.
(iii) The execution and delivery of, and the performance of its
obligations under, this Agreement by CUC do not and will not (A) violate any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award presently in effect having applicability to CUC as currently
interpreted and enforced, (B) with or without the giving of notice or the
passage of time or both, result in a breach or constitute a
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default under any material agreement to which CUC is a party or by which it is
bound, or (C) require any authorizations, consents, approvals, licenses,
exemption or filings with any third party or governmental authority.
(iv) No part of the NetMarket Promotional Content, no operational
aspect of NetMarket, no content or design set forth on the NetMarket Website,
and, to the knowledge of CUC, no product or service to be furnished by
NetMarket through the NetMarket Website, does or will (A) infringe on or
violate in any material respect any patent, copyright, trade secret, trademark,
service mark or other proprietary right of any other party, (B) libel, defame
or improperly invade in any material respect the privacy of another party, or
(C) violate in any material respect any applicable law. NetMarket shall not,
with actual knowledge, directly link the NetMarket Website to another website
if such other website engages in any of the activities set forth in clauses (A)
through (C) of the previous sentence.
(v) CUC has the right to grant to NetGrocer the rights to the
NetMarket Promotional Content which are set forth in this Agreement.
(b) Representations, Warranties and Covenants of NetGrocer. NetGrocer
represents, warrants and covenants that:
(i) NetGrocer is a corporation duly organized and validly
existing under the laws of the State of Delaware and has all requisite power
and authority to execute and deliver, and to perform all of its obligations
under, this Agreement.
(ii) This Agreement constitutes the legal, valid and binding
obligation of NetGrocer, enforceable against it in accordance with its terms,
except as such may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and except as may be limited by general principles
of equity.
(iii) The execution and delivery of, and the performance of its
obligations under, this Agreement by NetGrocer do not and will not (A) violate
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to NetGrocer,
as currently interpreted and enforced, (B) with or without the giving of notice
or the passage of time or both, result in a breach or constitute a default
under any material agreement to which NetGrocer is a party or by which it is
bound, or (C) require any authorizations, consents, approvals, licenses,
exemption or filings with any third party or governmental authority.
(iv) No part of the NetGrocer Promotional Content, no operational
aspect of the NetGrocer Service, no content or design set forth or to be set
forth on the Customized NetGrocer Site or the NetGrocer Website, and, to the
knowledge of NetGrocer, no product or service to be furnished by NetGrocer
through the Customized NetGrocer Site or the NetGrocer Website, does or will
(A) infringe on or violate in any material respect any patent, copyright, trade
secret, trademark, service mark or other
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proprietary right of any other party, (B) libel, defame or improperly invade in
any material respect the privacy of another party, or (C) violate in any
material respect any applicable law. NetGrocer shall not, with actual
knowledge, directly link the NetGrocer Website to another website if such other
website engages in any of the activities set forth in clauses (A) through (C)
of the previous sentence.
(v) NetGrocer has the right to grant to CUC the rights to the
NetGrocer Promotional Content which are set forth in this Agreement.
9. Disclaimers. EACH PARTY HERETO ACKNOWLEDGES THAT, EXCEPT AS OTHERWISE
EXPRESSLY SET FORTH IN THIS AGREEMENT (INCLUDING, WITHOUT LIMITATION, THE
REPRESENTATIONS, WARRANTIES AND COVENANTS SET FORTH IN SECTION 8 ABOVE), NO
PARTY HERETO IS MAKING, AND EACH PARTY HEREBY EXPRESSLY DISCLAIMS, ANY OTHER
REPRESENTATION OR WARRANTY, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO THE
SUBJECT MATTER OF THIS AGREEMENT. In addition, except for those uses
contemplated pursuant to this Agreement (which uses shall cease promptly
following the termination of this Agreement), neither party will make any use
of, or make any claims with respect to, any patents, copyrights, trademarks,
trade names, service marks, logos, domain names, inventions, know-how, trade
secrets, computer software or other similar property owned, licensed to or used
by the other party, without obtaining the other party's prior written consent.
10. Confidentiality.
(a) Confidential Treatment of Information Provided. Either party which
receives Confidential Information (as defined below) from the other party
hereto (such receiving party, as the case may be, the "Receiving Party", and
such disclosing party, as the case may be, the "Disclosing Party") shall
receive and maintain such Confidential Information in confidence. For purposes
of this Agreement, the term "Confidential Information" shall mean all
information received from the Disclosing Party or any of its affiliates or
representatives (including, without limitation, any know-how, trade secret,
process, confidential or proprietary report or information or other form of
information relating to the Disclosing Party's or its affiliates' business),
whether in written, oral, encoded, graphic, magnetic, electronic or in any
other tangible or intangible form, and whether or not labeled as confidential
or otherwise provided hereunder; provided that the term "Confidential
Information" shall not include any information that: (i) is or becomes
generally available to the public, other than as a result of a breach by the
Receiving Party or its affiliates or representatives of this Section 10(a);
(ii) was known by the Receiving Party or its representatives prior to the date
of this Agreement (except for any information provided to it by the other party
in contemplation of this Agreement); (iii) becomes available to the Receiving
Party or its representatives on a nonconfidential basis from a third party who
is not bound by any confidentiality obligation to the Disclosing Party or its
subsidiaries or affiliates; or (iv) was independently developed by either
party's employees or agents (so long as such party's employees or agents had no
access to or benefit of any of the information in
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question). The Receiving Party further agrees not to use, disclose, reproduce
or dispose of any Confidential Information in any manner except as expressly
permitted by this Agreement. The Receiving Party agrees to restrict disclosure
of any Confidential Information solely to its employees, accountants and other
similar representatives who have a need to know and to advise such persons of
their obligations of confidentiality and non-disclosure hereunder. Further, the
Receiving Party shall not disclose any Confidential Information to third
parties, including independent contractors or consultants, without the prior
express written consent of the Disclosing Party and shall advise such third
parties, in the event of such consent, of their obligations of confidentiality
and non-disclosure hereunder. The Receiving Party agrees to use reasonable
means, not less than those used to protect its own proprietary information, to
safeguard such Confidential Information. Notwithstanding the foregoing, it
shall not be a breach of this Agreement for either party to disclose
Confidential Information of the other party if (x) compelled to do so under
law, whether pursuant to a judicial or governmental investigation or proceeding
or otherwise, provided that the Disclosing Party has been given reasonable
prior notice and the opportunity, if reasonably practicable, to try to prevent
or limit such disclosure through a court order or other appropriate legal
means, or (y) necessary in any legal proceedings based upon the provisions and
terms of this Agreement, provided that the Disclosing Party uses its reasonable
efforts to try to prevent or limit such disclosure.
(b) Confidential Nature of this Agreement. Each party hereto
acknowledges and agrees that the nature and terms of this Agreement are
strictly confidential and shall not be disclosed by it or any of its affiliates
or representatives at any time to any third party without the prior written
consent of the other party hereto, except (i) to inform employees and
representatives of such party who have a "need to know" and who understand the
confidential nature of this Agreement; (ii) as necessary in any legal
proceedings based upon the provisions and terms of this Agreement; (iii)
pursuant to court order, subpoena or mandatory discovery request after notice
to the other party hereto; (iv) to any legal counsel or accounting firm
retained by such party; (v) in any public reporting documents (provided that
the disclosing party shall (x) only disclose such portion of this Agreement as
shall be specifically required by statute or governmental rule or regulation,
as advised in writing by legal counsel, and (y) use its best efforts to
preserve the confidentiality of the information being disclosed (including,
without limitation, using its best efforts in seeking confidential treatment
pursuant to the provisions of Rule 406 under the Securities Act of 1933, as
amended, or any other parallel or successor provision, and cooperating with the
other party hereto in connection therewith)); or (vi) to the extent reasonably
necessary in connection with the preparation of any tax, legal, accounting or
claim documentation.
(c) Irreparable Injury; Survival of Provisions. Each Receiving Party
recognizes that its disclosure of information in violation of this Section 10
will give rise to irreparable injury to the Disclosing Party, inadequately
compensable in damages, and that, accordingly, agrees that the Disclosing Party
may seek and obtain injunctive relief against the breach of the within
undertakings, in addition to any other legal remedies
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which may be available. Each party's duty of confidentiality under this Section
10 shall survive the termination of this Agreement.
11. Expenses. Except as otherwise expressly set forth in this Agreement, all
costs and expenses, including all fees and expenses of attorneys, accountants
and other advisers, incurred in connection with this Agreement or any matters
related hereto, shall be paid by the party incurring such costs and expenses.
12. Indemnification.
(a) CUC's Indemnification Obligations. From and after the date hereof,
and without limiting any other remedy available to such party, CUC shall
indemnify and hold NetGrocer and its partners, directors, officers, employees,
agents, subsidiaries, parents and affiliates (each a "NetGrocer Protected
Party") harmless from and against any and all claims, actions, suits, damages,
losses, deficiencies, liabilities, obligations, commitments, costs or expenses
of any kind or nature (including reasonable legal and other fees and expenses
incurred in investigating and defending against the same, and interest)
("Reimbursable Amounts") incurred by such NetGrocer Protected Party resulting
from: (i) any breach of the representations, warranties, covenants, agreements
and obligations of CUC hereunder; (ii) any negligence or willful misconduct of
CUC or its directors, officers, employees, agents, subsidiaries, parents and
affiliates in connection with either the operation of NetMarket or the
provision of services pursuant to this Agreement; or (iii) the sale or
provision by NetMarket or any of its vendors, representatives or affiliates of
any products or services to any Member.
(b) NetGrocer's Indemnification Obligations. From and after the date
hereof, and without limiting any other remedy available to such party,
NetGrocer shall indemnify and hold CUC and its directors, officers, employees,
agents, subsidiaries, parents and affiliates (each a "CUC Protected Party")
harmless from and against any and all Reimbursable Amounts incurred by such CUC
Protected Party resulting from: (i) any breach of the representations,
warranties, covenants, agreements and obligations of NetGrocer hereunder; (ii)
any negligence or willful misconduct of NetGrocer or its partners, officers,
employees, agents, subsidiaries, parents and affiliates in connection with
either the operation of NetGrocer or the provision of services pursuant to this
Agreement; or (iii) the sale or provision by NetGrocer or any of its vendors,
representatives or affiliates of any products or services to any Customized
NetGrocer Customer.
(c) Indemnification Procedures. The party seeking indemnification (the
"Indemnified Party") shall notify the other party (the "Indemnifying Party")
promptly of any legal claim, demand, right or cause of action asserted,
instituted or threatened against the Indemnified Party (a "Claim") for which
the Indemnified Party is seeking indemnification pursuant to this Section 12.
The Indemnifying Party may thereafter assume control of such Claim, but neither
the Indemnifying Party nor the Indemnified Party may settle such Claim or
consent to any judgment with respect thereto without the consent of the other
party thereto (which consent may not be unreasonably
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withheld); provided that the provisions of this sentence shall not apply to any
Claim which both (x) involves amounts or claimed amounts of less than $25,000,
and (y) does not involve a claim of infringement on another party's
intellectual property rights. The Indemnified Party agrees to provide the
Indemnifying Party with a reasonable amount of assistance in connection with
defending or settling any such Claim. The provisions of this Section 12 shall
survive the termination of this Agreement.
13. Miscellaneous.
(a) Arbitration. Any controversies, disputes, actions, causes of
action, or other claims arising out of or in connection with the provisions of
this Agreement which cannot be settled by mutual agreement shall be finally
settled by arbitration in New York, New York in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator may
enter a default decision against any party who fails to participate in the
arbitration proceedings. The decision of the arbitrator on the points in
dispute will be final, unappealable and binding and judgment on the award may
be entered in any court having jurisdiction thereof. So long as this Agreement
has not previously been terminated, the parties shall continue their
performance under this Agreement while the arbitration proceeding is pending.
The arbitrator will be authorized to apportion its fees and expenses and the
reasonable attorney's fees and expenses of the parties hereto as the arbitrator
deems appropriate. In the absence of any such apportionment, the fees and
expense of the arbitrator will be borne equally by each party, and each party
will bear the fees and expenses of its own attorney. The parties agree that
this clause has been included to rapidly and inexpensively resolve any disputes
between them with respect to this Agreement, and that this clause shall be
grounds for dismissal of any court action commenced by either party with
respect to this Agreement, other than post-arbitration actions seeking to
enforce an arbitration award and actions seeking equitable, injunctive or other
similar relief.
(b) Relationship of Parties. It is understood and agreed that the
relationship of the parties created under this Agreement is that of independent
contractors, and no partnership, joint venture, agency or other relationship is
intended or created hereby, nor shall either party nor any of it affiliates,
employees or representatives be construed to be an affiliate, employee, agent
or representative of the other party hereto. Except as otherwise expressly
provided in this Agreement, the parties hereto acknowledge and agree that each
party hereto shall be free to enter into any contractual, business or other
relationship(s) with any party with respect to any area of business.
(c) Force Majeure. Notwithstanding any other provision of this
Agreement to the contrary, in the event any party hereto is prevented from
performing its obligations hereunder (such party, a "Nonperforming Party") as a
result of any contingency which is beyond the control of such party (such as
any act of God, war, riot, national emergency, terrorist act, general embargo,
fire, casualty, equipment failure, flood, earthquake or other similar
occurrence) (any such event, a "Force Majeure Event"), such Nonperforming Party
shall be excused from its inability to perform its
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obligations hereunder, but only to the extent and for the duration of the Force
Majeure Event in question. The Nonperforming Party will give the other party
reasonably prompt notice of the occurrence of such Force Majeure Event. Upon
the occurrence of such Force Majeure Event, the Nonperforming Party may delay
performance hereunder, but only for so long as may be reasonably necessary in
light of such Force Majeure Event, and shall resume performance hereunder as
soon as reasonably practicable following the date of such occurrence.
(d) Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telecopied or
sent by overnight courier, or by certified or registered mail, postage prepaid,
and shall be deemed to be given, dated and received when so delivered
personally or by courier or telecopied, or, if mailed, five business days after
the date of mailing, to the following address or telecopy number, or to such
other address or addresses as such person may subsequently designate by notice
given hereunder:
(i) if to CUC, to:
CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
Telephone: (203) 324-9261
Facsimile: (203) 348-1982
Attention: Amy N. Lipton, Esq.
(ii) if to NetGrocer, to:
NetGrocer, Inc.
919 Third Avenue, 18th floor
New York, New York 10022
Telephone: (212) 980-4770
Facsimile: (212) 980-3899
Attention: Daniel Nissan
with a copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Telephone: (212) 318-3000
Facsimile: (212) 752-5958
Attention: Sheldon G. Nussbaum
(e) Entire Agreement; Amendment; Waiver; Invalidity. This Agreement,
together with any schedules and exhibits attached hereto and made a part
hereof, constitutes the entire agreement between the parties as to the subject
matter hereof,
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and shall supersede all prior understandings, letters, agreements, contracts
and other documents. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties hereto. No failure or delay
by either party to exercise, and no course of dealing with respect to, any
right of any such party regarding an obligation of the other party to this
Agreement, shall operate as a waiver thereof, unless agreed to in writing by
both parties. Any single or partial waiver by either party of any obligation of
the other party under this Agreement shall constitute a waiver of such
obligation only as specified in such waiver and shall not constitute a waiver
of any other obligation. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, all of which shall remain in full force and
effect.
(f) Governing Law; Construction. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to the principles of conflicts of laws thereof. The construction
and interpretation of this Agreement shall not be strictly construed against
the drafter.
(g) Successors and Assigns; No Third Party Beneficiaries; Assignment.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, permitted assigns and legal
representatives. Nothing in this Agreement is intended to confer any rights or
remedies on any person or entity which is not a party to this Agreement.
Neither this Agreement nor any right hereunder may be assigned, whether
voluntarily or by operation of law, by either party hereto without the prior
written consent of the other party hereto (which consent may not be
unreasonably withheld); provided that no such consent shall be necessary for
such an assignment, transfer or delegation by any party hereto to any of its
wholly-owned subsidiaries, so long as such assigning party remains liable with
respect to its obligations hereunder. No delegation by CUC or NetGrocer of any
of their respective duties hereunder shall be deemed an assignment of this
Agreement.
(h) Counterparts. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
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(i) Headings. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on behalf of each of the parties hereto as of the date first above
written.
CUC INTERNATIONAL INC.
By:/s/ Cosmo Corigliano
-------------------------------
Name: Cosmo Corigliano
Title: Senior Vice President
NET GROCER INC.
By: /s/ Daniel Nissan
-------------------------------
Name: Daniel Nissan
Title: President & CEO
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INVESTMENT AND STOCKHOLDERS AGREEMENT
Investment and Stockholders Agreement dated as of November 17, 1997
(the "Agreement"), by and among CUC International Inc., a Delaware corporation
with principal offices at 707 Summer Street, Stamford, Conn. 06901 ("CUC"), Net
Grocer Inc., a Delaware corporation with principal offices at 919 Third Avenue,
18th floor, New York, New York 10022 ("NetGrocer" or the "Company"), and the
stockholders of the Company listed on the signature pages hereto (the
"Stockholders").
WHEREAS, the Company operates an Internet-based service (the
"NetGrocer Service"), currently under the name "NetGrocer", which, among other
things, provides grocery shopping services to individuals, businesses and other
groups;
WHEREAS, the NetGrocer Service is accessible for usage through its
World Wide Web site on the Internet (the "NetGrocer Website"), which is
currently identified as "www.netgrocer.com";
WHEREAS, CUC operates an Internet-based business under the name
"NetMarket" (such business, "NetMarket"), which provides online, membership-
based consumer services, in such areas as travel, shopping, auto and dining, to
its members as well as to other individuals, businesses and groups;
WHEREAS, NetMarket is accessible for membership and usage through its
World Wide Web site on the Internet (the "NetMarket Website"), which is
currently identified as "www.netmarket.com";
WHEREAS, concurrently with the execution of this Agreement, CUC and
the Company are also entering into a Marketing Agreement (the "Marketing
Agreement"), pursuant to which, among other things, NetMarket will offer direct
access from the NetMarket Website to the NetGrocer Website to all users of
NetMarket and NetGrocer will offer direct access from the NetGrocer Website to
the NetMarket Website to all users of NetGrocer;
WHEREAS, CUC desires to acquire a convertible debenture of the Company
in the form attached hereto as Exhibit A (the "Convertible Debenture"), which
Convertible Debenture may be converted at any time at CUC's option into a
certain number of shares of common stock, par value $.01 per share, of the
Company (the "Common Stock"), and the Company desires to issue and sell to CUC
such Convertible Debenture (and, upon conversion of such Convertible Debenture,
the shares of Common Stock issuable upon such conversion), in each case upon
the terms and subject to the conditions of this Agreement;
WHEREAS, the Stockholders believe it to be in their best interests and
in the best interests of the Company that they enter into this Agreement
providing
<PAGE>
for, among other things, certain rights and restrictions with respect to the
shares of Common Stock owned by them and their transferees.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, and intending to be legally bound hereby, CUC and
NetGrocer agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION
1.1 Definitions. As used in this Agreement, unless the context
requires otherwise, the following terms shall have the meanings ascribed to
them below (such terms to be equally applicable to both singular and plural
forms of the terms defined or referred to):
"Affiliate" or "affiliate" means, with respect to any specified
person, (x) any general partner, director or senior executive of, or any person
or entity that beneficially owns at least a majority of the issued and
outstanding capital stock or other equity interests of, such specified person,
or (y) any other person or group of persons directly or indirectly controlling,
controlled by or under common control with, such specified person, at any time
during the period for which such affiliation is being determined.
"Associate" or "associate" means, with respect to any specified
person, (x) any limited partner or employee of such specified person, (y) any
lineal descendant, spouse, member of the immediate family, heir, executor,
administrator, testamentary trustee, legatee or beneficiary of such specified
person, or (z) any "associate" (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended) of such specified person.
"Board" means the Board of Directors of the Company as constituted
from time to time.
"Business Day" means any calendar day which is not a Saturday, Sunday
or public holiday under the laws of New York State.
"Capital Stock" means any (i) capital stock of any class or classes of
the Company, and any other equity securities of, or other equity or ownership
interests in, the Company and (ii) any securities or rights convertible into,
or exercisable or exchangeable for, or evidencing the right to subscribe for,
any of the items referred to in clause (i) above, including, but not limited
to, the Common Stock and any options to purchase Common Stock. The term
"Capital Stock" shall include, except as otherwise provided herein, any and all
shares of capital stock or other equity securities of or interests in the
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise), which may be issued
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in respect of, in exchange for, or in substitution for any shares of Capital
Stock, by reason of any stock dividend, split, reverse split, combination,
recapitalization, reclassification, merger, consolidation or otherwise.
"Charter Documents" means the Certificate of Incorporation and By-Laws
of the Company, as may be in effect from time to time.
"control" (including, with correlative meanings, such similar terms as
"controlling", "controlled by" or "under common control with"), as applied to
any specified person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
specified person, whether through the ownership of voting securities, by
contract or otherwise.
"Default" means, with respect to any particular agreement, (x) any
material breach of or default under such agreement, (y) any event which could
(either with or without notice or lapse of time or both) give rise to any right
of termination, cancellation or acceleration or any obligation to repay with
respect to such agreement, or (z) any event which could result in either a
material increase in the obligations or liabilities of, or a material loss of
any benefit to which, the party in question or any of its affiliates may be
entitled or subject to under such agreement.
"Duly Endorsed" means (i) duly endorsed in blank by the person or
persons in whose name a stock certificate or certificate representing a debt
security is registered or (ii) accompanied by a duly executed stock or security
assignment separate from the certificate, in each case with the signature(s)
thereon guaranteed by a commercial bank or trust company or a member of a
national securities exchange or the National Association of Securities Dealers,
Inc.
"Fully-Diluted Basis" means taking into account all of the outstanding
capital stock of, and other equity interests in, the Company owned or held by
the person or persons in question, including the number of shares of capital
stock and other equity interests which would be issued to or received by such
person or persons assuming (x) the conversion of all outstanding shares of
convertible capital stock and other convertible securities of the Company held
by such person or persons and (y) the exercise of all warrants, options and
other rights (including, without limitation, employee stock options), whether
vested or unvested, to purchase capital stock of, or other equity interests in,
the Company which are then owned or held by such person or persons; provided
that, for purposes of this definition of "Fully-Diluted Basis", in calculating
the amount of shares or other equity interests which would be outstanding upon
the conversion of any options referred to in clause (y) above, there shall not
be included in such amount (i) an amount equal to ten percent (10%) of the
number of shares covered by those employee stock options which have been
granted by the Company prior to the date hereof but which are not yet fully
vested as of the date hereof, and (ii) any shares covered by those employee
stock options which may be granted by the Company after the date hereof either
in compliance with the
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provisions of clauses (A) and (B) of Section 5.1(b)(i) below or with CUC's
prior written consent.
"GAAP" means U.S. generally accepted accounting practices, as in
effect on the date any calculation or financial statement preparation hereunder
is made, applied on a basis consistent with prior periods.
"Governmental Entity" means any governmental authority, court,
administrative agency or commission or other governmental or regulatory body or
entity, whether federal, state, local or foreign.
"Intellectual Property" means any patent, copyright, trademark, trade
name, service mark, service name, brand mark, brand name, logo, Internet domain
name or industrial design, any registrations thereof and pending applications
therefor (to the extent applicable), any other intellectual property right
(including, without limitation, any proprietary know-how, trade secret, trade
right, formula, confidential or proprietary report or information, any
marketing data, customer list or membership list, and any computer program,
software, database right or data right), any license or other contract relating
to any of the foregoing, and any goodwill associated with any business owning,
holding or using any of the foregoing.
"IPO" means an initial public offering of common equity securities of
the Company involving both (x) the sale of either (i) forty percent (40%) or
more of the total common equity of the Company (calculated on a Fully-Diluted
Basis) to the general public, or (ii) common equity of the Company to the
general public with net proceeds to the Company of not less than $25 million,
in either case whether involving a primary offering or secondary offering or a
combined primary and secondary offering of such securities, and (y) the listing
of such securities on a national securities exchange or on the NASDAQ Stock
Market or NASDAQ National Market.
"Law" means any statute, law, ordinance, rule, regulation or
administrative ruling or any governmental permit, franchise or license or any
injunction, judgment, order or consent or similar decree or agreement, whether
federal, state, local or foreign.
"Losses" means any and all deficiencies, judgments, settlements,
demands, claims, actions or causes of action, assessments, liabilities, losses,
damages (whether direct, indirect, incidental or consequential), interest
amounts, fines, penalties, costs and expenses (including, without limitation,
reasonable legal, accounting and other costs and expenses incurred in
connection with investigating, defending, settling or satisfying any and all
demands, claims, actions, causes of action, suits, proceedings, assessments,
judgments or appeals, and in seeking indemnification therefor).
"Permitted Transferee" means the Company and CUC and, in the case of
any party hereto (including CUC and each Stockholder) or any other person
admitted as
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a stockholder of the Company pursuant to the terms of this Agreement: (i) any
Affiliate of such party or person, (ii) any Associate of such party or person
or of any Affiliate of such party or person, or (iii) any trust, the
beneficiaries of which, or corporation or partnership, the stockholders or
general or limited partners of which, include only a person specified in
clauses (i) or (ii) immediately above; provided that the term "Permitted
Transferee" shall only include (x) any bona fide transferee who or which has
agreed in writing, in accordance with Section 6.5 hereof, to be bound by the
terms and conditions of this Agreement to the same extent and in the same
manner as the Stockholder transferring such Shares (except that neither the
Company nor CUC need enter into any such separate written agreement), and (y)
any bona fide transferee to whom or to which such transfer is in compliance
with all applicable securities and other laws.
"person" means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture or
other entity of whatever nature.
"Purchase Price" means, with respect to any Capital Stock subject to
the provisions of this Agreement, a cash amount equal to the fair market value
of the consideration to be paid for such Capital Stock (whether such
consideration is in the form of cash, securities, other assets or the
assumption of liabilities, or any combination thereof), without assigning any
value to the terms of the particular transaction which are generally
non-economic in nature (e.g., the representations, warranties, covenants,
conditions and indemnification and other such provisions, if any, relating to
such transaction) and without assigning any value to any business relationships
arising as a result of the consummation of the transaction in question (unless
the Board and each of the CUC Nominees mutually agrees to assign a specific
value to any such business relationships).
"Share Ownership Interest" means an amount, expressed as a percentage,
equal to the proportionate amount of the Capital Stock and other equity
interests in the Company (calculated on a Fully-Diluted Basis) that a
particular person owns or holds, in comparison to the total amount of all
Capital Stock and other equity interests in the Company (calculated on a
Fully-Diluted Basis) that are owned or held by all Stockholders and other
persons (including the particular person in question), in each case as of the
date in question.
"Stockholder" shall have the same meaning as set forth in the preamble
to this Agreement; provided that the term "Stockholder" shall include both such
Stockholder and such Stockholder's Permitted Transferees who or which acquire
Capital Stock from such Stockholder and enter into supplementary agreements in
accordance with the terms of Section 6.5 of this Agreement, as well as any
other person admitted as a stockholder of the Company pursuant to the terms of
Section 6.5 of this Agreement.
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"Taxes" means (A) all taxes, charges, fees, levies, or other similar
assessments, including without limitation, income, gross receipts, ad valorem,
premium, excise, real property, personal property, windfall profit, sales, use,
transfer, licensing, withholding, employment, payroll, estimated and franchise
taxes imposed by the United States, any state, local, or foreign government, or
any subdivision, agency, or other similar entity of the United States, or any
such government, and any interest, fines, penalties, assessments, or additions
to tax resulting from, attributable to, or incurred in connection with any such
tax or any contest or dispute thereof, and (B) any Taxes (as defined in clause
(A)) for which the Company is liable as a transferee, indemnitor, guarantor,
surety or in a similar capacity under any contract, arrangement, understanding
or commitment, whether oral or written, or by reason of having been a member of
any affiliated, consolidated, combined or unitary group.
"Tax Returns" means any report, return, statement, or other
information required to be supplied to a federal, state, local or foreign
taxing authority in connection with Taxes.
"Third Party" means, with respect to any Stockholder, any person other
than such Stockholder's Permitted Transferees.
"Transfer" means any direct or indirect sale, assignment, transfer,
pledge, mortgage, charge, encumbrance or other disposition of the whole or any
part of any Stockholder's Capital Stock (or any beneficial interest or voting
rights therein) or any grant by such Stockholder of a warrant, option or other
right to acquire the whole or any part of such Stockholder's Capital Stock;
provided that the term `Transfer' shall not include any bona fide pledge or
hypothecation of the whole or any part of such Stockholder's Capital Stock to a
financial institution in connection with any loan from such financial
institution.
"Violation" means, with respect to any purchase of securities of the
Company, any event or circumstance pursuant to which the purchase of such
securities (together with any other purchases of such securities pursuant to
this Agreement) would (x) conflict with or result in a violation of, any law,
statute, rule, regulation, order, writ, injunction, decree or judgment
promulgated or entered by any federal, state, local or foreign court or
governmental authority applicable to either the Company, CUC or any of their
respective subsidiaries or any of their respective assets, or (y) result in a
Default, or constitute a Default, under any agreement to which either the
Company, CUC or any of their respective subsidiaries is a party or by which any
of their respective assets may be bound.
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ARTICLE II
SHARE SUBSCRIPTION BY CUC;
REPRESENTATIONS AND WARRANTIES
2.1 Subscription for Shares of Common Stock. CUC hereby agrees to
purchase from the Company, and the Company hereby agrees to issue and sell to
CUC, the Convertible Debenture in the form attached hereto as Exhibit A (the
"Convertible Debenture"), for an aggregate purchase price of U.S.$5,000,000.00.
The Company acknowledges and agrees that such Convertible Debenture shall give
CUC the right to convert such Convertible Debenture at any time at CUC's option
into 42,458 duly authorized, validly issued, fully paid and nonassessable
shares (such shares, the "Shares") of Common Stock (subject to adjustment
pursuant to the provisions of such Convertible Debenture), that such number of
Shares constitutes (assuming that such Convertible Debenture were converted as
of the date hereof) a twenty-five percent (25%) Share Ownership Interest, and
that such Shares shall, when issued, be validly issued, fully paid and
non-assessable and shall be free and clear of any and all Encumbrances (as
defined below). Accordingly, CUC shall, no later than two (2) Business Days
after the date hereof, pay U.S.$5,000,000.00 to the Company via wire transfer
to such U.S. bank account as may be designated by the Company, and promptly
following receipt of such amount by such bank, the Company shall deliver to CUC
a certificate representing such Convertible Debenture. For purposes of this
Agreement, the term "Encumbrance" shall mean and include any mortgage, pledge,
claim, charge, lien, encumbrance, interest, option, restriction, condition,
violation, security interest or assessment of any nature affecting in any way
the assets or property involved.
2.2 Representations, Warranties and Covenants of Each Party. Each
party hereby represents, warrants and covenants, with respect to itself, as of
the date of this Agreement (or, as the case may be, as of the date of the
supplementary agreement entered into pursuant to Section 6.5 hereof) to the
other parties hereto:
(a) Valid Existence. If such party is a corporation,
partnership or other similar entity, it is duly organized and validly existing
under the laws of the jurisdiction of its organization or incorporation and, if
relevant under such laws, it is in good standing.
(b) Power and Authority. It has all requisite power and
authority to execute and deliver, and to perform all of its obligations under,
this Agreement and, if required, it has taken all necessary action to authorize
such execution, delivery and performance.
(c) No Violation or Conflict. The execution and delivery of,
and the performance of its obligations under, this Agreement by such party do
not and will not (A) violate any law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award presently in effect applicable to
such party, (B) with or without the giving of notice or the passage of time or
both, result in a breach or
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constitute a Default under any agreement or instrument to which it is a party
or by which it is bound, or (C) require any authorizations, consents,
approvals, licenses, exemption or filings with any third party or governmental
authority (except with respect to any governmental filings or authorizations
required in connection with any of the transactions contemplated pursuant to
either Article V or Article VII of this Agreement).
(d) Enforceability of Obligations. This Agreement constitutes
the legal, valid and binding obligation of such party, enforceable against it
in accordance with its terms, except as such may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and except as may be
limited by general principles of equity.
(e) Absence of Litigation. There is not pending or, to its
knowledge, threatened against it any action, suit or proceeding at law or in
equity or before any court, tribunal, governmental body, agency or official or
any arbitrator that is likely to affect the legality, validity or
enforceability against it of this Agreement or its ability to perform its
obligations under this Agreement.
2.3 Representations, Warranties and Covenants of the Company. In
addition to the representations and warranties set forth in Section 2.2 above,
the Company hereby represents, warrants and covenants to CUC that:
(a) Capital Structure. Attached hereto as Schedule 2.3(a)(i)
is a true and complete copy of the Charter Documents of the Company, as in
effect on the date hereof. Except as set forth in Schedule 2.3(a)(ii), (i) the
authorized capital stock of the Company consists solely of one million
(1,000,000) shares of Common Stock, and (ii) there are issued and outstanding
one hundred and fourteen thousand and forty (114,040) shares of Common Stock
and no other shares of Common Stock are issued and outstanding; no Shares are
held by the Company in its treasury. All outstanding shares of Common Stock are
validly issued, fully paid and non-assessable and are not subject to any
preemptive or other similar rights. Except as set forth in Schedule 2.3(a)(ii),
there are not as of the date hereof, and there will not be at the Closing, (x)
any outstanding or authorized options, warrants, calls, rights (including
preemptive rights), commitments or any other agreements of any character which
the Company or, to the Company's knowledge, any Stockholder, is a party to, or
may be bound by, requiring it to issue, transfer, dispose of, sell, purchase,
redeem or otherwise acquire (or to refrain from doing any of the foregoing) any
shares of Common Stock or any shares of Capital Stock, and (y) any
stockholders' agreements, voting trusts or other agreements or understandings
to which the Company or, to the Company's knowledge, any Stockholder, is a
party or by which it is bound relating to the voting of, or placing any
restrictions on, any shares of the capital stock of the Company.
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(b) Shares to be Issued to CUC; No Changes in Capital
Structure. Immediately after giving effect to the conversion of the Convertible
Debenture and assuming such conversion was effective as of the date hereof, the
Shares to be issued to CUC upon such conversion shall give CUC a Share
Ownership Interest equal to twenty-five percent (25%), as calculated on a
Fully-Diluted Basis. Such Shares will not, when issued, be subject to any
preemptive or other similar rights. Attached hereto as Schedule 2.3(b) is a
true and complete list of all of the holders of record, and to the best
knowledge of the Company, all beneficial holders, of Common Stock and of any
other Capital Stock as of the date hereof. On and prior to the date hereof,
except as set forth on such Schedule 2.3(a)(ii) and except as expressly
provided for in this Agreement, the Company has not (i) declared, authorized,
set aside, paid or distributed any dividend or other distribution, or any
option, warrant, call or right (including preemptive rights), (ii) issued,
transferred, disposed, sold, purchased, redeemed or otherwise acquired any
shares of Capital Stock, or (iii) entered into any agreement of any character
requiring the Company to take any of the actions referred to in clauses (i) and
(ii) above.
(c) Compliance with Laws. Except as set forth in Schedule
2.3(c) and except for those matters which in the aggregate would not result in
a Company Material Adverse Effect (as defined below), (x) the Company is, and
at all times has been, in material compliance with all Laws applicable to the
Company or to the conduct of the business or operations of the Company or the
use of its properties (including any leased properties) and assets, and (y) the
Company has not received, and does not know of the issuance or threatened
issuance by any Governmental Entity, of any notices of violation or alleged
violation of any Law applicable to the Company. Except as set forth in Schedule
2.3(c), to the best knowledge of the Company, there is no proposed legislation
or Law which, if enacted, is reasonably likely to result in a Company Material
Adverse Effect (other than any proposed legislation or Law which could affect
generally companies located within the United States or companies operating in
the same general industry as the Company). For purposes of this Agreement, the
term "Company Material Adverse Effect" means any material adverse change in, or
material adverse effect on, the business, prospects or value of the Company, or
any event or circumstance which would likely prevent, hinder or materially
delay the consummation of any of the transactions contemplated by this
Agreement.
(d) Litigation. Except as set forth in Schedule 2.3(d)(i),
there is no action, suit, claim, investigation or proceeding, whether at law or
in equity (each, a "Legal Proceeding"), pending or, to the best knowledge of
the Company, threatened that questions the validity of this Agreement or the
Marketing Agreement or any action taken or to be taken by the Company or, to
the best knowledge of the Company, any Stockholder in connection with any of
the transactions contemplated hereby or thereby. Schedule 2.3(d)(i) sets forth
an accurate and complete list, and a brief description (setting forth the names
of the parties involved, the court or other governmental or mediating entity
involved, the relief sought and the substantive allegations and the status
thereof), of (a) each material Legal Proceeding pending or,
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to the best knowledge of the Company, threatened against or affecting the
Company or any of its assets, (b) each pending Legal Proceeding against or
affecting the Company or any of its assets which is brought in the form of a
class action or a purported class action, and (c) each group of two or more
Legal Proceedings which (x) arise out of a common set of facts, events or
circumstances, have substantially similar allegations or seek substantially
similar relief and (y) when taken together as such a group, is reasonably
likely to result in a Company Material Adverse Effect. Except as set forth in
Schedule 2.3(d)(ii), none of the matters listed on such Schedule 2.3(d)(i)
should, if adversely determined, either individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect. Except as set
forth in Schedule 2.3(d)(iii), to the best knowledge of the Company, no event
has occurred and no circumstance, matter or set of facts exist which would
constitute a valid basis for the assertion by any third party of any claim or
Legal Proceeding, other than those listed on Schedule 2.3(d)(i), which could
reasonably be expected to result in a Company Material Adverse Effect. Except
as set forth in Schedule 2.3(d)(iii), there is no outstanding or, to the best
knowledge of the Company, threatened judgment, injunction, judgment, order or
consent or similar decree or agreement of any Governmental Entity against,
affecting or naming the Company or affecting any of its properties or assets.
(e) Taxes. Except as set forth in Schedule 2.3(e) and except
for those matters which in the aggregate would not result in a Company Material
Adverse Effect, (i) all Taxes with respect to any periods ending on or before
the date hereof which are due and payable (whether or not shown on any Tax
Return) by the Company have been paid in full and no such Taxes remain
outstanding, (ii) the Company has established, and prior to the Closing Date
will have established, current accruals that are adequate for the payment of
all Taxes payable by it which are not yet due and payable with respect to its
results of operations for all periods ending on or before the Closing Date,
(iii) the Company has filed all Tax Returns required to have been filed by it
prior to the date hereof and no extension of time for filing a Tax Return is
presently in effect, (iv) the Tax Returns that have been filed have been
accurately prepared, duly and timely filed and are correct and complete in all
material respects, (v) the Company has withheld and paid all Taxes required to
have been withheld and paid by it in connection with amounts paid to or owing
to any employee, independent contractor, creditor or any other third party, and
(vi) to the best knowledge of the Company, there has been no examination by any
Tax authority of any return of the Company or of any other person, firm or
corporation for which the Company is liable, and there are no audits, actions,
suits, proceedings, investigations or claims now pending or, to the best
knowledge of the Company, threatened against the Company in respect of any
Taxes. For purposes of this Section 2.3(e), any reference to the Company shall
include any corporation which merged with or into or was liquidated into the
Company or a subsidiary of the Company or otherwise is a predecessor of the
Company or such subsidiary.
(f) Pension and Benefit Plans. All employees of the Company
are set forth on Schedule 2.3(f), and all Contracts and other agreements with
such
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employees are set forth on Schedule 2.3(n). Except as set forth on Schedule
2.3(n), there are no employee benefit, pension, profit sharing, deferred
compensation, welfare or similar plans of the Company with respect to its
employees.
(g) Financial Advisors. No person or entity has acted
directly or indirectly as a broker, finder or financial advisor for or to the
Company or, to the best knowledge of the Company, the Stockholders in
connection with the negotiations relating to or the transactions contemplated
by this Agreement or the Marketing Agreement. No person or entity is entitled
to any fee or commission or like payment, or expense reimbursement, in respect
of this Agreement or the Marketing Agreement or any of the transactions
contemplated hereby or thereby, based in any way on agreements, arrangements or
understandings made by or on behalf of the Company or, to the best knowledge of
the Company, the Stockholders.
(h) Financial Statements. Attached hereto as Schedule 2.3(h)
are true, correct and complete copies of (x) the balance sheet of the Company
and its consolidated subsidiaries (if any such subsidiaries exist) as at
December 31, 1996 and the related statements of earnings, shareholders' equity
and cash flows of the Company for the period then ended (including the related
notes and schedules thereto, the "1996 Financial Statements"), and (y) the
balance sheet (the "Balance Sheet") of the Company and its consolidated
subsidiaries (if any such subsidiaries exist) as at September 30, 1997 (the
"Balance Sheet Date") and the related statements of earnings, shareholders'
equity and cash flows of the Company for the nine-month period then ended (the
"Interim Financial Statements", and together with the 1996 Financial
Statements, the "Financial Statements"). The Financial Statements were prepared
in accordance with the books and records of the Company, are complete and
correct in all material respects, have each been prepared in accordance with
GAAP and present fairly the consolidated financial position, results of
operations and changes in financial position or cash flows, whichever is
applicable, of the Company as at the dates and for the periods indicated
(subject, in the case of the Interim Financial Statements, to normal year-end
audit adjustments).
(i) No Undisclosed Liabilities. Except as set forth in
Schedule 2.3(i), both as of September 30, 1997 and since such time, the Company
has not had, and it has not incurred, any indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise,
and whether due or to become due or asserted or unasserted), other than in the
ordinary course of the Company's business, and, to the best knowledge of the
Company, there was no basis for the assertion of any claim or liability of any
nature against the Company that would be required to be disclosed on a balance
sheet prepared as of September 30, 1997 or since such time in conformity with
GAAP, except for (x) those which were fully reflected in, reserved against or
otherwise described in the Balance Sheet, or (y) those matters which in the
aggregate would not result in a Company Material Adverse Effect.
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(j) Absence of Certain Material Developments. Except as set
forth in Schedule 2.3(j), since December 31, 1996, (a) there has been no event,
condition or state of facts of any character that has had or is reasonably
likely to have a Company Material Adverse Effect (other than those matters
which affect generally companies located within the United States or companies
operating in the same general industry as the Company), and (b) the Company has
not entered into any transaction or contract or conducted its business, other
than in the ordinary course of the Company's business (except for those matters
which in the aggregate would not result in a Company Material Adverse Effect).
(k) Intellectual Property.
(i) List of Intellectual Property; Sufficiency. Schedule
2.3(k)(i) sets forth a list of all Intellectual Property which is either owned
by the Company, licensed by the Company or otherwise used in its business
(other than commonly-used computer software which is generally available to the
public and the use rights to which were legally acquired by the Company either
for free or through established retail facilities) and indicates, with respect
to each item of Intellectual Property listed thereon, the owner thereof and, if
applicable, the name of the licensor and licensee thereof and the terms of such
license or other contract relating thereto. The Company owns or has the lawful
right to use all Intellectual Property necessary for the conduct of its
business as now conducted, except where any such failure to so own or to so
have the lawful right to use would not, either individually or in the
aggregate, result in a Company Material Adverse Effect.
(ii) Title; Validity; Pending Applications;
Infringements, Etc. Except as set forth in Schedule 2.3(k)(ii) and except for
those matters which in the aggregate would not result in a Company Material
Adverse Effect, (A) the Company has full legal and beneficial ownership (free
and clear of any and all Encumbrances) of, or a valid right to use (free of any
material restriction not entered into in the ordinary course of the Company's
business), all Intellectual Property listed on Schedule Schedule 2.3(k)(i), and
neither the Company nor any of its Affiliates has received any notice or claim
(whether written, oral or otherwise) challenging the Company's ownership or
rights in such Intellectual Property or suggesting that any other entity has
any claim of legal or beneficial ownership with respect thereto, (B) all
Intellectual Property listed on Schedule 2.3(k)(i) is legally valid and
enforceable without any material qualification, limitation or restriction on
its use, and neither the Company nor any of its Affiliates has received any
notice or claim (whether written, oral or otherwise) challenging the validity
or enforceability of any such Intellectual Property, (C) with respect to any
Intellectual Property listed on Schedule 2.3(k)(i) for which registration with
any private or governmental entity is permitted, but which has not yet been
registered, all applications with respect thereto have been made and are
pending and in good standing and are without challenge of any kind, (D) neither
the use of any of the Intellectual Property listed on Schedule 2.3(k)(i) nor
any other Intellectual Property used by the Company will conflict with,
infringe upon, violate or interfere with or constitute an appropriation
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of any right, title or interest held by any other person or entity, and there
have been no claims made with respect thereto, (E) to the knowledge of the
Company, no other person or entity is infringing in any material respect on any
part of the Intellectual Property listed on Schedule 2.3(k)(i), and (F) the
Company has not conducted its business, and has not used or enforced (or failed
to use or enforce) such Intellectual Property, in a manner that would result in
the abandonment, cancellation or unenforceability of any item of the
Intellectual Property, and the Company has not taken or failed to take any
action that would result in the forfeiture or relinquishment of any such
Intellectual Property used in the conduct of its business as now conducted. The
Company has a valid registration and full rights (free of any material
restriction) with respect to all Internet domain names which are currently used
by the Company in its business.
(iii) Protection and Maintenance of Intellectual
Property. Except as set forth in Schedule 2.3(k)(iii) and except for those
matters which in the aggregate would not result in a Company Material Adverse
Effect, (A) the Company has taken all reasonable steps to (x) protect the
Company's rights to the Intellectual Property listed on Schedule 2.3(k)(i) and
(y) to prevent the unauthorized use thereof by any other person or entity, in
each case in accordance with standard industry practice, and (B) the Company
shall use all reasonable efforts to maintain, or cause to be maintained, the
Intellectual Property listed on Schedule 2.3(k)(i) in full force and effect.
Except as set forth in Schedule 2.3(k)(iii), neither the Company nor any
Stockholder nor any of their respective affiliates has granted to any other
person or entity any rights or permissions to use any of the Intellectual
Property listed on Schedule 2.3(k)(i), except in the ordinary course of the
Company's business.
(l) Real Property. Schedule 2.3(l)(i) sets forth an accurate
and complete list of all real property in which the Company has a leasehold
interest. Except as set forth in Schedule 2.3(l)(ii), (A) the Company does not
own or have the right to acquire, pursuant to any agreement, arrangement or
understanding, any real property, and (B) the Company has a good and valid
leasehold interest in each parcel of real property leased by it, free and clear
of all Encumbrances, except those Encumbrances which do not materially
interfere with the Company's use and enjoyment of such real property or
materially detract from or diminish the value thereof.
(m) Insurance. The Company currently maintains, and will
maintain, valid insurance policies, which policies provide coverage, both in
terms of scope and amount of coverage, for the Company and the operations
conducted by the Business, comparable to the coverage typically maintained by
other companies which are similarly situated (i.e., as to size of operations
and line of business) to the Company. Except as set forth in Schedule 2.3(m),
(A) there are no pending material claims against such insurance by the Company
or its Affiliates as to which the applicable insurers have denied coverage, (B)
to the best knowledge of the Company, there exist no material claims under such
insurance that have not been properly
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filed by the Company or its affiliates, and (C) the Company has not been
refused any insurance coverage by any insurer from which the Company has sought
coverage.
(n) Material Contracts.
(i) List of Certain Types of Contracts. Except as set
forth in Schedule 2.3(n)(i), the Company is not a party to, nor are any of its
properties or assets bound by, any (1) contract not made in the ordinary course
of the Company's business or the performance of which will extend over a period
greater than thirty (30) days and which is not cancelable by the Company
without penalty; (2) employment, consulting, independent contractor,
non-competition, severance, golden parachute or indemnification contract; (3)
advertising, public relations, franchise, distributorship or sales agency
contract; (4) contract involving the commitment or payment in excess of $50,000
for the future purchase of services, properties, materials or equipment; (5)
contract among stockholders or granting a right of first refusal or for a
partnership or for a joint venture or for the acquisition, sale or lease of any
properties or assets of the Company; (6) mortgage, pledge, conditional sales
contract, security agreement, factoring agreement or other similar contract
with respect to any property of the Company; (7) loan agreement, credit
agreement, promissory note, guarantee, subordination agreement, letter of
credit or any other similar type of contract; (8) retainer contract with
investment bankers, attorneys, accountants, actuaries, appraisers or other
professional advisers; (9) lease, sublease or other agreement under which the
Company uses or occupies or has the right to use or occupy, now or in the
future, any real property, (10) contract or agreement with any Governmental
Entity; (11) contract which would be reasonably likely to limit or restrain the
Company, or any owner or affiliate of the Company, from engaging in any line of
business, competing with any person, firm, corporation or other entity, or
conducting business in any particular geographic area, (12) contract relating
to the marketing, co-marketing, promotion or co-promotion of the NetGrocer
Service or any part thereof, (13) contract the performance or nonperformance of
which by the Company is reasonably likely to cause a Company Material Adverse
Effect, or (14) commitment or agreement to enter into any of the foregoing (the
contracts, agreements and other arrangements referred to in clauses (1) through
(14) above, collectively referred to as the "Contracts"). The Company has
delivered or otherwise made available to Purchaser and CUC true, correct and
complete copies of the Contracts listed in Schedule 2.3(n)(i), together with
all amendments, modifications and supplements thereto and side letters to which
the Company is a party affecting the obligations of any party thereunder. No
person or entity holds a power of attorney to act on behalf of the Company.
(ii) Enforceability; Defaults; Consents; Impending
Terminations; Etc. Except as set forth in Schedule 2.3(n)(ii) and except for
those matters which in the aggregate would not result in a Company Material
Adverse Effect: (A) to the best knowledge of the Company, each of the Contracts
listed, or required to be listed, on Schedule 2.3(n)(i), is valid and
enforceable in accordance
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with its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity) and to
general public policy limitations (e.g., certain public policy limitations
regarding the indemnification of violations of the federal securities laws, or
the scope, duration or geographic coverage of certain non-competition
provisions, etc.), (B) no Default exists under any Contract listed in Schedule
2.3(n)(i) either by the Company or, to the best knowledge of the Company, by
any other party thereto; (C) to the best knowledge of the Company, no third
party has asserted any claim of Default or breach under any of the Contracts
listed in Schedule 2.3(n)(i); (D) with respect to those Contracts listed in
Schedule 2.3(n)(i) that were assigned or subleased to the Company by a third
party, to the best knowledge of the Company, all necessary consents to such
assignments or subleases have been obtained, and (E) to the best knowledge of
the Company, there is no present intention on the part of any significant
supplier, customer or other business partner of the Company to either (x)
terminate or significantly change its existing business relationship with the
Company, either now or in the foreseeable future, or (y) fail to renew or
extend its existing business relationship with the Company at the end of the
term of any existing contractual arrangement such supplier or customer may have
with the Company.
(o) Related Party Transactions. Except as set forth in
Schedule 2.3(o) hereto, no Affiliate, and, to the best knowledge of the
Company, no Stockholder and no Permitted Transferee of any Stockholder, either
(i) has lent or borrowed any monies to or from or has outstanding any
indebtedness or other similar obligations to the Company, (ii) owns any direct
or indirect interest of any kind (except with respect to the ownership of not
more than five percent (5%) of any class of equity security in a publicly-held
company) in, or is a director, officer, employee, partner, affiliate or
associate of, or consultant or lender to, or borrower from, or has the right to
participate in the management, operations or profits of, any person or entity
which is (A) a competitor, supplier or distributor of the Company, (B) engaged
in a business related to the business of the Company or (C) participating in,
or has participated in, any material transaction to which the Company is a
party, (iii) is otherwise a party to, or has been a party to, any contract,
arrangement or understanding with the Company or (iv) owns or has any rights in
any assets (including, without limitation, Intellectual Property), properties,
licenses or rights which are used or leased (or were used or leased) by the
Company in the conduct of its business.
(p) No Misrepresentation. Neither this Agreement (including
the schedules hereto), nor the Marketing Agreement nor any information supplied
by or on behalf of the Company or any of its Affiliates to CUC, in connection
with this Agreement, the Marketing Agreement or the transactions contemplated
hereby or thereby, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained herein
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or therein, in light of the circumstances under which they were made, not
misleading. To the best knowledge of the Company, there exist no facts or
circumstances which are reasonably likely to cause a Company Material Adverse
Effect after the date hereof (including after giving effect to the consummation
of the transactions contemplated pursuant to this Agreement), which have not
been set forth in the Financial Statements or disclosed with specificity in a
schedule attached to this Agreement; provided that the provisions of this
sentence shall not be deemed to be a representation or warranty as to any
events or circumstances which affect generally companies which operate in the
same general industry as the Company or affect generally companies located
within the United States.
ARTICLE III
CORPORATE GOVERNANCE
3.1 Voting Matters Related to Charter Documents. From and after the
date hereof, each Stockholder shall vote its shares of Capital Stock (to the
extent entitled to vote), at each regular or special meeting of stockholders of
the Company or in any written consent executed in lieu of such a meeting of
stockholders, and shall take all actions reasonably necessary, to ensure that
the Charter Documents do not, at any time, conflict with the provisions of this
Agreement.
3.2 Designation of CUC Directors. From and after the Closing Date,
each of the Stockholders shall vote its shares of Capital Stock (to the extent
entitled to vote), at each regular or special meeting of the stockholders of
the Company called for the purpose of filling positions on the Board, or in any
written consent executed in lieu of such a meeting of stockholders, and shall
take all actions reasonably necessary, to ensure the election to the Board of
two (2) individuals (the "CUC Nominees") selected by CUC (or by CUC and the
Permitted Transferees of CUC, if any, as CUC and such Permitted Transferees may
agree between or among themselves by the affirmative vote of the holders of a
majority of the shares of Capital Stock owned by such persons).
3.3 Replacement of CUC Nominees. If, prior to his election to the
Board pursuant to Section 3.2 hereof, any CUC Nominee shall be unable or
unwilling to serve as a director of the Company, CUC shall be entitled to
nominate a replacement who shall then be a CUC Nominee for purposes of Section
3.2 above. If, following election to the Board pursuant to Section 3.2 hereof,
any CUC Nominee shall resign, die or be removed or be unable to serve for any
reason prior to the expiration of his term as a director of the Company, CUC
shall within 30 days of such event, notify the Board in writing of a
replacement CUC Nominee, and all Stockholders shall vote their shares of
Capital Stock (to the extent entitled to vote), at any regular or special
meeting called for the purpose of filling positions on the Board, or in any
written consent executed in lieu of such a meeting of stockholders, and shall
take all actions necessary, to ensure the election to the Board of such
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replacement CUC Nominee to fill the unexpired term of the CUC Nominee whom such
new CUC Nominee is replacing.
3.4 Calling Special Meetings for the Removal of CUC Nominees. Each
Stockholder hereby agrees to use such Stockholder's reasonable efforts to call,
or cause the appropriate officers and directors of the Company to call, a
special meeting of stockholders of the Company and to vote all of the shares of
Capital Stock owned or held of record by such Stockholder (to the extent
entitled to vote) for, or to take all actions by written consent in lieu of any
such meeting necessary to cause, the removal (with or without cause) of any CUC
Nominee from the Board if CUC requests in writing his or her removal for any
reason.
3.5 Calling Special Meetings for the Enforcement of this Agreement. In
order to effectuate the provisions of this Agreement, each Stockholder hereby
agrees that when any action or vote is required to be taken by such Stockholder
pursuant to this Agreement, such Stockholder shall use its reasonable efforts
to call, or cause the appropriate officers and directors of the Company to
call, a special or annual meeting of stockholders of the Company, as the case
may be, or execute or cause to be executed a consent in writing in lieu of any
such meetings to effectuate such stockholder action.
3.6 Removal for Cause. Each Stockholder hereby agrees that, subject to
the requirements of applicable law and the Charter Documents, no CUC Nominee
shall be removed without Cause (except as provided in Section 3.4 hereof). For
the purposes of this Section 3.6, "Cause" means the commission of an act of
fraud or embezzlement against the Company or any of its subsidiaries, any
willful misconduct in the course of the person's duties which causes
significant injury to the Company and its subsidiaries, taken as a whole, or
any conviction or guilty plea for a felony (or a plea of nolo contendere
thereto).
3.7 CUC Approval Rights. The written approval of all of the CUC
Nominees shall be required in order for the Company to (a) effect any amendment
of the Charter Documents which adversely affects, either directly or
indirectly, any of the rights of CUC or any of its Affiliates in any material
respect, (b) change the size of the Board, (c) effect any amendment of this
Agreement or effect any transaction in violation of this Agreement, (d) pay any
dividends or make any other distributions with respect to the Capital Stock or
otherwise, (e) effect any repurchase or redemption of Capital Stock, (f) effect
any material change in the nature of the Company's business, (g) effect any
transaction involving the acquisition or disposition by the Company of any
equity interests, assets or any business in which the fair market value thereof
exceeds thirty percent (30%) of the Company's total net worth (as determined in
accordance with GAAP), or (h) effect any liquidation, dissolution or winding-up
of the Company or effect any voluntary filing, or consent to any involuntary
filing, for bankruptcy; provided that the written approval of the CUC Nominees
shall not be required in order to effect any change restricted by the
provisions of Sections 3.8(a), 3.8(b) and 3.8(g) to the extent that
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such change is reasonably required in order to effect an IPO; provided further
that the written approval of the CUC Nominees shall not be required in order to
amend the Company's Certificate of Incorporation to increase the authorized
capital stock of the Company, to increase the size of the Board or for the
Company to issue capital stock, so long as in each case such change or issuance
is reasonably required in order for the Company to issue and sell its capital
stock in connection with meeting its bona fide capital raising needs. Absent
the written approval referred to in the previous sentence, neither the Company
shall engage in, nor shall any Stockholder take any action to facilitate, any
of the activities restricted by the provisions of the preceding sentence. In
order to give full effect to the provisions of this Section 3.8, the Company's
Certificate of Incorporation shall be amended on or promptly (but in any event
within three business days) following the date hereof (and each of the
Stockholders agrees to use its respective best efforts to effect such
amendment) to include therein the provisions attached hereto as Exhibit B.
ARTICLE IV
CUC RIGHT TO ACQUIRE THE COMPANY
4.1 CUC Right to Acquire Additional Capital Interest.
(a) Additional Capital Right in General. On or prior to April
1, 1998, CUC shall have the right (the "Additional Capital Right"), at its sole
option, to cause the Company to issue and sell to CUC, for an aggregate
purchase price of U.S.$5,000,000.00, an additional convertible debenture in the
same form as the Convertible Debenture referred to in Section 2.1 above, except
that such additional convertible debenture ("Additional Convertible Debenture")
shall (x) be in an aggregate principal amount of U.S.$5,000,000.00, and (y)
give CUC the right to convert such Additional Convertible Debenture at any time
at CUC's option into that number of shares of Common Stock as is equal to eight
and three-tenths percent (8.3%) of the Common Stock, calculated on a
Fully-Diluted Basis on the date of the exercise of the Additional Capital
Right. In the event that CUC exercises such Additional Capital Right, the
Company shall have the right, at its sole option, to require CUC to instead
purchase from the Company one of the following two types of Additional
Convertible Debentures which are different from the Additional Convertible
Debenture described above in the purchase price amount thereof, in the
principal amount thereof and in the amount of Common Stock that it is
convertible into, as follows: either (i) an Additional Convertible Debenture to
be purchased by CUC for an additional purchase price of U.S.$1,000,000.00 (for
an aggregate purchase price of U.S.$6,000,000.00), which shall be in an
aggregate principal amount of U.S.$6,000,000.00, and shall give CUC the right
to convert such convertible debenture at any time at CUC's option into that
number of shares of Common Stock as is equal to an additional one and one-half
percent (1.5%) of the Common Stock, for an aggregate of nine and eight-tenths
percent (9.8%) of the Common Stock, in each case calculated on a Fully-Diluted
Basis on the date of the exercise of the Additional Capital Right, or (ii) an
Additional Convertible Debenture
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to be purchased by CUC for an additional purchase price of U.S.$2,000,000.00
(for an aggregate purchase price of U.S.$7,000,000.00), which shall be in an
aggregate principal amount of U.S.$7,000,000.00, and shall give CUC the right
to convert such convertible debenture at any time at CUC's option into that
number of shares of Common Stock as is equal to an additional three percent
(3%) of the Common Stock, for an aggregate of eleven and three-tenths percent
(11.3%) of the Common Stock, in each case calculated on a Fully-Diluted Basis
on the date of the exercise of the Additional Capital Right. The Company must
notify CUC in writing, within 10 days following the delivery to the Company of
CUC's notice of CUC's exercise of its right hereunder, if the Company desires
to require that CUC acquire any additional shares of Common Stock in accordance
with the provisions of the preceding sentence.
(b) Transfer Mechanics. Upon any exercise by CUC of its
rights under this Section 4.1, the closing of such purchase shall occur on the
15th business day following the date on which CUC initially notifies the
Company of CUC's exercise of its rights hereunder (or on such other day as the
parties may mutually agree upon). At such closing, CUC shall deliver to the
Company the appropriate consideration required to be transferred to the Company
in accordance with the provisions of this Section 4.1, by wire transfer to a
bank account designated by the Company in a written notice to CUC, in exchange
for the delivery to CUC by the Company of the certificates representing the
Additional Convertible Debenture in question. All shares of Common Stock to be
issued and sold to CUC, upon the conversion by CUC of any such Additional
Convertible Debenture (if CUC so opts to do so), shall be validly issued, fully
paid and non-assessable and shall be free and clear of any and all
Encumbrances. Upon consummation of any transaction contemplated pursuant to
this Section 4.1, the Company shall be deemed to have made with respect to such
transaction each of the representations and warranties set forth in Sections
2.2 and 2.3 above as if such representations and warranties were made as of
such date; provided that the Company (x) shall update Schedules 2.3(a) and
2.3(h) to disclose information relating to such schedules which is current as
of that time and (y) shall also be entitled to update any of the other
schedules attached to this Agreement in order to make such representations and
warranties factually correct (but only to the extent and in the manner a
reasonable party would customarily disclose such factual matters), in each case
by delivering a letter to CUC at least 10 days prior to the closing date
setting forth in reasonable detail such factual matters and with reasonable
specificity as to the particular representations and warranties covered
thereby; provided further that CUC may, within ten (10) days of its receipt of
the letter referred to in the previous proviso, determine not to exercise its
Additional Capital Right by notifying the Company in writing of its
determination to no longer exercise its Additional Capital Right.
4.2 CUC Right to Acquire the Entire Company.
(a) Company Purchase Right in General. Subject to the
provisions of Section 4.2(b) below, on or prior to September 1, 1998, CUC shall
have the right
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(the "Company Purchase Right"), at its sole option, to cause the sale of all or
substantially all of the Company to CUC or any designated affiliate of CUC,
whether pursuant to a sale of Capital Stock, merger, consolidation, sale of
assets or similar transaction, at a total purchase price which shall be based
on an aggregate valuation of the Company of U.S.$165,000,000.00 (which
aggregate valuation includes the value of CUC's share ownership in the
Company). For instance, by way of example, if, at the time CUC exercises such
Company Purchase Right, CUC owns a thirty-three and one-third percent Share
Ownership Interest, then the stockholders of the Company, other than CUC, shall
be entitled to receive in the aggregate two-thirds of such $165 million amount,
which is equal to $110 million in the aggregate (less any tax amounts which are
incurred as a result of such transaction, and less any transaction costs in
excess of $25,000 in the aggregate which are incurred by the Company as a
result of such transaction, in each case subject to the provisions of Section
4.2(e) below). If CUC proposes to exercise its Company Purchase Right, CUC
shall send written notice of the exercise of its Company Purchase Right to each
of the remaining Stockholders, setting forth the material terms and conditions
of such transaction.
(b) Limitations on CUC's Purchase Right. Notwithstanding the
foregoing, (i) in the event that either (A) CUC fails to notify the Company,
prior to April 2, 1998, that it intends to exercise its rights under Section
4.1 above, or (B) the additional equity investment contemplated by Section 4.1
above is not actually consummated, then CUC's rights set forth in this Section
4.2 shall thereafter automatically terminate, and (ii) in the event that the
Board determines in good faith that it will take all appropriate action to
promptly commence an IPO, then the Company shall notify CUC in writing promptly
of such determination and CUC shall have 30 days after the date of such written
notification by the Company to exercise its rights under this Section 4.2, and
if CUC fails to do so within such time period, then CUC's rights set forth in
this Section 4.2 shall thereafter automatically terminate (unless such IPO is
not actually consummated within 120 days after the date on which CUC's sends
its written response to such written notification from the Company, in which
event CUC's rights under this Section 4.2 shall be automatically reinstated).
(c) Sale of Company Pursuant to Sale of Capital Stock. In the
event that CUC determines to exercise its Company Purchase Right pursuant to a
sale of Capital Stock to CUC or any designated affiliate of CUC, then CUC may,
at its option, require the remaining Stockholders and their respective
Permitted Transferees to sell all shares of Capital Stock held by them to CUC
or any designated affiliate of CUC, at a purchase price equal to the product of
(x) U.S.$165,000,000.00 (less any legal, accounting and other transaction costs
in excess of $25,000 in the aggregate which are incurred by the Company as a
result of such transaction), multiplied by (y) the Share Ownership Interest
held by the particular Stockholder or Permitted Transferee in question. Within
10 days following the date of CUC's notice of its exercise of its Company
Purchase Right, each of the Stockholders and their respective Permitted
Transferees shall deliver to a
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representative of CUC designated in CUC's notice, certificates or other
instruments representing all of the Capital Stock held by such person, Duly
Endorsed, together with all other documents reasonably required to be executed
in order to effectuate such transaction. In the event that any such person
should fail to deliver such certificates or other instruments to CUC, the
Company shall cause the books and records of the Company to show that such
Capital Stock of such person is bound by the provisions of this Section 4.2 and
that such Capital Stock may be transferred only to CUC or the particular
affiliate designated by CUC.
(d) Sale of Company Other than Pursuant to Sale of Capital
Stock. In the event that CUC determines to exercise its Company Purchase Right
pursuant to a merger, consolidation, sale of assets or similar transaction in
which CUC or any designated affiliate of CUC acquires all or substantially all
of the Company in connection with such transaction, then CUC may, at its
option, require the Stockholders and their respective Permitted Transferees to
vote in favor of such transaction. In particular, in the event of any such
proposed transaction, upon any request by CUC, each of the Stockholders shall
use its respective best efforts (i) to call, or cause the appropriate officers
and directors of the Company to call, a special meeting of stockholders of the
Company to consider approval of such proposed transaction, and (ii) vote in
favor of such proposed transaction all of the shares of Capital Stock owned or
held of record by such Stockholder (to the extent entitled to vote), at each
regular or special meeting of the stockholders of the Company called for the
purpose of voting on such matter, or in any written consent executed in lieu of
such a meeting of stockholders, and shall take all actions reasonably
necessary, to ensure that all necessary stockholder approvals for such
transaction are obtained. Upon the consummation of such transaction, CUC shall,
subject to and in accordance with the provisions of Section 4.2(e) below, be
obligated to pay (i) in the event of a sale of all or substantially all of the
assets or other similar transaction, an amount to the Company equal to
U.S.$165,000,000.00, and (ii) in the event of a merger or consolidation, an
amount to the remaining Stockholders and their respective Permitted Transferees
equal to the product of (x) U.S.$165,000,000.00 (less any legal, accounting and
other transaction costs in excess of $25,000 in the aggregate which are
incurred by the Company as a result of such transaction), multiplied by (y) the
Share Ownership Interest held by the particular Stockholder or Permitted
Transferee in question.
(e) Consummation of Company Purchase. (i) Upon consummation
of any sale transaction contemplated pursuant to this Section 4.2, each of the
Stockholders and their respective Permitted Transferees in existence
immediately prior to giving effect to such transaction shall be deemed to have
made with respect to such transaction each of the representations and
warranties set forth in Section 2.2 above (on a several and not joint basis) as
well as in Section 2.3 above (on a joint and not several basis), in each case
as if such representations and warranties were made as of such date. In
addition, upon consummation of any sale transaction contemplated pursuant to
this Section 4.2, the Company shall be deemed to have made with respect to such
transaction each of the representations and warranties
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set forth in Sections 2.2 and 2.3 above as if such representations and
warranties were made as of such date; provided that the Company (x) shall
update Schedules 2.3(a) and 2.3(h) to disclose information relating to such
schedules which is current as of that time and (y) shall also be entitled to
update any of the other schedules attached to this Agreement in order to make
such representations and warranties factually correct (but only to the extent
and in the manner a reasonable party would customarily disclose such factual
matters), in each case by delivering a letter to CUC at least 10 days prior to
the closing date setting forth in reasonable detail such factual matters and
with reasonable specificity as to the particular representations and warranties
covered thereby; provided further that, upon the receipt by CUC of the letter
referred to in the previous proviso, CUC may thereafter determine not to
exercise its Company Purchase Right.
(ii) Promptly (but in no event later than two
business days) after the consummation of any sale transaction contemplated
pursuant to this Section 4.2, CUC shall give notice thereof to the
Stockholders, shall remit to each of the remaining Stockholders and their
respective Permitted Transferees the total transaction proceeds to which such
Stockholders or the Company (as the case may be) are entitled pursuant thereto
(except, in the case of Section 4.2(c) above, that such amounts shall not be
paid until the Stockholder in question has made the requisite deliveries to
CUC, following which CUC shall make the payment in question promptly to such
Stockholder), and shall furnish such other evidence of the completion and time
of completion of such sale or other disposition and the terms and conditions
thereof as may be reasonably requested by such Stockholders. Notwithstanding
anything to the contrary contained herein, CUC shall be entitled to withhold,
pursuant to the Escrow Agreement attached hereto as Exhibit C, for a period of
up to eighteen months following the consummation of the transaction in
question, fifteen percent (15%) of the proceeds which would otherwise be
payable to such Stockholders and shall further be entitled to use such withheld
amount to irrevocably offset against any Losses resulting from, arising out of,
relating to, imposed upon or incurred by CUC or its Affilates by reason of any
inaccuracy in or breach of any of the representations or warranties deemed to
be given pursuant to this Section 4.2(e); CUC shall remit to the Stockholders,
following the eighteen-month anniversary of the consummation of the transaction
in question, such withheld amount less any amounts which have been offset
against pursuant to this sentence. Such withheld amount shall constitute a
non-exclusive indemnity pool to serve as partial security with respect to the
representations, warranties and other obligations of the Stockholders in
connection with any sale transaction contemplated pursuant to this Section 4.2.
In addition to the representations and warranties deemed to be given pursuant
to this Section 4.2(e), the Company shall also enter into such covenants and
agreements as are typically entered into by a similarly-situated selling party.
Except with respect to any inaccuracy in or breach of any of the
representations or warranties deemed to be given by a Stockholder pursuant to
this Section 4.2(e) and except with respect to any breach of any of the
Company's covenants referred to in the previous sentence, the Stockholders
shall not owe any other liabilities or obligations to CUC as a result of the
consummation of any of the
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transactions contemplated pursuant to this Section 4.2 and shall not have any
liability with respect to any of the liabilities of the Company. All amounts
payable by CUC to the Company or the Stockholders pursuant to this Section 4.2
shall be paid by wire transfer of immediately available funds to such U.S. bank
account(s) as may be designated in writing prior to consummation of the
transaction in question, or if such information is not provided, then such
amounts will be paid by bank, cashier's or certified check.
(iii) Each of the Stockholders and the Company shall
cooperate with CUC, to the extent reasonably requested by CUC, in structuring
any sale transaction contemplated pursuant to this Section 4.2 in a manner
which is most tax-efficient to CUC, and shall not take any position in their
respective tax returns or otherwise which is inconsistent with such tax
structure chosen by CUC and shall execute and deliver all documents necessary
to effect such tax structure election; provided that in the event that CUC
seeks to structure any sale transaction contemplated pursuant to this Section
4.2 in a manner which imposes an additional amount of taxation on the
Stockholders and the Company in excess of the Base Amount (as defined below),
CUC must reimburse (or, at the request of the party in question, advance such
amounts within five days prior to the date on which such amounts are owed) the
Stockholders and the Company (subject to the receipt by CUC of documentation
reasonably evidencing the incurrence of such costs and any other documentation
reasonably requested by CUC) for one-half of the sum of (i) the amount of the
federal, state and local tax costs which are actually incurred by the
Stockholders and the Company as a result of the consummation of the transaction
pursuant to CUC's tax structure (without taking into account any tax costs
which arise as a result of any payments contemplated pursuant to this
sentence), less (ii) the Base Amount. For purposes of this Section 4.2, the
term "Base Amount" means the amount of the federal, state and local tax costs
which would be normally incurred by the Stockholders and the Company in a
transaction in which CUC or its designee acquired all of the Capital Stock
directly from the Stockholders for cash (assuming that there was no
availability of making an election pursuant to the provisions of Section
338(h)(10) of the Code).
ARTICLE V
PROVISIONS RELATING TO TRANSFERS OF STOCK
5.1 Preemptive Rights.
(a) Preemptive Rights in General. The Company hereby grants
to CUC a right to purchase any and all Capital Stock which may be issued or
transferred from time to time during the one-year period following the date
hereof by the Company or any of its subsidiaries. In particular, during the
one-year period following the date hereof, neither the Company shall, nor shall
it permit any of its subsidiaries to, issue or Transfer, individually or
collectively, in any one transaction or any series of similar transactions, any
shares of Capital Stock to any person (each
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such person, a "Preemptive Offeree"), unless (i) the Company gives CUC a
written notice (the "Preemptive Rights Notice") setting forth the Purchase
Price and all of the other material terms and conditions of such proposed
issuance or Transfer, and (ii) such Preemptive Rights Notice contains an offer
to CUC to sell or otherwise transfer such Capital Stock to CUC at the same
Purchase Price, and on substantially the same terms and conditions as the other
terms and conditions, which the Company plans to offer to the Preemptive
Offeree(s). At any time within 30 days after its receipt of the Preemptive
Rights Notice in question, CUC may irrevocably accept the Company's offer set
forth in such Preemptive Rights Notice for up to such number of shares or other
amount of Capital Stock as is being offered to the Preemptive Offerees by
furnishing written notice of such acceptance to the Company. Promptly following
such acceptance by CUC, CUC shall deliver to the Company the appropriate
Purchase Price to be transferred to the Company as reflected in such Preemptive
Rights Notice, in exchange for the delivery to CUC by the Company or one of its
subsidiaries of the certificates or instruments representing the issued or
transferred Capital Stock in question. If within 30 business days after the
receipt of the Preemptive Rights Notice in question, CUC has not accepted the
offer contained in such Preemptive Rights Notice, the Company shall have 60
days in which to sell or otherwise dispose of the same amount of Capital Stock
described in the Preemptive Rights Notice, at a Purchase Price which is no more
favorable, and on such other terms and conditions which are generally no more
favorable, to the Preemptive Offeree(s) than the Purchase Price and other terms
and conditions set forth in such Preemptive Rights Notice. If, at the end of
such 60-day period the Company has not completed the sale or other disposition
of such Capital Stock described in such Preemptive Rights Notice in compliance
with the provisions of the preceding sentence, all the restrictions on Transfer
contained in this Agreement (including, without limitation, this Section 5.1)
with respect to such Capital Stock shall again be in effect. Notwithstanding
the foregoing, the Company may request that the amount of Capital Stock to be
issued to CUC pursuant to this Section 5.1 be limited to the amount of Capital
Stock which is necessary for CUC to maintain its then-current Share Ownership
Interest (which Share Ownership Interest amount shall be calculated assuming
the full conversion of the Convertible Debenture and, so long as CUC has not
failed to exercise the Additional Capital Right prior to its expiration,
assuming the full exercise of the Additional Capital Right); provided that the
Company shall not be entitled to limit the amount of Capital Stock which CUC
may purchase pursuant to this sentence in the event that the Preemptive
Offeree(s) and their respective Affiliates would in the aggregate acquire, in a
single transaction or in a group of related transactions, more than either (x)
in the event of any Preemptive Offeree(s) which are neither Stockholders nor
Affiliates or Associates of any Stockholder, a thirty-five percent (35%) Share
Ownership Interest (assuming that they acquired all of the Capital Stock
referred to in the Preemptive Rights Notice, other than any portion
attributable to CUC and its Affiliates), or (y) in the event of any Preemptive
Offeree(s) which are either Stockholders or Affiliates or Associates of any
Stockholder, an additional fifteen percent (15%) Share Ownership Interest
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(assuming that they acquired all of the Capital Stock referred to in the
Preemptive Rights Notice, other than any portion attributable to CUC and its
Affiliates).
(b) Exceptions to Preemptive Rights. Notwithstanding anything
to the contrary contained herein, no right of first refusal pursuant to Section
5.1(a) above would apply in the event of (i) the issuance of options to
purchase shares of Common Stock granted to any of the Company's full-time
officers and employees (provided that (A) such grants are both in the ordinary
course of the Company's business consistent with past practice and do not, when
taken together with all other grants of options and other equity rights given
after the date hereof to the Company's officers and employees, exceed a five
percent (5%) Share Ownership Interest with respect to all such officers and
employees, taken as a whole, and (B) the exercise price of such options is not
below the fair market value of the shares of Common Stock as of the date of
grant, as determined by the Board in good faith), (ii) the exercise of any
employee options referred to in clause (i) above or the exercise of any
employee stock options in existence as of the date hereof, (iii) an issuance of
securities by the Company in connection with an IPO and (iv) the distribution
by the Company of its securities to all of its stockholders on a pro rata
basis.
5.2 Tag-Along Rights.
(a) Tag-Along Rights Generally. No Stockholder or
Stockholders shall, individually or collectively, in any one transaction or any
series of similar transactions, Transfer any Capital Stock to any Third Party
unless the terms and conditions of such Transfer to such Third Party contains
an offer to CUC to include, at the option of CUC, in the sale or other
disposition to such Third Party a number or amount of Capital Stock then owned
or held by CUC equal to the product of (x) the total number or amount of
Capital Stock to be acquired by the Third Party, times (y) CUC's Share
Ownership Interest (the shares of Capital Stock of CUC subject to such right,
the "Tag-Along Stock"). In particular, if any Stockholder or Stockholders
receive a bona fide offer or offers to purchase or otherwise acquire shares of
its or their Capital Stock from a Third Party, each such Stockholder (a
"Transferor") shall use its reasonable efforts to cause the Third Party's offer
to be reduced to writing and shall provide a written notice of such Third
Party's offer (the "Notice") to CUC in the manner set forth in Section 9.6
hereof; provided that in the event that any Transferor fails to either cause
the Third Party's offer to be reduced to writing or to provide the Notice to
CUC in the prescribed manner, such Transferor shall not be permitted to effect
any such Transfer of Capital Stock to such Third Party. The Notice shall also
contain an offer to purchase or otherwise acquire shares of Tag-Along Stock
from CUC according to the terms and conditions of this Section 5.2 and upon
substantially the same terms and conditions as the terms and conditions
contained in the Third Party's offer and shall be accompanied by a true and
correct copy of the Third Party's offer. At any time within 30 days after its
receipt of the Notice, CUC may irrevocably accept the Third Party offer
included in the Notice for up to such number of shares of Tag-Along Stock as is
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determined in accordance with the provisions of this Section 5.2 by furnishing
written notice of such acceptance to the Transferor in question. Promptly
following such acceptance by CUC, CUC shall deliver to the Transferor in
question the certificate or certificates representing the Tag-Along Stock to be
sold or otherwise disposed of pursuant to such offer by CUC, together with a
limited power-of-attorney authorizing the Transferor to sell or otherwise
dispose of such shares of stock pursuant to the terms and conditions of such
Third Party's offer.
(b) Transfer Mechanics. The purchase from CUC pursuant to
this Section 5.2 shall be on the same terms and conditions, including the same
proportionate Purchase Price (which shall be paid by bank, cashier's or
certified check or by wire transfer of immediately available funds, unless
otherwise specified in the Notice provided to CUC by the Company) and date of
sale or other disposition, as are received by the Transferor and stated in the
Notice in question provided to CUC. As promptly as practicable (but in no event
later than 5 days) after the consummation of the sale or other disposition of
Capital Stock of the Transferor and Tag-Along Stock of CUC to the Third Party
pursuant to the Third Party's offer, the Transferor shall notify CUC thereof,
shall remit to CUC the total sales price of the Tag-Along Stock of CUC sold or
otherwise disposed of pursuant thereto, and shall furnish such other evidence
of the completion and time of completion of such sale or other disposition and
the terms and conditions thereof as may be reasonably requested by CUC.
(c) Transfers to Third Parties if CUC Declines Tag-Along
Rights. If within 30 business days after the receipt of the Notice, CUC has not
accepted the offer contained in the Notice, the Transferor shall have 30 days
in which to sell or otherwise dispose of not more than the amount of Capital
Stock described in the Third Party's offer, on terms and conditions not more
favorable to the Transferor than were set forth in the Notice. If, at the end
of such 30-day period, the Transferor has not completed the sale or other
disposition of Capital Stock of the Transferor in accordance with the terms and
conditions of the Third Party's offer as set forth in the Notice, the
Transferor shall return to CUC, if applicable, all certificates representing
shares of Tag-Along Stock which CUC delivered for sale or other disposition
pursuant to this Section 6.2, and all the restrictions on Transfer contained in
this Agreement with respect to Capital Stock owned by the Transferor
(including, without limitation, this Section 5.2) shall again be in effect.
(d) Exceptions to Tag-Along Rights. The provisions of this
Section 5.2 shall not be applicable to any transfer of Capital Stock (i) from
any Stockholder to any Permitted Transferee, provided that such Permitted
Transferee (other than the Company or CUC) agrees in writing to be bound by the
terms and conditions of this Agreement pursuant to the provisions of Section
6.5 hereof, or (ii) made pursuant to a public offering of Capital Stock in
connection with any IPO.
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5.3 Right of First Refusal.
(a) Right of First Refusal Generally. If, at any time during
the term of this Agreement, any Stockholder (the "Offering Stockholder")
receives a bona fide offer which such Stockholder wishes to accept (a "Transfer
Offer") from any Third Party (the "Offeror") to purchase shares of Capital
Stock (the "Transfer Stock") then owned by such Stockholder, the Offering
Stockholder shall use its reasonable efforts to cause the Transfer Offer to be
reduced to writing and shall provide a written notice (the "Transfer Notice")
of such Transfer Offer to CUC in the manner set forth in Section 9.6 hereof;
provided that in the event that any Offering Stockholder fails to either cause
the Offeror's offer to be reduced to writing or to provide the Transfer Notice
to CUC in the prescribed manner, such Offering Stockholder shall not be
permitted to effect any Transfer of Capital Stock to such Offeror. The Transfer
Notice shall also contain an irrevocable offer to sell the Transfer Stock to
CUC (in the manner set forth below) at the same Purchase Price and upon
substantially the same terms and conditions contained in the Transfer Offer and
shall be accompanied by a true and correct copy of the Transfer Offer (which
shall identify the Offeror, the Offering Stockholder, the Transfer Stock in
question, the price contained in the Transfer Offer and all the other material
terms and conditions of the Transfer Offer). CUC shall have the right and
option, within 15 days after the date the Transfer Notice is received by CUC,
to accept irrevocably such offer, in the aggregate, as to all, but not less
than all, shares of Transfer Stock. If CUC desires to exercise such option, CUC
shall provide the Offering Stockholder with written notice within such 15 day
period. Notwithstanding the provisions of this Section 5.3, in the event that
the Company grants after the date hereof to any then-existing Stockholder (a
"Similar Holder") a right of first refusal which is either substantially
similar to, or no more favorable to such Stockholder than, the provisions of
this Section 5.3 (provided that such grant is otherwise in compliance with the
provisions of this Agreement) (such other right of first refusal, the "Similar
Right of First Refusal"), CUC's right to purchase the Transfer Stock referred
to in the Transfer Notice shall be limited to the greater of (i) the amount of
Transfer Stock which is necessary for CUC to maintain its then-current Share
Ownership Interest (which Share Ownership Interest amount shall be calculated
assuming the full conversion of the Convertible Debenture and, so long as CUC
has not failed to exercise the Additional Capital Right prior to its
expiration, assuming the full exercise of the Additional Capital Right), or
(ii) the sum of (A) the amount referred to in clause (x) above, plus (B) in the
event that any Similar Holder, who or which was offered such Transfer Stock
pursuant to a Similar Right of First Refusal in connection with any such
transaction, determines not to acquire such Transfer Stock (such Transfer
Stock, the "Additional Transfer Stock"), the lesser of (x) the total amount of
Additional Transfer Stock or (y) in the event that there exists one or more
other Similar Holder(s) who or which agree to acquire all of its allotted
Transfer Stock and all of its proportional share of the Additional Transfer
Stock, the amount of such Additional Transfer Stock which is proportionate to
CUC's Share Ownership Interest in comparison to the Share Ownership Interests
of such other Similar Holder(s).
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(b) Transfer Mechanics. The closing of the purchase of the
Transfer Stock by CUC pursuant to Section 5.3(a) above shall take place at the
principal executive offices of the Company on the 15th business day after the
acceptance by CUC of such Transfer Offer. At such closing, CUC shall deliver to
the Offering Stockholder an amount equal to the appropriate Purchase Price
amount, against delivery of certificates representing the Transfer Stock so
purchased Duly Endorsed; such amount to be paid by CUC shall be paid by wire
transfer of immediately available funds to such U.S. bank account(s) as may be
designated in writing prior to consummation of the transaction in question, or
if such information is not so provided, then such amounts shall be paid by
bank, cashier's or certified check to the Offering Stockholder.
(c) Transfers to Third Parties after CUC Declines Right of
First Refusal. If at the end of the 15-day period following the giving of the
Transfer Notice, CUC shall not have accepted the offer contained in such notice
as to all the Transfer Stock covered thereby, the Offering Stockholder shall
have 30 days in which to sell the Transfer Stock to the Offeror, at a price not
less than that contained in the Transfer Notice and on such other terms and
conditions which are generally no more favorable to the Offeror than were
contained in the Transfer Notice. No sale may be made to any Offeror unless
such Offeror agrees in writing to be bound by the terms and conditions of this
Agreement pursuant to the provisions of Section 6.5 hereof. Promptly after any
sale pursuant to this Section 5.3, the Offering Stockholder shall notify CUC
and the Company of the consummation thereof and shall furnish such evidence of
the completion (including time of completion) of such sale and of the terms and
conditions thereof as the Company or CUC may reasonably request. If, at the end
of such 30-day period, the Offering Stockholder has not completed the sale of
the Transfer Stock, such Offering Stockholder shall no longer be permitted to
sell such shares pursuant to this Section 5.3 without again fully complying
with the provisions of this Section 5.3 and all the restrictions on Transfer
contained in this Agreement shall again be in effect with respect to all such
person's shares of Capital Stock, including the Transfer Stock.
(d) Exceptions to Rights of First Refusal. The provisions of
this Section 5.3 shall not be applicable to any Transfer of Capital Stock (i)
from any Stockholder to any Permitted Transferee, provided that such Permitted
Transferee (other than the Company) agrees in writing to be bound by the terms
and conditions of this Agreement pursuant to the provisions of Section 6.5
hereof, (ii) made pursuant to a public offering of Capital Stock which is
registered by the Company under any Registration Statement (as defined in
Article VII below), or (iii) effected in compliance with the provisions of Rule
144 promulgated under the Securities Act (as defined in Article VII below). In
addition, the provisions of this Section 5.3 shall not be applicable to any
Transfer of Capital Stock following the successful consummation of an IPO,
unless such Transfer, or any group of related Transfers, would result in more
than a fifteen percent (15%) Share Ownership Interest being Transferred to any
person. Further, the provisions of this Section 5.3 shall not be
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applicable to any Transfer of Capital Stock in the event that CUC fails to
exercise its Additional Capital Right prior to the expiration of such
Additional Capital Right.
ARTICLE VI
MISCELLANEOUS COVENANTS
6.1 Affiliated Arrangements. Notwithstanding anything to the contrary
contained in this Agreement, the Company agrees that it will not, nor will it
permit any of its subsidiaries to, (x) enter into any contractual or other
arrangement with any of the Stockholders or any of their respective Affiliates
or Associates or with any of the Company's Affiliates, or (y) effect any
transaction (including, without limitation, the payment of any amounts or the
delivery of any goods or services) with any of the Stockholders or any of their
respective Affiliates or Associates or with any of the Company's Affiliates;
provided that the foregoing restrictions shall not apply to (a) the Escrow
Agreement or any arrangement entered into pursuant to the express provisions of
the Marketing Agreement, (b) those arrangements which are specifically approved
in writing in advance by CUC or by all of the CUC Nominees (provided such
approval covers both the specific type of arrangement or transaction in
question and the specific amounts involved in such arrangement or transaction),
(c) any transaction or series of related transactions which are both (i)
immaterial in nature (i.e., involves a total amount which, or goods or services
having a total fair market value which, when taken together with all other
similar or related amounts, items and transactions, does not exceed $25,000 in
the aggregate) and (ii) either entered into on an arm's length basis or in the
ordinary course of the Company's business, (d) any transaction or arrangement
which is (i) entered into with any Affiliate or Associate which at such time
has outstanding securities which were issued by such entity and which are both
(A) registered under the Securities Act and (B) listed for trading on a
national securities exchange or on the NASDAQ Stock Market or NASDAQ National
Market, (ii) either entered into on an arm's length basis or in the ordinary
course of the Company's business, and (iii) immaterial in nature (i.e.,
involves a total amount which, or goods or services having a total fair market
value which, when taken together with all other similar or related amounts,
items and transactions, does not exceed $35,000 in the aggregate during any
calendar year), (e) the payment of up to $6,000 per month to Millstone Brands
in connection with the provision by Millstone Brands to the Company of the
consulting services of Yoram Evan and Uri Evan, to the extent that such
consulting services are actually rendered to the Company on a regular basis,
(f) the sharing of any office lease costs and other related office costs with
American Value Brands, Inc. ("AVB"), but only to the extent such costs are
reasonably allocated between AVB and the Company in a manner consistent with
the express provisions of the letter agreement between the Company and AVB (a
copy of which is attached to Schedule 2.3(o) of this Agreement), and (g) the
sharing of any costs with AVB reasonably related to the Oracle Application
System, telephone service, kitchen and office supplies, insurance coverage,
network support and other programming and personnel, but only to the extent
such costs are reasonably allocated between AVB
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and the Company in a manner consistent with the express provisions of the
letter agreement between the Company and AVB (a copy of which is also attached
to Schedule 2.3(o) of this Agreement).
6.2 Financial Reports. The Company shall prepare and distribute to
CUC, following the end of each fiscal quarter of the Company, an unaudited,
consolidated balance sheet of the Company and its consolidated subsidiaries as
at the end of the fiscal quarter in question and the related unaudited,
consolidated statements of earnings, shareholders' equity and cash flows of the
Company and its consolidated subsidiaries for the three-month period then ended
(each such set of financial statements, the "Periodic Financial Statements").
The Periodic Financial Statements relating to each set of fiscal year-end
financial statements shall be accompanied by an audit report of a
nationally-recognized, independent accounting firm. Each set of Periodic
Financial Statements shall be delivered to CUC as soon as reasonably
practicable after the end of the applicable financial period (but in any event
no later than 35 days after the end of the fiscal quarter in question, or, with
respect to any fiscal year-end financial statements, 80 days after the end of
the fiscal year in question). All Periodic Financial Statements shall be
prepared in accordance with the books and records of the Company, shall be
complete and correct in all material respects, shall have each been prepared in
accordance with GAAP and shall present fairly the consolidated financial
position, results of operations and changes in financial position or cash
flows, whichever is applicable, of the Company and its consolidated
subsidiaries as at the dates and for the periods indicated (subject, in the
case of any interim, unaudited Periodic Financial Statements, to normal
year-end audit adjustments).
6.3 Access to Information. The Company shall provide to CUC access to
such books and records of the Company and its subsidiaries as may be reasonably
requested by CUC, during the regular business hours of the Company and such
subsidiaries, on not less than two (2) days prior written notice from CUC to
the Company requesting such access; provided that any information received by
CUC and its representatives pursuant to the provisions of this Section 6.3
shall be deemed to be Confidential Information (as such term is defined in the
Marketing Agreement) and shall be treated in a similar manner to the
confidentiality provisions set forth in Section 10(a) of the Marketing
Agreement, notwithstanding any termination of the Marketing Agreement.
6.4 Stock Certificate Legend. A copy of this Agreement shall be filed
with the corporate secretary of the Company and kept with the records of the
Company. Each of the Stockholders agrees that the following legend (or a
substantially similar legend) shall be placed on the certificates representing
any shares of Capital Stock owned by them:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
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AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE TRANSFERRED, SOLD
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM. IN ADDITION, SUCH SHARES MAY BE TRANSFERRED ONLY
IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE INVESTMENT AND
STOCKHOLDERS AGREEMENT DATED AS OF NOVEMBER 17, 1997 AMONG THE ISSUER
AND THE OTHER PARTIES THERETO, A COMPLETE AND CORRECT COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND
WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND
WITHOUT CHARGE. THE HOLDER OF THIS CERTIFICATE, BY ACCEPTANCE OF THIS
CERTIFICATE, AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH
AGREEMENT."
All Stockholders shall be bound by the requirements of such legend to
the extent that such legend is applicable. Upon any registration of any Capital
Stock under the Securities Act pursuant to an IPO, the certificate representing
such shares shall, if appropriate, be replaced, at the expense of the Company,
with certificates which do not bear the legend referred to above.
6.5 Additional Stockholders.
(a) Transferees of Stockholders. No Transfers of shares of
Capital Stock may be made (and no such Transfer shall be effective) pursuant to
this Agreement to either a Permitted Transferee or to any Third Party, unless
in each case prior to such Transfer any such transferee agrees in writing to be
bound (to the same extent and in the same manner as previously applied with
respect to the Stockholder (or the Permitted Transferee(s) thereof)
transferring such shares of Capital Stock) by the terms and conditions of this
Agreement pursuant to a supplementary agreement reasonably satisfactory in form
and substance to the Company and CUC (except that neither the Company nor CUC
need enter into any such separate written agreement); provided that any Third
Party (other than any existing Stockholder or a Permitted Transferee of any
existing Stockholder) shall not, in entering into such supplementary agreement,
be obligated or bound by the provisions of Sections 5.2 and 5.3 of this
Agreement. Upon entering into any such agreement, such transferee shall be
deemed to be a Stockholder for all purposes of this Agreement (except as
otherwise expressly provided in the previous sentence). No Stockholder may do
indirectly, through the sale of capital stock of its subsidiary or otherwise,
that which is not permitted by this Agreement. No transfer of Capital Stock in
violation of this Agreement shall be made or recorded on the books of the
Company and any such transfer shall be void and of no effect.
(b) Issuance to Management Stockholders. The Company shall
not issue Capital Stock to any member of management or other employee unless
the person to whom the Capital Stock is to be issued or transferred agrees in
writing to be bound by the terms and conditions of this Agreement pursuant to a
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supplementary agreement reasonably satisfactory in form and substance to the
Company; upon entering into such agreement, such member of management or other
employee shall be deemed to be a Stockholder for all purposes of this
Agreement.
(c) Supplemental Agreements. Each supplementary agreement
referred to in Sections 6.5(a) and 6.5(b) above shall become effective upon its
execution by the Company and the new holder of Capital Stock, and it shall not
require the signatures or the consent of the other Stockholders (or their
respective Permitted Transferees). The supplementary agreement between the
Company and any new holder of Capital Stock may modify some of the terms and
conditions of this Agreement as they affect the rights and obligations of the
new holder of Capital Stock, provided that the modified terms and conditions
shall be no less favorable to CUC or the Stockholders (or their respective
Permitted Transferees) than the terms and conditions set forth in this
Agreement (except as otherwise expressly set forth in the proviso to Section
6.5(a) above).
6.6 Use of Funds Provided to the Company by CUC. The amounts received
or to be received by the Company from CUC or its affiliates pursuant to the
provisions of Sections 2.1 and 4.1(a) above may only be used to fund the
Company's normal working capital needs and to fund any capital expenditures and
purchases of inventory by the Company, and may not be used for any other
purpose.
6.7 Non-Competition Agreement. The parties hereto acknowledge that
concurrently with the execution of this Agreement, CUC and the Company are also
entering into a Non-Competition Agreement with Uri Evan, Frederick R. Adler and
American Value Brands, Inc. in the form attached hereto as Exhibit D (the "Non-
Competition Agreement"), and that CUC's obligations hereunder are conditioned
upon the execution and delivery to CUC on the date hereof of the
Non-Competition Agreement by the parties thereto (other than CUC).
ARTICLE VII
REGISTRATION RIGHTS
7.1 Demand Registration Rights.
(a) Demand Registration Rights in General. Upon the terms and
subject to the conditions of this Agreement, (x) as soon as reasonably
practicable following the receipt by the Company of any written demand by CUC,
the Company shall prepare and file on a reasonably prompt basis (but in any
event within forty-five (45) days following written demand) with the Securities
and Exchange Commission (the "SEC") a registration statement (the "Registration
Statement") under the Securities Act of 1933, as amended (such act, the
"Securities Act") relating to the resale of Registrable Securities, (y) the
Company shall use its commercially reasonable efforts to cause the Registration
Statement to be declared effective by the SEC as soon as reasonably practicable
after the filing of such
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Registration Statement, and (z) the Company shall use its commercially
reasonable efforts to maintain the effectiveness of such Registration Statement
(and maintain the current status of the prospectus or prospectuses contained
therein) for the duration of the Registration Period (as defined below). The
Company shall not be prohibited from adding other shares of Common Stock to the
Registration Statement so long as the addition of such shares does not
significantly delay the preparation, filing or effectiveness of the
Registration Statement and the Company obtains the prior written consent of the
Holder(s) in question (which consent may not be unreasonably withheld);
provided that if the Holder consents to the inclusion of offers and sales of
any other securities in a Registration Statement pursuant to this Section 7.1
and the Holder later determines that such offering would be materially and
adversely affected by the inclusion of such securities, the Holder may in its
sole discretion exclude all or, in such manner as the Holder in its sole
discretion deems appropriate, some of such securities from such offering. In
connection with any registration requested pursuant to this Section 7.1 which
is an underwritten offering, the Holders shall have the right to designate the
managing underwriter(s); provided that such managing underwriter(s) must be
reasonably acceptable to the Company.
(b) Number of Demands; Limitations on Demands. The Holders
will have the right to request registration pursuant to this Section 7.1 an
aggregate of two (2) times; provided that any registration requested by a
Holder pursuant to this Section 7.1 shall not be deemed to have been effected
(and, therefore, not requested for purposes of this Section 7.1(b)), (i) unless
it has become effective, (ii) if after it has become effective such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court for any reason
other than a misrepresentation or an omission by the Holders and, as a result
thereof, the Registrable Securities requested to registered cannot be
completely distributed in accordance with the plan of distribution set forth in
the related registration statement, or (iii) if the conditions to closing
specified in the purchase agreement or underwriting agreement entered into in
connection with such registration are not satisfied or waived other than by
reason or some act of omission by the Holders. Notwithstanding anything to the
contrary contained in this Section 7.1, without the prior written consent of
the Company (which may be withheld by the Company in its sole discretion), the
Holders shall not be permitted to exercise any of the demand registration
rights referred to in this Section 7.1 until 120 days following the date of the
successful consummation of an IPO.
(c) Defined Terms. The term "Holder" shall mean and include
CUC and any of the Permitted Transferees of CUC; provided that, whenever any
action is required under this Agreement by or on behalf of the Holders, the
actions or decisions of those Holders who hold a majority of the Registrable
Securities covered by the Registration Statement shall be binding on all
Holders. The term "Registrable Securities" shall mean any Capital Stock owned
or held by the Holders, whether pursuant to this Agreement or otherwise;
provided that in the event that
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the Holders request at any specific time pursuant to this Section 7.1 the
registration under the Securities Act of any amount of Capital Stock which
represents a Share Ownership Interest of less than five percent (5%), then the
term "Registrable Securities" shall exclude any amount of such Capital Stock in
question which the Holders are then permitted to resell pursuant to the
provisions of Rule 144 promulgated under the Securities Act. The term
"Registration Period" shall mean the period which shall run from the date on
which the Registration Statement has been declared effective by the SEC and
shall expire on the earlier of (x) the first date on which the Holders are
permitted to resell all such Registrable Securities pursuant to the provisions
of Rule 144 promulgated under the Securities Act, (y) the date upon which there
shall cease to be any Registrable Securities, or (z) 180 days after the date on
which the Registration Statement has been declared effective by the SEC.
7.2 Piggyback Registration Rights. If at any time following any
registration by the Company of Capital Stock under the Securities Act, the
Company proposes to effect another registration of Capital Stock under the
Securities Act, whether or not for sale for its own account and (subject to the
provisions of Section 7.1 above) whether or not pursuant to the exercise of any
of the demand registration rights referred to in Section 7.1 hereof, in a
manner which would permit registration of Registrable Securities for sale to
the public under the Securities Act, it will each such time, subject to the
provisions of Sections 7.1 above and this Section 7.2, give prompt written
notice to all Holders of its intention to do so and of each Holder's rights
under this Article VII, at least 25 days prior to the anticipated filing date
of the registration statement relating to such Registration. Such notice shall
offer to the Holders the opportunity to include in such registration statement
such number of Registrable Securities as the Holders may request. Upon the
written request of any Holder made within 15 days after the receipt of the
Company's notice (which request shall specify the number of Registrable
Securities intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use its commercially reasonable efforts
to effect the registration under the Securities Act and the qualification under
any applicable state securities or blue sky laws (subject to the provisions of
Section 7.4(d) below) of all Registrable Securities which the Company has been
so requested to register by the Holders thereof, to the extent required to
permit the disposition (in accordance with such intended methods thereof) of
the Registrable Securities so requested to be registered; provided that:
(a) if such registration involves an underwritten public
offering, all Holders requesting to be included in the Company's registration
must, upon request by the underwriter(s), sell their Registrable Securities to
such underwriter(s) selected by the Company on the same terms and conditions as
apply to the Company or any selling securityholder;
(b) if, at any time after giving written notice of its
intention to register any securities pursuant to this Section 7.2 and prior to
the effective date of the registration statement filed in connection with such
registration, the Company
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shall determine for any reason not to register such securities, the Company
shall give written notice to all Holders and, thereupon, shall be relieved of
its obligation to register any Registrable Securities in connection with such
registration (without prejudice, however, to the rights of the Holders
immediately to request that such registration be effected as a registration
under Section 7.1);
(c) any Holder requesting to be included in such registration
may elect, in writing at least 10 days prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration;
(d) the Company shall not be required to effect any
registration of Registrable Securities under this Section 7.2 incidental to the
registration of any of its securities in connection with mergers, acquisitions,
exchange offers, subscription offers, dividend reinvestment plans or stock
option or other executive or employee benefit or compensation plans; and
(e) no registration of Common Stock effected under this
Section 7.2 shall relieve the Company of its obligation to effect a
registration of Registrable Securities pursuant to Section 7.1.
7.3 Priority in Piggyback Registrations. If a registration referred to
in the first sentence of Section 7.2 is to be an underwritten offering and the
managing underwriter(s) advise the Company in writing that, in its or their
opinion, the number of shares of equity securities of the Company (including
all shares of Registrable Securities) which the Company, the Holders and any
other persons intend to include in such registration exceeds the largest number
of securities which can be sold without having an adverse effect on such
offering, including the price at which such securities can be sold, the Company
shall include in such registration: (i) first, all securities the Company
proposes to sell for its own account (the "Company Securities"), (ii) second,
to the extent that the number or dollar amount of the Company Securities is
less than the number of shares of securities which the Company has been advised
can be sold in such offering without having the adverse effect referred to
above, the number of Registrable Securities requested to be sold by any Holder
pursuant to Section 7.2 hereof (the "Piggyback Securities") (provided that if
the number of the Company Securities and Piggyback Securities exceeds the
number of shares or securities which the Company has been advised can be sold
in such offering without having the adverse effect referred to above, the
number of Piggyback Securities to be included in such offering shall be
allocated pro rata among all holders of Piggyback Securities on the basis of
the relative number or amount of Piggyback Securities each such holder has
requested to be included in such registration), and (iii) third, to the extent
that the number of Company Securities and Piggyback Securities is less than the
number of shares of securities which the Company has been advised can be sold
in such offering without having the adverse effect referred to above, the
equity securities requested to be sold for the account of any other persons
(allocated among the persons holding such other
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securities in such proportions as such persons and the Company may agree).
Notwithstanding the provisions of this Section 7.3, in the event that the
Company grants after the date hereof to any then-existing Stockholder (a
"Similar Piggyback Holder") any piggyback registration rights which are either
substantially similar to, or no more favorable to such Stockholder than, the
provisions of this Article VII (provided that such grant is otherwise in
compliance with the provisions of this Agreement) (such other piggyback
registration rights, the "Similar Piggyback Rights"), the Holders' priority
rights under clause (ii) above shall be shared pro rata with any such Similar
Piggyback Holder, pro rated in accordance with the amount of Capital Stock
which such Holders propose to register pursuant to Section 7.2 in comparison to
the amount of Capital Stock which any such Similar Piggyback Holder proposes to
register pursuant to such Similar Piggyback Rights.
7.4 Registration Procedure. Upon the terms and subject to the
conditions of this Article VII, the Company shall, in effecting any
registration of the Registrable Securities pursuant to this Article VII:
(a) Pre-Filing Draft of Registration Statement. Not less than
15 days prior to the initial filing of the Registration Statement with the SEC,
furnish to CUC and to one law firm selected by the Holders copies of all such
documents proposed to be filed, give CUC and such law firm the opportunity to
communicate any comments they may have on such documents and, to the extent
that CUC or such law firm make any reasonable comments on such documents
relating to the plan of distribution section, the selling stockholder section
and any other sections of the Registration Statement which relate to the
Holders, modify the Registration Statement accordingly to reflect appropriately
any such reasonable comments;
(b) Filing of Amendments. Prepare and file with the SEC such
amendments and supplements to the Registration Statement, and the prospectus
used in connection with the Registration Statement, as may be reasonably
necessary to keep the Registration Statement effective for the Registration
Period;
(c) Furnishing Copies of Filings. Furnish to the Holders
copies of the Registration Statement, each amendment and supplement thereto,
the prospectus included in the Registration Statement (including each
preliminary prospectus) and such other documents as the Holders may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by them;
(d) Blue Sky Filings. Register or qualify the Registrable
Securities under such other securities or blue sky laws of such U.S.
jurisdictions as shall be reasonably requested by the Holders and do any and
all other acts and things which may be reasonably necessary or advisable to
enable the Holders to consummate the disposition in such jurisdictions of the
Registrable Securities owned by each such Holders; provided that the Company
shall not be required in connection therewith or as a condition thereto to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 1.5(b)(iv),
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(ii) subject itself to taxation in any such jurisdiction, or (iii) file a
general consent to service of process in any such jurisdiction;
(e) Exchange Listing. Use its reasonable efforts to cause the
Registrable Securities to be authorized for listing on a national securities
exchange or on the NASDAQ Stock Market or NASDAQ National Market, subject to
official notice of issuance;
(f) Transfer Agent. Provide a transfer agent and registrar
for all of the Registrable Securities covered by the Registration Statement not
later than the effective date of the Registration Statement;
(g) Changes to Registration Statement, Etc. Notify the
Holders, at any time when a prospectus relating to the Registration Statement
is required to be delivered under the Securities Act, as soon as reasonably
practicable after such time as the Company discovers any facts or circumstances
which cause the prospectus included in the Registration Statement to contain an
untrue statement of a material fact or to omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of circumstances then existing; as soon as reasonably
practicable after the date of such notification to the Holders, the Company
will prepare and furnish to such Holders a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of
circumstances then existing;
(h) Inspection of Documents. Subject to such confidentiality
requirements as the Company may reasonably impose (which confidentiality
requirements shall not, in any event, be more extensive than the
confidentiality requirements set forth in Section 10(a) of the Marketing
Agreement), make available for inspection by the Holders and any attorney,
accountant or other agent retained by the Holders (collectively, the
"Inspectors"), during the normal business hours of the Company, all financial
and business records of the Company as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such Inspector in connection with such registration statement;
(i) Stop Orders. Notify the Holders of any stop order issued
or threatened by the SEC and take all reasonable actions required to prevent
the entry of such stop order or to remove it if entered; and
(j) Other Actions. Cooperate with each Holder and its
representatives to the extent reasonably required in connection with any
registration contemplated pursuant to this Article VII, execute and deliver all
such agreements
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and instruments and take such other actions as may be necessary or appropriate
(including without limitation, entering into customary underwriting
arrangements with any Holder or underwriter participating in such registration)
or as may otherwise be reasonably requested by any Holder in connection with
any registration contemplated pursuant to this Article VII, subject in all
cases to the Company's right to discontinue, pursuant to Section 7.2(b) above,
any registration arising in connection with the provisions of Section 7.2 of
this Agreement, and subject to the Company's rights pursuant to the provisions
of Section 7.5(c) below.
7.5 Certain Additional Covenants of the Company and the
Stockholders.
(a) Furnishing Information to the Company. The parties agree
that the Company may require the Holders to furnish to the Company such
information regarding the Holders and the distribution of such Registrable
Securities as the Company may from time to time reasonably request. Each of the
Holders and its respective representatives shall cooperate with the Company and
its representatives to the extent reasonably required in connection with the
performance by the Company of its obligations under this Agreement. Each Holder
shall notify the Company, as soon as reasonably practicable after such time as
such Holder discovers any facts or circumstances which cause the prospectus
included in the Registration Statement to contain an untrue statement of a
material fact or to omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
circumstances then existing; as soon as reasonably practicable after the date
of such notification to the Company, the Company will prepare and furnish to
such Holders a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of circumstances then existing.
(b) Discontinuing Sales Until Prospectus is Corrected. Each
Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 7.5(a) above or upon
the delivery of a similar notice to the Company by Holders pursuant to Section
7.4(g) above, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until receipt by the Holders of the copies of the supplemented or
amended prospectus contemplated by such Sections 7.4(g) and 7.5(a) above, and,
if so directed by the Company, each Holder will deliver to the Company all
copies, other than permanent file copies then in such Holder's possession, of
the prospectus covering such Registrable Securities current at the time of
receipt of such notice. In the event of the giving of any such notice
contemplated pursuant to Sections 7.4(g) and 7.5(a) above, the Registration
Period shall be extended by the number of days during the period from and
including the date of the giving of such notice, to and including the date when
the Holders shall have received the copies of such supplemented or amended
prospectus.
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(c) Discontinuing Sales Due to Material Disadvantageous
Event. With respect to any Registration Statement filed or to be filed pursuant
to this Agreement, if the Company is at any time currently involved in
negotiations with respect to any material acquisition or disposition
transaction involving the Company or there exists any other similar event or
condition which is material to the Company, which in any such case has not been
publicly disclosed, and as a result thereof it would be materially
disadvantageous to the Company for such Registration Statement to become
effective or for sales of Registrable Securities to continue pursuant to such
registration statement (a "Disadvantageous Condition"), the Company shall,
notwithstanding any other provisions of this Agreement, be entitled, upon the
giving of a written notice (a "Delay Notice") to such effect to the Holders
included or to be included in such registration statement, (x) to cause sales
of Registrable Securities by the Holders pursuant to such registration
statement to cease, or (y) in the event no such registration statement has yet
been filed, to delay filing any such registration statement, until the earlier
of (i) the date on which, in the good faith judgment of the Company, such
Disadvantageous Condition no longer exists (notice of which the Company shall
promptly deliver to the Holders with respect to which any such registration
statement has been filed), or (ii) the date on which the material aspects of
such Disadvantageous Condition are publicly disclosed and as a result thereof
the Registration Statement in question does not contain an untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. Notwithstanding the
foregoing provisions of this Section 7.5(c)): (1) the Company shall not be
entitled to cause sales of Registrable Securities to cease or to delay any
registration of Registrable Securities required pursuant to this Section 7.5(c)
by reason of any Disadvantageous Condition, for a period of more than
seventy-five (75) days from the giving of its Delay Notice to the Holders with
respect to such Disadvantageous Condition; and (2) in the event the Company
elects to cause Holders to refrain from selling Registrable Securities for any
period during the Registration Period, the Registration Period with respect to
such Holders shall be extended by the number of days during the Registration
Period that such Holders is required to refrain from selling Registrable
Securities.
(d) Cooperation with Underwriters. In the event that any
person retained by any Holder might reasonably be deemed to be an "underwriter"
(as such term is commonly understood for purposes of the Securities Act) with
respect to the resale of any Registrable Securities pursuant to the
Registration Statement, then the Company shall, upon any reasonable request and
without limitation to any of the other provisions of this Article VII, (A)
provide indemnification to such person on terms similar to the provisions of
Section 7.6 below and on such other customary terms and conditions as might be
requested by a similarly-situated underwriter, (B) use its reasonable best
efforts to provide to such person a "cold comfort" letter from the independent
public accountants of the Company with respect to the financial statements and
certain other financial information contained in, or incorporated by reference
in, the Registration Statement, which letter shall cover such matters, and be
in such form and substance, as is customary for such "cold comfort" letters,
(C)
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provide to such person an opinion of counsel, which opinion shall cover such
matters, and be in such form and substance, as may be customarily requested by
a similarly-situated underwriter, and (D) provide to such person and its
representatives reasonable access at all reasonable times to the management and
the books and records of the Company, in connection with any due diligence to
be performed by such person.
(e) Restrictions on Public Sale by Stockholders and Holders.
In connection with any public offering of securities of the Company (including,
without limitation, any offering contemplated by this Article VII), each
Stockholder and each Holder agrees that it will consent to and agree to comply
with any "lock up" or "hold back" restriction (i.e., that such Stockholder or
Holder shall not effect any public sale or distribution, including any sale
pursuant to Rule 144 under the Securities Act, of any Capital Stock) that may
be reasonably requested by the underwriter(s) or placement or other selling
agent(s) of such offering, during the 30 days prior to, and during the
90-day-period (or 120-day-period in the event of an IPO) following, the
effective date of the registration statement in question (except for sales
which are part of such public offering and specifically registered under such
registration statement); provided that the foregoing restriction shall not
apply to any party who or which is neither (x) an officer or director of the
Company nor (y) a holder of Capital Stock who or which, when taken together
with such holder's Affiliates, Associates and Permitted Transferees, holds in
the aggregate less than a five percent (5%) Share Ownership Interest.
(f) Restrictions on Public Sale by the Company. If any
registration of Registrable Securities pursuant to Article VII shall be in
connection with an underwritten public offering, the Company agrees (i) not to
effect any public sale or distribution of any of its Capital Stock (other than
any such sale or distribution of such securities in connection with any merger
or consolidation by the Company or a subsidiary of the Company or in connection
with the purchase of all or substantially all the assets of any other person or
in connection with an employee stock option or other benefit plan) during the
30 days prior to, and during the 90-day-period (or 120-day-period in the event
of an IPO) following, the effective date of such registration statement (except
for sales which are part of such public offering and specifically registered
under such registration statement) and (ii) that any agreement entered into
after the date of this Agreement pursuant to which the Company issues or agrees
to issue any privately placed equity securities shall contain a provision under
which holders of such securities agree not to effect any public sale or
distribution of any such securities during the period referred to in the
foregoing clause (i), including any sale pursuant to Rule 144 under the
Securities Act (except as part of such registration if permitted).
7.6 Indemnification.
(a) Indemnification by the Company. In connection with the
registration of the Registrable Securities under the Securities Act pursuant to
this
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Agreement, the Company will, and it hereby does, indemnify and hold harmless,
to the fullest extent permitted by law, the Holders and each other person who
participates in the offering or sale of the Registrable Securities on behalf of
the Holders (collectively, the "Holder Indemnitees"), against any and all
losses, claims, damages or liabilities, joint or several, and expenses
(including any amounts paid in any settlement effected with the Company's prior
consent (which may not be unreasonably withheld) and reasonable attorneys fees
and disbursements) to which such Holder Indemnitees may become subject under
the Securities Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses arise out of or are based upon (A) any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
any preliminary, final or summary prospectus contained therein, or any
amendment or supplement thereto, or (B) 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
Holder Indemnitees for any legal or any other expense reasonably incurred by
them in connection with investigating or defending such loss, claim, liability,
action or proceedings; provided that the Company shall not be liable in any
such case to any Holder Indemnitee or group of Holder Indemnitees to the extent
that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expenses arose out of or was based upon any untrue
statement or alleged untrue statement or omission or alleged omission which was
made or done in such registration statement or amendment or supplement thereto
or in any such preliminary, final or summary prospectus, in reliance upon and
conformity with written information furnished to the Company or its
representatives by or on behalf of any Holder Indemnitee or group of Holder
Indemnitees or by any of their respective representatives; provided further
that the Company will not be liable to any such Holder Indemnitees with respect
to any preliminary prospectus as then amended or supplemented, as the case may
be, to the extent that any such loss, claim, damage or liability of such Holder
Indemnitees results from the fact that such Holder Indemnitees sold Registrable
Securities to a person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final prospectus (including
any documents incorporated by reference therein), whichever is most recent, if
the Company has previously furnished copies thereof to such Holder Indemnitees
(or has previously notified such Holder Indemnitees in writing to cease selling
securities pursuant to such prospectus due to certain specified misstatements
or omissions contained therein) and such final prospectus, as then amended and
supplemented, has corrected any such misstatement or omission. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of any Holder Indemnitee and shall survive the transfer of the
Registrable Securities by each such Holder.
(b) Indemnification by the Holders. In connection with the
registration of the Registrable Securities under the Securities Act pursuant to
this Agreement, each Holder hereby agrees that he will indemnify and hold
harmless, to the fullest extent permitted by law, the Company or any affiliate
of the Company or
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any other person who participates in the offering or sale of such securities on
the Company's behalf, against any and all losses, claims, damages or
liabilities, joint or several, and expenses (including any amounts paid in any
settlement effected with the Holder's prior consent (which may not be
unreasonably withheld) and reasonable attorneys fees and disbursements) to
which the Company or any affiliate of the Company or any such other person may
become subject under the Securities Act, common law or otherwise, up to the
amount of all gross proceeds received by each such Holder in the sale of his
Registrable Securities, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) or expenses arise out of or are
based upon (A) any untrue statement or alleged untrue statement of any material
fact contained in any Registration Statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement thereto, or (B)
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
(but only to the extent that such alleged or actual misstatements or omissions
referred to in clauses (A) and (B) above were done or omitted, etc. in reliance
upon and in conformity with written information furnished to the Company or its
representatives by or on behalf of such Holder or by any of his, her or its
representatives). Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any
Holder Indemnitee and shall survive the transfer of the Registrable Securities
by each such Holder.
(c) Notices of Claims, Etc. Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Agreement, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, promptly 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
subsections of this Agreement, except to the extent that the indemnifying party
is prejudiced by such failure to give notice. In case any action is brought
against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying parties similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party. After notice from
the indemnifying party to such indemnified party of its election so to assume
the defense of any such action, the indemnifying party will not be liable to
such indemnified party for any legal or other expenses subsequently incurred by
the latter in connection with the defense thereof (unless any meaningful
conflict of interest between such indemnified and indemnifying parties arises
in respect of such claim after the assumption of the defense thereof), and the
indemnifying party will not be subject to any liability for any settlement made
without its consent (which consent shall not be unreasonably withheld). No
indemnifying party will consent to entry of judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such
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indemnified party of a release from all liability in respect to such claim or
litigation. An indemnifying party who elects not to assume the defense of a
claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
meaningful conflict of interest may exist between such indemnified party and
any other of such indemnified parties with respect to such claim, in which
event the indemnifying party shall be obligated to pay the fees and expenses of
only one additional counsel.
7.7 Expenses. The Company shall pay all registration, qualification
and filing fees, all fees and expenses of legal counsel, accountants and other
persons retained by the Company, and all other expenses incurred by the Company
in connection with each registration of Registrable Securities requested
pursuant to this Article VII or otherwise incurred in connection with the
Company's performance of or compliance with the provisions of this Article VII;
provided that the Company will not be obligated to pay (x) any underwriting
discounts, selling commissions or transfer taxes, if any, relating to the sale
or disposition of Registrable Securities sold pursuant to any such
registration, or (y) any fees or expenses of any separate legal counsel or
other advisors retained separately by any Holder.
ARTICLE VIII
TERM OF AGREEMENT
8.1 Term. This Agreement shall terminate automatically without any
further action on the part of any parties hereto, upon the earlier of: (a) the
ten (10) year anniversary of the date hereof, (b) an IPO, (c) a sale of all or
substantially all of the assets or equity interests in the Company to a Third
Party (whether by merger, consolidation, sale of assets or securities or
otherwise), (d) the written approval by CUC as well as by those Stockholders
who collectively hold at least a 50% Share Ownership Interest, or (e) CUC and
its Permitted Transferees, taken as a whole, cease to own at least a five
percent (5%) Share Ownership Interest; provided that, in the event of an IPO,
the provisions of Article III, Section 5.3 (except as otherwise provided in
Section 5.3(d)), Section 6.1, Section 6.3, Section 6.4 and Article VII of this
Agreement shall continue in full force and effect until the earliest to occur
of the events set forth in clauses (a), (c), (d) or (e) of this Section 8.1;
provided further that, in any event, the provisions of Articles I, II and IX of
this Agreement shall continue in full force and effect, notwithstanding any
termination or expiration of this Agreement (subject to the provisions of the
next sentence). Further, the parties hereto agree that (i) the representations
and warranties set forth in Article II of this Agreement shall survive for a
period ending on the eighteen-month anniversary of the date on which such
representations and warranties were either made or deemed to have been made (as
the case may be), and (ii) each covenant and agreement set forth in this
Agreement shall survive the execution and delivery of this Agreement and shall
continue until the expiration of
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<PAGE>
the applicable statute of limitations period, unless otherwise expressly
provided in this Section 8.1 or otherwise expressly provided elsewhere herein
(all of the time periods set forth above, collectively referred to as the
"Survival Period"); provided that, notwithstanding anything to the contrary
contained herein, in the event that written notice of any claim relating to the
breach of any representation, warranty, covenant or agreement shall have been
given on or prior to the last day of the applicable Survival Period, such
provision shall, with respect to the specific claim made, survive the
applicable Survival Period until such claim is finally resolved and all
obligations with respect thereto (if any) are fully satisfied. Notwithstanding
the foregoing, in the event that CUC and its Permitted Transferees, taken as a
whole, cease to own at least a ten percent (10%) Share Ownership Interest, the
provisions of Articles III, IV and V of this Agreement shall immediately
thereafter terminate.
ARTICLE IX
MISCELLANEOUS
9.1 Arbitration. Any controversies, disputes, actions, causes of
action, or other claims arising out of or in connection with the provisions of
this Agreement which cannot be settled by mutual agreement shall be finally
settled by arbitration in New York, New York in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitrator may
enter a default decision against any party who fails to participate in the
arbitration proceedings. The decision of the arbitrator on the points in
dispute will be final, unappealable and binding and judgment on the award may
be entered in any court having jurisdiction thereof. So long as this Agreement
has not previously been terminated in accordance with the provisions of Section
8.1 above, the parties shall continue their performance under this Agreement
while the arbitration proceeding is pending. The arbitrator will be authorized
to apportion its fees and expenses and the reasonable attorney's fees and
expenses of the parties hereto as the arbitrator deems appropriate. In the
absence of any such apportionment, the fees and expense of the arbitrator will
be borne equally by each party, and each party will bear the fees and expenses
of its own attorney. The parties agree that this clause has been included to
rapidly and inexpensively resolve any disputes between them with respect to
this Agreement, and that this clause shall be grounds for dismissal of any
court action commenced by either party with respect to this Agreement, other
than post-arbitration actions seeking to enforce an arbitration award and
actions seeking equitable, injunctive or other similar relief.
9.2 Relationship of Parties. It is understood and agreed that the
relationship of the parties created under this Agreement is that of independent
contracting parties, and no partnership, joint venture, agency or other
relationship is intended or created hereby, nor shall either party nor any of
it affiliates, employees or representatives be construed to be an affiliate,
employee, agent or representative of the other party hereto. Except as
otherwise expressly set forth in this Agreement or in the Marketing Agreement,
the parties hereto acknowledge and
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<PAGE>
agree that each party hereto shall be free to enter into any contractual,
business or other relationship(s) with any person with respect to any area of
business.
9.3 Specific Performance. Each of the parties hereto (including any
party entering into a supplementary agreement pursuant to Section 6.5 above)
acknowledges and agrees that in the event of any breach of this Agreement, the
non-breaching party or parties would be irreparably harmed, no adequate remedy
at law would exist and damages would be difficult to determine. It is
accordingly agreed that (x) in the event of a breach of any provision of this
Agreement, the aggrieved party shall be entitled to specific performance of
this Agreement (without the necessity of proving actual damages and without
posting bond or other security), in addition to any other remedy to which such
aggrieved party may be entitled at law or in equity, and (y) each of the
parties hereto (including any party entering into a supplementary agreement
pursuant to Section 6.5 above) shall waive the defense in any action for
specific performance or other equitable relief that a remedy at law would be
adequate.
9.4 Attorneys' Fees. In any legal action or proceeding (including,
without limitation, any arbitration proceeding) brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, or because of an alleged dispute, breach or default in connection
with any of the provisions of this Agreement, the party or parties which are
principally prevailing in such legal action or proceeding shall be entitled to
recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other available remedy or relief to which such
party or parties may be entitled.
9.5 Expenses. Except as otherwise expressly set forth in this
Agreement, all costs and expenses, including all fees and expenses of
attorneys, accountants and other advisers, incurred in connection with this
Agreement or any matters related hereto, shall be paid by the party incurring
such costs and expenses.
9.6 Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telecopied or
sent by overnight courier, or sent by certified or registered mail, postage
prepaid, and shall be deemed to be given, dated and received when so delivered
personally or by courier or telecopied, or, if mailed, five business days after
the date of mailing, to the following address or telecopy number, or to such
other address or addresses as such person may subsequently designate by notice
given hereunder:
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<PAGE>
(i) if to CUC, to:
CUC International Inc.
707 Summer Street
Stamford, Connecticut 06901
Telephone: (203) 324-9261
Facsimile: (203) 348-1982
Attention: Amy N. Lipton, Esq.
(ii) if to the Company, to:
NetGrocer, Inc.
919 Third Avenue, 18th floor
New York, New York 10022
Telephone: (212) 980-4770
Facsimile: (212) 980-3899
Attention: Daniel Nissan
with a copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Telephone: (212) 318-3000
Facsimile: (212) 752-5958
Attention: Sheldon G. Nussbaum
(iii) If to any of the Stockholders entering into this
Agreement on the date hereof, to:
Uri Evan
50 E. 77th Street
New York, N.Y. 10021
Telephone: (212) 861-1996
Facsimile: (212) 472-5012
(iv) if to any other party hereto, to the address
specified by such party in any supplementary
agreement entered into by such party.
9.7 Entire Agreement; Waivers; Amendments. This Agreement, together
with the Marketing Agreement, the Convertible Debenture, the Additional
Convertible Debenture, the Escrow Agreement, the Non-Competition Agreement and
any schedules attached hereto and made a part hereof, constitute the entire
agreement between the parties as to the subject matter hereof, and shall
supersede
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<PAGE>
all prior understandings, letters, agreements, contracts and other documents.
No failure or delay by any party to exercise, and no course of dealing with
respect to, any right of any such party regarding an obligation of any other
party to this Agreement, shall operate as a waiver thereof, unless agreed to in
writing by the parties in question. Any single or partial waiver by either
party of any obligation of the other party under this Agreement shall
constitute a waiver of such obligation only as specified in such waiver and
shall not constitute a waiver of any other obligation; in addition, no single
or partial exercise of any power or right shall preclude any party's other or
further exercise or the exercise of any other power or right. This Agreement
may not be amended, modified or supplemented, and no waivers of, consents to or
departures from the provisions hereof may be given, without the prior written
consent of (i) each of the Company and CUC and (ii) the Stockholders owning in
the aggregate at least a 50% Share Ownership Interest.
9.8 Governing Law; Construction; Headings. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
without giving effect to the principles of conflicts of laws thereof. The
construction and interpretation of this Agreement shall not be strictly
construed against the drafter. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
9.9 Successors; Assigns; Transferees. The provisions of this Agreement
shall be binding upon and accrue to the benefit of the parties hereto and their
respective heirs, permitted successors and assigns and legal representatives.
Neither this Agreement nor any right hereunder may be assigned, whether
voluntarily or by operation of law, by either party hereto without the prior
written consent of the other party hereto (which consent may not be
unreasonably withheld); provided that no such consent shall be necessary for
such an assignment, transfer or delegation by any party hereto to any of its
Affiliates, so long as such assigning party remains liable with respect to its
obligations hereunder and such Affiliate enters into a supplementary agreement
in accordance with the provisions of Section 6.5 above.
9.10 No Third Party Beneficiaries; Defaults. Nothing in this Agreement
is intended to confer any rights or remedies on any person or entity which is
not a party to this Agreement. A default by any party to this Agreement in such
party's compliance with any of the conditions or covenants hereof or
performance of any of the obligations of such party hereunder shall not
constitute a default by any other party.
9.11 Severability. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity, legality
or enforceability of the remainder of this Agreement in such jurisdiction or
the validity, legality or enforceability of this Agreement, including any such
provision, in any other jurisdiction, it being intended that all rights and
obligations of the parties hereunder shall be enforceable to the fullest extent
permitted by law.
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<PAGE>
9.12 Further Assurances. Each party hereto or person or entity subject
hereto shall do and perform or cause to be done and performed all such further
acts and things and shall execute and deliver all such other agreements,
certificates, instruments and documents as any other party hereto or person or
entity subject hereto may reasonably request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same Agreement.
9.14 Interpretation. The parties hereto agree that, whenever any
matter is stated in this Agreement to be (a) to the "knowledge of the Company"
or to the "best knowledge of the Company", such reference shall be deemed to
include the knowledge of each of the officers and directors of the Company, in
each case after reasonable inquiry by such persons as to such matter, and (b)
"in the ordinary course of the Company's business" or any phrase of similar
meaning, such reference shall be deemed to refer to the ordinary course of the
Company's business, consistent with the normal business practices of companies
in the same industry as the Company and, where applicable, entered into on an
arm's length basis.
9.15 Recapitalization, etc. In the event that any capital stock or
other securities are issued in respect of, in exchange for, or in substitution
of, any shares of Capital Stock by reason of any reorganization, any
recapitalization, reclassification, merger consolidation, spin-off, partial or
complete liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Capital Stock or any other change
in the Company's capital structure, appropriate adjustments shall be made in
the percentages specified in this Agreement so as to preserve as far as
reasonably practicable, the original rights and obligations of the parties
hereto under this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered on behalf of each of the parties hereto as of the date first above
written.
CUC INTERNATIONAL INC.
By: /s/ Cosmo Corigliano
--------------------------------
Name: Cosmo Corigliano
Title: Senior Vice President
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<PAGE>
NET GROCER INC.
By: /s/ Daniel Nissan
--------------------------------
Name: Daniel Nissan
Title: President & CEO
/s/ Frederick R. Adler
-----------------------------------
Frederick R. Adler
/s/ Uri Evan
-----------------------------------
Uri Evan
/s/ John G. Kirsch
-----------------------------------
John G. Kirsch
/s/ Blair W. Effron
-----------------------------------
Blair W. Effron
/s/ David E. Cohen
-----------------------------------
David E. Cohen
/s/ Dinah A. Evan
-----------------------------------
Dinah A. Evan
/s/ Daniel Bergman
-----------------------------------
Daniel Bergman
/s/ Rafael I. Evan
-----------------------------------
Rafael I. Evan
/s/ Elliot Ashkanazi
-----------------------------------
Elliot Ashkanazi
/s/ David J. Evan
-----------------------------------
David J. Evan
/s/ Laurence C. Leeds
-----------------------------------
Laurence C. Leeds
/s/ Yoram Evan
-----------------------------------
Yoram Evan
/s/ Bruce A. Lazare
-----------------------------------
Bruce A. Lazare
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<PAGE>
/s/ Robert Hyland
-----------------------------------
Robert Hyland
/s/ Jeffrey A. Steinberg
-----------------------------------
Jeffrey A. Steinberg
/s/ Richard D. Falcone
-----------------------------------
Richard D. Falcone
/s/ Daniel Nissan
-----------------------------------
Daniel Nissan
/s/ Fred Horowitz
-----------------------------------
Fred Horowitz
LONGVIEW PARTNERS, L.P.
By: /s/ Frederick R. Alder
--------------------------------
Name:
Title:
HOROWITZ FAMILY TRUST
By: /s/ Fred Horowitz
--------------------------------
Name:
Title:
UME L.L.C.
By: /s/ Uri Evan
--------------------------------
Name:
Title:
BANBURY ASSOCIATED, F.A.
By: /s/ Uri Evan
--------------------------------
Name:
Title:
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<PAGE>
MASON PATRICK CORP.
By: /s/ Uri Evan
--------------------------------
Name:
Title:
ESI PROJECTS LIMITED
By: /s/ Uri Evan
--------------------------------
Name:
Title:
TIVERTON INTERNATIONAL CORP.
By: /s/ Uri Evan
--------------------------------
Name:
Title:
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<PAGE>
NET GROCER INC.
CONVERTIBLE DEBENTURE
FOR VALUE RECEIVED, the undersigned, NET GROCER INC., a Delaware
corporation (the "Company"), hereby unconditionally promises to pay to CUC
INTERNATIONAL INC., a Delaware corporation (such entity, and any successor or
assign of such entity, the "Holder"), on the Maturity Date (as defined below),
the principal sum of FIVE MILLION DOLLARS AND NO CENTS (U.S. $5,000,000.00),
together with interest accrued upon the unpaid principal balance hereof, from
the date hereof until the payment in full of the principal balance hereof, at
the rate of interest set forth below. This Convertible Debenture (the
"Debenture") is being issued to the Holder pursuant to the provisions of the
Investment and Stockholders Agreement dated as of November 17, 1997 (the
"Investment Agreement"), by and among the Holder, the Company and the
stockholders of the Company listed on the signature pages thereto.
1. Maturity Date. This Debenture shall mature, and the principal
balance of this Debenture and all interest accrued thereon through such time
shall be payable by the Company to the Holder in full on the fifth anniversary
of the date of this Debenture set forth below (such date, the "Maturity Date";
provided that, upon the occurrence of an Event of Default, as such term is
defined below, the payment date, as so accelerated, shall be the "Maturity
Date").
2. Interest.
(a) Payment of Interest; Method of Calculation. The indebtedness
evidenced by this Debenture shall bear interest at a compound annual rate equal
to the Prime Rate (as defined below) in effect from time to time during the
periods in question; provided that while an Event of Default exists, the
interest rate payable on this Debenture shall be adjusted such that this
Debenture shall bear interest at a compound annual rate equal to the lesser of
(A) the Prime Rate in effect from time to time, plus two percent (2%), or (B)
the maximum rate of interest permissible under applicable law (the
"Post-Default Rate"). Interest owed on this Debenture shall accrue following
the date hereof and shall be payable on the Maturity Date. Interest on this
Debenture shall be computed based on a 360-day year and for the actual number
of days elapsed.
(b) Defined Terms. For purposes of this Debenture, the term "Prime
Rate" means, at any time, a fluctuating rate of interest equal to the per annum
rate of interest reported as the "Prime Rate" in The Wall Street Journal during
the periods in question (or, absent such rate being reported in such
publication, a fluctuating rate of interest equal to the per annum rate of
interest publicly announced by Citibank, N.A.
<PAGE>
in New York, New York, as its "prime" lending rate for domestic commercial
loans during the periods in question); provided that in no event shall the
Prime Rate exceed any maximum rate of interest permitted under applicable law.
3. Payments upon Maturity. Upon the Maturity Date, this Debenture
shall be due and payable in full on such date, and the Company shall pay to the
Holder on such date the principal balance hereof and all interest accrued
hereon up through the time of payment hereunder at the interest rate specified
herein in lawful money of the United States of America, without any deduction
whatsoever. Such payment to be made by certified check or wire transfer to an
account designated in writing by the Holder, as the Holder shall designate in
writing; provided that, at least ten (10) business days prior to such payment
(but in no event more than sixty (60) days prior to such payment), the Company
shall notify the Holder in writing of such intended payment and of the Holder's
Conversion Right set forth in Section 4 below (such notice, the "Payoff
Notice") and shall give the Holder the opportunity to exercise its Conversion
Right set forth in Section 4 below.
4. Conversion Right. At any time after the date hereof and up until
the date on or after the Maturity Date on which all of the outstanding
indebtedness and accrued interest under this Debenture is paid to the Holder,
the Holder shall have the right (the "Conversion Right"), at its sole option,
to convert all of the outstanding indebtedness and accrued interest under this
Debenture into a number of duly authorized, validly issued, fully paid and
nonassessable shares of common stock, par value $.01 per share, of the Company
(such common stock, or any other comparable class of capital stock or equity
security issued to the equityholders of the Company and its successors in
exchange for or in replacement of such common stock, the "Common Stock") equal
to 42,458 shares (such amount of shares, as may be adjusted pursuant to the
provisions of Section 5 below, the "Share Amount"); provided that in the event
that the Company has not yet provided the Payoff Notice referred to in Section
3 above in a timely manner, the time on which the Holder is entitled to
exercise the Conversion Right shall be extended until the 10th business day
following the delivery to the Holder of the Payoff Notice; provided further
that following the fourth anniversary of the date of this Debenture, the
Company shall have the right to require that the Holder exercise its Conversion
Right upon ten (10) days' prior written notice to the Holder, following which
such Conversion Right shall be deemed to have been exercised by such Holder
without any further action on the part of any party. The Company hereby
represents and warrants to the Holder that the Share Amount represents as of
the date of this Debenture a Share Ownership Interest (such term, as defined in
the Investment Agreement) equal to twenty-five percent (25%). In the event that
the Holder determines to exercise its Conversion Right, the following procedure
shall apply:
(a) Delivery of Conversion Notice. The Holder shall give written
notice to the Company, substantially in the form attached hereto as Exhibit 1
("Conversion Notice"), of its exercise of its Conversion Right. The exercise of
the Conversion Right shall be deemed to have been effected as of the date on
which the Conversion Notice is delivered to the Company by the Holder, and at
such time the Holder or such other person or persons in whose name or
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<PAGE>
names any certificate or certificates for shares of Common Stock shall be
issuable upon such exercise as specified in the Conversion Notice shall be
deemed to have become the holder or holders of record of such shares of Common
Stock.
(b) Delivery of Share Certificates by the Company. Promptly
following the delivery to the Company by the Holder of the Conversion Notice
(but in any event within three business days thereafter, the Company at its
expense shall deliver to the Holder a certificate, or multiple certificates, if
so requested by the Holder, registered in the name of the Holder and/or such
other name(s) as the Company may be directed by the Holder in the Conversion
Notice, representing in the aggregate a number of duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock equal to the Share
Amount. Any fractional shares resulting from this calculation shall be rounded
to the nearest integral number of shares of Common Stock.
(c) Rights under Investment Agreement. Upon the exercise of the
Conversion Right, in whole or in part, by the Holder, the shares of Common
Stock delivered to the Holder in connection therewith shall be entitled to all
of the benefits set forth in the Investment Agreement, including, without
limitation, any registration rights set forth therein.
5. Adjustments to Share Amount and Type of Securities to be Acquired
Upon Exercise of the Conversion Right. The Share Amount and/or the kind of
securities or property which would be acquired upon the exercise of the
Conversion Right shall be subject to adjustment from time to time as follows:
(a) Stock Dividends; Stock Splits; Reclassifications; Etc. In case
the Company shall (i) pay a dividend or make any other distribution with
respect to its Common Stock in shares of its capital stock, (ii) subdivide its
outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock (including any such reclassification in
connection with a merger, consolidation or other business combination in which
the Company is the continuing corporation), then, in any such case, the number
of shares of Common Stock and the kind of securities or property issuable upon
exercise of the Conversion Right immediately prior to the effective date (or,
if earlier or otherwise applicable, the record date) for such event or
transaction, shall be adjusted so that the Holder shall thereafter be entitled
to receive the kind and number of shares of Common Stock or other securities or
property of the Company that such Holder would have owned or have been entitled
to receive after the happening of any of the events or transactions described
above, had such Conversion Right been exercised immediately prior to the
happening of such event or transaction or any earlier record date with respect
thereto.
(b) Rights; Options, Warrants. In case the Company shall issue any
rights, options, warrants or convertible or exchangeable securities entitling
the holder thereof to subscribe for or purchase Common Stock at a price per
share that is lower (at the close of
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<PAGE>
business on the business day immediately prior to the record date for such
issuance) than the Current Market Value (as defined below) per share of Common
Stock, the number of shares of Common Stock thereafter issuable upon the
exercise of the Conversion Right shall be determined by multiplying the number
of shares of Common Stock theretofore issuable upon the exercise of the
Conversion Right by a fraction, of which (i) the numerator shall be the sum of
(A) the number of shares of Common Stock outstanding on the date of issuance of
such rights, options, warrants or convertible or exchangeable securities, plus
(B) the number of additional shares of Common Stock offered for subscription or
purchase or to be issued upon conversion or exchange of such convertible or
exchangeable securities, and (ii) the denominator shall be equal to the sum of
(A) the number of shares of Common Stock outstanding on the date of issuance of
such rights, options, warrants or convertible or exchangeable securities, plus
(B) the number of shares of Common Stock which the aggregate consideration to
be received by the Company in connection with such issuance would purchase at
the then Current Market Value per share of Common Stock. Notwithstanding the
provisions of this Section 5(b), upon the expiration of any rights, options,
warrants or conversion or exchange privileges that have previously resulted in
an adjustment hereunder, if any thereof shall not have been exercised, the
number of shares of Common Stock thereafter issuable upon the exercise of the
Conversion Right shall, upon such expiration, be readjusted and shall
thereafter, upon any future exercise, be such as they would have been had they
been originally adjusted (or had the original adjustment not been required, as
the case may be) as if (i) the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion or exchange rights and (ii) such
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise.
(c) Issuance of Common Stock at Lower Values. In case the Company
shall issue or sell shares of Common Stock, at a price per share of Common
Stock that is lower than the then Current Market Value (as defined below) per
share of the Common Stock in effect immediately prior to such sale or issuance,
then the number of shares of Common Stock thereafter issuable upon the exercise
of the Conversion Right shall be determined by multiplying the number of shares
of Common Stock theretofore issuable upon exercise of the Conversion Right by a
fraction, of which (x) the numerator shall be the number of shares of Common
Stock outstanding on the date of issuance of such shares of Common Stock, plus
the number of additional shares of Common Stock issued or sold and (y) the
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such shares of Common Stock, plus the number of shares
which the aggregate consideration to be received by the Company in connection
with such issuance or sale would purchase at the then Current Market Value per
share of Common Stock. For purposes of this Section 5, the term "Current Market
Value" shall mean, on any date specified herein, the amount per share of the
Common Stock, equal to (i) if the shares are listed for trading on a national
securities exchange, the most recent closing sale price of a share as reported
by or for such exchange (or if the shares are listed on more than one such
exchange, as reported by or for the principal exchange for trading of the
shares), (ii) if such shares are not then listed or admitted to trading on any
national securities exchange but are quoted on an nationally-recognized
securities trading association (e.g., the
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<PAGE>
National Association of Securities Dealers Automated Quotations System), the
most recent closing sale price of a share, or if no such closing sale price is
reasonably available, the average between the most recent highest bid and
lowest asked prices for a share as last reported by or for such securities
trading association, or (iii) if such shares are not then listed or admitted to
trading on any national securities exchange or quoted by any
nationally-recognized securities trading association, the fair market value of
a share as determined in good faith by the Company's Board of Directors;
provided that in no event shall such "Current Market Value" be less than the
per share book value of the Company as shown on the consolidated financial
statements of the Company and its subsidiaries as of the most recent fiscal
quarter of the Company (calculated on a fully diluted basis (e.g., assuming the
conversion of all outstanding convertible securities of the Company and the
exercise of all warrants, options and other rights to acquire securities of the
Company)).
(d) Other Dilutive Events, Etc. In case any event shall occur as to
which the provisions of Sections 5(a), 5(b) or 5(c) are not strictly applicable
but the failure to make any adjustment would not fairly protect the rights
represented by the Conversion Right in accordance with the essential intent and
principles of this Debenture, then, in each such case, the Company shall
appoint a firm of independent certified public accounts of recognized national
standing (which may not be the regular auditors of the Company or any of its
affiliates), which shall give their opinion upon the adjustment, if any, on a
basis consistent with the essential intent and principles established in this
Section 5, necessary to preserve, without dilution, the rights represented by
the Conversion Right. Upon receipt of such opinion, the Company will promptly
mail a copy thereof to the Holder and shall make the adjustments described
therein. In addition, in the event that at any time, as a result of an
adjustment made pursuant to this Section 5, the Holder shall become entitled to
receive any securities of the Company other than shares of Common Stock upon
exercise of the Conversion Right, thereafter the number of such other
securities so receivable upon exercise of the Conversion Right shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the shares of Common Stock
contained in this Section 5.
(e) Excluded Transactions. Notwithstanding any provision in this
Section 5 to the contrary, no adjustment shall be made pursuant to this Section
5 in respect of (i) any events or transactions which are listed as an exception
to the application of the preemptive rights referred to in clauses (i), (ii) or
(iii) of Section 5.1(b) of the Investment Agreement, or (ii) any event or
transaction pursuant to which the Holder is entitled as of the date in question
to exercise any of the preemptive rights referred to in Section 5.1(a) of the
Investment Agreement. In addition, notwithstanding any provision in this
Section 5 to the contrary, no adjustment shall be made pursuant to the
provisions of either Section 5(b) or Section 5(c) above following the date on
which an IPO (such term, as defined in the Investment Agreement) is
successfully consummated.
6. Preservation of Conversion Right Upon Merger, Consolidation, etc.
In the event of any consolidation of the Company with or merger of the Company
with or into another
-5-
<PAGE>
corporation or in case of any sale, transfer or lease to another corporation of
all or substantially all the property of the Company, the surviving or
acquiring entity shall execute an agreement pursuant to which the Holder shall
have the right thereafter to acquire upon exercise of the Conversion Right the
kind and amount of securities, cash or other assets which the Holder would have
owned or have been entitled to receive after the happening of such transaction
had such Conversion Right been exercised immediately prior to the effective
time of such transaction. Such agreement shall provide for adjustments, which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 5. The adjustment provisions of Section 5 shall similarly
apply to the trasaction or event triggering any such adjustment as well as any
other successive transactions. In addition, the Company agrees that it will
not, by amendment of its certificate of incorporation or through any
consolidation, merger, reorganization, transfer of assets, 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 of the Conversion Right, but will
at all times in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be reasonably necessary or appropriate in
order to protect the rights of the Holder against dilution or other impairment.
7. Reservation of Stock; Notices of Certain Corporate Actions. The
Company shall at all times reserve and keep available, solely for issuance and
delivery upon exercise of the Conversion Right, the number of shares of Common
Stock or other applicable securities or property from time to time issuable or
deliverable upon exercise of the Conversion Right. In addition, in the event
of: (a) any plan on the part of the Company to effect any dividend (other than
a normal, periodic cash dividend payable out of the Company's net profits
earned during the immediately preceding twelve months) or other distribution,
or to grant or issue any right to subscribe for, purchase or otherwise acquire
any shares of capital stock of any class of the Company or any other securities
or property of the Company or any other similar right, (b) any capital
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger involving the
Company and any other entity or any transfer of all or substantially all the
assets of the Company to any other entity, (c) any voluntary or involuntary
dissolution, liquidation or winding-up of the Company, or (d) any event that
would require, pursuant to the provisions of this Debenture, an adjustment to
the Share Amount (without giving effect, for purposes of this Section 7, to the
last sentence of Section 5(e) above), then, in any such case, the Company shall
give prior written notice of such event or transaction at least 30 days prior
to the effective date thereof (or, if earlier, the record date thereof), which
notice shall specifying the date or expected date on which any such event or
transaction is reasonably expected to occur, and details of such event or
transaction.
8. Default. If, but only if, any of the following events occur prior
to the Maturity Date (each an "Event of Default"), then the entire unpaid
principal amount of, and accrued and unpaid interest on, this Debenture shall
immediately be due and payable:
(a) Failure to Make Payments. The Company fails to pay the
principal or interest of this Debenture within five (5) business days of the
date when due;
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(b) Voluntary Bankruptcy. The Company commences any voluntary
proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, dissolution, or liquidation law or statute,
of any jurisdiction, whether now or subsequently in effect; or the Company is
adjudicated insolvent or bankrupt by a court of competent jurisdiction; or the
Company petitions or applies for, acquiesces in, or consents to, the
appointment of any receiver or trustee of the Company or for all or
substantially all of its property or assets; or the Company makes an assignment
for the benefit of its creditors; or the Company admits in writing its
inability to pay its debts as they mature; or
(c) Involuntary Bankruptcy. There is commenced against the Company
any proceeding relating to the Company under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, receivership, dissolution, or
liquidation law or statute, of any jurisdiction, whether now or subsequently in
effect, and the proceeding remains undismissed or unstayed for a period of
sixty (60) days; or the Company by any act indicates its consent to, approval
of, or acquiescence in, any such proceeding; or a receiver or trustee is
appointed for the Company or for all or substantially all of its property or
assets, and the receivership or trustee remains undischarged for a period of
sixty (60) days; or a warrant of attachment, execution or similar process is
issued against any substantial part of the property or assets of the Company,
and the warrant or similar process is not dismissed or bonded within sixty (60)
days after the levy.
9. Remedies Upon Default. Upon the occurrence of an Event of Default,
then the unpaid principal balance hereof and all interest accrued hereon shall
automatically become immediately due and payable, without presentment, demand,
protest, any additional notice whatsoever or other requirements of any kind,
all of which are hereby expressly waived by the Company. If upon or after the
occurrence of an Event of Default, then the Holder shall have, and may
exercise, any and all of the rights, powers and remedies which may be available
to it under applicable law, all of which rights, powers and remedies shall be
cumulative and not exclusive, to the fullest extent permitted by applicable
law.
10. Registered Owner. The Company may treat CUC International Inc.,
the initial Holder, as the absolute owner of this Debenture and as the "Holder"
for purposes of receiving payment of, or on account of, the principal and
interest due on this Debenture, for purposes of exercising the Conversion Right
and for all other purposes, unless notified in writing otherwise by such
initial Holder. In the event there are any successors to or assigns of the
initial Holder, such successors or assigns shall, upon notice to the Company,
become the "Holder" hereunder.
11. Miscellaneous.
(a) Amendments; Cumulative Remedies; Failures or Delays; Etc. No
amendment, modification or cancellation of any provision of this Debenture
(including a waiver thereof or consent relating thereto) shall be effective
unless the same shall be in writing and signed by the Holder. Any waiver or
consent relating to any provision of this Debenture shall
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<PAGE>
be effective only in the specific instance and for the specific purpose for
which given. The rights and remedies provided in this Debenture are cumulative
and are not exclusive of any rights and remedies that may be available to the
Holder at law, in equity or otherwise. No failure or delay on the part of the
Holder in the exercise of any power, right or remedy under this Debenture shall
impair such power, right or remedy or shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power, right or remedy
preclude other or further exercise thereof or of any other power, right or
remedy.
(b) Waiver of Notice, Etc. The Company hereby waives diligence,
presentment for payment, dishonor, protest, notice of protest, notice of
maturity, notice of non-payment, demand and any other notice or demand of any
kind whatsoever with respect to this Debenture.
(c) Payment of Attorneys' Fees, Etc. The Company agrees to pay all
costs and expenses, including all attorneys' fees and disbursements, incurred
by the Holder in collecting or enforcing payment of this Debenture in
accordance with its terms, including without limitation any costs incurred by
the Holder, either after an Event of Default or in anticipation thereof, in
obtaining advice as to its rights and remedies hereunder, whether or not a suit
for collection or payment is in fact filed.
(d) No Right of Set-Off. No amount, claim, counterclaim, action,
cause of action or any other right of the Company against the Holder or its
affiliates may be asserted by the Company as set-off, recoupment, counterclaim
or defense against or reduction of the sums evidenced hereby.
(e) Successors and Assigns. This Debenture shall be binding upon,
and inure to the benefit of, the successors and assigns of the parties hereto;
provided that the Company may not assign any of its rights or obligations
hereunder without the prior written consent of the Holder.
(f) Severability. If any provision of this Debenture or any right
hereunder shall be held to be invalid, illegal or unenforceable under
applicable law in any jurisdiction, such provision or other right shall be
ineffective only to the extent of such invalidity, illegality or
unenforceability, which shall not affect any other provisions herein or any
other right granted hereby or the validity, legality or enforceability of such
provision or right in any other jurisdiction.
(g) Notices. All notices and other communications by the Company or
by the Holder required or permitted under this Debenture shall be in writing
and shall be delivered in person or by facsimile transmission, or mailed by
registered or certified mail, return receipt requested, or by a nationally
recognized overnight courier, postage prepaid, addressed in each case (a) if to
the Holder, at the address of the Holder specified in the Investment Agreement,
or (b) if to the Company, at the address of the Company specified in the
Investment Agreement.
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Each party hereto may from time to time change the address to which notices to
it are to be delivered or mailed hereunder by notice to the other party.
(h) Descriptive Headings. The headings in this Debenture are for
purposes of reference only and shall not limit or otherwise affect the meanings
hereof.
(i) Governing Law; Waiver of Jury Trial. This Debenture and the
rights and obligations of the Company and the Holder shall be governed by and
construed in accordance with the internal laws of the State of Delaware,
without giving effect to the conflicts of laws principles thereof. THE COMPANY
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY
WAY TO THIS DEBENTURE AND AGREES THAN ANY SUCH PROCEEDING MAY, IF HOLDER SO
ELECTS, BE BROUGHT AND ENFORCED IN ANY NEW YORK STATE COURT OR UNITED STATES
FEDERAL COURT LOCATED IN NEW YORK, NEW YORK, AND THE COMPANY WAIVES ANY
OBJECTION TO JURISDICTION OR VENUE IN ANY SUCH PROCEEDING COMMENCED IN SUCH
COURT.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Debenture to be
signed in its name by an authorized officer as of the date set forth above.
NET GROCER INC.
By: /s/ Daniel Nissan
-------------------------------
Name: Daniel Nissan
Title: President & CEO
Dated as of November 18, 1997
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<PAGE>
NET GROCER INC.
CONVERTIBLE DEBENTURE
FOR VALUE RECEIVED, the undersigned, NET GROCER INC., a Delaware
corporation (the "Company"), hereby unconditionally promises to pay to CENDANT
CORPORATION, a Delaware corporation (such entity, and any successor or assign
of such entity, the "Holder"), on the Maturity Date (as defined below), the
principal sum of SEVEN MILLION DOLLARS AND NO CENTS (U.S. $7,000,000.00),
together with interest accrued upon the unpaid principal balance hereof, from
the date hereof until the payment in full of the principal balance hereof, at
the rate of interest set forth below. This Convertible Debenture (the
"Debenture") is being issued to the Holder pursuant to the provisions of
Section 4.1 of the Investment and Stockholders Agreement dated as of November
17, 1997 (the "Investment Agreement"), by and among the Holder, the Company and
the stockholders of the Company listed on the signature pages thereto.
1. Maturity Date. This Debenture shall mature, and the principal
balance of this Debenture and all interest accrued thereon through such time
shall be payable by the Company to the Holder in full on the fifth anniversary
of the date of this Debenture set forth below (such date, the "Maturity Date";
provided that, upon the occurrence of an Event of Default, as such term is
defined below, the payment date, as so accelerated, shall be the "Maturity
Date").
2. Interest.
(a) Payment of Interest; Method of Calculation. The indebtedness
evidenced by this Debenture shall bear interest at a compound annual rate equal
to the Prime Rate (as defined below) in effect from time to time during the
periods in question; provided that while an Event of Default exists, the
interest rate payable on this Debenture shall be adjusted such that this
Debenture shall bear interest at a compound annual rate equal to the lesser of
(A) the Prime Rate in effect from time to time, plus two percent (2%), or (B)
the maximum rate of interest permissible under applicable law (the
"Post-Default Rate"). Interest owed on this Debenture shall accrue following
the date hereof and shall be payable on the Maturity Date. Interest on this
Debenture shall be computed based on a 360-day year and for the actual number
of days elapsed.
(b) Defined Terms. For purposes of this Debenture, the term "Prime
Rate" means, at any time, a fluctuating rate of interest equal to the per annum
rate of interest reported as the "Prime Rate" in The Wall Street Journal during
the periods in question (or, absent such rate being reported in such
publication, a fluctuating rate of interest equal to the per annum rate of
interest publicly announced by Citibank, N.A. in New York, New York, as its
"prime" lending rate for domestic commercial loans during the periods in
question); provided that in no event shall the Prime Rate exceed any maximum
rate of interest permitted under applicable law.
3. Payments upon Maturity. Upon the Maturity Date, this Debenture
shall be due and payable in full on such date, and the Company shall pay to the
Holder on such date the principal balance hereof and all interest accrued
hereon up through the time of payment
<PAGE>
hereunder at the interest rate specified herein in lawful money of the United
States of America, without any deduction whatsoever. Such payment to be made by
certified check or wire transfer to an account designated in writing by the
Holder, as the Holder shall designate in writing; provided that, at least ten
(10) business days prior to such payment (but in no event more than sixty (60)
days prior to such payment), the Company shall notify the Holder in writing of
such intended payment and of the Holder's Conversion Right set forth in Section
4 below (such notice, the "Payoff Notice") and shall give the Holder the
opportunity to exercise its Conversion Right set forth in Section 4 below.
4. Conversion Right. At any time after the date hereof and up until
the date on or after the Maturity Date on which all of the outstanding
indebtedness and accrued interest under this Debenture is paid to the Holder,
the Holder shall have the right (the "Conversion Right"), at its sole option,
to convert all of the outstanding indebtedness and accrued interest under this
Debenture into a number of duly authorized, validly issued, fully paid and
nonassessable shares of common stock, par value $.01 per share, of the Company
(such common stock, or any other comparable class of capital stock or equity
security issued to the equityholders of the Company and its successors in
exchange for or in replacement of such common stock, the "Common Stock") equal
to twenty-two thousand, one hundred and twenty-six (22,126) shares (such
amount--of shares, as may be adjusted pursuant to the provisions of Section 5
below, the "Share Amount"); provided that in the event that the Company has not
yet provided the Payoff Notice referred to in Section 3 above in a timely
manner, the time on which the Holder is entitled to exercise the Conversion
Right shall be extended until the 10th business day following the delivery to
the Holder of the Payoff Notice; provided further that following the fourth
anniversary of the date of this Debenture, the Company shall have the right to
require that the Holder exercise its Conversion Right upon ten (10) days' prior
written notice to the Holder, following which such Conversion Right shall be
deemed to have been exercised by such Holder without any further action on the
part of any party. The Company hereby represents and warrants to the Holder
that the Share Amount represents as of the date of this Debenture a Share
Ownership Interest (such term, as defined in the Investment Agreement) equal to
approximately eleven and three-tenths percent (11.3%). In the event that the
Holder determines to exercise its Conversion Right, the following procedure
shall apply:
(a) Delivery of Conversion Notice. The Holder shall give written
notice to the Company, substantially in the form attached hereto as Exhibit 1
("Conversion Notice"), of its exercise of its Conversion Right. The exercise of
the Conversion Right shall be deemed to have been effected as of the date on
which the Conversion Notice is delivered to the Company by the Holder, and at
such time the Holder or such other person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such exercise as specified in the Conversion Notice shall be deemed to have
become the holder or holders of record of such shares of Common Stock.
(b) Delivery of Share Certificates by the Company. Promptly
following the delivery to the Company by the Holder of the Conversion Notice
(but in any event within three
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business days thereafter, the Company at its expense shall deliver to the
Holder a certificate, or multiple certificates, if so requested by the Holder,
registered in the name of the Holder and/or such other name(s) as the Company
may be directed by the Holder in the Conversion Notice, representing in the
aggregate a number of duly authorized, validly issued, fully paid and
nonassessable shares of Common Stock equal to the Share Amount. Any fractional
shares resulting from this calculation shall be rounded to the nearest integral
number of shares of Common Stock.
(c) Rights under Investment Agreement. Upon the exercise of the
Conversion Right, in whole or in part, by the Holder, the shares of Common
Stock delivered to the Holder in connection therewith shall be entitled to all
of the benefits set forth in the Investment Agreement, including, without
limitation, any registration rights set forth therein.
5. Adjustments to Share Amount and Type of Securities to be Acquired
Upon Exercise of the Conversion Right. The Share Amount and/or the kind of
securities or property which would be acquired upon the exercise of the
Conversion Right shall be subject to adjustment from time to time as follows:
(a) Stock Dividends; Stock Splits; Reclassifications; Etc. In case
the Company shall (i) pay a dividend or make any other distribution with
respect to its Common Stock in shares of its capital stock, (ii) subdivide its
outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares, or (iv) issue any shares of its capital stock in a
reclassification of the Common Stock (including any such reclassification in
connection with a merger, consolidation or other business combination in which
the Company is the continuing corporation), then, in any such case, the number
of shares of Common Stock and the kind of securities or property issuable upon
exercise of the Conversion Right immediately prior to the effective date (or,
if earlier or otherwise applicable, the record date) for such event or
transaction, shall be adjusted so that the Holder shall thereafter be entitled
to receive the kind and number of shares of Common Stock or other securities or
property of the Company that such Holder would have owned or have been entitled
to receive after the happening of any of the events or transactions described
above, had such Conversion Right been exercised immediately prior to the
happening of such event or transaction or any earlier record date with respect
thereto.
(b) Rights; Options, Warrants. In case the Company shall issue any
rights, options, warrants or convertible or exchangeable securities entitling
the holder thereof to subscribe for or purchase Common Stock at a price per
share that is lower (at the close of business on the business day immediately
prior to the record date for such issuance) than the Current Market Value (as
defined below) per share of Common Stock, the number of shares of Common Stock
thereafter issuable upon the exercise of the Conversion Right shall be
determined by multiplying the number of shares of Common Stock theretofore
issuable upon the exercise of the Conversion Right by a fraction, of which (i)
the numerator shall be the sum of (A) the number of shares of Common Stock
outstanding on the date of issuance of such rights, options,
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<PAGE>
warrants or convertible or exchangeable securities, plus (B) the number of
additional shares of Common Stock offered for subscription or purchase or to be
issued upon conversion or exchange of such convertible or exchangeable
securities, and (ii) the denominator shall be equal to the sum of (A) the
number of shares of Common Stock outstanding on the date of issuance of such
rights, options, warrants or convertible or exchangeable securities, plus (B)
the number of shares of Common Stock which the aggregate consideration to be
received by the Company in connection with such issuance would purchase at the
then Current Market Value per share of Common Stock. Notwithstanding the
provisions of this Section 5(b), upon the expiration of any rights, options,
warrants or conversion or exchange privileges that have previously resulted in
an adjustment hereunder, if any thereof shall not have been exercised, the
number of shares of Common Stock thereafter issuable upon the exercise of the
Conversion Right shall, upon such expiration, be readjusted and shall
thereafter, upon any future exercise, be such as they would have been had they
been originally adjusted (or had the original adjustment not been required, as
the case may be) as if (i) the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion or exchange rights and (ii) such
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise.
(c) Issuance of Common Stock at Lower Values. In case the Company
shall issue or sell shares of Common Stock, at a price per share of Common
Stock that is lower than the then Current Market Value (as defined below) per
share of the Common Stock in effect immediately prior to such sale or issuance,
then the number of shares of Common Stock thereafter issuable upon the exercise
of the Conversion Right shall be determined by multiplying the number of shares
of Common Stock theretofore issuable upon exercise of the Conversion Right by a
fraction, of which (x) the numerator shall be the number of shares of Common
Stock outstanding on the date of issuance of such shares of Common Stock, plus
the number of additional shares of Common Stock issued or sold and (y) the
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such shares of Common Stock, plus the number of shares
which the aggregate consideration to be received by the Company in connection
with such issuance or sale would purchase at the then Current Market Value per
share of Common Stock. For purposes of this Section 5, the term "Current Market
Value" shall mean, on any date specified herein, the amount per share of the
Common Stock, equal to (i) if the shares are listed for trading on a national
securities exchange, the most recent closing sale price of a share as reported
by or for such exchange (or if the shares are listed on more than one such
exchange, as reported by or for the principal exchange for trading of the
shares), (ii) if such shares are not then listed or admitted to trading on any
national securities exchange but are quoted on an nationally-recognized
securities trading association (e.g., the National Association of Securities
Dealers Automated Quotations System), the most recent closing sale price of a
share, or if no such closing sale price is reasonably available, the average
between the most recent highest bid and lowest asked prices for a share as last
reported by or for such securities trading association, or (iii) if such shares
are not then listed or admitted to trading on any national securities exchange
or quoted by any nationally-recognized securities trading association, the fair
market value of a share as determined in good faith by the
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Company's Board of Directors; provided that in no event shall such "Current
Market Value" be less than the per share book value of the Company as shown on
the consolidated financial statements of the Company and its subsidiaries as of
the most recent fiscal quarter of the Company (calculated on a fully diluted
basis (e.g., assuming the conversion of all outstanding convertible securities
of the Company and the exercise of all warrants, options and other rights to
acquire securities of the Company)).
(d) Other Dilutive Events, Etc. In case any event shall occur as to
which the provisions of Sections 5(a), 5(b) or 5(c) are not strictly applicable
but the failure to make any adjustment would not fairly protect the rights
represented by the Conversion Right in accordance with the essential intent and
principles of this Debenture, then, in each such case, the Company shall
appoint a firm of independent certified public accountants of recognized
national standing (which may not be the regular auditors of the Company or any
of its affiliates), which shall give their opinion upon the adjustment, if any,
on a basis consistent with the essential intent and principles established in
this Section 5, necessary to preserve, without dilution, the rights represented
by the Conversion Right. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder and shall make the adjustments
described therein. In addition, in the event that at any time, as a result of
an adjustment made pursuant to this Section 5, the Holder shall become entitled
to receive any securities of the Company other than shares of Common Stock upon
exercise of the Conversion Right, thereafter the number of such other
securities so receivable upon exercise of the Conversion Right shall be subject
to adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the shares of Common Stock
contained in this Section 5.
(e) Excluded Transactions. Notwithstanding any provision in this
Section 5 to the contrary, no adjustment shall be made pursuant to this Section
5 in respect of (i) any events or transactions which are listed as an exception
to the application of the preemptive rights referred to in clauses (i), (ii) or
(iii) of Section 5.1(b) of the Investment Agreement, or (ii) any event or
transaction pursuant to which the Holder is entitled as of the date in question
to exercise any of the preemptive rights referred to in Section 5.1(a) of the
Investment Agreement. In addition, notwithstanding any provision in this
Section 5 to the contrary, no adjustment shall be made pursuant to the
provisions of either Section 5(b) or Section 5(c) above following the date on
which an IPO (such term, as defined in the Investment Agreement) is
successfully consummated.
6. Preservation of Conversion Right Upon Merger, Consolidation, etc.
In the event of any consolidation of the Company with or merger of the Company
with or into another corporation or in case of any sale, transfer or lease to
another corporation of all or substantially all the property of the Company,
the surviving or acquiring entity shall execute an agreement pursuant to which
the Holder shall have the right thereafter to acquire upon exercise of the
Conversion Right the kind and amount of securities, cash or other assets which
the Holder would have owned or have been entitled to receive after the
happening of such transaction had such Conversion Right been exercised
immediately prior to the effective time of such transaction.
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<PAGE>
Such agreement shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 5. The adjustment provisions of Section 5 shall similarly apply to the
transaction or event triggering any such adjustment as well as any other
successive transactions. In addition, the Company agrees that it will not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, 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 of the Conversion Right, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be reasonably necessary or appropriate in
order to protect the rights of the Holder against dilution or other impairment.
7. Reservation of Stock; Notices of Certain Corporate Actions. The
Company shall at all times reserve and keep available, solely for issuance and
delivery upon exercise of the Conversion Right, the number of shares of Common
Stock or other applicable securities or property from time to time issuable or
deliverable upon exercise of the Conversion Right. In addition, in the event
of: (a) any plan on the part of the Company to effect any dividend (other than
a normal, periodic cash dividend payable out of the Company's net profits
earned during the immediately preceding twelve months) or other distribution,
or to grant or issue any right to subscribe for, purchase or otherwise acquire
any shares of capital stock of any class of the Company or any other securities
or property of the Company or any other similar right, (b) any capital
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger involving the
Company and any other entity or any transfer of all or substantially all the
assets of the Company to any other entity, (c) any voluntary or involuntary
dissolution, liquidation or winding-up of the Company, or (d) any event that
would require, pursuant to the provisions of this Debenture, an adjustment to
the Share Amount (without giving effect, for purposes of this Section 7, to the
last sentence of Section 5(e) above), then, in any such case, the Company shall
give prior written notice of such event or transaction at least 30 days prior
to the effective date thereof (or, if earlier, the record date thereof), which
notice shall specifying the date or expected date on which any such event or
transaction is reasonably expected to occur, and details of such event or
transaction.
8. Default. If, but only if, any of the following events occur prior
to the Maturity Date (each an "Event of Default"), then the entire unpaid
principal amount of, and accrued and unpaid interest on, this Debenture shall
immediately be due and payable:
(a) Failure to Make Payments. The Company fails to pay the
principal or interest of this Debenture within five (5) business days of the
date when due;
(b) Voluntary Bankruptcy. The Company commences any voluntary
proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, receivership, dissolution, or liquidation law or statute,
of any jurisdiction, whether now or subsequently in effect; or the Company is
adjudicated insolvent or bankrupt by a court of competent jurisdiction; or the
Company petitions or applies for, acquiesces in, or consents to,
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<PAGE>
the appointment of any receiver or trustee of the Company or for all or
substantially all of its property or assets; or the Company makes an assignment
for the benefit of its creditors; or the Company admits in writing its
inability to pay its debts as they mature; or
(c) Involuntary Bankruptcy. There is commenced against the Company
any proceeding relating to the Company under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, receivership, dissolution, or
liquidation law or statute, of any jurisdiction, whether now or subsequently in
effect, and the proceeding remains undismissed or unstayed for a period of
sixty (60) days; or the Company by any act indicates its consent to, approval
of, or acquiescence in, any such proceeding; or a receiver or trustee is
appointed for the Company or for all or substantially all of its property or
assets, and the receivership or trustee remains undischarged for a period of
sixty (60) days; or a warrant of attachment, execution or similar process is
issued against any substantial part of the property or assets of the Company,
and the warrant or similar process is not dismissed or bonded within sixty (60)
days after the levy.
9. Remedies Upon Default. Upon the occurrence of an Event of Default,
then the unpaid principal balance hereof and all interest accrued hereon shall
automatically become immediately due and payable, without presentment, demand,
protest, any additional notice whatsoever or other requirements of any kind,
all of which are hereby expressly waived by the Company. If upon or after the
occurrence of an Event of Default, then the Holder shall have, and may
exercise, any and all of the rights, powers and remedies which may be available
to it under applicable law, all of which rights, powers and remedies shall be
cumulative and not exclusive, to the fullest extent permitted by applicable
law.
10. Registered Owner. The Company may treat Cendant Corporation, the
initial Holder, as the absolute owner of this Debenture and as the "Holder" for
purposes of receiving payment of, or on account of, the principal and interest
due on this Debenture, for purposes of exercising the Conversion Right and for
all other purposes, unless notified in writing otherwise by such initial
Holder. In the event there are any successors to or assigns of the initial
Holder, such successors or assigns shall, upon notice to the Company, become
the "Holder" hereunder.
11. Miscellaneous.
(a) Amendments; Cumulative Remedies; Failures or Delays; Etc. No
amendment, modification or cancellation of any provision of this Debenture
(including a waiver thereof or consent relating thereto) shall be effective
unless the same shall be in writing and signed by the Holder. Any waiver or
consent relating to any provision of this Debenture shall be effective only in
the specific instance and for the specific purpose for which given. The rights
and remedies provided in this Debenture are cumulative and are not exclusive of
any rights and remedies that may be available to the Holder at law, in equity
or otherwise. No failure or delay on the part of the Holder in the exercise of
any power, right or remedy under this Debenture shall impair such power, right
or remedy or shall operate as a waiver thereof,
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<PAGE>
nor shall any single or partial exercise of any such power, right or remedy
preclude other or further exercise thereof or of any other power, right or
remedy.
(b) Waiver of Notice, Etc. The Company hereby waives diligence,
presentment for payment, dishonor, protest, notice of protest, notice of
maturity, notice of non-payment, demand and any other notice or demand of any
kind whatsoever with respect to this Debenture.
(c) Payment of Attorneys' Fees, Etc. The Company agrees to pay all
costs and expenses, including all attorneys' fees and disbursements, incurred
by the Holder in collecting or enforcing payment of this Debenture in
accordance with its terms, including without limitation any costs incurred by
the Holder, either after an Event of Default or in anticipation thereof, in
obtaining advice as to its rights and remedies hereunder, whether or not a suit
for collection or payment is in fact filed.
(d) No Right of Set-Off. No amount, claim, counterclaim, action,
cause of action or any other right of the Company against the Holder or its
affiliates may be asserted by the Company as set-off, recoupment, counterclaim
or defense against or reduction of the sums evidenced hereby.
(e) Successors and Assigns. This Debenture shall be binding upon,
and inure to the benefit of, the successors and assigns of the parties hereto;
provided that the Company may not assign any of its rights or obligations
hereunder without the prior written consent of the Holder.
(f) Severability. If any provision of this Debenture or any right
hereunder shall be held to be invalid, illegal or unenforceable under
applicable law in any jurisdiction, such provision or other right shall be
ineffective only to the extent of such invalidity, illegality or
unenforceability, which shall not affect any other provisions herein or any
other right granted hereby or the validity, legality or enforceability of such
provision or right in any other jurisdiction.
(g) Notices. All notices and other communications by the Company or
by the Holder required or permitted under this Debenture shall be in writing
and shall be delivered in person or by facsimile transmission, or mailed by
registered or certified mail, return receipt requested, or by a nationally
recognized overnight courier, postage prepaid, addressed in each case (a) if to
the Holder, at the address of the Holder specified in the Investment Agreement,
or (b) if to the Company, at the address of the Company specified in the
Investment Agreement. Each party hereto may from time to time change the
address to which notices to it are to be delivered or mailed hereunder by
notice to the other party.
(h) Descriptive Headings. The headings in this Debenture are for
purposes of reference only and shall not limit or otherwise affect the meanings
hereof.
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(i) Governing Law; Waiver of Jury Trial. This Debenture and the
rights and obligations of the Company and the Holder shall be governed by and
construed in accordance with the internal laws of the State of Delaware,
without giving effect to the conflicts of laws principles thereof. THE COMPANY
HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY
WAY TO THIS DEBENTURE AND AGREES THAN ANY SUCH PROCEEDING MAY, IF HOLDER SO
ELECTS, BE BROUGHT AND ENFORCED IN ANY NEW YORK STATE COURT OR UNITED STATES
FEDERAL COURT LOCATED IN NEW YORK, NEW YORK, AND THE COMPANY WAIVES ANY
OBJECTION TO JURISDICTION OR VENUE IN ANY SUCH PROCEEDING COMMENCED IN SUCH
COURT.
IN WITNESS WHEREOF, the undersigned has caused this Debenture to be
signed in its name by an authorized officer as of the date set forth above.
NET GROCER INC.
By: /s/ Richard D. Falcone
------------------------------
Name: Richard D. Falcone
Title: Executive Vice President and
Chief Operating Officer
Dated as of March 30, 1998
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE
CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND ARE DENOTED BY [*]. THE
CONFIDENTIAL PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
SPONSORSHIP AGREEMENT
This agreement ("Agreement") is entered into as of the 15th day of December,
1997 ("Effective Date"), by and between Excite, Inc., a California corporation,
located at 555 Broadway, Redwood City, California 94063 ("Excite"), and
NetGrocer, Inc. a Delaware corporation, located at 333 Seventh avenue, 11th
Floor, New York, NY 10001 ("NetGrocer").
RECITALS
A. Excite maintains a site on the Internet at http://www.excite.com (the
"Excite Site") and owns and/or manages related World Wide Web sites
worldwide (collectively, the Excite Site and the related web sites are
referred to as the "Excite Network") which, among other things, allow
its users to search for and access content and other sites on the
Internet.
B. Within the Excite Site, Excite currently organizes certain content
into topical channels, including a Shopping Channel.
C. NetGrocer operates an online supermarket service at its Web site
located at http://www.netgrocer.com (the "NetGrocer Site").
D. NetGrocer wishes to promote use of the NetGrocer Site to Excite's
users by sponsoring the Excite Shopping Channel and purchasing banner
advertising and other promotional links on the Excite Site.
1. SPONSORSHIP
a) Excite will promote NetGrocer in the Excite Shopping Channel
as follows:
i) For the term of this Agreement, Excite will display
a text and/or graphic link (consistent with the
format used on similar links on the same page) to
the NetGrocer Site on the Excite Shopping Channel
main page.
ii) Excite will display a text and/or graphic link
(consistent with the format used on similar links on
the same page) to the NetGrocer Site in the home
page of the Excite Shopping Channel "Such a Deal"
promotion in four separate one-week segments during
each year of the term of the Agreement, once every
calendar quarter.
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iii) Excite will display a text and/or graphic link
(consistent with the format used on similar links on
the same page) to the NetGrocer Site in the home
page of the Excite Shopping Channel "Shop Here
First" promotion in four separate one-week segments
during the term of the Agreement, once every
calendar quarter. Excite shall not display the link
under this Section 1 (a)(iii) in the same weeks as
the promotional link under Section 1 (a)(ii).
iv) For the term of the Agreement, Excite will display a
text and/or graphic link (consistent with the format
listed on similar links on the same page) to the
NetGrocer Site on the front page of the "Gourmet and
Groceries" department of the Excite Shopping
Channel.
v) Excite will display a text and/or graphic link
(consistent with the format used on similar links on
the same page) to the NetGrocer Site in the "Shop
Here First" promotion in the Gourmet and Groceries
department of the Excite Shopping Channel for the
term of the Agreement. Such link will be displayed
as the left-most link or top-most link at least
fifty percent (50%) of the time.
vi) Excite currently plans to develop a coupon promotion
area in the Excite Shopping Channel, tentatively
called "Coupon Corner". When launched, Excite will
display an advertising banner or text or graphic
link (consistent with the format used on similar
links on the same page) to the NetGrocer Site will
Coupon Corner for the remainder of the term of the
Agreement.
b) Excite will promote NetGrocer in the Excite Site as follows:
i) For the term of the Agreement, Excite will display a
link to the NetGrocer Site (consistent with the
format used on similar links on the same page) in
the default configuration of the "Favorite Links"
listing of Web sites on the home page of the Health
& Fitness and the Food & Drink departments of the
Lifestyle Channel, and the home page of the
Lifestyle Channel in the Excite Site.
ii) For the term of the Agreement, Excite will display a
text and/or graphic link (consistent with the format
used on similar links on the same page) to the
NetGrocer Site on the "Exciting Stuff' promotion on
the home page of the Lifestyle Channel and the home
page of the Food & Drink department of the Lifestyle
Channel in the Excite Site.
iii) Excite will display a text and/or graphic link
(consistent with the format used on similar links on
the same page) to the NetGrocer
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Site in the area reserved for promotional rotations
on the home page of the Excite Site for one week in
each year of the term of the Agreement.
iv) Excite will display NetGrocer's advertising banners
in the Lifestyle and Shopping Channels on the Excite
Site.
v) Excite will display a link (consistent with the
format used on similar links on the same page) to a
co-branded version of the NetGrocer Site in the
"Try, These First" area on Excite Search results
pages in response to mutually determined relevant
search terms. The co-branded version of the
NetGrocer Site will comply with Excite's
then-current standards applicable to third party
sites promoted through "Try, These First" links.
vi) For the term of the Agreement, Excite will display a
link to the NetGrocer Site (consistent with the
format used on similar links on the same page) in
the default configuration of the "services" or
comparable module on the default configuration of
the My Excite Channel.
c) Excite will display NetGrocer's advertising banners on Excite
Search results pages on the Excite Site in response to
mutually determined keywords, including the following:
NetGrocer, Peapod, Oncart, Shoppers Express, grocery,
groceries, women, female, disabled, senior, military, family,
baby, kids, children, pets, dogs, cats staples, supermarket,
drug store, and club store. Excite will work with NetGrocer
to develop a more extensive list of keywords and, when Excite
implements keyphrase advertising banners, Excite will
work-with NetGrocer to develop a mutually-determined list of
keyphrases.
d) For the term of the Agreement, Excite will display
NetGrocer's advertising banners in general rotation on the
Excite Site, on the MailExcite free email service and on
Excite's Internet chat service.
e) Excite will use reasonable commercial efforts to deliver [*]
"Impressions" of the promotional placements and advertising
banners described in Sections 1 (a) - (d) in the first year
of the term of the Agreement and to deliver [*] "Impressions"
of the promotional placements and advertising banners
described in Sections 1 (a) - (d) in the second year
of the term of the Agreement. For the purposes of this
Agreement, an "Impression" is defined as any link to the
NetGrocer Site, whether graphic, text or any combination of
graphic and text, served by Excite to a user as part of an
HTML page, part of the Excite's Internet chat service or part
of search results displayed in "Excite Shopping Service
powered by Jango".
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f) Excite guarantees that it will deliver [*] "Click-throughs" on
the promotional placements and advertising banners described
in Section 1 (a) - (d) in the first year of the term of the
Agreement by delivering [*] of the annual guaranteed
"Click-throughs" in the first quarter of the first year of
the term of the Agreement, a cumulative total of [*] of the
annual guaranteed "Click-throughs" in the second quarter of
the first year of the term of the Agreement, a cumulative
total of [*] of the annual guaranteed "Click-throughs" in
the third quarter of the first year of the term of the
Agreement and a cumulative total of 100% of the annual
guaranteed "Click-throughs" in the fourth quarter of the
first year of the term of the Agreement. Excite guarantees
that it will deliver four million fifty thousand (4,050,000)
"Click-throughs" on the promotional placements and
advertising banners described in Section 1(a) - (d) in the
second year of the term of the Agreement by delivering [*] of
the annual guaranteed "Click-throughs" in the first quarter
of the second year of the term of the Agreement, a cumulative
total of [*] of the annual guaranteed "Click-throughs" in the
second quarter of the second year of the term of the
Agreement, a cumulative total of [*] of the annual guaranteed
"click-throughs" in the third quarter of the second year of
the term of the Agreement and a cumulative total of 100% of
the annual guaranteed "Click-throughs" in the fourth quarter
of the second year of the term of the Agreement. For the
purposes of this Agreement, a "Click-through" occurs when a
user activates the link to the NetGrocer Site (the address or
addresses of which are provided by NetGrocer for such
Impression) contained in an Impression and (i) the activation
of the link to the NetGrocer Site is recorded by Excite's
servers or (ii) in the case of "Try These First" links only,
until Excite has the technical capability to count the
activation of "Try These First" links to the NetGrocer Site,
the user is referred to the NetGrocer Site through the
activation of a "Try These First' link and the referral is
recorded by NetGrocer's servers. Until Excite has the
technical capability to count the activation of "Try These
First" links to the NetGrocer Site, NetGrocer will report to
Excite the number of "Try These First" referrals it records
within twenty (20) days following the end of each calendar
month.
g) If Excite misses any quarterly guaranteed Click-through
amount, Excite will make good the difference within [*]
days following the end of such quarter. If Excite does
not make good the difference within [*] days, NetGrocer may
suspend (but not eliminate) its payments of the sponsorship
and advertising fees described in Section 5(b) and 5(c) until
the make-good is delivered, at which time NetGrocer will
resume its payments of the sponsorship and advertising fees.
h) Excite will use commercially reasonable efforts to maintain
the Excite Network and display the promotional placements and
advertising banners
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described in Section 1 (a) - (d) during the term of the
Agreement and to display the promotional placements and
advertising banners on the Excite Site in the following
proportions: [*] in the Shopping Channel, [*] in the other
targeted Channels and keyword banners and [*] in general
rotation.
i) The content and design of the advertising banners described
in Section 1(a) - (d) will be created by NetGrocer subject to
Excite's then-current standards applicable to advertising
banners.
j) Excite will provide account management support for
NetGrocer's sponsorship of the Excite Site. Excite and
NetGrocer will hold monthly review of the performance of the
promotional placements and advertising banners described in
Section 1 (a) - (d) and the sponsorship objectives.
2. LAUNCH DATE
a) The "Launch Date" is the date of the first display of the
promotional placements and advertising banners described in
Sections 1 (a) - (d). The parties intend that the Launch Date
will be December 15, 1997.
b) NetGrocer and Excite will use reasonable efforts to achieve
the scheduled Launch Date provided that, no later than
fourteen (14) days prior to the scheduled Launch Date,
NetGrocer provides final versions of all graphics, text,
keywords, banner advertising, promotional placements, other
promotional media and valid URL links necessary to implement
the promotional placements and advertising banners described
in Section 1 (a) - (dj (collectively, "Impression Material")
to Excite.
c) In the event that NetGrocer fails to provide the Impression
Material to Excite fourteen (14) days in advance of the
scheduled Launch Date, Excite may (i) reschedule the Launch
Date according to the availability of Excite's engineering
resources after delivery of the complete Impression Material
or (ii) commence delivery of Impressions based on Impression
Material in Excite's possession at the time.
d) NetGrocer may revise, update and/or replace the Impression
Material at any time in its sole discretion. Within three (3)
business days of Excite's receipt of any revised advertising
banners, Excite shall replace the former advertising banners
with the updated advertising banners. Text and/or graphics in
the "Exciting Stuff' and "Such A Deal" promotions may be
replaced with new text and/or graphics twice per month. All
other text links may be replaced with new text links once per
month.
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3. EXCLUSIVITY
a) For the term of the Agreement, Excite will not enter into any
agreement to display and shall not display on the Excite Site
content created by Excite promoting NetGrocer's
"Competitors", content created by NetGrocer's Competitors,
promotional placements and/or advertising banners from
NetGrocer's Competitors or make available on the Excite Site
online supermarket sales offered by NetGrocer's Competitors.
b) For the purposes of this Agreement, "Competitors" means
online supermarkets, which offer selections of consumer
packaged goods and groceries comparable to NetGrocer or
off-Web supermarkets, as listed in Exhibit A. The parties may
amend Exhibit A from time to time and Excite will not
unreasonably withhold its consent to the inclusion of bona
fide Competitors submitted by NetGrocer.
c) In the event of a dispute between the parties regarding the
inclusion or exclusion of an online supermarket from Exhibit
A or the display on the Excite Site of advertising or
promotional material from an online supermarket, the parties
will follow the dispute resolution process described in
Section 13(c) without the prerequisite of submitting the
dispute to mediation. In the event that it is determined that
Excite violated the Agreement by excluding a bona fide
NetGrocer Competitor from Exhibit A or displayed on the
Excite Site advertising or promotional material from a bona
fide NetGrocer Competitor, Excite will be obligated to (i)
immediately add the online supermarket to Exhibit A, (ii)
immediately remove from the Excite Site any advertising or
promotional material from the online supermarket and (iii)
provide NetGrocer with advertising and promotional value,
without additional cost, equal to the advertising and
promotional value provided to the online supermarket prior to
the removal of its advertising and promotional material from
the Excite Site.
d) Notwithstanding the foregoing, Excite may display Excite
Search results links to NetGrocer's Competitors in Excite
Search results pages in response to user queries, may display
links to NetGrocer's Competitors in Excite's general
directory of Web sites and, after giving NetGrocer reasonable
advance notice, in search results displayed in "Excite
Shopping Service powered by Jango". For the term of this
Agreement. Excite will display links to the NetGrocer Site as
search results displayed in "Excite Shopping Service powered
by Jango" for the categories for which NetGrocer carries
products until requested not to do so by NetGrocer.
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4. CUSTOMER INFORMATION
NetGrocer retains all right, title and interest to information
regarding customers who access the NetGrocer Site pursuant to the
Agreement.
5. SPONSORSHIP, ADVERTISING AND CLICK-THROUGH FEES
a) A one-time sponsorship initiation fee of [*] is due and will
be paid to Excite upon execution of the Agreement as
compensation for costs of initiating access to the Excite
Network, set-up costs and other expenses associated with
Excite's initiation of the links, placements, advertisements
and promotions contemplated by this Agreement.
b) Separate and apart from the one-time sponsorship initiation
fee NetGrocer shall pay to Excite sponsorship and advertising
fees for the first year of the term of the Agreement in the
total amount of [*] payable in nine equal monthly
installments of [*], commencing on March 15, 1998. NetGrocer
will pay the remainder of the monthly installments on or
prior to the fifteenth day of each of the next eight (8)
calendar months.
c) Separate and apart from the one-time sponsorship initiation
fee, NetGrocer shall pay to Excite sponsorship and
advertising fees for the second year of the term of the
Agreement in the total amount of [*] payable in equal monthly
installments of [*], commencing on December 15, 1998.
NetGrocer will pay the remainder of the monthly installments
on or prior to the fifteenth day of each of the next eleven
(11) calendar months.
d) Separate and apart from the one-time sponsorship initiation
fee and sponsorship and advertising fees, NetGrocer will pay
Excite [*] for each Click-through on the promotional
placements and advertising banners described in Section 1(a)
- (d) occurring during that year in excess of [*] during the
first year of the term of the Agreement. NetGrocer will make
these Click-through payments (if any) to Excite within thirty
(30) days of Excite's monthly report and invoice reflecting
Click-throughs during the first year of the term of the
Agreement in excess of [*]
e) Separate and apart from the one-time sponsorship initiation
fee and sponsorship and advertising fees, NetGrocer will pay
Excite [*] for each Click-through on the promotional
placements and
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advertising banners described in Section 1(a) - (d) in excess
of [*] occurring in the second year of the term of the
Agreement. NetGrocer will make these Click-through payments
(if any) to Excite with within thirty (30) days of Excite's
monthly report and invoice reflecting Click-throughs during
the second year of the term of the Agreement in excess of [*]
f) In its sole discretion, during the first year of the term of
the Agreement NetGrocer may elect to terminate the display of
its banner advertising on the Excite Network for the
remainder of the first year of the term of the Agreement once
the number of Click-throughs on the promotional placements
and advertising banners described in Section 1 (a) - (d)
exceeds [*] in the first year of the term of the Agreement.
This election will not relieve NetGrocer of its obligation to
make Click-through payments on non--banner Impressions.
g) In its sole discretion, during the second year of the term of
the Agreement, NetGrocer may elect to terminate the display
of its banner advertising on the Excite Network once the
number of Click-throughs on the promotional placements and
advertising banners described in Section 1 (a) - (d) exceeds
[*] in the second year of the term of the Agreement. This
election will not relieve NetGrocer of its obligation to make
Click-through payments on non-banner Impressions.
h) The one-time sponsorship initiation fee, sponsorship and
advertising fees and Click-through payments are net of any
agency commissions to be paid by NetGrocer.
i) During the term of the Agreement, on a weekly basis, Excite
will provide NetGrocer with a detailed report showing the
number of Impressions of the advertising banners described in
Section 1 (a) - (d) and the number of Click-throughs on the
advertising banners described in Section 1 (a) - (d).
j) During the term of the Agreement, within twenty (20) days
following the end of each calendar month, Excite will send
NetGrocer a detailed report showing the number of Impressions
of the different promotional placements and text links
described in Section 1 (a) - (d) and the number of
Click-throughs on the promotional placements described in
Section 1 (a) - (d).
k) Excite will maintain accurate records with respect to
calculation of all payments due under this Agreement.
NetGrocer may, upon no less than thirty (30) days prior
written notice to Excite cause an independent Certified
Public Accountant to inspect the records of Excite reasonably
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related to the calculation of such payments during Excite's
normal business hours. The fees charged by such Certified
Public Accountant will be paid by NetGrocer unless the audit
finds a discrepancy of more than five percent (5%) with
respect to the item being audited, in which case Excite shall
be responsible for the payment of the reasonable fees for
such inspection.
6. PUBLICITY
Neither party will make any public statement, press release
or other announcement relating to the terms of or existence
of this Agreement without the prior written approval of the
other party, except as may be required to the extent advised
by counsel for a party that such disclosure is necessary or
appropriate to comply with applicable law. Notwithstanding
the foregoing, the parties agree to issue an initial press
release regarding the relationship between Excite and
NetGrocer, the timing and wording of which will be mutually
agreed upon,.
7. OTHER BUSINESS OPPORTUNITIES
a) Excite currently plans to develop a consumer packaged goods
("CPG") program that would combine the broad reach of the
Excite Network with the depth of CPG merchants' industry
contacts and sales staffs. Under this program, Excite and
each CPG merchant would develop co-branded Web pages on the
Excite Network that would promote the merchant's goods cr
provide content of interest to Excite's users. Excite would
run dual promotional efforts, one that sends consumers to
each CPG merchant's co-branded area and a second that sends
consumers to the portion of the Excite Network that promotes
the entire CPG program. Excite and NetGrocer agree to
negotiate in good faith to establish the terms and conditions
for NetGrocer's participation in Excite's CPG program when
and if launched.
b) Excite currently plans to make available sponsorship
opportunities on its WebCrawler Site (located at
http://www.webcrawler.com) generally similar to the
opportunity described by this Agreement, with the significant
exception that merchants will not be granted category
exclusivity or rights to exclude competitors on the
WebCrawler Site. Excite and NetGrocer agree to negotiate in
good faith to establish the terms and conditions for
NetGrocer's participation in available sponsorship
opportunities on the WebCrawler Site when and if launched.
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8. TERM AND TERMINATION
a) The term of this Agreement will begin on December 15, 1997
and will end the later of (i) December 15, 1999 or (ii)
Excite's delivery of all of the guaranteed Click-throughs
described in Section 1(f).
b) Either party may terminate this Agreement, in the event that
the other party materially breaches its obligations or
guarantees hereunder and such breach remains uncured for
sixty (60) days following written notice to the breaching
party of the breach.
c) All payments that would be due pursuant to Sections 5(b) -
(d) up to the date of any termination or expiration of this
Agreement will be payable in full within thirty (30) days
following such termination or expiration.
d) The provisions of Section 4 (Customer Information), Section
9(a) and 9(b), Section 10 (Confidentiality), Section 11
(Warranty and Indemnity), Section 12 (Limitation of
Liability) and Section 13 (Dispute Resolution) will survive
any termination or expiration of this Agreement.
9. TRADEMARK OWNERSHIP AND LICENSE
a) NetGrocer retains all right, title and interest in and to the
NetGrocer Site, its trademarks, service marks and trade names
worldwide, subject to the limited license granted to Excite
hereunder.
b) Excite will retain all right, title and interest in and to
its trademarks, service marks and trade names worldwide,
subject to the limited license granted to NetGrocer
hereunder.
c) Each party hereby grants to the other a non-exclusive,
limited license to use its trademarks, service marks or trade
names only as specifically described in this Agreement. All
such use shall be in accordance with each party's reasonable
policies regarding advertising and trademark usage as
established from time to time.
d) Upon the expiration or termination of this Agreement, each
party will cease using the trademarks, service marks and/or
trade names of the other and Excite will cease the display of
any banner advertising and/or links to the NetGrocer Site
except as the parties may agree in writing.
10. CONFIDENTIALITY
a) For the purposes of this Agreement, "Confidential
Information" means information received from the disclosing
party or any of its affiliates or representatives about the
disclosing party's (or its suppliers') business or
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activities that is proprietary and confidential, which shall
include all business, financial, technical trade secret and
other information of a party marked or designated by such
party as "confidential or "proprietary.
b) Confidential Information will not include information that
(i) is in or enters the public domain without breach of this
Agreement, (ii) the receiving party lawfully receives from a
third party without restriction on disclosure and without
breach of a nondisclosure obligation or (iii) the receiving
party knew prior to receiving such information from the
disclosing party or develops independently.
c) Each party agrees (i) that it will not disclose to any third
patty or use any Confidential Information disclosed to it by
the other except as expressly permitted in this Agreement and
(ii) that it will take all reasonable measures to maintain
the confidentiality of all Confidential Information of the
other party in its possession or control, which will in no
event be less than the measures it uses to maintain the
confidentiality of its own information of similar importance.
d) Notwithstanding the foregoing, each party may disclose
Confidential Information (i) to the extent required by a
court of competent jurisdiction or other governmental
authority or otherwise as required by law or (ii) on a
"need-to-know" basis under an obligation of confidentiality
to its employees, legal counsel, accountants, banks and other
financing sources and their advisors.
e) The terms and conditions of this Agreement will be deemed to
be the Confidential Information of each party and will not be
disclosed without the written consent of the other party.
11. WARRANTY AND INDEMNITY
a) NetGrocer will indemnify, defend and hold harmless Excite,
its affiliates, officers, directors, employees, consultants
and agents from any and all third party claims, liability,
damages and/or costs (including, but not limited to,
reasonable attorneys fees) arising from:
i) The breach of any warranty, representation
or covenant in this Agreement; or
ii) Any claim that the advertising banners
created by NetGrocer infringe or violate
any third party's copyright, patent, trade
secret, trademark, right of publicity or
right of privacy or contain any defamatory
content; or
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iii) Any claim arising from content displayed on
the NetGrocer Site;
provided that Excite will promptly notify NetGrocer of any
and all such claims and will reasonably cooperate with
NetGrocer with the defense and/or settlement thereof; and
provided further that, if any settlement requires an
affirmative obligation of, results in any ongoing liability
to or prejudices or detrimentally impacts Excite in any way
and such obligation, liability, prejudice or impact can
reasonably be expected to be material, then such settlement
shall require Excite's written consent (not to be
unreasonably withheld or delayed) and Excite may have its own
counsel in attendance at all proceedings and substantive
negotiations relating to such claim.
b) EXCEPT AS SPECIFIED IN THIS AGREEMENT, NEITHER PARTY MAKES
ANY WARRANTY IN CONNECTION WITH THE SUBJECT MATTER OF THIS
AGREEMENT AND HEREBY DISCLAIMS ANY AND ALL IMPLIED
WARRANTIES, INCLUDING ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
REGARDING SUCH SUBJECT MATTER.
12. LIMITATION OF LIABILITY
EXCEPT UNDER SECTION 11(a), IN NO EVENT WILL EITHER PARTY BE LIABLE TO
THE OTHER FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
WHETHER BASED ON BREACH OF CONTRACT, TORT (INCLUDING NEGLIGENCE) OR
OTHERWISE, WHETHER OR NOT THAT PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE. THE LIABILITY OF EXCITE FOR DAMAGES OR
ALLEGED DAMAGES HEREUNDER, WHETHER IN CONTRACT, TORT OR ANY OTHER
LEGAL THEORY, IS LIMITED TO, AND WILL NOT EXCEED, THE TOTAL AMOUNTS
PREVIOUSLY PAID OR TO BE PAID BY NETGROCER TO EXCITE HEREUNDER [*]
13. DISPUTE RESOLUTION
a) The parties agree that any breach of either of the parties'
obligations regarding trademarks, service marks or trade
names and/or confidentiality would result in irreparable
injury for which there is no adequate remedy at law.
Therefore, in the event of any breach or threatened breach of
a party's obligations regarding trademarks, service marks or
trade names or confidentiality, the aggrieved party will be
entitled to seek equitable relief in addition to its other
available legal remedies in a court of competent
jurisdiction.
-12-
<PAGE>
b) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this
Agreement, other than disputes arising from or concerning
trademarks, service marks or trade names and/or
confidentiality, the parties will first attempt to resolve
the dispute(s) through good faith negotiation. In the event
that the dispute(s) cannot be resolved through good faith
negotiation, the parties will refer the dispute(s) to a
mutually acceptable mediator for hearing.
c) In the event that disputes between the parties arising from
or concerning in any manner the subject matter of this
Agreement, other than disputes arising from or concerning
trademarks, service marks or trade names and/or
confidentiality, cannot be resolved through good faith
negotiation and mediation, the parties will refer the
dispute(s) to the American Arbitration Association for
resolution through binding arbitration by a single arbitrator
pursuant to the American Arbitration Association's rules
applicable to commercial disputes.
14. GENERAL
a) Assignment. Neither party may assign this Agreement, in whole
or in part, without the other party's written consent (which
will not be unreasonably withheld), except that no such
consent will be required in connection with (i) a merger,
reorganization or sale of all, or substantially all, of such
party's assets or (ii) the assignment and/or delegation of
such party's rights and responsibilities hereunder to a
wholly-owned subsidiary or joint venture in which that party
holds an interest. Any attempt to assign this Agreement other
than as permitted above will be null and void.
b) Governing Law. This Agreement will be governed by and
construed in accordance with the laws of the State of
California, notwithstanding the actual state or country of
residence or incorporation of NetGrocer.
c) Notice. Any notice under this Agreement will be in writing
and delivered by personal delivery, express courier,
confirmed facsimile, confirmed email or certified or
registered mail, return receipt requested, and will be deemed
given upon personal delivery, one (1) day after deposit with
express courier, upon confirmation of receipt of facsimile or
email or five (5) days after deposit in the mail. Notices
will be sent to a party at its address set forth below or
such other address as that party may specify in writing
pursuant to this Section.
d) No Agency. The parties are independent contractors and will
have no power or authority to assume or create any obligation
or responsibility on behalf of each other. This Agreement
will not be construed to create or imply any partnership,
agency or joint venture.
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<PAGE>
e) Force Majeure. Any delay in or failure of performance by
either party under this Agreement will not be considered a
breach of this Agreement and will be excused to the extent
caused by any occurrence beyond the reasonable control of
such party including, but not limited to, acts of God, power
outages and governmental restrictions. Notwithstanding the
foregoing, either party may terminate the Agreement in the
event that a delay due to force majeure continues for a
period of sixty (60) uninterrupted days.
f) Severability. In the event that any of the provisions of this
Agreement are held by to be unenforceable by a court or
arbitrator, the remaining portions of the Agreement will
remain in full force and effect.
g) Entire Agreement. This Agreement is the complete and
exclusive agreement between the parties with respect to the
subject matter hereof, superseding any prior agreements and
communications (both written and oral) regarding such subject
matter. This Agreement may only be modified, or any rights
under it waived, by a written document executed by both
parties.
NetGrocer Excite, Inc.
By: /s/ Daniel Nissan By: /s/ Robert C. Hood
-------------------------- --------------------------
Name: Daniel Nissan Name: Robert C. Hood
------------------------ ------------------------
Title: President & CEO Title: EVP-CFO
----------------------- -----------------------
Date: 12/30/97 Date: 12-31-97
------------------------ ------------------------
333 Seventh Avenue 555 Broadway
11th Floor Redwood City, California 94063
New York, New York 10001 650.568.6000 (voice
650.568.6030 (fax)
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<PAGE>
EXHIBIT A
LIST OF NETGROCER COMPETITORS
Peapod
Shoppers Express/Oncart
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<PAGE>
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE
CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND ARE DENOTED BY [*]. THE
CONFIDENTIAL PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
YAHOO! INC.
ADVERTISING AGREEMENT
THIS ADVERTISING AGREEMENT (the "Agreement") is made as of this 14 day
of April, 1998 (the "Effective Date") between YAHOO! INC., a California
corporation, with offices at 3400 Central Expressway, Suite 201, Santa Clara,
CA 95051 ("Yahoo") and NetGrocer Inc. ("NetGrocer"), a Delaware corporation,
with offices at 333 7th Avenue, 11th Floor, New York, NY 10001.
1. DEFINITIONS.
"NetGrocer Competitor" shall mean those companies set forth on Exhibit
A. NetGrocer may request in writing, and Yahoo shall not unreasonably
withhold, the addition of qualified competitors to Exhibit A with the
criterion for such competitor being online or offline supermarkets,
grocery stores or similar stores which offer selections of consumer
packaged grocery goods and/or fresh groceries of a similar nature to
those selections generally offered by NetGrocer. In no event shall any
Prepared Food Entity be deemed a "NetGrocer Competitor" and in no
event shall any banner/promotional advertising for takeout or delivery
of prepared fresh meals by any Prepared Food Entity be prohibited
under this Agreement.
"Prepared Food Entity" shall mean any company or service whose primary
business is the on-line or off-line ordering or provision of takeout
or delivery of prepared fresh meals (or the aggregation of companies
or services that facilitate the ordering or provision of takeout or
delivery of prepared fresh meals) and as to which such services of
prepared fresh meals accounts for more than [*] of such entities
revenue.
"Click-through" shall mean a user presence at the NetGrocer Site that
originated from the Visa Shopping Guide by Yahoo or any banner
promotional advertisements or promotions that are part of this
Agreement or the Insertion Order.
"NetGrocer Site" shall mean the on-line packaged grocery goods and
supermarket services owned, offered or operated by NetGrocer or any
successors thereto and currently located at http://www.NetGrocer.com.
"Visa Shopping Guide" shall mean that property currently referred to
as the "Visa Shopping Guide by Yahoo", and located at
http://shopguide.yahoo.com or any successor thereto that is a similar
shopping property in which Yahoo has the similar right to place
merchants.
<PAGE>
2. TERM. This Agreement shall commence upon the Effective Date and,
unless terminated as provided herein, shall remain in effect for a
term of two years from the start date of the Insertion Order attached
as Exhibit B or, if later the satisfaction of the guaranteed
Click-Through for the periods covered by the two year term.
3. INSERTION ORDER. This Agreement is being executed in connection with
an Insertion Order (the "Insertion Order"). Subject to Section 16 and
Section 18 herein, the Insertion Order is hereby incorporated herein
by reference, and the terms of this Agreement are hereby incorporated
into the Insertion Order by reference. In the event of any
inconsistency between the Insertion Order (including the Standard
Terms and Conditions incorporated therein) and this Agreement, the
terms of this Agreement shall control.
4. TERMS OF PAYMENT. NetGrocer will be invoiced monthly during the
contract period set forth on the Insertion Order. Payment shall be
made to Yahoo within thirty (30) days from the date of invoice.
Amounts paid after such date shall bear interest at the rate of one
percent (1%) per month (or the highest rate permitted by law, if
less); except that amounts that are the subject of a good faith
dispute by NetGrocer shall be exempt from interest for a period of
thirty (30) days from the date of invoice. In the event of any failure
by NetGrocer to make payment when due, including without limitation
any payments due under this Section 4, Section 8, or Section 11,
NetGrocer will be responsible for all reasonable expenses (including
attorneys' fees) incurred by Yahoo in collecting such amounts.
5. POSITIONING. Except as otherwise expressly provided in the Insertion
Order, positioning of advertisements within the Yahoo properties is at
the sole discretion of Yahoo. NetGrocer acknowledges that Yahoo has
not made any guarantees with respect to usage statistics and Yahoo
shall not be held liable for any claims relating to usage statistics
that are provided by Yahoo to NetGrocer.
6. VISA SHOPPING GUIDE. For the term of the Agreement Yahoo will display
a text and/or graphic link, at Yahoo's discretion to the NetGrocer
Site in the "Merchant Spotlight" promotion area Food Page of the Visa
Shopping Guide. The "Food Page" is currently located at
http://shopguide.yahoo.com/shopguide/food.html. The link to the
NetGrocer Site shall appear in a manner similar to other merchants
included in the Merchant Spotlight section of the Visa Shopping Guide.
During the term of this Agreement, no NetGrocer Competitor shall be
permitted to purchase banner advertisements on the Food Page of the
Visa Shopping Guide.
7. CLICK-THROUGHS. In accordance with the Insertion Order attached hereto
as Exhibit B, Yahoo shall deliver no less than [*] Click-throughs
to the NetGrocer Site from any Yahoo property during each calendar
quarter of the first year of this Agreement. During the second year of
this Agreement, Yahoo
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<PAGE>
shall deliver no less than [*] Click-throughs per calendar
quarter. NetGrocer shall pay to Yahoo the monthly amounts according to
the payment schedule set forth on the Insertion Order. Yahoo shall use
reasonable commercial efforts to deliver [*] Click-throughs per
month during the first year of this Agreement. Yahoo shall use
reasonable commercial efforts to deliver [*] Click-throughs per
month during the second year of this Agreement.
(a) If Yahoo misses any quarterly guaranteed Click-through amount,
Yahoo shall "make good" the difference within [*] following the end of
such quarter. If Yahoo does not make good the difference within [*],
NetGrocer may suspend that portion of its monthly payments under
Section 4 above that represent the percentage of Click-throughs missed
by Yahoo in such quarter until Yahoo delivers such make goods. At that
time, and assuming that Yahoo is in compliance with the guaranteed
Click-through amounts for all quarters, NetGrocer's monthly payments
shall resume in full and NetGrocer shall pay Yahoo the amount
suspended from its prior monthly payments.
(b) If Yahoo misses any quarterly guaranteed Click-through amount and
Yahoo also delivers less than [*] page views during that quarter, then
Yahoo shall "make good" the Click-through difference within [*]
following the end of such quarter. If Yahoo does not make good the
Click- through difference within thirty (30) days, NetGrocer may
suspend that portion of its monthly payments under Section 4 above,
and that portion of its monthly payments payable for exclusivity under
Section 8 below, that represent the percentage of Click-throughs
missed by Yahoo in such quarter until Yahoo delivers such make goods.
At that time, and assuming that Yahoo is in compliance with the
guaranteed Click-through amounts for all quarters, NetGrocer's monthly
payments shall resume in full and NetGrocer shall pay Yahoo the amount
suspended from its prior monthly payments.
(c) The provisions set forth in this Section 7 and the exclusivity
required by Section 8 for the term of this Agreement (as extended, to
the extent applicable, in accordance with the provisions of Section 2)
set forth the entire liability of Yahoo, and NetGrocer's sole remedy,
for Yahoo's breach of its obligations with respect to Click-throughs
and page views.
8. EXCLUSIVITY. Commencing upon the Effective Date, no NetGrocer
Competitor shall be permitted to place or to purchase from Yahoo
banner/promotional advertising on the Yahoo Internet properties that
are defined on Exhibit B (the "Exclusive Properties") and Yahoo agrees
to use reasonable efforts to prevent third parties that are entitled
to place ads on behalf of Yahoo from placing any banner/promotional
advertisements of NetGrocer Competitors on the Exclusive Properties.
In addition, Yahoo shall use reasonable efforts to exclude
advertisements promoting products or services that are similar to
those generally offered by NetGrocer from any paid advertiser on the
Exclusive Properties. The definition of "Exclusive Properties" shall
include specialty Internet sites, features
-3-
<PAGE>
or pages developed, controlled and solely branded by Yahoo after the
Effective Date that are focused on information related to supermarket
or grocery store services and the ordering and provision of packaged
grocery goods on-line. In no event shall pages that appear in response
to searches submitted to search engines operated by entities other
than Yahoo be deemed to be part of the Exclusive Properties and
notwithstanding anything else in this Agreement, in no event shall any
banner/promotional advertising for food-related gift items be
prohibited under this Agreement.
In consideration of the foregoing exclusivity, NetGrocer shall pay
Yahoo, in addition to the amounts set forth in the Insertion Order and
referenced in Section 4, (i) [*] during the first year of this
Agreement payable in equal monthly payments of [*] month and (ii) [*]
during the second year of this Agreement payable in equal monthly
payments of [*] month. All payments shall be made on the first day of
each month with the first payment due upon the execution of this
Agreement.
NetGrocer shall, prior to the end of the term of this Agreement,
receive an additional advertising presence defined as [*] home page
promotions, with total aggregate exposure of [*] page views, and [*]
page views as run of Yahoo! network banner advertisements. All home
page promotions shall be pursuant to Yahoo's standard terms,
conditions, procedures and policies and the timing and duration of
such home page promotions shall be as mutually agreed upon subject to
availability.
9. Yahoo shall provide account management support and shall make
reasonable efforts to hold monthly account reviews with NetGrocer.
10. During the term of the Agreement, Yahoo shall provide weekly and
monthly reports showing the number of impressions and Click-throughs
of the advertising banners and other placements described in the
Insertion Order. Yahoo shall maintain accurate records in accordance
with generally accepted methods of accounting for all transactions
which are the subject of this Agreement. NetGrocer may, no more
frequently than once per quarter and upon no less than thirty (30)
days written notice, request access to such records for the purposes
of inspection by an independent accounting firm during normal business
hours. Such request shall not be unreasonably withheld. The cost of
such inspection shall be borne by NetGrocer, unless the inspection by
such accounting firm reveals a variance of five percent (5%) or more
from the number provided by Yahoo, in which event the cost of such
inspection shall be borne by Yahoo.
11. CANCELLATION AND TERMINATION.
(a) Termination by either Party with Cause. This Agreement may be
terminated at any time by either party: (i) immediately upon
written
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<PAGE>
notice if the other party: (a) becomes insolvent; (b) files a
petition in bankruptcy; or (c) makes an assignment for the
benefit of its creditors; or (ii) thirty (30) days after written
notice to the other party of such other party's breach of its
obligations under this Agreement in any material respect, which
breach is not remedied within such thirty (30) day period.
(b) The provisions of Section 4, 10, 13, 14, 15, 19 and 20 as well as
any accrued payment obligations shall survive expiration or
termination of this Agreement for any reason.
12. NO ASSIGNMENT OR RESALE OF AD SPACE. NetGrocer may not resell, assign
or transfer any of its rights hereunder, other than, with Yahoo's
prior written consent, to a purchaser of all or substantially all the
assets of NetGrocer or to any entity which controls or is under common
control with NetGrocer; provided that Yahoo agrees that it shall not
unreasonably withhold its consent to any such assignment by NetGrocer,
and any attempt to resell, assign or transfer such rights without
Yahoo's written consent shall result in immediate termination of this
contract, without liability to Yahoo.
13. LIMITATION OF LIABILITY. In the event that Yahoo used reasonable
efforts but fails to publish an advertisement in accordance with the
schedule agreed upon pursuant to this Agreement (or in the event of
any other failure, technical or otherwise, of such advertisement to
appear as provided in the Insertion Order), the sole liability of
Yahoo to NetGrocer shall be limited to, at Yahoo's option, either a
refund of the advertising fee or placement of the advertisement within
a reasonable time in a comparable position. In no event shall Yahoo be
responsible for any consequential, special, lost profits or other
damages arising from any failure to timely publish any advertisement
in accordance with the Insertion Order. Without limiting the
foregoing, Yahoo shall have no liability for any failure or delay
resulting from any governmental action, fire, flood, insurrection,
earthquake, power failure, riot, explosion, embargo, strikes whether
legal or illegal, labor or material shortage, transportation
interruption of any kind, work slowdown or any other condition beyond
the control of Yahoo affecting production or delivery in any manner;
provided that NetGrocer shall have the right to terminate this
Agreement without any further payment obligation on the part of
NetGrocer with written notice to Yahoo in the event that such event
occurs and continues for a period of sixty (60) days from the date of
the notice.
EXCEPT AS PROVIDED IN SECTION 14, UNDER NO CIRCUMSTANCES SHALL YAHOO
OR NETGROCER BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL,
CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES ARISING FROM THIS
AGREEMENT, EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR
ANTICIPATED PROFITS OR LOSS BUSINESS.
-5-
<PAGE>
14. NETGROCERS REPRESENTATIONS; INDEMNIFICATION. NetGrocer represents that
it has full authority to enter into this Agreement and the Insertion
Order and that NetGrocer has the right to publish the contents of the
subject advertisements, without infringement of any rights of any
third party. In consideration of such publication, NetGrocer, at its
own expense, will indemnify, defend and hold harmless Yahoo, and its
employees, representatives, agents and affiliates, against any claim,
suit, action, or other proceeding brought against Yahoo based on or
arising from a claim that the NetGrocer content or advertisement as
delivered to Yahoo by NetGrocer, any NetGrocer brand feature, any
material, data or service distributed or provided by NetGrocer,
product produced by NetGrocer, or any material presented on any site
on the Internet produced, maintained, or published by NetGrocer,
infringes in any manner any intellectual property right of any third
party or contains any material or information that is unlawful,
obscene, defamatory, libelous, slanderous, or that otherwise violates
any rights of any person, including, without limitation, rights of
publicity, privacy or personality, is negligently performed, or has
otherwise resulted in consumer fraud, product liability or any tort,
injury, damage or harm to any person or entity. NetGrocer will pay any
and all costs, damages, and expenses, including, but not limited to,
reasonable attorneys' fees and costs awarded against or otherwise
incurred by Yahoo in connection with or arising from any such claim,
suit, action or proceeding. It is understood and agreed that Yahoo
does not intent and will not be required to edit or review for
accuracy or appropriateness any NetGrocer advertisement or content and
that NetGrocer does not intend and shall not be required to review or
investigate the ability or authorization of any supplier or seller of
products to NetGrocer to sell or supply such products.
15. TRADEMARK LICENSE. NetGrocer retains all right, title and interest in
and to the NetGrocer Site, its trademarks, service marks and
tradenames worldwide. NetGrocer grants Yahoo a non-exclusive limited
license to use its trademarks, service marks and tradenames only in
connection with placing links to and banner advertising on behalf of
NetGrocer and performing its other advertising and promotional
obligations set forth herein. All such use shall be in accordance with
NetGrocer's policies regarding trademark usage as provided to Yahoo by
NetGrocer.
16. PROVISION OF ADVERTISING MATERIALS. NetGrocer will provide all
material for the advertisement (including GIF files), in accordance
with Yahoo's policies as provided to NetGrocer by Yahoo from time to
time, including (without limitation) the manner of transmission to
Yahoo and the time prior to publication of the advertisement. Yahoo
shall not be required to publish any advertisement that is not
received in accordance with such policies.
17. RIGHT TO REJECT ADVERTISEMENT. All contents of advertisements are
subject to Yahoo's reasonable approval and will meet Yahoo's current
specifications. Yahoo reserves the right to reasonably reject or cease
to publish any banner
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<PAGE>
advertisement. In addition, Yahoo shall have the absolute right to
reject any URL link embodied within any advertisement.
18. INTERNATIONAL TRAFFIC. Yahoo! agrees to make reasonable efforts to
provide the ability for NetGrocer to preclude serving banners to users
requesting pages from the Yahoo properties who are not located within
the United States. Yahoo shall make reasonable effort to attempt to
implement such ability on or before two months from the start of the
Insertion Order.
19. CONSTRUCTION. The terms of this Agreement may only be modified by
written agreement of both parties. NO TERM OR CONDITION PLACED BY
NETGROCER IN AN INSERTION ORDER SHALL BE BINDING ON YAHOO UNLESS
EXPRESSLY AGREED TO IN WRITING BY YAHOO. In the event of any conflict
or inconsistency between the Insertion Order and this Agreement,
this Agreement shall control.
20. MISCELLANEOUS.
Notices. All notices, requests and other communications called for by
this agreement shall be deemed to have been given immediately if made
by telecopy or electronic mail (confirmed by concurrent written notice
sent first class U.S. mail, postage prepaid), if to Yahoo at 3400
Central Expressway, Suite 201, Santa Clara, CA 95051, Fax; (408)
731-3301 Attention: Chief Operating Officer (e-mail:
[email protected]), with a copy to its General Counsel (e-mail:
[email protected]), and if to NetGrocer at the physical and electronic
mail addresses set forth on the signature page of this Agreement to
the attention of President, with a copy to Sheldon G. Nussbaum at
Fulbright & Jaworski, L.L.P., 666 5th Avenue, New York, NY 10103, Fax;
(212) 752-5958 (e-mail: [email protected]) or to such other
addresses as either party shall specify to the other.
Miscellaneous Provisions. This Agreement will be governed by and
construed in accordance with the laws of the State of California,
without reference to conflicts of laws rules, and without regard to
its location of execution or performance. If any provision of this
Agreement is found invalid or unenforceable, that provision will be
enforced to the maximum extent permissible, and the other provisions
of this Agreement will remain in force. Neither this Agreement, nor
any terms and conditions contained herein may be construed as creating
or constituting a partnership, joint venture or agency relationship
between the parties. No failure of either party to exercise or enforce
any of its rights under this Agreement will act as a waiver of such
rights. This Agreement and its exhibits are the complete and exclusive
agreement between the parties with respect to the subject matter
hereof, superseding and replacing any and all prior agreements,
communications, and understandings, both written and oral, regarding
such subject matter. This Agreement may only be modified, or any
rights under it waived, by a written document executed by both
parties. This Agreement may be executed in any number of counterparts,
all of which taken together shall constitute a single
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<PAGE>
instrument. Execution and delivery of this Agreement may be evidenced
by facsimile transmission. In any proceeding or action brought by a
party to this Agreement to enforce the terms of this Agreement, the
prevailing party shall be entitled to attorneys fees and expenses. The
terms of this Agreement shall be deemed confidential information of
Yahoo, and NetGrocer, and neither party shall disclose such
information to any third party except to its respective attorneys,
accountants or as required by law or as otherwise deemed necessary or
prudent by counsel solely in order to comply with federal securities
laws.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first written
above.
YAHOO! INC. NETGROCER INC.
By: /s/ Aniel Singh By: /s/ Daniel Nissan
--------------------------- ---------------------------
Title: V.P. of Sales Title: President & CEO
Address: 3400 Central Expressway Address: 333 7th Avenue
Santa Clara, CA 95051 New York, NY 10001
Telecopy: 408-731-3301 Telecopy: 212-244-0031
E-mail: [email protected] E-mail: [email protected]
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<PAGE>
EXHIBIT A
NETGROCER COMPETITORS
[*]
-9-
<PAGE>
EXHIBIT B
EXCLUSIVE PROPERTIES
www.yahoo.com DIRECTORY
www.yahoo.com SEARCH RESULTS
YAHOO GET LOCAL
YAHOO METROS (ANY ADDITIONAL METROS LAUNCHED)
YAHOO ATLANTA
YAHOO MIAMI
YAHOO NEW YORK
YAHOO BOSTON
YAHOO CHICAGO
YAHOO LOS ANGELES
YAHOO SAN FRANCISCO
YAHOO SEATTLE
YAHOO AUSTIN
YAHOO DALLAS
YAHOO WASHINGTON, DC
YAHOO MINNEAPOLIS/ST. PAUL
YAHOO PEOPLE SEARCH
YAHOO CLASSIFIEDS
YAHOO NEWS
YAHOO WEATHER
YAHOO MAPS
YAHOO SPORTS
YAHOO FINANCE
VISA SHOPPING GUIDE BY YAHOO
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<PAGE>
EXHIBIT C
YEAR 1
YAHOO! MAIN SITE
ADVERTISING INSERTION ORDER
HTTP:/WWW.YAHOO.COM
ORDER #11514 SALES CONTACT Scott Hoffman
REVISION 0
TYPE PHONE 212-508-0242
DATE 04/09/98 FAX 212-750-5917
EMAIL [email protected]
ADVERTISER NetGrocer Inc. AGENCY
URL
ADDRESS 333 7th Ave 11th Floor ADDRESS
New York, NY 10001
CONTACT Daniel Nissen CONTACT
PHONE 212-980-4770 x 10 PHONE
FAX 212-980-3899 FAX
EMAIL [email protected] EMAIL
- -------------------------------------------------------------------------------
Start Date: End Date: Contract Length:
04/15/98 04/14/99 365 Days
Location: Total Clicks Total Amount
Network
Space Groups
4/15/98 - 4/14/99 run_network [*] [*]
Visa Shopping Guide By Yahoo! [*]
4/15/98 - 4/14/99 /food merchant spotlight
Other Instructions
Yahoo! guarantees [*] click throughs per contract quarter from April 15th
1998 to April 14th 1999 at [*] per click, in accordance with page 2, section 7
of the attached advertising agreement dated April 1998. This insertion order
shall be referred to as exhibit C Year 1 of the attached advertising agreement.
Total Net Cost [*]
Terms: Net 30 days
Billing Instructions: Monthly
- -------------------------------------------------------------------------------
MATERIALS: Banner: 460w x 55h pixels, less than 8 bytes, GIF format: target
URL, Alt Text (30 characters max).
All materials must be delivered at least 7 business days before the start date
to [email protected]. Any changes during the insertion terms must be delivered at
least 4 business days prior to change. A Yahoo! Insertion Order Number and
Flight Date must be referenced in all correspondence. Please see attached
"Yahoo! Advertising Banner Requirements and Submission Guidelines".
This insertion order is subject to the attached standard terms and conditions
for Yahoo! advertising and is valid for three (3) business days from the date
of this order. This agreement is non-cancelable.
Authorized by: Phone: Date:
-------------------------- ----------------- -----------
Production Contact: Phone: Date:
--------------------- ----------------- -----------
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<PAGE>
EXHIBIT C
YEAR 2
YAHOO! MAIN SITE
ADVERTISING INSERTION ORDER
HTTP:/WWW.YAHOO.COM
ORDER #11514A SALES CONTACT Scott Hoffman
REVISION 0
TYPE PHONE 212-508-0242
DATE 04/09/98 FAX 212-750-5917
EMAIL [email protected]
ADVERTISER NetGrocer Inc. AGENCY
URL
ADDRESS 333 7th Ave 11th Floor ADDRESS
New York, NY 10001
CONTACT Daniel Nissen CONTACT
PHONE 212-980-4770 x 10 PHONE
FAX 212-980-3899 FAX
EMAIL [email protected] EMAIL
- -------------------------------------------------------------------------------
Start Date: End Date: Contract Length:
04/15/99 04/14/00 365 Days
Location: Total Clicks Total Amount
Network
Space Groups
4/15/99 - 4/14/00 run_network [*] [*]
Visa Shopping Guide By Yahoo! [*]
4/15/99 - 4/14/00 /food merchant spotlight
Other Instructions
Yahoo! guarantees [*] click throughs per contract quarter from April 15th
1999 to April 14th 2000 at [*] per click, in accordance with page 2, section
7 of the attached advertising agreement dated April 1998. This insertion order
shall be referred to as exhibit C Year 2 of the attached advertising agreement.
Total Net Cost [*]
Terms: Net 30 days
Billing Instructions: Monthly
- -------------------------------------------------------------------------------
MATERIALS: Banner: 460w x 55h pixels, less than 8 bytes, GIF format: target
URL, Alt Text (30 characters max).
All materials must be delivered at least 7 business days before the start date
to [email protected]. Any changes during the insertion terms must be delivered at
least 4 business days prior to change. A Yahoo! Insertion Order Number and
Flight Date must be referenced in all correspondence. Please see attached
"Yahoo! Advertising Banner Requirements and Submission Guidelines".
This insertion order is subject to the attached standard terms and conditions
for Yahoo! advertising and is valid for three (3) business days from the date
of this order. This agreement is non-cancelable.
Authorized by: Phone: Date:
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Production Contact: Phone: Date:
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NetGrocer Inc.
Insertion Order #11514
Exhibit C to Advertising Agreement dated April, 1998
YEAR ONE 4/15/1998 - 4/14/1999
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**Month 1 commences April 15, 1998
YEAR TWO 4/15/1999 - 4/14/2000
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**Month 1 commences April 15, 1999
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE
CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND ARE DENOTED BY [*]. THE
CONFIDENTIAL PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
INTERACTIVE MARKETING AGREEMENT
This Interactive Marketing Agreement (the "Agreement"), is made and
entered into as of July 1, 1998 (the "Effective Date"), by and between America
Online, Inc. ("AOL"), a Delaware corporation, with offices at 22000 AOL Way,
Dulles, Virginia 20166, and NetGrocer Inc. ("Marketing Partner" or "MP") , a
Delaware corporation, with offices at 333 Seventh Avenue, New York, NY 10001
(each a "Party" and collectively the "Parties.")
INTRODUCTION
AOL and MP each desires to enter into an interactive marketing
relationship whereby AOL will promote the MP Products through the interactive
site referred to (and further defined) herein as the Affiliated MP Site. This
relationship is further described below and is subject to the terms and
conditions set forth in this Agreement. Defined terms used herein but not
defined in the body of the Agreement shall be as defined in Exhibit B attached
hereto.
TERMS
1 PROMOTION, DISTRIBUTION AND MARKETING.
1.1 AOL PROMOTION OF MP PRODUCTS AND AFFILIATED MP SITE. During the Term,
AOL will provide MP with the promotions for the MP Products and
Affiliated MP Site described in Exhibit A attached hereto (the
"Promotions"). Subject to MP's reasonable approval, AOL will have the
right to fulfill its promotional commitments with respect to any of
the foregoing by providing MP with comparable promotional placements
in appropriate alternative areas of the AOL Network. In addition, if
AOL is unable to deliver any particular Promotion, AOL will work with
MP to provide MP, as its sole remedy, with a comparable promotional
placement, subject to MP's reasonable approval. AOL reserves the
right to redesign or modify the organization, structure, "look and
feel," navigation and other elements of the AOL Network at any time.
In the event such modifications materially and adversely affect any
specific Promotion, AOL will work with MP to provide MP, as its sole
remedy, with a comparable promotional placement.
1.2 IMPRESSIONS.
1.2.1 AOL Service Promotions. During the AOL Service Exclusivity
Period (as defined herein), AOL will deliver [*] Impressions
through the Promotions or any approved comparable promotions as
provided in Section 1.1 above, on the AOL Service (the "AOL
Service Impressions"). If at the end of the first or second year
of this Agreement there is a shortfall in the AOL Service
Impressions (other than a Final Shortfall) which is greater than
or equal to [*] of the annual Impressions amounts to be
delivered by AOL with respect to the AOL Service Promotions as
provided in Exhibit A (an "AOL Service Minor Shortfall"), and
provided that such AOL Service Minor Shortfall is not in any
material way due to an unusual or unreasonable combination of
demographic variables (in relation to the demographic makeup of
the overall AOL Service audience) chosen by MP in accordance
with Exhibit A, AOL shall have a reasonable amount of time, not
to exceed [*] days (the "Makegood Period"), within which to
deliver an amount of AOL Service Impressions equal to the AOL
Service Minor Shortfall. If AOL shall not have delivered such
Impressions during the Makegood Period, [*] that AOL was unable
to deliver during the Makegood Period until such time as the AOL
Service Minor Shortfall shall have been cured by AOL.
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1.2.2 AOL.com Promotions. Unless otherwise agreed upon by the Parties,
during the AOL.com Exclusivity Period (as defined herein), AOL
will deliver [*] Impressions through the Promotions or any
approved comparable promotions as provided in Section 1.1 above,
on AOL.com (the "AOL.com Impressions" and together with the AOL
Service Impressions, the "Impressions Commitment"). If at the
end of the first or second year of this Agreement there is a
shortfall in the AOL.com Impressions (other than a Final
Shortfall) which is greater than or equal to [*] of the annual
Impressions amounts to be delivered by AOL with respect to the
AOL.com Promotions as provided in Exhibit A (an "AOL.com Minor
Shortfall"), during the Makegood Period, AOL shall deliver an
amount of AOL.com Impressions equal to the AOL.com Minor
Shortfall. If AOL shall not have delivered such Impressions
during the Makegood Period, [*] that AOL was unable to deliver
during the Makegood Period until such time as the AOL.com Minor
Shortfall shall have been cured by AOL.
1.2.3 Impressions Commitment. With respect to the Impressions
Commitment specified above, in the event there is a shortfall in
Impressions as of the end of the Initial Term (a "Final
Shortfall"), and provided that MP shall not have recouped the
payments due pursuant to Section 4.1, AOL shall extend the
Initial Term (the "Extension Period") [*] Except for the quarter
immediately following the Effective Date, AOL shall use
commercially reasonable efforts to deliver the Impressions
provided for herein [*] of the AOL Exclusivity Period and the
AOL.com Exclusivity Period, provided that with respect to the
AOL Service Promotions, MP does not select an unusual or
unreasonable combination of demographic variables (in relation
to the demographic makeup of the overall AOL Service audience)
which prevents AOL from materially complying with the foregoing.
If at any time during the Term MP shall not be in compliance
with the provisions of this Agreement, and as a result of such
non-compliance AOL is unable to provide the Impressions required
hereunder during such period of non-compliance (the
"Non-Compliance Period"), then, to the extent AOL is not at
fault for such non-compliance, AOL shall have the right to
reduce the Impressions Commitment, on a pro-rata basis, during
the Non-Compliance Period (e.g., if the Non-Compliance Period
extends for a period of two (2) months, then AOL shall reduce
the Impressions Commitment by an amount equal to the product of
two (2) times the Impressions Commitment divided by thirty seven
(37)); provided, however, that prior to the imposition of such
reduction, AOL shall notify MP of such non-compliance and
provide MP with a reasonable period (not to exceed thirty (30)
days) in which to remedy the non-compliance, with the reasonable
assistance of AOL, as appropriate.
1.3 CONTENT OF PROMOTIONS. The specific Content to be contained within the
Promotions (including, without limitation, advertising banners and
contextual promotions) (the "Promo Content") will be determined by MP in
its sole discretion, subject to (i) AOL's technical limitations, (ii) the
terms of this Agreement and (iii) AOL's then generally -applicable
policies relating to advertising and promotions. The Parties will jointly
consult with each other regarding the Promo Content to ensure that it is
designed to maximize performance. MP will use all reasonable efforts to
consistently review the Promo Content no less than two times per week and
MP shall promptly update the Promo Content if the Parties mutually
determine that an update is needed. Except to the extent expressly
described herein, the specific form, placement and duration of the
Promotions will be as determined by AOL in its reasonable editorial
discretion (consistent with the editorial composition of the applicable
screens).
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1.4 USE OF PROMOTIONS. MP may sell the promotional spaces provided herein to
third parties in a manner consistent with its ongoing business practices,
provided that any promotional spaces sold to a third party (i) may only
promote the sale of the MP Products and (ii) must promote the sale of such
MP Products through the Affiliated MP Site. Except to the extent expressly
provided in the preceding sentence, MP may not, nor shall it permit any
third party to, sell or offer to sell any of the promotional spaces
provided to MP herein.
1.5 MP PROMOTION OF AOL. MP will promote the availability of the MP Affiliated
Site through the AOL Network and will promote AOL as more fully set forth
in Exhibit C attached hereto. MP will not implement or authorize any other
promotion on behalf of any third party which is more favorable (taking
into account, without limitation, scope, purpose, amount, prominence and
regularity) than the promotion required pursuant to Exhibit C for any
other Interactive Service.
2 AFFILIATED MP SITE.
2.1 CUSTOMIZED SITE. The Affiliated MP Site shall be an optimized and
customized version of MP's main web site containing the specific
Content described in Section 2.2 below for distribution hereunder
according to AOL specifications and guidelines to ensure that (i) the
functionality and features within the Affiliated MP Site are
optimized for the client software then in use by a majority of AOL
Members and (ii) the forms used in the Affiliated MP Site are
designed and populated in a manner intended to minimize delays when
AOL Users attempt to access such forms. In connection with the
foregoing, AOL will provide MP with notification of changes and
updates in technology and functionality in accordance with its
generally applicable procedures for notifying AOL's other partners of
such changes and updates, and after receipt of such notification, MP
shall have a reasonable amount of time (not to exceed thirty (30)
days) within which to effectuate such changes and updates.
2.1.1 Specific Requirements.
(i) MP shall design the Affiliated MP Site to conform, in all
respects, with the provisions of Exhibit E attached hereto,
and
(ii) AOL reserves the right to review the Affiliated MP Site to
ensure that such site is compatible with AOL's
then-available client and host software and the AOL
Network. MP will take all commercially reasonable steps to
conform its promotion and sale of the MP Products through
the Affiliated MP Site to the then-existing technologies
identified by AOL which are optimized for the AOL Network.
AOL will be entitled to require reasonable changes to the
Content (including, without limitation, the features or
functionality) within any linked pages of the Affiliated MP
Site to the extent such Content will, in AOL's good faith
judgment, adversely affect any operational aspect of the
AOL Network or the online experience of AOL Users. The
Parties hereby acknowledge that as of the Effective Date,
AOL has conducted a technical due diligence review of the
Affiliated MP Site and within a reasonable period of time
following the Effective Date [*], AOL will be able to begin
providing the Promotions on the AOL Service and AOL.com as
provided herein.
2.1.2 Customization. MP shall customize the Affiliated MP Site for
AOL Members as follows:
(i) create a customized home page "welcome mat" for the AOL
audience for each area on the Affiliated MP Site linked to
the AOL Network on a continuous basis (each a "Welcome
Mat");
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(ii) ensure that AOL Users linking to the Affiliated MP Site do
not receive advertisements, promotions or links for any
other Interactive Service or any entity reasonably
construed to be in competition with AOL or in conflict with
AOL's then generally applicable advertising policies; and
(iii) with the exception of advertising links sold and
implemented pursuant to this Agreement, provide continuous
navigational ability for AOL Users to return to an
agreed-upon point on the AOL Network (for which AOL shall
supply the proper address) from the Affiliated MP Site
(e.g., the point on the AOL Network from which the
Affiliated MP Site is linked), which, at AOL's option, may
be satisfied through the use of a hybrid browser format.
2.2 CONTENT. MP will provide a comprehensive offering of the categories
of MP Products and other Content described in Exhibit D attached
hereto, through the Affiliated MP Site. MP will review, delete, edit,
create, update and otherwise manage all Content available on or
through the Affiliated MP Site in accordance with the terms of this
Agreement or any amendments thereto. MP will ensure that the
Affiliated MP Site does not in any respect promote, advertise, market
or distribute the products, services or content of any Interactive
Service other than AOL. Except as otherwise mutually agreed upon by
the Parties hereto, the Affiliated MP Site shall not contain Content
(including without limitation, third party content) relating to
anything other than the Exclusive Service and the categories of MP
Products listed on Exhibit D attached hereto.
2.3 PRODUCTION WORK. Except as agreed to in writing by the Parties
pursuant to the "Production Work" section of the Standard Online
Commerce Terms & Conditions attached hereto as Exhibit F, MP will be
responsible for all production work associated with the Affiliated MP
Site, including all related costs and expenses.
2.4 HOSTING; COMMUNICATIONS. MP will be responsible for all
communications, hosting and connectivity costs and expenses
associated with the Affiliated MP Site. In addition, MP will provide
all computer, telephone and other equipment or resources necessary
for MP to access the AOL Network. MP and AOL shall mutually agree
upon the most appropriate means by which MP will connect the MP data
center to AOL's designated data center; provided, however, that in
the event the Parties determine that MP shall utilize a dedicated
high speed connection from the MP data center to AOL's designated
data center, then MP shall be responsible for all costs associated
with such high speed connection.
2.5 PRODUCT OFFERING. MP will ensure that to the extent not otherwise
prohibited or restricted by the terms of this Agreement, the
Affiliated MP Site includes all of the MP Products or Content
(including, without limitation, product selection, or any features,
functionality or technology) that are then made available by or on
behalf of MP through any Additional MP Channel; provided, however,
that (i) such inclusion will not be required where it is commercially
or technically impractical to either Party (i.e., inclusion would
cause either Party to incur substantial incremental costs), and (ii)
the specific changes in scope, nature and/or offerings required by
such inclusion will be subject to AOL's review and approval and the
terms of this Agreement.
2.6 PRICING AND TERMS. MP will ensure that: (i) the regular prices (and
any other required consideration) for the MP Products in the
Affiliated MP Site do not exceed the regular prices (and any other
required consideration) for the MP Products or any substantially
similar products offered by or on behalf of MP through any Additional
MP Channel; (ii) the standard terms and conditions on which the MP
Products or any other products are
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offered in or through the Affiliated MP Site are generally no less
favorable, than the terms and conditions on which the MP Products or
any substantially similar products are offered by or on behalf of MP
in or through any Additional MP Channel; (iii) the prices of the MP
Products or any other products offered in the Affiliated MP Site are
competitive in all material respects with the appropriate prices
(e.g., regional or national prices) of the MP Products or
substantially similar products as such prices are monitored and
published from time to time by Information Resources, Inc. ("IRI"),
or any successor or replacement entity thereto; and (iv) the overall
terms and conditions (including, without limitation, the sale,
delivery and pricing of such MP Products (provided that, with respect
to pricing, the Parties shall rely on the provision of clause (iii)
above)) related to the MP Products or any other products offered in
the Affiliated MP Site are competitive with the overall terms and
conditions (including without limitation, the sale, delivery and
pricing of such products) for the MP Products or substantially
similar products offered on a regular basis by any MP Competitor
through any Interactive Site, provided that such MP Competitors are
not engaged in predatory pricing or anti-competitive behavior.
2.7 SPECIAL OFFERS. Subject to the provisions of Section 2.6 above, on a
regular and consistent basis, MP shall promote preferred offerings of
supermarket products to AOL Members through the Affiliated MP Site
which are reasonably comparable (including, without limitation,
scope, price, frequency and amount) to special or promotional offers
generally made available by or on behalf of MP through any Additional
MP Channel, as well as various other special offers exclusively
available to AOL Members and/or AOL Users (the "Special Offers"). MP
will take reasonable efforts to provide AOL with reasonable prior
notice of Special Offers so that AOL can market the availability of
such Special Offers in the manner AOL deems appropriate in its
editorial discretion, subject to the terms and conditions hereof;
provided that if MP fails to take such efforts, AOL shall be under no
obligation to promote such Special Offers.
2.8 OPERATING STANDARDS. MP will ensure that the Affiliated MP Site and
the delivery of the MP Products comply at all times with the
standards set forth in Exhibit E. To the extent site standards are
not established in Exhibit E with respect to any aspect or portion of
the Affiliated MP Site (or the MP Products or other Content contained
therein), MP will provide such aspect or portion at a level of
accuracy, quality, completeness, and timeliness which meets or
exceeds prevailing standards in the grocery and supermarket industry.
2.9 ADVERTISING SALES. Subject to the terms hereof, MP shall have the
right to sell promotions, advertisements, links, pointers or similar
services or rights through the Affiliated MP Site ("Advertisements").
The specific advertising inventory within the Affiliated MP Site
shall be determined by MP. MP will provide AOL with monthly reports
providing detailed information regarding any advertising sales by MP
and any other information relevant to the computation and sharing of
Advertising Revenues derived from the Affiliated MP Site from and
after such time as MP shall begin payment of any amounts due pursuant
to Section 4.2 hereof. MP and AOL shall share the revenues derived
from the sale of Advertisements in the Affiliated MP Site pursuant to
Section 4.2 hereof. Subject to the terms hereof, all Advertisements
in the Affiliated MP Site shall be subject to AOL's then-applicable
advertising policies and existing exclusivities. With respect to any
Advertisements which link to any third party areas outside of the
Affiliated MP Site, such Advertisements shall be subject to the prior
reasonable approval of AOL. Upon MP's request for approval of a third
party link from the Affiliated MP Site to a third party area outside
the Affiliated MP Site pursuant to this Section 2.9, AOL shall
promptly respond to such request within three (3) business days after
receipt of such request.
3 AOL EXCLUSIVITY OBLIGATIONS.
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3.1 EXCLUSIVE SERVICE. Provided that MP is in compliance with all
material terms of this Agreement, MP will be the exclusive marketer
of Supermarket Shopping Delivery Services which is expressly promoted
or advertised by AOL on the AOL Service and/or AOL.com as provided
herein (the "Exclusive Service"). AOL shall promote the Exclusive
Service on the AOL Service during the Initial Term (and any Extension
Period) (the "AOL Service Exclusivity Period") and on AOL.com for a
period of two (2) years following the Effective Date (the "AOL.com
Exclusivity Period").
3.2 EXCEPTIONS. Notwithstanding anything to the contrary contained
herein, no provision of this Agreement will limit AOL's ability (on
or off the AOL Network) to:
(i) undertake activities or perform duties pursuant to existing
arrangements with third parties (or pursuant to any agreements
to which AOL becomes a party subsequent to the Effective Date as
a result of a change of control, assignment, merger, acquisition
or other similar transaction). If during the Term AOL incurs an
obligation pursuant to this Section 3.2(i) and AOL's performance
of such obligation materially and adversely impacts MP's
exclusivity with respect to the Exclusive Service hereunder, the
Parties shall immediately submit the matter to the Management
Committee as provided in Section 7 hereof. Further, AOL hereby
acknowledges that, to the best of its knowledge, there are no
agreements existing as of the Effective Date requiring AOL to
market an Exclusive Service;
(ii) promote, advertise or distribute the products of any third
party(other than an MP Competitor) which is an aggregator of
products and/or services (e.g. department stores, mass
merchandisers) and is not primarily a provider of Supermarket
Shopping Delivery Services (i.e., it is primarily engaged in
activities other than providing Supermarket Shopping Delivery
Services) (an "Aggregator"); provided that, AOL shall not
promote (a) any supermarket shopping delivery services or
grocery stores of such Aggregator or (b) any specific Consumer
Packaged Good or categories of Consumer Packaged Goods offered
by such Aggregator on the screens of the AOL Service or AOL.com
on which MP has an exclusivity as provided herein;
(iii) promote or provide advertisement placements to any third party
which offers only a single product, or a single line or category
of products; provided that, to the extent such line or category
of products are Consumer Packaged Goods, such third party may
only advertise or promote such line or category of products in
accordance with the industry defined categories of Consumer
Packaged Goods as listed on Exhibit D attached hereto (i.e.,
such third party cannot aggregate categories of products to
create larger and more comprehensive categories of products to
be offered or promoted on the screens of the AOL Service or
AOL.com on which MP has an exclusivity as provided herein);
(iv) promote or provide advertisement placements to any third party
(other than an Aggregator or an MP Competitor) which third party
offers multiple lines or categories of products which may be a
subset of the categories of MP Products offered by MP; provided
that, (a) such third party cannot market or promote itself on
the AOL Service or AOL.com as the provider of a supermarket
shopping delivery service or grocery store, and (b) except with
respect to the Excluded Products, to the extent such lines or
categories of products (1) are Consumer Packaged Goods, (2) are
distributed by MP as an MP Product, and (3) represent at least
fifteen percent (15%) of Transaction Revenues, AOL shall not
provide advertisements to a third party for the purpose of
promoting or advertising such products or categories of
products. The restriction in the preceding proviso shall not in
any way restrict or affect AOL's rights under clauses (ii) and
(iii) of this Section 3.2;
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(v) promote or provide advertisement placements to any third party
in the AOL Service and AOL.com Shopping Channels (collectively,
the "Shopping Channels"); provided that, with respect to any MP
Competitor, (a) AOL shall only promote or provide advertisement
placements to such MP Competitor in the food related areas of
the Shopping Channels and (b) such promotions and advertisement
placements shall be less prominent than any promotions or
advertising placements provided to MP in any food related areas
of the Shopping Channels, and
(vi) enter into an arrangement with any third party for the primary
purpose of acquiring AOL Users whereby such third party is
allowed to promote or market products or services to AOL Users
that are acquired as a result of such agreement.
3.3 LIMITATIONS; CARVE-OUTS. With respect to any limitations imposed on
the exceptions provided to AOL in the preceding Section 3.2, or any
provisos thereto or carve-outs therefrom, such limitations, provisos
or carve-outs shall only be applicable to the AOL Service during the
AOL Service Exclusivity Period and to AOL.com during the AOL.com
Exclusivity Period.
3.4 MP PRODUCT RESTRICTIONS. AOL reserves the right to restrict or limit
the sale, promotion or distribution in the Affiliated MP Site or
anywhere on the AOL Network, of any MP Product (other than with
respect to the MP Products listed on Exhibit D) which AOL, in its
reasonable discretion, does not consider to be a product which is
ordinarily sold by a traditional supermarket or grocery store.
Additionally, if MP sells, promotes or distributes any MP Products
which are identical or similar in nature to any products sold by an
AOL Preferred Retailer (e.g. flowers, books, music, etc.) (the
"Restricted Products"), subject to AOL's prior written approval, MP
may enter into relationships with such AOL Preferred Retailers with
respect to the sale, promotion or distribution of the Restricted
Products; provided that, should MP or an AOL Preferred Retailer
choose not to enter into an arrangement with respect to the sale,
promotion or distribution of the Restricted Products, MP's sale,
promotion or distribution of the Restricted Products shall be subject
to the following: (a) the Restricted Products shall be sold, promoted
or distributed at least two (2) clicks away from any screen on the
AOL Service or AOL.com (including a Welcome Mat screen) linking to
the Affiliated MP Site, (b) the offering of the Restricted Products
must be generic and cannot be co-branded with the trademark,
tradename or other identifying mark of any third party or packaged
with the co-branded product of any third party, (c) MP shall not
create a boutique or other specialty store exclusively for the sale
of such Restricted Products (individually or in the aggregate) and
(d) MP shall sell a limited number of the Restricted Products in the
same manner that such Restricted Products are sold in traditional
supermarkets, grocery stores or convenience stores (e.g. limited SKU
depth, manner of promotion, etc.). In connection with the foregoing,
MP has submitted to AOL a comprehensive list of products and
categories of products sold or intended to be sold by MP in the
Affiliated MP Site, referred to herein as Exhibit D.
4 PAYMENTS.
4.1 (i) GUARANTEED PAYMENTS. Subject to AOL's compliance with the
material terms and conditions hereof, MP will pay to AOL a
non-refundable guaranteed payment of [*] as follows:
a) [*] upon execution of this Agreement;
b) [*] on or prior to July 15, 1998;
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c) [*] upon the earlier of the next Financing Event or
November 15, 1998;
d) [*] on the one (1) year anniversary date of the Agreement;
and
e) [*] on the two (2) year anniversary date of the Agreement.
(ii) ACCELERATION. Subject to the mutual agreement of the Parties
hereto, MP shall have the right to accelerate the payments
provided for in the preceding clause, and upon such
acceleration, AOL shall adjust the delivery of the Impressions
Commitment accordingly.
4.2 PERFORMANCE PAYMENTS; REVENUE SHARE. During the Term, MP shall pay to
AOL the following amounts with respect to New AOL Purchasers:
(i) an amount equal to [*] of all Advertising Revenues generated by
MP hereunder from and after such time as MP shall have acquired
New AOL Purchasers in excess of or equal to [*] New AOL
Purchasers but less than [*] New AOL Purchasers;
(ii) (a) an amount equal to [*] of all Transaction Revenues generated
by MP hereunder from and after such time as MP shall have
acquired New AOL Purchasers in excess of or equal to [*] New AOL
Purchasers but less than [*] New AOL Purchasers and (b) a bounty
payment equal to [*] for each New AOL Purchaser acquired by MP
in excess of or equal to [*] New AOL Purchasers but less than
[*] New AOL Purchasers; and
(iii) (a) an amount equal to (1) [*] of all Transaction Revenues and
(2) [*] of all Advertising Revenues generated by MP hereunder
from and after such time as MP shall have acquired New AOL
Purchasers in excess of or equal to [*] New AOL Purchasers, and
(b) a bounty payment of [*] for each New AOL Purchaser acquired
by MP in excess of or equal to [*] New AOL Purchasers.
(iv) Notwithstanding the foregoing or anything to the contrary
contained herein, from and after such time as MP shall have
reached the Threshold, the foregoing performance and revenue
share payments shall immediately terminate and in lieu thereof,
MP shall pay to AOL an amount equal to (a)(1) [*] of all
Transaction Revenues and (2) [*] of all Advertising Revenues
generated by MP hereunder, and (b) a bounty payment of [*] for
each New AOL Purchaser acquired by MP after the Threshold has
been met. The amounts required to be paid pursuant to this
Section 4.2 shall be paid to AOL within thirty (30) days
following the end of each quarter.
4.3 ALTERNATIVE REVENUE STREAMS. In the event MP or any of its affiliates
receives or desires to receive, directly or indirectly, any
compensation in connection with the Affiliated MP Site other than
Transaction Revenues or Advertising Revenues (an "Alternative Revenue
Stream"), MP will promptly inform AOL in writing, and the Parties
will negotiate in good faith regarding whether MP will be allowed to
market products producing such Alternative Revenue Stream through the
Affiliated MP Site, and if so, the equitable portion of revenues from
such Alternative Revenue Stream (if applicable) which will be shared
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with AOL(in no event less than the percentage of Transaction Revenues
to be paid to AOL pursuant to this Section 4). In the event the
Parties cannot in good faith reach agreement regarding such
Alternative Revenue Stream within thirty (30) days of AOL's request
to negotiate, MP shall have the right to market products producing
such Alternative Revenue Stream and the Parties shall submit all
issues related to AOL's revenue share of such Alternative Revenue
Stream to the Management Committee as provided in Section 7 hereof.
Provided that, if MP desires to market Products other than the MP
Products which create an Alternative Revenue Stream, MP shall
negotiate in good faith with AOL regarding such Alternative Revenue
Stream and the equitable portion of such revenues which will be
shared with AOL, prior to marketing such products.
4.4 WIRED PAYMENTS; LATE PAYMENTS. All payments required under this
Section 4 will be paid in immediately available, non-refundable funds
wired to AOL's account. All amounts owed hereunder not paid when due
and payable will bear interest from the date such amounts are due and
payable at the prime rate in effect at such time as published in the
Wall Street Journal.
4.5 AUDITING RIGHTS. MP will maintain complete, clear and accurate
records of all expenses, revenues and fees in connection with the
performance of this Agreement. For the sole purpose of ensuring
compliance with this Agreement, AOL will have the right, at its
expense, to direct an independent certified public accounting firm no
more than once per year to conduct a reasonable and necessary
inspection of portions of the books and records of MP which are
relevant to MP's performance pursuant to this Agreement. Any such
audit (a) may be conducted after twenty (20) business days prior
written notice, (b) will be conducted during normal business hours at
the offices of MP or any other reasonable location designated by MP
and (c) will be conducted so as to minimize disruption to MP's
business.
4.6 TAXES. MP will collect and pay and indemnify and hold AOL harmless
from, any sales, use, excise, import or export value added or similar
tax or duty not based on AOL's net income, including any penalties
and interest, as well as any costs associated with the collection or
withholding thereof, including attorneys' fees.
4.7 REPORTS.
4.7.1 Sales Reports. Subject to the provisions of Section 2.9 hereof,
MP will provide AOL with a monthly report (except with respect
to clause (ii) below which report shall be quarterly) in a
mutually agreed format, detailing the following activity (and
any other information mutually agreed upon by the Parties or
reasonably required for measuring revenue activity by MP through
the Affiliated MP Site): summary sales information by day (date,
number of MP Products, number of orders, total Transaction
Revenues); and (ii) detailed sales information (order date/time
stamp (if technically feasible), purchaser name and screenname),
(the information in clauses (i) and (ii) are collectively
referred to herein as "Sales Reports"). AOL will be entitled to
use the Sales Reports in its business operations, subject to the
terms of this Agreement. Additionally, AOL will not disclose
individual AOL Purchaser Information to any third party and will
restrict its use of Sales Reports to (a) internal programming
and advertising rotation purposes and (b) informational
disclosures as part of broader aggregate data regarding AOL
Members. All Sales Reports and the information contained therein
will be considered Confidential Information and subject to the
confidentiality provisions hereof. More generally, each payment
to be made by MP pursuant to this Section 4 will be accompanied
by a report containing information which supports
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the payment, including information identifying (i) gross
Transaction Revenues and all items deducted or excluded from
gross Transaction Revenues to produce Transaction Revenues,
including, without limitation, chargebacks and credits for
returned or canceled goods or services (and, where possible, an
explanation of the type of reason therefor, e.g., bad credit
card information, poor customer service, etc.) and (ii) any
applicable Advertising Revenues. AOL shall provide MP with
standard monthly usage information related to the Promotions
(e.g. a schedule of the Impressions delivered by AOL at such
time) which are similar in substance and form to the reports
provided by AOL to other interactive marketing partners similar
to MP.
4.7.2 Fraudulent Transactions. To the extent permitted by applicable
laws, MP will provide AOL with a report of any fraudulent order,
including the date, screenname or email address and amount
associated with such order, promptly following MP obtaining
knowledge that the order is, in fact, fraudulent; provided that,
in the absence of bad faith, MP's failure to provide the
foregoing shall not result in a breach by MP of this Agreement.
5 WARRANTS [INTENTIONALLY OMITTED]
6 TERM; RENEWAL; TERMINATION.
6.1 Term. Unless earlier terminated as set forth herein, the initial
term of this Agreement will be thirty seven (37) months from the
Effective Date (the "Initial Term").
6.2 Renewal. Upon conclusion of the Initial Term, AOL shall have the
right to renew the Agreement for three (3) successive one-year
renewal terms (each a "Renewal Term" and together with the
Initial Term, the "Term") by providing MP with notice of AOL's
intention to renew the Agreement for a subsequent Renewal Term
no later than sixty (60) days prior to the commencement of such
Renewal Term, provided that, (i) [*] and (ii) during any such
Renewal Term, (a) MP will not be required to pay any guaranteed,
fixed payment required under Section 4.1 or perform the
cross-promotional obligations specified in Section 1.5; and (b)
AOL will not be required to undertake any fixed exclusivity or
promotional/placement obligations; provided that, for so long as
AOL may elect to maintain the exclusivity commitments contained
herein during a Renewal Term, MP will continue to perform its
cross-promotional obligations. Upon expiration of AOL's rights
under this Section 6.2, the Parties shall negotiate, in good
faith, entering into an agreement whereby AOL shall have the
right to promote one or more "pointers" or links from the AOL
Network to the Affiliated MP Site or, at MP's option, to an MP
Interactive Site selling products substantially similar to the
MP Products and the Parties shall enter into payment
arrangements on terms and conditions that are mutually
satisfactory to the Parties.
6.3 Termination for Breach. Except as expressly provided elsewhere
in this Agreement, either Party may terminate this Agreement (or
any notice to renew this Agreement) at any time in the event of
a material breach of the Agreement by the other Party which
remains uncured after thirty (30) days written notice thereof to
the other Party (or such shorter period as may be specified
elsewhere in this Agreement); provided that, AOL will not be
required to provide notice to MP in connection with MP's failure
to make any payment to AOL required hereunder. Notwithstanding
the foregoing, in the event of a material breach of a provision
that expressly requires action to be completed within an express
period shorter than thirty (30) days, either Party may terminate
this Agreement if the
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breach remains uncured at the expiration of such shorter period
after written notice thereof to the other Party.
6.4 Termination for Bankruptcy/Insolvency. Either Party may
terminate this Agreement immediately following written notice to
the other Party if the other Party (i) ceases to do business in
the normal course, (ii) becomes or is declared insolvent or
bankrupt, (iii) is the subject of any proceeding related to its
liquidation or insolvency (whether voluntary or involuntary)
which is not stayed or dismissed within ninety (90) calendar
days or (iv) makes an assignment for the benefit of creditors.
6.5 Termination on Change of Control. In the event of a Change of
Control of MP resulting in control of MP by (i) Cendant
Corporation prior to or simultaneously with an IPO of MP or (ii)
an Interactive Service other than AOL, AOL may terminate this
Agreement by providing to MP thirty (30) days prior written
notice of such intent to terminate.
6.6 Effect of Termination. Upon termination or expiration hereof, MP
shall have no obligation with respect to the payments required
pursuant to Section 4.1 or 4.2 other than those obligations
required of MP during the period prior to such termination or
expiration.
7 MANAGEMENT COMMITTEE/ARBITRATION. If the Parties are unable to resolve any
dispute, controversy or claim arising under this Agreement (excluding any
disputes relating to intellectual property rights or confidentiality)
(each a "Dispute"), such Dispute shall be submitted to the Management
Committee for resolution. If the Management Committee is unable to resolve
the Dispute within ten (10) business days after submission to them, the
Dispute shall be solely and finally settled by arbitration in Washington,
D.C. under the auspices of the American Arbitration Association; provided
that the Federal Rules of Evidence shall apply in toto to any such Dispute
and, subject to the arbitrators' discretion to limit the time for and
scope of discovery, the Federal Rules of Civil Procedure shall apply
with respect to discovery; and provided further that, consistent with the
parties' desire to avoid delays and unnecessary expense, any Dispute
arising from any provision of the Agreement which expressly or implicitly
provides for the parties to reach mutual agreement as to certain terms
therein shall not be submitted to arbitration but shall be resolved in
good faith by the Management Committee. The arbitrator may enter a default
decision against any Party who fails to participate in the arbitration
proceedings. For the purposes hereof, the "Management Committee" shall
mean a committee made up of two (2) senior executives from each of the
Parties for the purpose of resolving Disputes under this Section and
generally overseeing the relationship between the Parties contemplated by
this Agreement. Notwithstanding the foregoing, during the resolution of
any Dispute, the Parties hereto shall continue to perform all obligations
required hereunder, unless such Dispute goes to the fundamental terms and
benefits to be derived hereunder by a Party.
8 [*]
9 STANDARD TERMS. The Standard Online Commerce Terms & Conditions set forth
in Exhibit F attached hereto and Standard Legal Terms & Conditions set
forth on Exhibit G attached hereto are each hereby made a part of this
Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.
AMERICA ONLINE, INC. NETGROCER INC.
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By: /s/ David M. Colburn By: /s/ Daniel Nissan
_____________________ _____________________
David M. Colburn Daniel Nissan
Senior Vice President, President and CEO
AOL Networks
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<TABLE>
<CAPTION>
EXHIBIT A
AOL SERVICE PROMOTIONS - YEAR 1
- ----------------------------------------------------------- ---------------------------------------------------------
BANNER ADVERTISEMENT PLACEMENTS ESTIMATED YEAR 1 IMPRESSIONS1
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
<S> <C>
DEMOGRAPHIC TARGETING2 (Run of AOL Service)
Based on up to 5 variables, (e.g., households with women, [*]
with seniors, with children, etc.)
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
TARGETED AREAS
o Ages & Stages area-Lifestyles Channel
o Home and Newsstand areas - Interests Channel [*]
o Families - Assorted Screens
o Lifestyles - Asssorted Screens
o Member Services - Assorted Screens
o Research & Learn area- Health Channel
o Senior's Health
o Women's Health Organizations and General
o Information
o Electra: Mind & Body - Health and Medicine
o Electra: Mind & Body - Nutrition
o Electra: Careers - Assorted Screens
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
RUN OF CHANNEL:
o Electra
o Interests Channel
o Travel Channel [*]
o Personal Finance Channel
o Influence Channel
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
AOL FIND:
o AOL Find Central [*]
o Run-of-AOL-Find
- ----------------------------------------------------------- ---------------------------------------------------------
- ----------------------------------------------------------- ---------------------------------------------------------
CONTINUOUS & SPECIAL PROMOTIONS (see below) [*]
- ----------------------------------------------------------- ---------------------------------------------------------
TOTAL: [*]
- ----------------------------------------------------------- ---------------------------------------------------------
</TABLE>
- -------------------
1 In the event the Parties mutually agree to run "pop-up" advertisements, the
total Impressions Commitment will be adjusted downward accordingly, based on
AOL's rates for such pop-ups. Additionally, the promotions provided hereunder
shall be linked to the Affiliated MP Site (or any intermediate screens on the
AOL Service as determined by the Parties).
2 Promotions will be run in minimum insertion orders of one million [*]
Impressions. AOL will work with MP to design insertion orders and AOL will
ensure that the Impressions delivered during the Term do not exceed more than
[*] of the inventory on email and chat, subject to MP's reasonable and usual
choice of demographic variables (in relation to the demographic makeup of the
overall AOL audience) and banner availability. To the extent that more than [*]
of the aggregate Impressions delivered during any calendar quarter are derived
from inventory on email and chat, [*]
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CONTINUOUS PROMOTIONS
Interests Channel:
o Continuous Promotion on the main screen of the Food area
o Continuous Promotion in Recipes department of Food area
o List box on front screen of Food area
o List box on front screen of Pets area
Families Channel:
o List box on front screen of Timesavers area
o List box on front screen of Parenting area
o List box on front screen of Babies area
o List box on front screen of Homebase area
Health Channel:
o List box on front screen of Dieting & Weight Loss area (so long as MP links
directly to a screen on the Affiliated MP Site which promotes Products
directly related to such area)
o List box on front screen of Eating Well area (so long as MP links directly
to a screen on the Affiliated MP Site which promotes Products directly
related to such area)
Shopping Channel:
o Continuous Promotion in Gourmet Gifts area (or any food or Consumer Packaged
Goods related -successor area thereto) (including participation in
promotional rotations along with other merchants in such area, provided
that, no other merchants (other than an MP Competitor, which shall be less
prominent) shall be more prominent than MP in such area)
o List box on front screen of Home, Kitchen and Garden area
o List box on front screen of Home Office area (so long as MP (a) links
directly to a screen on the Affiliated MP Site which promotes Products
directly related to such area and (b) includes a reference to office
products (e.g. NetGrocer Office Products) in the description of the List
Box)
o Continuous Promotion in proposed "Store Listing" area (currently contained
within the "Search" subchannel of the AOL Shopping Channel)
SPECIAL PROMOTIONS
AOL will provided MP with the opportunity to participate in AOL's special
promotional programs currently known as "Deal of the Day," "Weekly Goods
Newsletter" and "Real Deals Newsletter"; provided that (a) any MP Product
offered as a Deal of the Day must meet the then generally applicable terms for
inclusion (e.g., currently, products must be offered at a 25% discount) and (b)
participation in each program is subject to AOL's programming team's editorial
discretion.
KEYWORDS
The Affiliated MP Site will be accessible from the AOL Service through the use
of the keyword "NetGrocer" (or such other keyword as AOL may assign to MP in
the case of a name change by MP); provided, however, that such keyword (i)
shall at all times be subject to availability and (ii) shall be a "non-generic"
trademark of MP.
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AOL.COM PROMOTIONS
The AOL.com Impressions will be distributed in various areas of AOL.com and
through other AOL web related products including, but not limited to, the areas
listed below. AOL will provide approximately [*] of the AOL.com Impressions
during the first year of this Agreement.
- - AOL.COM - Home Page
- - AOL NETFIND ON AOL.COM -Home Page and (Industry Keyword Packages
- - CONTEXTUALLY RELEVANT WEB CENTERS - (Families, Home and Garden, Recipes
Department) - Integration into areas when available
- - SHOPPING - Anchor in (i)
Gourmet Gifts and Grocery Department and (ii) Auctions & Bargains Department
- - HOMETOWN AOL - Rotational Banner Ads
- - MY NEWS - Rotational Banner Ads
- - GENERAL ROTATION BANNER ADVERTISEMENTS - COMPARABLE PROMOTIONS - Other
comparable promotions on the AOL Network, as mutually agreed upon by the
Parties.
WEB PRODUCTS
- - AOL INSTANT MESSENGER - Rotational Banner Ads
The Impressions generated through general rotational banner advertisements and
AOL Instant Messenger shall represent no more than [*] of the AOL.com
Impressions. To the extent that such Impressions exceed [*] of the AOL.com
Impressions, [*] Notwithstanding anything to the contrary contained herein,
during the AOL.com Exclusivity Period, the exclusivity provisions of Section 3
shall apply to AOL NetFind solely to the extent that AOL NetFind is accessed
and used through AOL.com.
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EXHIBIT B
DEFINITIONS
The following definitions will apply to this Agreement:
ADDITIONAL MP CHANNEL. Any other distribution channel (e.g., an Interactive
Service other than AOL) through which MP makes available an offering comparable
in nature to the Affiliated MP Site.
ADVERTISING REVENUES. The combination of AOL Advertising Revenues and Internet
Advertising Revenues:
AOL ADVERTISING REVENUES. (a) Aggregate amounts collected plus the
fair market value of any other compensation received (such as barter
advertising) by MP, or its agents, as the case may be, arising from
the license or sale of advertisements, promotions, links or
sponsorships ("Advertisements") that appear within any pages of the
Affiliated MP Site or on any screens or forms preceding, framing or
otherwise directly associated with the Affiliated MP Site, less
applicable Advertising Sales Commissions and (b) any marketing fees,
or any similar fees collected by MP from vendors for direct marketing
efforts directed at any AOL Member or AOL User; provided that, with
respect to clause (a) above, the standard display by MP of the MP
Products in the Affiliated MP Site shall not be considered an
Advertisement. Additionally, if at any time after the Effective Date
MP shall charge a fee of any kind to the manufacturers or wholesalers
of the MP Products for the prominent display or preferred placement of
such MP Products in the Affiliated MP Site then such fees shall be
considered AOL Advertising Revenues.
INTERNET ADVERTISING REVENUES. For each Advertisement on a page of the
Affiliated MP Site or any MP Interactive Site which is not exclusively
available to AOL Users, the product of: (a) the amount collected plus
the fair market value of any other compensation received (such as
barter advertising) by MP or its agents arising from the license or
sale of such Advertisement attributable to a given period of time,
less applicable Advertising Sales Commissions and (b) the quotient of
(i) Impressions on the page containing such Advertisement by AOL Users
for such period of time divided by (ii) total Impressions on the page
containing such Advertisement by all users for such period of time
(the "Internet Advertising Quotient") (or such other percentage or
formula as is mutually agreed upon in writing by the Parties). With
respect to any MP Interactive Site, MP shall be responsible for
Internet Advertising Revenues only to the extent that such revenues
are derived from AOL Members who access such MP Interactive Site
directly from the AOL Service or AOL.com. MP will be responsible for
calculating the Internet Advertising Quotient related to Internet
Advertising Revenues. For any period during which MP fails to
calculate the Internet Advertising Quotient (other than as the sole
result of AOL's failure to provide necessary Impressions information),
[*] If MP fails to perform such calculation, then such quotient will
be deemed to be one hundred percent (100%).
ADVERTISING SALES COMMISSION. (i) Actual amounts paid as commission to third
party agencies in connection with the sale of the Advertisement or (ii) [*], in
the event the Party has sold the Advertisement directly and will not be
deducting any third party agency commissions.
AFFILIATED MP SITE. The customized web site promoted and distributed by AOL
hereunder through which MP can market and complete transactions regarding the
MP Products.
AOL INTERACTIVE SITE. Any Interactive Site which is managed, maintained, owned
or controlled by AOL or its agents.
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AOL LOOK AND FEEL. The elements of graphics, design, organization,
presentation, layout, user interface, navigation and stylistic convention
(including the digital implementations thereof) which are generally associated
with Interactive Sites within the AOL Service or AOL.com.
AOL MEMBER. Any authorized user of the AOL Network, including any sub-accounts
using the AOL Network under an authorized master account.
AOL NETWORK. (i) The AOL Service, (ii) AOL.com and (iii) any other product or
service owned, operated, distributed or authorized to be distributed by or
through AOL or its affiliates worldwide (and including those properties
excluded from the definitions of the AOL Service or AOL.com).
AOL PREFERRED RETAILER. Any third party with which AOL enters into an exclusive
arrangement with respect to the sale, promotion or distribution of such third
party's products or services, provided that, other than with respect to the
Excluded Products, such products or services are not Consumer Packaged Goods.
AOL PURCHASER. (i) Any person or entity who enters the Affiliated MP Site from
the AOL Service or AOL.com including, without limitation, from any third party
area therein (to the extent entry from such third party area is traceable
through both Parties' commercially reasonable efforts), and generates
Transaction Revenues (regardless of whether such person or entity provides an
e-mail address during registration or entrance to the Affiliated MP Site which
includes a domain other than an "AOL.com" domain); and (ii) any other person or
entity who, when purchasing a product, good or service through an MP
Interactive Site, provides an AOL.com domain name as part of such person or
entity's e-mail address; provided that (a) any person or entity who enters an
MP Interactive Site from any area of the Internet which is controlled by a
third party, and to which third party MP has a payment obligation with respect
to such person or entity, [*] and (b) any person or entity who has previously
satisfied the definition of AOL Purchaser will remain an AOL Purchaser, and any
subsequent purchases by such person or entity will also give rise to
Transaction Revenues hereunder (and will not be conditioned on the person or
entity's satisfaction of clauses (i) or (ii) above). [*]
AOL SERVICE. The narrow-band U.S. version of the America Online(R) brand
service, specifically excluding (a) AOL.com or any other AOL Interactive Site,
(b) the international versions of the AOL Service (e.g., AOL Japan), (c)
"Driveway," "AOL NetFind(TM)," "AOL Instant Messenger(TM)" or any similar
product or service offered by or through the U.S. version of the America
Online(R) brand service, (d) any programming or content area offered by or
through the U.S. version of the America Online(R) brand service over which AOL
does not exercise complete or substantially complete operational control (e.g.,
Content areas owned, maintained or controlled by AOL Studios or other AOL
affiliates, "Digital City(TM)," "WorldPlay(TM)," "Entertainment Asylum(TM),"
the "Hub(TM)," or any similar "sub-service," third-party Content areas, and any
Interactive Site containing "members.aol.com" as part of its URL), (e) any
yellow pages, white pages, classifieds or other search, directory or review
services or Content offered by or through the U.S. version of the America
Online(R) brand service, (f) any co-branded or private label branded version of
the U.S. version of the America Online(R) brand service, (g) any version of the
U.S. version of the America Online(R) brand service distributed through any
broadband distribution platform or through any platform or device other than a
desktop personal computer and (h) any property, feature, product or service
which AOL or its affiliates may acquire subsequent to the Effective Date.
AOL USER. Any user of the AOL Service or AOL.com that links to the Affiliated
MP Site or any MP Interactive Site through the AOL Service or AOL.com.
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AOL.COM. AOL's primary Internet-based Interactive Site marketed under the
"AOL.COM" brand, specifically excluding (a) the AOL Service, (b) any
international versions of AOL.com, (c) "Driveway," "AOL NetFind(TM)," "AOL
Instant Messenger" or any similar product or service offered by or through such
site or any other AOL Interactive Site, (d) any programming or content area
offered by or through such site or any other AOL Interactive Site over which
AOL does not exercise complete or substantially complete operational control
(e.g., Content areas owned, maintained or controlled by AOL Studios or other
AOL affiliates, "Digital City(TM)," "WorldPlay(TM)," "Entertainment
Asylum(TM)," the "Hub(TM)," or any similar "sub-service," third-party Content
areas, and any Interactive Site containing "members.aol.com" as part of its
URL), (e) any yellow pages, white pages, classifieds or other search, directory
or review services or Content offered by or through such site or any other AOL
Interactive Site, (f) any co-branded or private label branded version such
site, (g) any version of such site distributed through any broadband
distribution platform or through any platform or device other than a desktop
personal computer and (h) any property, feature, product or service which AOL
or its affiliates may acquire subsequent to the Effective Date.
CHANGE OF CONTROL. (a) The consummation of a reorganization, merger or
consolidation or sale or other disposition of substantially all of the assets
of a party; or (b) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1933, as amended) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under such Act) of more than 50% of either (i) the then outstanding
shares of common stock of such party; or (ii) the combined voting power of the
then outstanding voting securities of such party entitled to vote generally in
the election of directors.
CONSUMER PACKAGED GOODS. Packaged goods that are manufactured for mass market
consumption by companies such as Procter & Gamble, Kraft Food, Coca-Cola, etc.
which are distributed primarily through traditional supermarkets, grocery
stores or convenience stores as determined according to generally available
data published by IRI (e.g. the categories of Products listed on Exhibit D as
Consumer Packaged Goods). Consumer Packaged Goods shall not include the
Excluded Products or any items manufactured for niche markets (e.g. ethnic
foods, health foods, etc.), produce or specialty products (e.g. Omaha Steaks).
CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the
course of the Agreement, which is or should be reasonably understood to be
confidential or proprietary to the disclosing Party, including, but not limited
to, the material terms of this Agreement, information about AOL Members, AOL
Users, AOL Purchasers and MP customers, technical processes and formulas,
source codes, product designs, sales, cost and other unpublished financial
information, product and business plans, projections, and marketing data.
"Confidential Information" will not include information (a) already lawfully
known to or independently developed by the receiving Party, (b) generally known
to the public, or (c) lawfully obtained from any third party.
CONTENT. Information, services, materials, features, products, advertisements,
promotions, links, pointers and software, including any modifications,
upgrades, updates, enhancements and related documentation.
CONTINUOUS PROMOTION. Any placement, link, advertisement or other promotional
space designated by AOL which is provided on a continuous basis (e.g., AOL's
"Tenant" buttons).
EXCLUDED PRODUCTS. Any products sold directly by the manufacturer of such
products, specialty or gourmet products, drug or drug related products,
cosmetic or cosmetic related products, fragrance or fragrance related products,
specialty baby or baby-related products, auto or auto-related products,
confectionary or confectionary-related products, film or film-related
products, specialty hair or hair related products, water treatment products,
newspapers and magazines, toys, vitamins or vitamins related products, office
supplies, pet supplies, software or software related products, videos or video
related
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products, apparel products, beauty or beauty related products, liquor or liquor
related products, products sold by entities with which AOL has an exclusivity
arrangement, and any other products added to the foregoing list by AOL from
time to time as mutually agreed upon by the Parties hereto.
FINANCING EVENT. At any time after the Effective Date, the occurrence of either
(a) the receipt, in a single transaction or series of related transactions, of
equity funding of at least Fifteen Million Dollars (US $15,000,000) by MP from
a private investor or group of investors or (b) an IPO of MP; provided,
however, that if MP receives funding pursuant to clause (a) of this definition
in an amount less than Fifteen Million Dollars (US $15,000,000), MP may not use
such proceeds to make any payments in connection with any marketing or
distribution arrangement with any third party entered into after the Effective
Date which exceed One Hundred Fifty Thousand Dollars (US $150,000)
individually, and Five Hundred Thousand Dollars ($500,000) in the aggregate.
Notwithstanding the foregoing, if MP makes the payments required pursuant to
Section 4.1(c) hereof, then the foregoing proviso shall be null, void and of no
further effect.
GROSS MARGINS. Aggregate Transaction Revenues less, the price paid to suppliers
for the products and/or services sold, credit card charges, credit card
clearing house fees, and warehousing costs.
IMPRESSION. User exposure to the applicable Promotion, as such exposure may be
reasonably determined and measured by AOL in accordance with its standard
methodologies and protocols.
INTERACTIVE SERVICE. Any entity that offers online or Internet connectivity (or
any successor form of connectivity), aggregates and/or distributes a broad
selection of third-party Content, or provides interactive navigational services
(including, without limitation, any online service providers, Internet service
providers, WebTV, @Home or other broadband providers, search or directory
providers, "push" product providers such as the Pointcast Network or providers
of interactive navigational environments such as Microsoft's proposed "Active
Desktop", consumer products and services aggregators such as Cendant
Corporation).
INTERACTIVE SITE. Any interactive site or area, including, by way of example
and without limitation, (i) an MP site on the World Wide Web portion of the
Internet or (ii) a channel or area delivered through a "push" product such as
the Pointcast Network or interactive environment such as Microsoft's proposed
"Active Desktop."
IPO. The receipt of equity funding by MP as a result of the initial public
offering of securities of MP pursuant to an effective registration statement
under the Securities Act of 1933, as amended.
LICENSED CONTENT. All Content offered through the Affiliated MP Site pursuant
to this Agreement or otherwise provided to AOL by MP for related purposes
(e.g., Promotions, AOL "slideshows" , etc.), including in each case, any
modifications, upgrades, updates, enhancements, and related documentation.
MP INTERACTIVE SITE. Any Interactive Site (other than the Affiliated MP Site)
which is managed, maintained, owned or controlled by MP or its agents.
MP COMPETITORS. OnCart, Peapod, Shopper Express, Home Runs, Home Grocer,
Streamline, ShopLink, PinkDot; provided that, from time to time, (i) MP upon
written notice to AOL, shall have the right to add new entities to the
foregoing list subject to AOL's reasonable approval, and (ii) AOL shall have
the right to remove any entity from the foregoing list, subject to MP's
reasonable approval.
MP PRODUCT. Any product, good or service which MP (or others acting on its
behalf or as distributors) offers, sells, provides, distributes or licenses to
AOL Users directly or indirectly through (i) the Affiliated MP Site (including
through any Interactive Site linked thereto) and which are listed on Exhibit D
to the Agreement, (ii) any other online means related to an AOL User's visit to
the MP Affiliated Site (e.g., e-mail offers following user registration), or
(iii) an "offline" means (e.g., toll-free number) for receiving orders
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related to specific offers within the Affiliated MP Site requiring purchasers
to reference a specific promotional identifier or tracking code, including,
without limitation, products sold through surcharged downloads (to the extent
expressly permitted hereunder).
NEW AOL PURCHASER. Any AOL Purchaser who during the Term purchases MP Products
on at least [*] separate occasions.
SUPERMARKET SHOPPING DELIVERY SERVICES. The online promotion, fulfillment of
orders and/or retail sale and delivery of a line, or lines of products
available in traditional supermarket or grocery stores (e.g. perishable foods,
non-perishable foods, canned items, toiletries, cosmetics, general
merchandising (e.g. pencils, scotch tape, etc.), etc.).
THRESHOLD. Gross Margins generated hereunder by MP equal to [*]
TRANSACTION REVENUES. Aggregate amounts paid by AOL Purchasers in connection
with the sale, licensing, distribution or provision of any MP Products, and
excluding, in each case, handling and shipping charges (provided that if these
charges represent a source of profit for MP, such charges will be included in
the definition of Transaction Revenues), refunds, allowances, offsets,
discounts credits or chargebacks for returned or canceled goods or services and
amounts collected for sales or use taxes or duties.
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EXHIBIT C
MP CROSS-PROMOTION
Online
To the extent that MP provides a promotional banner, button, link or other
promotional presence (a "Promotional Presence") to any other Interactive
Service in an MP Interactive Site, MP shall provide a Promotional Presence to
AOL in such MP Interactive Site linking to such areas of the AOL Network as
determined by AOL, and to the extent that MP provides promotional information
about the products of any other Interactive Service, MP shall provide to AOL a
prominent "Try AOL" feature where users can obtain promotional information
about AOL products and services and, at AOL's option, download or order AOL's
then-current version of client software for the AOL Service or software for any
other AOL products or services (e.g., AOL's Instant Messenger service) on terms
and conditions (including, without limitation, scope, purpose, amount,
prominence or regularity) that are no less favorable than the terms and
conditions provided to such other Interactive Service.*
Offline
In MP's television, radio and print advertisements and in any publications,
programs, features or other forms of media over which MP exercises at least
sufficient editorial control, MP will include:
o Specific references or mentions (verbally where possible) of the Affiliated
MP Site's availability through America Online(R) at least as prominent as,
any reference to any MP interactive site; and
o For instance, listing of the "URL(s)" the MP interactive site will be
accompanied by the AOL "keyword" for the Affiliated MP Site.
Member Acquisition Programs
The Parties shall negotiate, in good faith, various AOL member acquisition
programs, including without limitation, the bundling of AOL software with
various products shipped by MP to existing MP customers who are not AOL
Members.*
- ------------
* AOL will pay MP a one-time standard bounty for each person who registers for
the AOL Network using MP's special identifier for this promotion and
subsequently pays AOL monthly usage fees across at least three billing cycles
for the use of the AOL Network. Note that if this promotion is delivered
through Microsoft's Active Desktop or any other "push" product (an "Operating
System"), such feature will link users directly to AOL software within the
Operating System or direct users without Internet access to an AOL application
setup program within the Operating System (all subject to any standard policies
of the Operating System).
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EXHIBIT D
DESCRIPTION OF MP PRODUCTS AND OTHER CONTENT
CONSUMER PACKAGED GOODS
ADULT INCONTINENCE
AIR FRESHENERS
ALL OTHR BREAKFST FOOD
ANTACIDS
ASEPTIC JUICES
BABY FOOD
BABY FRMLA/ELECTRLYTS
BAKED BEANS
BAKED GOODS - RFG
BAKERY SNACKS
BAKING CUPS/PAPER
BAKING MIXES
BAKING NEEDS
BAKING NUTS
BATH PRODUCTS
BATTERIES
BLEACH
BOTTLED JUICES - SS
BOTTLED WATER
BREADCRUMBS/BATTERS
BREAKFAST MEATS
BREATH FRSHNR SPRY/DR
BUTTER
CANDLES
CANNED HAM
CANNED JUICES - SS
CANNED/BOTTLED FRUIT
CARAMEL/TAFFY APPLES
CARBONATED BEVERAGES
CAT FOOD
CAT LITTER
CHARCOAL
CHEESE
CHEESECAKES
CHOC CANDY (NON-SEAS)
CLD/ALLGY/SNS TBLCGH
CLEANG TOOLS/MPS/BRMS
COCKTAIL MIXES
COCOA MIXES
COFFEE
COFFEE CREAMER - SS
COFFEE FILTERS
COLD CEREAL
COLD/ALLRGY/SINUS LIQ
CONTRACEPTIVES
COOKIES
COTTAGE CHEESE
COTTON BALLS
CRACKERS
CREAMS/CREAMERS
CROUTONS
CUPS & PLATES
DENTURE PRODUCTS
DEODORANT
DESSERT TOPPINGS
DESSERTS - RFG
DIAPERS
DINNER SAUSAGE
DINNERS
DIP - SS
DISH DETERGENT
DOG FOOD
DOUGH/BISCUIT DGH-RFG
DRIED FRUIT
DRINK MIXES
DRY BEANS/VEGETABLES
DRY FRUIT SNACKS
EGG SUBSTITUTES
ENGLISH MUFFINS
ENTREE/SIDE DISHES
EVAPRATED/CNDNSED MLK
EXT ANALGESIC RUBS
EYE/CONTCT LNS CRE PR
FABRIC SOFTENER LIQ
FABRIC SOFTENR SHEETS
FACIAL TISSUE
FEMININE NEEDS
FIRELOGS/FIRESTARTERS
FLOOR CLEANERS
FLOUR/MEAL
FOIL PANS
FOILS & WRAPS
FOOD & TRASH BAGS
FOOT CARE PRODUCTS
FRANKFURTERS
FRESH BREAD & ROLLS
FRESH EGGS
FROSTING
FURNITURE POLISH
FZ APPETZERS/SNAC RLS
FZ BABY FOOD
FZ BAKED GOODS
FZ BREAKFAST FOOD
FZ COFFEE CREAMER
FZ COOKIES
FZ CORN ON THE COB
FZ DESSERTS/TOPPING
FZ DINNERS/ENTREES
FZ DOUGH
FZ FRUIT
FZ MEAT
FZ NOVELTIES
FZ PASTA
FZ PET FOODS
FZ PIES
FZ PIZZA
FZ PLAIN VEGETABLES
FZ POT PIES
FZ POTATOES/ONIONS
FZ POULTRY
FZ PREPARED VEGETABLE
FZ SEAFOOD
FZ SIDE DISHES
GELATIN/PUDDING MIXES
GRAVY/SAUCE MIXES
GUM
HAIR ACCESSORIES
HAIR COLORING
HAIR CONDITIONER
HAIR SPRAY/SPRITZ
HAIR STYLNG GL/MOUSSE
HAND & BODY LOTION
HOME HEALTH DIAGNOSTICS
HOME PERM/RELAXR KITS
HOT CEREAL
HOUSEHLD CLEANR CLTHS
HOUSEHOLD CLEANER
HOUSEHOLD LUBRICANTS
ICE CREAM CONES/MIXES
ICE CREAM/SHERBET
INSTANT POTATOES
INTERNAL ANALGESICS
ISOTONICS
JELLIES/JAMS/HONEY
JUICE/BEVERAGE - RFG
JUICE/DRNK CONCEN-RFG
JUICE/DRNK CONCEN-SS
JUICES - FROZEN
LARD
LAUNDRY CARE
LAUNDRY DETERGENT
LAXATIVES
LIGHT BULBS
LUNCHEON MEATS
LUNCHES - RFG
MARGRNE/SPRD/BUTTR BL
MARSHMALLOWS
MAYONNAISE
MEAT
MEAT PIES
MEXICAN SAUCE
MILK
MISC HEALTH REMEDIES
MISC HLTH REMDY TABLT
MISC. SNACKS
MLK FLAVRNG/DRNK MXES
MOIST TOWELETTES
MOUTHWASH
MUSTARD & KETCHUP
NON-CHOC CAND NON-SEA
NON-FRUIT DRINKS - SS
ORIENTAL FOOD
OTHER FROZEN FOODS
OTHER RFG PRODUCTS
PANCAKE MIXES
PANTYHOSE/NYLONS
PAPER NAPKINS
PAPER TOWELS
PASTA
PASTA - RFG
PASTRY/DOUGHNUTS
PEANUT BUTTER
PEST CONTROL
PICKLES/RELISH - RFG
PICKLES/RELISH/OLIVES
PIES & CAKES
PIZZA - RFG
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PIZZA PRODUCTS
PLASTIC BOTTLES
POPCORN/POPCORN OIL
POWDERED MILK
PRODUCE RINSE
RAZORS
RFG DIPS
RFG TORTLA/EGGRL/WNTN
RICE
RICE/POPCORN CAKES
RUG/UPHOLSTERY CLEANR
SALAD DRESSING - RFG
SALAD DRESSINGS - SS
SALAD TOPPINGS
SALTY SNACKS
SANITARY NPKINS/TMPNS
SAUCE SEAFOOD - RFG
SEAFOOD -SS
SEAS/ASSORTED CANDY
SHAMPOO
SHAVG LTION/MENS FRGR
SHORTENING & OIL
SKIN CARE
SLEEPING REMEDIES
SNAC BARS/GRANOLA BRS
SNACK NUTS/SEEDS
SOAP
SOAP DISHES
SOUP
SOUR CREAM
SPAGHETTI/ITALIAN SAU
SPICES/SEASONINGS
SPONGES
SPREADS - RFG
STUFFING MIXES
SUGAR
SUGAR SUBSTITUTES
SUNTAN PRODUCTS
SYRUP/MOLASSES
TEA - BAGS/LOOSE
TEA - READY-TO-DRINK
TEA - INSTANT TEA MIXES
TOILET TISSUE
TOMATO PRODUCTS
TOOTHBRSH/DNTAL ACCES
TOOTHBRUSH HOLDERS
TOOTHPASTE
VEGETABLES
VINEGAR
VITAMINS
WGT CON/NTRTN LIQ/PWD
WGT CTRL CANDY/TABLTS
YOGURT
NON-CONSUMER PACKAGED GOODS
ALL OTHER DELI
ANTI-SMOKING PRODUCTS
APPAREL
ARTS & CRAFTS
AUTMBIL FLUIDS/ANTFRZ
AUTMBIL WAXES/PLISHES
BABY ACCESSORIES
BABY NEEDS
BEER & ALE
BLNK AUDIO/VIDEO CASS
BOOKS
CIGARETTES
COSMETIC STORAGE
COSMETICS - FACIAL
COSMETICS - NAIL
COUGH SYRUP
DISPOSABLE CAMERAS
FILM
FIRST AID ACCESSORIES
FIRST AID TREATMENT
FLASHBULBS
FLORAL
FRAGRANCES
HAIR GROWTH PRODUCTS
LIQUOR
MEXICAN FOODS
MOTOR OIL
MUSIC CDS
NASAL PRODUCTS
NEWSPAPERS AND MAGAZINES
MEDICINES
OFFICE / STATIONERY
PET SUPPLIES
POOL/SPA CHEMICALS
SHOE PLISH&ACCESSRIES
STAMPS
TAPE
TIGHTS/SOCKS
TOBACCO PRODUCTS
TOYS
VIDEO TAPE
VIDEO TAPE - RECORDED
WATR FILTRTION DVICES
WATR SFTNRS/TREATMNT
WINE
WINE COOLERS
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EXHIBIT E
OPERATING STANDARDS
1. General. The Affiliated MP Site (including the MP Products and other Content
contained therein) will be one of the leading online grocery stores in the
online grocery delivery industry, as determined by each of the following
methods: (a) based on a cross-section of third-party reviewers who are
recognized authorities in such industry and (b) with respect to all material
quality averages or standards in such industry, including each of the
following: (i) pricing of MP Products, (ii) scope and selection of MP
Products (e.g., national vs. private label brands), (iii) quality of MP
Products, (iv) customer service and fulfillment associated with the
marketing and sale of MP Products (e.g. quality and speed of delivery
service) and (v) ease of use. In addition, the Affiliated MP Site will, with
respect to clauses (iii), (iv) and (v) above, be generally competitive with
that which is offered by any MP Competitor generally..
2. Hosting; Capacity. MP will provide all computer servers, routers, switches
and associated hardware in an amount reasonably necessary to meet
anticipated traffic demands, adequate power supply (including generator
back-up) and HVAC, adequate insurance, adequate service contracts and all
necessary equipment racks, floor space, network cabling and power
distribution to support the Affiliated MP Site. In the event MP fails to
satisfy this requirement AOL will have the right (in addition to any other
remedies available to AOL hereunder) to regulate the Promotions to the
extent necessary to minimize user delays until such time as MP corrects its
infrastructure deficiencies.
3. Speed; Accessibility. MP will use all commercially reasonable best efforts
to ensure that the performance and availability of the Affiliated MP Site
(a) is monitored on a continuous, 24/7 basis and (b) remains competitive in
all material respects with the performance and availability of other similar
sites based on similar form technology. MP will ensure that: (a) the
functionality and features within the Affiliated MP Site are optimized for
the client software then in use by AOL Users; and (b) the Affiliated MP Site
is designed and populated in a manner that minimizes delays when AOL Users
attempt to access such site.
4. User Interface. MP will use all commercially reasonable efforts to maintain
a graphical user interface within the Affiliated MP Site that is competitive
in all material respects with interfaces of other similar sites based on
similar technology. AOL reserves the right to conduct focus group testing to
assess compliance herewith.
5. Service Level Response. MP agrees to provide the following service levels in
response to problems with or improvements to the Affiliated MP Site:
o For material functions of software that are or have become substantially
inoperable, MP will provide a bug fix or workaround within two (2)
business days after the first report of such error.
o For functions of the software that are impaired or otherwise fail to
operate in accordance with agreed upon specifications, MP will provide a
bug fix or workaround within three (3) business days after the first
report of such error.
o For errors disabling only certain non-essential functions, MP will
provide a bug fix or workaround within sixty (60) days after the first
report of such error.
o For all other errors, MP will address these requests on a case-by-case
basis as soon as reasonably feasible.
6. Monitoring. AOL Network Operations Center will work with a MP-designated
technical contact in the event of any performance malfunction or other
emergency related to the Affiliated MP Site and will either assist or work
in parallel with MP's contact using MP tools and procedures, as applicable.
The Parties will develop a process to monitor performance and AOL Member
behavior with respect to access, capacity, security and related issues both
during normal operations and during special promotions/events.
7. Telecommunications. The Parties agree to explore encryption methodology to
secure data communications between the Parties' data centers. The network
between the Parties will be configured such that no single component failure
will significantly impact AOL Users. The network will be sized such that no
single line runs at more than 70% average utilization for a 5-minute peak in
a daily period.
8. Security Review. MP and AOL will work together to perform an initial
security review of, and to perform tests of, the MP system, network, and
service security in order to evaluate the security risks and provide
recommendations to MP, including periodic follow-up reviews as reasonably
required by MP or AOL. MP will fix any security risks or breaches of
security as may be identified by AOL's Operations Security and not
reasonably disagreed with by MP. Specific services to be performed on behalf
of AOL's Operations Security team will be as determined by AOL in its sole
discretion.
9. Technical Performance. MP will perform the following technical obligations
(and any updates thereto provided by AOL from time to time):
o MP will design the Affiliated MP Site to support the Windows version of
the Microsoft Internet Explorer 4.0 browser, and make commercially
reasonable efforts to support all other AOL browsers listed at:
"http://webmaster.info.aol.com/BrowTable.html."
o MP will configure the server from which it serves the site to examine the
HTTP User-Agent field in order to identify the "AOL Member-Agents" listed
at: "http://webmaster.info.aol.com/Brow2Text.html."
o MP will design its site to support HTTP 1.0 or later protocol as defined
in RFC 1945 (available at "http://ds.internic.net/rfc/rfc1945.text") and
to adhere to AOL's parameters for refreshing cached information listed at
"http://webmaster.info.aol.com/CacheText.html."
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EXHIBIT F
STANDARD ONLINE COMMERCE TERMS & CONDITIONS
1. AOL Network Distribution. MP will not authorize or permit any third party
to distribute or promote the MP Products or any MP Interactive Site through
the AOL Network absent AOL's prior written approval, which approval shall
not be unreasonably withheld. The Promotions and any other promotion or
advertisement purchased from or provided by AOL will link only to the
Affiliate MP Site.
2. Provision of Other Content. In the event that AOL notifies MP that (i) as
reasonably determined by AOL, any Content within the Affiliated MP Site
violates AOL's then-standard Terms of Service (as set forth on the America
Online(R) brand service), the terms of this Agreement or any other
standard, written AOL policy or (ii) AOL reasonably objects to the
inclusion of any Content within the Affiliated MP Site (other than any
specific items of Content which may be expressly identified in this
Agreement), then MP will take commercially reasonable steps to block access
by AOL Users to such Content using MP's then-available technology. In the
event that MP cannot, through its commercially reasonable efforts, block
access by AOL Users to the Content in question, then MP will provide AOL
prompt written notice of such fact. AOL may then, at its option, restrict
access from the AOL Network to the Content in question using technology
available to AOL. MP will cooperate with AOL's reasonable requests to the
extent AOL elects to implement any such access restrictions.
3. Contests. MP will take all steps necessary to ensure that any contest,
sweepstakes or similar promotion conducted or promoted through the
Affiliated MP Site (a "Contest") complies with all applicable federal,
state and local laws and regulations.
4. Navigational Icons. Subject to the prior consent of MP, which consent will
not be unreasonably withheld, AOL will be entitled to establish
navigational icons, links and pointers connecting the Affiliated MP Site
(or portions thereof) with other content areas on or outside of the AOL
Network.
5. Disclaimers. Upon AOL's request, MP agrees to include within the Affiliated
MP Site a product disclaimer (the specific form and substance to be
mutually agreed upon by the Parties) indicating that transactions are
solely between MP and AOL Users purchasing MP Products from MP.
6. AOL Look and Feel. MP acknowledges and agrees that AOL will own all right,
title and interest in and to the elements of graphics, design,
organization, presentation, layout, user interface, navigation and
stylistic convention (including the digital implementations thereof) which
are generally associated with online areas contained within the AOL Network
("the AOL Look and Feel"), subject to MP's ownership rights in any MP
trademarks or copyrighted material within the Affiliated MP Site.
7. Management of the Affiliated MP Site. MP will manage, review, delete, edit,
create, update and otherwise manage all MP Products available on or through
the Affiliated MP Site, in a timely and professional manner and in
accordance with the terms of this Agreement. MP will ensure that each
Affiliated MP Site is current, accurate and well-organized at all times. MP
warrants that the MP Products and other Content contained therein: (i) will
not infringe on or violate any copyright, trademark, U.S. patent or any
other third party right, including without limitation, any music
performance or other music-related rights; (ii) will not violate AOL's
then-applicable Terms of Service; and (iii) will not violate any applicable
law or regulation, including those relating to contests, sweepstakes or
similar promotions. Additionally, MP represents and warrants that it owns
or has a valid license to all rights to any Licensed Content used in AOL
"slideshow" or other formats embodying elements such as graphics, animation
and sound, free and clear of all encumbrances and without violating the
rights of any other person or entity. MP also warrants that a reasonable
basis exists for all MP Product performance or comparison claims appearing
through the Affiliated MP Site. AOL will have no obligations with respect
to the MP Products available on or through the Affiliated MP Site,
including, but not limited to, any duty to review or monitor any such MP
Products.
8. Duty to Inform. MP will promptly inform AOL of any information related to
the MP Products or Affiliated MP Site of which MP has actual knowledge
which is reasonably likely to lead to a claim, demand, or liability of or
against AOL and/or its affiliates by any third party.
9. Customer Service. It is the sole responsibility of MP to provide customer
service to persons or entities purchasing MP Products through the AOL
Network ("Customers"). MP will bear full responsibility for all customer
service, including without limitation, order processing, billing,
fulfillment, shipment, collection and other customer service associated
with any MP Products offered, sold or licensed through the Affiliated MP
Site, and AOL will have no obligations whatsoever with respect thereto. MP
will receive all emails from Customers via a computer available to MP's
customer service staff and generally respond to such emails within one
business day of receipt. MP will receive all orders electronically and
generally process all orders within one business day of receipt, provided
MP Products ordered are not advance order items. MP will ensure that all
orders of MP Products are received, processed, fulfilled and delivered on a
timely and professional basis. MP will prominently display for the benefit
of AOL Users who purchase MP Products through such Affiliated MP Site its
money back satisfaction guarantee policy. MP will bear all responsibility
for compliance with federal, state and local laws in the event that MP
Products are out of stock or are no longer available at the time an order
is received. MP will also comply with the requirements of any federal,
state or local consumer protection or disclosure law. Payment for MP
Products will be collected by MP directly from customers. MP's order
fulfillment operation will be subject to AOL's reasonable review.
10. Production Work. In the event that MP requests AOL's production assistance
in connection with (i) ongoing programming and maintenance related to the
Affiliated MP Site, (ii) a redesign of or addition to the Affiliated MP
Site (e.g., a change to an existing screen format or
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construction of a new custom form), (iii) production to modify work
performed by a third party provider or (iv) any other type of production
work, MP will work with AOL to develop a detailed production plan for the
requested production assistance (the "Production Plan"). Following receipt
of the final Production Plan, AOL will notify MP of (i) AOL's availability
to perform the requested production work, (ii) the proposed fee or fee
structure for the requested production and maintenance work and (iii) the
estimated development schedule for such work. To the extent the Parties
reach agreement regarding implementation of agreed-upon Production Plan,
such agreement will be reflected in a separate work order signed by the
Parties. To the extent MP elects to retain a third party provider to
perform any such production work, work produced by such third party
provider must generally conform to AOL's production Standards & Practices
(a copy of which will be supplied by AOL to MP upon request). The specific
production resources which AOL allocates to any production work to be
performed on behalf of MP will be as determined by AOL in its sole
discretion.
11. Overhead Accounts. To the extent AOL has granted MP any overhead accounts
on the AOL Service, MP will be responsible for the actions taken under or
through its overhead accounts, which actions are subject to AOL's
applicable Terms of Service and for any surcharges, including, without
limitation, all premium charges, transaction charges, and any applicable
communication surcharges incurred by any overhead Account issued to MP, but
MP will not be liable for charges incurred by any overhead account relating
to AOL's standard monthly usage fees and standard hourly charges, which
charges AOL will bear. Upon the termination of this Agreement, all overhead
accounts, related screen names and any associated usage credits or similar
rights, will automatically terminate. AOL will have no liability for loss
of any data or content related to the proper termination of any overhead
account.
12. AOL User Communications. To the extent MP sends any form of communications
to AOL Users, MP will promote the Affiliated MP Site as the location at
which to purchase Products (as compared to any more general or other site
or location). In addition, MP will not encourage AOL Users to take any
action inconsistent with the scope and purpose of this Agreement, including
without limitation, the following actions: (a) using Content other than the
Licensed Content; (b) bookmarking of Interactive Sites other than the
Affiliated MP Site; (c) using Interactive Sites other than those covered by
the revenue-sharing provisions herein; (d) changing the default home page
on the AOL browser; or (e) using any Interactive Service other than AOL.
13. Merchant Certification Program. MP agrees, to the extent determined by MP
to be in its commercially reasonable best interests, to participate in any
generally applicable "Certified Merchant" program operated by AOL or its
authorized agents or contractors; provided, however, that MP's failure to
so participate may require modifications to Exhibit A. Such program may
require merchant participants on an ongoing basis to meet certain
reasonable standards relating to provision of electronic commerce through
the AOL Network (including, as a minimum, use of 40-bit SSL encryption and
if requested by AOL, 128-bit encryption) and may also require the payment
of certain reasonable certification fees to the applicable entity operating
the program. Each Certified Merchant in good standing will be entitled to
place on its affiliated Interactive Site an AOL designed and approved
button promoting the merchant's status as an AOL Certified Merchant.
14. Navigation Tools. To the extent AOL grants MP any "keywords" on the AOL
Service or "search terms" on AOL.com (collectively, "Keywords"), the
Keywords will be subject to availability and will consist only of MP's
registered trademarks. AOL reserves the right at any time to revoke MP's
use of any Keywords that are not registered trademarks of MP. To the extent
AOL allows AOL Users to "bookmark" the URL or other locator for the MP
Affiliated Site, such bookmarks will be subject to AOL's control at all
times. Upon the termination of this Agreement, MP's rights to any Keywords
and bookmarking will terminate.
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1. EXHIBIT G
STANDARD LEGAL TERMS & CONDITIONS
1 Promotional Materials/Press Releases. Each Party will submit to the other
Party, for its prior written approval, which will not be unreasonably
withheld or delayed, any marketing, advertising, press releases, and all
other promotional materials related to the Affiliated MP Site and/or
referencing the other Party and/or its trade names, trademarks, and service
marks (the "Materials"); provided, however, that either Party's use of
screen shots of the Affiliated MP Site for promotional purposes will not
require the approval of the other Party so long as America Online(R) is
clearly identified as the source of such screen shots. Each Party will
solicit and reasonably consider the views of the other Party in designing
and implementing such Materials. Once approved, the Materials may be used
by a Party and its affiliates for the purpose of promoting the Affiliated
MP Site and the content contained therein and reused for such purpose until
such approval is withdrawn with reasonable prior notice. In the event such
approval is withdrawn, existing inventories of Materials may be depleted.
Notwithstanding the foregoing, either Party may issue press releases and
other disclosures as required by law or as reasonably advised by legal
counsel without the consent of the other Party and in such event, the
disclosing Party will use best efforts to provide at least (5) business
days prior written notice of such disclosure to the other Party.
2 License. MP hereby grants AOL a non-exclusive worldwide license to market,
license, distribute, reproduce, display, perform, transmit and promote the
Licensed Content (or any portion thereof) through such areas or features of
the AOL Network as AOL deems appropriate. MP acknowledges and agrees that
the foregoing license permits AOL to distribute portions of the Licensed
Content in synchronism or timed relation with visual materials prepared by
MP or AOL (e.g., as part of an AOL "slideshow"). In addition, AOL Users
will have the right to access and use the Affiliated MP Site.
3 Trademark License. In designing and implementing the Materials and subject
to the other provisions contained herein, MP will be entitled to use the
following trade names, trademarks, and service marks of AOL: the "America
Online(R)" brand service, "AOL(TM)" service/software and AOL's triangle
logo; and AOL and its affiliates will be entitled to use the trade names,
trademarks, and service marks of MP (collectively, together with the AOL
marks listed above, the "Marks"); provided that each Party: (i) does not
create a unitary composite mark involving a Mark of the other Party without
the prior written approval of such other Party; and (ii) displays symbols
and notices clearly and sufficiently indicating the trademark status and
ownership of the other Party's Marks in accordance with applicable
trademark law and practice.
4 Ownership of Trademarks. Each Party acknowledges the ownership of the other
Party in the Marks of the other Party and agrees that all use of the other
Party's Marks will inure to the benefit, and be on behalf, of the other
Party. Each Party acknowledges that its utilization of the other Party's
Marks will not create in it, nor will it represent it has, any right,
title, or interest in or to such Marks other than the licenses expressly
granted herein. Each Party agrees not to do anything contesting or
impairing the trademark rights of the other Party.
5 Quality Standards. Each Party agrees that the nature and quality of its
products and services supplied in connection with the other Party's Marks
will conform to quality standards set by the other Party. Each Party agrees
to supply the other Party, upon request, with a reasonable number of
samples of any Materials publicly disseminated by such Party which utilize
the other Party's Marks. Each Party will comply with all applicable laws,
regulations, and customs and obtain any required government approvals
pertaining to use of the other Party's marks.
6 Infringement Proceedings. Each Party agrees to promptly notify the other
Party of any unauthorized use of the other Party's Marks of which it has
actual knowledge. Each Party will have the sole right and discretion to
bring proceedings alleging infringement of its Marks or unfair competition
related thereto; provided, however, that each Party agrees to provide the
other Party with its reasonable cooperation and assistance with respect to
any such infringement proceedings.
7 Representations and Warranties. Each Party represents and warrants to the
other Party that: (i) such Party has the full corporate right, power and
authority to enter into this Agreement and to perform the acts required of
it hereunder; (ii) the execution of this Agreement by such Party, and the
performance by such Party of its obligations and duties hereunder, do not
and will not violate any agreement to which such Party is a party or by
which it is otherwise bound; (iii) when executed and delivered by such
Party, this Agreement will constitute the legal, valid and binding
obligation of such Party, enforceable against such Party in accordance with
its terms; and (iv) such Party acknowledges that the other Party makes no
representations, warranties or agreements related to the subject matter
hereof that are not expressly provided for in this Agreement. MP hereby
represents and warrants that it possesses all authorizations, approvals,
consents, licenses, permits, certificates or other rights and permissions
necessary to sell the MP Products.
8 Confidentiality. Each Party acknowledges that Confidential Information may
be disclosed to the other Party during the course of this Agreement. Each
Party agrees that it will take reasonable steps, at least substantially
equivalent to the steps it takes to protect its own proprietary
information, during the term of this Agreement, and for a period of three
years following expiration or termination of this Agreement, to prevent the
duplication or disclosure of Confidential Information of the other Party,
other than by or to its employees or agents who must have access to such
Confidential Information to perform such Party's obligations hereunder, who
will each agree to comply with this section. Notwithstanding the foregoing,
either Party may issue a press release or other disclosure containing
Confidential Information without the consent of the other Party, to the
extent such disclosure is required by law, rule, regulation or government
or court order. In such event, the disclosing Party will use best efforts
to provide at least five (5) business days prior written notice of such
proposed disclosure to the other Party, and where practical, shall allow
the other Party to review such disclosure. Further, in the event such
disclosure is required of either Party, or is reasonably
27
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determined by either Party's counsel to be necessary under the laws, rules
or regulations of the Securities and Exchange Commission or any other
applicable governing body, such Party will (i) redact mutually agreed-upon
portions of this Agreement to the fullest extent permitted under applicable
laws, rules and regulations and (ii) submit a request to such governing
body that such portions and other provisions of this Agreement receive
confidential treatment under the laws, rules and regulations of the
Securities and Exchange Commission or otherwise be held in the strictest
confidence to the fullest extent permitted under the laws, rules or
regulations of any other applicable governing body.
9 Limitation of Liability; Disclaimer; Indemnification. LIABILITY. UNDER NO
CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT,
INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM BREACH
OF THE AGREEMENT, THE SALE OF MP PRODUCTS, THE FRAUDULENT PURCHASE OF MP
PRODUCTS, THE USE OR INABILITY TO USE THE AOL NETWORK, THE AOL SERVICE,
AOL.COM OR THE AFFILIATED MP SITE, OR ARISING FROM ANY OTHER PROVISION OF
THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED
PROFITS OR LOST BUSINESS ("COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED
THAT EACH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY
DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO
INDEMNIFICATION PURSUANT TO SECTION 9.2. EXCEPT AS PROVIDED IN SECTION 9.2,
NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR MORE THAN THE AGGREGATE
AMOUNT OF PAYMENT OBLIGATIONS OWED TO OR PAID BY THE OTHER PARTY HEREUNDER,
AS APPLICABLE; PROVIDED THAT EACH PARTY WILL REMAIN LIABLE FOR THE
AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY
PURSUANT TO SECTION 4.
9.1 NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL
NETWORK, THE AOL SERVICE, AOL.COM OR THE AFFILIATED MP SITE, INCLUDING ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND
IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL SPECIFICALLY
DISCLAIMS ANY WARRANTY REGARDING THE PROFITABILITY OF THE AFFILIATED MP
SITE.
9.2 Indemnity. Either Party will defend, indemnify, save and hold harmless the
other Party and the officers, directors, agents, affiliates, distributors,
franchisees and employees of the other Party from any and all third party
claims, demands, liabilities, costs or expenses, including reasonable
attorneys' fees ("Liabilities"), resulting from the indemnifying Party's
material breach of any duty, representation, or warranty of this Agreement,
except where Liabilities result from the gross negligence or knowing and
willful misconduct of the other Party.
9.3 Claims. Each Party agrees to (i) promptly notify the other Party in writing
of any indemnifiable claim and give the other Party the opportunity to
defend or negotiate a settlement of any such claim at such other Party's
expense, and (ii) cooperate fully with the other Party, at that other
Party's expense, in defending or settling such claim. Each Party reserves
the right, at its own expense, to assume the exclusive defense and control
of any matter otherwise subject to indemnification by the other Party
hereunder, and in such event, the other Party will have no further
obligation to provide indemnification for such matter hereunder.
9.4 Acknowledgment. AOL and MP each acknowledges that the provisions of this
Agreement were negotiated to reflect an informed, voluntary allocation
between them of all risks (both known and unknown) associated with the
transactions contemplated hereunder. The limitations and disclaimers
related to warranties and liability contained in this Agreement are
intended to limit the circumstances and extent of liability. The provisions
of this Section 9 will be enforceable independent of and severable from any
other enforceable or unenforceable provision of this Agreement.
10 Solicitation of AOL Users. During the term of this Agreement, and for the
two-year period following the expiration or termination of this Agreement,
neither MP nor its agents will use the AOL Network to (i) solicit, or
participate in the solicitation of AOL Users when that solicitation is for
the benefit of any entity which could reasonably be construed to be or
become in competition with AOL or (ii) promote any services which could
reasonably be construed to be in competition with AOL including, but not
limited to, services available through the Internet. In addition, MP may
not send AOL Users e-mail communications promoting MP's Products through
the AOL Network without a "Prior Business Relationship." For purposes of
this Agreement, a "Prior Business Relationship" will mean that the AOL User
has either (i) engaged in a transaction with MP through the AOL Network or
(ii) voluntarily provided information to MP through a contest,
registration, or other communication, which included notice to the AOL User
that the information provided by the AOL User could result in an e-mail
being sent to that AOL User by MP or its agents. A Prior Business
Relationship does not exist by virtue of an AOL User's visit to an
Affiliated MP Site (absent the elements above). More generally, MP will be
subject to any standard policies regarding e-mail distribution through the
AOL Network which AOL may implement.
11 Collection of User Information. MP is prohibited from collecting AOL Member
screennames or AOL User email addresses from public or private areas of the
AOL Network, except as specifically provided below. MP will ensure that any
survey, questionnaire or other means of collecting AOL Member screennames
or AOL User email addresses, names, addresses or other identifying
information ("User Information"), including, without limitation, requests
directed to specific AOL Member screennames or AOL User email addresses and
automated methods of collecting such information (an "Information Request")
complies with (i) all applicable laws and regulations and (ii) any privacy
policies which have been issued by AOL in writing during the Term (the "AOL
Privacy Policies"). Each Information Request will clearly and conspicuously
specify to the AOL Users at issue the purpose for which User
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<PAGE>
Information collected through the Information Request will be used (the
"Specified Purpose").
12 Use of User Information. MP will restrict use of the User Information
collected through an Information Request to the Specified Purpose. In no
event will MP (i) provide User Information to any third party (except to
the extent specifically (a) permitted under the AOL Privacy Policies or (b)
authorized by the members in question), (ii) rent, sell or barter User
Information, (iii) identify, promote or otherwise disclose such User
Information in a manner that identifies AOL Users as end-users of the AOL
Service, AOL.com or the AOL Network or (iv) otherwise use any User
Information in contravention of Section 10 above. Notwithstanding the
foregoing, in the case of AOL Members who purchase MP Products from MP, MP
will be entitled to use User Information from such AOL Members as part of
MP's aggregate list of Customers; provided that MP's use does not in any
way identify, promote or otherwise disclose such User Information in a
manner that identifies such AOL Members as end-users of the AOL Service,
AOL.com or the AOL Network. In addition, MP will not use any User
Information for any purpose (including any Specified Purpose) not directly
related to the MP Products or the business purpose of the Affiliated MP
Site. Provided that, MP will not use any rights granted pursuant to this
provision to direct or drive individuals or entities to any other
Interactive Site other than the Affiliated MP Site.
13 Excuse. Neither Party will be liable for, or be considered in breach of or
default under this Agreement on account of, any delay or failure to perform
as required by this Agreement as a result of any causes or conditions which
are beyond such Party's reasonable control and which such Party is unable
to overcome by the exercise of reasonable diligence; provided, however,
that the other Party may terminate the Agreement upon written notice if
such cause or condition persists for more than sixty (60) days.
14 Independent Contractors. The Parties to this Agreement are independent
contractors. Neither Party is an agent, representative or partner of the
other Party. Neither Party will have any right, power or authority to enter
into any agreement for or on behalf of, or incur any obligation or
liability of, or to otherwise bind, the other Party. This Agreement will
not be interpreted or construed to create an association, agency, joint
venture or partnership between the Parties or to impose any liability
attributable to such a relationship upon either Party.
15 Notice. Any notice, approval, request, authorization, direction or other
communication under this Agreement will be given in writing and will be
deemed to have been delivered and given for all purposes on the delivery
date if delivered by electronic mail to screenname "[email protected] or
(i) on the delivery date if delivered personally to the Party to whom the
same is directed; (ii) one business day after deposit with a commercial
overnight carrier, with written verification of receipt, or (iii) five
business days after the mailing date, whether or not actually received, if
sent by U.S. mail, return receipt requested, postage and charges prepaid,
or any other means of rapid mail delivery for which a receipt is available,
to the person(s) specified herein at the address of the Party set forth in
the first paragraph of this Agreement. In the case of AOL, such notice will
be provided to both the Senior Vice President for Business Affairs and the
Deputy General Counsel.
16 No Waiver. The failure of either Party to insist upon or enforce strict
performance by the other Party of any provision of this Agreement or to
exercise any right under this Agreement will not be construed as a waiver
or relinquishment to any extent of such Party's right to assert or rely
upon any such provision or right in that or any other instance; rather, the
same will be and remain in full force and effect.
17 Return of Information. Upon the expiration or termination of this
Agreement, each Party will, upon the written request of the other Party,
return or destroy (at the option of the Party receiving the request) all
confidential information, documents, manuals and other materials specified
the other Party.
18 Survival. Sections 8 through 12 of this Exhibit G, will survive the
completion, expiration, termination or cancellation of this Agreement.
19 Entire Agreement. This Agreement sets forth the entire agreement and
supersedes any and all prior agreements of the Parties with respect to the
transactions set forth herein. Neither Party will be bound by, and each
Party specifically objects to, any term, condition or other provision which
is different from or in addition to the provisions of this Agreement
(whether or not it would materially alter this Agreement) and which is
proffered by the other Party in any correspondence or other document,
unless the Party to be bound thereby specifically agrees to such provision
in writing.
20 Amendment. No change, amendment or modification of any provision of this
Agreement will be valid unless set forth in a written instrument signed by
the Party subject to enforcement of such amendment, and in the case of AOL,
by an executive of at least the same standing to the executive who signed
the Agreement.
21 Further Assurances. Each Party will take such action (including, but not
limited to, the execution, acknowledgment and delivery of documents) as may
reasonably be requested by any other Party for the implementation or
continuing performance of this Agreement.
22 Assignment. Neither Party will assign this Agreement or any right, interest
or benefit under this Agreement without the prior written consent of the
other Party; provided that, in the event of a Party's sale, consolidation,
or merger, the other Party's prior approval shall not be required. Subject
to the foregoing, this Agreement will be fully binding upon, inure to the
benefit of and be enforceable by the Parties hereto and their respective
successors and assigns.
23 Construction; Severability. In the event that any provision of this
Agreement conflicts with the law under which this Agreement is to be
construed or if any such provision is held invalid by a court with
jurisdiction over the Parties to this Agreement, (i) such provision will be
deemed to be restated to reflect as nearly as possible the original
intentions of the Parties in accordance with applicable law, and (ii) the
remaining terms, provisions, covenants and restrictions of this Agreement
will remain in full force and effect.
24 Remedies. 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; provided that, in connection with any dispute hereunder, MP
will be not entitled to offset any amounts that
29
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it claims to be due and payable from AOL against amounts otherwise payable
by MP to AOL.
25 Applicable Law; Jurisdiction. This Agreement will be interpreted, construed
and enforced in all respects in accordance with the laws of the
Commonwealth of Virginia except for its conflicts of laws principles..
26 Export Controls. Both Parties will adhere to all applicable laws,
regulations and rules relating to the export of technical data and will not
export or re-export any technical data, any products received from the
other Party or the direct product of such technical data to any proscribed
country listed in such applicable laws, regulations and rules unless
properly authorized.
27 Headings. The captions and headings used in this Agreement are inserted for
convenience only and will not affect the meaning or interpretation of this
Agreement.
28 Counterparts. This Agreement may be executed in counterparts, each of which
will be deemed an original and all of which together will constitute one
and the same document.
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CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS EXHIBIT. THE
CONFIDENTIAL PORTIONS HAVE BEEN REDACTED AND ARE DENOTED BY [*]. THE
CONFIDENTIAL PORTIONS HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
SPONSORSHIP AGREEMENT
This Sponsorship Agreement ("Agreement") is entered into as of May 31,
1998 (the "Effective Date") by and between Net Grocer, Inc. a Delaware
corporation ("Net Grocer") with offices at 333 Seventh Ave., 11th Floor, New
York, NY 10001 and iVillage, Inc., a Delaware corporation, ("iVillage") with
offices at 170 Fifth Avenue, New York, New York 10010.
WHEREAS, iVillage operates a site on the World Wide Web and America
Online which contains channels including Parent Soup, ParentsPlace.com, Better
Health and Armchair Millionaire as well as career, fitness & beauty, food,
relationships and work from home channels (all such sites and channels being
the "Network").
WHEREAS, Net Grocer operates an online supermarket/grocery service
whereby customers are able to shop for and purchase one or more goods as may be
found in typical high-volume supermarkets which are then shipped to customers
upon receipt of an order ("Supermarket Service") and Net Grocer seeks to
provide this Supermarket Service to Users of the Network.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, iVillage and Net Grocer hereby
agree as follows:
1. Definitions.
A. "Net Grocer Goods" means the products offered for sale by Net
Grocer including all products that could be found in a large format supermarket
or grocery store.
B. "Jump Page" means the co-branded page or pages hosted by iVillage,
which shall reside below the navigational bar (said navigational bar may
contain advertisements sold by iVillage), and which shall link to the iVillage
Supermarket Site. The Jump Page shall (i) be designed by both parties, although
iVillage shall have final approval over such design, (ii) be in the form of a
full horizontal page with a minimum of no scroll and (iii) contain at a
minimum, a prominently featured Link to the iVillage Supermarket Site in the
form of a clearly labeled button, accompanied with mutually determined
descriptive text. The Jump Page shall be exclusively devoted to iVillage and
Net Grocer.
C. "iVillage Supermarket Site" means the customized, co-branded
version of the Net Grocer Site located on Net Grocer's servers, which Net
Grocer will use commercially reasonable good faith efforts to provide, as soon
as possible, in the form of a framed site. As soon as possible, prominently
featured "back to" links shall be placed throughout the iVillage Supermarket
Site. Although iVillage has final approval and sole discretion with respect to
the name chosen for the iVillage Supermarket Site, the parties agree that the
Net Grocer name will be acknowledged in the iVillage Supermarket Site name.
D. "User" means an individual who accesses the Network.
E. "New Customer" means a User who has never previously ordered from
Net Grocer and who enters the iVillage Supermarket Site through the Jump Page
and places and pays for an order for Net Grocer's Goods at that time. At such
time as Net Grocer has the technical capability to track the following, New
Customer shall also mean a User who returns to the iVillage
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Supermarket Site to purchase Net Grocer Goods after placing an order, but not
completing the transaction.
F. "Repeat Customer" means a User who places and pays for an order for
Net Grocer's Goods and who previously qualified as a New Customer.
G. "Net Grocer Services" means the Supermarket Services offered by Net
Grocer via the Net Grocer Site.
H. "Net Grocer Site" means the Web site maintained and operated by Net
Grocer, currently located at the URL www.netgrocer.com.
I. "Net Grocer's Competitors" means any online or offline supermarket,
grocery store, or similar store which generally offers selections of consumer
packaged grocery goods and/or fresh groceries of a similar nature to those
selections currently offered by Net Grocer (but specifically without requiring
a comprehensive selection of those selections offered by Net Grocer and without
precluding from the definition of Net Grocer Competitors, any such stores which
offer a more comprehensive selection of such goods and groceries), including
without limitation those companies set forth on Exhibit B hereto. Net Grocer
may request in writing, and iVillage shall not unreasonably withhold the
addition of other competitors to Exhibit B, based on the above criteria for
such competitor. Notwithstanding the foregoing, based on their respective
current products sold, the following shall not be deemed Net Grocer's
Competitors: Godiva, Omaha Steaks and Harry & Davids.
J. "Marks" means trade names, trademarks, service marks, products and
logos.
K. "Transaction Revenue" means revenue derived in connection with New
Customer Fees, Repeat Customer Fees and/or Click-Through Fees, as defined in
Section 5 herein.
L. "Food Channel" means the area of the Network containing primarily
food-related content.
M. "Shopping Channel" means the area of the Network containing links
to retail and shopping outlets.
N. "Impressions" means any page on the Network, excluding the Jump
Page, where an advertisement banner on the iVillage Supermarket Site appears as
a link above the fold and any feature (such as a tool) and/or editorial mention
(which may appear above or below the fold).
O. "Link" means a descriptive or graphical link or icon which, in
iVillage's sole discretion, directs the User (i) directly to the iVillage
Supermarket Site or (ii) to the Jump Page which shall direct Users exclusively
to the iVillage Supermarket Site.
2. Term and Termination.
A. Term. The term of this Agreement shall commence on June 29, 1998
and shall terminate on the last day of Year Two, as defined herein, unless
terminated earlier as provided herein. The first year of the term of this
Agreement ("Year One") shall commence on June 29, 1998 and the second year of
the term of this Agreement ("Year Two") shall commence on June 29, 1999.
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B. Termination. In the event of a material breach by either party of
any term of this Agreement, the non-breaching party may terminate this
Agreement by written notice to the breaching party if the breaching party fails
to cure such material breach within thirty (30) days of receipt of written
notice thereof. In addition to any other grounds for termination as set forth
in this Agreement, either party may terminate this Agreement effective upon
written notice stating its intention to terminate in the event either party (i)
ceases to function as a going concern or to conduct operations in the normal
course of business, or (ii) has a petition filed by or against it under any
state or federal bankruptcy or insolvency law which petition has not been
dismissed or set aside within sixty (60) days of its filing.
3.Promotion.
A. Placement and Integration.
(i) iVillage shall create and include a Link on the Food Channel. The size
and placement of the Link shall be determined by iVillage in its sole
discretion, but in any event shall be similar in prominence to current
links appearing on the Food/Shopping pages (as depicted in the attached
exhibit), or in the event the page is redesigned by iVillage, in such
manner as to be consistent in look and feel with any other prominent
link appearing on the page and at a minimum so as to maintain
legibility of the Net Grocer logo and tag line. During the term of this
Agreement, iVillage shall feature the Net Grocer Services in a
promotion spot, above the fold, on the Food Channel.
(ii) iVillage shall create and include a Link on the Shopping Channel, but
in any event shall be similar in prominence to current links appearing
on the Food/Shopping pages (as depicted in the attached exhibit), or in
the event the page is redesigned by iVillage, in such manner as to be
consistent in look and feel with any other prominent link appearing on
the page and at a minimum so as to maintain legibility of the Net
Grocer logo and tag line. When Net Grocer is featured in a featured
promotional area of the Shopping Channel, that Link shall also be
included in the calculation of Impressions.
(iii) iVillage shall also integrate the iVillage Supermarket Site into other
aspects of the iVillage Web Site as appropriate and as determined in
iVillage's sole discretion, such as emails, editorial mentions and
newsletters.
(iv) The parties will work together to design and develop content for the
iVillage Supermarket Site.
(v) iVillage will code all unique Links and banner advertisements to Net
Grocer using a code reasonably specified by Net Grocer. Within the
constraints of iVillage's advertisement serving software, iVillage
shall use its best efforts to provide to Net Grocer on a weekly basis
and in electronic form, a report showing the number of Impressions and
click-throughs for banner advertisements and Links.
B. Impressions.
(i) During Year One, iVillage will provide (the "Impression Guarantee") (a)
[*] Impressions throughout relevant areas of the Network (excluding the
Shopping Channel), designed to maximize click-
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throughs, which shall include Impressions on the Food Channel,
advertisement banners, and mentions in newsletters, to be apportioned
throughout Year One as follows:
- ---------------------------- --------------------------------------------------
Quarter Total # of Impressions per Quarter
- ---------------------------- --------------------------------------------------
1 [*]
- ---------------------------- --------------------------------------------------
2 [*]
- ---------------------------- --------------------------------------------------
3 [*]
- ---------------------------- --------------------------------------------------
4 [*]
- ---------------------------- --------------------------------------------------
and (b) five million (5,000,000) Impressions on the Shopping Channel to
be apportioned throughout Year One as follows:
- ---------------------------- -------------------------------------------------
Quarter Total # of Impressions per Quarter
- ---------------------------- -------------------------------------------------
1 [*]
- ---------------------------- -------------------------------------------------
2 [*]
- ---------------------------- -------------------------------------------------
3 [*]
- ---------------------------- -------------------------------------------------
4 [*]
- ---------------------------- -------------------------------------------------
(ii) If iVillage is unable to deliver the total number of Impressions for a
given quarter as set froth in this Section 3.B(i), iVillage shall use
commercially reasonable efforts to correct such shortfall in the next
subsequent quarter. If, at the end of Year One, iVillage has not
delivered the Impression Guarantee, Net Grocer may terminate this
Agreement with fifteen (15) days written notice to iVillage stating its
intention to do so. In accordance with such termination, iVillage's
only remaining obligations shall be that of fulfilling the undelivered
Impressions through the placement of Net Grocer advertisement banners
and newsletter mentions throughout the Network as determined by
iVillage, and until iVillage has fulfilled these Impressions, iVillage
shall continue to maintain the exclusivity obligation as set forth in
Section 6. If iVillage has not delivered the Impression Guarantee by
the end of Year One, and Net Grocer does not seek to terminate the
Agreement, iVillage shall fulfill the undelivered Impressions through
the placement of Impressions as set forth above in Section 3.B.(i)(a)
and 3.B.(i)(b), and iVillage and Net Grocer will continue to be held to
all other obligations as set forth in this Agreement.
(iii) During Year Two, iVillage will provide (the "Impression Guarantee") (a)
[*] Impressions in relevant areas of the Network (excluding the
Shopping Channel), designed to maximize click-throughs, which shall
include Impressions on the Food Channel, advertisement banners and
mentions in newsletters to be apportioned throughout Year Two as
follows:
- ---------------------------- --------------------------------------------------
Quarter Total # of Impressions per Quarter
- ---------------------------- --------------------------------------------------
1 [*]
- ---------------------------- --------------------------------------------------
2 [*]
- ---------------------------- --------------------------------------------------
3 [*]
- ---------------------------- --------------------------------------------------
4 [*]
- ---------------------------- --------------------------------------------------
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and (b) [*] Impressions on the Shopping Channel to be apportioned
throughout Year Two as follows:
- ---------------------------- ------------------------------------------------
Quarter Total # of Impressions per Quarter
- ---------------------------- ------------------------------------------------
1 [*]
- ---------------------------- ------------------------------------------------
2 [*]
- ---------------------------- ------------------------------------------------
3 [*]
- ---------------------------- ------------------------------------------------
4 [*]
- ---------------------------- ------------------------------------------------
In the event that iVillage is unable to deliver the total
abovementioned Impressions by the end of Year Two, the term of the
Agreement shall extend until iVillage "makes good" the amount through
placement of Impresssions throughout the Network as determined by
iVillage. Until iVillage has fulfilled these Impressions, iVillage
shall continue to maintain the exclusivity obligation as set forth in
Section 6
4. Net Grocer's Obligations.
A. Jump Page. iVillage and Net Grocer shall cooperate in the creation
of a co-branded Jump Page. iVillage shall be responsible for hosting and
maintaining the Jump Page on its servers. If, during the term of the Agreement,
the Jump Page is not effective with respect to customer acquisition, Net Grocer
agrees to promptly consult with iVillage for the purpose of increasing the
productivity of the Jump Page.
B. Establishing the Service. Net Grocer shall design and develop a
customized and co-branded version of the Net Grocer Web site for iVillage in a
manner whereby Users can easily determine if they are eligible to receive the
Net Grocer Services.
C. Customer Service. Net Grocer shall, at its sole expense, promptly
forward to iVillage any inquiries it receives from Users regarding the Network.
iVillage shall, at its sole expense, promptly forward to Net Grocer any
inquiries it receives from Users regarding the Net Grocer Services.
D. Fulfillment. Net Grocer shall be solely responsible for (i)
fulfilling all orders for the Net Grocer Goods and (ii) calculating, collecting
and paying all appropriate taxes associated with payment processing. The Net
Grocer Goods will be supported by the same warranty and return policy for such
goods as offered to other Net Grocer customers.
E. Taxes. Net Grocer shall be exclusively liable and shall bear total
responsibility for payment of any and all sales, property or other taxes due in
connection with the sale of Net Grocer Goods, other than income taxes or
similar taxes required to be paid by iVillage as a result of Transaction
Revenue paid hereunder.
F. New Customer Information. Net Grocer shall develop, maintain and
own a database of New Customers. During the term of this Agreement, upon
iVillage's request, Net Grocer shall provide iVillage with access to
demographics and transaction information contained in the New Customer
Database, using a mutually agreeable customer identifier, in machine readable
form, free of charge. In no event will Net Grocer be obligated to disclose
contact information
5
<PAGE>
regarding the customer, such as name and address. During the term of this
Agreement and for six (6) months thereafter, iVillage may use the New Customer
Database only for targeted advertising purposes on the Network. The parties
agree that iVillage shall pay Net Grocer [*] of the advertising revenue
directly derived from such advertising, less any applicable agency commission,
not in excess of prevailing market rates. iVillage shall pay Net Grocer any
such advertising revenue within thirty (30) days following the end of each
calendar quarter in which such advertising revenue is collected, accompanied by
a relevant report setting forth the gross advertising revenue and the amount
due Net Grocer.
5. Compensation.
A. Production Fee. In connection with Year One, Net Grocer agrees to
pay iVillage, within fifteen (15) days of signing this Agreement, an upfront,
nonrefundable, non-recoupable production and setup fee in the amount of [*]. In
connection with Year Two, Net Grocer agrees to pay iVillage a nonrefundable,
non-recoupable production fee of [*], payable within fifteen (15) days of the
first day of Year Two.
B. Transaction Revenue. Within thirty (30) days following the end of
each calendar quarter during the term of the Agreement, Net Grocer shall pay
iVillage the following : (i) For every New Customer, Net Grocer shall pay
iVillage a fee of [*] ("New Customer Fee"). (ii) In addition, Net Grocer shall
pay iVillage a fee of [*] per order placed by a Repeat Customer ("Repeat
Customer Fee"). (iii) Every time a unique User presence is or, but for a
technological limitation, should be recognized by Net Grocer's servers and
accesses the iVillage Supermarket Site from anywhere on the Network, Net Grocer
shall pay iVillage a fee of [*]("Click Through Fee"). Any monies owed to
iVillage in connection with a technological limitation affecting recognition of
unique User presence shall not be deemed a breach of this Agreement unless Net
Grocer fails to pay to iVillage such amount in Click Through Fees within thirty
(30) days of Net Grocer's knowledge of such amount owed to iVillage.
C. Conversion Rate. At the end of each six (6) month period during the
term of the Agreement, Net Grocer shall determine the Conversion Rate, which
shall be a fraction, the numerator of which shall equal the number of New
Customers for the previous six (6) month period and the denominator of which
shall equal the number of Users. If the Conversion Rate is equal to or greater
than [*], then Net Grocer shall pay to iVillage, an additional [*] per each New
Customer for that preceding six (6) month period.
D. Revenue Guarantee.
(i) In consideration for Net Grocer's exclusive status and for the
Impression Guarantee, both set forth in this Agreement, Net
Grocer agrees to pay the minimum Transaction Revenue fees
("Revenue Guarantee" and collectively "Revenue Guarantees") as
follows: (a) in connection with Year One, Net Grocer agrees to
pay iVillage a minimum of [*] ("Year One Guarantee"), and; (b)
in connection with Year Two, Net Grocer agrees to pay iVillage
a minimum fee of [*]("Year Two Guarantee"). Net Grocer shall
pay iVillage within thirty (30) days following the end of each
calendar quarter during the term of the
6
<PAGE>
Agreement, the payments set forth on Exhibit A (the "Quarterly
Payments"), subject to provisions of this Section 3.D.
(ii) In consideration for iVillage's delivery of the Impression
Guarantee for a given year, Net Grocer shall pay to iVillage,
one hundred percent (100%) of that year's Revenue Guarantee.
iVillage shall receive Transaction Revenue when the cumulative
amount of Transaction Revenue exceeds the cumulative amount of
Quarterly Payments. At the end of each quarter, the cumulative
Transaction Revenue shall be calculated and if that amount
equals or exceeds the cumulative Quarterly Payments, such
Transaction Revenue shall be paid to iVillage.
(iii) If iVillage does not deliver the Impression Guarantee in a
given year, Net Grocer shall pay to iVillage a fraction of that
year's Revenue Guarantee which shall be an amount equal to the
percentage of Impressions delivered by iVillage. In addition,
if iVillage does not deliver the Impression Guarantee during a
given quarter, Net Grocer shall suspend that amount of the
Quarterly Payment which is in excess of the Transaction Revenue
earned in that quarter ("Suspended Amount"), if any. Net Grocer
shall pay to iVillage the Suspended Amount upon iVillage's
delivery of the Impression Guarantee with respect to the under
delivered quarter.
(iv) Notwithstanding anything to the contrary in this Section 3.D.,
in no event shall Net Grocer be required to pay any Quarterly
Payment (or, if applicable, portion thereof) or Transaction
Revenue to the extent that such payment, together with all
other amounts paid by Net Grocer to iVillage hereunder
excluding any production fees (i.e., the cumulative Quarterly
Payments paid plus the cumulative amount of Transaction Revenue
paid), exceeds the cumulative Quarterly Payments (including the
Quarterly Payment for the quarter as to which the computation
is being calculated), except and then only to the extent that
the cumulative amount of Transaction Revenue (including the
Transaction Revenue for the quarter as to which the computation
is being calculated) exceeds the cumulative Quarterly Payments
(including the Quarterly Payment for the quarter as to which
the computation is being calculated); provided however that
upon the termination or expiration of this Agreement, to the
extent that the total amounts paid by Net Grocer to iVillage
consisting of Transaction Revenue and Quarterly Payments exceed
the Transaction Revenue required to be paid hereunder and such
amount is in excess of the Year One Guarantee, if the Agreement
is terminated at the end of Year One, or the Year Two
Guarantee, if the Agreement expires at the end of Year Two,
iVillage shall rebate to Net Grocer such overage amount, if
any, within sixty (60) days of the termination or expiration,
as the case may be, of the Agreement.
E. Reports. Payments remitted to iVillage shall be accompanied by a
statement in such reasonable detail as iVillage shall reasonably request
showing the total number of New Customer orders, Repeat Customer orders, number
of Users who click through and the amount due iVillage.
7
<PAGE>
6. Exclusivity. During the term of this Agreement, iVillage will not enter into
any agreement to display and shall not display content and/or other
banner/promotional advertising created by iVillage promoting any Net Grocer
Competitor, content and/or banner/promotional advertising created by or
received on behalf of any Net Grocer Competitor, or otherwise make available
online supermarket sales offered by any Net Grocer Competitor, in all instances
anywhere on the Network.
7. Ownership. As between iVillage and Net Grocer, iVillage will retain full and
exclusive right, title and interest in and to the Jump Page and the
intellectual property rights therein except for NetGrocer Marks and other
content created by Net Grocer and provided to iVillage for use on the Jump
Page.
8. Proprietary Rights. All intellectual property rights or proprietary property
and information, supplied or developed by either party shall be and remain the
sole and exclusive property of the party who supplied or developed same. Upon
termination of this Agreement and upon written request, the party in receipt of
the requesting party's intellectual or proprietary property and/or information
pursuant to this Agreement shall return such information to the requesting
party.
9. Publicity. iVillage and Net Grocer agree to collaborate on a joint press
release regarding the exclusive nature of Net Grocer's services on the Network
and the overall subject matter of this Agreement with quotes from iVillage and
Net Grocer sources ("Press Release"). The distribution list shall be approved
by both parties no less than five (5) business days prior to the release date.
The Press Release must be approved by the iVillage public relations department
and Net Grocer, each of which also must be made aware of any pre-briefings with
outside parties at least five (5) days in advance of any pre-briefing. In
addition, the iVillage public relations department and Net Grocer must be
informed, no less than five (5) days before the release date, of any third
party who expresses interest in the Press Release.
10. Licenses. Net Grocer grants to iVillage, during the term of this Agreement,
a royalty-free, non-exclusive, worldwide license to use, copy, reproduce,
perform and display Net Grocer's Marks in connection with this Agreement.
iVillage grants to Net Grocer during the term of this Agreement, a
non-exclusive, worldwide license to use, copy, reproduce, perform and display
iVillage's Marks in accordance with the Agreement. No right, title, license, or
interest in any Marks owned by a party or any of its affiliates is intended to
be given to or acquired by the other party, by the execution of or the
performance of this Agreement. Neither party shall use the other party's Marks
for any purpose or activity except as expressly authorized or contemplated
herein.
11. Use of Marks. The Marks may be used only pursuant to the terms and
conditions of this Agreement as a means of identifying iVillage or Net Grocer,
respectively, as the source and host of each party's respective site. Neither
party will modify, alter or obfuscate the other party's Marks or use the other
party's Marks in a manner that disparages the other party. The Marks may be
used only in a form agreed to by the Mark-owning party. The presentation of the
Marks shall at all times be such that the ownership of any particular Mark is
clear and all Marks shall bear the (R) or TM symbols where applicable. Each
party shall have the unilateral right to establish, monitor and enforce such
quality standards. Each party hereby renounces ownership of and assigns to the
other party any goodwill which accrues as a result of that party's use of the
other party's (or its licensors') Marks.
8
<PAGE>
12. Proprietary Rights. Title to and ownership of all Marks, including without
limitation, intellectual property rights applicable thereto, are and shall
remain the exclusive property of their current owner. Neither party shall take
any action to jeopardize, limit or interfere in any manner with the aforesaid
rights.
13. Audit.
A. iVillage shall have the right to examine, or to have examined by an
authorized agent, Net Grocer's books and records to verify the accuracy of
payments made to iVillage pursuant to this Agreement. iVillage is entitled to
conduct such an audit only during normal business hours and no more frequently
than two (2) times per calendar year. iVillage agrees to provide Net Grocer
with at least five (5) business days advance written notice of any audit. The
audit will be limited to revenue generated pursuant to this Agreement and the
calculation of payments due to iVillage under this Agreement. If the audit
reveals that Net Grocer has paid iVillage less than the sum to which iVillage
is entitled, Net Grocer agrees to pay iVillage the additional sums due, subject
to Net Grocer's right to dispute the audit. If such sums exceed five percent
(5%) of the total monies paid to iVillage under the Agreement, Net Grocer will
pay for all costs reasonably incurred by iVillage in connection with the audit.
B. Net Grocer shall have the right to examine, or to have examined by
an authorized agent, iVillage's books and records to verify the accuracy of
advertisement payments made to Net Grocer pursuant to Section 4.F. of this
Agreement. Net Grocer is entitled to conduct such an audit only during normal
business hours and no more frequently than two (2) times per calendar year. Net
Grocer agrees to provide iVillage with at least five (5) business days advance
written notice of any audit. The audit will be limited to advertisement revenue
generated pursuant to Section 4.F. of this Agreement and the calculation of
payments due to Net Grocer under this Agreement. If the audit reveals that
iVillage has paid Net Grocer less than the sum to which Net Grocer is entitled,
iVillage agrees to pay Net Grocer the additional sums due, subject to
iVillage's right to dispute the audit. If such sums exceed five percent (5%) of
the total monies paid to Net Grocer under the Agreement, iVillage will pay for
all costs reasonably incurred by Net Grocer in connection with the audit.
14. Confidentiality. Except as expressly set forth herein, iVillage and Net
Grocer shall maintain in confidence the terms of this Agreement. It is expected
that, pursuant to discussions to date and to this Agreement, the parties may
disclose to one another certain information ("Confidential Information"), as
defined herein, which is considered by the disclosing party to be proprietary
or confidential information. Confidential Information is defined as any
information, communication or data, in any form, including, but not limited to
oral, written, graphic or electromagnetic forms, models or samples, which the
disclosing party desires to protect against unrestricted disclosure or use,
including without limitation, business information, financial data and
marketing data. All Confidential Information shall remain the sole property of
the disclosing party and its confidentiality shall be maintained and protected
by the receiving party with the same degree of care as the receiving party uses
for its own confidential and proprietary information and the receiving party
shall not disclose such Confidential Information to any third party. The
restrictions of the use or disclosure of any Confidential Information shall not
apply to any Confidential Information: (i) after it has become generally
available to the public without breach of this Agreement by the receiving
party; (ii) is rightfully in the receiving party's possession prior to
disclosure to it by the disclosing party; (iii) is independently developed by
the receiving party; (iv) is rightfully received by the receiving party from a
third party without a duty of confidentiality; or (v) is disclosed under
operation of law.
9
<PAGE>
15. Non-Disclosure. Except as provided for in this Agreement, each Party to
this Agreement shall: (i) reproduce the other party's Confidential Information
only for purposes of this Agreement and only to the extent necessary for such
purpose; (ii) hold in confidence, and not disclose or reveal to any person or
entity, any Confidential Information disclosed under this Agreement without the
clear and express prior written consent of a duly authorized representative of
the disclosing party; (iii) safeguard the confidentiality of the Confidential
Information by using at least the same physical and other security measures as
that party uses to protect its own Confidential Information; and (iv) not use
or disclose any of the Confidential Information for any purpose at any time,
other than for the limited purpose of performance under this Agreement.
16. Confidentiality of Agreement. Unless required by law (including the
Securities and Exchange Commission or other regulatory, registration or
reporting requirements), and except to assert their rights hereunder or for
disclosures to their own employees on a "need to know" basis, the parties agree
not to disclose the terms of this Agreement or matters relating thereto without
the prior consent of the other party.
17. Representations and Warranties. Each party hereby represents and warrants
that: (a) it is a corporation duly organized and validly existing and in good
standing under the laws of the state of its incorporation, (b) it has full
power and authority to enter into this Agreement and to perform its obligations
hereunder; (c) it has obtained all permits, licenses, and other governmental
authorizations and approvals required for its performance under this Agreement;
and (d) the services to be rendered by each party under this Agreement,
excluding in the case of Net Grocer, the sale of Net Grocer Products , and each
party's Marks neither infringe nor violate any patent, copyright, trade secret,
trademark, or other proprietary right of any third party. Net Grocer will
remain solely responsible for the operation of the Net Grocer Site and iVillage
will remain solely responsible for the operation of the Network and the Jump
Page. Each party (y) acknowledges that the Network, the Jump Page and the Net
Grocer Site may be subject to temporary shutdowns due to causes beyond the
operating party's reasonable control and (z) subject to the specific terms of
this Agreement, retains sole right and control over the programming, content
and conduct of transactions over its respective site or service. EACH PARTY
SPECIFICALLY DISCLAIMS ANY REPRESENTATION OR WARRANTY REGARDING THE AMOUNT OF
SALES THAT NET GROCER MAY GENERATE DURING THE TERM AND ANY ECONOMIC OR OTHER
BENEFIT THAT EITHER PARTY MAY OBTAIN THROUGH ITS PARTICIPATION IN THIS
AGREEMENT, EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER PARTY MAKES ANY
WARRANTY WITH REGARD TO ITS GOODS OR SERVICES.
18. LIMITATION OF LIABILITY. NEITHER PARTY SHALL HAVE ANY LIABILITY HEREUNDER
FOR ANY INDIRECT, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES INCLUDING, WITHOUT
LIMITATION, LOSS OF PROFIT OR BUSINESS OPPORTUNITIES, WHETHER OR NOT THE PARTY
WAS ADVISED OF THE POSSIBILITY OF SUCH. THE FOREGOING LIMITATION OF LIABILITY
SHALL NOT APPLY TO A MATERIAL BREACH BY IVILLAGE WITH RESPECT TO SECTION 6
HEREIN.
NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE PRODUCTS AND
SERVICES CONTEMPLATED BY THIS
10
<PAGE>
AGREEMENT, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE.
19. Indemnification. Both parties agree to indemnify, defend and hold harmless
the other party and its parent, subsidiaries, affiliates, directors, employees,
successors and assigns from any and all losses, liabilities, damages, actions,
claims, expenses and costs (including reasonable attorneys' fees) which result
or arise from the breach of this Agreement by the indemnifying party. Net
Grocer further agrees to indemnify, defend and hold harmless iVillage and its
parent, subsidiaries, affiliates, directors, employees, successors and assigns
from any failure by Net Grocer to pay taxes as required in Section 4.C.
iVillage specifically disclaims any liability to Net Grocer or any third party
for any losses, liabilities, damages, actions, claims, expenses and costs
(including reasonable attorneys fees) which result or arise from fulfillment of
the Net Grocer Goods. Net Grocer shall indemnify, defend and hold harmless
iVillage, its parent, subsidiaries, affiliates, directors, employees,
successors and assigns from any and all losses, liabilities, damages, actions,
claims, expenses and costs (including reasonable attorneys' fees) which result
or arise from the quality of the Net Grocer Goods, but only to the extent that
Net Grocer is indemnified by such relevant third party vendor or supplier which
is connected with such indemnifiable matter.
20. General Provisions
A. Relationship of the Parties. Nothing contained herein shall imply
any partnership, joint venture or agency relationship between the parties and
neither party shall have the power to obligate or bind the other in any manner
whatsoever, except to the extent herein provided.
B. Severability. If any provision of this Agreement shall be declared
by any court of competent jurisdiction to be illegal, void or unenforceable,
all other provisions of this Agreement shall not be affected and shall remain
in full force and effect.
C. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
D. Notices. All notices, requests, demands, payments and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally,
telecopied or sent by nationally recognized overnight carrier, or mailed by
certified mail, postage prepaid, return receipt requested, as follows:
If to Net Grocer:
Net Grocer, Inc.
333 Seventh Avenue, 11th Floor
New York, NY 10001
Attn: President
Tel: (212) 244-0031
Fax: (212) 244-9890
If to iVillage: iVillage, Inc.
170 Fifth Avenue
New York, New York 10010
11
<PAGE>
Attention: Vice President Finance/Legal Affairs
Tel: (212) 206-3106
Fax: (212) 604-9133
E. Force Majeur. Except as otherwise expressly provided in this
Agreement, neither party shall be liable for any breach of this Agreement for
any delay or failure of performance resulting from any cause beyond such
party's reasonable control, including but not limited to the weather, strikes
or labor disputes, war, terrorist acts, riots or civil disturbances, government
regulations, acts of civil or military authorities, or acts of God
(individually, a "Force Majeur") provided the party affected takes all
reasonably necessary steps to resume full performance; provided however, that
if any such Force Majeur shall continue for thirty (30) consecutive days,
either party shall have the right to terminate this Agreement without incurring
any penalty.
F. Entire Agreement. This Agreement (i) constitutes the binding
agreement between the parties; (ii) represents the entire agreement between the
parties and supersedes all prior agreements relating to the subject matter
contained herein and (iii) may not be modified or amended except in writing
signed by the parties.
G. Survival. The following sections shall survive any termination or
expiration of this Agreement: 1, 3.B.(ii), 7, 8, 12, 14, 15, 16, 17, 18, 19 and
20.
H. Governing Law. This Agreement shall be governed by, and construed
in accordance with the laws of the State of New York without regard to the
conflicts of laws principles thereof.
J. Assignment. Neither party shall sell, transfer or assign this
Agreement or the rights or obligations hereunder, without the prior written
consent of the other party, such consent not to be unreasonably withheld or
delayed.
K. Headings. The headings of the various sections of this Agreement
have been inserted for convenience of reference only.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
For Net Grocer, Inc. For iVillage, Inc.
David Nissan Steven Elkes
- ------------------------ ------------------------------------
(Name) (Name)
President & CEO Vice President Finance/Legal Affairs
- ------------------------ ------------------------------------
(Title) (Title)
6-30-98 6-30-98
- ------------------------ ------------------------------------
(Date) (Date)
/s/ Daniel Nissan /s/ Steven Elkes
- ------------------------ ------------------------------------
(Signature) (Signature)
<PAGE>
EXHIBIT A
- ----------------------------------------- ---------------------
QUARTER QUARTERLY PAYMENT
- ----------------------------------------- ------------------------------------
- ----------------------------------------- ------------------------------------
Year One Quarter 1 [*]
- ----------------------------------------- ------------------------------------
Year One Quarter 2 [*]
- ----------------------------------------- ------------------------------------
Year One Quarter 3 [*]
- ----------------------------------------- ------------------------------------
Year One Quarter 4 [*]
- ----------------------------------------- ------------------------------------
- ----------------------------------------- ------------------------------------
Year Two Quarter 1 [*]
- ----------------------------------------- ------------------------------------
Year Two Quarter 2 [*]
- ----------------------------------------- ------------------------------------
Year Two Quarter 3 [*]
- ----------------------------------------- ------------------------------------
Year Two Quarter 4 [*]
- ----------------------------------------- ------------------------------------
<PAGE>
EXHIBIT B
OnCart
Peapod
Shopper Express
Home Runs
Home Grocer
Streamline
ShopLink
PinkDot
Groceries-To-Go
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated March 6, 1998, except for Note 1 (Basis of Presentation) as to
which the date is July 6, 1998, on our audits of the financial statements of
Net Grocer, Inc. We also consent to the reference to our Firm under the caption
"Experts."
Such report contains a paragraph which emphasizes that the effect of subsequent
strategic marketing and promotional alliancies and related payments is such
that the availability of funds to sustain the Company's activities as a going
concern through 1999 is uncertain.
/S/ PricewaterhouseCoopers LLP
New York, New York
July 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 7,763,164
<SECURITIES> 0
<RECEIVABLES> 59,796
<ALLOWANCES> (3,000)
<INVENTORY> 446,814
<CURRENT-ASSETS> 8,400,788
<PP&E> 621,524
<DEPRECIATION> (109,121)
<TOTAL-ASSETS> 9,350,153
<CURRENT-LIABILITIES> 1,279,800
<BONDS> 12,000,000
0
0
<COMMON> 1,140
<OTHER-SE> (3,930,787)
<TOTAL-LIABILITY-AND-EQUITY> 9,350,153
<SALES> 374,864
<TOTAL-REVENUES> 406,639
<CGS> 313,370
<TOTAL-COSTS> 692,365
<OTHER-EXPENSES> 2,679,347
<LOSS-PROVISION> 2,325
<INTEREST-EXPENSE> 75,014
<INCOME-PRETAX> (3,042,412)
<INCOME-TAX> 690
<INCOME-CONTINUING> (3,043,102)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
