<PAGE>
As filed with the Securities and Exchange Commission on December 8, 1999
Registration No. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
AVENUE A, INC.
(Exact name of Registrant as specified in its charter)
Washington 7319 91-1819567
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
506 Second Avenue, 9th Floor
Seattle, Washington 98104
(206) 521-8800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
Brian P. McAndrews
Chief Executive Officer
Avenue A, Inc.
506 Second Avenue, 9th Floor
Seattle, Washington 98104
(206) 521-8800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
David F. McShea Patrick J. Schultheis
Faith Wilson Jose F. Macias
Patrick J. Devine Richard C. Sohn
PERKINS COIE LLP WILSON SONSINI GOODRICH & ROSATI,
1201 Third Avenue, 40th Floor Professional Corporation
Seattle, Washington 98101-3099 5300 Carillon Point
(206) 583-8888 Kirkland, Washington 98033-7356
(425) 576-5800
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] __________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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,
check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of Each Class of Securities Aggregate Amount of
To Be Registered Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $.01 par value per share............. $60,000,000 $15,840
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o).
----------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued December 8, 1999
Shares
[LOGO OF AVENUE A, INC.]
COMMON STOCK
------------
Avenue A, Inc. is offering shares of its common stock. This is our initial
public offering and no public market currently exists for our shares. We
anticipate that the initial public offering price will be between $ and $
per share.
------------
We have filed an application for our common stock to be quoted on the Nasdaq
National Market under the symbol "AVEA."
------------
Investing in our common stock involves risks. See "Risk Factors" beginning on
page 7.
------------
PRICE $ A SHARE
------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Avenue A, Inc.
-------- ------------- --------------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total..................................... $ $ $
</TABLE>
Avenue A, Inc. has granted the underwriters the right to purchase up to an
additional shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 2000.
------------
MORGAN STANLEY DEAN WITTER
SALOMON SMITH BARNEY
THOMAS WEISEL PARTNERS LLC
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 21
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Capitalization........................................................... 23
Dilution................................................................. 24
Selected Consolidated Financial Data..................................... 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 26
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 34
Management................................................................. 45
Related-Party Transactions................................................. 54
Principal Shareholders..................................................... 56
Description of Capital Stock............................................... 58
Shares Eligible for Future Sale............................................ 60
Underwriters............................................................... 62
Legal Matters.............................................................. 64
Experts.................................................................... 64
Where You Can Find More Information........................................ 64
Index to Consolidated Financial Statements................................. F-1
</TABLE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock
and seeking offers to buy shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus
is accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock.
Until , 2000, 25 days after commencement of the offering, all
dealers that buy, sell or trade shares, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Avenue A and the common stock being sold in this offering
and the consolidated financial statements and related notes appearing elsewhere
in this prospectus.
Avenue A is a leading provider of Internet advertising services. We
integrate strategic Internet media planning and buying, proprietary ad
management technology, user profiling and data analysis systems to help
advertisers increase the effectiveness and return on investment of their
Internet advertising campaigns. Through this integrated approach we have
developed an extensive knowledge base of Internet advertising strategies,
targeting methods and media placements that perform effectively. We believe
this knowledge base grows richer and more valuable with each additional
campaign we execute and with each additional client we serve. We focus on
serving the needs of buyers of Internet advertising, providing a service that
harnesses the complexity, interactivity and dynamic nature of the Internet with
the objective of delivering the most successful advertising campaigns for our
clients. Our revenue has grown to $20.3 million in the third quarter of 1999.
Our top clients include Gateway, Microsoft, uBid and Uproar, based on revenue
in this same period.
The Internet has become an important medium for advertising and commerce.
Forrester Research, Inc. projects that online advertising expenditures in the
United States will grow from $2.8 billion in 1999 to $22.0 billion in 2004. We
believe this growth is driven by a number of factors, including the increasing
number of Internet users, the growth of e-commerce and advances in online
advertising technology. Unlike traditional media, the Internet enables the
delivery of dynamic advertisements which can be tailored for individual viewers
and quickly modified based on their response to the advertisements.
Advertisers, however, often must overcome significant challenges to take full
advantage of the Internet's potential as an advertising medium. Some of these
challenges include the scale and complexity of the Internet, significant data
analysis and technology requirements, substantial operating costs and the
limited number of service providers focused specifically on the needs of buyers
of Internet advertising.
Avenue A seeks to provide a solution to these challenges. We have designed
our service offering to meet the needs of buyers of Internet advertising. Our
media planning and ad management services use our database to create and
execute highly targeted advertising campaigns. Our scalable proprietary
technology allows us to simultaneously conduct a large number of advertising
campaigns which are delivered to a broad range of Web sites and advertising
networks. Our technology and data analysis systems measure and analyze our
clients' advertising campaigns based on criteria relevant to their specific
business objectives to help increase the return on their investments.
Our objective is to be the leading provider of Internet and other digital
media advertising services to advertisers. To achieve this goal we plan to:
. aggressively acquire new clients and develop new markets, in particular
through our Growth Markets Division, which tailors our services to
clients with smaller online advertising budgets;
. leverage our extensive database of information from prior Internet
advertising campaigns and our data analysis expertise to improve and
extend our services;
. provide superior client service through a comprehensive, integrated
offering of Internet advertising and marketing services, including our
recently launched Precision Email Service;
. continue to build, license and acquire technologies that will enable us
to plan and execute increasingly effective Internet advertising and
marketing campaigns;
. acquire complementary businesses and establish strategic relationships
with other companies, including companies that provide traditional
advertising and media services;
4
<PAGE>
. exploit emerging digital media opportunities such as interactive
television, Internet-enabled home appliances, hand-held computers and
cellular telephones; and
. expand our presence internationally in order to capitalize on the global
reach of the Internet.
We began operations in July 1997 and were incorporated in Washington in
February 1998. To expand our presence in the Internet advertising industry and
allow us to serve a broader client base, we acquired iballs LLC, an Internet
media company located in New York City, in September 1999. Our principal
executive offices are located at 506 Second Avenue, Seattle, Washington 98104,
and our telephone number is (206) 521-8800. Our World Wide Web site is
www.avenuea.com. The information contained on our Web site is not part of, or
incorporated by reference into, this prospectus.
"AVENUE A," "AVENUE A MEDIA," "AD CLUB NETWORK," "AXIS," "PRECISION E-MAIL,"
"PRECISION TARGETING" and the Avenue A logo are service marks of Avenue A for
which service mark applications are pending. "IBALLS" and the iballs LLC logo
are service marks of iballs LLC, a wholly owned subsidiary of Avenue A, for
which service mark applications are pending. This prospectus also includes
trademarks, trade names and service marks of other companies. Use or display by
Avenue A of other parties' trademarks, trade names or service marks is not
intended to and does not imply a relationship with, or endorsement or
sponsorship of Avenue A by, these other parties.
Unless the context requires otherwise, in this prospectus, the terms "Avenue
A," "we," "us" and "our" refer to Avenue A, Inc. and its subsidiaries, and
references to "iballs LLC" refer to I-Balls LLC, a wholly owned subsidiary of
Avenue A, Inc.
THE OFFERING
<TABLE>
<C> <S>
Common stock offered................................ shares
Common stock to be outstanding after this offering.. shares
Use of proceeds..................................... For general corporate
purposes, including
working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol.............. AVEA
</TABLE>
The foregoing information is based upon shares outstanding as of September
30, 1999 and excludes:
. 3,924,081 shares of common stock subject to outstanding options as of
September 30, 1999, granted under our 1998 stock incentive compensation
plan at a weighted average exercise price of $1.94 per share;
. 1,993,438 shares of common stock reserved for future grants under our
1998 stock incentive compensation plan, which includes 500,000 shares
reserved in November 1999 for future grants under that plan;
. 875,000 shares of common stock subject to outstanding options as of
September 30, 1999, granted outside of our stock incentive compensation
plans at a weighted average exercise price of $2.45 per share;
. 451,807 shares of common stock issuable upon exercise of an outstanding
warrant as of September 30, 1999 at an exercise price of $.83 per share;
and
. 1,000,000 shares of common stock reserved for issuance under our 1999
stock incentive compensation plan and 500,000 shares of common stock
reserved for issuance under our 1999 employee stock purchase plan, which
plans were approved by our board of directors in November 1999.
In addition, except as otherwise noted, all information in this prospectus:
. gives effect to the conversion of all outstanding shares of preferred
stock into 16,416,098 shares of common stock effective upon the closing
of this offering; and
. assumes no exercise of the underwriters' over-allotment option.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except share and per share data)
The pro forma basic and diluted net loss per share data in the following
table reflects the conversion of all outstanding shares of preferred stock into
16,416,098 shares of common stock effective upon the closing of this offering.
See note 2 of notes to consolidated financial statements contained elsewhere in
this prospectus for an explanation of the determination of the number of
weighted average shares used to compute pro forma basic and diluted net loss
per share amounts.
<TABLE>
<CAPTION>
Period
From Inception Nine Months Ended
(July 1, 1997) Year Ended September 30,
to December 31, December 31, -------------------
1997 1998 1998 1999
--------------- ------------ ------ -----------
(unaudited)
<S> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Total revenue............. $ 18 $ 599 $ 276 $ 34,098
Loss from operations...... (284) (3,658) (2,096) (5,585)
Net loss.................. (284) (3,646) (2,106) (5,250)
Basic and diluted net loss
per share................ $ (.50) $ (.42)
Shares used in computing
basic and diluted net
loss per share........... 7,240,455 12,394,634
Pro forma basic and
diluted net loss per
share.................... $ (.41) $ (.22)
Shares used in computing
pro forma basic and
diluted net loss per
share.................... 8,924,992 23,832,031
</TABLE>
The following table presents consolidated balance sheet data as of September
30, 1999:
. on an actual basis; and
. on an as adjusted basis to reflect the sale of shares of
common stock offered by this prospectus at an assumed initial public
offering price of $ per share, and the receipt by Avenue A of the
estimated net proceeds after deducting estimated underwriting discounts
and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
As of September 30,
1999
-------------------
Actual As Adjusted
------- -----------
(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................. $17,831 $
Working capital........................................... 12,951
Total assets.............................................. 45,923
Total liabilities......................................... 23,658
Total shareholders' equity................................ 22,265
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following risk factors and the other information
in this prospectus before investing in our common stock. Our business,
financial condition and operating results could be seriously harmed by any of
the following risks. The trading price of our common stock could decline due
to any of these risks, and you may lose all or part of your investment.
Risks Related to Our Company and Business
Our limited operating history makes evaluating our business difficult
We have only a limited operating history upon which you can evaluate our
business. Our business model is evolving and relies substantially upon the
sale of Internet advertising services. Our prospects for financial and
operational success must be considered in light of the risks frequently
encountered by early-stage companies in the Internet advertising market, many
of which may be beyond our control. These risks include our ability to:
. attract new clients and maintain current client relationships;
. achieve effective advertising campaign results for our clients;
. continue to develop and upgrade our technologies to keep pace with the
growth of the Internet advertising market and changes in technology;
. continue to expand the number of services we offer;
. manage our expanding operations; and
. maintain our reputation and build trust with our clients.
If we do not successfully address these risks, our business could suffer.
We have a history of losses and anticipate continued losses
We incurred net losses of $3.9 million for the period from our inception on
July 1, 1997 through December 31, 1998, and net losses of $5.3 million for the
nine months ended September 30, 1999. As of September 30, 1999, our
accumulated deficit was $8.6 million. We have not achieved profitability and
expect to continue to incur operating losses for the foreseeable future. We
expect to continue to make significant operating and capital expenditures and,
as a result, we will need to generate significant additional revenue to
achieve and maintain profitability. Although our revenue has grown quickly in
recent quarters, we cannot assure you that we will generate sufficient revenue
to achieve profitability. Even if we do achieve profitability, we cannot
assure you that we can sustain or increase profitability on a quarterly or
annual basis in the future. If our revenue grows more slowly than we
anticipate, or if our operating expenses exceed our expectations or cannot be
reduced, we will be unable to achieve or maintain profitability.
Our quarterly operating results are subject to fluctuations that may cause
our stock price to decline
Our quarterly operating results have fluctuated in the past and are likely
to continue to do so in the future. It is possible that in the future our
operating results in a particular quarter or quarters will not meet the
expectations of securities analysts or investors. If so, the market price of
our common stock could decline. We believe that quarter-to-quarter comparisons
of our operating results are not a good indication of our future performance
and should not be relied upon to predict the future performance of our stock
price.
Our revenue, expenses and operating results could vary significantly from
quarter to quarter for several reasons, many of which are beyond our control.
These factors include:
. demand for our advertising services and the mix of advertisements placed
and services provided;
. commitment of advertisers to Internet advertising in general;
7
<PAGE>
. addition of new clients or loss of current clients;
. seasonal fluctuations in advertising spending;
. timing variations on the part of advertisers to implement advertising
campaigns;
. changes in the availability and pricing of advertising space;
. changes in the pricing of our services or the services of our
competitors;
. introduction of new services by us or our competitors;
. timing and amount of costs relating to the expansion of our operations;
. costs related to any possible future acquisitions of technologies or
businesses;
. changes in the growth rate of Internet usage; and
. general economic and market conditions.
Our current and future expense estimates are based, in large part, on
estimates of future revenue, which is difficult to predict. In particular, we
plan to increase our operating expenses significantly in order to enhance our
proprietary technology, expand our client services, sales and marketing
operations and expand internationally. We may be unable to, or may elect not
to, adjust spending quickly enough to offset any unexpected revenue shortfall.
If our expenses are not accompanied by increased revenue in the same quarter,
our quarterly operating results would be harmed.
Our operating results may fluctuate seasonally, and these fluctuations may
cause our stock price to decline
Our stock price may decline due to seasonal fluctuations. We believe that
our operating results will fluctuate depending on the season because retail
advertisers generally purchase substantially more advertising space during the
fourth calendar quarter of each year than during other quarters, particularly
the first calendar quarter. Due to this seasonal pattern, we expect our
revenue in the first quarter of 2000 to be significantly less than our revenue
in the fourth quarter of 1999. Given our limited operating history, we cannot
be certain how pronounced these seasonal trends may be or what, if any, other
seasonal trends may emerge that would affect our business.
We rely on a limited number of clients, and the loss of a major client or a
reduction in a major client's Internet advertising budget could
significantly reduce our revenue
Our business would be harmed by the loss of any of our major clients, a
reduction in the Internet advertising budgets of any of these clients or any
significant reduction in revenue generated from these clients. A substantial
amount of our revenue to date has been derived from a limited number of
advertisers that use our services. In the third quarter of 1999, Gateway,
Microsoft, uBid and Uproar each accounted for approximately 10% or more of our
total revenue, and collectively accounted for approximately 60% of our total
revenue. In addition, our top ten clients collectively accounted for over 78%
of our revenue in the third quarter of 1999. Current clients may decide not to
continue purchasing advertising services from us or may significantly reduce
their advertising spending, and we may not be able to successfully attract
additional clients. In addition, the non-payment of amounts due to us from one
or more of our significant clients would harm our business.
Our client contracts have short terms, and the loss of a significant number
of these contracts in a short period of time could harm our business
We derive substantially all of our revenue from the sale of advertising
services under short-term advertising campaign services contracts, all of
which are cancelable upon 90 days' or less notice. In addition, these
contracts generally do not contain penalty provisions for cancellation before
the end of the contract term. The non-renewal, cancellation or deferral of a
significant number of these contracts in any one period would cause an
immediate and significant decline in our revenue and harm our business.
8
<PAGE>
We are substantially dependent on our ability to perform third-party ad
serving and any limitation on this ability could harm our business
We are substantially dependent on our ability to perform advertisement
delivery, or ad serving, on third-party Web sites, and any limitation on this
ability could harm our business. Our technology and advertising services have
been structured around third-party ad serving, and we currently do not plan to
shift our focus or diversify our services to diminish the relative importance
of third-party ad serving. Our business could suffer from a variety of factors
that limit or reduce our ability to perform third-party ad serving, including:
. refusal by Web sites or advertising networks to accept advertisements
served by us;
. technological changes that render our ad serving systems obsolete or
incompatible with the systems of Web sites or advertising networks;
. introduction of more advanced or lower-priced ad serving services by our
competitors;
. lawsuits or injunctions based on claims that our ad serving technologies
violate the proprietary rights of other parties;
. increases in ad serving directly from advertisers to Web sites; and
. interruptions, failures or defects in our ad serving systems.
We may be subject to patent infringement claims, including claims that our
ad serving technologies, processes or methods infringe the patents of
others, which may cause us to incur significant expenses, pay substantial
damages and be prevented from providing our services
Other parties may claim that our technologies, processes or methods infringe
their patents. Any such claim may cause us to incur significant expenses and,
if successfully asserted against us, may cause us to pay substantial damages
and prevent us from providing some of our services, including our core ad
serving services, which would substantially harm our business. A U.S. patent
was issued to DoubleClick Inc. in September 1999 relating to a method of
delivery, targeting and measuring of advertising over networks. This patent may
cover some of the technologies, processes or methods that we use in our ad
serving systems. DoubleClick recently brought suit against L90, Inc., one of
its competitors, claiming that L90's methods and networks for delivery,
targeting and measuring advertising over the Internet infringe this patent. We
cannot assure you that we will be able to distinguish our technologies,
processes or methods from those covered under the DoubleClick patent or that
the DoubleClick patent would be invalidated if challenged.
In addition, DoubleClick and MatchLogic, Inc., a subsidiary of At Home
Corporation, have each filed U.S. patent applications and related applications
under the Patent Cooperation Treaty that appear to cover technologies relating
to ad serving. Also, 24/7 Media, Inc. has announced that it has received a
notice of allowance for a U.S. patent application on its ad delivery technology
that 24/7 Media asserts relates to enabling technology currently in use by a
number of ad serving systems. If patents are issued pursuant to these
applications, we cannot assure you that we will be able to distinguish our
technologies, processes or methods from those covered under these patents or
that the patents would be invalidated if challenged. The patent field covering
Internet-related technologies is rapidly evolving and surrounded by a great
deal of uncertainty, and other patents or patent applications relating to the
delivery of Internet advertising may exist of which we are unaware.
Any claims that might be brought against us relating to infringement of
patents, including the DoubleClick patent and other patents that may be issued
to DoubleClick, MatchLogic or 24/7 Media, may cause us to incur significant
expenses and, if successfully asserted against us, may cause us to pay
substantial damages and limit our ability to use the intellectual property
subject to these claims. Even if we were to prevail, any litigation could be
costly and time-consuming and could divert the attention of our management and
key personnel from our business operations. Furthermore, as a result of a
patent infringement suit, we may be prevented from providing some of our
services, including our core ad serving services, unless we enter into royalty
or license agreements. We may not be able to obtain royalty or license
agreements on terms acceptable to us, or at all.
9
<PAGE>
In addition to patent infringement claims, third parties may assert other
intellectual property claims, which may cause us to incur significant
expenses, pay substantial damages and be prevented from providing our
services
In addition to patent infringement claims, third parties may claim that we
are infringing or violating their other intellectual property rights,
including their copyrights, trademarks and trade secrets, which may cause us
to incur significant expenses and, if successfully asserted against us, pay
substantial damages and be prevented from providing our services. We are aware
of third parties that use the name "Avenue A," one of which is a Canadian
advertising agency. There may be other third parties using this name of whom
we are unaware. A successful claim of intellectual property infringement
against us could substantially harm our business. Even if we were to prevail,
any litigation regarding our intellectual property could be costly and time-
consuming and divert the attention of our management and key personnel from
our business operations. Furthermore, as a result of an intellectual property
infringement suit, we may be prevented from providing some of our services or
using some of the service marks for which we have sought service mark
protection unless we enter into royalty or license agreements. We may not be
able to obtain royalty or license agreements on terms acceptable to us, or at
all.
Our intellectual property may be subject to legal challenges, unauthorized
use or infringement, which could diminish the value of our services to
existing and potential clients
If we fail to successfully enforce our intellectual property rights, the
value of our services could be diminished and our business may suffer. Our
success depends in large part on our proprietary technology. Although we
recently filed eight provisional patent applications in the United States for
aspects of our technology, processes and methods, we have not been issued any
patents to date. We cannot assure you that our patent applications will be
granted, that any future patent of ours will not be challenged, invalidated or
circumvented, or that the rights granted under any future patent of ours will
provide competitive advantages to us. Our success also depends on our
continuing use of our service marks, especially the "Avenue A" service mark.
We have recently filed service mark applications for our service marks and
cannot assure you that these applications will be approved. Even if these
applications are approved, any service marks may be successfully challenged by
others or invalidated. If our service mark applications are not approved or if
our service marks are invalidated because of prior third-party registrations,
our use of these marks could be restricted unless we entered into arrangements
with these third parties, which might not be available on commercially
reasonable terms, if at all.
We currently are reliant on a combination of copyright, trademark and trade
secret laws and confidentiality procedures to establish and protect our
proprietary rights. We may be required to spend significant resources to
monitor and enforce these rights. Third parties may obtain and use our
technology without authorization or develop similar technology independently
which may infringe our proprietary rights. We may not be able to detect such
infringements or may lose competitive position in the market before we do so.
In addition, competitors may design around our technology or develop competing
technologies substantially similar to ours. We generally enter into
confidentiality agreements with our employees and many of our consultants and
generally control access to and distribution of our technology, documentation
and other proprietary information. Despite these efforts, unauthorized parties
may attempt to disclose, obtain or use our technology. Our precautions may not
prevent misappropriation of our intellectual property, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
Any limitation on our ability to conduct targeted advertising could impair
our ability to retain existing clients and attract new clients
Any limitation on our ability to conduct targeted advertising for our
clients could harm our business. Targeted advertising is an essential element
of our business. As more advertisers demand targeted advertising services, we
will need to develop increasingly effective tools and larger databases that
can provide greater precision in targeted advertisement management and
delivery. The development of these tools and databases is technologically
challenging and expensive. We cannot assure you that we can develop any of
these tools or
10
<PAGE>
databases in a cost-effective or timely manner, if at all, and failure to do
so could limit our ability to conduct targeted advertising. Moreover, privacy
concerns may result in limitations or prohibitions on the use of Internet user
information, which could also limit our ability to conduct targeted
advertising. Any limitation or prohibition would impair our ability to retain
our existing clients and to attract new clients, which would harm our
business.
Any limitation on our ability to aggregate or use data from our clients'
advertising campaigns could decrease the value of our services, result in
significant expenditures of resources and harm our business
Any limitation on our ability to aggregate data from our clients'
advertising campaigns or to use this data could decrease the value of our
services, result in significant expenditures and harm our business. In
addition to the detailed data we collect and store for individual clients, we
aggregate non-personally identifiable data on the activity of Internet users
from the advertising campaigns of all of our clients. We rely on this data to
build user behavioral models to assist in the targeting of Internet
advertising. Although the data we aggregate from the campaigns of different
clients is, once aggregated, not identifiable by client, our clients might
decide not to allow us to collect some or all of this anonymous data or limit
our use of this data. In addition, although our advertising campaign services
contracts generally permit us to aggregate anonymous data from advertising
campaigns, our clients might nonetheless request that we discontinue using
data from their campaigns that has already been aggregated with other client
campaign data. It would be difficult if not impossible to comply with these
requests, and such requests could result in significant expenditures of
resources. Interruptions, failures or defects in our data collection and
storage systems, as well as privacy concerns regarding the collection of user
data, could also result in limitations on our ability to aggregate data from
our clients' advertising campaigns.
Our business model is unproven and evolving and may not succeed
Our business model is new and unproven, is continually evolving, and
ultimately may not succeed. We generate revenue by providing technology-based
Internet advertising services to our clients. The Internet has not been in
existence for a sufficient period of time to demonstrate its effectiveness as
an advertising medium. Internet banner advertising, email marketing and other
types of Internet advertising and marketing, as well as technology-based
methods for targeting advertisements and tracking the results of Internet
advertising, may not achieve broad market acceptance. Also, the intense
competition among Internet advertising service providers has led to the
creation of a number of alternative service offerings and pricing structures
for Internet advertisers. Our model for generating revenue may prove
unsuccessful in light of this competition. Our ability to generate revenue
from our clients will depend, in part, on our ability to:
. demonstrate to our clients that Internet advertising and marketing
services will add value and increase advertising or marketing
effectiveness;
. attract and retain clients by differentiating the services we offer; and
. obtain advertising space at competitive prices from a large base of Web
sites and advertising networks sufficient to meet the needs of our
clients.
If we fail to effectively manage our growth, our business could suffer
Failure to manage our growth could harm our business. We have grown
significantly since our inception and expect to grow quickly in the future. We
have increased our number of employees from 46 as of September 30, 1998 to 159
as of September 30, 1999. In addition, we have recently added 15 employees in
New York City in connection with our acquisition of iballs LLC, an Internet
media company. Because many of our executives, including our chief executive
officer, have only recently joined us, our management team has only worked
together for a short time and may not work together effectively.
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Future expansion could be expensive and strain our management and other
resources. In order to effectively manage growth, we must:
. continue to develop an effective planning and management process to
implement our business strategy;
. hire, train and integrate new personnel in all areas of our business,
especially in our Client Service teams;
. improve our financial and managerial controls and accounting and
reporting systems and procedures; and
. expand our facilities and increase our capital investments.
We cannot assure you that we will be able to effectively accomplish these
tasks or otherwise effectively manage our growth.
The loss of key personnel or any inability to attract and retain additional
personnel could impair our ability to maintain or expand our business
The loss of the services of any member of our management team or other key
employees could harm our business. Our future success depends to a significant
extent on the continued service of our key management, client service,
engineering, sales and technical personnel. We do not maintain key person life
insurance on any of our executive officers and do not intend to purchase any
in the future. Although we generally enter into noncompetition agreements with
our employees, our business could be harmed if one or more of our officers or
key employees decided to join a competitor or otherwise compete with us.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. In particular, we will need to hire a
significant number of client service personnel. Competition for qualified
personnel in the Internet and technology industries is intense. If we fail to
hire and retain a sufficient number of client service personnel, as well as
engineering, sales and technical personnel, we will not be able to maintain or
expand our business.
Many of our clients have limited operating histories, are unprofitable and
may not be able to pay for our services
If any of our current or future clients is unable to pay for our services,
our business could suffer. Many of our principal clients have limited
operating histories and have not achieved profitability. In the past we have
lost clients who could not pay for our services because they were unable to
secure ongoing funding. The ability of many of our clients to meet their
payment obligations is affected by the risks, expenses and difficulties
encountered by companies with limited operating histories, particularly in the
evolving Internet market.
We have many competitors and may not be able to compete successfully in the
market for Internet advertising
The market for Internet advertising is relatively new, yet intensely
competitive. Our competitors include the following:
. Internet media buyers that integrate ad serving technology and Internet
media buying, such as AppNet Inc. (through its i33 Communications
division), and MediaPlex, Inc.;
. Interactive advertising agencies, such as Modem Media . Poppe Tyson
Inc., Ogilvy & Mather Worldwide (through its OgilvyOne division) and
Saatchi & Saatchi Advertising (through its Darwin Digital Media Services
division);
. Enabling online advertising technology providers, such as AdForce, Inc.,
AdKnowledge, Inc., At Home Corporation (through its MatchLogic, Inc.
subsidiary), CMGI, Inc. (through its Engage Technologies, Inc.
subsidiary) and DoubleClick Inc.;
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. Advertising networks, such as DoubleClick Inc., Flycast Communications
Corporation, L90, Inc. and 24/7 Media, Inc.;
. Targeted email service providers, such as At Home Corporation (through
its MatchLogic, Inc. subsidiary), ClickAction Inc., Digital Impact,
Inc., DoubleClick Inc. and E-Dialog, Inc.; and
. Traditional advertising agencies that perform Internet advertising and
marketing as part of their services to clients, such as Ogilvy & Mather
Worldwide and Saatchi & Saatchi Advertising.
In addition, we compete with other traditional advertising agencies that use
traditional advertising media, and in general we compete with television,
radio, cable and print media for a share of advertisers' budgets.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
client bases and significantly greater financial, technical and marketing
resources than we have. Also, many of our current and potential competitors
have established or may establish cooperative relationships among themselves
or with third parties. In addition, several of our competitors, including
AdForce, Inc., AdKnowledge, Inc. and Flycast Communications Corporation, have
combined or are in the process of combining with larger companies with greater
resources than ours. These competitors may:
. engage in more extensive research and development;
. undertake more far-reaching marketing campaigns;
. make more attractive offers to existing and potential employees and
clients;
. adopt more aggressive pricing policies and provide services similar to
ours at no additional cost by bundling them with their other product and
service offerings;
. develop services that are equal or superior to our services or that
achieve greater market acceptance than our services; and
. develop databases that are larger than or otherwise superior to our
databases.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share. We cannot assure you that we will be able to
compete successfully, and competitive pressures may harm our business.
Consolidation in the Internet industry may impair our ability to retain our
clients
Many of our clients may be affected by rapid consolidation in the Internet
industry. Our business would suffer if we were to lose a substantial number of
clients or any of our significant clients as a result of consolidation. These
clients may be required to use the advertising services of the companies that
acquire them or of other advertising service providers.
Consolidation of Internet advertising networks and large Internet portals
may impair our ability to serve advertisements, to acquire advertising
space at favorable rates and to collect campaign data
The consolidation of Internet advertising networks and large Internet
portals could harm our business. This type of consolidation is currently
occurring at a rapid pace and may eventually lead to a concentration of
desirable advertising space on a very small number of networks and large Web
sites. This type of concentration could substantially impair our ability to
serve advertisements if these networks or large Web sites decide not to permit
us to serve advertisements on their Web sites or if they develop ad placement
systems that are not compatible with our ad serving systems. These networks or
Web sites could also use their greater bargaining power to increase their
rates for advertising space or prohibit or limit our aggregation of
advertising campaign data. In addition, concentration of desirable advertising
space in a small number of networks and Web sites could diminish the value of
our advertising campaign databases, as the value of these databases depends on
the continuous aggregation of data from advertising campaigns on a variety of
different Web sites and advertising networks.
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We may be unable to adequately protect our data warehouse information
Failure to adequately protect our data warehouse information could harm our
business. Other than typical security features in our systems, we do not take
additional steps to protect our data warehouse information. Our operations may
be susceptible to hacker interception, break-ins and other disruptions. These
disruptions may jeopardize the security of information stored in and
transmitted through our systems. If any of these disruptions were to happen to
our systems, we might be subject to lawsuits by the affected clients or the
users we profile, damage to our reputation among our current and potential
clients and significant expenditures of capital and other resources.
Any failure of our technology to perform satisfactorily could result in lost
revenue, damage to our reputation and expenditure of significant resources
Any failure of our technology to perform satisfactorily could result in lost
revenue, damage to our reputation and expenditure of significant resources. Our
technology is relatively new and complex and has had, and may
have in the future, errors, defects or performance problems. In particular, we
may encounter problems when we update our technology to expand and enhance its
capabilities. Our technology may malfunction or suffer from currently unknown
design defects that become apparent only after further use. If our technology
malfunctions or contains such defects, our systems may be rendered incompatible
with the systems used by our clients or by the Web sites and advertising
networks where we serve advertisements. Furthermore, our services could be
rendered unreliable, or be perceived as unreliable by our clients. In such
instances, we would need to expend significant resources to address these
problems, and may nonetheless be unable to adequately remedy these problems.
These problems could result in lost revenue and damage to our reputation.
Sustained or repeated system failures could significantly impair our
operations and lead to client dissatisfaction
Sustained or repeated system failures could significantly impair our
operations and reduce the attractiveness of our services to our current and
potential clients. The continuous and uninterrupted performance of these
systems is critical to our success. Our operations depend on our ability to
protect our systems against damage from fire, power loss, water damage,
earthquakes, telecommunications failures, viruses, vandalism and other
malicious acts, and similar unexpected adverse events. Clients may become
dissatisfied by any system failure that interrupts our ability to provide our
services to them. In particular, the failure of our ad serving systems,
including failures that delay or prevent the delivery of targeted
advertisements to Web sites and advertising networks, could reduce client
satisfaction and damage our reputation. Our ad serving systems, which generally
serve thousands of advertisements per second during peak periods, experienced
some significant failures prior to the second quarter of 1999, and may in the
future be subject to periodic interruptions and failures.
Our services are substantially dependent on systems provided by third
parties, over whom we have little control. Interruptions in our services could
result from the failure of telecommunications providers and other third parties
to provide the necessary data communications capacity in the time frame
required. Our ad serving systems and computer hardware are primarily located in
the Seattle, Washington metropolitan area at facilities operated by Exodus
Communications, Inc. and Verio Inc. We depend on these third-party providers of
Internet communication services to provide continuous and uninterrupted
service. We also depend upon Internet service providers that provide access to
our services. In the past, Web sites have occasionally experienced difficulties
placing advertisements delivered by our systems due to software incompatibility
or system failures unrelated to our systems. Any disruption in the Internet
access provided by third-party providers or any failure of third-party
providers to handle higher volumes of user traffic could impair our ability to
deliver advertisements and harm our business.
If we are unable to scale our technology infrastructure, we may experience
capacity constraints that could impair our ability to provide our services
to clients
If we are unable to scale our technology infrastructure, we may experience
significant capacity constraints. Our technology infrastructure may not be able
to support higher volumes of advertisements, additional clients or
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new types of Internet and digital media advertising or marketing services. The
volume of advertising delivered through our ad servers has increased from
approximately 4.1 million impressions per day in September 1998 to
approximately 85.3 million impressions per day in September 1999. Heightened
demand from existing or new clients for our services will require us to
accommodate large increases in the number of advertisements we serve, the
number of campaigns we manage and the amount of data we store. We will also
need to accommodate the introduction of new and evolving types of Internet and
digital media advertising and marketing that may require greater system
resources than current methods of Internet advertising and marketing. We may
not be able to continue to scale our technology infrastructure in a timely
manner or within budget to meet these demands. Any significant increase in the
volume of advertising services provided through our systems could strain the
capacity of our technology infrastructure and ad serving systems, which could
lead to slower response times or system failures. Such delays or system
failures could reduce our ability to place advertisements and accordingly
reduce our revenues, damage our reputation and impair our ability to retain
clients or acquire new clients.
Acquisitions or strategic investments may be unsuccessful and may divert
our management's attention and consume significant resources
In September 1999, we acquired iballs LLC, an Internet media company. We
may in the future acquire or make strategic investments in other businesses as
well as products and technologies to complement our current business. Any
future acquisition or investment may require us to use significant amounts of
cash, make potentially dilutive issuances of equity securities and incur debt.
In addition, acquisitions, including the iballs LLC acquisition, involve
numerous risks, any of which could harm our business, including:
. difficulties in the integration of the operations, technologies,
services and personnel of acquired businesses;
. diversion of management's attention from other business concerns;
. unavailability of favorable financing for future acquisitions;
. potential loss of key employees of acquired businesses;
. inability to maintain the key business relationships and the reputations
of acquired businesses;
. responsibility for liabilities of acquired businesses;
. inability to maintain our standards, controls, procedures and policies;
and
. increased fixed costs.
Clients may attempt to prohibit us from providing services to their
competitors, limiting our business opportunities
To use our services more effectively, clients often provide us with
confidential business and marketing information. Many companies are wary of
third parties having access to this information, because access by third
parties increases the risk that confidential business and marketing
information may become known, even if unintentionally, to these companies'
competitors. These confidentiality concerns may prompt our clients to attempt
to contractually prohibit us from managing the Internet advertising campaigns
of their competitors. Limitation of our client base in a particular industry
in this manner could limit the growth of our business.
International expansion could impose substantial burdens on our resources
and divert management's attention from domestic operations
International expansion of our operations could impose substantial burdens
on our resources, divert management's attention from domestic operations, and
otherwise harm our business. This expansion into international markets will
require extensive management attention and resources. In addition, we may need
to rely extensively on strategic partners in foreign countries to help conduct
our international operations, coordinate with foreign Web sites and conduct
sales and marketing efforts. Our success in international markets will depend
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to a large degree on the success of these strategic partners, over whom we may
have little control, and on their willingness to dedicate sufficient resources
to our relationships. Furthermore, international operations are subject to
several inherent risks, including:
. difficulties and costs of staffing and managing foreign offices;
. the impact of recessions in economies outside the United States;
. changes in regulatory requirements;
. export restrictions, including export controls relating to encryption
technology;
. more stringent rules relating to the collection and use of information
regarding Internet users;
. reduced protection of intellectual property rights;
. adverse tax consequences;
. political and economic instability;
. tariffs and other trade barriers; and
. fluctuations in currency exchange rates.
Our failure to address these risks adequately could harm our business.
Potential year 2000 problems with our internal systems or third-party
systems could harm our business
Potential year 2000 problems with our internal systems or third-party
systems could harm our business. Many currently installed computer systems and
software products and systems worldwide are coded to accept only two-digit
entries to identify a year in the date code field. Consequently, on or around
January 1, 2000, many of these systems could fail or malfunction because they
are not able to distinguish between the year 1900 and the year 2000. These
system failures or malfunctions could cause significant disruptions of our
operations.
As a company engaged in Internet advertising services, we rely on computer
programs and systems in connection with our services as well as with our
internal and external communication networks and systems and other business
functions. Although we believe that our internally developed software, as well
as the software, computer equipment and internal telecommunications systems
that we have purchased from third parties, are year 2000 compliant, we cannot
assure you that they are year 2000 compliant. We have not engaged any third
parties to independently verify our year 2000 readiness, nor have we assessed
potential costs associated with year 2000 risks or made any contingency plans
to address these risks. Although we have received assurances from some of the
suppliers of our third-party software, computer equipment and systems that
their products are year 2000 compliant, to date we have generally relied on
publicly available information regarding the year 2000 compliance of their
products. We also generally do not have any contractual rights with these
providers if their products fail to function due to year 2000 issues. If these
failures do occur, we may incur unanticipated expenses to remedy any problems,
including purchasing replacement software, computer equipment and systems. Any
failures of our internally developed software or the third-party software,
computer equipment and systems that we use could result in financial loss,
damage to our reputation and legal liability.
We rely on the continued operations of the Web-based computer systems of
our clients and of the vendors whose Web sites or advertising networks host
our clients' advertisements. The successful delivery of our services for our
clients depends on the satisfactory functioning of our clients' and vendors'
computer systems. If these systems fail because they are not year 2000
compliant, we may be unable to fully deliver the services that our clients
have requested, which could harm our quarterly and annual operating results.
We also rely on the satisfactory performance and reliability of the
external communication and computer networks, systems and services integral to
the Internet, such as telecommunications providers and Internet service
providers. In particular, we rely on the satisfactory performance and
reliability of the networks, systems and services of Exodus Communications and
Verio, the Internet service providers that operate our co-location facilities.
Because these external networks, systems and services are maintained or
provided by third parties, the
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success of our efforts to address the year 2000 problem depends in part on
parallel efforts being undertaken by these third parties. We have identified
and initiated communications with most of these third parties to determine the
status of their year 2000 compliance efforts. We cannot, however, assure you
that they have provided accurate or complete information, or that all of their
networks, systems or services will achieve full year 2000 compliance in a
timely fashion.
The most reasonably likely worst-case scenario for us resulting from the
year 2000 problem is that disruptions of the external third-party networks,
systems or services on which we depend would reduce or eliminate for a period
of time our ability to provide our Internet advertising services to our
clients. If these disruptions were frequent or long in duration, they could
seriously harm our business. The compliance of third-party networks, systems
and services, including telecommunications providers and Internet service
providers, is not within our control. Accordingly, a contingency plan for this
worst-case scenario does not exist, and we do not believe we will be able to
develop one.
We may need additional financing in the future, which we may be unable to
obtain
We may need additional financing in the future, which we may be unable to
obtain. Our business does not currently generate the cash needed to fund our
operations. We currently anticipate that our available cash resources combined
with the net proceeds from this offering will be sufficient to meet our
anticipated capital expenditures and working capital requirements through the
next twelve months. Thereafter, we may need to raise additional funds to
finance our operations, as well as to enhance our services, fund our
expansion, respond to competitive pressures or acquire complementary
businesses or technologies. Poor financial results, unanticipated expenses or
unanticipated opportunities that require financial commitments could give rise
to additional financing requirements sooner than we expect. If we raise
additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our existing shareholders would be
reduced, and these securities might have rights, preferences or privileges
senior to those of our common stock. Additional financing may not be available
on terms favorable to us, or at all. If adequate funds are not available or
are not available on acceptable terms, our ability to enhance our services,
fund our expansion, respond to competitive pressures or take advantage of
business opportunities would be significantly limited, and we might need to
significantly restrict our operations.
Risks Related to Our Industry
Privacy concerns could lead to limitations on the use of cookie technology
and user profiling, upon which we depend
Privacy concerns relating to "cookie" technology and user profiling could
significantly impair our ability to conduct targeted advertising campaigns and
compile data that we use to formulate campaign strategies for our clients.
Cookies are small files of information stored on a user's computer which allow
us to recognize that user's browser when we serve advertisements. Cookies are
often placed on the user's computer without the user's knowledge or consent.
Our systems use "cookies" to track Internet users and their online behavior to
build user profiles. We are substantially dependent on cookie technology and
user profiling to target our clients' advertising campaigns and measure their
effectiveness. Any reduction in our ability to use cookies or other means to
build user profiles could harm our business.
Governmental bodies concerned with the privacy of Internet users have
suggested limiting or eliminating the use of cookies or user profiling. United
States legislators in the past have introduced a number of bills aimed at
regulating the collection and use of personal data from Internet users and
additional similar bills may be considered during any congressional session.
Also, the Federal Trade Commission and the Department of Commerce recently
held hearings regarding user profiling and online privacy. In addition,
privacy concerns have led to legal and technical limitations on the use of
cookies and user profiling in some jurisdictions. For example, the European
Union recently adopted a directive addressing data privacy that may result in
limitations on the collection and use of information regarding Internet users.
Also, Germany has imposed its own laws limiting the use of user profiling, and
other countries may impose similar limitations. In addition, users may limit
or eliminate
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the placement of cookies on their computers by using third-party software that
blocks cookies, or by disabling the cookie functions of their Internet browser
software. If our ability to use cookies or build user profiles were
substantially restricted by technology, government regulation or any other
means, we would likely have to use other technology or methods that allow the
gathering of user profile data in other ways in order to provide our services
to our clients. This change in technology or methods could require significant
reengineering time and resources, and might not be done in time to avoid
negative consequences to our business. In addition, alternative technology or
methods might not be available at all, or might be prohibitively expensive.
Legislation or regulations may be adopted that could impair our ability to
provide our services to clients
Legislation or regulations may be adopted that could impair our ability to
provide our services to clients. The legal and regulatory environment
governing the Internet is uncertain and may change. Laws and regulations may
be adopted covering issues such as privacy, pricing, acceptable content,
taxation, consumer protection and quality of products and services on the
Internet. These laws and regulations could dampen the growth in use of the
Internet generally and decrease the acceptance of the Internet as an
advertising medium. In addition, due to the global nature of the Internet, it
is possible that multiple federal, state or foreign jurisdictions might
inconsistently regulate our activities or the activities of advertising
networks or Web sites. Any of these developments could harm our business.
We may not be able to adapt to rapidly changing Internet technology trends
and evolving industry standards
The Internet and Internet advertising markets are characterized by rapidly
changing technologies, evolving industry standards, frequent new product and
service introductions, and changing client demands. The introduction of new
products and services embodying new technologies and the emergence of new
industry standards may render our services obsolete. Our future success will
depend on our ability to adapt to rapidly changing technologies, enhance our
existing Internet advertising services and develop and introduce a variety of
new services to address our clients' changing demands. We may experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our services. In addition, any new services or
enhancements must meet the requirements of our current clients and must
achieve significant market acceptance. Material delays in introducing new
services and enhancements may cause clients to discontinue use of our services
and use the services of our competitors.
The Internet advertising market may develop more slowly than expected,
which could impair our ability to retain our existing clients and to
attract new clients
If the market for Internet advertising develops more slowly than we expect,
our business could suffer. Our future success is highly dependent on an
increase in the use of the Internet as an advertising medium, and on the
willingness of our potential clients to outsource their Internet advertising
and marketing needs. The Internet advertising market is new and rapidly
evolving, and it cannot yet be compared with traditional advertising media to
gauge its effectiveness. As a result, demand and market acceptance for
Internet advertising services is uncertain. Many of our current or potential
clients have little or no experience using the Internet for advertising
purposes and have allocated only a limited portion of their advertising
budgets to Internet advertising. Also, we must compete with traditional
advertising media, including television, radio, cable and print, for a share
of our clients' total advertising budgets. Our current and potential clients
may find Internet advertising to be less effective than traditional
advertising media for promoting their products and services. In addition,
"filter" software programs are available that limit or prevent advertising
from being delivered to an Internet user's computer. The widespread adoption
of such software could significantly undermine the commercial viability of
Internet advertising.
We recently expanded our service offering to include email advertising and
marketing services. The market for email advertising and marketing in general
is vulnerable to the negative public perception associated with unsolicited
email. Public perception, press reports or governmental action related to
solicited or unsolicited email could reduce the overall demand for email
advertising and marketing in general and our email services in particular.
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If the Internet infrastructure is unable to effectively support the growth
in demand placed on it, our business could suffer
We depend entirely on the Internet for revenue and the increased use of the
Internet is essential for our business to grow. Accordingly, our success will
depend, in large part, upon the maintenance of the Internet infrastructure. We
cannot assure you that the Internet infrastructure will continue to
effectively support the demands placed on it as the Internet continues to
experience increased numbers of users, frequency of use and bandwidth
requirements. Even if the necessary Internet infrastructure or technologies
are developed, we may have to spend considerable resources to adapt our
services accordingly. Furthermore, the Internet has experienced a variety of
outages and other delays due to damage to portions of its infrastructure.
Outages and delays could impair our ability to serve advertisements on Web
sites and advertising networks. Outages and delays could also adversely affect
our clients' Web sites and online operations and decrease the level of user
traffic on Web sites where our clients advertise. Such occurrences could
result in lost revenue.
Risks Related to This Offering
Our stock price will fluctuate after this offering, which could result in
substantial losses for investors
Although the initial public offering price will be determined based on
several factors, the market price for our common stock will vary from the
initial public offering price after this offering. These fluctuations could
result in substantial losses for investors. The market price of our common
stock may fluctuate significantly in response to a number of factors, many of
which are beyond our control. These factors include:
. quarterly variations in operating results;
. changes in financial estimates by securities analysts;
. announcements by us or our competitors of new products or services,
significant contracts, acquisitions or strategic relationships;
. publicity about our company, our services, our competitors, or Internet
advertising in general;
. additions or departures of key personnel;
. any future sales of our common stock or other securities; and
. stock market price and volume fluctuations of publicly traded companies.
The trading prices of Internet-related companies have been especially
volatile. Investors may be unable to resell their shares of our common stock
at or above the offering price. In the past, companies that have experienced
volatility in the market price of their stock have been subject to securities
class action litigation. We may be the target of this type of litigation in
the future. Securities litigation against us could result in substantial costs
and divert our management's attention, which could seriously harm our
business.
Future sales of shares by existing shareholders could affect our stock
price
If our shareholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall, potentially resulting in substantial losses to investors. These
sales also might make it more difficult for us to sell equity or equity-
related securities in the future at a time and price that we deem appropriate.
Based on shares outstanding as of September 30, 1999, upon completion of this
offering, we will have outstanding shares of common stock, assuming no
exercise of options after January , 2000, the conversion of all shares of
outstanding preferred stock into common stock and the exercise of an
outstanding warrant. Holders of shares will be subject to agreements
with the underwriters or us that restrict their ability to transfer their
stock for 180 days from the date of this prospectus. After these agreements
expire, an additional shares will be eligible for sale in the public
market assuming no exercise of stock options after January , 2000. For more
information see "Shares Eligible for Future Sale."
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An active public market for our common stock may not develop, which could
impede your ability to sell your shares and depress the market price of
your shares
Before this offering, you could not buy or sell our common stock on a
public market. An active public market for our common stock may not develop or
be sustained after this offering, which could impede your ability to sell your
shares and depress the market price of your shares. The market price of your
shares may vary significantly from the initial public offering price.
New shareholders will incur substantial dilution as a result of this
offering
The initial public offering price is expected to be substantially higher
than the book value per share of our outstanding common stock. As a result,
investors purchasing common stock in this offering will incur immediate and
substantial dilution. In addition, we have issued options to acquire common
stock at prices significantly below the assumed initial public offering price.
To the extent these outstanding options are ultimately exercised, there will
be further dilution to investors in this offering. For more information see
"Dilution."
Because our directors and executive officers own a large percentage of our
voting stock, your voting power may be limited
Based on the number of shares outstanding as of October 31, 1999, after
this offering, it is anticipated that our executive officers and directors
will beneficially own or control, directly or indirectly, 17,485,521 shares of
common stock, which in the aggregate will represent approximately 50.1% of the
outstanding shares of common stock. As a result, if these persons act
together, they will have the ability to exert significant control over matters
submitted to our shareholders for approval, including the election and removal
of directors and the approval of any business combination. This may delay or
prevent an acquisition or affect the market price of our stock.
Our management has discretion as to the use of the net proceeds from this
offering
Our management has broad discretion as to the use of the net proceeds that
we will receive from this offering. We intend to use these net proceeds, over
time, for general corporate purposes and working capital. We may also use a
portion of the net proceeds to expand our operations internationally or to
acquire complementary businesses or technologies, although we have no such
specific plans at this time. We cannot assure you that management will apply
these funds effectively, nor can we assure you that the net proceeds from this
offering will be invested to yield a favorable return. For more information
see "Use of Proceeds."
We have adopted antitakeover provisions that could make the sale of Avenue
A more difficult
Our articles of incorporation and bylaws contain provisions, such as
undesignated preferred stock, which could make it more difficult for a third
party to acquire us without the consent of our board of directors. In
addition, our board of directors has approved amendments to our articles of
incorporation and bylaws, which, subject to shareholder approval, will provide
for a staggered board, removal of directors only for cause, two-thirds
shareholder approval of certain business transactions, advance notice of
shareholder proposals and nominations and restrictions on the persons that may
call special shareholder meetings. These provisions may delay or prevent a
change of control of Avenue A even if this change of control would benefit our
shareholders.
20
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as may, will,
should, expect, plan, intend, anticipate, believe, estimate, predict,
potential or continue, the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results
may differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined in the Risk Factors
section above. These factors may cause our actual results to differ materially
from any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We are under no duty to update any of the forward-
looking statements after the date of this prospectus to conform such
statements to actual results or to changes in our expectations.
21
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be $ million
at an assumed initial public offering price of $ per share and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. If the underwriters' over-allotment option is exercised in
full, we estimate that our net proceeds will be approximately $ million. We
expect to use the net proceeds for general corporate purposes and working
capital. We may also use a portion of the net proceeds to expand our
operations internationally or to acquire complementary businesses or
technologies; however, we currently have no commitments or agreements and are
not involved in any negotiations with respect to any such transactions.
Pending any of these uses, we intend to invest the net proceeds of this
offering in interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain all available funds and any future earnings for use
in the operation and expansion of our business and do not anticipate paying
any cash dividends in the foreseeable future.
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
. on an actual basis;
. on a pro forma basis to reflect the conversion of all outstanding shares
of preferred stock into 16,416,098 shares of common stock effective upon
the closing of this offering; and
. on a pro forma as adjusted basis to reflect the sale of
shares of common stock offered by this prospectus at an assumed initial
public offering price of $ per share, and our receipt of the
estimated net proceeds after deducting estimated underwriting discounts
and commissions and estimated offering expenses.
You should read this table in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
(in thousands, except share
and per share data)
<S> <C> <C> <C>
Shareholders' equity:
Convertible preferred stock, $.01 par value
per share; 17,500,000 shares authorized;
16,416,098 shares issued and outstanding,
actual; no shares issued and outstanding, pro
forma and pro forma as adjusted.............. $ 164 $ -- $
Common stock, $.01 par value per share;
50,000,000 shares authorized; 15,887,992
shares issued and outstanding, actual;
32,304,090 shares issued and outstanding, pro
forma; shares issued and
outstanding, pro forma as adjusted........... 159 323
Paid-in capital............................... 47,586 47,586
Deferred stock compensation................... (16,062) (16,062)
Subscriptions receivable...................... (965) (965)
Accumulated deficit........................... (8,617) (8,617)
-------- -------- -------
Total shareholders' equity................. $ 22,265 $ 22,265 $
-------- -------- -------
Total capitalization..................... $ 22,265 $ 22,265 $
======== ======== =======
</TABLE>
The information in the table above does not include:
. 3,924,081 shares of common stock subject to outstanding options as of
September 30, 1999, granted under our 1998 stock incentive compensation
plan;
. 1,993,438 shares of common stock reserved for future grant under our
1998 stock incentive compensation plan, which includes 500,000 shares
reserved in November 1999 for future grants under that plan;
. 875,000 shares of common stock subject to outstanding options as of
September 30, 1999, granted outside of our stock incentive compensation
plans;
. 451,807 shares of common stock issuable upon exercise of an outstanding
warrant as of September 30, 1999; and
. 1,000,000 shares of common stock reserved for issuance under our 1999
stock incentive compensation plan and 500,000 shares of common stock
reserved for issuance under our 1999 employee stock purchase plan, which
plans were approved by our board of directors in November 1999.
23
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $16.6 million, or $.51 per share of common stock, assuming the
conversion of all outstanding shares of preferred stock into 16,416,098 shares
of common stock. Pro forma net tangible book value per share represents the
amount of our total tangible assets reduced by the amount of our total
liabilities, divided by the pro forma number of outstanding shares of common
stock. After giving effect to the sale of the shares of common stock
offered by this prospectus, at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses, our pro forma as adjusted net
tangible book value as of September 30, 1999 would have been $ million,
or $ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing shareholders and an
immediate dilution of $ per share to investors purchasing shares in this
offering. Dilution is determined by subtracting pro forma net tangible book
value per share after the offering from the assumed initial public offering
price per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share as of September 30,
1999............................................................. $.51
Increase per share attributable to new investors..................
----
Pro forma as adjusted net tangible book value per share after this
offering...........................................................
----
Dilution per share to new investors................................. $
====
</TABLE>
The following table sets forth as of September 30, 1999, on the pro forma
basis described above, the difference between the number of shares of common
stock purchased from us, the total consideration paid, and the average price
per share paid by the existing shareholders and by investors purchasing shares
in this offering, based upon an assumed initial public offering price of
$ per share and before deducting estimated underwriting discounts and
commissions and estimated offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 32,304,090 $47,909,000 $1.48
New investors..................
---------- --- ----------- --- -----
Total........................ 100% $ 100% $
========== === =========== === =====
</TABLE>
As of September 30, 1999, we had outstanding options to purchase 3,924,081
shares of common stock under our 1998 stock incentive compensation plan at a
weighted average exercise price of $1.94 per share, a warrant to purchase
451,807 shares of common stock at an exercise price of $.83 per share and
options to purchase 875,000 shares of common stock issuable upon exercise of
outstanding options granted outside of our stock incentive compensation plans
at a weighted average exercise price of $2.45 per share. We have also reserved
1,993,438 shares of common stock for future grant under our 1998 stock
incentive compensation plan, which includes 500,000 shares reserved in
November 1999 for future grants under that plan. In addition, we have reserved
1,000,000 shares of common stock for issuance under our 1999 stock incentive
compensation plan and 500,000 shares of common stock reserved for issuance
under our 1999 employee stock purchase plan, which plans were approved by our
board of directors in November 1999. To the extent these options or the
warrant are exercised, and to the extent we issue new options or rights under
our stock plans or issue additional shares of common stock in the future, new
investors will experience further dilution.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included elsewhere in this prospectus. The
consolidated statement of operations data for the period from inception on
July 1, 1997 to December 31, 1997 and for the year ended December 31, 1998,
and the consolidated balance sheet data as of December 31, 1997 and December
31, 1998, have been derived from our audited consolidated financial statements
and related notes thereto included elsewhere in this prospectus. The
consolidated statements of operations data for the nine-month periods ended
September 30, 1998 and 1999 and the consolidated balance sheet data as of
September 30, 1999 are derived from our unaudited consolidated financial
statements included elsewhere in this prospectus. In the opinion of
management, such unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements
referred to above and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of results of
operations for the indicated periods. Results of operations for the nine
months ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the full fiscal year or for any future period.
<TABLE>
<CAPTION>
Period From Nine Months Ended
Inception September 30,
(July 1, 1997) to Year Ended --------------------
December 31, 1997 December 31, 1998 1998 1999
----------------- ----------------- ------- -----------
(unaudited)
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenue:
Advertising services.. $ -- $ -- $ -- $ 33,425
Advertising service
fees................. 18 599 276 673
----- ---------- ------- -----------
Total revenue....... 18 599 276 34,098
Expenses:
Cost of advertising
services............. 20 125 93 28,007
Client services....... 19 382 117 2,585
Technology and
operations........... -- 1,493 973 1,796
Selling, general and
administrative....... 263 2,257 1,189 6,435
Amortization of
deferred stock
compensation......... -- -- -- 860
----- ---------- ------- -----------
Total expenses...... 302 4,257 2,372 39,683
----- ---------- ------- -----------
Loss from operations.... (284) (3,658) (2,096) (5,585)
Interest income
(expense).............. -- 12 (10) 335
----- ---------- ------- -----------
Net loss................ $(284) $ (3,646) $(2,106) $ (5,250)
===== ========== ======= ===========
Basic and diluted net
loss per share......... $ (.50) $ (.42)
Shares used in computing
basic and diluted net
loss per share......... 7,240,455 12,394,634
Pro forma basic and
diluted net loss per
share(1)............... $ (.41) $ (.22)
Shares used in computing
pro forma basic and
diluted net loss per
share(1)............... 8,924,992 23,832,031
Other Data:
Total billings(2)....... $ 18 $ 3,626 $ 1,233 $ 37,787
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, As of
------------- September 30,
1997 1998 1999
----- ------ -------------
(unaudited)
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.......................... $ 3 $ 847 $17,831
Working capital (deficit).......................... (338) (30) 12,951
Total assets....................................... 75 3,441 45,923
Total liabilities.................................. 359 2,431 23,658
Total shareholders' equity (deficit)............... (284) 1,010 22,265
</TABLE>
- --------
(1) See Note 2 of Notes to Consolidated Financial Statements for an
explanation of the method used to calculate pro forma basic and diluted
net loss per share.
(2) Total billings represents gross billings to customers for advertising
services. Although total billings is not a recognized method of revenue
recognition under generally accepted accounting principles, we believe
that total billings is a standard measure of advertising volume for the
Internet advertising industry that enables a meaningful comparison of
activity from period to period and from one company to another.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in
this prospectus. The following discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ
materially from the results contemplated by these forward-looking statements
as a result of various factors, including those discussed below and elsewhere
in this prospectus.
Overview
Avenue A is a leading provider of Internet advertising services. We
integrate strategic Internet media planning and buying, proprietary ad
management technology, user profiling and data analysis systems to help
advertisers increase the effectiveness and return on investment of their
Internet advertising campaigns. We focus on serving the needs of buyers of
Internet advertising, providing a service that harnesses the complexity,
interactivity and dynamic nature of the Internet with the objective of
delivering the most successful advertising campaigns for our clients.
Revenue
We generate revenue by providing Internet advertising services, which
include the procurement of Internet advertising space for our clients. Due to
a change in the way we structure our advertising contracts, we have changed
from accounting for our revenue primarily as advertising service fee revenue
to accounting for our revenue primarily as advertising services revenue.
Advertising service fee revenue consists of commissions earned on services we
provide to our clients. Advertising services revenue consists of the gross
value of our billings to our clients, which includes the price of the
advertising space we purchase from Web sites to resell to our clients.
We began operations in July 1997 and were incorporated in February 1998.
Through December 31, 1998, our primary source of revenue consisted of
advertising service fees. To generate advertising service fee revenue, we buy
advertising space from publisher Web sites on behalf of our clients and earn
fees based on the dollar amount of advertising space we purchase. Under
advertising service fee contracts, our clients are ultimately responsible for
payment to the publisher Web sites for the cost of the advertising space
purchased. Cost of advertising service fee revenue consists only of the cost
of delivering advertisements over the Internet.
During the first quarter of 1999, we began replacing many of our
advertising service fee contracts with advertising services contracts. All of
the clients we acquired during 1999 have entered into advertising services
contracts, and substantially all of the contracts with clients acquired in
1997 and 1998 have been converted to advertising services contracts. To
generate advertising services revenue, we purchase advertising space from
publisher Web sites and sell the purchased space to our clients. Under
advertising services contracts, we are ultimately responsible for payment to
publisher Web sites for the cost of advertising space we purchase from them.
Revenue under both advertising service fee contracts and advertising services
contracts is recognized over the period that the related advertising is
delivered.
As advertising services contracts have been phased in during 1999, revenue
has increased disproportionately relative to prior periods as a result of the
recognition of gross billings to our clients as revenue. Although we currently
derive some of our revenue from advertising service fee contracts, we expect
that the majority of our future revenue will be derived from advertising
services contracts.
To expand our presence in the Internet advertising industry and allow us to
serve a broader client base, in September 1999 we acquired iballs LLC, an
Internet media company, for a combination of cash and common stock totaling
approximately $6.1 million. We are currently seeking to replace the
advertising service fee contracts between iballs LLC and its clients with
advertising services contracts.
26
<PAGE>
Expenses
Cost of advertising services. Cost of advertising services consists of the
cost of advertising space that we purchase from publisher Web sites, including
inventory purchased by our AdClub, Inc. subsidiary, and the cost of delivering
advertisements over the Internet. AdClub, a reseller of advertising space,
sells advertising only to our clients and its operations are not material to
us as a whole.
Client services expenses. Client services expenses consist primarily of
salaries and related expenses for client service personnel. These employees
are organized into Client Service teams consisting of client strategists,
media buyers, account coordinators and media engineers. Client services
expenses also include the salaries and related expenses for personnel in our
data analysis group.
Technology and operations expenses. Technology and operations expenses
consist of salaries and related costs for information technology and software
development personnel. In addition, these expenses include the cost of housing
our ad servers and other equipment at third-party co-location facilities.
Selling, general and administrative expenses. Selling, general and
administrative expenses consist primarily of salaries and related expenses for
executive, sales, finance, marketing, human resource and administrative
personnel and other general corporate expenses including amortization of
goodwill and depreciation of property and equipment. In addition, these
expenses include marketing costs such as trade shows and the costs of
advertising our services in trade publications.
Amortization of deferred stock compensation. Amortization of deferred stock
compensation consists of expenses related to employee stock option grants with
option exercise prices below the deemed fair value of our common stock as of
the date of grant. The amount of deferred stock compensation resulting from
these grants is being amortized on an accelerated basis over a four-year
period.
Net Losses
We incurred net losses of $284,000 for the period from our inception on
July 1, 1997 through December 31, 1997, $3.6 million for the year ended
December 31, 1998 and $5.3 million for the nine months ended September 30,
1999, and had an accumulated deficit of $8.6 million as of September 30, 1999.
We expect operating losses and negative cash flow to continue for the
foreseeable future. We anticipate our net losses will increase from current
levels, since we expect to incur additional costs and expenses related to
brand development, marketing and other promotional activities, deferred
compensation expenses, amortization of goodwill resulting from the acquisition
of iballs LLC, the expansion of our operations, increasing investment in the
systems that we use to process client orders and payments, and the expansion
of our service offering.
We believe that our operating results will continue to be subject to
seasonal fluctuations because retail advertisers generally purchase
substantially more advertising space during the fourth calendar quarter of
each year than during other quarters, particularly the first calendar quarter.
Due to this seasonal pattern, we expect our revenues in the first quarter of
2000 to be less than those in the fourth quarter of 1999.
Results of Operations
Selected Quarterly Results of Operations
Because we have a limited operating history, we believe that year-to-year
comparisons are less meaningful than an analysis of our recent quarterly
operating results. Accordingly, we are providing a discussion and analysis of
our results of operations for the five quarters ended September 30, 1999.
27
<PAGE>
The following tables present, in dollars and as a percentage of revenue,
unaudited statements of operations data for the five quarters ended September
30, 1999. This information reflects all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of
such information. The results of any quarter are not necessarily indicative of
results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30,
1998 1998 1999 1999 1999
------------- ------------ --------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenue:
Advertising
services........... $ -- $ -- $ 2,021 $11,369 $20,035
Advertising service
fees............... 245 323 436 121 116
------ ------- ------- ------- -------
Total revenue..... 245 323 2,457 11,490 20,151
Expenses:
Cost of advertising
services........... 31 32 1,766 9,498 16,743
Client services..... 64 265 460 785 1,340
Technology and
operations......... 435 520 498 530 768
Selling, general and
administrative..... 572 1,068 1,187 2,064 3,184
Amortization of
deferred stock
compensation....... -- -- -- 3 857
------ ------- ------- ------- -------
Total expenses.... 1,102 1,885 3,911 12,880 22,892
------ ------- ------- ------- -------
Loss from operations.. (857) (1,562) (1,454) (1,390) (2,741)
Interest income
(expense)............ (6) 22 22 112 201
------ ------- ------- ------- -------
Net loss.............. $ (863) $(1,540) $(1,432) $(1,278) $(2,540)
====== ======= ======= ======= =======
<CAPTION>
Three Months Ended
--------------------------------------------------------------
September 30, December 31, March 31, June 30, September 30,
1998 1998 1999 1999 1999
------------- ------------ --------- -------- -------------
<S> <C> <C> <C> <C> <C>
As a Percentage of
Revenue:
Revenue:
Advertising
services........... -- % -- % 82.3 % 98.9 % 99.4 %
Advertising service
fees............... 100.0 100.0 17.7 1.1 .6
------ ------- ------- ------- -------
Total revenue..... 100.0 100.0 100.0 100.0 100.0
Expenses:
Cost of advertising
services........... 12.7 9.9 71.9 82.7 83.1
Client services..... 26.1 82.0 18.7 6.8 6.6
Technology and
operations......... 177.6 161.0 20.3 4.6 3.8
Selling, general and
administrative..... 233.4 330.7 48.3 18.0 15.8
Amortization of
deferred stock
compensation....... -- -- -- -- 4.3
------ ------- ------- ------- -------
Total expenses.... 449.8 583.6 159.2 112.1 113.6
------ ------- ------- ------- -------
Loss from operations.. (349.8) (483.6) (59.2) (12.1) (13.6)
Interest income
(expense)............ (2.4) 6.8 .9 1.0 1.0
------ ------- ------- ------- -------
Net loss.............. (352.2)% (476.8)% (58.3)% (11.1)% (12.6)%
====== ======= ======= ======= =======
</TABLE>
28
<PAGE>
Revenue. Revenue increased in each of the five quarters ended September 30,
1999. These increases were primarily due to the change from the use of
advertising service fee contracts to the use of advertising services contracts
and an increase in the number of our clients from 12 as of September 30, 1998
to 47 as of September 30, 1999.
Cost of advertising services. Cost of advertising services increased in each
of the five quarters ended September 30, 1999. These increases were primarily
due to increases in the volume of advertising space we purchased in each
quarter. Cost of advertising services as a percentage of revenue also
increased during this period. These increases were primarily due to the change
from the use of advertising service fee contracts to the use of advertising
services contracts. During the quarters ended September 30, 1998 and December
31, 1998, revenue consisted of commissions derived from our advertising
service fee contracts with our clients during those periods. These commissions
have no associated cost of revenue. During the quarter ended March 31, 1999,
revenue consisted of both commissions derived from advertising service fee
contracts and revenue derived from advertising services contracts. During the
quarters ended June 30, 1999 and September 30, 1999, revenue consisted almost
entirely of revenue derived from advertising services contracts. Cost of
advertising services revenue as a percentage of revenue remained essentially
unchanged at approximately 83% during the quarters ended June 30, 1999 and
September 30, 1999.
Client services. Client services expenses increased in each of the five
quarters ended September 30, 1999. These increases were primarily due to the
increase in the number of our Client Service teams during this period, which
was in response to the increase in the number of our clients from 12 as of
September 30, 1998 to 47 as of September 30, 1999. We anticipate continued
increases in our client services expenses to accommodate growth in our client
base.
Technology and operations. Technology and operations expenses increased in
each of the five quarters ended September 30, 1999, with the exception of a
decrease from the fourth quarter of 1998 to the first quarter of 1999. These
increases were primarily due to increases in the number of personnel in
software development, production systems and information systems. Due to our
increasing volume of advertisements served during this period, we have
increased our capacity for ad serving, in part by adding computer equipment to
the data centers maintained at our co-location facilities, resulting in
increased rental charges. We anticipate continued increases in our technology
and operations expenses in future periods as we add additional technology-
based services to our service offering, supply additional productivity tools
to our Client Service teams and accommodate additional clients.
Selling, general and administrative. Selling, general and administrative
expenses increased in each of the five quarters ended September 30, 1999.
These increases were primarily due to increases in the number of personnel in
executive, sales, marketing, finance, accounting and administrative positions,
and the amortization of goodwill resulting from the purchase of iballs LLC in
September 1999. During this period, we added substantially to our management
team, developed an in-house accounting function, created a marketing
department and increased our recruiting efforts. We anticipate continued
growth of our selling, general and administrative expenses as we expand our
administrative and marketing staff, add new marketing programs, incur
additional costs associated with becoming a public company and record
amortization of goodwill in connection with the acquisition of iballs LLC.
Amortization of deferred stock compensation. During the quarter ended
September 30, 1999, we recorded total deferred stock compensation of $16.9
million. We have recorded aggregate amortization of deferred stock
compensation of $860,000 through September 30, 1999. The amount is being
amortized on an accelerated basis over the four-year vesting period of the
applicable options. The remaining unamortized balance of $16.1 million will be
fully amortized by the quarter ending September 30, 2003. We expect to incur
additional deferred stock compensation and increased amortization of stock
compensation in the fourth quarter of 1999.
Interest income (expense). Interest income (expense) consists of earnings on
our cash and cash equivalents. Interest income increased for the quarter ended
June 30, 1999. This increase was primarily due to higher cash balances
resulting from our Series B preferred stock financing, which was completed in
February 1999, and our Series C preferred stock financing, which was completed
in May 1999. Interest income decreased
29
<PAGE>
in the quarter ended September 30, 1999 due to lower cash balances resulting
from the purchase of iballs LLC in September 1999 and the financing of our
operating losses.
Our quarterly and annual revenue, expenses and operating results have
fluctuated in the past and are likely to fluctuate significantly in the future
due to a variety of factors, many of which are beyond our control. Because of
these fluctuations, we believe that period-to-period comparisons are not a
good indication of our future financial performance. We may not be able to
sustain or increase our level of revenue or our rate of revenue growth on a
quarterly or annual basis. Our quarterly or annual operating results may not
meet the expectations of securities analysts or investors. If this happens,
the price of our stock could decline. See "Risk Factors--Our quarterly
operating results are subject to fluctuations that may cause our stock price
to decline," "--Our operating results may fluctuate seasonally, and these
fluctuations may cause our stock price to decline," "--We rely on a limited
number of clients, and the loss of a major client or a reduction in a major
client's Internet advertising budget could significantly reduce our revenue"
and "--Our business model is unproven and evolving and may not succeed."
Comparison of Nine Months Ended September 30, 1998 and 1999
The following table presents, for the periods indicated, certain statement
of operations data as a percentage of total revenue.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended September 30,
December 31, ----------------
1998 1998 1999
------------ ------- ------
(unaudited)
<S> <C> <C> <C>
Revenue:
Advertising services...................... -- % -- % 98.0 %
Advertising service fees.................. 100.0 100.0 2.0
------ ------- ------
Total revenue........................... 100.0 100.0 100.0
Expenses:
Cost of advertising services.............. 20.9 33.7 82.1
Client services........................... 63.8 42.4 7.6
Technology and operations................. 249.2 352.5 5.3
Selling, general and administrative....... 376.8 430.8 18.9
Amortization of deferred stock
compensation............................. -- -- 2.5
------ ------- ------
Total expenses.......................... 710.7 859.4 116.4
------ ------- ------
Loss from operations........................ (610.7) (759.4) (16.4)
Interest income (expense)................... 2.0 (3.6) 1.0
------ ------- ------
Net loss.................................... (608.7)% (763.0)% (15.4)%
====== ======= ======
</TABLE>
Revenue. We began to generate revenue during the second quarter of 1998.
Revenue increased from $276,000 for the nine months ended September 30, 1998
to $34.1 million for the nine months ended September 30, 1999. This increase
was due to the change in the majority of our contracts from advertising
service fee contracts to advertising services contracts and an increase in the
number of our clients from 12 as of September 30, 1998 to 47 as of September
30, 1999.
Cost of advertising services. Cost of advertising services increased from
$93,000, or 33.7% of revenue, for the nine months ended September 30, 1998 to
$28.0 million, or 82.1% of revenue, for the nine months ended September 30,
1999. This increase in cost of advertising services was primarily due to
increases in the volume of advertising space we purchased during this period.
The increase in cost of advertising services as a percentage of revenue was
primarily due to the change from the use of advertising service fee contracts
to the use of advertising services contracts.
Client services. Client services expenses increased from $117,000, or 42.4%
of revenue, for the nine months ended September 30, 1998 to $2.6 million, or
7.6% of revenue, for the nine months ended
30
<PAGE>
September 30, 1999. This increase was primarily due to the increase in the
number of our Client Service teams, which was in response to the increase in
the number of our clients from 12 as of September 30, 1998 to 47 as of
September 30, 1999.
Technology and operations. Technology and operations expenses increased from
$973,000, or 352.5% of revenue, for the nine months ended September 30, 1998
to $1.8 million, or 5.3% of revenue, for the nine months ended September 30,
1999. This increase was primarily due to increases in the number of personnel
in software development, production systems and information systems.
Selling, general and administrative. Selling, general and administrative
expenses increased from $1.2 million, or 430.8% of revenue, for the nine
months ended September 30, 1998 to $6.4 million, or 18.9% of revenue, for the
nine months ended September 30, 1999. This increase was primarily due to
increases in the number of personnel in executive, sales, marketing, finance,
accounting, human resources and administrative positions. The increase was
also due to increases in the amount of sales commissions and increased
marketing expenses.
Amortization of deferred stock compensation. Amortization of deferred stock
compensation began in the quarter ended June 30, 1999. We have recorded
aggregate deferred stock compensation of $16.9 million and recorded aggregate
amortization of deferred stock compensation of $860,000 through September 30,
1999.
Comparison of Years Ended December 31, 1997 and 1998
We began operations in July 1997, but did not begin to generate significant
revenue until after we were incorporated in February 1998. Our total expenses
increased from $302,000 in 1997 to $4.3 million in 1998. The increase in
expenses was primarily due to increases in client services expenses,
technology and operations expenses, and selling, general and administrative
expenses as our business grew during this period.
Provision for Income Taxes
As of December 31, 1998, we had net operating loss carryforwards for federal
income tax reporting purposes of approximately $3.0 million, and research and
development tax credit carryforwards of approximately $40,000 which begin to
expire in 2001 if not utilized. The Internal Revenue Code contains provisions
that limit the use in any future period of net operating loss and credit
carryforwards upon the occurrence of specified events, including significant
change in ownership interests. We had deferred tax assets, including our net
operating loss carryforwards and tax credits, totaling approximately $7.7
million as of September 30, 1999. We have recorded a valuation allowance for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset balance. See note 5 of the notes to our consolidated
financial statements included elsewhere in this prospectus.
Liquidity and Capital Resources
Since inception we have financed our operations primarily through the net
proceeds from the private placement of equity securities, which raised
approximately $28.1 million through September 30, 1999.
As of September 30, 1999, we had cash and cash equivalents of $17.8 million.
We have a $1.0 million equipment term loan facility with Silicon Valley Bank
which was unused as of September 30, 1999.
Cash used in operating activities was $2.7 million for the year ended
December 31, 1998 and cash provided by operating activities was $7,000 for the
nine months ended September 30, 1999.
Cash used in investing activities was $1.1 million for the year ended
December 31, 1998 and $5.8 million for the nine months ended September 30,
1999. Cash used in investing activities for the nine months ended
September 30, 1999 was primarily related to the purchase of iballs LLC and
purchases of computer equipment to expand our ad serving capacity and to equip
employees hired during that period.
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Cash provided by financing activities was $4.7 million for the year ended
December 31, 1998 and $22.8 for the nine months ended September 30, 1999. The
cash provided by financing activities during the nine months ended September
30, 1999 primarily related to the net proceeds from private placements of
equity securities, which raised approximately $21.9 million through September
30, 1999.
On October 1, 1999 we entered into a lease for our headquarters facility in
Seattle, Washington. This lease expires in September 2004 and contains one
five-year renewal option. We expect this facility to be fully utilized during
the second half of 2000 and we anticipate that we will require additional
office space.
We have no material commitments other than obligations under operating
leases for office space and office equipment of $6.5 million as of September
30, 1999, of which some commitments extend through 2004. Commitments under our
current facility lease are $5.6 million for the next five years. We are also
committed at September 30, 1999 to pay rent of $433,000 under our former
facility sublease which ends in June 2001. However, this commitment is offset
by rental income of $420,000 from our sublease of this facility to another
tenant.
Our operating expenses will consume a material amount of our cash
resources, including a portion of the net proceeds of this offering. We intend
to invest our cash in excess of current operating requirements in short-term,
interest-bearing, investment-grade securities. We believe that the net
proceeds of this offering, together with our existing cash and cash
equivalents, and available bank borrowings, will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for the
next twelve months. Thereafter, we may require additional funds to support our
working capital requirements, expand internationally, acquire complementary
businesses and technologies, or for other purposes. Future capital
requirements will depend on many factors, including increases in the number of
employees and the need to expand our ad serving capacity. We may seek to raise
additional funds in the future through public or private equity financing or
from other sources. We may not, however, be able to obtain adequate or
favorable financing. Any financing we obtain may dilute your ownership
interest in us.
Year 2000 Compliance
Many currently installed computer systems and software products and systems
worldwide are coded to accept only two-digit entries to identify a year in the
date code field. Consequently, on or around January 1, 2000, many of these
systems could fail or malfunction because they are not able to distinguish
between the year 1900 and the year 2000. These system failures or malfunctions
could cause significant disruptions of operations, including disruptions of
our Internet advertising services. As a company engaged in Internet
advertising services, we rely on computer programs and systems in connection
with our services as well as with our internal and external communication
networks and systems and other business functions. Any failure to provide year
2000 compliant services to our clients could result in financial loss, damage
to our reputation and legal liability.
Our internally developed software was designed to be year 2000 compliant
and, based on internal tests we have conducted, we believe that this software
is year 2000 compliant, meaning that the use or occurrence of dates on or
after January 1, 2000 will not materially affect its performance or its
ability to correctly create, store, process and output data involving dates.
Substantially all of our third-party software, computer equipment and internal
telecommunications systems were purchased in the past twelve months. As a
result, we believe that our third-party software, computer equipment and
internal telecommunications systems are also generally year 2000 compliant.
However, we cannot assure you that our internally developed software, and the
software, computer equipment and internal telecommunications systems that we
purchased from third parties, are year 2000 compliant.
We have not, to date, incurred any costs relating to year 2000 issues
separate from the expenditures for acquiring new third-party software,
computer equipment and systems to address year 2000 issues. We do not
anticipate incurring any material costs directly related to addressing year
2000 issues, and we have not deferred any of our ongoing development efforts
to address year 2000 issues.
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We have not engaged any third parties to independently verify our year 2000
readiness, nor have we assessed potential costs associated with year 2000
risks or made any contingency plans to address these risks. Although we have
received assurances from some of the suppliers of our third-party software,
computer equipment and systems that their products are year 2000 compliant, to
date we have generally relied on publicly available information regarding the
year 2000 compliance of their products. We also generally do not have any
contractual rights with these providers if their products fail to function due
to year 2000 issues. If these failures do occur, we may incur unanticipated
expenses to remedy any problems, including purchasing replacement software,
computer equipment and systems. Any failures of our internally developed
software or the third-party software, computer equipment and systems that we
use could result in financial loss, damage to our reputation and legal
liability.
We rely on the continued operations of the Web-based computer systems of
our clients and of the vendors whose Web sites or advertising networks host
our clients' advertisements. The successful delivery of our services for our
clients depends on the satisfactory functioning of our clients' and vendors'
computer systems. If these systems fail because they are not year 2000
compliant, we may be unable to fully deliver the services that our clients
have requested, which could harm our quarterly and annual operating results.
We also rely on the satisfactory performance and reliability of the
external communication and computer networks, systems and services integral to
the Internet, such as telecommunications providers and Internet service
providers. In particular, we rely on the satisfactory performance and
reliability of the networks, systems and services of Exodus Communications and
Verio, the Internet service providers that operate our co-location facilities.
Because all of these external networks, systems and services are maintained or
provided by third parties, the success of our efforts to address the year 2000
problem depends in part on parallel efforts being undertaken by these third
parties. We have initiated communications with most of these third parties to
determine the status of their year 2000 compliance. We cannot, however, assure
you that they have provided accurate or complete information, or that all of
their networks, systems or services will achieve full year 2000 compliance in
a timely fashion.
The most reasonably likely worst-case scenario for us resulting from the
year 2000 problem is that disruptions of the external third-party networks,
systems or services on which we depend would reduce or eliminate for a period
of time our ability to provide our Internet advertising services to our
clients. If these disruptions were frequent or long in duration, they could
seriously harm our business. The compliance of third-party networks, systems
and services, including telecommunications providers, Internet service
providers and co-location facilities, is not within our control. Accordingly,
a contingency plan for this worst-case scenario does not exist, and we do not
believe we will be able to develop one.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 was
effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance on accounting for computer software developed
or obtained for internal use, including the requirement to capitalize specific
costs and amortization of such costs. We implemented SOP 98-1 and capitalized
approximately $242,000 of internally developed software costs. Accumulated
depreciation related to the capitalized costs was $37,000 as of September 30,
1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities." SOP 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. The
implementation of SOP 98-5 did not have a material impact on our financial
position or operating results.
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BUSINESS
Overview
Avenue A is a leading provider of Internet advertising services. We
integrate strategic Internet media planning and buying, proprietary ad
management technology, user profiling and data analysis systems to help
advertisers increase the effectiveness and return on investment of their
Internet advertising campaigns. Through this integrated approach we have
developed an extensive knowledge base of Internet advertising strategies,
targeting methods and media placements that perform effectively. We believe
this knowledge base grows richer and more valuable with each additional
campaign we execute and with each additional client we serve. We focus on
serving the needs of buyers of Internet advertising, providing a service that
harnesses the complexity, interactivity and dynamic nature of the Internet
with the objective of delivering the most successful advertising campaigns for
our clients. Our revenue has grown to $20.3 million in the third quarter of
1999. Our top clients include Gateway, Microsoft, uBid and Uproar, based on
revenues in this same period.
Our services for Internet advertisers include the following key elements:
. Strategic Internet media planning and buying. We develop Internet
advertising strategies for our clients and use our proprietary database
and experience from past advertising campaigns to plan highly targeted
advertising campaigns. We negotiate and purchase Internet advertising
space for our clients using our buying power and our historical pricing
and performance data from past campaigns.
. Proprietary technology. We use our proprietary technology in media
planning and buying, ad serving, user profiling, performance reporting
and data collection and analysis to increase the effectiveness of our
clients' Internet advertising campaigns.
. Data warehousing and analysis. Our technology enables us to collect,
store and analyze extensive data from our previous and current Internet
advertising campaigns that we use to plan current and future advertising
campaigns for all of our clients. We also use historical statistical
data generated from prior advertising campaigns as well as near real-
time feedback on current campaigns to improve the performance of our
clients' advertising campaigns.
We believe that our early entry advantage in the Internet advertising
market, our media planning and buying expertise, our proprietary technology
and our commitment to serving only advertisers will enable us to continue to
strengthen our leadership position in Internet advertising.
Industry Background
Emergence of the Internet as an Advertising Medium
The Internet has become an important medium for advertising and commerce.
Forrester Research, Inc. projects that online advertising expenditures in the
United States will grow from $2.8 billion in 1999 to $22.0 billion in 2004. We
believe this growth is driven by a number of factors, including the growing
number of Internet users, the growth of e-commerce and advances in online
advertising technology. According to International Data Corporation, the
number of Web users worldwide is projected to grow from approximately 196
million in 1999 to over 500 million by the end of 2003, and consumer e-
commerce spending in the United States is projected to increase from
approximately $71 billion in 1999 to over $200 billion by the end of 2003.
Historically, the leading Internet advertisers have included technology
companies, Internet portals and e-commerce companies. However, many of the
largest advertisers in traditional media, including mass marketers such as
consumer products companies and automobile manufacturers, have recently
expanded their use of online advertising. Expenditures for online advertising
currently represent a small portion of all media spending, but these
expenditures are expected to grow at a much higher rate than expenditures for
traditional advertising. While
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traditional advertising spending is expected to increase by approximately 27%
from 1999 through 2004, online advertising spending is expected to increase by
over 690% during that period, based on data from Forrester Research, Inc.
Advantages of Internet Advertising
Unlike traditional advertising, Internet advertising involves the delivery
of dynamic messages which can be tailored for individual viewers, making the
Internet a revolutionary vehicle for advertisers. Because Internet
advertisements are generally delivered to individual viewers across a digital
infrastructure, the Internet has several advantages as an advertising medium,
including:
Measurability. The Internet provides the ability to observe and record a
wide range of online activities, including the delivery of advertisements to a
browser, click-throughs on Internet advertisements, the completion of online
purchases and the downloading of software files. As a result, sophisticated
Internet advertisers can collect and measure data about a broad range of
consumer behaviors associated with a particular advertisement. Using this
data, advertisers can track, monitor and measure the effectiveness of their
Internet advertising campaigns.
Personalization and targeting capabilities. Because each Internet image or
message is generally delivered to one user at a time, specific advertisements
or emails can be tailored with the goal of addressing the interests and needs
of the user, increasing the likelihood that the advertisement or email will
elicit the desired response from the user. Using the Internet, advertisers can
target advertising campaigns to specific geographic regions, specific
audiences, and individual consumers with specific demographic or behavioral
profiles. Advertisers can also control the number of times a user's browser
receives an advertisement and rotate sequentially the advertisements that are
delivered to that user's browser. In addition, advertisers can build highly
detailed user profiles for future advertising campaigns through the use of
transaction information, registration procedures and anonymous matching
techniques.
Rapid feedback and response. The Internet enables much more rapid
measurement of and response to the effectiveness of an advertising campaign
than most traditional media. Information on consumer responses to campaigns
can be provided in near real-time, allowing an advertiser to respond almost
immediately to that feedback through every stage of the online sales cycle.
Compressed sales cycle. The Internet provides advertisers the opportunity to
accelerate a consumer's progression from awareness of a product to need
recognition to purchase. A consumer can often initiate an online purchase
simply by clicking on an Internet advertisement, and can complete the purchase
with very few intermediate steps. Advertisers therefore can conduct efficient
advertising campaigns with rapid response rates.
Efficient reach. As a medium with no geographic boundaries, the Internet
enables advertisers to reach large audiences throughout the United States and
internationally. Unlike traditional print, outdoor, television or radio
broadcast advertising, which may require advance media purchases in hundreds
of markets to reach an international audience, Internet advertisers can reach
individuals worldwide in near real-time with a single Internet advertising
campaign.
Challenges of Internet Advertising
Despite the capabilities of the Internet as an advertising medium,
individual advertisers seeking to take advantage of the Internet's potential
face numerous challenges, including:
Scale and complexity. The proliferation of Web sites and the dispersed
nature of the Internet audience make it difficult for individual advertisers
and ad agencies to target, measure, analyze and optimize Internet advertising
campaigns. An advertiser seeking to conduct a campaign across a large number
of Web sites or advertising networks must be able to identify appropriate Web
sites, understand the technical capabilities of individual Web sites,
determine available inventory of desired advertisement placements, choose the
size and location of advertisements, negotiate placement pricing and prepare
its systems to deliver advertisements and
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track results. To determine the overall effectiveness of its advertising, an
advertiser managing campaigns across different Web sites and advertising
networks must reconcile reports from these multiple parties, which are often
based on different measurement methodologies and therefore are not easily
consolidated or compared.
Data analysis and technology requirements. The measurement and recording of
a wide range of online advertising responses, such as click-throughs,
purchases or software downloads, can generate large amounts of data. To
evaluate and optimize their Internet advertising campaigns, advertisers must
analyze this data, which requires access to sophisticated data aggregation,
storage and mining technology and capabilities. Individual advertisers
conducting their own campaigns may not have sufficient in-house data storage
and analysis capabilities, and accordingly the data from their advertising
campaigns may often be underutilized.
Operating costs and requirements. Developing, building and operating an
Internet advertisement management and delivery system to fully exploit the
advantages of Internet advertising is costly and time-consuming. Managing and
tracking numerous advertising campaigns that reach millions of Internet users
on hundreds of Web sites requires complex networking and computing
applications, as well as one or more large, complex data centers with back-up
capabilities. These systems must be continuously maintained to ensure reliable
performance 24 hours a day, seven days a week. For most advertisers and
advertising agencies, the operating costs associated with these systems would
constitute a substantial diversion of resources from their core businesses.
Limited services for advertising buyers. The Internet advertising market is
broadly segmented into two groups: advertisers seeking to conduct the most
effective Internet advertising campaigns at the lowest possible price, and Web
sites and advertising networks seeking to maximize the revenue generated by
their advertising inventory. We believe that while selling power has been
aggregated by large portal sites and advertising networks, there are
relatively few buyers of Internet advertising that match the scale of these
aggregated sellers. In addition, because the interests of large portals and
advertising networks may conflict with those of advertisers, advertisers may
be unwilling to share data with them in order to improve the effectiveness of
their advertising campaigns. As a result, performance reports from portals and
advertising networks are often limited to metrics that may have little value
to purchasers of advertising, such as click-throughs, rather than metrics that
are meaningful to the advertiser's business, such as sales generated, leads
generated, page views and software downloads.
Need for an Outsourced Internet Advertising Service
The rapid growth and complexity of the Internet as an advertising medium
have made the management and delivery of effective advertising extremely
important to advertisers but expensive and difficult to implement. The
technical, operational and resource challenges faced by an advertiser seeking
to independently plan, deliver and optimize its own Internet advertising
campaigns can divert the advertiser's resources and attention away from its
core business. The costs of aggregating and analyzing the large volume of data
necessary to plan, execute and dynamically refine an Internet advertising
campaign can diminish the return on the advertiser's investment. In addition,
individual advertisers may have little power to negotiate lower prices for
their advertising or obtain meaningful data from Web sites on metrics that
measure the effectiveness of their campaigns. We believe advertisers can
benefit from an outsourced advertising service that integrates strategic media
planning expertise, media buying power, ad management technology, user
profiling, and data collection and analysis systems, and that achieves
economies of scale, to enable them to effectively and efficiently conduct
Internet advertising campaigns. By using this outsourced service, advertisers
can focus on their core businesses while realizing the potential benefits of
Internet advertising.
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The Avenue A Solution
The Avenue A solution integrates proprietary technology, media expertise
and buying power to help advertisers realize the potential of Internet
advertising, providing the following benefits:
Comprehensive Internet advertising management services. We provide a full
range of services to conduct and increase the effectiveness of Internet
advertising campaigns, including strategic media planning and buying, ad
serving, ad management and data analysis. We have designed our services to
enable advertisers to easily and cost-effectively conduct multiple advertising
campaigns across a broad range of Web sites and advertising networks.
Technology-enabled analysis, monitoring, tracking and optimization. We
collect and analyze data about hundreds of publisher Web sites, numerous
advertising campaigns and tens of millions of Web user profiles, so that our
client strategists can structure targeted advertising campaigns to achieve our
clients' desired business results. To improve campaign performance, we use our
proprietary technology and data analysis capabilities to track, store and
measure data on Web users' responses to Internet advertisements in near real-
time. Based on this data, we generate detailed performance reports which
clients can view over the Internet at any time. Using these reports, we can
refine and improve our clients' advertising campaigns while they are being
conducted to increase their efficiency and effectiveness.
Proprietary knowledge base. Because we have executed a substantial number
of Internet advertising campaigns for our clients, we have captured a large
quantity of data regarding the efficacy of online advertising campaigns and
techniques. We believe that the more data we accumulate and analyze, the
faster our rate of learning about Internet advertising grows. Our Client
Service teams draw upon our dynamically updated databases to help improve the
results of our clients' advertising campaigns. In particular, these teams use
our proprietary knowledge base to more accurately predict and understand which
techniques are the most effective, what pricing for placements is appropriate
and which targeting efforts are best suited for a particular client's needs.
Focus on Internet advertisers. Because we serve a large number of Internet
advertisers, we are a large and frequent purchaser of Internet advertising
space. We therefore are able to exercise buying power when negotiating with
and purchasing from sellers of advertising space. We use this buying power, as
well as our extensive knowledge of historical pricing and performance
information, to negotiate efficient, cost-effective advertising purchases for
Internet advertisers.
Cost savings through economies of scale. Because we serve numerous Internet
advertisers, we are able to spread the substantial costs of developing,
building and operating Internet ad management and delivery systems and
database technologies across a large base of clients. As a result, we are able
to deliver cost-effective services to our clients.
Business Strategy
Our objective is to be the leading provider of Internet and other digital
media advertising services to advertisers. We plan to achieve this goal
through the following key strategies:
Aggressively acquire new clients and develop new markets. We intend to
expand our client base by aggressively pursuing new clients that focus their
advertising efforts on the Internet as well as clients that have historically
relied on traditional media for advertising. Our sales force is dedicated to
acquiring new clients by converting them from traditional advertising to
Internet advertising, and by demonstrating to online advertisers the benefits
of our Internet advertising services. In addition, although we currently
provide a service tailored primarily to the needs of companies with
significant online advertising budgets, we plan to expand our services to new
markets. In particular, we plan to aggressively expand our Growth Markets
Division, which tailors our services to clients with smaller online
advertising budgets.
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Leverage our proprietary knowledge base. We seek to build upon and further
leverage our extensive database and our data analysis expertise to attract
additional clients and improve the quality of our services. We believe that by
increasing the scale and diversity of our client base as well as the number
and type of advertising campaigns we conduct, we will aggregate more
statistically significant data and relevant analysis to improve our clients'
campaigns. By sharing our expertise with our clients, we believe we can
provide greater value to Internet advertisers than they would be able to
obtain by conducting advertising campaigns independently. We intend to use our
proprietary knowledge base as a platform to enhance our current services as
well as to develop new services for our clients.
Provide superior client service through a comprehensive service offering. As
part of our goal to provide our clients with superior Internet advertising and
marketing services, we plan to continue to add services that expand our
clients' abilities to advertise and market on the Internet. We recently
launched our Strategic Partnership Program, in which we negotiate and manage
exclusive or complex partnership arrangements between our clients and Web
sites or advertising networks that generally have terms ranging from six
months to a year. In addition, we recently initiated our Precision Email
Service and intend to offer it to all our clients in early 2000. We also
intend to add services over time based on advances in online marketing
technology to provide a comprehensive, fully integrated Internet advertising
and marketing service for our clients.
Continue to improve technology. We plan to continue to build, license, and
acquire technologies, including enhanced ad serving and media measurement
technologies, that will enable us to plan and execute more effective Internet
advertising and marketing campaigns for our clients. In addition, we intend to
continue to increase our investment in data mining technology and data
analysis expertise in our efforts to realize the full potential of the data
that these campaigns generate.
Acquire complementary businesses and establish strategic relationships. In
September 1999, we acquired iballs LLC, an Internet media company located in
New York City. We intend to continue to aggressively pursue opportunities to
acquire complementary businesses to expand and enhance our capabilities and
services and increase our number of clients. We also plan to establish
strategic relationships with companies that provide traditional advertising
and media services. Through these relationships we intend to increase our
sales penetration, gain access to their clients and become the preferred or
exclusive provider of Internet advertising and marketing services for these
companies.
Exploit emerging digital media opportunities. We believe that in the future,
advertisements may be delivered through a number of digital media in addition
to the Internet, including interactive television, Internet-enabled home
appliances, hand-held computers, cellular telephones, pagers and automobile
personal computers. We plan to extend our technology and capabilities to be
able to deliver targeted advertisements through emerging digital media.
Expand internationally. We plan to expand our presence internationally in
order to capitalize on the global reach of the Internet. We believe there is a
significant opportunity to provide our services to companies based outside of
the United States. In addition, we intend to expand our service offering for
our domestic clients to include advertising and marketing on Web sites
operated in foreign markets.
The Avenue A Experience
We have structured our service offering to provide a smooth, efficient,
positive experience for our clients during the entire advertising campaign
process. When a client enlists our services, the client first meets with a
client strategist to discuss the client's campaign objectives. Using our
publisher Web site and user profile databases, the strategist works with the
client to determine target user groups and develop an online media strategy.
Once the client and the strategist have agreed on a media strategy, our media
buyers create a media plan by identifying appropriate placements for the
client's advertisements on a variety of Web sites and advertising networks.
The buyers negotiate placement rates and, upon authorization from the client,
purchase the advertising space. Our media engineers and account coordinators
work with the client to obtain the client's advertisements for delivery by our
ad serving systems.
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When the campaign begins, the Web sites and advertising networks on which
our media buyers have purchased space automatically request advertisements
from our ad servers. Before we serve an advertisement, our ad serving systems
can search the Web user's computer for an Avenue A "cookie," an anonymous
registration file placed by our systems on a computer the first time we serve
an advertisement to that computer. If we find a cookie when we search the Web
user's computer, our ad serving systems query our data warehouse, which might
contain data regarding prior actions conducted on that Web user's computer
that relate to our client, including responses to our client's previous
advertising campaigns and actions taken by that user on our client's Web site.
This query process generally takes less than one second. Using this
information, our systems can serve a specific, targeted advertisement to the
user based on our client's advertising objectives.
As the campaign progresses, our systems can collect data regarding users'
interactions with the advertisements served to them (e.g., banners served,
click-throughs and Web sites visited) and, if the user clicks through and
visits the Web site of the advertiser, the user's behavior on that Web site
(e.g., what sections of the Web site the user visited, whether the user got to
an order page and whether the user bought something). Using the data
collected, our systems generate comprehensive, easy-to-read performance
reports that permit both Avenue A and the client to track the progress of the
campaign in light of the client's campaign objectives. The reports are
available online to the client 24 hours a day, seven days a week, and are
updated throughout the day to provide timely statistics on the performance of
the campaign.
The Client Service team reviews the performance reports with the client and,
based on the reports, adjusts the campaign to improve its performance. For
example, if the client's advertisements were initially served to 50 Web sites,
but only 40 Web sites are generating favorable cost per customer acquisition
rates, the Client Service team can take a number of actions to improve the
campaign, including narrowing the scope of the campaign to focus on the 40 Web
sites with favorable performance or negotiating lower rates for continuing
advertisement placements on the other sites. Our ad serving systems enable the
Client Service team to control the frequency with which each advertisement is
displayed, program the sequence with which advertisements are viewed and
target specific advertisements to specific browsers.
Once the campaign is concluded, we provide performance reports to the client
indicating the success of the campaign and recommendations for future
campaigns. Because our systems have automatically stored data collected from
the campaign, we can use this data in additional advertising campaigns for the
client. Using cookie technology, we can anonymously profile Web users so that
future advertisements delivered to those users' browsers in the client's
future advertising campaigns can be customized based on their user profiles.
Avenue A's Services
Core services. Our core services include strategic media planning and
buying, ad serving, campaign analysis, optimization and data collection and
aggregation.
. Strategic media planning and buying. Our strategic media planning and
buying services are performed by Client Service teams, which evaluate
the client's needs and objectives, outline a media strategy for the
client, develop a media plan by identifying appropriate media
placements, and execute this plan by negotiating the rates for these
placements.
. Ad serving. Our media engineers coordinate and monitor the ad serving
process once an advertising campaign begins. Our ad servers receive
billions of advertisement requests each month, and process a majority of
these requests at sub-millisecond speed. Our ad serving systems allow us
to adjust advertising campaigns quickly and efficiently because changes
required to the advertisements are made on our ad serving systems rather
than on each individual Web site where the advertisements appear.
. Campaign analysis. Our proprietary ad serving systems enable us to
evaluate advertising campaigns along any dimension important to the
client (e.g., sales, leads, registrations, software downloads, etc.). We
provide this campaign data to our clients in comprehensive online
performance reports generated by our system, which our client
strategists review with the clients.
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. Optimization. Our Client Service teams can quickly adjust an advertising
campaign in progress to improve its performance. If a Web site is
generating unacceptably low response rates, we can remove that Web site
from the campaign, reduce the number of impressions allocated to that
site, or negotiate a lower rate for advertisement placements on that
site. If a Web site is generating high responses, we can serve more
advertisements to that Web site.
. Data collection and aggregation. As we conduct advertising campaigns, we
collect and store data on these campaigns in our data warehouse. We
aggregate data with the data from all our advertising campaigns as we
continue to expand our data warehouse and build our user profiles.
Precision Targeting Program(TM). Our Precision Targeting Program enables us
to target tailored advertisements to the browsers of users which have
previously visited our clients' Web sites. The program is designed to
strengthen the clients' relationship with the user, improve response rates and
accelerate the sales cycle. This targeting is based on data acquired from
prior interactions conducted through that computer on the client's Web site.
For example, if the information in our data warehouse indicates that the
computer of a particular Web user was previously used to purchase a backpack
from our client, our ad serving systems can serve an advertisement to that
user's computer recommending additional, complementary purchases, such as
hiking boots, tents or fleece jackets.
Strategic Partnership Program(TM). Through our Strategic Partnership
Program, we manage exclusive or complex partnerships between our clients and
Web sites or advertising networks, such as exclusive sponsorships of specific
locations or features of a Web site, or advertising campaigns based on several
complex measurement criteria or methods of advertising. These arrangements
typically have terms ranging from six months to one year. Managers in the
Strategic Partnership Program consult with clients to determine their
objectives and to negotiate the terms of the advertising relationships with
appropriate Web sites and advertising networks. We then help manage the
partnership by monitoring and optimizing results during the term of the
partnership. Avenue A brings value to these relationships through media buying
and negotiating expertise, advertising campaign analysis and ongoing campaign
optimization.
Precision Email Service(TM). We recently launched our Precision Email
Service and plan to make it commercially available to our clients in early
2000. We plan to use this service to deliver targeted emails to specific
customer segments based on their shopping and browsing behavior. We intend to
integrate precision email campaigns with our online advertising campaigns to
enhance the overall effectiveness of our clients' Internet advertising and
marketing campaigns.
Sales, Marketing and Client Service
We acquire clients primarily through our field sales force, which works in
sales offices in Seattle, New York City and Chicago. As we continue to launch
additional services, including our Precision Email Service, we plan to augment
the general sales force with sales specialists that focus on those particular
services. We generate sales leads primarily through field sales, client
referrals, our Web site and responses to our public relations and marketing
efforts.
In addition, we market our services through our Client Service teams as the
services become appropriate for an individual advertiser's evolving needs. For
example, if a client has achieved its initial goal of acquiring customers
through our advertising services, the client might begin using our Precision
Targeting Program to retain these customers or use our Precision Email Service
to expand into email marketing.
We use a variety of marketing methods to build awareness of Avenue A and
our service offerings within our target market and to establish credibility
and leadership in the marketplace. These methods include marketing materials,
advertising, press coverage and other public relations efforts, direct
marketing, trade shows, seminars and conferences, relationships with
recognized industry analysts, and the Avenue A Web site.
Avenue A's client service organization provides all of our primary services
to our clients. As of September 30, 1999, we had over 95 employees in our
Client Service teams. Our team-focused approach is designed to encourage an
entrepreneurial spirit and greater accountability to clients' needs.
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We have implemented an intensive training program and have built
information systems that are designed to enable employees to draw from our
existing knowledge base. This knowledge base includes both the historical
performance of a given client's campaigns and an aggregated knowledge base of
results from all advertising campaigns. The training program and information
systems are intended to enable new employees to quickly achieve a high
performance level by utilizing institutional knowledge and experience.
Our Clients
The number of our active clients has grown from 12 as of September 30, 1998
to 47 as of September 30, 1999. Our top fifteen currently active clients,
based on revenues in the quarter ended September 30, 1999, are:
<TABLE>
<S> <C>
.Creative Computers, Inc. .Onvia.com, Inc.
.eBags Inc. .ProFlowers.com, Inc.
.Eddie Bauer, Inc. .RealNetworks, Inc.
.Gateway, Inc. .Snowball.com, Inc.
.Gear.com, Inc. .Ticketmaster Online-City Search, Inc.
.Libertybay.com, Inc. .uBid, Inc.
.Microsoft Corporation .Uproar Ltd.
.MTV Networks
</TABLE>
We have historically sought clients that are large, sophisticated Internet
advertisers spending at least $1,000,000 annually on Internet advertising. We
plan to aggressively expand our Growth Markets Division to provide a service
offering designed for advertisers with smaller Internet advertising budgets.
Technology
Our proprietary technology delivers advertisements, tracks users'
responses, aggregates data and provides standardized reporting and data
processing support to the Client Service teams, to the Data Analytics group
and to our clients. Our systems and applications consist of several
independently scalable components: data warehousing, technological
applications for media planning, campaign management and trafficking and ad
serving. In building these systems and applications, we have developed a
significant amount of proprietary software and techniques, and have also
leveraged leading industry-standard software and hardware.
Data warehousing. Our data warehouse is the foundation of our campaign
management, ad serving, targeting, data collection, data analysis and
performance reporting systems. These systems feed into or utilize the
warehouse for a significant portion of their overall system functionality. We
have developed a number of proprietary data management and compression
technologies that allow us to keep billions of pieces of historical campaign
information online and immediately available to our other systems. We also
utilize industry-standard database technology to aggregate and store
information.
Media planning. Our media planning tools help our client strategists and
media buyers keep track of Web sites and select sites and placements during
initial media planning activities. After an advertising campaign is underway,
these tools support ongoing planning and optimization activities.
Campaign management and trafficking. Each month, our media buyers initiate
hundreds of advertising campaigns and make thousands of advertisement
purchases on behalf of our clients. We use our campaign management and
trafficking tools to manage the information from these campaigns and to assist
in or automate the process of communicating with our clients and with the Web
sites on which we serve advertisements.
Ad serving. Our ad serving systems are multi-tiered applications that were
built for reliability and scalability. Based on a distributed architecture,
the systems receive billions of advertisement requests each month and process
a majority of these requests at sub-millisecond speed. Each response to an
advertisement request is
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based on several factors, which may include the advertising viewing history of
a user's browser. We use standard cookie technology to anonymously track
Internet users' activity on our clients' Web sites, and on each Web site on
which the users' computers receive advertisements served by our systems. The
modular design of our ad serving systems allows us to grow capacity
incrementally by adding a single server at a time, or scale substantially by
adding several servers at a time.
Our ad serving systems are designed to operate 24 hours a day, 7 days a
week. These systems are located in two data centers in Seattle: an Exodus
Communications co-location site and a Verio co-location site. The two data
centers give us redundant capabilities in the event of a hardware failure or
loss of connectivity at one data center.
Competition
The market for Internet advertising is relatively new, yet intensely
competitive. Our competitors include the following:
. Internet media buyers that integrate ad serving technology and Internet
media buying, such as AppNet Inc. (through its i33 Communications
division) and MediaPlex, Inc.;
. Interactive advertising agencies, such as Modem Media . Poppe Tyson
Inc., Ogilvy & Mather Worldwide (through its OgilvyOne division) and
Saatchi & Saatchi Advertising (through its Darwin Digital Media Services
division);
. Enabling online advertising technology providers, such as AdForce, Inc.,
AdKnowledge, Inc., At Home Corporation (through its MatchLogic, Inc.
subsidiary), CMGI, Inc. (through its Engage Technologies, Inc.
subsidiary) and DoubleClick Inc.;
. Advertising networks, such as DoubleClick Inc., Flycast Communications
Corporation, L90, Inc. and 24/7 Media, Inc.;
. Targeted email service providers, such as At Home Corporation (through
its MatchLogic, Inc. subsidiary), ClickAction Inc., Digital Impact,
Inc., DoubleClick Inc. and E-Dialog, Inc.; and
. Traditional advertising agencies that perform Internet advertising and
marketing as part of their services to clients, such as Ogilvy & Mather
Worldwide and Saatchi & Saatchi Advertising.
In addition, we compete with other traditional advertising agencies that
use traditional advertising media, and in general we compete with television,
radio, cable and print media for a share of advertisers' budgets.
We believe that the principal competitive factors affecting our market are
ad serving technology and functionality, data analysis capabilities, client
service and price. Although we believe we currently compete adequately with
respect to these factors, our continued ability to compete depends on a number
of circumstances both within and beyond our control, such as:
. our capability to plan advertising campaigns and serve advertisements
across a broad range of Web sites;
. our ability to respond to rapid technological change and provide feature
enhancements and expanded service offerings;
. the quality and reliability of our operations and client service and
support organizations; and
. the effectiveness of our sales and marketing efforts.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
client bases and significantly greater financial, technical and marketing
resources than we have. Also, many of our current and potential competitors
have established or may establish cooperative relationships among themselves
or with third parties. In addition, several of our competitors, including
AdForce, Inc., AdKnowledge, Inc. and Flycast Communications Corporation, have
combined or are in the process of combining with larger companies with greater
resources than ours. These competitors may engage in more extensive research
and development, undertake more far-reaching marketing campaigns and make more
attractive offers to existing and potential employees and clients than we do.
They could also adopt more
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aggressive pricing policies and may even provide services similar to ours at
no additional cost by bundling them with their other product and service
offerings. They may also develop services that are equal or superior to our
services or that achieve greater market acceptance than our services. In
addition, our competitors may develop databases that are larger than or
otherwise superior to our databases. Increased competition is likely to result
in price reductions, reduced gross margins and loss of market share. We cannot
assure you that we will be able to compete successfully, and competitive
pressures may harm our business.
Intellectual Property
To protect our proprietary rights, we rely generally on copyright,
trademark and trade secret laws, and confidentiality agreements with employees
and many of our consultants. Despite these protections, third parties might
obtain and use our technology without authorization or develop similar
technology independently. The steps we have taken may not prevent
misappropriation of our intellectual property, particularly in foreign
countries where laws or law enforcement practices may not protect our
proprietary rights as fully as in the United States.
We have applied for registration of the following service marks: "AVENUE
A," "AVENUE A MEDIA," "AD CLUB NETWORK," "AXIS," "IBALLS," "PRECISION E-MAIL,"
"PRECISION TARGETING," the Avenue A logo and the iballs logo. We cannot assure
you that any of our service mark applications will be approved. Even if these
applications are approved, any service marks may be successfully challenged by
others or invalidated. We are aware of third parties that use the name "Avenue
A," one of which is a Canadian advertising agency. There may be other third
parties using this name of whom we are unaware. If our service mark
applications are not approved or if our service marks are invalidated because
of prior third-party registrations, our use of these marks could be restricted
unless we entered into arrangements with these third parties, which might not
be available on commercially reasonable terms, if at all.
We recently filed eight provisional patent applications in the United
States for aspects of our technology, processes and methods, but we have not
been issued any patents to date. We cannot assure you that our provisional
patent applications, or any future patent applications, will be granted, that
any future patent of ours will not be challenged, invalidated or circumvented,
or that the rights granted under any future patent of ours will provide
competitive advantages to us. If a blocking patent has issued or issues in the
future to a third party, and we are not able to distinguish our technologies,
processes or methods from those covered under the patent, we may need to
either obtain a license or develop noninfringing technologies, processes or
methods with respect to that patent. We may not be able to obtain a license on
commercially reasonable terms, if at all, or design around the patent, which
could impair our ability to provide our services. We also cannot assure you
that any proprietary rights with respect to our technology will be viable or
of value in the future since the validity, enforceability and scope of
protection of proprietary rights in Internet-related industries are uncertain
and still evolving.
Other persons may claim that our technologies, processes or methods
infringe their patents. Any such claims may cause us to incur significant
expenses and, if successfully asserted against us, may cause us to pay
substantial damages and prevent us from providing some of our services,
including our core ad serving services, which would substantially harm our
business.
A U.S. patent was issued to DoubleClick in September 1999 relating to a
method of delivery, targeting and measuring of advertising over networks. This
patent may cover some of the technologies, processes or methods we use in our
ad serving systems. DoubleClick recently brought suit against L90, Inc., one
of its competitors, claiming that L90's methods and networks for delivery,
targeting and measuring advertising over the Internet infringe this patent. We
have purchased advertising space from DoubleClick in the past and expect to do
so in the future. We are currently evaluating the patent as it pertains to our
technologies. We cannot assure you that we will be able to distinguish our
technologies, processes or methods from those covered under the DoubleClick
patent or that the DoubleClick patent would be invalidated if challenged.
In addition, DoubleClick and MatchLogic, a subsidiary of At Home
Corporation, have each filed U.S. patent applications and related applications
under the Patent Cooperation Treaty that appear to cover technologies
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relating to ad serving. In addition, 24/7 Media, Inc. has announced that it
has received a notice of allowance for a U.S. patent application on its ad
delivery technology that 24/7 Media asserts relates to enabling technology
currently in use by a number of ad serving systems. If patents are issued
pursuant to these applications, we cannot assure you that we will be able to
distinguish our technologies, processes or methods from those covered under
these patents or that the patents would be invalidated. The patent field
covering Internet-related technologies is rapidly evolving and surrounded by a
great deal of uncertainty, and other patents or patent applications relating
to the delivery of Internet advertising may exist of which we are unaware.
Any claims that might be brought against us relating to intellectual
property infringement, including claims of infringement of the DoubleClick
patent and other patents issued or that may be issued to DoubleClick,
MatchLogic or 24/7 Media, may cause us to incur significant expenses and, if
successfully asserted against us, may cause us to pay substantial damages and
limit our ability to use the intellectual property subject to these claims.
Even if we were to prevail, such litigation could be costly and time-consuming
and could divert the attention of our management and key personnel from our
business operations. Furthermore, as a result of a patent infringement suit,
we may be prevented from providing some of our core services, including our ad
serving services, unless we enter into royalty or license agreements. We may
not be able to obtain royalty or license agreements on terms acceptable to us,
or at all.
Our technology enables us to collect and use data derived from user
activity on the Internet. Although we believe that we generally have the right
to use this information and to compile it in our databases, we cannot assure
you that any trade secret, copyright or other protection will be available for
this information. In addition, our clients and other parties may claim rights
to this information.
Employees
As of September 30, 1999, we had 159 employees, including 97 in client
services and support, 37 in engineering and technology, 12 in sales and
marketing, and 13 in general and administrative. In addition, as of September
30, 1999, our iballs LLC subsidiary had 15 employees. We believe that we have
good relationships with our employees. We have never had a significant work
stoppage, and none of our employees is represented under a collective
bargaining agreement or by a union. We believe that our future success will
depend in part on our ability to attract, integrate, retain and motivate
highly qualified technical and managerial personnel and upon the continued
service of our senior management and key technical personnel. Competition for
qualified personnel in our industry and geographical locations is intense, and
we cannot assure you that we will succeed in attracting, integrating,
retaining and motivating a sufficient number of qualified personnel to conduct
our business in the future.
Facilities
Our principal executive, administrative, engineering, marketing and sales
facility currently occupies approximately 33,000 square feet of office space
in Seattle and will increase to approximately 44,000 square feet in March
2000. The lease for this facility expires in October 2004, with an option to
renew for an additional five-year term. We expect this facility will be
adequate to meet our requirements through the second quarter of 2000, but
anticipate that we will need additional space thereafter as more personnel are
hired. We also lease other sales and services office space in offices in New
York City and Chicago. In addition, our iballs LLC subsidiary leases
approximately 6,400 square feet of office space in New York City under a lease
that expires in August 2001 with an option to renew for an additional one-year
term. We use network facilities to house our ad servers and other systems at
two locations in Seattle under agreements with Exodus Communications and
Verio. Our agreement with Exodus Communications expires in January 2000 with
automatic renewal for one-year terms. Our agreement with Verio is on a month-
to-month basis.
Legal Proceedings
From time to time, we may become involved in litigation relating to claims
arising in the ordinary course of our business. We believe that there are no
claims or actions pending or threatened against us that, if adversely
determined, would have a material adverse effect on us.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth information with respect to our executive
officers and directors as of October 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Brian P. McAndrews...... 40 Chief Executive Officer, Director
Nicolas J. Hanauer(1)... 40 Chairman of the Board
Bruce Allenbaugh........ 43 Vice President, Marketing
Anna R. Collins......... 35 Vice President, Media
Michael T. Galgon....... 32 Senior Vice President, Marketing and Business Development
Clark M. Kokich......... 47 Vice President, General Manager Growth Markets Division
Scott E. Lipsky......... 35 Chief Technology Officer
Robert M. Littauer...... 51 Chief Financial Officer, Vice President, Finance & Administration,
Secretary and Treasurer
Jeffrey J. Miller....... 52 Vice President, Corporate Development and Legal Affairs
Neve R. Savage.......... 55 Vice President, Client Results
Sumit T. Sen............ 31 Chief Analytics Officer
Jason Green(2).......... 32 Director
Fredric W.
Harman(1)(2)........... 39 Director
Gregory B.
Maffei(1)(2)........... 39 Director
</TABLE>
- --------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Brian P. McAndrews has served as our Chief Executive Officer and a director
since September 1999. From July 1990 to September 1999, Mr. McAndrews worked
for ABC, Inc., holding executive positions at ABC Sports, ABC Entertainment
and ABC Television Network; most recently he served as Executive Vice
President and General Manager of ABC Sports. From 1984 to 1989, Mr. McAndrews
served as a product manager for General Mills, Inc., a leading consumer
products manufacturer. He holds an M.B.A. degree from Stanford University and
a B.A. degree from Harvard University.
Nicolas J. Hanauer, a co-founder of Avenue A, has served as our Chairman of
the Board since June 1998. He also served as our Chief Executive Officer from
June 1998 to September 1999. Since January 1990, Mr. Hanauer has been the
Executive Vice President, Sales and Marketing of Pacific Coast Feather
Company, a pillow and bedding manufacturing company. Mr. Hanauer holds a B.A.
degree from the University of Washington. In addition to serving as a director
of Avenue A, Mr. Hanauer currently serves as a director of Gear.com, Inc.,
Museum Quality Discount Framing, Inc. and Pacific Coast Feather Company.
Bruce Allenbaugh has served as our Vice President, Marketing since October
1999. From December 1994 to October 1999, Mr. Allenbaugh served as Vice
President, Marketing Services for NEXTLINK Communications, Inc., a
telecommunications company. From August 1985 to October 1994, he served in
various capacities for The Pepsi Cola Company, most recently as Director, New
Products. Mr. Allenbaugh holds an M.B.A. degree from Northwestern University
and a B.A. degree from the University of Washington.
Anna R. Collins has served as our Vice President, Media since August 1999.
From July 1996 to July 1999, Ms. Collins worked at CVS/Pharmacy, Inc., a
healthcare and pharmacy company, serving as a manager of New Business
Development and most recently as Director of New Business Development. From
July 1995 to June 1996, Ms. Collins served as Director of Business Development
& Eastern Operations for Vivra Orthopaedics, Inc., an orthopedics practice
management company. In 1994, she served as a consultant with APM Incorporated,
a healthcare management consulting firm. Ms. Collins holds an M.B.A. degree
from the Harvard Business School and a B.A. degree from Harvard University.
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Michael T. Galgon, a co-founder of Avenue A, has served as our Senior Vice
President, Marketing and Business Development since October 1999. From October
1998 to October 1999, he served as our President, and from October 1997 to
October 1998, he served as our General Manager. From October 1995 to October
1997, Mr. Galgon attended the Harvard Business School. From October 1994 to
October 1995, he served as a full-time volunteer with Volunteers In Service To
America (VISTA). Mr. Galgon holds an M.B.A. degree from the Harvard Business
School and a B.A. degree from Duke University.
Clark M. Kokich has served as our Vice President, General Manager Growth
Markets Division since July 1999. From April 1996 to October 1998, Mr. Kokich
served as President and Chief Executive Officer of Calla Bay, Inc., an apparel
retailer. From January 1992 to April 1996, he served as the Director, Sales &
Marketing for AT&T Wireless Services. Mr. Kokich holds a B.S. degree from the
University of Oregon.
Scott E. Lipsky, a co-founder of Avenue A, has served as our Chief
Technology Officer since October 1997. From March 1996 to September 1997, Mr.
Lipsky served as Vice President of Business Expansion for Amazon.com, Inc.
From February 1994 to March 1996, Mr. Lipsky served as Chief Information
Officer for Barnes & Noble, Inc., a national bookstore chain, and Chief
Technology Officer for Barnes & Noble College Bookstores, Inc., a national
college bookstore chain. From September 1991 to January 1994, Mr. Lipsky
served as President and Chief Executive Officer for Omni Information Group,
Inc., a software company providing solutions for retail chains. From September
1987 to September 1991, Mr. Lipsky served as Vice President of MIS and Chief
Technology Officer for Babbages's, Inc., a retail company.
Robert M. Littauer has served as our Chief Financial Officer and Vice
President, Finance & Administration since August 1998, and as our Secretary
and Treasurer since January 1999. From October 1996 to June 1998, Mr. Littauer
served as Chief Financial Officer and Vice President of Finance and
Administration for Ostex International Inc., a medical diagnostics company.
From June 1987 to September 1996, Mr. Littauer served in various capacities at
NeoRx Corporation, a biotechnology company, including Senior Vice President,
Chief Financial Officer and Treasurer. From June 1982 to May 1987, Mr.
Littauer was Vice President, Finance and Treasurer of Concept, Inc., a
surgical products manufacturer. He holds an M.B.A. degree in Finance and B.S.
degrees in Industrial Engineering and Operations Research from Cornell
University and is a Certified Public Accountant.
Jeffrey J. Miller, Ph.D., has served as our Vice President, Corporate
Development and Legal Affairs since July 1999. From November 1997 to June
1999, Dr. Miller served as the President and Chief Executive Officer of
Reprogen, Inc., a functional genetics company. From October 1996 to October
1997, he served as Senior Vice President of Corporate Development for Ostex
International Inc. From April 1987 to September 1996, Dr. Miller served in
various capacities at NeoRx Corporation, including Senior Vice President,
Business Development and Legal Affairs, Secretary and General Counsel. From
1985 to April 1987, he was a partner in the Seattle law firm of Seed and
Berry. Dr. Miller holds a Ph.D. degree in biology from the University of
California at Santa Cruz, a J.D. degree from Loyola University of Los Angeles
and a B.A. degree from the University of California at Los Angeles.
Neve R. Savage has served as our Vice President, Client Results since
November 1998. From August 1994 to September 1998, Mr. Savage served as Vice
President, Marketing of AT&T Wireless Services. From October 1988 to July
1994, Mr. Savage served as the Executive Group Director of Ogilvy & Mather, an
advertising company. Mr. Savage holds M.A. and B.A. degrees from Oxford
University.
Sumit T. Sen has served as our Chief Analytics Officer since September
1999. From December 1998 to August 1999, Mr. Sen was a Principal of Proforma
Consulting, a marketing and risk management consulting firm. From December
1997 to November 1998, Mr. Sen served as the Executive Vice President, Risk
Management for The Money Store Inc., a consumer finance company. From October
1994 to October 1997, Mr. Sen served in various capacities at Household
International Inc., a consumer loan and credit card company, including
Director, Risk Management and Director, Scoring & Analysis. Mr. Sen holds a
B.S. degree from Johns Hopkins University.
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Jason Green has served as one of our directors since May 1999. Since
September 1997, Mr. Green has served as a general partner of U.S. Venture
Partners, a venture capital firm. From September 1995 to August 1997, Mr.
Green was an Ewing Marion Kauffman Fellow with Venrock Associates, a venture
capital firm. From June 1994 to August 1995, Mr. Green served as a Research
Fellow at the Harvard Business School. Mr. Green has served as a vice
president of Muzertechnika, an Eastern European computer and
telecommunications company, and has also served as a consultant with Bain &
Company, a strategy consulting firm. Mr. Green holds an M.B.A. degree from the
Harvard Business School and a B.A. degree from Dartmouth College. He currently
serves as a director of NightFire Software Inc., PerksatWork.com Inc. and
PrintNation.com.
Fredric W. Harman has served as one of our directors since May 1999. Since
1992, Mr. Harman has managed several venture capital funds affiliated with Oak
Investment Partners, a venture capital firm. From 1991 to 1994, he served as a
general partner of Morgan Stanley Venture Capital. Mr. Harman holds an M.B.A.
degree from the Harvard Business School and B.S. and M.S. degrees in
electrical engineering from Stanford University. Mr. Harman currently serves
as a director of ILOG, S.A., InterNAP Network Services Corporation, Inktomi
Corporation, Primus Knowledge Solutions, Inc., Quintus Corporation and several
privately held companies.
Gregory B. Maffei has served as one of our directors since September 1999.
Since 1997, Mr. Maffei has served as the Chief Financial Officer of Microsoft
Corporation. From 1993 to 1997, Mr. Maffei served in various capacities at
Microsoft, including Director of Business Development & Investment;
Vice President, Corporate Development; and Treasurer. Mr. Maffei holds an
M.B.A. degree from the Harvard Business School and an A.B. degree from
Dartmouth College. He currently serves as a director of Starbucks Corporation,
Skytel Communications, Inc., CNET Business Services and Ragen MacKenzie Group
Incorporated.
Board Committees
The board of directors has a compensation committee and an audit committee.
Compensation Committee. The compensation committee's duties include
establishing, reviewing and making recommendations to the board regarding
compensation of our officers, considering compensation plans for our
employees, and carrying out other duties under our stock incentive
compensation and other plans approved by us as may be assigned to the
committee by the board. The current members of the compensation committee are
Nicolas J. Hanauer, Fredric W. Harman and Gregory B. Maffei. The current
members of the compensation committee do not meet the definition of "non-
employee" directors for purposes of SEC Rule 16(b)(3). Until the compensation
committee is composed of "non-employee" directors, the full board of directors
will continue to approve stock option grants for our officers in order to
qualify the option grants for an exemption from short-swing trading rules.
Audit Committee. The audit committee recommends the selection and retention
of our independent auditors, reviews the scope and results of audits and
submits appropriate recommendations regarding audits, reviews our internal
controls and reviews procedures to ensure compliance with applicable financial
reporting requirements. The current members of the audit committee are Jason
Green, Fredric W. Harman and Gregory B. Maffei.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1998, Mr. Hanauer, our former chief
executive officer, served on the compensation committee of our board of
directors, as did Eric Moen and Roy Clothier, both former directors of Avenue
A. Our board of directors' compensation committee currently consists of
Messrs. Hanauer, Harman and Maffei. None of our executive officers serves as a
member of the compensation committee or board of directors of any entity that
has an executive officer serving as a member of our compensation committee or
board of directors.
Director Compensation
We reimburse our nonemployee directors for reasonable expenses they incur
in attending meetings of the board of directors and its committees. In 1998
and 1999, Mr. Hanauer devoted part of his time to Pacific Coast Feather
Company and part of his time to Avenue A. Under an arrangement with Pacific
Coast Feather Company,
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we reimbursed Pacific Coast Feather Company for $48,700 of salary paid by that
company to Mr. Hanauer in 1999, which reimbursement represented compensation
for Mr. Hanauer's services as an officer and director of Avenue A in 1999.
In August 1999, Mr. Maffei was granted an option to purchase 50,000 shares
of our common stock under our 1998 stock incentive compensation plan at an
exercise price of $1.90 per share. In August 1999, we authorized the sale to
Mr. Maffei of 50,000 shares of our common stock at $1.90 per share under this
plan and in October 1999, we authorized the sale to him of an additional
50,000 shares of our common stock at $4.00 per share under this plan. Both of
these sales were consummated in October 1999.
In November 1999, our board of directors adopted our stock option grant
program for nonemployee directors. This program will be administered under our
1999 stock incentive compensation plan, subject to shareholder approval of
that plan. Under this program, each nonemployee director will automatically
receive a nonqualified stock option to purchase 50,000 shares of common stock
upon initial election or appointment to the board following this offering. One
third of this option will vest on the first, second and third anniversaries of
the grant date. Thereafter, beginning with the annual meeting of shareholders
in 2000, each nonemployee director who continues to serve on the board will
receive an additional option to purchase 15,000 shares of common stock upon
reelection or reappointment to the board, which will fully vest on the first
anniversary of the date of grant. The exercise price for all options granted
under the program will be the fair market value of the common stock on the
grant date. Options will have a 10-year term, except that options will expire
three months after a nonemployee director ceases service as a director, unless
cessation is due to death, in which case the options will expire one year
after date of death.
Executive Compensation
The following table sets forth information concerning the compensation
received for services rendered to us in all capacities by our former chief
executive officer and the executive officer of Avenue A who earned
compensation in excess of $100,000 during the fiscal year ended December 31,
1998 (together, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation Securities
------------------- Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- ------- ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Nicolas J. Hanauer............... 1998 $ -- $ -- -- $ --
Former Chief Executive Officer
Scott E. Lipsky.................. 1998 121,599 -- 723,000 --
Chief Technology Officer
</TABLE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
----------------------------------------------- Value at Assumed
Number of Annual Rates of Stock
Securities Percent of Total Exercise Price Appreciation for
Underlying Options Granted Price Option Term (3)
Options to Employees in Per Expiration -----------------------
Name Granted(1) Fiscal Year(2) Share Date 5% 10%
- ---- ---------- ---------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Nicolas J. Hanauer...... -- -- % $ -- -- $ -- $ --
Scott E. Lipsky......... 3,000 * .10 6/23/08 189 478
600,000 18.9 .10 6/23/08 37,734 95,624
120,000 3.8 .50 9/08/08 37,734 95,624
</TABLE>
The following table sets forth information regarding stock options we
granted to the Named Executive Officers during the fiscal year ended December
31, 1998.
- --------
* Less than 1%.
48
<PAGE>
(1) These options are fully exercisable and the shares purchasable upon
exercise of such options are subject to repurchase by Avenue A at the
original exercise price paid per share if the optionee terminates
employment or attempts to transfer the shares, before the shares have
vested. In this context, "vested" means that the shares subject to, or
issued on exercise of, options are no longer subject to repurchase by
Avenue A. Shares subject to, or issued upon exercise of, options generally
vest according to the vesting schedule set forth in the option letter
agreement evidencing the option. For a description of the options see
"Employee Benefit Plans."
(2) Based on a total of 3,180,050 options granted to employees during fiscal
1998.
(3) The dollar amounts under these columns result from calculations at the 5%
and 10% rates required by SEC regulations and are not intended to forecast
possible future appreciation, if any, of the common stock price. The
information in this table assumes all options are exercised at the end of
each of their 10-year terms. Actual gains, if any, on stock option
exercises depend on the future performance of the common stock and overall
stock market conditions, as well as the option holders' continued
employment through the vesting period. The amounts shown in this table may
not be achieved.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information regarding unexercised stock
options held by the Named Executive Officers during the fiscal year ended
December 31, 1998. Neither Mr. Hanauer nor Mr. Lipsky exercised any options
during this period. The shares purchasable upon exercise of the options may be
subject to repurchase by Avenue A at the original exercise price paid per
share if the optionee terminates employment or attempts to transfer the shares
before the vesting of those shares according to a vesting schedule.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-the-Money Options at
End Fiscal Year-End (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Nicolas J. Hanauer.......... -- -- $ -- $ --
Scott E. Lipsky............. 723,000 -- 241,200 --
</TABLE>
- --------
(1) Based on an assumed fair market value of Avenue A's common stock at
December 31, 1998 of $.50 per share, as determined in good faith by the
board of directors, minus the per share exercise price, multiplied by the
number of shares issuable upon exercise of the option.
Employment Agreements and Change of Control Arrangements
Employment Agreements
Brian P. McAndrews' employment offer letter provides for an initial annual
salary of $300,000. We also granted Mr. McAndrews an option, to vest over a
four-year period, to purchase 1,230,000 shares of our common stock under our
1998 stock incentive compensation plan. The option is immediately exercisable
for unvested shares, which are subject to a right of repurchase in favor of
us, which lapses in accordance with the vesting schedule applicable to the
option. Upon the completion of this offering, Mr. McAndrews will be granted an
additional option, also subject to a four-year vesting period, to purchase an
additional 176,000 shares of common stock. The option may be exercised prior
to vesting for unvested shares, which would be subject to a right of
repurchase in favor of us which would lapse according to the vesting schedule
applicable to the option. Mr. McAndrews' employment is for no specified length
of time. Pursuant to the offer letter, if he is terminated other than for
"cause" (which is defined in his agreement to mean willful misconduct or
dishonesty in the performance of his duties or other knowing and material
violation of Avenue A policies, the conviction of a felony involving an act of
dishonesty, moral turpitude, deceit or fraud, or willful actions or omissions
that materially impair our business, goodwill or reputation), Mr. McAndrews'
salary will continue at its then-present rate for 12 months and the vesting
schedule of the stock options will be accelerated by 12 months. The offer
letter also provides that if he voluntarily terminates his employment or is
terminated for cause, his salary will continue for three months.
49
<PAGE>
Brian P. McAndrews' employment offer letter states that upon a change in
control of Avenue A, his stock options will become fully vested immediately if
he is terminated without cause or if his job title, operating duties or
responsibilities materially change within one year of the change of control.
If he voluntarily terminates his employment without good reason after a change
of control, or if his employment continues without a material change in his
duties and responsibilities, then half of his then-unvested stock options will
become fully vested.
Severance Agreement
On October 8, 1999, we entered into a severance agreement and release with
R. Michael Leo, our former Vice President, Sales and Marketing. Pursuant to
that agreement, Mr. Leo will receive a severance payment of $200,000 payable
in monthly installments over a twelve-month period from the date of the
agreement. Pursuant to the agreement, we granted Mr. Leo an option to purchase
250,000 shares of our common stock, which vests one year after date of grant,
subject to Mr. Leo's compliance with the Confidentiality, Inventions
Assignment, Noncompetition and Nonsolicitation Agreement between him and us.
In addition, we provided Mr. Leo with a loan of $75,000 which was applied to
the exercise of previously granted options. Under the agreement, each party
agreed to release the other from any claims arising from Mr. Leo's employment
or termination.
Employee Benefit Plans
1999 Stock Incentive Compensation Plan
In November 1999, our board of directors adopted our 1999 stock incentive
compensation plan, subject to shareholder approval. The purpose of the plan is
to enhance long-term shareholder value by offering opportunities to selected
persons to participate in our growth and success, and to encourage them to
remain in the service of Avenue A and its related corporations and to acquire
and maintain ownership in our company. The plan permits awards of stock
options, shares of common stock or units denominated in common stock, all of
which may be subject to restrictions. Persons eligible to receive awards under
the plan are our officers, directors, employees, consultants, advisors, agents
and independent contractors and related corporations, but only employees may
receive incentive stock options under the plan.
The board has reserved a total of 1,000,000 shares of common stock under the
plan plus an automatic annual increase, to be added on the first day of our
fiscal year beginning in 2001, equal to the least of (1) 3,000,000 shares, (2)
5.0% of the adjusted average common shares outstanding as used to calculate
fully diluted earnings per share as reported in our annual report to
shareholders for the preceding year and (3) a lesser amount as may be
determined by the board. In addition, shares formerly available for issuance
under our 1998 stock incentive compensation plan will become available for
issuance under the 1999 plan, as will shares subject to options granted under
the 1998 plan that expire or are otherwise cancelled without being exercised,
up to an aggregate maximum of 5,349,768 shares. The board of directors or a
committee appointed by the board will be the plan administrator for the plan.
The plan administrator selects the individuals to receive awards under the
plan. The board also may authorize one or more senior executive officers to
grant awards under the plan, within limits set by the board. Unless the plan
administrator permits otherwise, no awards may be assigned or transferred by
the holder other than by will or by the applicable laws of descent and
distribution, and, during the holder's lifetime, awards generally may be
exercised only by the holder. The board may suspend or terminate the plan at
any time. Unless the board terminates the plan sooner, the plan will end on
November 16, 2009.
Stock Option Grants. The plan administrator has the authority to specify
the terms and conditions of each option granted, including the vesting
schedule, the term and the exercise price, which, for incentive stock options,
must be at least equal to the fair market value of the common stock on the
grant date and, for nonqualified stock options, must not be less than 85% of
the fair market value of the common stock on the grant date. For purposes of
the plan, fair market value means the closing sales price as reported on the
Nasdaq National Market on the date of grant. Unless the plan administrator
provides otherwise, options granted under the plan will generally expire 10
years from the grant date.
Stock Awards. The plan administrator is authorized to award shares of
common stock or awards denominated in units of common stock. These stock
awards may be subject to terms and conditions determined
50
<PAGE>
by the plan administrator, including conditions on how the shares subject to
restrictions must be held while restricted and the circumstances under which a
holder will forfeit the shares if services with us are terminated. Holders of
restricted stock are shareholders of Avenue A and have, subject to certain
restrictions, all the rights of shareholders with respect to their shares.
Adjustments. The plan administrator will make proportional adjustments to
the number of shares issuable under the plan and to outstanding awards in the
event of stock splits or other similar capital adjustments.
Corporate Transactions. Unless individual letter agreements provide
otherwise, if certain corporate transactions, such as a merger or sale of
Avenue A, occur, each outstanding option under the plan will be assumed,
continued or replaced with a comparable award by the successor corporation or
the parent of the successor corporation; provided, however, that if a
successor corporation refuses to assume, continue or replace outstanding
options, each outstanding option will automatically accelerate and become 100%
vested and exercisable immediately before the corporate transaction. Any
option held by certain executive officers that is assumed, continued or
replaced with a comparable award in the corporate transaction, other than in
specified related-party transactions, will accelerate if the officer's
employment or services are terminated by the successor corporation without
cause or by the officer voluntarily and with good reason within two years
after the corporate transaction. Acceleration of option vesting will not occur
if the acceleration would prevent pooling of interests accounting treatment in
a transaction for which it is available.
Stock Option Grant Program for Nonemployee Directors
In November 1999, our board of directors adopted our stock option grant
program for nonemployee directors. This program will be administered under the
1999 plan, subject to shareholder approval of the 1999 plan.
Under the program, each nonemployee director will automatically receive a
nonqualified stock option to purchase 50,000 shares of common stock upon his
or her initial election or appointment to the board following this offering.
One-third of this option will vest on each of the first, second and third
anniversaries of the grant date. Beginning with the annual meeting of
shareholders in 2000, each nonemployee director will receive an additional
option to purchase 15,000 shares of common stock upon reelection or
reappointment to the board, which will fully vest on the first anniversary of
the date of grant. The exercise price for all options granted under the
program will be the fair market value of the common stock on the grant date.
Options will have a 10-year term, except that options will expire three months
after a nonemployee director ceases service as a director, unless cessation is
due to death, in which case the options will expire one year after the date of
death.
Unless individual letter agreements provide otherwise, if certain corporate
transactions, such as a merger or sale of Avenue A, occur, each outstanding
option granted to a director under the program will automatically accelerate
and become 100% vested and exercisable immediately before the corporate
transaction. Acceleration of option vesting will not occur if the corporate
transaction is a related-party transaction specified in the plan or if the
acceleration would prevent pooling of interests accounting treatment in a
transaction for which it is available.
1999 Employee Stock Purchase Plan
In November 1999, our board of directors adopted our 1999 employee stock
purchase plan, subject to shareholder approval. We will implement our employee
stock purchase plan upon the effectiveness of this offering to assist
employees in acquiring a stock ownership interest in Avenue A and to encourage
employees to remain in our employ or the employ of our domestic subsidiaries.
We intend for the plan to qualify under Section 423 of the Internal Revenue
Code. The plan will be administered by our board of directors, a committee of
the board or an executive officer appointed to administer the plan.
The board has reserved a total of 500,000 shares of common stock under the
plan plus an automatic annual increase, to be added on the first day of our
fiscal year beginning in 2001, equal to the least of (1) 750,000 shares, (2)
2% of the adjusted average common shares outstanding as used to calculate
fully diluted earnings per share as reported in our annual report to
shareholders for the preceding year and (3) a lesser amount as may be
51
<PAGE>
determined by the board. The plan will expire 10 years after it is adopted by
our board of directors, but the board may suspend or terminate the plan at any
time.
Eligibility. Employees generally will be eligible to participate in the
employee stock purchase plan if they are customarily employed by Avenue A for
20 hours or more per week and are not holders of 5% or more of our common
stock or our subsidiaries' common stock. The plan administrator may require
for future offerings that employees work a minimum of up to five months per
year and have been an employee for some minimum period of time not to exceed
two years. Options granted under the plan are not transferable and are only
exercisable during the employee's lifetime.
Payroll Deductions. Our employee stock purchase plan permits our eligible
employees and those of our domestic subsidiaries to purchase common stock
through payroll deductions of up to 20% of their compensation. Under the plan,
no employee may purchase common stock with a fair market value of more than
$25,000 in any calendar year or purchase more than 5,000 shares of common
stock in any single purchase period.
Offering and Purchase Periods. We will implement the employee stock
purchase plan with one-year offering periods. Each offering period will have
two consecutive six-month purchase periods. The first offering period will
commence on the effectiveness of this offering and will end on January 31,
2001. Thereafter offerings will begin on each February 1 and August 1. The
first purchase period under the first offering period will begin on the
effectiveness of this offering and end on July 31, 2000. Subsequent purchase
periods will begin on each February 1 and August 1 and end on the next July 31
and January 31, respectively. Subject to certain limitations, the plan
administrator may establish differing offering and purchase periods in the
future.
The price of the common stock purchased under the plan will be the lesser
of 85% of the fair market value on the first day of an offering period and 85%
of the fair market value on the last day of the applicable purchase period.
However, the purchase price for the first offering period will be equal to the
lesser of 100% of the initial public offering price of the common stock and
85% of the fair market value on the last day of the applicable purchase
period. For purposes of the plan, fair market value means the closing sales
price as reported on the Nasdaq National Market on the applicable day.
Adjustments. The plan administrator will make proportional adjustments to
the number of shares issuable under the plan and to outstanding options in the
event of stock splits or other similar capital adjustments.
Corporate Transactions. In the event of a merger, consolidation or
acquisition by another corporation of all or substantially all of our assets,
each outstanding option to purchase shares under the stock purchase plan will
be assumed or an equivalent option substituted by the successor corporation.
If the successor corporation refuses to assume or substitute for the option,
the offering period during which a participant may purchase stock will be
shortened to a specified date before the proposed transaction. Similarly, in
the event of Avenue A's proposed liquidation or dissolution, the offering
period during which a participant may purchase stock will be shortened to a
specified date before the date of the proposed event.
1998 Stock Incentive Compensation Plan
In 1998, our board of directors and shareholders approved our 1998 stock
incentive compensation plan. The plan permits awards of stock options, shares
of common stock or units denominated in common stock, all of which may be
subject to restrictions. The 1998 plan authorizes the issuance of up to
9,250,000 shares. As of September 30, 1999, options to purchase
3,924,081 shares were outstanding under the plan with exercise prices ranging
from $.10 to $4.00 per share, and options for 3,332,481 shares had been
exercised. In addition, as of September 30, 1999, 19,140 shares had been
issued as stock awards under the plan. We will not grant any further options
or stock awards under the plan after this offering is effective.
The plan administrator has the discretion to issue unvested shares of our
common stock upon exercise of a stock option under the plan. Any shares
acquired upon exercise of an unvested portion of an option will be unvested
shares. If the employment or services at Avenue A of an optionee are
terminated, all shares issued on exercise of the option that are unvested on
the date of termination may be repurchased by Avenue A at
52
<PAGE>
the exercise price paid for the shares. The terms and conditions of our
repurchase right are set forth in an agreement each optionee signs when the
optionee exercises an unvested option. The plan administrator has the
discretionary authority to cancel Avenue A's repurchase right for unvested
shares. Avenue A's repurchase right will also terminate if the vesting of
outstanding options is accelerated in a corporate transaction.
Corporate Transactions. Unless individual letter agreements provide
otherwise, if certain corporate transactions, such as a merger or sale of
Avenue A, occur, each outstanding option under the plan will automatically
accelerate and become 100% vested and exercisable immediately before the
corporate transaction, unless the option is assumed, continued or replaced
with a comparable award by the successor corporation or the parent of the
successor corporation. If option vesting is accelerated, any rights of
repurchase held by us applicable to the stock issued on exercise of the
options will lapse. Any option or stock award held by certain executive
officers that is assumed, continued or replaced with a comparable award in the
corporate transaction, other than in specified related-party transactions,
will accelerate if the holder's employment or services are terminated by the
successor corporation without cause or by the holder voluntarily and with good
reason within two years after the corporate transaction. Acceleration of
option vesting will not occur if the acceleration would prevent pooling of
interests accounting treatment in a transaction for which it is available. In
other material respects, the terms of the 1998 stock incentive compensation
plan are the same as those in the 1999 stock incentive compensation plan.
401(k) Plan
We maintain a 401(k) plan that covers all our employees over the age of 18.
We may make an annual contribution for the benefit of eligible employees in an
amount determined by our board of directors. We have not made any contribution
to date and have no current plans to do so. Eligible employees may make pre-
tax elective contributions of up to 25% of their compensation, subject to
maximum limits on contributions prescribed by law.
Limitations on Director and Officer Liability and Indemnification
Our articles of incorporation limit the liability of directors to the
fullest extent permitted by the Washington Business Corporation Act as it
currently exists or as it may be amended in the future. Consequently, subject
to the Washington Business Corporation Act, no director will be personally
liable to us or our shareholders for monetary damages resulting from his or
her conduct as one of our directors, except liability for:
. acts or omissions involving intentional misconduct or knowing violations
of law or unlawful distributions; or
. transactions from which the director personally receives a benefit in
money, property or services to which the director is not legally
entitled.
Our bylaws also provide that we will indemnify any individual made a party
to a proceeding because that individual is or was a director or officer or, in
certain circumstances, an employee of Avenue A, and will reimburse reasonable
expenses incurred by such individual in advance of the final disposition of
the proceeding to the fullest extent permitted by applicable law. Any repeal
of or modification to our articles of incorporation or bylaws may not
adversely affect any right of indemnification under the articles or bylaws of
a director or officer of Avenue A who is or was a director or officer at the
time of such repeal or modification. To the extent the provisions of our
articles of incorporation or bylaws provide for indemnification of directors
or officers for liabilities arising under the Securities Act, those provisions
are, in the opinion of the SEC, against public policy as expressed in the
Securities Act and they are therefore unenforceable.
In addition, we intend to purchase and maintain a liability insurance
policy pursuant to which our directors and officers may be indemnified against
liability they may incur for serving in their capacities as our directors and
officers.
We believe that the limitation of liability provision in our articles of
incorporation, the indemnification provisions in our bylaws and the liability
insurance policy will help us to continue to attract and retain qualified
individuals to serve as our directors and officers.
53
<PAGE>
RELATED-PARTY TRANSACTIONS
Nicolas J. Hanauer, the chairman of our board of directors, is an executive
officer, director and significant shareholder of Pacific Coast Feather
Company. During the period from our inception through 1998, Pacific Coast
Feather Company paid for some of our operating expenses and asset purchases,
including some payroll expenses, payroll taxes, travel expenses and computer
purchases, totaling $3,082,000 in the aggregate. $1,794,000 of this amount was
repaid to Pacific Coast Feather Company directly by us and $1,288,000 of this
amount was repaid to Pacific Coast Feather Company by us through the proceeds
of our sale of shares of our common stock to Pacific Coast Feather Company and
affiliates of Pacific Coast Feather Company, including Mr. Hanauer,
Gerard Hanauer, Lenore Hanauer, Adrian Hanauer, Roy Clothier Jr. and Eric
Moen, who are shareholders of Pacific Coast Feather Company. Gerard Hanauer,
Lenore Hanauer and Adrian Hanauer are Nicolas Hanauer's father, mother and
brother, respectively. Mr. Gerard Hanauer, Mr. Clothier and Mr. Moen served as
directors of Avenue A during 1998 and part of 1999. In addition, Pacific Coast
Feather Company incurred an obligation of approximately $13,333 in 1998 and
approximately $28,650 in 1999 for advertising services we provided, all of
which has been paid. In 1998 and 1999, Mr. Hanauer devoted part of his time to
Pacific Coast Feather Company and part of his time to Avenue A. Under an
arrangement with Pacific Coast Feather Company, we reimbursed Pacific Coast
Feather Company for $48,700 of salary paid by that company to Mr. Hanauer in
1999, which reimbursement represented compensation for Mr. Hanauer's services
as an officer and director of Avenue A in 1999.
In 1998, Mr. Hanauer made the following purchases of our common stock:
200,000 shares on March 9, 1998 at a purchase price of $2,000; 3,300,000
shares on May 26, 1998 at a purchase price of $483,000; 152,100 shares on June
10, 1998 at a purchase price of $22,262; and 2,000,000 shares on July 2, 1998
at a purchase price of $300,000. On February 23, 1999, Mr. Hanauer purchased
446,429 shares of our Series B preferred stock for $500,000. On May 26, 1998,
each of Adrian Hanauer, Gerard Hanauer and Lenore Hanauer purchased
1,100,000 shares of our common stock. The purchase price paid by each of them
for the shares was $161,000. On June 10, 1998, Pacific Coast Feather Company
purchased 947,900 shares of our common stock. The purchase price paid for
these shares was $138,738.
In addition, Mr. Hanauer is a director of Gear.com, Inc. Gear.com incurred
an obligation to us of approximately $7,733 in 1998 and $292,460 in 1999 for
advertising services, all of which has been paid.
On October 25, 1999, Sumit T. Sen, our Chief Analytics Officer, purchased
125,000 shares of our common stock for $500,000.
Gregory B. Maffei, one of our directors, is an executive officer of
Microsoft Corporation. Microsoft incurred an obligation to us of approximately
$3,750 in 1998 and $4,428,492 to date in 1999 for advertising services, all of
which has been paid. On October 26, 1999, Gregory B. Maffei purchased 100,000
shares of our common stock for $295,000.
On October 8, 1999, we made loans of $100,000 to Robert M. Littauer, our
chief financial officer, vice president, finance and administration, secretary
and treasurer, and $676,000 to Brian P. McAndrews, our chief executive officer
and one of our directors, pursuant to promissory notes in connection with the
purchase of shares of common stock and the exercise of stock options by Mr.
Littauer and Mr. McAndrews, respectively. The notes bear interest at a rate
equal to the greater of (1) the applicable federal rate for a demand note as
of October 8, 1999 and as redetermined each year on the anniversary date of
the notes, and (2) the lowest rate necessary to avoid the imputation of
interest under the Internal Revenue Code.
On October 8, 1999, the following executive officers each purchased 25,000
shares of our common stock for $100,000: Robert M. Littauer, Brian P.
McAndrews, Neve R. Savage, Jeffrey J. Miller, Michael T. Galgon, and Scott E.
Lipsky.
54
<PAGE>
On March 15, 1999, R. Michael Leo, our former Vice President, Sales and
Marketing, purchased 61,428 shares of our Series B preferred stock for
$68,800.
On October 8, 1999, we entered into a severance agreement and release with
Mr. Leo. Pursuant to that agreement, Mr. Leo will receive a severance payment
of $200,000 payable in monthly installments over a 12-month period from the
date of the agreement. Pursuant to the agreement, we granted Mr. Leo an option
to purchase 250,000 shares of our common stock, subject to Mr. Leo's
compliance with the Confidentiality, Inventions Assignment, Noncompetition and
Nonsolicitation Agreement between us and him. In addition, we provided Mr. Leo
with a loan of $75,000 which was applied to the exercise of previously granted
options. Under the agreement, each party agreed to release the other from any
claims arising from Mr. Leo's employment or termination.
On August 5, 1998, John P. Galgon, the father of Michael T. Galgon, our
Senior Vice President, Marketing and Business Development, purchased 78,313
shares of our Series A preferred stock for $65,000.
Jason Green, one of our directors, is a managing member of Presidio
Management Group VI, L.L.C. Presidio Management Group VI is the general
partner of each of U.S. Venture Partners VI, L.P., USVP VI Affiliates Fund,
L.P., 2180 Associates Fund VI, L.P. and USVP VI Entrepreneur Partners, L.P.
(collectively the "USVP Entities"). On May 4, 1999, the USVP Entities
purchased 3,092,783 shares of our Series C preferred stock for $6 million.
Presidio Management Group VI disclaims beneficial interest in such shares,
except as to its pecuniary interest arising as a result of its interest in
each of the USVP Entities. Mr. Green disclaims beneficial ownership of such
shares, except as to his pecuniary interest arising as a result of his
interest in Presidio Management Group VI.
Fredric W. Harman, one of our directors, is a managing member of Oak
Associates VIII, LLC, the general partner of Oak Investment Partners VIII,
Limited Partnership and a managing member of Oak VIII Affiliates, L.L.C., the
general partner of Oak VIII Affiliates Fund, Limited Partnership. On May 4,
1999, Oak Investment Partners VIII, Limited Partnership purchased 5,056,701
shares of our Series C preferred stock for $9.8 million and Oak VIII
Affiliates Fund, Limited Partnership purchased 97,938 shares of our Series C
preferred stock for $190,000. Mr. Harman disclaims beneficial ownership of
such shares, except as to his pecuniary interest arising as a result of his
interest in Oak Associates VIII, LLC and Oak VIII Affiliates LLC.
U.S. Venture Partners VI, L.P., Oak Investment Partners VIII, L.P. and Oak
VIII Affiliates Fund, L.P. are parties to an investors rights agreement with
us. Pursuant to the terms of that agreement, the holders of our Series C
preferred stock have certain registration rights that obligate us, under
certain circumstances, to register shares of common stock under the Securities
Act. For more information see "Description of Capital Stock--Registration
Rights."
55
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of October 31, 1999 by:
. each person or group known by us to own beneficially more than 5% of
our common stock;
. each of our directors;
. our Named Executive Officers; and
. all of our current directors and executive officers as a group
As of October 31, 1999, assuming conversion of all outstanding shares of
preferred stock, there were 32,802,690 shares of common stock outstanding and
290 shareholders of record of Avenue A. Beneficial ownership is determined in
accordance with SEC rules. In computing the number of shares beneficially
owned by a person or a group and the percentage ownership of that person or
group, shares of our common stock subject to options currently exercisable or
exercisable within 60 days after October 31, 1999 are deemed outstanding but
are not deemed outstanding for computing the percentage ownership of any other
person. Except as otherwise indicated in the footnotes below, we believe the
beneficial owners of the common stock listed below, based on information
furnished by them, have sole voting and investment power with respect to the
number of shares listed opposite their names, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Number of Owned
Shares -----------------
Beneficially Prior to After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with Oak Investment
Partners(1)................................... 5,154,639 15.7% %
525 University Avenue, Ste. 1300
Palo Alto, CA 94301
Nicolas J. Hanauer............................. 4,327,101 13.2
506 Second Avenue, 9th Floor
Seattle, WA 98104
Entities affiliated with U.S. Venture
Partners(2)................................... 3,092,783 9.4
2180 Sand Hill Road, Ste. 300
Menlo Park, CA 94025
Fredric W. Harman(1)........................... 5,154,639 15.7
Jason Green(2)................................. 3,092,783 9.4
Gregory B. Maffei(3)........................... 150,000 *
Brian P. McAndrews(4).......................... 1,255,000 3.7
Scott E. Lipsky(5)............................. 1,023,000 3.1
Directors and executive officers
as a group (14 persons)(6).................. 17,485,521 50.1
</TABLE>
- --------
* less than 1%
(1) Consists of 5,056,701 shares held by Oak Investment Partners VIII, Limited
Partnership and 97,938 shares held by Oak VIII Affiliates Fund, Limited
Partnership. Fredric W. Harman, a director of Avenue A, is a managing
member of Oak Associates VIII, LLC, the general partner of Oak Investment
Partners VIII, Limited Partnership, and a managing member of Oak VIII
Affiliates LLC, the general partner of Oak VIII Affiliates Fund, Limited
Partnership and thus may be deemed to share voting and dispository power
with each of the above entities. Mr. Harman disclaims beneficial ownership
of shares held by these entities except to the extent of his pecuniary
interest in Oak Associates VIII, LLC and Oak VIII Affiliates LLC.
(2) Consists of 2,876,288 shares held by U.S. Venture Partners VI, LP, 80,412
shares held by USVP VI Affiliates Fund, LP, 89,691 shares held by USVP VI
Entrepreneur Partners, LP, and 46,392 shares held by 2180 Associates Fund
VI, LP. Jason Green, a director of Avenue A, is a managing member of
Presidio Management Group VI LLC, the general partner of each of the
above entities and thus may be deemed to share voting and dispository
power with each of the above entities. Mr. Green disclaims beneficial
ownership of shares held by these entities except to the extent of his
pecuniary interest in Presidio Management Group VI LLC.
56
<PAGE>
(3) Represents (a) 100,000 shares held by Mr. Maffei and (b) 50,000 shares
subject to options exercisable within 60 days of October 31, 1999, all of
which are subject to repurchase by Avenue A at the original exercise price
in the event of termination of services of holder, which right lapses over
time in accordance with a vesting schedule.
(4) Represents (a) 25,000 shares held by Mr. McAndrews, (b) 355,789 shares
held by Mr. McAndrews that are subject to repurchase by Avenue A at the
original exercise price paid for such shares in the event of termination
of services of holder, which right lapses over time in accordance with a
vesting schedule, and (c) 874,211 shares subject to options exercisable
within 60 days of October 31, 1999, which are subject to repurchase by
Avenue A at the original exercise price in the event of termination of
services of holder, which right lapses over time in accordance with a
vesting schedule.
(5) Represents (a) 577,000 shares held by Mr. Lipsky, (b) 116,000 shares held
by Mr. Lipsky that are subject to repurchase by Avenue A at the original
exercise price paid for such shares in the event of termination of
services of holder, which right lapses over time in accordance with a
vesting schedule, and (c) 330,000 shares subject to options exercisable
within 60 days of October 31, 1999, which are subject to repurchase by
Avenue A at the original exercise price in the event of termination of
services of holder, which right lapses over time in accordance with a
vesting schedule.
(6) Includes 931,664 shares subject to repurchase by Avenue A at the original
exercise price paid for such shares, which right lapses over time in
accordance with a vesting schedule. Also includes 2,112,336 shares subject
to options exercisable within 60 days of October 31, 1999, of which
2,009,336 are subject to repurchase by Avenue A at the original exercise
price in the event of termination of services of holder, which right
lapses over time in accordance with a vesting schedule. Also includes
187,950 shares held in trusts for the benefit of the descendants of one of
the executive officers.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The description of capital stock below assumes approval by our
shareholders, and filing with the state of Washington, of amended and restated
articles of incorporation, which were approved by our board of directors in
November 1999. We are authorized to issue up to 200,000,000 shares of common
stock, $.01 par value per share, and 37,500,000 shares of preferred stock,
$.01 par value per share. The following summary of certain provisions of the
common stock and preferred stock is not complete and may not contain all the
information you should consider before investing in the common stock. You
should read carefully our articles of incorporation, which are included as an
exhibit to the Registration Statement, of which this prospectus is a part.
Common Stock
As of October 31, 1999, assuming conversion of all outstanding shares of
preferred stock, there were 32,802,690 shares of common stock outstanding held
of record by 290 shareholders. Following this offering, there will be
shares of common stock outstanding, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options.
The holders of common stock are entitled to one vote per share on all matters
to be voted on by the shareholders. Subject to preferences of any outstanding
shares of preferred stock, the holders of common stock are entitled to receive
ratably any dividends the board of directors declares out of funds legally
available for the payment of dividends. If Avenue A is liquidated, dissolved
or wound up, the holders of common stock are entitled to share pro rata all
assets remaining after paying liabilities and liquidation preferences of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive rights or rights to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to
the common stock. All outstanding shares of common stock are fully paid and
nonassessable, and the shares of common stock to be issued following this
offering will be fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, each outstanding share of Series A,
Series B and Series C preferred stock automatically will be converted into one
share of common stock. After that, pursuant to our articles of incorporation,
the board of directors will have the authority, without further action by the
shareholders, to issue up to 21,083,902 shares of preferred stock in one or
more series. The board also has the authority to fix the designations, powers,
preferences, privileges and relative, participating, optional or special
rights and the qualifications, limitations or restrictions of any preferred
stock, including dividend rights, conversion rights, voting rights, terms of
redemption and liquidation preferences, any or all of which may be greater
than the rights of the common stock. The board of directors, without
shareholder approval, can issue preferred stock with voting, conversion or
other rights that could adversely affect the voting power and other rights of
the holders of common stock. Preferred stock could thus be issued quickly with
terms that could delay or prevent a change in control of Avenue A or make
removal of management more difficult. Additionally, the issuance of preferred
stock may decrease the market price of the common stock and may adversely
affect the voting and other rights of the holders of common stock. We have no
plans at this time to issue any preferred stock.
Warrant
At October 31, 1999 we had one warrant outstanding to purchase 451,807
shares of common stock at $.83 per share. The warrant expires in August, 2003.
Registration Rights
After this offering, the holders of 10,337,624 shares of common stock will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act, pursuant to the terms of an Investors Rights
Agreement between Avenue A and the holders of Avenue A's Series C preferred
stock and a Registration Rights Agreement between Avenue A and the members of
iballs LLC, a New York limited liability company acquired by Avenue A in
September 1999.
Antitakeover Effects of Certain Provisions of Articles of Incorporation,
Bylaws and Washington Law
Issuance of Preferred Stock. As noted above, our board of directors,
without shareholder approval, has the authority under our articles of
incorporation to issue preferred stock with rights superior to the rights of
the
58
<PAGE>
holders of common stock. As a result, preferred stock could be issued quickly
and easily, could adversely affect the rights of holders of common stock and
could be issued with terms calculated to delay or prevent a change in control
of Avenue A or make removal of management more difficult.
Election and Removal of Directors. Upon the closing of this offering and
effective at the first annual meeting of shareholders following this offering,
our articles of incorporation will provide for the division of our board of
directors into three classes, as nearly as equal in number as possible, with
the directors in each class serving for a three-year term, and one class being
elected each year by our shareholders. Directors serve until their successors
are elected and qualified or until their death, resignation or removal from
office. Our directors can be removed from office only for cause and only by a
two-thirds vote of the shareholders. Because this system of electing and
removing directors generally makes it more difficult for shareholders to
replace a majority of the board of directors, it may discourage a third party
from making a tender offer or otherwise attempting to gain control of Avenue A
and may maintain the incumbency of the board of directors.
Approval for Certain Business Combinations. Upon closing of this offering,
our articles will require that certain business combinations (including a
merger, share exchange and the sale, lease, exchange, mortgage, pledge,
transfer or other disposition or encumbrance of a substantial part of assets
other than in the usual and regular course of business) be approved by the
holders of not less than two-thirds of the outstanding shares, unless such
business combination has been approved by the board of directors, in which
case the affirmative vote required shall be a majority of the outstanding
shares.
Shareholder Meetings. Upon closing of this offering, our articles and
bylaws will provide that our shareholders may call a special meeting only upon
the written request of holders of at least 25% of the outstanding shares
delivered to us at least 20 days prior to the date of the meeting.
Additionally, the board of directors, the chairman of the board, the chief
executive officer and the president may call special meetings of shareholders.
Requirements for Advance Notification of Shareholder Nominations and
Proposals. Upon the closing of this offering, our bylaws will establish
advance notice procedures with respect to shareholder proposals and the
nomination of candidates for election as directors, other than nominations
made by or at the direction of the board of directors or a committee thereof.
Washington Law. Washington law imposes restrictions on some transactions
between a corporation and significant shareholders. With some exceptions,
Chapter 23B.19 of the Washington Business Corporation Act prohibits a "target
corporation," from engaging in specified "significant business transactions"
with an "acquiring person." An acquiring person is defined as a person or
group of persons that beneficially owns 10% or more of the voting securities
of the target corporation. "Significant business transactions," as defined in
Chapter 23B.19, may not occur for a period of five years after the acquiring
person acquires the securities, unless the transaction or acquisition of
shares is approved by a majority of the members of the target corporation's
board of directors prior to the time of acquisition. "Significant business
transactions" include, among other things,
. a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person;
. termination of 5% or more of the employees of the target corporation as
a result of the acquiring person's acquisition of 10% or more of the
shares; or
. allowing the acquiring person to receive any disproportionate benefit as
a shareholder.
After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of Avenue A.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for Avenue A common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect prevailing market prices. Furthermore, since only a limited
number of shares will be available for sale shortly after this offering
because of contractual and legal restrictions on resale, sales of substantial
amounts of our common stock in the public market after the restrictions lapse
could adversely affect prevailing market prices and our ability to raise
equity capital in the future.
Upon completion of this offering, we will have shares of common stock
outstanding, assuming no exercise of options after January , 2000, the
conversion of all shares of outstanding preferred stock into common stock and
the exercise of an outstanding warrant. Of these shares, the shares sold
in this offering, plus any shares issued upon exercise of the underwriters'
over-allotment option, will be freely transferable without restriction or
registration under the Securities Act, except for shares purchased by any of
our existing "affiliates," which generally includes officers, directors or 10%
shareholders, as that term is defined in Rule 144 under the Securities Act.
The remaining shares of common stock held by existing shareholders
outstanding are "restricted securities" within the meaning of Rule 144 under
the Securities Act. These shares may be sold in the public market only if
registered, or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which are summarized
below.
Including our directors and officers, holders of a total of approximately
shares of common stock (including shares issuable upon automatic
conversion of the outstanding preferred stock and shares issuable upon
exercise of an outstanding warrant) have entered into lock-up agreements
generally providing that they will not, without the prior written consent of
Morgan Stanley & Co. Incorporated, offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend or otherwise transfer or
dispose of, directly or indirectly, any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
for a period of 180 days after the date of this prospectus. Avenue A has
entered into a similar agreement with Morgan Stanley. See "Underwriters." As a
result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, shares
subject to lock-up agreements will not be eligible for sale until these
agreements expire or are waived by Morgan Stanley. Taking into account the
lock-up agreements, and assuming Morgan Stanley does not release the parties
from these agreements, the following shares will be eligible for sale in the
public market at the following times:
. Beginning on the effective date of this offering, only the shares sold
in this offering will be immediately available for sale in the public
market.
. Beginning 180 days after the effective date of this offering, the
expiration date of the lock-up agreements, approximately shares
will be eligible for sale pursuant to Rules 144, 144(k) and 701.
. An additional shares will become eligible for sale pursuant to
Rule 144 beginning approximately one year after the date of this
prospectus. Shares eligible to be sold by affiliates pursuant to Rule
144 are subject to the volume restrictions as described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least one year is entitled to sell within any three-month period a
number of shares that does not exceed the greater of: (1) one percent of our
then outstanding shares of common stock (approximately shares
immediately after this offering); or (2) the average weekly trading volume of
our common stock on the Nasdaq Stock Market during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC. Sales
under Rule 144 also are subject to manner of sale provisions, notice
requirements and the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, may
sell such shares without complying with the manner of sale, public
information, volume limitation, or notice provisions of Rule 144.
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<PAGE>
The holders of approximately 10,337,624 shares of common stock or their
transferees are also entitled to various rights with respect to the
registration of their shares of common stock for offer or sale to the public.
If these holders, by exercising their registration rights, cause a large
number of shares to be registered and freely transferable in the public
market, the sales could have a material adverse effect on the market price of
our common stock. See "Description of Capital Stock--Registration Rights."
Beginning 90 days after the effective date of this prospectus, subject to
contractual restrictions, any of our employees, consultants or advisors who
purchased shares from us prior to the closing of this offering pursuant to a
written compensatory plan or contract may be entitled to rely on the resale
provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701
shares under Rule 144 without complying with the holding period requirements
of Rule 144. Rule 701 further provides that persons other than affiliates may
sell shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation, or notice provisions of Rule
144.
As of September 30, 1999, options to purchase 3,924,081 shares of common
stock pursuant to our 1998 stock incentive compensation plan were outstanding
and exercisable, and options to purchase 875,000 shares of common stock
outside of our 1998 stock incentive compensation plan were outstanding and
exercisable. Subject to shareholder approval, an additional 1,493,438 shares
of common stock were available for future grants under the 1998 stock
incentive compensation plan and, in November 1999, an additional 500,000
shares were reserved for issuances under that plan. In addition, we have
reserved 1,000,000 shares of common stock for future issuance under our 1999
stock incentive compensation plan and 500,000 shares of common stock for
future issuance under our 1999 employee stock purchase plan. No shares have
been issued to date under this plan.
After the closing of this offering, we intend to file registration
statements under the Securities Act to register shares to be issued pursuant
to our stock plans. Such registration statements are expected to become
effective immediately upon filing, and shares covered by such registration
statements will then become eligible for sale in the public markets. As a
result, shares issued pursuant to our 1998 stock incentive compensation plan,
our 1999 stock incentive compensation plan and our 1999 employee stock
purchase plan, after the effectiveness of such registration statements also
will be freely transferable in the public market, subject to Rule 144
limitations applicable to affiliates, vesting restrictions and expiration of
lock-up agreements.
61
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc. and Thomas
Weisel Partners LLC are acting as representatives, have severally agreed to
purchase, and we have agreed to sell to them the respective number of shares
of common stock set forth opposite the names of the underwriters below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ------------
<S> <C>
Morgan Stanley & Co. Incorporated...............................
Salomon Smith Barney Inc........................................
Thomas Weisel Partners LLC......................................
------------
Total.........................................................
============
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept
delivery of the shares of common stock offered by us in this offering are
subject to the approval of certain legal matters by their counsel and to other
conditions.
The underwriters are obligated to take and pay for all of the shares of
common stock offered by this prospectus, other than those covered by the over-
allotment option described below, if any of these shares are taken. Discover
Brokerage Direct, Inc., an affiliate of Morgan Stanley & Co. Incorporated, is
acting as a selected dealer in connection with this offering and will be a
distributor of shares of common stock over the Internet to its eligible
account holders.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ per share under the public
offering price. Any underwriters may allow, and any of these dealers may
reallow, a concession not in excess of $ per share to other underwriters
or to certain other dealers. After the initial offering of the shares of
common stock, the offering price and other selling terms may from time to time
be varied by the representatives of the underwriters.
We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of
additional shares of common stock at the public offering price set forth on
the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose
of covering over-allotments, if any, made in connection with this offering of
common stock. To the extent this over-allotment option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number set forth next to that underwriter's name in the preceding table bears
to the total number of shares of common stock set forth next to the names of
all underwriters in the preceding table.
The following table summarizes the underwriting compensation that we will
pay to the underwriters in connection with this offering:
<TABLE>
<CAPTION>
Total
---------------------------------------
Without With
Per Share Over-allotment Over-allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and
commissions paid by us........... $ $ $
</TABLE>
At our request, the underwriters have reserved up to shares of
common stock to be issued by us and offered hereby for sale, at the initial
public offering price, to employees, business associates and related
62
<PAGE>
persons of us. The number of shares of common stock available for sale to the
general public will be reduced to the extent these individuals purchase such
reserved shares. Any reserved shares which are not so purchased will be
offered by the underwriters to the general public on the same basis as the
other shares offered by this prospectus.
Avenue A, our directors and officers, and certain other shareholders of
Avenue A have each agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the underwriters, during the period
ending 180 days after the date of this prospectus, they will not:
. offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock, or
. enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of
common stock.
The restrictions described above do not apply to:
. the sale to the underwriters of the shares of common stock under the
underwriting agreement;
. the issuance by Avenue A of shares of common stock upon exercise of any
options or warrants or the conversion of any securities outstanding on
the date of this prospectus which is described in this prospectus;
. transactions by any person other than Avenue A relating to shares of
common stock or other securities acquired in open market transactions
after the completion of this offering; or
. issuances of shares of common stock or options to purchase shares of
common stock pursuant to our employee benefit plans as in existence on
the date of this prospectus.
The underwriters have informed us that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
We have filed an application for our common stock to be quoted on the
Nasdaq National Market under the symbol "AVEA."
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with this offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim selling concessions allowed to an underwriter or a dealer for
distributing the common stock in this offering if the syndicate repurchases
previously distributed shares of common stock in transactions to cover
syndicate short positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of the common
stock above independent market levels. The underwriters are not required to
engage in these activities and may end any of these activities at any time.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $1,550,000.
We and the underwriters have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act.
Due to the fact that one of the representatives of the underwriters was
organized within the last three years, we are providing you the following
information. Thomas Weisel Partners LLC, one of the representatives of the
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<PAGE>
underwriters, was organized and registered as a broker-dealer in December
1998. Since December 1998, Thomas Weisel Partners LLC has been named as a lead
or co-manager of, or as a syndicate member in, numerous public offerings of
equity securities. Thomas Weisel Partners LLC does not have any material
relationship with us or any of our officers, directors or other controlling
persons.
Pricing of the Offering
Prior to this offering, there has been no public market for the shares of
common stock. The initial public offering price will be determined by
negotiations between us and the representatives. Among the factors to be
considered in determining the initial public offering price are:
. our future prospects and those of our industry in general;
. our sales, earnings and certain other financial and operating
information in recent periods; and
. the price-earnings ratios, price-sales ratios, market prices of
securities and financial and operating information of companies engaged
in activities similar to ours.
LEGAL MATTERS
Certain legal matters will be passed on for Avenue A, Inc. by Perkins Coie
LLP, Seattle, Washington. The underwriters are being represented by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Kirkland, Washington.
EXPERTS
The consolidated financial statements and schedules of Avenue A, Inc. and
its subsidiaries included in this prospectus and elsewhere in the registration
statement, to the extent and for the periods indicated in their reports, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of Arthur Andersen LLP as experts in accounting
and auditing in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered in this
prospectus. This prospectus, which forms a part of the registration statement,
does not contain all of the information included in the registration
statement. Certain information is omitted and you should refer to the
registration statement and its exhibits. With respect to references made in
this prospectus to any contract or other document of Avenue A, such references
are not necessarily complete and you should refer to the exhibits attached to
the registration statement for copies of the actual contract or document. You
may review a copy of the registration statement, including exhibits and the
schedule filed therewith, at the SEC's public reference facilities in Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the regional offices of the SEC located at 7 World Trade Center, Suite 1300,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. You may also obtain copies of such materials
from the Public Reference Room of the SEC, Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may
obtain information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The SEC maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants, such as Avenue A, that file electronically with the
SEC.
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<PAGE>
AVENUE A, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AVENUE A, INC.
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
I-BALLS L.L.C.
Report of Independent Public Accountants................................... F-18
Balance Sheets............................................................. F-19
Statements of Operations................................................... F-20
Statements of Members' Equity.............................................. F-21
Statements of Cash Flows................................................... F-22
Notes to Financial Statements.............................................. F-23
Unaudited Pro Forma Combined Financial Statements of Avenue A, Inc. and
I-Balls L.L.C. ........................................................... F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Avenue A, Inc.:
We have audited the accompanying consolidated balance sheets of Avenue A, Inc.
and subsidiaries as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the period from inception (July 1, 1997) to December 31, 1997 and
for the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Avenue A, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the period from inception to December 31,
1997 and for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Seattle, Washington,
December 7, 1999
F-2
<PAGE>
AVENUE A, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity at
-------------- September 30, September 30,
1997 1998 1999 1999
----- ------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........ $ 3 $ 847 $ 6,292
Short-term investments........... -- -- 11,539
Accounts receivable, net of
allowance of $1, $70 and $752 in
1997, 1998 and 1999,
respectively.................... 8 1,545 18,353
Other receivable................. -- -- 180
Prepaid expenses and other
current assets.................. 10 9 245
----- ------- --------
Total current assets............... 21 2,401 36,609
----- ------- --------
Property and equipment, net........ 50 1,027 3,582
Goodwill, net...................... -- -- 5,691
Other assets....................... 4 13 41
----- ------- --------
Total assets....................... $ 75 $ 3,441 $ 45,923
===== ======= ========
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities:
Accounts payable................. $ 5 $ 2,078 $ 21,686
Accrued expenses................. 19 187 716
Due to affiliates................ 335 75 1
Deferred revenue................. -- 91 1,255
----- ------- --------
Total current liabilities.......... 359 2,431 23,658
----- ------- --------
Commitments and contingencies (Note
7)
Stockholders' equity (deficit):
Convertible preferred stock, $0.01
par value, aggregate liquidation
preferences of $25,293 at
September 30,1999
Authorized 17,500,000
Outstanding 3,998,474 and
16,416,098 at December 31,1998
and September 30, 1999......... -- 40 164 $ --
Common stock, $0.01 par value
Authorized 50,000,000
Outstanding 12,039,800 and
15,887,992 at December 31,1998
and September 30, 1999;
32,304,090 shares outstanding
pro forma...................... -- 121 159 323
Paid-in-capital................... -- 4,216 47,586 47,586
Deferred stock compensation....... -- -- (16,062) (16,062)
Subscriptions receivable.......... -- -- (965) (965)
Accumulated deficit prior to
incorporation.................... (284) -- -- --
Accumulated deficit............... -- (3,367) (8,617) (8,617)
----- ------- -------- --------
Total stockholders' equity
(deficit)......................... (284) 1,010 22,265 $ 22,265
----- ------- -------- ========
Total liabilities and stockholders'
equity............................ $ 75 $ 3,441 $ 45,923
===== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
AVENUE A, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share amounts)
<TABLE>
<CAPTION>
Period from
Inception Nine Months Ended
(July 1, 1997) to Year Ended September 30,
December 31, December 31, ---------------------
1997 1998 1998 1999
----------------- ------------ --------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Revenue:
Advertising services.. $ -- $ -- $ -- $ 33,425
Advertising service
fees................. 18 599 276 673
------ --------- --------- ----------
Total revenue....... 18 599 276 34,098
Expenses:
Cost of advertising
services............. 20 125 93 28,007
Client services....... 19 382 117 2,585
Technology and
operations........... -- 1,493 973 1,796
Selling, general and
administrative....... 263 2,257 1,189 6,435
Amortization of
deferred stock
compensation......... -- -- -- 860
------ --------- --------- ----------
Total expenses...... 302 4,257 2,372 39,683
------ --------- --------- ----------
Loss from operations.... (284) (3,658) (2,096) (5,585)
Interest income
(expense).............. -- 12 (10) 335
------ --------- --------- ----------
Loss before provision
for income taxes....... (284) (3,646) (2,106) (5,250)
Provision for income
taxes.................. -- -- -- --
------ --------- --------- ----------
Net loss................ $ (284) $ (3,646) $ (2,106) $ (5,250)
====== ========= ========= ==========
Basic and diluted net
loss per share......... $ -- $ (.50) $ (.37) $ (.42)
====== ========= ========= ==========
Shares used in computing
basic and diluted net
loss per share......... -- 7,240,455 5,632,664 12,394,634
====== ========= ========= ==========
Pro forma basic and
diluted net loss per
share.................. $ -- $ (.41) $ (.32) $ (.22)
====== ========= ========= ==========
Shares used in computing
pro forma basic and
diluted net loss
per share.............. -- 8,924,992 6,535,418 23,832,031
====== ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AVENUE A, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
<TABLE>
<CAPTION>
Convertible Accumulated
Preferred Stock Common Stock Deficit
----------------- ----------------- Paid-In Deferred Stock Subscriptions Prior to Accumulated
Shares Amount Shares Amount Capital Compensation Receivable Incorporation Deficit
---------- ------ ---------- ------ ------- -------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, July 1,
1997............. -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Net loss........ -- -- -- -- -- -- -- (284) --
---------- ----- ---------- ----- ------- -------- ----- ----- -------
BALANCES,
December 31,
1997............. -- -- -- -- -- -- -- (284) --
Net loss prior
to incorporation
on February 27,
1998............ -- -- -- -- -- -- -- (279) --
Issuance of
common stock to
affiliates for
cash, conversion
of payable and
satisfaction of
payable......... -- -- 12,000,000 121 916 -- -- 563 --
Exercise of
common stock
options......... -- -- 39,800 -- 4 -- -- -- --
Issuance of
convertible
preferred stock
and issuance of
common stock
warrants for
cash, net of
offering costs
of approximately
$165............ 3,998,474 40 -- -- 3,271 -- -- -- --
Compensation
expense
associated with
stock option
grants.......... -- -- -- -- 25 -- -- -- --
Net loss from
February 27,
1998 to December
31, 1998........ -- -- -- -- -- -- -- -- (3,367)
---------- ----- ---------- ----- ------- -------- ----- ----- -------
BALANCES,
December 31,
1998............. 3,998,474 40 12,039,800 121 4,216 -- -- -- (3,367)
Issuance of
preferred stock,
net of offering
costs of
approximately
$95............. 12,417,624 124 -- -- 21,755 -- -- -- --
Deferred stock
compensation
related to stock
options......... -- -- -- -- 16,922 (16,922) -- -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- 860 -- -- --
Issuance of
common stock in
connection with
the I-Balls
acquisition..... -- -- 500,000 5 2,495 -- -- -- --
Issuance of
common stock.... -- -- 55,511 1 319 -- -- -- --
Exercise of
common stock
options......... -- -- 3,292,681 32 1,879 -- (965) -- --
Net loss........ -- -- -- -- -- -- -- -- (5,250)
---------- ----- ---------- ----- ------- -------- ----- ----- -------
BALANCES,
September 30,
1999
(unaudited)...... 16,416,098 $ 164 15,887,992 $ 159 $47,586 $(16,062) $(965) $ -- $(8,617)
========== ===== ========== ===== ======= ======== ===== ===== =======
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
-------------
<S> <C>
BALANCES, July 1,
1997............. $ --
Net loss........ (284)
-------------
BALANCES,
December 31,
1997............. (284)
Net loss prior
to incorporation
on February 27,
1998............ (279)
Issuance of
common stock to
affiliates for
cash, conversion
of payable and
satisfaction of
payable......... 1,600
Exercise of
common stock
options......... 4
Issuance of
convertible
preferred stock
and issuance of
common stock
warrants for
cash, net of
offering costs
of approximately
$165............ 3,311
Compensation
expense
associated with
stock option
grants.......... 25
Net loss from
February 27,
1998 to December
31, 1998........ (3,367)
-------------
BALANCES,
December 31,
1998............. 1,010
Issuance of
preferred stock,
net of offering
costs of
approximately
$95............. 21,879
Deferred stock
compensation
related to stock
options......... --
Amortization of
deferred stock
compensation.... 860
Issuance of
common stock in
connection with
the I-Balls
acquisition..... 2,500
Issuance of
common stock.... 320
Exercise of
common stock
options......... 946
Net loss........ (5,250)
-------------
BALANCES,
September 30,
1999
(unaudited)...... $22,265
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
AVENUE A, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Period from
Inception Nine
(July 1, 1997) Year Months Ended
to Ended September 30,
December 31, December 31, -----------------
1997 1998 1998 1999
-------------- ------------ ------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net loss....................... $(284) $(3,646) $(2,106) $ (5,250)
Adjustments to reconcile net
loss to net cash used in
operating activities--
Depreciation and
amortization................ 2 155 68 649
Amortization of deferred
compensation................ -- -- -- 860
Non cash compensation
expense..................... -- 25 25 320
Changes in assets and
liabilities, net of
acquisition:
Accounts receivable........ (8) (1,537) (860) (15,426)
Other receivables and other
current assets............ (10) 1 -- (415)
Other assets............... (4) (9) (9) 9
Accounts payable........... 5 2,073 971 17,752
Accrued expenses........... 19 168 (9) 390
Deferred revenue........... -- 91 85 1,118
----- ------- ------- --------
Net cash (used in) provided by
operating activities.......... (280) (2,679) (1,835) 7
----- ------- ------- --------
Cash flows from investing
activities:
Purchases of property and
equipment..................... (52) (1,132) (721) (3,002)
Purchase of I-Balls, LLC....... -- -- -- (3,584)
Cash acquired in I-Balls
acquisition................... -- -- -- 812
----- ------- ------- --------
Net cash used in investing
activities.................... (52) (1,132) (721) (5,774)
Cash flows from financing
activities:
Proceeds from issuance of
common stock, net............. -- 1,471 1,471 --
Proceeds from issuance of
convertible preferred stock... -- 3,311 3,311 21,879
Proceeds from the exercise of
common stock options.......... -- 4 1 946
Advances from (payments to)
affiliate, net................ 335 (131) 28 (74)
----- ------- ------- --------
Net cash provided by financing
activities.................... 335 4,655 4,811 22,751
----- ------- ------- --------
Net increase in cash and cash
equivalents................... 3 844 2,255 16,984
Cash and cash equivalents,
beginning of period........... -- 3 3 847
----- ------- ------- --------
Cash and cash equivalents, end
of period..................... $ 3 $ 847 $ 2,258 $ 17,831
===== ======= ======= ========
Supplemental disclosure of
noncash activities:
Affiliate payable converted to
common stock.................. $ -- $ 139 $ 139 $ --
===== ======= ======= ========
Conversion of accumulated
deficit prior to incorporation
to contributed capital........ $ -- $ (563) $ (563) $ --
===== ======= ======= ========
Common stock issued in I-Balls
acquisition................... $ -- $ -- $ -- $ 2,500
===== ======= ======= ========
Subscriptions receivable....... $ -- $ -- $ -- $ 965
===== ======= ======= ========
Deferred stock compensation.... $ -- $ -- $ -- $ 16,922
===== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
1. Organization and Operations of the Company
Avenue A, Inc. (the Company) is an Internet advertising services company
that was founded on July 1, 1997. During the early stages of the Company,
Pacific Coast Feather Company (PCF) provided loans to fund operations and
provided certain accounting services. As of September 30, 1999, all of the
loans were either repaid or converted to common stock in the Company and all
services provided by PCF were paid for. On February 27, 1998, the Company was
incorporated.
On September 2, 1999, the Company completed the acquisition of I-Balls LLC
(I-Balls) a full service interactive media planner and buyer. The acquisition
was recorded under the purchase method of accounting and, therefore, the
results of operations of I-Balls and the fair value of the acquired assets and
liabilities were included in the Company's consolidated financial statements
beginning on the acquisition date (Note 3).
The Company is subject to a number of risks similar to other companies in a
comparable stage of development including reliance on key personnel,
competition from other companies with greater financial, technical and
marketing resources, and the risk relating to the ability to secure adequate
financing.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of the 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, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Financial Data
The unaudited interim financial statements as of September 30, 1999 and for
the nine months ended September 30, 1998 and 1999, have been prepared on the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial information set forth
therein, in accordance with generally accepted accounting principles. The
Company believes that the results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results to be
expected for any future period.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits, money market accounts
and all highly liquid debt instruments with an original maturity date of three
months or less.
F-7
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
Short-Term Investments
The Company's short-term investments consist primarily of investment-grade
marketable securities, which are classified as available for sale and recorded
at fair value.
At December 31, 1998, all short-term investments had a contractual maturity
of one year or less.
Financial Instruments and Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents, short-term
investments, accounts receivable and accounts payable. Fair values of cash and
cash equivalents and short-term investments approximate cost due to the short
period of time to maturity. The fair values of financial instruments that are
short-term and/or that have little or no market risk are considered to have a
fair value equal to book value. Assets and liabilities that are included in
this category are accounts receivable and accounts payable.
The Company performs initial and ongoing evaluations of its customers'
financial position, and generally extends credit on open account, requiring
collateral as deemed necessary. The Company maintains allowances for potential
credit losses.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, of
three to five years. Leasehold improvements are amortized over the shorter of
the remaining lease term or the estimated useful lives of the improvements
using the straight-line method.
Subscriptions Receivable
In conjunction with the exercise of certain stock options by several
executives of the Company, the Company received full recourse promissory notes
in the amount of approximately $965. The notes are due on demand and bear
interest at a rate equal to the greater of the applicable federal rate for a
demand note or the lowest rate allowable by the Internal Revenue Code of 1986.
Revenue Recognition
Revenue consists of both advertising services revenue and advertising
service fee revenue. Advertising services revenue consists of the gross value
of the Company's billings to the Company's clients, which includes the price
of the advertising space that the Company purchases from Web sites to resell
to its clients. Under advertising services contracts, the Company purchases
advertising space from publisher Web sites and sells the purchased space to
the Company's clients. Under advertising services arrangements, the Company is
ultimately responsible for payment to Web sites for the cost of space the
Company purchases. Advertising service fees revenue consists of commissions
earned on services the Company provides to its clients. To generate revenue
from advertising service fees, the Company buys advertising space from
publisher Web sites on behalf of its clients and earns fees based on the
dollar amount of advertising space the Company purchases. Under the
advertising service fee arrangements, the Company's clients are ultimately
responsible for payment to the publisher Web sites for the cost of the
advertising space purchased. Revenue under both advertising services and
advertising service fees is recognized over the period that the related
advertising is delivered.
F-8
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
Revenue is deferred in cases where the Company has not yet earned
advertising revenue due to billing the customer or receiving payment from the
customer prior to providing the services.
The percentage of sales to significant customers is as follows:
<TABLE>
<CAPTION>
Nine months
ended
December 31, September 30,
--------------- -------------
1997 1998 1999
------ ------ -------------
<S> <C> <C> <C>
Customer A.................................. * * 19%
Customer B.................................. * * 18%
Customer C.................................. * * 13%
Customer D.................................. * 19% *
Customer E.................................. * 17% *
Customer F.................................. * 14% *
Customer G.................................. * 10% *
Customer H.................................. 100% * *
</TABLE>
* Less than 10%
Computation of Basic Net Loss Per Share and Pro Forma Basic Net Loss Per
Share
Historical net loss per share has been calculated under Statement of
Financial Accounting Standards No. 128 "Earnings per Share." Basic net loss
per share on a historical basis is computed using the weighted average number
of shares of common stock outstanding. No diluted loss per share information
has been presented in the accompanying consolidated statements of operations
since potential common shares from conversion of preferred stock, stock
options, and warrants are antidilutive.
Pro forma basic net loss per share has been calculated assuming the
conversion of preferred stock into an equivalent number of common shares, as
if the shares had converted on the dates of their issuance.
Income Taxes
The Company recognizes deferred income tax assets and liabilities for the
expected future income tax consequences of temporary differences between the
financial reporting and tax bases of assets, liabilities and tax
carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a
valuation allowance for the amount of any tax benefits which, more likely than
not based on current circumstances, are not expected to be realized (see Note
5).
Costs of Advertising Services, Costs of Advertising Service Fees, Client
Services, and Technology and Operations
Cost of advertising services consist of the costs of advertising space that
the Company purchases from publisher's Web sites and the costs of delivering
the advertisements over the Internet.
Cost of advertising service fees revenue consists only of the costs of
delivering advertisements over the Internet.
Client services expenses consist primarily of salaries and related expenses
for client service personnel. Also included in client services costs are the
salaries and related expenses of personnel in the Company's data analysis
group.
F-9
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
Technology and operations expenses consist of salaries and related costs
for information technology and software development personnel. In addition,
these expenses include the cost of housing the Company's ad serving equipment
at third-party co-location facilities.
Stock-Based Compensation
The Company has elected to apply the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS 123). In accordance with the provisions of SFAS 123,
the Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25), and related interpretations in
accounting for its stock option plan.
Unaudited Pro Forma Stockholders' Equity
If the offering contemplated by this prospectus is consummated, all of the
preferred stock outstanding as of the closing date will automatically be
converted into shares of common stock. Unaudited pro forma stockholders'
equity at September 30, 1999, as adjusted for the conversion of preferred
stock, is presented in the accompanying consolidated balance sheet.
Comprehensive Income
In 1999, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income (SFAS 130)." SFAS 130 requires
companies to report a new, additional measure of income on the income
statement or to create a new financial statement that shows the new measure of
income. Comprehensive income includes foreign currency translation gains and
losses and unrealized gains and losses on equity securities that have been
previously excluded from net income and reflected instead in equity. SFAS 130
did not have a material impact on the Company's results of operations.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 changes the way
companies report selected segment information in annual financial statements
and requires companies to report selected segment information in interim
financial reports to stockholders. SFAS 131 is effective for Avenue A's year
ending December 31, 1999. Avenue A operates solely in one segment, providing
Internet advertising services. As of December 31, 1997 and 1998, and September
30, 1999, the Company's assets are located solely in the United States. The
Company has no sales to international customers and therefore the Company has
no international revenue.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 was
effective for financial statements for years beginning after December 15,
1998. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to capitalize
specific costs and amortization of such costs. The Company implemented SOP 98-
1 and capitalized approximately $242 of internally developed software costs.
Accumulated depreciation related to the capitalized costs was approximately
$37 at September 30, 1999.
F-10
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities." SOP 98-5, which is effective for fiscal years beginning
after December 15, 1998, provides guidance on the financial reporting of
start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. The
implementation of SOP 98-5 did not have a material impact on the Company's
financial position or results of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. Acquisitions
Effective September 2, 1999, the Company acquired I-Balls. I-Balls is a New
York based, full service interactive media planning and buying company. In
connection with the acquisition, the Company issued 500,000 shares of common
stock and paid $3.5 million in cash in exchange for all of the outstanding
members' equity. The deemed fair value of the common stock issued in the
acquisition, for accounting purposes, was approximately $2.5 million. The
Company also incurred $84 in acquisition costs, for a total purchase price of
$6,084. At the date of closing, $500 of the cash payment was deposited in an
escrow account. The acquisition was accounted for as a purchase and,
accordingly, the results of operations of I-Balls have been included in the
consolidated financial statements commencing on the date of acquisition. The
excess purchase price of approximately $5,854 was allocated to goodwill, which
is being amortized on a straight-line basis over a useful life of three years.
Accumulated amortization was approximately $163 at September 30, 1999.
In connection with the acquisition, net assets acquired were as follows:
<TABLE>
<S> <C>
Cash, receivables and other current assets........................ $2,194
Property and equipment, and other noncurrent assets............... 74
Current liabilities............................................... (2,039)
------
$ 229
======
</TABLE>
The following table presents the unaudited pro forma results assuming that
the Company had acquired I-Balls at the beginning of fiscal year 1998. This
information may not necessarily be indicative of the future combined results
of operations of the Company.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Total revenue..................................... $ 1,607 $35,600
Net loss.......................................... $(5,244) $(5,815)
Basic net loss per share.......................... $ (.68) $ (.45)
</TABLE>
F-11
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
4. Property and Equipment
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1997 1998 1999
------ ------- -------------
<S> <C> <C> <C>
Computer equipment........................... $ 39 $ 1,161 $3,425
Furniture and fixtures....................... 13 23 287
Software costs............................... -- -- 242
Leasehold improvements....................... -- -- 269
---- ------- ------
52 1,184 4,223
Less: Accumulated depreciation and
amortization................................ (2) (157) (641)
---- ------- ------
$ 50 $ 1,027 $3,582
==== ======= ======
</TABLE>
5. Federal Income Taxes
The Company did not provide any current or deferred United States federal
or state income tax provision or benefit for any of the periods presented
because it has experienced operating losses since inception, and has provided
full valuation allowances on deferred tax assets because of uncertainty
regarding their realizability.
The difference between the statutory federal tax rate of 34% and the tax
provision of zero recorded by the Company is primarily due to the Company's
full valuation allowance against its deferred tax assets.
At September 30, 1999, the Company had net operating loss carryforwards of
approximately $7.7 million related to U.S federal and state jurisdictions.
Utilization of net operating loss carryforwards are subject to certain
limitations under Section 382 of the Internal Revenue Code of 1986, as
amended, as a result of the Series C Preferred financing transaction. The
Company's use of reporting losses is limited to approximately $1.8 million per
year on net operating losses incurred prior to May 1999. These carryforwards
will begin to expire at various times commencing in 2018.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred taxes were as follows:
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Net operating loss
carryforwards.......... $ 1,032 $ 2,617
Other................... 46 296
------- -------
Total deferred assets... 1,078 2,913
Deferred tax liabilities
property and
equipment.............. (30) (156)
Valuation allowance for
deferred tax assets.... (1,048) (2,757)
------- -------
Net deferred taxes...... $ -- $ --
======= =======
</TABLE>
F-12
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
6. Stockholders' Equity
Convertible Preferred Stock
As of September 30, 1999, the Company was authorized to issue 17.5 million
shares of preferred stock. Shares of preferred stock may be issued from time
to time in one or more series, with designations, rights, preferences and
limitations established by the Company's Board of Directors.
As of September 30, 1999, the Company had designated three series of
convertible preferred stock (Series A through C).
The rights and privileges of the Preferred Stock are as follows:
Dividends--Holders of Series A, B and C are entitled to receive
dividends of $0.05, $0.05 and $0.10, respectively, per share per annum,
when and if declared by the Board of Directors. Such dividends are not
cumulative. As of September 30, 1999, no dividends have been declared.
Conversion--Each share of Series A and B is convertible, at the option
of the holders or upon the vote of two-thirds of the Series A and B
stockholders, respectively, into one share of common stock. Each share of
Series C is convertible at the option of the shareholders into one share of
common stock. Each share of Series A and B automatically converts into
common stock upon the closing of a public offering that meets certain
conditions. Each share of Series C automatically converts into common stock
upon the closing of a public offering with an aggregate offering price of
not less than $20 million (the "Proceeds Target"). In the event the Company
closes a public offering which meets the Proceeds Target but is at a per
share price to the public which is less than $3.88, each share of Series C
preferred stock shall, upon the closing of such offering, be converted into
the number of shares of common stock which equals $3.88 divided by the per
share price to the public in such offering.
Liquidation Preferences--The Series A, B and C shares have liquidation
preferences of $.83, $1.12 and $1.94 per share, respectively, plus all
declared but unpaid dividends.
If the value of the Company on liquidation is insufficient to pay the
entire preferential amount, distribution shall be made pro rata to all
preferred shareholders in proportion to the preferential amount the
preferred shareholder is otherwise entitled to receive.
Any assets remaining after the preferential distribution will be paid to
holders of common stock in proportion to shares held by each.
Voting Rights--The holders of each share of Series A, B and C shall be
entitled to the number of votes equal to the number of shares of common
stock into which such shares could be converted, and have voting rights
equal to holders of common stock.
Stock Option Plan
As of September 30, 1999, the Company has reserved 8.75 million shares of
common stock for issuance under its 1998 Stock Incentive Compensation Plan
(the Plan) to employees and consultants of the Company. Under the Plan, either
incentive or nonqualified options to purchase the Company's common stock may
be granted to full-time employees and consultants at prices determined by the
Board of Directors. Options granted under the Plan are exercisable at such
times and under such conditions as determined by the Board of Directors,
F-13
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
but the term of the options and the right of exercise may not exceed 10 years
from the date of grant. The stock options typically vest 20% in the first year
and ratably over the following twelve quarters. The Plan permits the exercise
of unvested options. Unvested common stock purchased under the Plan may be
subject to repurchase by the Company at the option exercise price in the event
of termination of employment. At September 30, 1999, 1,931,304 of the shares
acquired under the Plan were subject to the Company's repurchase rights. The
Company accounts for the Plan under APB 25 for which approximately $25 and
$320 has been recognized as compensation expense for the issuance of non-
qualified stock options for the year ending December 31, 1998 and for the nine
months ended September 30, 1999, respectively. Had compensation expense for
the Plan been determined consistent with SFAS 123, the Company's net loss
would have been increased as follows:
<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1997 1998 1999
----- ------- -------------
<S> <C> <C> <C>
Net Loss:
As reported.................................. $(284) $(3,646) $(5,250)
Pro forma.................................... $ -- $(3,649) $(5,275)
Basic and Diluted Net Loss Per Share:
As reported.................................. $ -- $ (.50) $ (.42)
Pro forma.................................... $ -- $ (.50) $ (.43)
</TABLE>
To determine compensation expense under SFAS 123, the Company used the
following assumptions:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
. Weighted average risk-free interest rate......... 5.26 5.69
. Expected lives................................... 1 year 1-4 years
. Expected dividend yields......................... -- --
. Expected volatility.............................. -- --
</TABLE>
Option activity under the Plan was as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Options Average Average
Available Options Exercise Grant Date
for Grant Outstanding Price Fair Value
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Balances, December 31, 1997.... -- -- --
Authorized................... 3,500,000 -- --
Granted...................... (3,183,050) 3,183,050 $ .21 $ .05
Exercised.................... -- (39,800) .11
Cancelled.................... 24,000 (24,000) .20
---------- ----------
Balances, December 31, 1998.... 340,950 3,119,250 $ .21
Authorized................... 5,250,000
Granted...................... (4,256,050) 4,256,050 $2.10 $2.10
Exercised.................... -- (3,292,681) .58
Cancelled.................... 158,538 (158,538) .62
---------- ----------
Balances, September 30, 1999... 1,493,438 3,924,081 $1.94
========== ==========
</TABLE>
F-14
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
The following information is provided for options outstanding and
exercisable at September 30, 1999:
<TABLE>
<CAPTION>
Outstanding Exercisable
-------------------------- -----------
Weighted Average
Remaining
Exercise Number of Contractual Life Number of
Price Options (Years) Options
-------- --------- ---------------- -----------
<S> <C> <C> <C>
$ .10 507,116 8.73 507,116
.50 343,054 9.01 343,054
.78 396,060 9.41 396,060
1.55 180,140 9.72 180,140
1.90 1,522,211 9.93 1,522,211
4.00 975,500 7.76 975,500
</TABLE>
The options outstanding at September 30, 1999 have a weighted average
remaining contractual life of approximately 9.11 years. 1,382,666 of these
options are fully vested and 3,924,081 are exercisable as of September 30,
1999 with exercise prices ranging from $.10 to $4.00. In addition to the
shares noted above, the Company has granted 875,000 options outside of the
Plan at exercise prices ranging from $1.90 to $2.50 to employees of I-Balls.
Additionally, on November 16, 1999, the Board of Directors authorized an
additional 500,000 shares of common stock for issuance under the Plan.
On November 16, 1999, the Board of Directors approved the adoption of the
Company's 1999 Stock Incentive Compensation Plan (the 1999 Plan), subject to
stockholder approval. The Company has reserved 1.0 million shares of common
stock for issuance under the 1999 Plan. No issuances have been made under the
1999 Plan as of November 30, 1999. The shares under the 1999 Plan will
increase annually on the first day of the Company's fiscal year beginning in
2001 by an amount equal to the lessor of (i) 3.0 million shares, (ii) 5% of
the adjusted average common shares outstanding of the Company used to
calculate fully diluted earnings per share for the preceding year or (iii) a
lesser amount determined by the Board of Directors. Any shares not yet issued
under the Company's 1998 Stock Incentive Compensation Plan as of the date of
the Company's proposed initial public offering, as well as shares subject to
options under the 1998 Plan that expire or are cancelled without being
exercised, will be available for grant under the 1999 Plan. The exercise price
for incentive stock options may not be less than 100% of the fair value of the
Company's common stock on the date of grant (85% for nonstatutory options).
The 1999 Plan terms and conditions are substantially the same as the 1998
Stock Incentive Compensation Plan.
Employee Stock Purchase Plan
On November 16, 1999, the Board of Directors approved the adoption of the
Company's 1999 Employee Stock Purchase Plan (the 1999 Purchase Plan), subject
to shareholder approval. A total of 500,000 shares of common stock has been
reserved for issuance under the 1999 Purchase Plan. The shares under the 1999
Purchase Plan will increase annually on the first day of the Company's fiscal
year beginning in 2001 equal to the lessor of (i) 750,000 shares of common
stock, (ii) 2% of the adjusted average common shares outstanding of the
Company used to calculate fully diluted earnings per share for the preceding
year or (iii) a lesser amount determined by the Board of Directors. The 1999
Purchase Plan permits eligible employees to acquire shares of the Company's
common stock through periodic payroll deductions of up to 20% of base cash
compensation. Each offering period will have a maximum duration of 12 months.
The price at which the common stock may be purchased is 85% of the lesser of
the fair market value of the Company's common stock on the first day of the
applicable offering
F-15
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
period or on the last day of the respective purchase period. The initial
offering period will commence on the effectiveness of the initial public
offering and will end on January 31, 2001.
Deferred Stock Compensation
In connection with the grant of certain stock options to employees and
consultants during the nine months ended September 30, 1999, the Company
recorded deferred stock compensation of approximately $16.9 million
representing the difference between the deemed fair value of the common stock
for accounting purposes and the option exercise price of such options at the
date of grant. Such amount is presented as a reduction of shareholders' equity
and amortized, in accordance with Financial Accounting Standards Board
Interpretation No. 28, on an accelerated basis over the vesting period of the
applicable options (generally 4 years). During the nine months ended September
30, 1999, the Company amortized approximately $860. Compensation expense is
decreased in the period of forfeiture for any accrued but unvested
compensation arising from the early termination of an option holder's
services.
Warrant
In connection with the sale of Series A preferred stock, the Company issued
a warrant to purchase 451,807 shares of common stock at an exercise price of
$.83 per share. The warrant had a grant date fair value of $.35 per share and
expires in August 2003. To determine the grant date fair value, the Company
used a risk free interest rate of 5.6%, expected life of five years, expected
dividend yields of 0%, and expected volatility of 105%. The Company expensed
$157 during the year ended December 31, 1998 related to the warrant.
Reserved for Future Issuance
The following shares of common stock have been reserved for future issuance
as of September 30, 1999:
<TABLE>
<S> <C>
Employee stock options........................................ 1,493,438
Stock options issued outside of the Plan...................... 875,000
Convertible Preferred Stock................................... 16,416,098
Warrants...................................................... 451,807
----------
19,236,343
==========
</TABLE>
7. Commitments and Contingencies
Operating Leases
The Company has various operating leases, including building and equipment,
that expire at various times through 2004. Future minimum lease payments as of
September 30, 1999 are as follows:
<TABLE>
<S> <C>
1999 (3 months)................................................... $ 334
2000.............................................................. 1,456
2001.............................................................. 1,383
2002.............................................................. 1,180
2003.............................................................. 1,195
2004.............................................................. 915
------
$6,463
======
</TABLE>
F-16
<PAGE>
AVENUE A, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1998
(in thousands except share and per share data)
(Information as of September 30, 1998 and 1999 is unaudited)
Rent expense under operating leases totaled approximately $0, $182 and $229
for the year ended December 31, 1997 and 1998 and for the nine month period
ended September 30, 1999, respectively.
The above future minimum lease payments include a commitment of
approximately $21 per month expiring on June 30, 2001, which has been
subleased at a loss. The loss of approximately $54 has been recognized in the
statement of operations.
The Company has multiple agreements with third-parties to house the
Company's ad serving equipment. One of the agreements is on a month-to-month
basis and the other agreement is on year-to-year basis. As of nine months
ended September 30, 1999, total expense under these agreements approximated
$81.
8. Related Party Transactions:
Prior to incorporation on February 27, 1998, the Company relied on non-
interest bearing loans from PCF to fund operations. During 1998, PCF converted
approximately $139 of the debt to 947,900 shares of the Company's common
stock. Subsequent to year-end, the Company repaid all loans to PCF. The
accompanying statement of operations includes allocations from PCF for certain
accounting services. These allocations totaled approximately $32 and $1 in
1997 and 1998, respectively, and were based on estimates of time and effort
spent by PCF personnel on behalf of the Company. Additionally, PCF paid the
Company approximately $36 and $33 during 1998 and 1999, respectively, for
advertising services. At December 31, 1997 and 1998, amounts due to PCF were
approximately $335 and $75, respectively.
F-17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Members of I-Balls L.L.C.:
We have audited the accompanying balance sheets of I-Balls L.L.C. as of
December 31, 1997 and 1998, and the related statements of operations, members'
equity and cash flows for the period January 28, 1997 to December 31, 1997 and
the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of I-Balls L.L.C. as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period January 28, 1997 to December 31, 1997 and the year ended
December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
New York, New York
October 29, 1999
F-18
<PAGE>
I-BALLS L.L.C.
(a limited liability company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------- September 2,
1997 1998 1999
-------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents................... $ 49,730 $ 494,505 $ 811,610
Accounts receivable, net of allowance for
doubtful accounts of $4,100, $59,900 and
$123,600, respectively..................... 438,395 992,172 1,151,264
Unbilled receivables........................ -- 181,572 230,087
Prepaids and other current assets........... 4,070 8,054 1,000
-------- ---------- ----------
Total current assets.......................... 492,195 1,676,303 2,193,961
Equipment and leasehold improvements, net..... 14,607 16,958 36,672
Other assets.................................. 6,208 6,167 37,500
-------- ---------- ----------
Total assets.................................. $513,010 $1,699,428 $2,268,133
======== ========== ==========
Liabilities and Members' Equity
Current liabilities:
Accounts payable and accrued expenses....... $412,098 $1,276,354 $1,886,149
Capital lease obligation current portion.... 6,365 9,436 9,136
Employee loan............................... 38,345 -- --
Deferred revenue............................ 38,228 54,992 137,723
-------- ---------- ----------
Total current liabilities..................... 495,036 1,340,782 2,033,008
-------- ---------- ----------
Long-term debt:
Capital lease obligation long-term portion.. 7,997 1,715 5,625
-------- ---------- ----------
Commitments and contingencies (Note 5)
Members' equity:
Members' interest........................... 1,000 1,000 1,000
Retained earnings........................... 8,977 355,931 228,500
-------- ---------- ----------
Total members' equity......................... 9,977 356,931 229,500
-------- ---------- ----------
Total liabilities and members' equity......... $513,010 $1,699,428 $2,268,133
======== ========== ==========
</TABLE>
See accompanying notes are an integral part of these balance sheets.
F-19
<PAGE>
I-BALLS L.L.C.
(a limited liability company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Periods Ended
-------------------------
January 28, Year January 1
Through Ended Through
December 31, December 31, September 2,
1997 1998 1999
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Advertising service fees................. $115,854 $1,008,022 $1,501,943
Expenses:
Sales and marketing.................... 66,687 409,100 581,586
General and administrative............. 40,190 256,137 162,575
-------- ---------- ----------
Total expenses....................... 106,877 665,237 744,161
-------- ---------- ----------
Income from operations................... 8,977 342,785 757,782
Interest income.......................... -- 10,435 19,693
Income taxes............................. -- -- 35,062
-------- ---------- ----------
Net income............................... $ 8,977 $ 353,220 $ 742,413
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE>
I-BALLS L.L.C.
(a limited liability company)
STATEMENTS OF MEMBERS' EQUITY
<TABLE>
<CAPTION>
Total
Members' Retained Members'
Interest Earnings Equity
-------- -------- --------
<S> <C> <C> <C>
Initial Capital Contribution, January 28, 1997.... $1,000 $ -- $ 1,000
Net income........................................ -- 8,977 8,977
------ -------- --------
Balance, December 31, 1997........................ 1,000 8,977 9,977
Distributions..................................... -- (6,266) (6,266)
Net income........................................ -- 353,220 353,220
------ -------- --------
Balance, December 31, 1998........................ 1,000 355,931 356,931
Distributions (unaudited)......................... -- 869,844 869,844
Net income (unaudited)............................ -- 742,413 742,413
------ -------- --------
Balance, September 2, 1999 (unaudited)............ $1,000 $228,500 $229,500
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE>
I-BALLS L.L.C.
(a limited liability company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 28, January 1,
Through Year Ended Through
December 31, 1997 December 31, 1998 September 2, 1999
----------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income.............. $ 8,977 $ 353,220 $ 742,413
Adjustments to reconcile
net income to net cash
provided by operating
activities-
Depreciation.......... 3,652 6,979 6,720
Amortization of
intangible assets.... 292 541 1,667
Changes in assets and
liabilities-
Accounts
receivable......... (438,395) (553,777) (159,092)
Unbilled
receivables........ -- (181,572) (48,515)
Prepaid expenses and
other current
assets............. (2,070) (4,984) 8,054
Other assets........ (6,500) (500) (33,000)
Accounts payable and
accrued expenses... 412,098 864,256 609,795
Deferred revenue.... 38,228 16,764 82,731
--------- --------- ----------
Net cash provided by
operating activities... 16,282 500,927 1,210,773
--------- --------- ----------
Cash flows from
investing activities:
Capital expenditures.... -- (2,572) (22,824)
Cash flows from
financing activities:
Proceeds (repayment) of
member loans........... 38,345 (38,345) --
Repayment of capital
lease obligation....... (3,897) (9,969) --
Employee (loan)
receivable/payment..... (1,000) 1,000 (1,000)
Member distributions.... -- (6,266) (869,844)
--------- --------- ----------
Net cash provided by
(used in) financing
activities............. 33,448 (53,580) (870,844)
--------- --------- ----------
Net increase in cash and
cash equivalents....... 49,730 444,775 317,105
Cash and cash
equivalents, beginning
of period.............. -- 49,730 494,505
--------- --------- ----------
Cash and cash
equivalents, end of
period................. $ 49,730 $ 494,505 $ 811,610
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE>
I-BALLS L.L.C.
(a limited liability company)
NOTES TO FINANCIAL STATEMENTS
1. Business and Summary of Significant Accounting Policies
Business
I-Balls L.L.C. (the "Company"), a New York limited liability company, was
incorporated on January 28, 1997. The Company is a full-service interactive
media planner and buyer.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue consists of fees charged to customers. The Company acts as an agent
for clients and purchases space from publisher websites on their behalf.
Advertising service fees earned under fee based contracts reflect the amount
of the commission earned. Revenue is recognized over the period the
advertising is delivered. Deferred revenue represents billings issued in
advance of the service period. Unbilled receivables represents fees earned but
not billed. All contracts in process are expected to be billed and collected
within one year.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity from the date of purchase of three months or less to be cash
equivalents.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost, net of accumulated
depreciation and amortization. Equipment is depreciated on the double-
declining method over estimated useful lives ranging from five to seven years.
Leasehold improvements are amortized over the life of the current office
lease. The lease expires on August 14, 2001.
Income Taxes
The Company is a limited liability company taxed as a partnership for
federal and state income tax purposes and, as a result, the earnings of the
Company are taxable directly to the members. The Company remains liable for
the New York City Unincorporated Business Tax.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable, due
from members, due to members, and accounts payable approximate fair value due
to the short-term maturity of these instruments.
New Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"),
F-23
<PAGE>
I-BALLS L.L.C.
(a limited liability company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
which provides guidance for determining whether computer software is internal-
use software and on accounting for the proceeds of computer software
originally developed or obtained for internal use and then subsequently sold
to the public. It also provides guidance on capitalization of the costs
incurred for computer software developed or obtained for internal use. SOP 98-
1 is effective for fiscal years beginning after December 31, 1998. The Company
does not expect the adoption of SOP 98-1 to have a material effect on its
financial statements.
2. Equipment and Leasehold Improvements
Equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
--------------- September 2,
1997 1998 1999
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
Computer equipment.............................. $18,259 $27,589 $44,073
Leasehold improvements.......................... -- -- 9,950
------- ------- -------
Total equipment............................... 18,259 27,589 54,023
Less--Accumulated depreciation.................. 3,652 10,631 17,351
------- ------- -------
Equipment and leaseholds, net................. $14,607 $16,958 $36,672
======= ======= =======
</TABLE>
Depreciation expense aggregated $3,652, $6,979 and $6,720 (unaudited) for
the period January 28, 1997 to December 31, 1997 and the year ended December
31, 1998 and for the period from January 1, 1999 through September 2, 1999,
respectively.
3. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------- September 2,
1997 1998 1999
-------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
Accounts payable.......................... $393,906 $1,269,930 $1,643,805
Accrued bonuses........................... 11,500 -- 211,838
Accrued payroll........................... 6,692 6,424 --
Accrued tax payable....................... -- -- 30,506
-------- ---------- ----------
Total accounts payable and accrued
expenses............................... $412,098 $1,276,354 $1,886,149
======== ========== ==========
</TABLE>
4. Members' Equity
Initial Capital Contribution
On June 1, 1997, the founding members entered into a Limited Liability
Company Operating Agreement by which they pledged a total capital contribution
of $1,000.
Distributions
The Company distributes earnings to its members based upon a formula in the
members' agreement, which takes into consideration, among other things,
ownership percentages, and other subjective allocations.
F-24
<PAGE>
I-BALLS L.L.C.
(a limited liability company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Commitments and Contingencies
Leases
The Company is committed under operating leases for office space and fixed
assets. Rent expense was $10,325, $27,275 and $24,750 (unaudited) for the
period January 28, 1997 to December 31, 1997 and the year ended December 31,
1998 and for the period from January 1, 1999 through September 2, 1999,
respectively. Operating lease expense related to fixed assets was $3,010,
$8,408 and $6,870 (unaudited) for the period January 28, 1997 to December 31,
1997 and the year ended December 31, 1998 and for the period from January 1,
1999 through September 2, 1999, respectively. Future minimum lease payments
under the terms of noncancelable operating lease are as follows:
<TABLE>
<CAPTION>
Lease
Payments
--------
<S> <C>
Years ending December 31:
1999............................................................. $ 81,377
2000............................................................. 161,867
2001............................................................. 82,290
2002............................................................. 1,180
--------
$326,714
========
</TABLE>
6. Business Concentrations and Credit Risk
Financial instruments, which subject the Company to concentrations of
credit risk, consisted primarily of cash and cash equivalents and trade
accounts receivable. The Company maintains cash and cash equivalents with
various financial institutions. The Company performs periodic evaluations of
the relative credit standing of these institutions. The Company's clients are
primarily concentrated in the United States. The Company performs ongoing
credit evaluations, generally does not require collateral, and establishes an
allowance for doubtful accounts based upon factors surrounding the credit risk
of customers, historical trends and other information. To date, such losses
have been within management's expectations.
For the period January 28, 1997 to December 31, 1997, three clients
accounted for 52%, 23% and 16%, respectively, of total revenue.
For the year ended December 31, 1998, three clients accounted for 28%, 20%
and 18%, respectively, of total revenue.
For the period from January 1, 1999 through September 2, 1999 (unaudited),
three clients accounted for 34%, 17% and 11%, respectively, of total revenue.
As of December 31 1997 four clients accounted for 37%, 26%, 17% and 11%,
respectively, of total accounts receivable.
As of December 31, 1998, two clients accounted for 49% and 15%,
respectively, of total accounts receivable.
As of September 2, 1999 (unaudited), one client accounted for 53% of total
accounts receivable.
7. Sale of Members' Interest
On September 2, 1999, the members of the Company sold 100% of their
interest in the Company to Avenue A, Inc. ("Avenue A"). As a result of this
transaction, the Company became a wholly owned subsidiary of Avenue A.
F-25
<PAGE>
AVENUE A, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On September 2, 1999, Avenue A, Inc. (the "Company" or "Avenue A")
completed the acquisition of I-Balls L.L.C. ("I-Balls"), a full service
interactive media planner and buyer. The acquisition of I-Balls has been
accounted for as a purchase. Accordingly, the results of operations of I-Balls
have been included in the consolidated statement of operations of Avenue A
commencing on the date of acquisition.
The accompanying unaudited pro forma combined statement of operations of
Avenue A, Inc. for the year ended December 31, 1998 and the nine months ended
September 30, 1999 assumes that the acquisition took place as of January 1,
1998.
The unaudited pro forma combined statements of operations are presented for
informational purposes only and do not purport to represent what the Company's
results of operations for the year ended December 31, 1998 or for the nine
months ended September 30, 1999 would actually have been had the acquisitions,
in fact, occurred on January 1, 1998, or the Company's results of operations
for any future period. The unaudited pro forma combined statements of
operations should be read in conjunction with the financial statements and
related notes thereto included elsewhere in this prospectus and the
information set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
F-26
<PAGE>
AVENUE A, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
January 1-
September 2, Pro
September 30, 1999 Forma Pro Forma
1999 Avenue A I-Balls Adjustments Combined
------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Revenue:
Advertising services.. $ 33,425 $ -- $ -- $ 33,425
Advertising service
fees................. 673 1,502 -- 2,175
---------- ------ ------- ----------
Total revenue....... 34,098 1,502 -- 35,600
---------- ------ ------- ----------
Expenses:
Cost of advertising
services revenue..... 28,007 -- -- 28,007
Client services....... 2,585 -- -- 2,585
Technology and
operations........... 1,796 -- -- 1,796
Selling, general and
administration....... 6,272 745 -- 7,017
Amortization of
goodwill............. 163 -- 1,304 (b) 1,467
Amortization of
deferred stock
compensation......... 860 -- -- 860
---------- ------ ------- ----------
Total expenses...... 39,683 745 1,304 41,732
---------- ------ ------- ----------
Income (loss) from
operations......... (5,585) 757 (1,304) (6,132)
Interest income......... 335 20 -- 355
---------- ------ ------- ----------
Income (loss) before
provision for income
taxes.................. (5,250) 777 (1,304) (5,777)
Provision for income
tax.................... -- 35 -- 35
---------- ------ ------- ----------
Net income (loss)....... $ (5,250) $ 742 $(1,304) $ (5,812)
========== ====== ======= ==========
Basic and diluted net
loss per share......... $ (.42) $ (.45)(c)
========== ==========
Shares used in computing
basic and diluted net
loss per share......... 12,394,634 12,843,352 (c)
========== ==========
Pro forma basic and
diluted net loss per
share.................. $ (.22) $ (.24)(c)
========== ==========
Shares used in computing
pro forma basic and
diluted net loss per
share.................. 23,832,031 24,280,749 (c)
========== ==========
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-27
<PAGE>
AVENUE A, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended
December 31, 1998
------------------ Pro Forma Pro Forma
Avenue A I-Balls Adjustments Combined
--------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Advertising services.......... $ -- $ -- $ -- $ --
Advertising service fees...... 599 1,008 -- 1,607
--------- ------ ------- ---------
Total revenue............... 599 1,008 -- 1,607
--------- ------ ------- ---------
Expenses:
Cost of advertising services
revenue...................... 125 -- -- 125
Client services............... 382 -- -- 382
Technology and operations..... 1,493 -- -- 1,493
Selling, general and
administration............... 2,257 665 -- 2,922
Amortization of goodwill...... -- -- 1,951(a) 1,951
Amortization of deferred stock
compensation................. -- -- -- --
--------- ------ ------- ---------
Total expenses.............. 4,257 665 1,951 6,873
--------- ------ ------- ---------
Income (loss) from operations... (3,658) 343 (1,951) (5,266)
Interest income................. 12 10 -- 22
--------- ------ ------- ---------
Income (loss) before provision
for income taxes............... (3,646) 353 (1,951) (5,244)
Provision for income taxes...... -- -- -- --
--------- ------ ------- ---------
Net income (loss)............... $ (3,646) $ 353 $(1,951) $ (5,244)
========= ====== ======= =========
Basic and diluted net loss per
share.......................... $ (.50) $ (.68)(c)
========= =========
Shares used in computing basic
and diluted net loss per
share.......................... 7,240,455 7,740,455 (c)
========= =========
Pro forma basic and diluted net
loss per share................. $ (.41) $ (.56)(c)
========= =========
Shares used in computing pro
forma basic and diluted net
loss per share................. 8,924,992 9,424,992 (c)
========= =========
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-28
<PAGE>
AVENUE A, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited pro forma combined statement of operations for the year ended
December 31, 1998 and for the nine months ended September 30, 1999 gives
effect to the acquisition of I-BALLS, LLC as if this transaction had occurred
January 1, 1998.
The pro forma combined financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the actual
combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash and common stock consideration exchanged by
Avenue A for the fair value of the assets acquired and liabilities assumed.
2. Pro Forma Adjustments
Certain pro forma adjustments have been made to the accompanying unaudited
pro forma combined statements of operations as described below:
(a) Reflects 12 months amortization of the excess of the purchase price
over the fair value of net assets acquired, which is being amortized
over three years.
(b) Reflects eight months amortization of the excess of the purchase price
over the fair value of net assets acquired, which is being amortized
over three years.
(c) Basic and diluted net loss per share is computed by dividing net loss
by the weighted average number of shares outstanding during the period
assuming that shares issued for the acquisition were outstanding for
the entire period. Pro forma basic and diluted net loss per share has
been computed assuming the conversion of preferred stock into an
equivalent number of common shares, as if the shares had converted on
the dates of their issuance, and based on the weighted average number
of shares outstanding giving effect to shares issued in the acquisition
as if they were outstanding for the entire period.
3. Purchase Price Allocation:
In connection with the acquisition, the Company issued 500,000 shares of
common stock and paid $3.5 million in cash in exchange for all of the
outstanding member's equity for a total purchase price of $6.1 million. The
acquisition was accounted for as a purchase and, accordingly, the results of
operations of I-Balls have been included in the consolidated financial
statements commencing on the date of acquisition. The excess purchase price of
approximately $5.9 million was recorded as goodwill and is being amortized on
a straight-line basis over a useful life of three years.
F-29
<PAGE>
[LOGO OF AVENUE A]
<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 the
underwriting discounts and commissions, payable by the registrant in
connection with the sale of the common stock being registered hereby. All
amounts shown are estimates, except the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 15,840
NASD filing fee............................................... 6,500
Nasdaq National Market listing fee............................ 95,000
Blue Sky fees and expenses.................................... 10,000
Printing and engraving expenses............................... 150,000
Legal fees and expenses....................................... 500,000
Accounting fees and expenses.................................. 400,000
Directors' and officers' insurance............................ 350,000
Transfer Agent and Registrar fees............................. 10,000
Miscellaneous expenses........................................ 12,660
----------
Total......................................................... $1,550,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act (the "WBCA") authorize a court to award, or a corporation's
board of directors to grant, indemnification to directors and officers on
terms sufficiently broad to permit indemnification under certain circumstances
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 10 of the registrant's Bylaws (Exhibit 3.2 hereto)
provides for indemnification of the registrant's directors, officers (and, in
certain instances, employees and agents) to the maximum extent permitted by
Washington law.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a
director's liability to the corporation or its shareholders for monetary
damages for acts or omissions as a director, except in certain circumstances
involving intentional misconduct, knowing violations of law or illegal
corporate loans or distributions, or any transaction from which the director
personally receives a benefit in money, property or services to which the
director is not legally entitled. Article 10 of the registrant's Restated
Articles of Incorporation (Exhibit 3.1 hereto) and Section 10 of the
registrant's Bylaws contain provisions implementing, to the fullest extent
permitted by Washington law, such limitations on a director's liability to the
registrant and its shareholders. The directors and officers of the registrant
also may be indemnified against liability they may incur for serving in that
capacity pursuant to a liability insurance policy maintained by the registrant
for such purpose.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the underwriters of the registrant and its executive
officers and directors, and by the registrant of the underwriters, for certain
liabilities, including liabilities arising under the Securities Act, in
connection with matters specifically provided in writing by the underwriters
for inclusion in this Registration Statement.
Item 15. Recent Sales of Unregistered Securities
Since its inception in July 1997, the registrant has issued and sold
unregistered securities as follows:
1. On February 27, 1998 and March 9, 1998, the registrant issued an aggregate
of 1,200,000 shares of common stock to its six founders for a
consideration of $.01 per share, or an aggregate of $12,000.
2. On May 26, 1998, the registrant issued an aggregate of 7,700,000 shares of
common stock to five founders. The consideration was $.1463636 per share,
or an aggregate of $1,127,000.
II-1
<PAGE>
3. On June 10, 1998, the registrant issued an aggregate of 1,100,000 shares
of common stock to one of its founders and one investor. The consideration
was $.1463636 per share, or an aggregate of $161,000.
4. On July 2, 1998, the registrant issued an aggregate of 2,000,000 shares of
common stock to one of its founders for a consideration of $.15 per share,
or an aggregate of $300,000.
5. In July and August 1998, the registrant issued 3,998,474 shares of Series
A preferred stock, which are convertible into 3,998,474 shares of common
stock, to forty-two investors for a consideration of $.83 per share, or an
aggregate of $3,318,733.
6. On August 7, 1998, the registrant issued a warrant for the purchase of
451,807 shares of common stock, with an exercise price of $.83 per share,
to an investor.
7. In February and March 1999, the registrant issued 2,580,000 shares of
Series B preferred stock, which are convertible into 2,580,000 shares of
common stock, to thirty-six investors for a consideration of
$1.12 per share, or an aggregate of $2,889,600.
8. On May 4, 1999, the registrant issued 9,837,624 shares of Series C
preferred stock, which are convertible into 9,837,624 shares of common
stock, to eleven investors for a consideration of $1.94 per share, or an
aggregate of $19,084,991.
9. On June 10, 1999, the registrant issued an aggregate of 35,511 shares of
common stock to seven employees in lieu of sales commissions under the
registrant's 1998 stock incentive compensation plan.
10. On July 1, 1999 and August 16, 1999, the registrant issued an aggregate of
20,000 shares of common stock to two consultants in exchange for services
under the registrant's 1998 stock incentive compensation plan.
11. On September 2, 1999, pursuant to a purchase agreement among the
registrant and the members of I-Balls LLC, the registrant issued an
aggregate of 500,000 shares of common stock, to the six members of I-Balls
LLC as partial consideration for the registrant's acquisition of all the
membership interests I-Balls LLC.
12. On September 2, 1999 and September 22, 1999, in connection with the
registrant's acquisition of all the membership interests of I-Balls LLC,
the registrant granted stock options to purchase 875,000 shares of common
stock, with exercise prices ranging from $1.90 to $2.50 per share, to two
employees who were former members of I-Balls LLC, outside of the
registrant's 1998 stock incentive compensation plan. Of these options, no
shares have been exercised or canceled without being exercised and 875,000
shares remain outstanding.
13. From June 23, 1998 through September 30, 1999, the registrant granted
stock options to purchase 7,439,100 shares of common stock, with exercise
prices ranging from $.10 to $4.00 per share, under the registrant's 1998
stock incentive compensation plan. Of these, options for 182,538 shares
have been canceled without being exercised, options for 3,332,481 shares
have been exercised and options for 3,924,081 shares remain outstanding.
14. On October 8, 1999, the registrant issued an aggregate of 170,000 shares
of common stock to eight of its executive officers for a consideration of
$4.00 per share, or an aggregate of $680,000, under the registrant's 1998
stock incentive compensation plan.
15. On October 25, 1999, the registrant issued 125,000 shares of common stock
to one of its executive officers for a consideration of $4.00 per share,
or an aggregate of $500,000, under the registrant's 1998 stock incentive
compensation plan.
16. On October 26, 1999, the registrant issued 50,000 shares of common stock
to one of its directors for a consideration of $1.90 per share, or an
aggregate of $95,000, and 50,000 shares of common stock to that same
director for a consideration of $4.00 per share, or an aggregate of
$200,000. Both issuances were made under the registrant's 1998 stock
incentive compensation plan.
The sales and issuances of these securities were exempt from registration
under the Securities Act pursuant to Rule 701 promulgated thereunder on the
basis that these securities were sold or issued either pursuant to a
II-2
<PAGE>
written compensatory benefit plan or pursuant to written contracts relating to
consideration, as provided by Rule 701, or pursuant to Section 4(2) thereof on
the basis that the transactions did not involve a public offering.
No underwriter was used in connection with any of the foregoing sales and
issuances.
Item 16. Exhibits and Financial Statement Schedules
(a)Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Articles of Incorporation of the registrant
3.2* Amended and Restated Bylaws of the registrant
4.1 Form of Warrant to purchase common stock
5.1* Opinion of Perkins Coie LLP
10.1 Form of Series A Purchase Agreement between the registrant and the
investors listed on Schedule A thereto
10.2 Warrant Agreement dated August 7, 1998
10.3 Form of Series B Purchase Agreement between the registrant and the
investors listed on Schedule A thereto
10.4 Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated July 2, 1998
10.5 Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated June 10, 1998
10.6 Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated May 26, 1998
10.7 Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated March 9, 1998
10.8 Series C Preferred Stock Purchase Agreement between the registrant and
Voyager Capital Fund I, L.P., Voyager Capital Founders Fund, L.P., Oak
Investment Partners VI, L.P., Kirlan Venture Partners II, L.P., Norman
H. Nie, Trustee, Norman H. Nie Revocable Trust dated 3/15/91, Media
partners, the Phoenix Partners IV Limited Partnership, R. Michael Leo
and Insight Venture Associates LLC dated May 4, 1999
10.9 Investors Rights Agreement between the registrant and Voyager Capital
Fund I, L.P., Voyager Capital Founders Fund, L.P., Oak Investment
Partners VI, L.P., Kirlan Venture Partners II, L.P., Norman H. Nie,
Trustee, Norman H. Nie Revocable Trust dated 3/15/91, Media partners,
the Phoenix Partners IV Limited Partnership, R. Michael Leo and Insight
Venture Associates LLC dated May 4, 1999
10.10 Form of Promissory Note between the registrant and the executive
officers listed on Schedule A thereto dated October 8, 1999
10.11 Form of Stock Purchase Agreement dated October 8, 1999 between the
registrant and the executive officers listed on Schedule A thereto
10.12 Stock Purchase Agreement between the registrant and Gregory B. Maffei
dated October 26, 1999
10.13 Stock Purchase Agreement between the registrant and Gregory B. Maffei
dated October 26, 1999
10.14 Stock Purchase Agreement between the registrant and Sumit T. Sen dated
October 25, 1999
10.15 Purchase Agreement among the registrant and Stephen D. Klein, Michael
Cohen, Jonathan Bond, Richard Kirshenbaum, Margaret Boyer and Daniel
DeWolf dated September 2, 1999
10.16 Employment Agreement between the registrant and Michael Cohen dated
September 2, 1999
10.17 Employment Agreement between the registrant and Stephen D. Klein dated
September 2, 1999
10.18 Registration Rights Agreement between the registrant and Stephen D.
Klein, Michael Cohen, Jonathan Bond, Richard Kirshenbaum, Margaret
Boyer and Daniel DeWolf dated September 2, 1999
10.19 Severance Agreement between the registrant and R. Michael Leo dated
October 8, 1999
10.20 1999 Stock Incentive Compensation Plan
10.21 Stock Option Grant Program for Nonemployee Directors under the 1999
Stock Incentive Compensation Plan
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.22 1999 Employee Stock Purchase Plan
10.23 1998 Stock Incentive Compensation Plan
10.24 Loan and Security Agreement between the registrant and Silicon Valley
Bank dated May 25, 1999
10.25 Lease Agreement between the registrant and Samis Foundation dated July
16, 1999
21.1 Subsidiaries of the registrant
23.1 Consent of Arthur Andersen LLP, independent public accountants
23.2* Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit
5.1)
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
(b)Financial Statement Schedules
Schedule II--Valuations and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements of the
registrant or related notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes 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,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and 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, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on the 8th day of December, 1999.
AVENUE A, INC.
/s/ Brian P. McAndrews
By: _________________________________
Brian P. McAndrews
Chief Executive Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Brian P. McAndrews and Robert M. Littauer, and each of them, with
full power of substitution and resubstitution and full power to act without
the other, as his true and lawful attorney-in-fact and agent to act in his
name, place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file any and all
amendments to this Registration Statement, including any and all post-
effective amendments and amendments thereto, and any registration statement
relating to the same offering as this Registration Statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing,
ratifying and confirming all that said attorneys-in-fact and agents or any of
them or their or his substitute or substitutes may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated below on the 8th day of December, 1999.
<TABLE>
<S> <C>
/s/ Nicolas J. Hanauer Chairman of the Board
______________________________________
Nicolas J. Hanauer
/s/ Brian P. McAndrews Chief Executive Officer and Director
______________________________________ (Principal Executive Officer)
Brian P. McAndrews
/s/ Robert M. Littauer Vice President, Chief Financial
______________________________________ Officer, Secretary and Treasurer
Robert M. Littauer (Principal Financial and Accounting
Officer)
/s/ Jason Green Director
______________________________________
Jason Green
/s/ Fredric W. Harman Director
______________________________________
Fredric W. Harman
/s/ Gregory B. Maffei Director
______________________________________
Gregory B. Maffei
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Stockholders of
Avenue A, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Avenue A, Inc. and subsidiaries included in this
registration statement and have issued our report thereon dated December 7,
1999. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule listed in the
index of financial statements is presented for purposes of complying with the
Securities and Exchanges Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Seattle, Washington
December 7, 1999
<PAGE>
AVENUE A, INC.
Schedule II--Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Deductions,
Balance at Additions- Returns and Balance at
Description Beginning of Year Provisions Write-offs End of Year
- ----------- ----------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts
Year ending December 31,
1998.................... $ 1 $69 $-- $70
Year ending December 31,
1997.................... $-- $ 1 $-- $ 1
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Amended and Restated Articles of Incorporation of the registrant
3.2* Amended and Restated Bylaws of the registrant
4.1 Form of Warrant to purchase common stock
5.1* Opinion of Perkins Coie LLP
10.1 Form of Series A Purchase Agreement between the registrant and the
investors listed on Schedule A thereto
10.2 Warrant Agreement dated August 7, 1998
10.3 Form of Series B Purchase Agreement between the registrant and the
investors listed on Schedule A thereto
10.4 Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated July 2, 1998
10.5 Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated June 10, 1998
10.6 Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated May 26, 1998
10.7 Share Purchase Agreement between the registrant and Nicolas J. Hanauer
dated March 9, 1998
10.8 Series C Preferred Stock Purchase Agreement between the registrant and
Voyager Capital Fund I, L.P., Voyager Capital Founders Fund, L.P., Oak
Investment Partners VI, L.P., Kirlan Venture Partners II, L.P., Norman
H. Nie, Trustee, Norman H. Nie Revocable Trust dated 3/15/91, Media
partners, the Phoenix Partners IV Limited Partnership, R. Michael Leo
and Insight Venture Associates LLC dated May 4, 1999
10.9 Investors Rights Agreement between the registrant and Voyager Capital
Fund I, L.P., Voyager Capital Founders Fund, L.P., Oak Investment
Partners VI, L.P., Kirlan Venture Partners II, L.P., Norman H. Nie,
Trustee, Norman H. Nie Revocable Trust dated 3/15/91, Media partners,
the Phoenix Partners IV Limited Partnership, R. Michael Leo and Insight
Venture Associates LLC dated May 4, 1999
10.10 Form of Promissory Note between the registrant and the executive
officers listed on Schedule A thereto dated October 8, 1999
10.11 Form of Stock Purchase Agreement dated October 8, 1999 between the
registrant and the executive officers listed on Schedule A thereto
10.12 Stock Purchase Agreement between the registrant and Gregory B. Maffei
dated October 26, 1999
10.13 Stock Purchase Agreement between the registrant and Gregory B. Maffei
dated October 26, 1999
10.14 Stock Purchase Agreement between the registrant and Sumit T. Sen dated
October 25, 1999
10.15 Purchase Agreement among the registrant and Stephen D. Klein, Michael
Cohen, Jonathan Bond, Richard Kirshenbaum, Margaret Boyer and Daniel
DeWolf dated September 2, 1999
10.16 Employment Agreement between the registrant and Michael Cohen dated
September 2, 1999
10.17 Employment Agreement between the registrant and Stephen D. Klein dated
September 2, 1999
10.18 Registration Rights Agreement between the registrant and Stephen D.
Klein, Michael Cohen, Jonathan Bond, Richard Kirshenbaum, Margaret
Boyer and Daniel DeWolf dated September 2, 1999
10.19 Severance Agreement between the registrant and R. Michael Leo dated
October 8, 1999
10.20 1999 Stock Incentive Compensation Plan
10.21 Stock Option Grant Program for Nonemployee Directors under the 1999
Stock Incentive Compensation Plan
10.22 1999 Employee Stock Purchase Plan
10.23 1998 Stock Incentive Compensation Plan
10.24 Loan and Security Agreement between the registrant and Silicon Valley
Bank dated May 25, 1999
10.25 Lease Agreement between the registrant and Samis Foundation dated July
16, 1999
21.1 Subsidiaries of the registrant
23.1 Consent of Arthur Andersen LLP, independent public accountants
23.2* Consent of Perkins Coie LLP (contained in the opinion filed as Exhibit
5.1)
24.1 Power of Attorney (contained on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
EXHIBIT 4.1
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED.
STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock of
AVENUE A, INC.
THIS CERTIFIES that, for value received, _____________________ or such
registered transferee to whom this Warrant is transferred pursuant to Section 1
hereof (the "Holder") is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and on or prior
to August 7, 2003, but not thereafter, to subscribe for and purchase, from
AVENUE A, INC., a Washington corporation (the "Company"), 451,807 shares of
Common Stock of the Company (the "Common Stock"). The purchase price (the
"Exercise Price") of one share of Common Stock under this Warrant shall be
$0.83.
1. Warrant Agreement; Title to Warrant
This Warrant and the shares of Common Stock issuable upon its exercise are
subject to the terms and conditions of the Warrant Agreement, dated August 7,
1998, by and between the Company and Holder (the "Warrant Agreement"), in the
form attached as Exhibit A hereto. Prior to the expiration hereof and subject
to compliance with applicable laws, this Warrant and all rights hereunder may be
transferred only in accordance with the terms and conditions of the Warrant
Agreement. No transfer or attempted transfer of the Warrant shall be valid
unless the transferee and the transferee's spouse, if any, has executed the
"Endorsement" attached as Exhibit A to the Warrant Agreement. Any transfer of
this Warrant shall take place at the office or agency of the Company, referred
to in Section 2 hereof, by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed.
2. Exercise of Warrant
The purchase rights represented by this Warrant are exercisable by the
registered Holder, in whole or in part, at any time before the close of business
on August 7, 2003 by the surrender of this Warrant and the Notice of Exercise
form attached hereto duly executed at the office of the Company in Seattle,
Washington (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of such Holder
appearing on the books of the Company) and upon payment of the purchase price
PAGE 1
<PAGE>
of the shares thereby purchased (by cash, check or cancellation of indebtedness
of the Company to the Holder, if any, at the time of exercise in an amount equal
to the Exercise Price of the shares being purchased) whereupon the Holder shall
be entitled to receive a certificate for the number of shares of Common Stock so
purchased.
3. Net Issue Exercise
In lieu of exercising this Warrant by paying the Exercise Price by cash,
check or cancellation of indebtedness of the Company to the Holder, if any,
Holder may elect to receive shares equal to the value of this Warrant (or
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with notice of such election in which event the
Company shall issue to Holder a number of shares of the Company's Common Stock
computed using the following formula:
X = The number of shares of Common Stock to be issued to Holder.
X = (Y)(A-B)
--------
A
Y = The number of shares of Common Stock to be canceled pursuant to
such exercise under this Warrant.
A = The fair market value of one share of Common Stock
B = Exercise Price (as adjusted to the date of such calculations).
For purposes of this Section 3, while the Company is privately held, the
fair market value of one share of Common Stock shall be the fair market value of
such share as determined in good faith by the Board of Directors of the Company.
4. Issuance of Shares; No Fractional Shares or Scrip
Certificates for shares purchased hereunder shall be delivered to the
Holder within a reasonable time after the date on which this Warrant shall have
been exercised as aforesaid. The Company covenants that all shares of Common
Stock that may be issued upon the exercise of rights represented by this Warrant
will, upon exercise of the rights represented by this Warrant, be fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue). The Company agrees that, if at the time of the surrender of
this Warrant and exercise of the rights represented hereby, the Holder shall be
entitled to exercise such rights, the shares so issued shall be and be deemed to
be issued to such Holder as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been exercised as
aforesaid. No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon the exercise of this Warrant, an amount equal to such
PAGE 2
<PAGE>
fraction multiplied by the then current price at which each share may be
purchased hereunder shall be paid in cash to the Holder.
5. Charges, Taxes and Expenses
Issuance of certificates for shares of Common Stock upon the exercise of
this Warrant shall be made without charge to the Holder for any issue or
transfer tax or other incidental expense in respect of the issuance of such
certificate, all of which taxes and expenses shall be paid by the Company, and
such certificates shall be issued in the name of the Holder or in such name or
names as may be directed by the Holder; provided, however, that in the event
-------- -------
certificates for shares of Common Stock are to be issued in a name other than
the name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Endorsement Form attached as Exhibit A to the Warrant Agreement duly
executed by the transferee and the transferee's spouse, if any.
6. No Rights as Stockholders
This Warrant does not entitle the Holder to any voting rights or other
rights as a stockholder of the Company prior to the exercise thereof.
7. Exchange and Registry of Warrant
This Warrant is exchangeable, upon the surrender hereof by the registered
Holder at the above-mentioned office or agency of the Company, for a new Warrant
of like tenor and dated as of such exchange.
The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered Holder of this Warrant.
This Warrant may be surrendered for exchange, transfer or exercise, in
accordance with its terms, at such office or agency of the Company, and the
Company shall be entitled to rely in all respects, prior to written notice to
the contrary, upon such registry.
8. Loss, Theft, Destruction or Mutilation of Warrant
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
9. Saturdays, Sundays, Holidays, etc.
If the last or appointed day for the taking of any action or the expiration
of any right required or granted herein shall be a Saturday or a Sunday or shall
be a legal holiday, then
PAGE 3
<PAGE>
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
10. Early Termination and Dilution
(a) Merger, Sale of Assets, Public Offering, etc. If at any time the
---------------------------------------------
Company proposes to (1) merge with or into any other corporation, effect a
reorganization or sell or convey all or substantially all its assets to any
other entity in a transaction in which the holders of Common Stock of the
Company would be entitled to receive cash or readily marketable securities in
respect of their shares of Common Stock or (2) effect a firm commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of shares of Common Stock for
the account of the Company to the public, then the Company shall give the Holder
at least 30 days' notice of the proposed effective date of such transaction, and
if the Warrant has not been exercised by the effective date of such transaction
(which date shall not be prior to the proposed effective date stated in such
notice) it shall terminate.
(b) Reclassification, etc. If the Company at any time shall change (other
----------------------
than with respect to a transaction covered by the provisions of paragraph 10(a)
above) any of the securities to which purchase rights under this Warrant exist
into the same or a different number of securities of any class or classes,
whether by subdivision, combination or reclassification of securities, including
but not limited to a stock dividend, stock split or stock distribution, this
Warrant shall thereafter be to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such change. If shares of the Company's Common Stock are
subdivided or combined into a greater or smaller number of shares of Common
Stock, the purchase price under this Warrant shall be proportionately reduced in
case of subdivision of shares or proportionately increased in the case of a
combination of shares, in both cases by the ratio that the total number of
shares of Common Stock to be outstanding immediately before such event bears to
the total number of shares of Common Stock outstanding immediately after such
event.
(c) Stock for Stock Transaction. If at any time the Company proposes to
---------------------------
effect any capital reorganization or reclassification of the capital stock of
the Company, consolidation or merger of the Company with or into another
corporation or sale of all or substantially all of the Company's assets to
another corporation (other than with respect to a transaction covered by the
provisions of paragraphs 10(a) or 10(b) above) in a transaction in which the
stockholders of the Company immediately before the transaction shall be entitled
to receive stock, securities or other assets that are not readily marketable
with respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the Holder shall thereafter have the
right to purchase and receive upon the basis and upon the terms and conditions
specified in this Warrant, and in lieu of the shares of Common Stock purchasable
and receivable as of immediately prior to such transaction upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as may
be issued or
PAGE 4
<PAGE>
payable in such transaction with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of Common Stock
that would be purchasable and receivable upon the exercise of the rights
represented by this Warrant had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holder
to the end that the provisions hereof shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company shall not effect any such
consolidation, merger or sale unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger, or the corporation purchasing such assets, shall assume
by written instrument executed and mailed to the registered Holder at the last
address of such Holder appearing on the books of the Company, the obligation to
deliver to such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
(d) Cash Distributions. No adjustment on account of cash dividends or
------------------
interest on the Company's Common Stock or other securities purchasable hereunder
will be made to the purchase price under this Warrant.
(e) Authorized Shares. The Company covenants that during the period this
-----------------
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of Common Stock
upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of the
Common Stock upon the exercise of the purchase rights under this Warrant.
11. Miscellaneous
(a) Issue Date. The provisions of this Warrant shall be construed and
----------
shall be given effect in all respects as if it had been issued and delivered by
the Company on the date hereof. This Warrant shall be binding upon any
successors or assigns of the Company.
(b) Restrictions. The Holder acknowledges that the Common Stock acquired
------------
upon the exercise of this Warrant may have restrictions upon its resale imposed
by state and federal securities laws.
(c) Governing Law. This Warrant shall be governed by and construed in
-------------
accordance with the laws of the state of Washington.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
PAGE 5
<PAGE>
IN WITNESS WHEREOF, AVENUE A, INC. has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated: August 7, 1998
AVENUE A, INC.
By /s/ Eric Moen
-----------------------
Title Secretary
-----------------------
PAGE 6
<PAGE>
NOTICE OF EXERCISE
To: AVENUE A, INC.
(1) The undersigned hereby elects to purchase ____________ shares of Common
Stock of AVENUE A, INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price in full.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
______________________________
(Name)
______________________________
(Address)
(3) The undersigned represents that the aforesaid shares of Common Stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or reselling such
shares.
_________________________ _____________________________
(Date) (Signature)
PAGE 7
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
________________________________________________________________________________
(Please Print)
whose address is________________________________________________________________
(Please Print)
________________________________________________________________________________
Dated: ______________________19___.
Holder's Signature: ____________________________
Holder's Address: ____________________________
____________________________
Signature Guaranteed:___________________________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatever, and must be guaranteed by a bank or trust company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant. THE
WARRANT MAY ONLY BE ASSIGNED OR TRANSFERRED IN ACCORDANCE WITH THE TERMS AND
CONDITIONS OF SECTION 1 OF THE WARRANT AND THE WARRANT AGREEMENT (AS SUCH TERM
IS DEFINED IN SECTION 1 OF THE WARRANT).
PAGE 8
<PAGE>
EXHIBIT 10.1
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement"), is effective as of ______
_, 1998, by and between Avenue A, Inc. (the "Company"), a Washington
corporation, and the undersigned purchaser of the Company's Series A Preferred
Stock (the "Shareholder").
RECITAL
The Shareholder desires to purchase shares of the Company's Series A
Preferred Stock upon the terms and conditions below.
AGREEMENT
1. Sale and Purchase of Shares
Subject to the terms and conditions of this Agreement, the Shareholder
agrees to purchase from the Company, and the Company agrees to sell to the
Shareholder, 903,614 shares of the Series A Preferred Stock of the Company (the
"Shares", and as described on Schedule 1 and as further defined below) at a
purchase price of $0.83 per share. In connection with the execution of this
Agreement, the Shareholder has delivered to the Company a check in the amount of
the aggregate purchase price, receipt of which is hereby acknowledged by the
Company. The sale and transfer of the Shares shall be effective no later than
August 7, 1998. "Shares" shall be defined as the purchased Shares and all
securities received in replacement of or in connection with the Shares pursuant
to stock dividends or splits, all securities received in replacement of the
Shares in a recapitalization, merger, reorganization, exchange or the like, and
all new, substituted or additional securities or other properties to which
Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. Disposition Prohibited
The Shareholder shall not dispose of any of his, her or its Shares except
as permitted by this Agreement, and any such attempted disposition shall be void
and shall not be recognized or registered upon the books of the Company. The
term "dispose" includes, but is not limited to, the acts of selling, assigning,
transferring, pledging, encumbering, giving away, devising, and any other form
of conveying, including conveyances caused by marital separation, divorce,
receivership, or bankruptcy, whether voluntary or involuntary or by operation of
law.
-1-
<PAGE>
3. Right of First Refusal
3.1 Restriction
Before any Shares held by the Shareholder or any transferee of the
Shareholder (either being sometimes referred to as the "Holder") may be sold or
otherwise disposed of (as defined above but excluding transfers described in and
governed by Section 4), the Company or its assignee(s) shall have a right of
first refusal to purchase the Shares on the terms and conditions set forth in
this Section 3 (the "Right of First Refusal").
3.2 Notice of Proposed Transfer
The Holder of the Shares shall deliver to the Company a written notice (the
"Notice") stating: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name and address of any proposed purchaser or
other transferee ("Proposed Transferee"); (c) the number of Shares to be
transferred; and (d) the terms and conditions of any proposed sale or transfer,
including the proposed purchase price for the Shares to be transferred (the
"Offered Price").
3.3 Exercise of Right of First Refusal
At any time within thirty (30) days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all or any portion of the Shares proposed to be transferred to
any one or more of the Proposed Transferees, at the purchase price determined in
accordance with subsection 3.4 below.
3.4 Purchase Price
The purchase price ("Purchase Price") for the Shares purchased by the
Company or its assignee(s) under this Section 3 shall be the Offered Price. If
the Offered Price includes consideration other than cash, the cash equivalent
value of the non-cash consideration shall be determined by the Board of
Directors of the Company in good faith.
3.5 Payment
Payment of the Purchase Price shall be made, at the option of the Company
or its assignee(s), in cash (by check or wire transfer of immediately available
funds), by cancellation of all or a portion of any outstanding indebtedness of
the Holder to the Company (or, in the case of repurchase by an assignee, to the
assignee), or by any
-2-
<PAGE>
combination thereof within thirty (30) days after receipt of the Notice or in
the manner and at the times set forth in the Notice.
3.6 Holder's Right to Transfer
If any of the Shares proposed in the Notice to be transferred to a given
Proposed Transferee are not purchased by the Company and/or its assignee(s) as
provided in Section 3.3 then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided that such sale or other transfer is consummated within ninety (90) days
after the date of the Notice and provided further that any such sale or other
transfer is effected in accordance with any applicable securities laws and the
Proposed Transferee and any spouse executes an endorsement in the form attached
as Exhibit A, acknowledging that the provisions of this Agreement shall continue
to apply to the Shares in the hands of such Proposed Transferee (an
"Endorsement"). If the Shares are not transferred to the Proposed Transferee
within such period, or if the Holder proposes to change the price or other terms
to make them more favorable to the Proposed Transferee, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
3.7 Exception for Certain Family Transfers
Notwithstanding anything to the contrary in this Section 3, the transfer of
any or all of the Shares during the Shareholder's lifetime or on the
Shareholder's death by will or intestacy to the Shareholder's Immediate Family
or a trust for the benefit of the Shareholder's Immediate Family shall be exempt
from the provisions of this Section 3. "Immediate Family" as used herein shall
mean the Shareholder's spouse (except in the case of divorce), father, mother,
brother, sister or children or an entity in which all beneficial ownership
interests are held by the Shareholder, any of the aforementioned persons or any
other such entity. In such case, the transferee or other recipient shall
receive and hold the Shares so transferred subject to the provisions of this
Agreement, shall execute an Endorsement and there shall be no further transfer
of such Shares except in accordance with the terms of this Agreement.
4. Involuntary Transfer
4.1 Company's Right to Purchase upon Involuntary Transfer
In the event, at any time after the date of this Agreement, of any transfer
by operation of law or other involuntary transfer (including death, divorce,
legal separation or bankruptcy, but excluding a transfer to Immediate Family as
set forth in
-3-
<PAGE>
Section 3.7 above) of all or a portion of the Shares by the Holder, the Company
or its assignee(s) shall have an option to purchase all of the Shares
transferred at the greater of the purchase price paid by the Holder for such
Shares or the Fair Market Value (as defined below) of the Shares on the date of
transfer. The Holder or the Holder's executor shall promptly notify the
Secretary of the Company in writing of such involuntary transfer. The right to
purchase such Shares shall be provided to the Company or its assignee(s) for a
period of thirty (30) days following receipt by the Company of such written
notice. In the event that the proposed transfer is required by the order,
judgment or decision of a court, arbitrator or other third party, the Holder or
the Holder's executor shall notify such court, arbitrator or other third party
of the Company's rights under this Section 4.1.
4.2 Price for Involuntary Transfer
For purposes of this Agreement, the "Fair Market Value" of the Shares shall
be defined as the value of the Shares as determined by the Board of Directors of
the Company, which value reflects the then-current value of the Shares in terms
of present earnings and future prospects of the Company. The Company shall
notify the Holder or the Holder's executor of the Fair Market Value within
thirty (30) days after receipt by it of written notice of the proposed transfer
of Shares. However, if the Holder or the Holder's executor does not agree with
the valuation as determined by the Board of Directors of the Company, the Holder
or the Holder's executor shall be entitled to have the valuation determined by
an independent appraiser to be mutually agreed upon by the Company and the
Holder or the Holder's executor and whose fees shall be borne equally by the
Company and the Holder or the Holder's estate.
5. Assignment of Company Rights
The rights of the Company to purchase any part of the Shares may be
assigned in whole or in part to any Shareholder or Shareholders of the Company
or other persons or organizations.
6. Restrictions Binding on Transferees
All transferees of Shares or any interest therein will receive and hold
such Shares or interest subject to the provisions of this Agreement. Any sale
or transfer of the Shares shall be void unless the provisions of this Agreement
are met.
7. Termination of Rights
This Agreement shall terminate upon the closing of the first sale of Common
Stock of the Company to the general public (an "Initial Public Offering") under
a
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<PAGE>
registration statement declared effective under the Securities Act of 1933, as
amended (the "Securities Act") or any successor statute. Upon termination of
this Agreement, a new certificate or certificates representing the Shares shall
be issued, on request, without the second paragraph of the legend required by
Section 9.1 and delivered to the Shareholder.
8. Representations, Warranties and Covenants of the Shareholder
The Shareholder represents, warrants and covenants to the Company that:
8.1 No Sale or Distribution; Investigation
The Shareholder is purchasing the Shares for the Shareholder's own personal
account for investment and not with a view to the sale or distribution of all or
any part of the Shares. No one other than the Shareholder has any beneficial
interest in the Shares. The Shareholder has had full opportunity to ask
questions and receive answers concerning the Shares and the financial condition
of the Company.
8.2 Authority; Binding Agreement
The Shareholder has the full legal right, power and authority to enter into
and to perform this Agreement. This Agreement constitutes the Shareholder's
valid and binding obligation, enforceable against the Shareholder in accordance
with its terms.
8.3 No Registration of Shares; Restricted Securities
The Shareholder understands that the Shares have not been registered under
the Securities Act by reason of a specific exemption, which exemption depends
upon, among other things, the bona fide nature of the Shareholder's investment
intent as expressed here. The Shareholder understands that the Shares are
characterized as "restricted securities" under the federal securities laws
because they are being acquired from the Company in a transaction not involving
a public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act only in
certain limited circumstances. In this connection, the Shareholder represents
that he, she or it is familiar with Rule 144 and Rule 701 under the Securities
Act, as presently in effect, and understands the resale limitations imposed by
the Securities Act.
8.4 Sophistication
Such Shareholder, either alone or with the assistance of his, her or its
professional advisor, is a sophisticated investor, is able to fend for his, her
or itself in the transactions contemplated by this Agreement, and has such
knowledge and
-5-
<PAGE>
experience in financial and business matters that he, she or it is capable of
evaluating the merits and risks of the prospective investment in the Shares.
8.5 Suitability
The investment in the Shares is suitable for such Shareholder based upon
his, her or its investment objectives and financial needs, and such Shareholder
has adequate net worth and means for providing for his, her or its current
financial needs and contingencies and has no need for liquidity of investment
with respect to the Shares. Such Shareholder's overall commitment to
investments that are illiquid or not readily marketable is not disproportionate
to his, her or its net worth, and investment in the Shares will not cause such
overall commitment to become excessive.
8.6 Professional Advice
Such Shareholder has obtained, to the extent he, she or it deems necessary,
his, her or its own professional advice with respect to the risks inherent in
the investment in the Shares, the condition of the Company and the suitability
of the investment in the Shares in light of such Shareholder's financial
condition and investment needs.
8.7 Ability to Bear Risk
Such Shareholder is in a financial position to purchase and hold the Shares
and is able to bear the economic risk and withstand a complete loss of his, her
or its investment in the Shares.
8.8 Residency
For purposes of the application of state securities laws, such Shareholder
represents that he, she or it is a bona fide resident of, and/or is domiciled
in, the state identified in the address for such Shareholder.
8.9 Accreditation
Such Shareholder is familiar with the term "accredited investor" and its
use in connection with private placements of securities under applicable federal
and state laws. Accordingly, such Shareholder represents and warrants that he,
she or it is an accredited investor as such term is defined in Rule 501(a) under
the Act and as defined pursuant to the provisions of state securities laws
applicable to such Shareholder providing for an exemption from registration or
qualification of the offer and sale of the Shares.
-6-
<PAGE>
9. Restrictive Legends and Stop-Transfer Orders
9.1 Restrictive Legend
The Secretary of the Company shall endorse all certificates representing
Shares owned by the Shareholder and all certificates representing Shares issued
or transferred after this Agreement is entered into with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE LAW, AND NO INTEREST MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (a) THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (b) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL
FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (c) THIS
CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
9.2 Stop Transfer Order; No Transfer in Violation of Agreement
The Shareholder agrees that, in order to ensure compliance with this
Agreement's restrictions, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, and that, if the Company transfers
its own securities, it may make appropriate notations to the same effect in its
own records. The Company shall not be required (a) to transfer on its books any
Shares that have been sold or otherwise transferred in violation of any of the
provisions of this Agreement or (b) to treat as owner of such Shares or to
accord the right to vote or pay
-7-
<PAGE>
dividends to any purchaser or other transferee to whom such Shares shall have
been so transferred.
10. Miscellaneous
10.1 Entire Agreement; Specific Enforcement; Severability
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
The Shareholder expressly agrees that the Company and the other shareholders
will be irreparably damaged if this Agreement is not specifically enforced.
Upon a breach or threatened breach of the terms, covenants and/or conditions of
this Agreement by the Shareholder, the Company shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions of this Agreement. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
part of this Agreement.
10.2 Notices
Notices given pursuant to this Agreement shall be deemed duly given on the
date of personal delivery, on the date sent by fax or three days after mailing
if mailed by certified or registered mail, return receipt requested, postage
prepaid, to the party at its address on the signature page below or such other
address of which the addressee may subsequently notify the other parties in
writing.
10.3 Expenses
Except as specifically provided to the contrary, each party shall pay his,
her or its own expenses incurred in connection with this Agreement or any
transactions contemplated by this Agreement.
10.4 Governing Law
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of the state of Washington
applicable to the construction and enforcement of contracts wholly executed and
performed in Washington.
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<PAGE>
10.5 Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
10.6 Amendments; Waivers
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
AVENUE A, INC.
By: /s/ Eric A. Moen
------------------------------------
Name: Eric A. Moen
Title: Secretary
Company address: Avenue A, Inc.
1100 Olive Way
Suite 1270
Seattle, WA 98101
Attention: Eric A. Moen
SHAREHOLDER
Signature: ____________________________________
Name: ____________________________________
Address: ____________________________________
____________________________________
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<PAGE>
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ________________________, have read and
approve the foregoing Share Purchase Agreement (the "Agreement"). In
consideration of the terms and conditions as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in-fact with respect to the amendment of
or the exercise of any rights under the Agreement and agree to be bound by the
provisions of the Agreement insofar as I may have any rights in the Agreement or
any Shares issued pursuant thereto under the community property laws of the
state of Washington or similar laws relating to marital property in effect in
the state of our residence as of the date of the Agreement. I have been
informed of my right to obtain independent legal counsel concerning this
Agreement and the rights and obligations provided for in this Agreement, and by
execution of this Agreement, acknowledge having either obtained such independent
counsel or having waived the same.
Date:______________________________
___________________________________
(Signature)
___________________________________
(Printed Name)
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<PAGE>
Schedule A
Original Issuances of Series A Preferred Stock
<TABLE>
<CAPTION>
No. of
Shares Aggregate Purchase
Name Purchased Date Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Eric E. Dillon 200,000 7/17/98 $166,000.00
- ---------------------------------------------------------------------------------------------
Nicholas S. Eitel 60,241 7/17/98 $ 50,000.03
- ---------------------------------------------------------------------------------------------
Charles Kellogg 40,160 7/17/98 $ 33,332.80
- ---------------------------------------------------------------------------------------------
Gaylord M. Kellogg 120,482 7/17/98 $100,000.06
- ---------------------------------------------------------------------------------------------
Louise M. Kellogg 40,160 7/17/98 $ 33,332.80
- ---------------------------------------------------------------------------------------------
Matthew Kellogg 40,160 7/17/98 $ 33,332.80
- ---------------------------------------------------------------------------------------------
Paul and Maureen Pigott 120,482 7/17/98 $100,000.06
- ---------------------------------------------------------------------------------------------
Vernon L. Vennes 60,241 7/17/98 $ 50,000.03
- ---------------------------------------------------------------------------------------------
Timothy Flaherty 60,241 7/17/98 $ 50,000.03
- ---------------------------------------------------------------------------------------------
Shamrock Trust 120,482 7/17/98 $100,000.06
- ---------------------------------------------------------------------------------------------
Ronald J. Bland 60,241 7/17/98 $ 50,000.03
- ---------------------------------------------------------------------------------------------
Raymond P. Dornbusch 243,976 7/17/98 $202,500.08
- ---------------------------------------------------------------------------------------------
Thomas W. Moebius 60,241 7/17/98 $ 50,000.03
- ---------------------------------------------------------------------------------------------
Tom A. Alberg 120,482 7/28/98 $100,000.06
- ---------------------------------------------------------------------------------------------
Robert Collins 61,000 7/28/98 $ 50,630.00
- ---------------------------------------------------------------------------------------------
Peter B. Kellner 180,723 7/29/98 $150,000.09
- ---------------------------------------------------------------------------------------------
Stanton Reed Koch 30,120 8/3/98 $ 24,999.60
- ---------------------------------------------------------------------------------------------
Ruthann Lorentzen 30,120 8/3/98 $ 24,999.60
- ---------------------------------------------------------------------------------------------
Pac-Fung Securities Ltd. 189,500 8/3/98 $157,285.00
- ---------------------------------------------------------------------------------------------
Gentle Boss Investments Ltd. 180,750 8/3/98 $150,022.50
- ---------------------------------------------------------------------------------------------
King Ying Development Limited 120,500 8/3/98 $100,015.00
- ---------------------------------------------------------------------------------------------
Linco International Ltd. 60,250 8/3/98 $ 50,007.50
- ---------------------------------------------------------------------------------------------
Yen Ji Ling 6,100 8/3/98 $ 5,063.00
- ---------------------------------------------------------------------------------------------
Kenneth Sai Kit Chen 6,000 8/3/98 $ 4,980.00
- ---------------------------------------------------------------------------------------------
Cheung Chi Sing 6,000 8/3/98 $ 4,980.00
- ---------------------------------------------------------------------------------------------
Yip Po Chu 6,100 8/3/98 $ 5,063.00
- ---------------------------------------------------------------------------------------------
Lee Ching Yin 3,000 8/3/98 $ 2,490.00
- ---------------------------------------------------------------------------------------------
Poon Tat Wing 6,000 8/3/98 $ 4,980.00
- ---------------------------------------------------------------------------------------------
Jiang Guangzhi 6,000 8/3/98 $ 4,980.00
- ---------------------------------------------------------------------------------------------
Daniel Kral 11,976 8/3/98 $ 9,940.08
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
No. of
Shares Aggregate Purchase
Name Purchased Date Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Trust Company, N.A., 60,000 8/4/98 $ 49,800.00
Trustee FBO John E. von
Schlegell SEP-IRA Acct.
- ---------------------------------------------------------------------------------------------
Jeffrey Block 60,241 8/6/98 $ 50,000.03
- ---------------------------------------------------------------------------------------------
Maureen Block 60,241 8/6/98 $ 50,000.03
- ---------------------------------------------------------------------------------------------
Jeffrey P. Bezos 903,614 8/7/98 $749,999.62
- ---------------------------------------------------------------------------------------------
Anne Dinning 120,482 8/7/98 $100,000.06
- ---------------------------------------------------------------------------------------------
William and Emily Heston 60,241 8/10/98 $ 50,000.03
- ---------------------------------------------------------------------------------------------
Cedar Grove Investments LLC 240,964 8/10/98 $200,000.12
- ---------------------------------------------------------------------------------------------
Keith Grinstein 120,482 8/10/98 $100,000.06
- ---------------------------------------------------------------------------------------------
John P. Galgon 78,313 8/10/98 $ 64,999.79
- ---------------------------------------------------------------------------------------------
Jeff J. Lehman 18,072 8/10/98 $ 14,999.76
- ---------------------------------------------------------------------------------------------
Uri Silberstein 12,048 8/10/98 $ 9,999.84
- ---------------------------------------------------------------------------------------------
Anna R. Collins 12,048 8/10/98 $ 9,999.84
- ---------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
EXHIBIT A
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
ENDORSEMENT
-----------
The undersigned, a Shareholder of Avenue A, Inc. (the "Company"), and his
or her spouse hereby agree to the terms and conditions of the Share Purchase
Agreement dated as of ____________________, 1998 originally entered into by and
among the Company and the other party listed on the signature page and
acknowledge receipt of a copy of such Agreement and agree to be bound as a
Shareholder.
- -------------------------- --------------------------------------
(Signature of Shareholder) (Signature of Spouse)
- -------------------------- --------------------------------------
(Printed Name) (Printed Name)
- -------------------------- --------------------------------------
(Date) (Date)
<PAGE>
EXHIBIT B
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to the Share Purchase Agreement between the
undersigned ("Shareholder") and Avenue A, Inc. (the "Company") dated
_____________________, 1998 (the "Agreement"), Shareholder hereby sells, assigns
and transfers unto the Company ________________________________ (___________)
shares of the Series A Preferred Stock of the Company standing in Shareholder's
name on the Company's books and represented by Certificate No. ________, and
does hereby irrevocably constitute and appoint _______________________________
to transfer said stock on the books of the Company with full power of
substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY
THE AGREEMENT AND THE EXHIBITS THERETO.
Dated:__________________________
Signature:
____________________________________
Shareholder
____________________________________
Spouse
Instruction: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Shareholder.
<PAGE>
SCHEDULE 1
2.8 Designation Of Rights And Preferences Of Series A Preferred Stock
The Board of Directors of the Corporation hereby establishes a new series
of preferred stock to be called "Series A Preferred Stock" consisting of
4,000,000 shares with the following rights, preferences and other terms:
1. Dividends.
---------
(a) The holders of the Series A Preferred Stock shall be entitled to
receive dividends, prior and in preference to any dividend on Common Stock, at
the rate of $.05 per share of Series A Preferred Stock, per annum (as adjusted
for any stock dividends, combinations or splits with respect to such shares),
whenever funds are legally available and when and if declared by the Board of
Directors. The dividends shall be non-cumulative and non-accruing.
(b) No dividends (other than those payable solely in Common Stock)
shall be paid on any Common Stock of the Corporation during any fiscal year of
the Corporation until dividends in the total amount set forth above per share of
Series A Preferred Stock per annum (as adjusted for any stock dividends,
combinations or splits with respect to such shares) shall have been paid or
declared and set apart during that fiscal year on the Series A Preferred Stock,
and no dividends shall be paid on any share of Common Stock unless a dividend
(including, for this purpose the amount of any dividends paid pursuant to the
provisions of Subsection 1(a)) is paid with respect to all outstanding shares of
Series A Preferred Stock in an amount for each such share of Series A Preferred
Stock equal to or greater than the aggregate amount of such dividends for all
shares of Common Stock into which each such share of Series A Preferred Stock
could then be converted.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of Common Stock by reason of their ownership thereof, the amount of $.83
per share then held by them (as adjusted for any stock dividends, combinations
or splits with respect to such shares) plus all declared but unpaid dividends on
each such share. If, upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders and the holders of any other
class or series of preferred stock ranking on a parity with or
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<PAGE>
senior to the Series A Preferred Stock of the full preferential amounts due to
such holders, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of the
Series A Preferred Stock and the holders of any other such class or series of
preferred stock in proportion to the preferential amount each such holder is
otherwise entitled to receive.
(b) After payment has been made to the holders of the Series A
Preferred Stock and the holders of any other class or series of preferred stock
of the full amounts to which they shall be entitled as provided in Section 2(a),
the entire remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed among the holders of Common Stock in
proportion to the shares of Common Stock then held by each.
(c) A consolidation or merger of the Corporation with or into any
other corporation or corporations, or a sale of all or substantially all of the
assets of the Corporation, shall not be deemed to be a liquidation, dissolution
or winding up within the meaning of this Section 2, but shall be subject to the
provisions of Section 5 hereof.
3. Voting Rights.
-------------
The holder of each share of Series A Preferred Stock shall be entitled
to the number of votes equal to the number of shares of Common Stock into which
such share of Series A Preferred Stock could be converted and shall have voting
rights and powers equal to the voting rights and powers of the Common Stock
(except as otherwise expressly provided herein or as required by law), voting
together as a single class, and shall be entitled to notice of any stockholders'
meeting in accordance with the By-laws of the Corporation. Fractional votes
shall not, however, be permitted and any fractional voting rights resulting from
the above formula (after aggregating all shares into which shares of Series A
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half being rounded upward).
4. Conversion Rights. The holders of the Series A Preferred Stock shall
-----------------
have the conversion rights as follows:
(a) Right to Convert: Each share of the Series A Preferred Stock shall
----------------
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of the Corporation or any transfer
agent for such shares, into one fully paid and nonassessable share of Common
Stock (the "Series A Conversion Rate"), subject to adjustment as hereinafter
provided.
-3-
<PAGE>
(b) Automatic Conversion.
--------------------
1. Initial Public Offering. Each share of Series A Preferred
-----------------------
Stock shall automatically be converted into shares of Common Stock at the
then-effective Series A Conversion Rate immediately upon the closing of the sale
of the Corporation's Common Stock in a firm commitment, underwritten public
offering registered under the Securities Act of 1933, as amended (other than a
registration relating solely to a transaction under Rule 145 under such Act (or
any successor thereto) or to an employee benefit plan of the Corporation), (i)
at a public offering price (prior to underwriter commissions and expenses) equal
to or exceeding $5.00 per share of Common Stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares), and (ii) the
aggregate proceeds to the Corporation (before deduction for underwriter
commissions and expenses relating to the issuance, including without limitation
fees of the Corporation's counsel) of which equal or exceed $5,000,000.
2. Stockholder Vote. Each share of Series A Preferred Stock
----------------
shall automatically be converted into shares of Common Stock at the then-
effective Series A Conversion Rate upon the affirmative vote or written consent
of holders of not less than two-thirds of the shares of Series A Preferred Stock
outstanding at such time.
(c) Mechanics of Conversion. Before any holder of Series A Preferred
-----------------------
Stock shall be entitled to convert the same into shares of Common Stock, such
holder shall surrender the certificate or certificates therefor, duly endorsed,
at the office of the Corporation or of any transfer agent for such stock, and
shall give written notice to the Corporation at such office that such holder
elects to convert the same and shall state therein the name or names in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series A Preferred Stock, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of surrender of the
shares of Series A Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
(d) Adjustments to Conversion Prices for Combinations or Subdivisions
-----------------------------------------------------------------
of Common Stock. In the event that this Corporation at any time or from time to
- ---------------
time after the date of filing of this Designation shall declare or pay any
dividend on the Common Stock payable in Common Stock or in any right to acquire
-4-
<PAGE>
Common Stock, or shall effect a subdivision of the outstanding shares of Common
Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Series A
Conversion Rate in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately and equitably decreased
or increased, as appropriate.
(e) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation.
(f) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Series A Conversion Rate pursuant to this
Section 4, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series A Preferred Stock, as the case may be, a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall,
upon the written request at any time of any holder of Series A Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustments and readjustments, (ii) the applicable Series A Conversion
Rate at the time in effect, and (iii) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of such Series A Preferred Stock.
(g) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this Designation.
-5-
<PAGE>
(h) Fractional Shares. No fractional shares shall be issued upon the
-----------------
conversion of any share or shares of Series A Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series A Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. If, after the aforementioned aggregation, the
conversion would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in good
faith by the Board of Directors of the Corporation).
(i) Adjustments. Except under the circumstances set forth in Section
-----------
5 below (in which case this subsection (i) shall not apply), in case of any
reorganization or any reclassification of the capital stock of the Corporation,
any consolidation or merger of the Corporation with or into another corporation
or corporations, or the conveyance of all or substantially all of the assets of
the Corporation to another corporation, each share of Series A Preferred Stock
shall thereafter be convertible into the number of shares of stock or other
securities or property (including cash) to which a holder of the number of
shares of Common Stock deliverable upon conversion of such share of Series A
Preferred Stock would have been entitled upon the record date of (or date of, if
no record date is fixed) such reorganization, reclassification, consolidation,
merger or conveyance, and, in any case, appropriate adjustment (as determined by
the Board of Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holders of the Series A Preferred Stock, to the end that the provisions set
forth herein shall thereafter be applicable, as nearly as equivalent as is
practicable, in relation to any shares of stock or the securities or property
(including cash) thereafter deliverable upon the conversion of the shares of
such Series A Preferred Stock.
5. Merger, Consolidation.
---------------------
(a) At any time, in the event of:
1. a consolidation or merger of the Corporation with or into
any other corporation, or any other entity or person in which the stockholders
of the Corporation hold in the aggregate less than one-half of the outstanding
voting securities of the surviving entity after the merger,
2. any corporate reorganization in which the stockholders of
the Corporation hold in the aggregate less than one-half of the outstanding
voting securities of the surviving entity after the merger,
-6-
<PAGE>
3. a sale of all or substantially all of the assets of the
Corporation, or
4. a reorganization of the Corporation as defined in Section
368(a)(1)(B) of the Internal Revenue Code of 1986 or in which more than fifty
percent (50%) of the outstanding stock of the Corporation is exchanged
(calculated on an as-converted to Common Stock basis),
the holders of the Series A Preferred Stock, the holders of any other class or
series of preferred stock hereafter created and issued and the holders of Common
Stock shall be paid in cash or in securities received from the acquiring
corporation or in a combination thereof, at the closing of any such transaction,
amounts per share equal to the amounts per share which would be payable to such
holders pursuant to Section 2 if all consideration received by the Corporation
and its stockholders in connection with such event was distributed in a
liquidation of the Corporation; provided, however, that if upon the occurrence
of such event, the assets and funds thus available for distribution among the
holders of the Series A Preferred Stock and the holders of any other class or
series of preferred stock ranking on a parity with or senior to the Series A
Preferred Stock shall be insufficient to permit the payment to such holders of
the full preferential amounts due to them pursuant to Section 2 above, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
and the holders of any other such class or series of preferred stock in
proportion to the preferential amount each such holder is otherwise entitled to
receive.
(b) Any securities to be delivered to stockholders pursuant to Section
5(a) above shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
1. If traded on a securities exchange, the value shall be deemed to
be the average of the security's closing prices on such exchange over the 30-day
period ending three (3) days prior to the closing;
2. If actively traded over-the-counter, the value shall be deemed to
be the average of the midpoints of the closing bid and ask prices over the
30-day period ending three (3) days prior to the closing, and
3. If there is no active public market, the value shall be the fair
market value thereof, as mutually determined by the Corporation and the holders
of not less than a majority of the outstanding Series A Preferred Stock; and
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<PAGE>
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in (i)(1), (2) or
(3) to reflect the approximate fair market value thereof, as mutually determined
by the Corporation and the holders of not less than a majority of the
outstanding Series A Preferred Stock.
(iii) In the event of any dispute between the Corporation and the
holders of Series A Preferred Stock regarding valuation issues as provided in
this Section 5(b), such dispute shall be submitted to binding arbitration in
accordance with the currently prevailing commercial arbitration rules of the
American Arbitration Association. The decisions and awards rendered in such
proceedings shall be final and conclusive and may be entered in any court having
jurisdiction thereof.
(c) The Corporation shall give each holder of record of Series A
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of said notices shall describe the
material terms and conditions of the contemplated transaction as well as the
terms and conditions of this Section 5, and the Corporation shall thereafter
give such holders prompt notice of any material changes.
6. Amendment. Any term relating to the Series A Preferred Stock may be
---------
amended and the observance of any term relating to the Series A Preferred Stock
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the vote or written consent of holders
of at least a majority of the shares of the Series A Preferred Stock then
outstanding and the Corporation. Any amendment or waiver so effected shall be
binding upon the Corporation and any holder of shares of the Series A Preferred
Stock.
7. Restrictions and Limitations. As long as any shares of Series A
----------------------------
Preferred Stock shall be issued and outstanding, the Corporation shall not,
without first obtaining the approval (by vote or consent as provided by law) of
the holders of not less than a majority of the total number of shares of the
Series A Preferred Stock then outstanding:
(a) amend or repeal any provision of, or add any provision to, the
Company's Restated Certificate of Incorporation or By-laws if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred Stock;
-8-
<PAGE>
(b) authorize, create or issue shares of any class or series of stock
having any preference or priority superior to any such preference or priority of
the Series A Preferred Stock;
(c) increase or decrease (other than for decreases resulting from
conversion of the Series A Preferred Stock) the number of authorized shares of
Series A Preferred Stock; or
(d) amend this Subsection 7.
8. No Reissuance of Preferred Stock. No share or shares of Series A
--------------------------------
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue.
-9-
<PAGE>
EXHIBIT 10.2
AVENUE A, INC.
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement"), is effective as of August 7,
1998, by and between Avenue A, Inc.(the "Company"), a Washington corporation,
and ________________ (the "Warrantholder").
RECITALS
A. In connection with the issuance of shares of the Company's Series A
Preferred Stock to the Warrantholder, the Company desires to issue, and the
Warrantholder desires to receive, a warrant ("Warrant") for the purchase of
451,807 shares of the Company's Common Stock (the "Warrant Shares") at an
exercise price of $0.83.
B. The parties hereto desire to set forth certain rights and obligations
in respect of Warrant and the Warrant Shares.
NOW THEREFORE, in consideration of the issuance of the Warrant, the
foregoing recitals and the mutual promises set forth below, the parties hereto
agree as follows:
AGREEMENT
1. Issuance of the Warrant
Concurrently with the execution and delivery of this Agreement, the Company
is issuing the Warrant to the Warrantholder. "Warrant Shares" shall be defined
as the shares of Common Stock issuable upon exercise of the Warrant, and all
securities received in replacement of or in connection with the Warrant Shares
pursuant to stock dividends or splits, all securities received in replacement of
the Warrant Shares in a recapitalization, merger, reorganization, exchange or
the like, and all new, substituted or additional securities or other properties
to which any holder of the Warrant shall become entitled to by reason of being
the holder of the Warrant.
2. Disposition Prohibited
The Warrantholder shall not dispose of the Warrant or any Warrant Shares
acquired upon exercise thereof, except as permitted by this Agreement, and any
such attempted disposition shall be void and shall not be recognized or
registered upon the books of the Company. The term "dispose" includes, but is
not limited to, the acts of
-1-
<PAGE>
selling, assigning, transferring, pledging, encumbering, giving away, devising,
and any other form of conveying, including conveyances caused by marital
separation, divorce, receivership, or bankruptcy, whether voluntary or
involuntary or by operation of law.
3. Right of First Refusal
3.1 Restriction
Before the Warrant or the Warrant Shares held by the Warrantholder or any
transferee of the Warrantholder (either being sometimes referred to as the
"Holder") may be sold or otherwise disposed of (as defined above but excluding
transfers described in and governed by Section 4), the Company or its
assignee(s) shall have a right of first refusal to purchase the Warrant or the
Warrant Shares, as the case may be, on the terms and conditions set forth in
this Section 3 (the "Right of First Refusal").
3.2 Notice of Proposed Transfer
The Holder of the Warrant or the Warrant Shares, as the case may be, shall
deliver to the Company a written notice (the "Notice") stating: (a) the
Holder's bona fide intention to sell or otherwise transfer such Warrant or
Warrant Shares; (b) the name and address of any proposed purchaser or other
transferee ("Proposed Transferee"); (c) in the case of a proposed transfer of
Warrant Shares, the number of Warrant Shares to be transferred; and (d) the
terms and conditions of any proposed sale or transfer, including the proposed
purchase price for the Warrant or the Warrant Shares, as the case may be, to be
transferred (the "Offered Price").
3.3 Exercise of Right of First Refusal
At any time within thirty (30) days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase, in the event of a proposed transfer of the Warrant, the
Warrant or, in the event of a proposed transfer of Warrant Shares, all or any
portion of the Warrant Shares, that are proposed to be transferred to any one or
more of the Proposed Transferees, at the purchase price determined in accordance
with subsection 3.4 below.
3.4 Purchase Price
The purchase price ("Purchase Price") for the Warrant or the Warrant
Shares, as the case may be, purchased by the Company or its assignee(s) under
this Section 3 shall be the Offered Price. If the Offered Price includes
consideration other than cash,
-2-
<PAGE>
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
3.5 Payment
Payment of the Purchase Price shall be made, at the option of the Company
or its assignee(s), in cash (by check or wire transfer of immediately available
funds), by cancellation of all or a portion of any outstanding indebtedness of
the Holder to the Company (or, in the case of repurchase by an assignee, to the
assignee), or by any combination thereof within thirty (30) days after receipt
of the Notice or in the manner and at the times set forth in the Notice.
3.6 Holder's Right to Transfer
If the Warrant or any of the Warrant Shares, as the case may be, proposed
in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as provided in Section 3.3, then the
Holder may sell or otherwise transfer such Warrant or Warrant Shares, as the
case may be, to that Proposed Transferee at the Offered Price or at a higher
price, provided that such sale or other transfer is consummated within ninety
(90) days after the date of the Notice and provided further that any such sale
or other transfer is effected in accordance with any applicable securities laws
and the Proposed Transferee and any spouse executes an endorsement in the form
attached as Exhibit A, acknowledging that the provisions of this Agreement shall
continue to apply to the Warrant or the Warrant Shares, as the case may be, in
the hands of such Proposed Transferee (an "Endorsement"). If the Warrant or the
Warrant Shares, as the case may be, are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new Notice
shall be given to the Company, and the Company and/or its assignees shall again
be offered the Right of First Refusal before the Warrant or any Warrant Shares
held by the Holder may be sold or otherwise transferred.
3.7 Exception for Certain Family Transfers
Notwithstanding anything to the contrary in this Section 3, the transfer of
the Warrant or any or all of the Warrant Shares during the Warrantholder's
lifetime or on the Warrantholder's death by will or intestacy to the
Warrantholder's Immediate Family or a trust for the benefit of the
Warrantholder's Immediate Family shall be exempt from the provisions of this
Section 3. "Immediate Family" as used herein shall mean the Warrantholder's
spouse (except in the case of divorce), father, mother, brother, sister or
children or an entity in which all beneficial ownership interests are held by
the Warrantholder, any of the aforementioned persons or any other such
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entity. In such case, the transferee or other recipient shall receive and hold
the Warrant or the Warrant Shares, as the case may be, so transferred subject to
the provisions of this Agreement, shall execute an Endorsement and there shall
be no further transfer of the Warrant or the Warrant Shares except in accordance
with the terms of this Agreement.
4. Involuntary Transfer
4.1 Company's Right to Purchase upon Involuntary Transfer
In the event, at any time after the date of this Agreement, of any transfer
by operation of law or other involuntary transfer (including death, divorce,
legal separation or bankruptcy, but excluding a transfer to Immediate Family as
set forth in Section 3.7 above) of the Warrant or all or a portion of the
Warrant Shares by the Holder, the Company or its assignee(s) shall have an
option to purchase the Warrant (in the event the Warrant is so transferred) or
all of the Warrant Shares so transferred (in the event Warrant Shares are so
transferred) at the greater of the purchase price paid by the Holder for such
Warrant or Warrant Shares, as the case may be, or the Fair Market Value (as
defined below) of the Warrant or the Warrant Shares, as the case may be, on the
date of transfer. The Holder or the Holder's executor shall promptly notify the
Secretary of the Company in writing of such involuntary transfer. The right to
purchase such Warrant or Warrant Shares, as the case may be, shall be provided
to the Company or its assignee(s) for a period of thirty (30) days following
receipt by the Company of such written notice. If the proposed transfer is
required by the order, judgment or decision of a court, arbitrator or other
third party, the Holder or the Holder's executor shall notify such court,
arbitrator or other third party of the Company's rights under this Section 4.1.
4.2 Price for Involuntary Transfer
For purposes of this Agreement, the "Fair Market Value" of the Warrant or
the Warrant Shares, as the case may be, shall be defined as the value of the
Warrant or the Warrant Shares, respectively, as determined by the Board of
Directors of the Company, which value reflects the then-current value of the
Warrant or the Warrant Shares, respectively, in terms of present earnings and
future prospects of the Company. The Company shall notify the Holder or the
Holder's executor of the Fair Market Value within thirty (30) days after receipt
by it of written notice of the proposed transfer of Warrant or the Warrant
Shares, as the case may be. However, if the Holder or the Holder's executor
does not agree with the valuation as determined by the Board of Directors of the
Company, the Holder or the Holder's executor shall be entitled to have the
valuation determined by an independent appraiser to be mutually agreed upon by
the Company and the Holder or the Holder's executor and
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whose fees shall be borne equally by the Company and the Holder or the Holder's
estate.
5. Assignment of Company Rights
The rights of the Company to purchase the Warrant or any part of the
Warrant Shares may be assigned in whole or in part to any shareholder of the
Company or other persons or organizations.
6. Restrictions Binding on Transferees
All transferees of the Warrant or any Warrant Shares or any interest
therein will receive and hold such Warrant or Warrant Shares, as the case may
be, or such interest therein subject to the provisions of this Agreement. Any
sale or transfer of the Warrant or the Warrant Shares, as the case may be, shall
be void unless the provisions of this Agreement are met.
7. Termination of Rights
This Agreement shall terminate upon the closing of the first sale of Common
Stock of the Company to the general public (an "Initial Public Offering") under
a registration statement declared effective under the Securities Act of 1933, as
amended (the "Securities Act"), or any successor statute. If this Agreement
terminates and the Warrant has been exercised, a new certificate or certificates
representing the Warrant Shares shall be issued, on request, without the second
paragraph of the legend required by Section 10.1 and delivered to the holder of
the Warrant Shares.
8. Representations, Warranties and Covenants of the Warrantholder
The Warrantholder represents, warrants and covenants to the Company that:
8.1 No Sale or Distribution; Investigation
The right to acquire the Warrant Shares issued or issuable upon exercise of
the Warrant is being acquired by the Warrantholder for the Warrantholder's own
personal account for investment and not with a view to the sale or distribution
of all or any part thereof or of the Warrant Shares, and no one other than the
Warrantholder has any beneficial interest in such rights. The Warrantholder has
had full opportunity to ask questions and receive answers concerning the Warrant
and the Warrant Shares and the financial condition of the Company.
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8.2 Authority; Binding Agreement
The Warrantholder has the full legal right, power and authority to enter
into and to perform this Agreement. This Agreement constitutes the
Warrantholder's valid and binding obligation, enforceable against the
Warrantholder in accordance with its terms.
8.3 No Registration of Warrant Shares; Restricted Securities
The Warrantholder understands that the Warrant and the Warrant Shares have
not been registered under the Securities Act by reason of a specific exemption,
which exemption depends upon, among other things, the bona fide nature of the
Warrantholder's investment intent as expressed here. The Warrantholder
understands that the Company has no present intention of registering the Warrant
or the Warrant Shares, and that under federal securities laws and applicable
regulations such securities may be resold without registration under the
Securities Act only in certain limited circumstances. In this connection, the
Warrantholder represents that he, she or it is familiar with Rule 144 and Rule
701 under the Securities Act, as presently in effect, and understands the resale
limitations imposed by the Securities Act.
8.4 Sophistication
Such Warrantholder, either alone or with the assistance of his, her or its
professional advisor, is a sophisticated investor, is able to fend for his, her
or itself in the transactions contemplated by this Agreement, and has such
knowledge and experience in financial and business matters that he, she or it is
capable of evaluating the merits and risks of the Warrant and a purchase of the
Warrant Shares upon exercise of the Warrant.
8.5 Suitability
The Warrant and the Warrant Shares into which it is exercisable are
suitable investments for Warrantholder based upon his, her or its investment
objectives and financial needs, and such Warrantholder has adequate net worth
and means for providing for his, her or its current financial needs and
contingencies and has no need for liquidity of investment with respect to the
Warrant or the Warrant Shares. Such Warrantholder's overall commitment to
investments that are illiquid or not readily marketable is not disproportionate
to his, her or its net worth, and investment in the Warrant Shares would not
cause such overall commitment to become excessive.
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8.6 Professional Advice
Such Warrantholder has obtained, to the extent he, she or it deems
necessary, his, her or its own professional advice with respect to the risks
inherent in the Warrant and the Warrant Shares into which it is exercisable, the
condition of the Company and the suitability of the acquisition of the Warrant
and acquisition of Warrant Shares upon exercise thereof in light of such
Warrantholder's financial condition and investment needs.
8.7 Ability to Bear Risk
Such Warrantholder is in a financial position to hold the Warrant and
purchase and hold any Warrant Shares into which it is exercisable and is able to
bear the economic risk and withstand a complete loss of his, her or its
investment therein.
8.8 Residency
For purposes of the application of state securities laws, such
Warrantholder represents that he, she or it is a bona fide resident of, and/or
is domiciled in, the state identified in the address on the signature page
hereof for such Warrantholder.
8.9 Accreditation
Such Warrantholder is familiar with the term "accredited investor" and its
use in connection with private placements of securities under applicable federal
and state laws. Accordingly, such Warrantholder represents and warrants that
he, she or it is an accredited investor as such term is defined in Rule 501(a)
under the Securities Act and as defined pursuant to the provisions of state
securities laws applicable to such Warrantholder providing for an exemption from
registration or qualification of the offer and sale of the Warrant and Warrant
Shares.
9. Representations and Warranties of the Company
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $.01, of which 11,996,000 shares are issued and
outstanding, and 4,000,000 shares of Series A Preferred Stock, par value $.01
per share, of which no shares are issued and outstanding. Pursuant to the
Company's 1998 Stock Option Plan (the "Plan"), 3,500,000 shares of Common Stock
are reserved for issuance pursuant to the exercise of options granted under such
plan and options to purchase 2,284,300 shares of Common Stock are outstanding
under such Plan. Simultaneously with the execution of this Warrant, the Company
intends to issue up to 3,700,000 shares of Series A Preferred Stock. Except for
the conversion privileges of the Series A Preferred Stock and the currently
outstanding options to purchase
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<PAGE>
2,284,300 shares of Common Stock granted under the Plan there are no outstanding
options, warrants, rights, including conversion or preemptive rights, or
agreements for the purchase or acquisition from the Company of any shares of its
capital stock.
10. Restrictive Legends and Stop-Transfer Orders
10.1 Restrictive Legend
The Secretary of the Company shall endorse all certificates representing
Warrant Shares owned by the Warrantholder and all certificates representing
Warrant Shares issued or transferred after this Agreement is entered into with
the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE LAW, AND NO INTEREST MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (a) THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (b) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL
FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (c) THIS
CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
10.2 Stop Transfer Order; No Transfer in Violation of Agreement
The Warrantholder agrees that, in order to ensure compliance with this
Agreement's restrictions, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, and that, if the Company transfers
its own
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securities, it may make appropriate notations to the same effect in its own
records. The Company shall not be required (a) to transfer on its books the
Warrant or any Warrant Shares, as the case may be, that have been sold or
otherwise transferred in violation of any of the provisions of this Agreement or
(b) to treat as owner of such Warrant or Warrant Shares, as the case may be, or
to accord the right to vote or pay dividends to any purchaser or other
transferee to whom such Warrant Shares shall have been so transferred.
11. Miscellaneous
11.1 Specific Enforcement; Severability
The Warrantholder expressly agrees that the Company and its shareholders
will be irreparably damaged if this Agreement is not specifically enforced.
Upon a breach or threatened breach of the terms, covenants and/or conditions of
this Agreement by the Warrantholder, the Company shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions of this Agreement. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
part of this Agreement.
11.2 Notices
Notices given pursuant to this Agreement shall be deemed duly given on the
date of personal delivery, on the date sent by fax or three days after mailing
if mailed by certified or registered mail, return receipt requested, postage
prepaid, to the party at its address on the signature page below or such other
address of which the addressee may subsequently notify the other parties in
writing.
11.3 Expenses
Except as specifically provided to the contrary, each party shall pay his,
her or its own expenses incurred in connection with this Agreement or any
transactions contemplated by this Agreement.
11.4 Governing Law
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of the state of Washington
applicable to the construction and enforcement of contracts wholly executed and
performed in Washington.
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11.5 Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
11.6 Amendments; Waivers
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
AVENUE A, INC.
By: /s/ Eric A. Moen
------------------------------------
Name: Eric A. Moen
Title: Secretary
Company address: Avenue A, Inc.
1100 Olive Way
Suite 1270
Seattle, WA 98101
Attention: Eric A. Moen
WARRANTHOLDER
Signature:
------------------------------------
Name:
------------------------------------
Address:
------------------------------------
------------------------------------
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<PAGE>
AVENUE A, INC.
WARRANT AGREEMENT
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ________________________, have read and
approve the foregoing Warrant Agreement (the "Agreement"). In consideration of
the terms and conditions as set forth in the Agreement, I hereby appoint my
spouse as my attorney-in-fact with respect to the amendment of or the exercise
of any rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in the Agreement, the Warrant or any
Warrant Shares issued pursuant to the Warrant under the community property laws
of the state of Washington or similar laws relating to marital property in
effect in the state of our residence as of the date of the Agreement. I have
been informed of my right to obtain independent legal counsel concerning this
Agreement and the rights and obligations provided for in this Agreement, and by
execution of this Agreement, acknowledge having either obtained such independent
counsel or having waived the same.
Date:__________________________________
_______________________________________
(Signature)
_______________________________________
(Printed Name)
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<PAGE>
EXHIBIT A
AVENUE A, INC.
WARRANT AGREEMENT
ENDORSEMENT
-----------
The undersigned, a holder of a warrant to purchase shares of common stock
of Avenue A, Inc. (the "Company") or a holder of shares of common stock of the
Company, and his or her spouse hereby agree to the terms and conditions of the
Warrant Agreement dated as of _________________, 1998 originally entered into by
and among the Company and the other party listed on the signature page thereof
and acknowledge receipt of a copy of such Agreement and agree to be bound by
such Agreement as if the undersigned were the original holder of the Warrant (if
the undersigned acquired the Warrant as defined in the Agreement) or the Warrant
Shares (if the undersigned acquired Warrant Shares as defined in the Agreement )
bound by such Agreement.
_________________________________ ___________________________________
(Signature of Undersigned Holder) (Signature of Spouse)
_________________________________ ___________________________________
(Printed Name) (Printed Name)
_________________________________ ___________________________________
(Date) (Date)
<PAGE>
EXHIBIT B
AVENUE A, INC.
WARRANT AGREEMENT
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to the Warrant Agreement between the
undersigned ("Holder") and Avenue A, Inc. (the "Company") dated
_____________________, 1998 (the "Agreement"), Holder hereby sells, assigns and
transfers unto the Company ________________________________ (___________) shares
of the Common Stock of the Company standing in Holder's name on the Company's
books and represented by Certificate No. ________, and does hereby irrevocably
constitute and appoint _______________________________ to transfer said stock on
the books of the Company with full power of substitution in the premises. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS
THERETO.
Dated: _______________________
Signature:
_________________________________
Holder
_________________________________
Spouse
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Holder.
<PAGE>
EXHIBIT 10.3
AVENUE A, INC.
SERIES B PREFERRED STOCK
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement"), is made and entered into
by and between Avenue A, Inc. (the "Company"), a Washington corporation, and the
undersigned purchaser of the Company's Series B Preferred Stock (the
"Investor"), effective as of the date of execution of this Agreement on behalf
of the Company by a Company officer on the signature page hereof (the "Company
Execution Date").
RECITAL
The Investor desires to purchase shares of the Company's Series B Preferred
Stock upon the terms and conditions below.
AGREEMENT
1. Sale and Purchase of Shares
Subject to the terms and conditions of this Agreement, the Investor agrees
to purchase from the Company, and the Company agrees to sell to the Investor,
446,429 shares of the Series B Preferred Stock of the Company (the "Shares", as
further defined below) at a purchase price of $1.12 per share, which represents
an aggregate purchase price of $500,000.48. In connection with the Investor's
execution of this Agreement, the Investor has delivered to the Company a check
in the amount of the aggregate purchase price, receipt of which is hereby
acknowledged by the Company. The Investor agrees and acknowledges that the
initial sale and transfer of the Shares shall be effective as of the Company
Execution Date, and that this Agreement shall not be effective unless and until
the Company accepts this Agreement as evidenced by execution of the signature
page of this Agreement on behalf of the Company by a Company officer. "Shares"
shall be defined as the purchased Shares and all securities received in
replacement of or in connection with the Shares pursuant to stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Investor is
entitled by reason of Investor's ownership of the Shares.
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<PAGE>
2. Disposition Prohibited
The Investor shall not dispose of any of his, her or its Shares except as
permitted by this Agreement, and any such attempted disposition shall be void
and shall not be recognized or registered upon the books of the Company. The
term "dispose" includes, but is not limited to, the acts of selling, assigning,
transferring, pledging, encumbering, giving away, devising, and any other form
of conveying, including conveyances caused by marital separation, divorce,
receivership, or bankruptcy, whether voluntary or involuntary or by operation of
law.
3. Right of First Refusal
3.1 Restriction
Before any Shares held by the Investor or any transferee of the Investor
(either being sometimes referred to as the "Holder") may be sold or otherwise
disposed of (as defined above but excluding transfers described in and governed
by Section 4), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3 (the "Right of First Refusal").
3.2 Notice of Proposed Transfer
The Holder of the Shares shall deliver to the Company a written notice (the
"Notice") stating: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name and address of any proposed purchaser or
other transferee ("Proposed Transferee"); (c) the number of Shares to be
transferred; and (d) the terms and conditions of any proposed sale or transfer,
including the proposed purchase price for the Shares to be transferred (the
"Offered Price").
3.3 Exercise of Right of First Refusal
At any time within thirty (30) days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all or any portion of the Shares proposed to be transferred to
any one or more of the Proposed Transferees, at the purchase price determined in
accordance with subsection 3.4 below.
3.4 Purchase Price
The purchase price ("Purchase Price") for the Shares purchased by the
Company or its assignee(s) under this Section 3 shall be the Offered Price. If
the Offered Price includes consideration other than cash, the cash equivalent
value of the
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non-cash consideration shall be determined by the Board of Directors of the
Company in good faith.
3.5 Payment
Payment of the Purchase Price shall be made, at the option of the Company
or its assignee(s), in cash (by check), by cancellation of all or a portion of
any outstanding indebtedness of the Holder to the Company (or, in the case of
repurchase by an assignee, to the assignee), or by any combination thereof
within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
3.6 Holder's Right to Transfer
If any of the Shares proposed in the Notice to be transferred to a given
Proposed Transferee are not purchased by the Company and/or its assignee(s) as
provided in Section 3.3, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided that such sale or other transfer is consummated within sixty (60) days
after the date of the Notice and provided further that any such sale or other
transfer is effected in accordance with any applicable securities laws and the
Proposed Transferee and any spouse executes an endorsement in the form attached
as Exhibit A, acknowledging that the provisions of this Agreement shall continue
to apply to the Shares in the hands of such Proposed Transferee (an
"Endorsement"). If the Shares are not transferred to the Proposed Transferee
within such period, or if the Holder proposes to change the price or other terms
to make them more favorable to the Proposed Transferee, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
3.7 Exception for Certain Family Transfers
Notwithstanding anything to the contrary in this Section 3, the transfer of
any or all of the Shares during the Investor's lifetime or on the Investor's
death by will or intestacy to the Investor's Immediate Family or a trust for the
benefit of the Investor's Immediate Family shall be exempt from the provisions
of this Section 3. "Immediate Family" as used herein shall mean the Investor's
spouse (except in the case of divorce), father, mother, brother, sister or
children or an entity in which all beneficial ownership interests are held by
the Investor, any of the aforementioned persons or any other such entity. In
such case, the transferee or other recipient shall receive and hold the Shares
so transferred subject to the provisions of this Agreement, shall execute an
Endorsement and there shall be no further transfer of such Shares except in
accordance with the terms of this Agreement.
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<PAGE>
4. Involuntary Transfer
4.1 Company's Right to Purchase upon Involuntary Transfer
In the event, at any time after the date of this Agreement, of any transfer
by operation of law or other involuntary transfer (including death, divorce,
legal separation or bankruptcy, but excluding a transfer to Immediate Family as
set forth in Section 3.7 above) of all or a portion of the Shares by the Holder,
the Company or its assignee(s) shall have an option to purchase all of the
Shares transferred at the greater of the purchase price paid by the Holder for
such Shares or the Fair Market Value (as defined below) of the Shares on the
date of transfer. The Holder or the Holder's executor shall promptly notify the
Secretary of the Company in writing of such involuntary transfer. The right to
purchase such Shares shall be provided to the Company or its assignee(s) for a
period of thirty (30) days following receipt by the Company of such written
notice. In the event that the proposed transfer is required by the order,
judgment or decision of a court, arbitrator or other third party, the Holder or
the Holder's executor shall notify such court, arbitrator or other third party
of the Company's rights under this Section 4.1.
4.2 Price for Involuntary Transfer
For purposes of this Agreement, the "Fair Market Value" of the Shares shall
be defined as the value of the Shares as determined by the Board of Directors of
the Company, which value reflects the then-current value of the Shares in terms
of present earnings and future prospects of the Company. The Company shall
notify the Holder or the Holder's executor of the Fair Market Value within
thirty (30) days after receipt by it of written notice of the proposed transfer
of Shares. However, if the Holder or the Holder's executor does not agree with
the valuation as determined by the Board of Directors of the Company, the Holder
or the Holder's executor shall be entitled to have the valuation determined by
an independent appraiser to be mutually agreed upon by the Company and the
Holder or the Holder's executor and whose fees shall be borne equally by the
Company and the Holder or the Holder's estate.
5. Assignment of Company Rights
The rights of the Company to purchase any part of the Shares may be
assigned in whole or in part to any shareholder or shareholders of the Company
or other persons or organizations.
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<PAGE>
6. Restrictions Binding on Transferees
All transferees of Shares or any interest therein will receive and hold
such Shares or interest subject to the provisions of this Agreement. Any sale
or transfer of the Shares shall be void unless the provisions of this Agreement
are met.
7. Termination of Rights
This Agreement shall terminate upon the closing of the first sale of Common
Stock of the Company to the general public (an "Initial Public Offering") under
a registration statement declared effective under the Securities Act of 1933, as
amended (the "Securities Act") or any successor statute. Upon termination of
this Agreement, a new certificate or certificates representing the Shares shall
be issued, on request, without the second paragraph of the legend required by
Section 9.1 and delivered to the Investor.
8. Representations, Warranties and Covenants of the Investor
The Investor represents, warrants and covenants to the Company that:
8.1 No Sale or Distribution; Investigation
The Investor is purchasing the Shares for the Investor's own personal
account for investment and not with a view to the sale or distribution of all or
any part of the Shares. No one other than the Investor has any beneficial
interest in the Shares. The Investor has had full opportunity to ask questions
and receive answers concerning the Shares and the financial condition of the
Company.
8.2 Authority; Binding Agreement
The Investor has the full legal right, power and authority to enter into
and to perform this Agreement. This Agreement constitutes the Investor's valid
and binding obligation, enforceable against the Investor in accordance with its
terms.
8.3 No Registration of Shares; Restricted Securities
The Investor understands that the Shares have not been registered under the
Securities Act by reason of a specific exemption, which exemption depends upon,
among other things, the bona fide nature of the Investor's investment intent as
expressed here. The Investor understands that the Shares are characterized as
"restricted securities" under the federal securities laws because they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without
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registration under the Securities Act only in certain limited circumstances. In
this connection, the Investor represents that he, she or it is familiar with
Rule 144 and Rule 701 under the Securities Act, as presently in effect, and
understands the resale limitations imposed by the Securities Act.
8.4 Sophistication
Such Investor, either alone or with the assistance of his, her or its
professional advisor, is a sophisticated investor, is able to fend for his, her
or itself in the transactions contemplated by this Agreement, and has such
knowledge and experience in financial and business matters that he, she or it is
capable of evaluating the merits and risks of the prospective investment in the
Shares.
8.5 Suitability
The investment in the Shares is suitable for such Investor based upon his,
her or its investment objectives and financial needs, and such Investor has
adequate net worth and means for providing for his, her or its current financial
needs and contingencies and has no need for liquidity of investment with respect
to the Shares. Such Investor's overall commitment to investments that are
illiquid or not readily marketable is not disproportionate to his, her or its
net worth, and investment in the Shares will not cause such overall commitment
to become excessive.
8.6 Professional Advice
Such Investor has obtained, to the extent he, she or it deems necessary,
his, her or its own professional advice with respect to the risks inherent in
the investment in the Shares, the condition of the Company and the suitability
of the investment in the Shares in light of such Investor's financial condition
and investment needs.
8.7 Ability to Bear Risk
Such Investor is in a financial position to purchase and hold the Shares
and is able to bear the economic risk and withstand a complete loss of his, her
or its investment in the Shares.
8.8 Residency
For purposes of the application of state securities laws, such Investor
represents that he, she or it is a bona fide resident of, and/or is domiciled
in, the state identified in the address for such Investor.
-6-
<PAGE>
8.9 Accreditation
The Investor represents and warrants that he, she or it is an accredited
investor as such term is defined in Rule 501(a) under the Securities Act and as
defined pursuant to the provisions of state securities laws applicable to such
Investor providing for an exemption from registration or qualification of the
offer and sale of the Shares. The Investor represents that he, she or it is:
(check all that are applicable)
a. A director or executive officer of the Company.
- ------------
b. A natural person with an individual net worth*, or joint
- ------------ net worth with his or her spouse, in excess of $1,000,000.
c. A natural person who (i) had an individual income in excess
- ------------ of $200,000 in each of 1997 and 1998 or a joint income with
his or her spouse in excess of $300,000 in each of those two
years and (ii) reasonably expects to reach the same income
level in 1999.
d. Any organization described in Section 501(c)(3) of the
____________ Internal Revenue Code of 1986, as amended, or Massachusetts or
similar business trust (i) not formed for the specific purpose
of acquiring the Shares and (ii) having total assets in excess
of $5,000,000.
e. A private business development company (as defined in
____________ section 202(a)(22) of the Investment Company Act of 1940, as
amended).
f. A trust (i) not formed for the purpose of acquiring the
____________ Shares; (ii) having total assets in excess of $5,000,000, and
(iii) whose purchase of the Shares is directed by a
sophisticated person (as described in Rule 506(b)(2)(ii) under
the Securities Act).
g. An entity in which all of the equity owners are accredited
____________ investors.
_________________________
* As used in this subparagraph, "net worth" means total tangible assets as
currently valued less total liabilities.
-7-
<PAGE>
9. Restrictive Legends and Stop-Transfer Orders
9.1 Restrictive Legend
The Secretary of the Company shall endorse all certificates representing
Shares owned by the Investor and all certificates representing Shares issued or
transferred after this Agreement is entered into with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE LAW, AND NO INTEREST MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (a) THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (b) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL
FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (c) THIS
CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
9.2 Stop Transfer Order; No Transfer in Violation of Agreement
The Investor agrees that, in order to ensure compliance with this
Agreement's restrictions, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, and that, if the Company transfers
its own securities, it may make appropriate notations to the same effect in its
own records. The Company shall not be required (a) to transfer on its books any
Shares that have been sold or otherwise transferred in violation of any of the
provisions of this Agreement or (b) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee
to whom such Shares shall have been so transferred.
-8-
<PAGE>
10. Miscellaneous
10.1 Entire Agreement; Specific Enforcement; Severability
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
The Investor expressly agrees that the Company and its shareholders will be
irreparably damaged if this Agreement is not specifically enforced. Upon a
breach or threatened breach of the terms, covenants and/or conditions of this
Agreement by the Investor, the Company shall, in addition to all other remedies,
be entitled to a temporary or permanent injunction, without showing any actual
damage, and/or a decree for specific performance, in accordance with the
provisions of this Agreement. If any provision of this Agreement is determined
by a court of competent jurisdiction to be invalid or unenforceable, such
determination shall not affect the validity or enforceability of any other part
of this Agreement.
10.2 Notices
Notices given pursuant to this Agreement shall be deemed duly given on the
date of personal delivery, on the date sent by fax or three days after mailing
if mailed by certified or registered mail, return receipt requested, postage
prepaid, to the party at its address on the signature page below or such other
address of which the addressee may subsequently notify the other parties in
writing.
10.3 Expenses
Except as specifically provided to the contrary, each party shall pay his,
her or its own expenses incurred in connection with this Agreement or any
transactions contemplated by this Agreement.
10.4 Governing Law
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of the state of Washington
applicable to the construction and enforcement of contracts wholly executed and
performed in Washington.
10.5 Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
-9-
<PAGE>
10.6 Amendments; Waivers
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates set forth below.
INVESTOR
Date of Execution: , 1999 Signature:
Name:
Address:
__________________________
__________________________
AVENUE A, INC.
Date of Execution: February 23, 1999
By: /s/ Robert M. Littauer
Name: Robert M. Littauer
Title: Vice President
Address: Avenue A, Inc.
Suite 1270
1100 Olive Way
Seattle, WA 98101
Attn: Chief Financial Officer
-11-
<PAGE>
Schedule A
Original Issuances of Series B Preferred Stock
<TABLE>
<CAPTION>
No. of
Shares Aggregate Purchase
Name Purchased Date Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cedar Grove Investments, LLC 111,607 2/23/99 $124,999.84
- ---------------------------------------------------------------------------------------------
Tony Chang 8,929 2/23/99 $ 10,000.48
- ---------------------------------------------------------------------------------------------
Stephen Man Cheung 8,929 2/23/99 $ 10,000.48
- ---------------------------------------------------------------------------------------------
Stephen Wing Cheung Chow 8,929 2/23/99 $ 10,000.48
- ---------------------------------------------------------------------------------------------
Robert J. Collins 90,000 2/23/99 $100,800.00
- ---------------------------------------------------------------------------------------------
Eric E. Dillon 89,286 2/23/99 $100,000.32
- ---------------------------------------------------------------------------------------------
Raymond P. Dornbusch 178,571 2/23/99 $199,999.52
- ---------------------------------------------------------------------------------------------
Michele M. Dupre 44,643 2/23/99 $ 50,000.16
- ---------------------------------------------------------------------------------------------
Durham Investments 89,286 2/23/99 $100,000.32
International, Ltd.
- ---------------------------------------------------------------------------------------------
Maria S. Eitel, Trustee, Maria 22,321 2/23/99 $ 24,999.52
S. Eitel Revocable Living Trust
- ---------------------------------------------------------------------------------------------
Nicholas S. Eitel 35,714 2/23/99 $ 39,999.68
- ---------------------------------------------------------------------------------------------
Elliott Associates, L.P. 22,322 2/23/99 $ 25,000.64
- ---------------------------------------------------------------------------------------------
Timothy P. Flaherty 44,643 2/23/99 $ 50,000.16
- ---------------------------------------------------------------------------------------------
Gary I. Furukawa 133,929 2/23/99 $150,000.48
- ---------------------------------------------------------------------------------------------
John P. Galgon 28,571 2/23/99 $ 31,999.52
- ---------------------------------------------------------------------------------------------
Gentle Boss Investments Ltd. 178,571 2/23/99 $199,999.52
- ---------------------------------------------------------------------------------------------
Nicolas J. Hanauer 446,429 2/23/99 $500,000.48
- ---------------------------------------------------------------------------------------------
Frank M. Higgins 22,321 2/23/99 $ 24,999.52
- ---------------------------------------------------------------------------------------------
David B. Johnston 22,321 2/23/99 $ 24,999.52
- ---------------------------------------------------------------------------------------------
Peter B. Kellner 89,286 2/23/99 $100,000.32
- ---------------------------------------------------------------------------------------------
Matthew K. Kellogg 22,321 2/23/99 $ 24,999.52
- ---------------------------------------------------------------------------------------------
King Ying Development Limited 44,643 2/23/99 $ 50,000.16
- ---------------------------------------------------------------------------------------------
Stanton Reed Koch 44,643 2/23/99 $ 50,000.16
- ---------------------------------------------------------------------------------------------
Benjamin Y. Lam 25,000 2/23/99 $ 28,000.00
- ---------------------------------------------------------------------------------------------
Stanley J. Lampert 35,714 2/23/99 $ 39,999.68
- ---------------------------------------------------------------------------------------------
Robert Leo 44,643 2/23/99 $ 50,000.16
- ---------------------------------------------------------------------------------------------
Rosemary Dupre Littlefield 22,321 2/23/99 $ 24,999.52
- ---------------------------------------------------------------------------------------------
Pac-Fung Securities Ltd. 169,643 2/23/99 $190,000.16
- ---------------------------------------------------------------------------------------------
Shamrock Trust 178,571 2/23/99 $199,999.52
- ---------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
No. of
Shares Aggregate Purchase
Name Purchased Date Price
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Trust Company, N.A. Trustee 22,321 2/23/99 $ 24,999.52
FBO John E. von Schlegell
SEP-IRA Acct. #752-623-40
- ---------------------------------------------------------------------------------------------
Vernon L. Vennes 44,643 2/23/99 $ 50,000.16
- ---------------------------------------------------------------------------------------------
Dale J. Vogel 22,322 2/23/99 $ 25,000.64
- ---------------------------------------------------------------------------------------------
Westgate International, L.P. 22,321 2/23/99 $ 24,999.52
- ---------------------------------------------------------------------------------------------
Stuart Vance Williams 53,572 2/23/99 $ 60,000.64
- ---------------------------------------------------------------------------------------------
R. Michael Leo 61,428 3/15/99 $ 68,799.36
- ---------------------------------------------------------------------------------------------
Linco International Limited 89,286 3/15/99 $100,000.32
- ---------------------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE>
AVENUE A, INC.
SERIES B PREFERRED STOCK
SHARE PURCHASE AGREEMENT
CONSENT OF SPOUSE
-----------------
I, ____________________, spouse of ________________________, have read and
approve the foregoing Series B Preferred Stock Share Purchase Agreement (the
"Agreement"). In consideration of the terms and conditions as set forth in the
Agreement, I hereby appoint my spouse as my attorney-in-fact with respect to the
amendment of or the exercise of any rights under the Agreement and agree to be
bound by the provisions of the Agreement insofar as I may have any rights in the
Agreement or any Shares issued pursuant thereto under the community property
laws of the state of Washington or similar laws relating to marital property in
effect in the state of our residence as of the date of the Agreement. I have
been informed of my right to obtain independent legal counsel concerning this
Agreement and the rights and obligations provided for in this Agreement, and by
execution of this Agreement, acknowledge having either obtained such independent
counsel or having waived the same.
Date:
---------------------------------------------
--------------------------------------------------
(Signature)
--------------------------------------------------
(Printed Name)
<PAGE>
EXHIBIT A
AVENUE A, INC.
SERIES B PREFERRED STOCK
SHARE PURCHASE AGREEMENT
ENDORSEMENT
-----------
The undersigned, a shareholder of Avenue A, Inc. (the "Company"), and his
or her spouse hereby agree to the terms and conditions of the Series B Preferred
Stock Share Purchase Agreement, which became effective on _________________,
199_, originally entered into by and between the Company and the other party
listed on the signature page and acknowledge receipt of a copy of such Agreement
and agree to be bound under that Agreement as an Investor and shareholder,
including, without limitation, under Section 6 of that Agreement.
___________________________________ ______________________________
(Signature of shareholder/Investor) (Signature of Spouse)
___________________________________ ______________________________
(Printed Name) (Printed Name)
___________________________________ ______________________________
(Date) (Date)
<PAGE>
EXHIBIT B
AVENUE A, INC.
SERIES B PREFERRED STOCK
SHARE PURCHASE AGREEMENT
ASSIGNMENT SEPARATE FROM CERTIFICATE
------------------------------------
FOR VALUE RECEIVED and pursuant to the Series B Preferred Stock Share
Purchase Agreement between the undersigned ("Shareholder") and Avenue A, Inc.
(the "Company") effective as of _____________________, 1999 (the "Agreement"),
this shareholder (the "Shareholder") hereby sells, assigns and transfers unto
the Company ________________________________ (___________) shares of the Series
B Preferred Stock of the Company standing in Shareholder's name on the Company's
books and represented by Certificate No. ________, and does hereby irrevocably
constitute and appoint _______________________________ to transfer said stock on
the books of the Company with full power of substitution in the premises. THIS
ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT AND THE EXHIBITS
THERETO.
Dated:_________________________
Signature:
__________________________________
Shareholder
__________________________________
Spouse
Instruction: Please do not fill in any blanks other than the signature
line. The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Shareholder.
<PAGE>
EXHIBIT 10.4
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement"), is made and entered into
as of this 2nd day of July, 1998, by and between Avenue A, Inc. (the "Company"),
a Washington corporation, and the undersigned purchaser of the Company's common
stock (the "Shareholder").
RECITALS
A. The Shareholder desires to purchase shares of the Company's common
stock upon the terms and conditions below.
B. Each of the other shareholders of the Company is entering into an
agreement substantially identical to this Agreement.
AGREEMENT
1. Sale and Purchase of Shares
Subject to the terms and conditions of this Agreement, the Shareholder
agrees to purchase from the Company, and the Company agrees to sell to the
Shareholder, 2,000,000 shares of the common stock of the Company (the "Shares",
and as further defined below) at a purchase price of $0.15 per share. In
connection with the execution of this Agreement, the Shareholder has delivered
to the Company a check in the amount of the aggregate purchase price, receipt of
which is hereby acknowledged by the Company. The sale and transfer of the Shares
shall be effective as of the date of this Agreement. "Shares" shall be defined
as the purchased Shares and all securities received in replacement of or in
connection with the Shares pursuant to stock dividends or splits, all securities
received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. Disposition Prohibited
The Shareholder shall not dispose of any of his, her or its Shares except
as permitted by this Agreement, and any such attempted disposition shall be void
and
-1-
<PAGE>
shall not be recognized or registered upon the books of the Company. The term
"dispose" includes, but is not limited to, the acts of selling, assigning,
transferring, pledging, encumbering, giving away, devising, and any other form
of conveying, including conveyances caused by marital separation, divorce,
receivership, or bankruptcy, whether voluntary or involuntary or by operation of
law.
3. Right of First Refusal
3.1 Restriction
Before any Shares held by the Shareholder or any transferee of the
Shareholder (either being sometimes referred to as the "Holder") may be sold or
otherwise disposed of (as defined above but excluding transfers described in and
governed by Section 4), the Company or its assignee(s) shall have a right of
first refusal to purchase the Shares on the terms and conditions set forth in
this Section 3 (the "Right of First Refusal").
3.2 Notice of Proposed Transfer
The Holder of the Shares shall deliver to the Company a written notice (the
"Notice") stating: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name and address of any proposed purchaser or
other transferee ("Proposed Transferee"); (c) the number of Shares to be
transferred; and (d) the terms and conditions of any proposed sale or transfer,
including the proposed purchase price for the Shares to be transferred (the
"Offered Price").
3.3 Exercise of Right of First Refusal
At any time within thirty (30) days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all or any portion of the Shares proposed to be transferred to
any one or more of the Proposed Transferees, at the purchase price determined in
accordance with subsection 3.4 below.
3.4 Purchase Price
The purchase price ("Purchase Price") for the Shares purchased by the
Company or its assignee(s) under this Section 3 shall be the Offered Price. If
the Offered Price includes consideration other than cash, the cash equivalent
value of the non-cash consideration shall be determined by the Board of
Directors of the Company in good faith.
-2-
<PAGE>
3.5 Payment
Payment of the Purchase Price shall be made, at the option of the Company
or its assignee(s), in cash (by check), by cancellation of all or a portion of
any outstanding indebtedness of the Holder to the Company (or, in the case of
repurchase by an assignee, to the assignee), or by any combination thereof
within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
3.6 Holder's Right to Transfer
If any of the Shares proposed in the Notice to be transferred to a given
Proposed Transferee are not purchased by the Company and/or its assignee(s) as
provided in Section 3.3, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided that such sale or other transfer is consummated within sixty (60) days
after the date of the Notice and provided further that any such sale or other
transfer is effected in accordance with any applicable securities laws and the
Proposed Transferee and any spouse executes an endorsement in the form attached
as Exhibit A, acknowledging that the provisions of this Agreement shall continue
to apply to the Shares in the hands of such Proposed Transferee (an
"Endorsement"). If the Shares are not transferred to the Proposed Transferee
within such period, or if the Holder proposes to change the price or other terms
to make them more favorable to the Proposed Transferee, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
3.7 Exception for Certain Family Transfers
Notwithstanding anything to the contrary in this Section 3, the transfer of
any or all of the Shares during the Shareholder's lifetime or on the
Shareholder's death by will or intestacy to the Shareholder's Immediate Family
or a trust for the benefit of the Shareholder's Immediate Family shall be exempt
from the provisions of this Section 3. "Immediate Family" as used herein shall
mean the Shareholder's spouse (except in the case of divorce), father, mother,
brother, sister or children or an entity in which all beneficial ownership
interests are held by the Shareholder, any of the aforementioned persons or any
other such entity. In such case, the transferee or other recipient shall receive
and hold the Shares so transferred subject to the provisions of this Agreement,
shall execute an Endorsement and there shall be no further transfer of such
Shares except in accordance with the terms of this Agreement.
-3-
<PAGE>
4. Involuntary Transfer
4.1 Company's Right to Purchase upon Involuntary Transfer
In the event, at any time after the date of this Agreement, of any transfer
by operation of law or other involuntary transfer (including death, divorce,
legal separation or bankruptcy, but excluding a transfer to Immediate Family as
set forth in Section 3.7 above) of all or a portion of the Shares by the Holder,
the Company or its assignee(s) shall have an option to purchase all of the
Shares transferred at the greater of the purchase price paid by the Holder for
such Shares or the Fair Market Value (as defined below) of the Shares on the
date of transfer. The Holder or the Holder's executor shall promptly notify the
Secretary of the Company in writing of such involuntary transfer. The right to
purchase such Shares shall be provided to the Company or its assignee(s) for a
period of thirty (30) days following receipt by the Company of such written
notice. In the event that the proposed transfer is required by the order,
judgment or decision of a court, arbitrator or other third party, the Holder or
the Holder's executor shall notify such court, arbitrator or other third party
of the Company's rights under this Section 4.1.
4.2 Price for Involuntary Transfer
For purposes of this Agreement, the "Fair Market Value" of the Shares shall
be defined as the value of the Shares as determined by the Board of Directors of
the Company, which value reflects the then-current value of the Shares in terms
of present earnings and future prospects of the Company. The Company shall
notify the Holder or the Holder's executor of the Fair Market Value within
thirty (30) days after receipt by it of written notice of the proposed transfer
of Shares. However, if the Holder or the Holder's executor does not agree with
the valuation as determined by the Board of Directors of the Company, the Holder
or the Holder's executor shall be entitled to have the valuation determined by
an independent appraiser to be mutually agreed upon by the Company and the
Holder or the Holder's executor and whose fees shall be borne equally by the
Company and the Holder or the Holder's estate.
5. Assignment of Company Rights
The rights of the Company to purchase any part of the Shares may be
assigned in whole or in part to any Shareholder or Shareholders of the Company
or other persons or organizations.
-4-
<PAGE>
6. Restrictions Binding on Transferees
All transferees of Shares or any interest therein will receive and hold
such Shares or interest subject to the provisions of this Agreement. Any sale
or transfer of the Shares shall be void unless the provisions of this Agreement
are met.
7. Termination of Rights
This Agreement shall terminate upon the closing of the first sale of Common
Stock of the Company to the general public (an "Initial Public Offering") under
a registration statement declared effective under the Securities Act of 1933, as
amended (the "Securities Act") or any successor statute. Upon termination of
this Agreement, a new certificate or certificates representing the Shares shall
be issued, on request, without the second paragraph of the legend required by
Section 10.1 and delivered to the Shareholder.
8. Representations, Warranties and Covenants of the Shareholder
The Shareholder represents, warrants and covenants to the Company that:
8.1 No Sale or Distribution; Investigation
The Shareholder is purchasing the Shares for the Shareholder's own personal
account for investment and not with a view to the sale or distribution of all or
any part of the Shares. No one other than the Shareholder has any beneficial
interest in the Shares. The Shareholder has had full opportunity to ask
questions and receive answers concerning the Shares and the financial condition
of the Company.
8.2 Authority; Binding Agreement
The Shareholder has the full legal right, power and authority to enter into
and to perform this Agreement. This Agreement constitutes the Shareholder's
valid and binding obligation, enforceable against the Shareholder in accordance
with its terms.
8.3 No Registration of Shares; Restricted Securities
The Shareholder understands that the Shares have not been registered under
the Securities Act by reason of a specific exemption, which exemption depends
upon, among other things, the bona fide nature of the Shareholder's investment
intent as expressed here. The Shareholder understands that the Shares are
characterized as "restricted securities" under the federal securities laws
because they are being acquired from the Company in a transaction not involving
a public offering and that under such laws and applicable regulations such
securities may be resold without registration
-5-
<PAGE>
under the Securities Act only in certain limited circumstances. In this
connection, the Shareholder represents that he, she or it is familiar with Rule
144 and Rule 701 under the Securities Act, as presently in effect, and
understands the resale limitations imposed by the Securities Act.
9. Restrictive Legends and Stop-Transfer Orders
9.1 Restrictive Legend
The Secretary of the Company shall endorse all certificates representing
Shares owned by the Shareholder and all certificates representing Shares issued
or transferred after this Agreement is entered into with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR APPLICABLE STATE LAW, AND NO INTEREST MAY BE
SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE
TRANSFERRED UNLESS (a) THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS
COVERING ANY SUCH TRANSACTION INVOLVING SAID SECURITIES, (b)
THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL FOR
THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS
CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION, OR (c) THIS CORPORATION OTHERWISE SATISFIES
ITSELF THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
9.2 Stop Transfer Order; No Transfer in Violation of Agreement
The Shareholder agrees that, in order to ensure compliance with this
Agreement's restrictions, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, and that, if the Company transfers
its own
-6-
<PAGE>
securities, it may make appropriate notations to the same effect in its own
records. The Company shall not be required (a) to transfer on its books any
Shares that have been sold or otherwise transferred in violation of any of the
provisions of this Agreement or (b) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee
to whom such Shares shall have been so transferred.
10. Miscellaneous
10.1 Entire Agreement; Specific Enforcement; Severability
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
The Shareholder expressly agrees that the Company and the other shareholders
will be irreparably damaged if this Agreement is not specifically enforced. Upon
a breach or threatened breach of the terms, covenants and/or conditions of this
Agreement by the Shareholder, the Company shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions of this Agreement. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
part of this Agreement.
10.2 Notices
Notices given pursuant to this Agreement shall be deemed duly given on the
date of personal delivery, on the date sent by fax or three days after mailing
if mailed by certified or registered mail, return receipt requested, postage
prepaid, to the party at its address on the signature page below or such other
address of which the addressee may subsequently notify the other parties in
writing.
10.3 Expenses
Except as specifically provided to the contrary, each party shall pay his,
her or its own expenses incurred in connection with this Agreement or any
transactions contemplated by this Agreement.
10.4 Governing Law
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of the state of Washington
applicable to
-7-
<PAGE>
the construction and enforcement of contracts wholly executed and performed in
Washington.
10.5 Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
10.6 Amendments; Waivers
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
AVENUE A, INC.
By: /s/ Eric A. Moen
-------------------------
Name: Eric A. Moen
Title: Secretary/Treasurer
Company address: Avenue A, Inc.
1100 Olive Way
Suite 1270
Seattle, WA 98101
Attention: Eric A. Moen
SHAREHOLDER
Signature: /s/ Nicolas Hanauer
-------------------------
Name: Nicolas Hanauer
Address: The Highlands
Seattle, WA 98177
-8-
<PAGE>
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
CONSENT OF SPOUSE
-----------------
I, Leslie Hanauer, spouse of Nicolas Hanauer, have read and approve the
foregoing Share Purchase Agreement (the "Agreement"). In consideration of the
terms and conditions as set forth in the Agreement, I hereby appoint my spouse
as my attorney-in-fact with respect to the amendment of or the exercise of any
rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights in the Agreement or any Shares issued
pursuant thereto under the community property laws of the state of Washington or
similar laws relating to marital property in effect in the state of our
residence as of the date of the Agreement. I have been informed of my right to
obtain independent legal counsel concerning this Agreement and the rights and
obligations provided for in this Agreement, and by execution of this Agreement,
acknowledge having either obtained such independent counsel or having waived the
same.
Date: 6/26/98
-------------------
/s/ Leslie Hanauer
-------------------------
Leslie Hanauer
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<PAGE>
EXHIBIT A
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
ENDORSEMENT
-----------
The undersigned, a Shareholder of Avenue A, Inc. (the "Company"), and his
or her spouse hereby agree to the terms and conditions of the Share Purchase
Agreement dated as of _________________, 1998 originally entered into by and
among the Company and the other party listed on the signature page and
acknowledge receipt of a copy of such Agreement and agree to be bound as a
Shareholder.
/s/ Nicolas Hanauer /s/ Leslie Hanauer
- -------------------------- -----------------------
(Signature of Shareholder) (Signature of Spouse)
Nicolas Hanauer Leslie Hanauer
- -------------------------- -----------------------
(Printed Name) (Printed Name)
6/26/98 6/26/98
- -------------------------- -----------------------
(Date) (Date)
<PAGE>
EXHIBIT 10.5
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement"), is made and entered into
as of this 10th day of June, 1998, by and between Avenue A, Inc. (the
"Company"), a Washington corporation, and the undersigned purchaser of the
Company's common stock (the "Shareholder").
RECITALS
A. The Shareholder desires to purchase shares of the Company's common
stock upon the terms and conditions below.
B. Each of the other shareholders of the Company is entering into an
agreement substantially identical to this Agreement.
AGREEMENT
1. Sale and Purchase of Shares
Subject to the terms and conditions of this Agreement, the Shareholder
agrees to purchase from the Company, and the Company agrees to sell to the
Shareholder, 152,100 shares of the common stock of the Company (the "Shares",
and as further defined below) at a purchase price of $0.01 per share. In
connection with the execution of this Agreement, the Shareholder has delivered
to the Company a check in the amount of the aggregate purchase price, receipt of
which is hereby acknowledged by the Company. The sale and transfer of the
Shares shall be effective as of the date of this Agreement. "Shares" shall be
defined as the purchased Shares and all securities received in replacement of or
in connection with the Shares pursuant to stock dividends or splits, all
securities received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. Disposition Prohibited
The Shareholder shall not dispose of any of his, her or its Shares except
as permitted by this Agreement, and any such attempted disposition shall be void
and shall not be recognized or registered upon the books of the Company. The
term "dispose" includes, but is not limited to, the acts of selling, assigning,
transferring,
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<PAGE>
pledging, encumbering, giving away, devising, and any other form of conveying,
including conveyances caused by marital separation, divorce, receivership, or
bankruptcy, whether voluntary or involuntary or by operation of law.
3. Right of First Refusal
3.1 Restriction
Before any Shares held by the Shareholder or any transferee of the
Shareholder (either being sometimes referred to as the "Holder") may be sold or
otherwise disposed of (as defined above but excluding transfers described in and
governed by Section 4), the Company or its assignee(s) shall have a right of
first refusal to purchase the Shares on the terms and conditions set forth in
this Section 3 (the "Right of First Refusal").
3.2 Notice of Proposed Transfer
The Holder of the Shares shall deliver to the Company a written notice (the
"Notice") stating: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name and address of any proposed purchaser or
other transferee ("Proposed Transferee"); (c) the number of Shares to be
transferred; and (d) the terms and conditions of any proposed sale or transfer,
including the proposed purchase price for the Shares to be transferred (the
"Offered Price").
3.3 Exercise of Right of First Refusal
At any time within thirty (30) days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all or any portion of the Shares proposed to be transferred to
any one or more of the Proposed Transferees, at the purchase price determined in
accordance with subsection 3.4 below.
3.4 Purchase Price
The purchase price ("Purchase Price") for the Shares purchased by the
Company or its assignee(s) under this Section 3 shall be the Offered Price. If
the Offered Price includes consideration other than cash, the cash equivalent
value of the non-cash consideration shall be determined by the Board of
Directors of the Company in good faith.
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<PAGE>
3.5 Payment
Payment of the Purchase Price shall be made, at the option of the Company
or its assignee(s), in cash (by check), by cancellation of all or a portion of
any outstanding indebtedness of the Holder to the Company (or, in the case of
repurchase by an assignee, to the assignee), or by any combination thereof
within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
3.6 Holder's Right to Transfer
If any of the Shares proposed in the Notice to be transferred to a given
Proposed Transferee are not purchased by the Company and/or its assignee(s) as
provided in Section 3.3, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided that such sale or other transfer is consummated within sixty (60) days
after the date of the Notice and provided further that any such sale or other
transfer is effected in accordance with any applicable securities laws and the
Proposed Transferee and any spouse executes an endorsement in the form attached
as Exhibit Error! Reference source not found., acknowledging that the provisions
of this Agreement shall continue to apply to the Shares in the hands of such
Proposed Transferee (an "Endorsement"). If the Shares are not transferred to
the Proposed Transferee within such period, or if the Holder proposes to change
the price or other terms to make them more favorable to the Proposed Transferee,
a new Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by the
Holder may be sold or otherwise transferred.
3.7 Exception for Certain Family Transfers
Notwithstanding anything to the contrary in this Section 3, the transfer of
any or all of the Shares during the Shareholder's lifetime or on the
Shareholder's death by will or intestacy to the Shareholder's Immediate Family
or a trust for the benefit of the Shareholder's Immediate Family shall be exempt
from the provisions of this Section 3. "Immediate Family" as used herein shall
mean the Shareholder's spouse (except in the case of divorce), father, mother,
brother, sister or children or an entity in which all beneficial ownership
interests are held by the Shareholder, any of the aforementioned persons or any
other such entity. In such case, the transferee or other recipient shall
receive and hold the Shares so transferred subject to the provisions of this
Agreement, shall execute an Endorsement and there shall be no further transfer
of such Shares except in accordance with the terms of this Agreement.
-3-
<PAGE>
4. Involuntary Transfer
4.1 Company's Right to Purchase upon Involuntary Transfer
In the event, at any time after the date of this Agreement, of any transfer
by operation of law or other involuntary transfer (including death, divorce,
legal separation or bankruptcy, but excluding a transfer to Immediate Family as
set forth in Section 3.7 above) of all or a portion of the Shares by the Holder,
the Company or its assignee(s) shall have an option to purchase all of the
Shares transferred at the greater of the purchase price paid by the Holder for
such Shares or the Fair Market Value (as defined below) of the Shares on the
date of transfer. The Holder or the Holder's executor shall promptly notify the
Secretary of the Company in writing of such involuntary transfer. The right to
purchase such Shares shall be provided to the Company or its assignee(s) for a
period of thirty (30) days following receipt by the Company of such written
notice. In the event that the proposed transfer is required by the order,
judgment or decision of a court, arbitrator or other third party, the Holder or
the Holder's executor shall notify such court, arbitrator or other third party
of the Company's rights under this Section 4.1.
4.2 Price for Involuntary Transfer
For purposes of this Agreement, the "Fair Market Value" of the Shares shall
be defined as the value of the Shares as determined by the Board of Directors of
the Company, which value reflects the then-current value of the Shares in terms
of present earnings and future prospects of the Company. The Company shall
notify the Holder or the Holder's executor of the Fair Market Value within
thirty (30) days after receipt by it of written notice of the proposed transfer
of Shares. However, if the Holder or the Holder's executor does not agree with
the valuation as determined by the Board of Directors of the Company, the Holder
or the Holder's executor shall be entitled to have the valuation determined by
an independent appraiser to be mutually agreed upon by the Company and the
Holder or the Holder's executor and whose fees shall be borne equally by the
Company and the Holder or the Holder's estate.
5. Assignment of Company Rights
The rights of the Company to purchase any part of the Shares may be
assigned in whole or in part to any Shareholder or Shareholders of the Company
or other persons or organizations.
-4-
<PAGE>
6. Restrictions Binding on Transferees
All transferees of Shares or any interest therein will receive and hold
such Shares or interest subject to the provisions of this Agreement. Any sale
or transfer of the Shares shall be void unless the provisions of this Agreement
are met.
7. Termination of Rights
This Agreement shall terminate upon the closing of the first sale of Common
Stock of the Company to the general public (an "Initial Public Offering") under
a registration statement declared effective under the Securities Act of 1933, as
amended (the "Securities Act") or any successor statute. Upon termination of
this Agreement, a new certificate or certificates representing the Shares shall
be issued, on request, without the second paragraph of the legend required by
Section 10.1 and delivered to the Shareholder.
8. Representations, Warranties and Covenants of the Shareholder
The Shareholder represents, warrants and covenants to the Company that:
8.1 No Sale or Distribution; Investigation
The Shareholder is purchasing the Shares for the Shareholder's own personal
account for investment and not with a view to the sale or distribution of all or
any part of the Shares. No one other than the Shareholder has any beneficial
interest in the Shares. The Shareholder has had full opportunity to ask
questions and receive answers concerning the Shares and the financial condition
of the Company.
8.2 Authority; Binding Agreement
The Shareholder has the full legal right, power and authority to enter into
and to perform this Agreement. This Agreement constitutes the Shareholder's
valid and binding obligation, enforceable against the Shareholder in accordance
with its terms.
8.3 No Registration of Shares; Restricted Securities
The Shareholder understands that the Shares have not been registered under
the Securities Act by reason of a specific exemption, which exemption depends
upon, among other things, the bona fide nature of the Shareholder's investment
intent as expressed here. The Shareholder understands that the Shares are
characterized as "restricted securities" under the federal securities laws
because they are being acquired from the Company in a transaction not involving
a public offering and that under such laws and applicable regulations such
securities may be resold without registration
-5-
<PAGE>
under the Securities Act only in certain limited circumstances. In this
connection, the Shareholder represents that he, she or it is familiar with Rule
144 and Rule 701 under the Securities Act, as presently in effect, and
understands the resale limitations imposed by the Securities Act.
9. Restrictive Legends and Stop-Transfer Orders
9.1 Restrictive Legend
The Secretary of the Company shall endorse all certificates representing
Shares owned by the Shareholder and all certificates representing Shares issued
or transferred after this Agreement is entered into with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE LAW, AND NO INTEREST MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (a) THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (b) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL
FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (c) THIS
CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
9.2 Stop Transfer Order; No Transfer in Violation of Agreement
The Shareholder agrees that, in order to ensure compliance with this
Agreement's restrictions, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, and that, if the Company transfers
its own
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<PAGE>
securities, it may make appropriate notations to the same effect in its own
records. The Company shall not be required (a) to transfer on its books any
Shares that have been sold or otherwise transferred in violation of any of the
provisions of this Agreement or (b) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee
to whom such Shares shall have been so transferred.
10. Miscellaneous
10.1 Entire Agreement; Specific Enforcement; Severability
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
The Shareholder expressly agrees that the Company and the other shareholders
will be irreparably damaged if this Agreement is not specifically enforced.
Upon a breach or threatened breach of the terms, covenants and/or conditions of
this Agreement by the Shareholder, the Company shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions of this Agreement. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
part of this Agreement.
10.2 Notices
Notices given pursuant to this Agreement shall be deemed duly given on the
date of personal delivery, on the date sent by fax or three days after mailing
if mailed by certified or registered mail, return receipt requested, postage
prepaid, to the party at its address on the signature page below or such other
address of which the addressee may subsequently notify the other parties in
writing.
10.3 Expenses
Except as specifically provided to the contrary, each party shall pay his,
her or its own expenses incurred in connection with this Agreement or any
transactions contemplated by this Agreement.
10.4 Governing Law
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of the state of Washington
applicable to
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<PAGE>
the construction and enforcement of contracts wholly executed and performed in
Washington.
10.5 Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
10.6 Amendments; Waivers
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
AVENUE A, INC.
By: /s/ ERIC A. MOEN
________________________
Name: Eric A. Moen
Title: Secretary/Treasurer
Company address: Avenue A, Inc.
1100 Olive Way
Suite 1270
Seattle, WA 98101
Attention: Eric A. Moen
SHAREHOLDER
Signature: /s/ NICOLAS HANAUER
_________________________
Name: Nicolas Hanauer
Address:
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<PAGE>
EXHIBIT 10.6
AVENUE A, INC.
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement"), is made and entered into
as of this 26th day of May, 1998, by and between Avenue A, Inc. (the "Company"),
a Washington corporation, and the undersigned purchaser of the Company's common
stock (the "Shareholder").
RECITALS
A. The Shareholder desires to purchase shares of the Company's common
stock upon the terms and conditions below.
B. Each of the other shareholders of the Company is entering into an
agreement substantially identical to this Agreement.
AGREEMENT
1. Sale and Purchase of Shares
Subject to the terms and conditions of this Agreement, the Shareholder
agrees to purchase from the Company, and the Company agrees to sell to the
Shareholder, 3,300,000 shares of the common stock of the Company (the "Shares",
and as further defined below) at a purchase price of $0.01 per share. In
connection with the execution of this Agreement, the Shareholder has delivered
to the Company a check in the amount of the aggregate purchase price, receipt of
which is hereby acknowledged by the Company. The sale and transfer of the
Shares shall be effective as of the date of this Agreement. "Shares" shall be
defined as the purchased Shares and all securities received in replacement of or
in connection with the Shares pursuant to stock dividends or splits, all
securities received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. Disposition Prohibited
The Shareholder shall not dispose of any of his, her or its Shares except
as permitted by this Agreement, and any such attempted disposition shall be void
and shall not be recognized or registered upon the books of the Company. The
term "dispose" includes, but is not limited to, the acts of selling, assigning,
transferring,
-1-
<PAGE>
pledging, encumbering, giving away, devising, and any other form of conveying,
including conveyances caused by marital separation, divorce, receivership, or
bankruptcy, whether voluntary or involuntary or by operation of law.
3. Right of First Refusal
3.1 Restriction
Before any Shares held by the Shareholder or any transferee of the
Shareholder (either being sometimes referred to as the "Holder") may be sold or
otherwise disposed of (as defined above but excluding transfers described in and
governed by Section 4), the Company or its assignee(s) shall have a right of
first refusal to purchase the Shares on the terms and conditions set forth in
this Section 3 (the "Right of First Refusal").
3.2 Notice of Proposed Transfer
The Holder of the Shares shall deliver to the Company a written notice (the
"Notice") stating: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name and address of any proposed purchaser or
other transferee ("Proposed Transferee"); (c) the number of Shares to be
transferred; and (d) the terms and conditions of any proposed sale or transfer,
including the proposed purchase price for the Shares to be transferred (the
"Offered Price").
3.3 Exercise of Right of First Refusal
At any time within thirty (30) days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all or any portion of the Shares proposed to be transferred to
any one or more of the Proposed Transferees, at the purchase price determined in
accordance with subsection 3.4 below.
3.4 Purchase Price
The purchase price ("Purchase Price") for the Shares purchased by the
Company or its assignee(s) under this Section 3 shall be the Offered Price. If
the Offered Price includes consideration other than cash, the cash equivalent
value of the non-cash consideration shall be determined by the Board of
Directors of the Company in good faith.
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<PAGE>
3.5 Payment
Payment of the Purchase Price shall be made, at the option of the Company
or its assignee(s), in cash (by check), by cancellation of all or a portion of
any outstanding indebtedness of the Holder to the Company (or, in the case of
repurchase by an assignee, to the assignee), or by any combination thereof
within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
3.6 Holder's Right to Transfer
If any of the Shares proposed in the Notice to be transferred to a given
Proposed Transferee are not purchased by the Company and/or its assignee(s) as
provided in Section 3.3, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided that such sale or other transfer is consummated within sixty (60) days
after the date of the Notice and provided further that any such sale or other
transfer is effected in accordance with any applicable securities laws and the
Proposed Transferee and any spouse executes an endorsement in the form attached
as Exhibit Error! Reference source not found., acknowledging that the provisions
of this Agreement shall continue to apply to the Shares in the hands of such
Proposed Transferee (an "Endorsement"). If the Shares are not transferred to
the Proposed Transferee within such period, or if the Holder proposes to change
the price or other terms to make them more favorable to the Proposed Transferee,
a new Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by the
Holder may be sold or otherwise transferred.
3.7 Exception for Certain Family Transfers
Notwithstanding anything to the contrary in this Section 3, the transfer of
any or all of the Shares during the Shareholder's lifetime or on the
Shareholder's death by will or intestacy to the Shareholder's Immediate Family
or a trust for the benefit of the Shareholder's Immediate Family shall be exempt
from the provisions of this Section 3. "Immediate Family" as used herein shall
mean the Shareholder's spouse (except in the case of divorce), father, mother,
brother, sister or children or an entity in which all beneficial ownership
interests are held by the Shareholder, any of the aforementioned persons or any
other such entity. In such case, the transferee or other recipient shall
receive and hold the Shares so transferred subject to the provisions of this
Agreement, shall execute an Endorsement and there shall be no further transfer
of such Shares except in accordance with the terms of this Agreement.
-3-
<PAGE>
4. Involuntary Transfer
4.1 Company's Right to Purchase upon Involuntary Transfer
In the event, at any time after the date of this Agreement, of any transfer
by operation of law or other involuntary transfer (including death, divorce,
legal separation or bankruptcy, but excluding a transfer to Immediate Family as
set forth in Section 3.7 above) of all or a portion of the Shares by the Holder,
the Company or its assignee(s) shall have an option to purchase all of the
Shares transferred at the greater of the purchase price paid by the Holder for
such Shares or the Fair Market Value (as defined below) of the Shares on the
date of transfer. The Holder or the Holder's executor shall promptly notify the
Secretary of the Company in writing of such involuntary transfer. The right to
purchase such Shares shall be provided to the Company or its assignee(s) for a
period of thirty (30) days following receipt by the Company of such written
notice. In the event that the proposed transfer is required by the order,
judgment or decision of a court, arbitrator or other third party, the Holder or
the Holder's executor shall notify such court, arbitrator or other third party
of the Company's rights under this Section 4.1.
4.2 Price for Involuntary Transfer
For purposes of this Agreement, the "Fair Market Value" of the Shares shall
be defined as the value of the Shares as determined by the Board of Directors of
the Company, which value reflects the then-current value of the Shares in terms
of present earnings and future prospects of the Company. The Company shall
notify the Holder or the Holder's executor of the Fair Market Value within
thirty (30) days after receipt by it of written notice of the proposed transfer
of Shares. However, if the Holder or the Holder's executor does not agree with
the valuation as determined by the Board of Directors of the Company, the Holder
or the Holder's executor shall be entitled to have the valuation determined by
an independent appraiser to be mutually agreed upon by the Company and the
Holder or the Holder's executor and whose fees shall be borne equally by the
Company and the Holder or the Holder's estate.
5. Assignment of Company Rights
The rights of the Company to purchase any part of the Shares may be
assigned in whole or in part to any Shareholder or Shareholders of the Company
or other persons or organizations.
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<PAGE>
6. Restrictions Binding on Transferees
All transferees of Shares or any interest therein will receive and hold
such Shares or interest subject to the provisions of this Agreement. Any sale
or transfer of the Shares shall be void unless the provisions of this Agreement
are met.
7. Termination of Rights
This Agreement shall terminate upon the closing of the first sale of Common
Stock of the Company to the general public (an "Initial Public Offering") under
a registration statement declared effective under the Securities Act of 1933, as
amended (the "Securities Act") or any successor statute. Upon termination of
this Agreement, a new certificate or certificates representing the Shares shall
be issued, on request, without the second paragraph of the legend required by
Section 10.1 and delivered to the Shareholder.
8. Representations, Warranties and Covenants of the Shareholder
The Shareholder represents, warrants and covenants to the Company that:
8.1 No Sale or Distribution; Investigation
The Shareholder is purchasing the Shares for the Shareholder's own personal
account for investment and not with a view to the sale or distribution of all or
any part of the Shares. No one other than the Shareholder has any beneficial
interest in the Shares. The Shareholder has had full opportunity to ask
questions and receive answers concerning the Shares and the financial condition
of the Company.
8.2 Authority; Binding Agreement
The Shareholder has the full legal right, power and authority to enter into
and to perform this Agreement. This Agreement constitutes the Shareholder's
valid and binding obligation, enforceable against the Shareholder in accordance
with its terms.
8.3 No Registration of Shares; Restricted Securities
The Shareholder understands that the Shares have not been registered under
the Securities Act by reason of a specific exemption, which exemption depends
upon, among other things, the bona fide nature of the Shareholder's investment
intent as expressed here. The Shareholder understands that the Shares are
characterized as "restricted securities" under the federal securities laws
because they are being acquired from the Company in a transaction not involving
a public offering and that under such laws and applicable regulations such
securities may be resold without registration
-5-
<PAGE>
under the Securities Act only in certain limited circumstances. In this
connection, the Shareholder represents that he, she or it is familiar with Rule
144 and Rule 701 under the Securities Act, as presently in effect, and
understands the resale limitations imposed by the Securities Act.
9. Restrictive Legends and Stop-Transfer Orders
9.1 Restrictive Legend
The Secretary of the Company shall endorse all certificates representing
Shares owned by the Shareholder and all certificates representing Shares issued
or transferred after this Agreement is entered into with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE LAW, AND NO INTEREST MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (a) THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (b) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL
FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (c) THIS
CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
9.2 Stop Transfer Order; No Transfer in Violation of Agreement
The Shareholder agrees that, in order to ensure compliance with this
Agreement's restrictions, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, and that, if the Company transfers
its own
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<PAGE>
securities, it may make appropriate notations to the same effect in its own
records. The Company shall not be required (a) to transfer on its books any
Shares that have been sold or otherwise transferred in violation of any of the
provisions of this Agreement or (b) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee
to whom such Shares shall have been so transferred.
10. Miscellaneous
10.1 Entire Agreement; Specific Enforcement; Severability
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
The Shareholder expressly agrees that the Company and the other shareholders
will be irreparably damaged if this Agreement is not specifically enforced.
Upon a breach or threatened breach of the terms, covenants and/or conditions of
this Agreement by the Shareholder, the Company shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions of this Agreement. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
part of this Agreement.
10.2 Notices
Notices given pursuant to this Agreement shall be deemed duly given on the
date of personal delivery, on the date sent by fax or three days after mailing
if mailed by certified or registered mail, return receipt requested, postage
prepaid, to the party at its address on the signature page below or such other
address of which the addressee may subsequently notify the other parties in
writing.
10.3 Expenses
Except as specifically provided to the contrary, each party shall pay his,
her or its own expenses incurred in connection with this Agreement or any
transactions contemplated by this Agreement.
10.4 Governing Law
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of the state of Washington
applicable to
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the construction and enforcement of contracts wholly executed and performed in
Washington.
10.5 Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
10.6 Amendments; Waivers
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
AVENUE A, INC.
By: /s/ ERIC A. MOEN
---------------------------
Name: Eric A. Moen
---------------------------
Title: Secretary/Treasurer
---------------------------
Company address: Avenue A, Inc.
1100 Olive Way
Suite 1270
Seattle, WA 98101
Attention: Eric A. Moen
SHAREHOLDER
Signature: /s/ NICOLAS J. HANAUER
---------------------------
Name: Nicolas J. Hanuer
---------------------------
Address:
---------------------------
---------------------------
---------------------------
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<PAGE>
EXHIBIT 10.7
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (this "Agreement"), is made and entered into
as of this 9th day of March, 1998, by and between Avenue A, Inc. (the
"Company"), a Washington corporation, and the undersigned purchaser of the
Company's common stock (the "Shareholder").
RECITALS
A. The Shareholder desires to purchase shares of the Company's common
stock upon the terms and conditions below.
B. Each of the other shareholders of the Company is entering into an
agreement substantially identical to this Agreement.
AGREEMENT
1. Sale and Purchase of Shares
Subject to the terms and conditions of this Agreement, the Shareholder
agrees to purchase from the Company, and the Company agrees to sell to the
Shareholder, 200,000 shares of the common stock of the Company (the "Shares",
and as further defined below) at a purchase price of $0.01 per share. In
connection with the execution of this Agreement, the Shareholder has delivered
to the Company a check in the amount of the aggregate purchase price, receipt of
which is hereby acknowledged by the Company. The sale and transfer of the
Shares shall be effective as of the date of this Agreement. "Shares" shall be
defined as the purchased Shares and all securities received in replacement of or
in connection with the Shares pursuant to stock dividends or splits, all
securities received in replacement of the Shares in a recapitalization, merger,
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Purchaser is entitled by reason of
Purchaser's ownership of the Shares.
2. Disposition Prohibited
The Shareholder shall not dispose of any of his, her or its Shares except
as permitted by this Agreement, and any such attempted disposition shall be void
and shall not be recognized or registered upon the books of the Company. The
term "dispose" includes, but is not limited to, the acts of selling, assigning,
transferring,
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pledging, encumbering, giving away, devising, and any other form of conveying,
including conveyances caused by marital separation, divorce, receivership, or
bankruptcy, whether voluntary or involuntary or by operation of law.
3. Right of First Refusal
3.1 Restriction
Before any Shares held by the Shareholder or any transferee of the
Shareholder (either being sometimes referred to as the "Holder") may be sold or
otherwise disposed of (as defined above but excluding transfers described in and
governed by Section 4), the Company or its assignee(s) shall have a right of
first refusal to purchase the Shares on the terms and conditions set forth in
this Section 3 (the "Right of First Refusal").
3.2 Notice of Proposed Transfer
The Holder of the Shares shall deliver to the Company a written notice (the
"Notice") stating: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name and address of any proposed purchaser or
other transferee ("Proposed Transferee"); (c) the number of Shares to be
transferred; and (d) the terms and conditions of any proposed sale or transfer,
including the proposed purchase price for the Shares to be transferred (the
"Offered Price").
3.3 Exercise of Right of First Refusal
At any time within thirty (30) days after receipt of the Notice, the
Company and/or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all or any portion of the Shares proposed to be transferred to
any one or more of the Proposed Transferees, at the purchase price determined in
accordance with subsection 3.4 below.
3.4 Purchase Price
The purchase price ("Purchase Price") for the Shares purchased by the
Company or its assignee(s) under this Section 3 shall be the Offered Price. If
the Offered Price includes consideration other than cash, the cash equivalent
value of the non-cash consideration shall be determined by the Board of
Directors of the Company in good faith.
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<PAGE>
3.5 Payment
Payment of the Purchase Price shall be made, at the option of the Company
or its assignee(s), in cash (by check), by cancellation of all or a portion of
any outstanding indebtedness of the Holder to the Company (or, in the case of
repurchase by an assignee, to the assignee), or by any combination thereof
within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
3.6 Holder's Right to Transfer
If any of the Shares proposed in the Notice to be transferred to a given
Proposed Transferee are not purchased by the Company and/or its assignee(s) as
provided in Section 3.3, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided that such sale or other transfer is consummated within sixty (60) days
after the date of the Notice and provided further that any such sale or other
transfer is effected in accordance with any applicable securities laws and the
Proposed Transferee and any spouse executes an endorsement in the form attached
as Exhibit Error! Reference source not found., acknowledging that the provisions
of this Agreement shall continue to apply to the Shares in the hands of such
Proposed Transferee (an "Endorsement"). If the Shares are not transferred to
the Proposed Transferee within such period, or if the Holder proposes to change
the price or other terms to make them more favorable to the Proposed Transferee,
a new Notice shall be given to the Company, and the Company and/or its assignees
shall again be offered the Right of First Refusal before any Shares held by the
Holder may be sold or otherwise transferred.
3.7 Exception for Certain Family Transfers
Notwithstanding anything to the contrary in this Section 3, the transfer of
any or all of the Shares during the Shareholder's lifetime or on the
Shareholder's death by will or intestacy to the Shareholder's Immediate Family
or a trust for the benefit of the Shareholder's Immediate Family shall be exempt
from the provisions of this Section 3. "Immediate Family" as used herein shall
mean the Shareholder's spouse (except in the case of divorce), father, mother,
brother, sister or children or an entity in which all beneficial ownership
interests are held by the Shareholder, any of the aforementioned persons or any
other such entity. In such case, the transferee or other recipient shall
receive and hold the Shares so transferred subject to the provisions of this
Agreement, shall execute an Endorsement and there shall be no further transfer
of such Shares except in accordance with the terms of this Agreement.
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<PAGE>
4. Involuntary Transfer
4.1 Company's Right to Purchase upon Involuntary Transfer
In the event, at any time after the date of this Agreement, of any transfer
by operation of law or other involuntary transfer (including death, divorce,
legal separation or bankruptcy, but excluding a transfer to Immediate Family as
set forth in Section 3.7 above) of all or a portion of the Shares by the Holder,
the Company or its assignee(s) shall have an option to purchase all of the
Shares transferred at the greater of the purchase price paid by the Holder for
such Shares or the Fair Market Value (as defined below) of the Shares on the
date of transfer. The Holder or the Holder's executor shall promptly notify the
Secretary of the Company in writing of such involuntary transfer. The right to
purchase such Shares shall be provided to the Company or its assignee(s) for a
period of thirty (30) days following receipt by the Company of such written
notice. In the event that the proposed transfer is required by the order,
judgment or decision of a court, arbitrator or other third party, the Holder or
the Holder's executor shall notify such court, arbitrator or other third party
of the Company's rights under this Section 4.1.
4.2 Price for Involuntary Transfer
For purposes of this Agreement, the "Fair Market Value" of the Shares shall
be defined as the value of the Shares as determined by the Board of Directors of
the Company, which value reflects the then-current value of the Shares in terms
of present earnings and future prospects of the Company. The Company shall
notify the Holder or the Holder's executor of the Fair Market Value within
thirty (30) days after receipt by it of written notice of the proposed transfer
of Shares. However, if the Holder or the Holder's executor does not agree with
the valuation as determined by the Board of Directors of the Company, the Holder
or the Holder's executor shall be entitled to have the valuation determined by
an independent appraiser to be mutually agreed upon by the Company and the
Holder or the Holder's executor and whose fees shall be borne equally by the
Company and the Holder or the Holder's estate.
5. Assignment of Company Rights
The rights of the Company to purchase any part of the Shares may be
assigned in whole or in part to any Shareholder or Shareholders of the Company
or other persons or organizations.
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<PAGE>
6. Restrictions Binding on Transferees
All transferees of Shares or any interest therein will receive and hold
such Shares or interest subject to the provisions of this Agreement. Any sale
or transfer of the Shares shall be void unless the provisions of this Agreement
are met.
7. Termination of Rights
This Agreement shall terminate upon the closing of the first sale of Common
Stock of the Company to the general public (an "Initial Public Offering") under
a registration statement declared effective under the Securities Act of 1933, as
amended (the "Securities Act") or any successor statute. Upon termination of
this Agreement, a new certificate or certificates representing the Shares shall
be issued, on request, without the second paragraph of the legend required by
Section 10.1 and delivered to the Shareholder.
8. Representations, Warranties and Covenants of the Shareholder
The Shareholder represents, warrants and covenants to the Company that:
8.1 No Sale or Distribution; Investigation
The Shareholder is purchasing the Shares for the Shareholder's own personal
account for investment and not with a view to the sale or distribution of all or
any part of the Shares. No one other than the Shareholder has any beneficial
interest in the Shares. The Shareholder has had full opportunity to ask
questions and receive answers concerning the Shares and the financial condition
of the Company.
8.2 Authority; Binding Agreement
The Shareholder has the full legal right, power and authority to enter into
and to perform this Agreement. This Agreement constitutes the Shareholder's
valid and binding obligation, enforceable against the Shareholder in accordance
with its terms.
8.3 No Registration of Shares; Restricted Securities
The Shareholder understands that the Shares have not been registered under
the Securities Act by reason of a specific exemption, which exemption depends
upon, among other things, the bona fide nature of the Shareholder's investment
intent as expressed here. The Shareholder understands that the Shares are
characterized as "restricted securities" under the federal securities laws
because they are being acquired from the Company in a transaction not involving
a public offering and that under such laws and applicable regulations such
securities may be resold without registration
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<PAGE>
under the Securities Act only in certain limited circumstances. In this
connection, the Shareholder represents that he, she or it is familiar with Rule
144 and Rule 701 under the Securities Act, as presently in effect, and
understands the resale limitations imposed by the Securities Act.
9. Restrictive Legends and Stop-Transfer Orders
9.1 Restrictive Legend
The Secretary of the Company shall endorse all certificates representing
Shares owned by the Shareholder and all certificates representing Shares issued
or transferred after this Agreement is entered into with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE LAW, AND NO INTEREST MAY BE SOLD, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (a) THERE
IS AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS COVERING ANY SUCH TRANSACTION INVOLVING SAID
SECURITIES, (b) THIS CORPORATION RECEIVES AN OPINION OF LEGAL COUNSEL
FOR THE HOLDER OF THESE SECURITIES SATISFACTORY TO THIS CORPORATION
STATING THAT SUCH TRANSACTION IS EXEMPT FROM REGISTRATION, OR (c) THIS
CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
9.2 Stop Transfer Order; No Transfer in Violation of Agreement
The Shareholder agrees that, in order to ensure compliance with this
Agreement's restrictions, the Company may issue appropriate "stop transfer"
instructions to its transfer agent, if any, and that, if the Company transfers
its own
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<PAGE>
securities, it may make appropriate notations to the same effect in its own
records. The Company shall not be required (a) to transfer on its books any
Shares that have been sold or otherwise transferred in violation of any of the
provisions of this Agreement or (b) to treat as owner of such Shares or to
accord the right to vote or pay dividends to any purchaser or other transferee
to whom such Shares shall have been so transferred.
10. Miscellaneous
10.1 Entire Agreement; Specific Enforcement; Severability
This Agreement is the entire agreement of the parties regarding its subject
matter and supersedes all prior written or oral communications or agreements.
The Shareholder expressly agrees that the Company and the other shareholders
will be irreparably damaged if this Agreement is not specifically enforced.
Upon a breach or threatened breach of the terms, covenants and/or conditions of
this Agreement by the Shareholder, the Company shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction, without showing
any actual damage, and/or a decree for specific performance, in accordance with
the provisions of this Agreement. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any other
part of this Agreement.
10.2 Notices
Notices given pursuant to this Agreement shall be deemed duly given on the
date of personal delivery, on the date sent by fax or three days after mailing
if mailed by certified or registered mail, return receipt requested, postage
prepaid, to the party at its address on the signature page below or such other
address of which the addressee may subsequently notify the other parties in
writing.
10.3 Expenses
Except as specifically provided to the contrary, each party shall pay his,
her or its own expenses incurred in connection with this Agreement or any
transactions contemplated by this Agreement.
10.4 Governing Law
This Agreement and the rights and obligations of the parties shall be
governed by and construed in accordance with the laws of the state of Washington
applicable to
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the construction and enforcement of contracts wholly executed and performed in
Washington.
10.5 Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
10.6 Amendments; Waivers
Neither this Agreement nor any provision may be amended except by written
agreement signed by the parties. No waiver of any breach or default shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first written above.
AVENUE A, INC.
By: /s/ ERIC A. MOEN
--------------------------------------
Name: Eric A. Moen
------------------------------------
Title: Secretary/Treasurer
-----------------------------------
Company address: Avenue A, Inc.
1100 Olive Way
Suite 1270
Seattle, WA 98101
Attention: Eric A. Moen
SHAREHOLDER
Signature: /s/ NICOLAS J. HANAUER
-------------------------------
Name: Nicolas J. Hanuer
------------------------------------
Address:
-------------------------
-------------------------
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EXHIBIT 10.8
AVENUE A, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Agreement is made as of May 4, 1999 by and among Avenue A, Inc., a
Washington corporation (the "Company"), and the investors listed on the Schedule
of Investors attached as Exhibit A (the "Investors").
1. Authorization and Sale of Preferred Shares.
1.1 Authorization. The Company has authorized the issuance and sale
pursuant to this Agreement of shares of its Series C Preferred Stock (the
"Shares") having the rights, restrictions, privileges and preferences set forth
in the Company's Restated Articles of Incorporation attached as Exhibit B (the
"Restated Articles"). The total amount of Common Stock or other securities
issuable upon conversion of the Shares is referred to as the "Conversion Stock."
1.2 Sale of Series C Shares. Subject to the terms and conditions
hereof, the Company will issue and sell to the Investors, and each Investor will
purchase from the Company, severally and not jointly, the total number of Shares
specified opposite such Investor's name on the Schedule of Investors for the
purchase price of $1.94 per share at the Closing (as defined hereafter).
2. Closing; Delivery.
2.1 Closing. The closing of the sale and purchase of the Shares
under this Agreement (the "Closing") shall be held at 10:00 a.m. on May 4, 1999
(the "Closing Date"), at the offices of Perkins Cole, LLP, 1201 Third Avenue,
Ste. 4800, Seattle, WA 98101-3099 or at such other time and place as the Company
and the Investors may agree.
2.2 Delivery. At the Closing, subject to the terms and conditions
hereof, the Company shall deliver to each Investor a certificate, representing
the Shares purchased by the Investor from the Company, against payment of the
purchase price therefor by wire transfer of immediately available funds.
3. Representations and Warranties of the Company. Except as otherwise set
forth on the Schedule of Exceptions attached as Exhibit C setting forth the
exceptions which correspond to the numbered sections contained in this Section
3, the Company represents and warrants to the Investors as follows:
3.1 Organization and Standing; Certificate and By-laws. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Washington. The Company has all requisite corporate
power and authority to own and operate its properties and assets and to carry on
its business as presently conducted and as proposed to be
<PAGE>
conducted. The Company is not qualified to do business as a foreign corporation
in any jurisdiction and the failure to be so qualified would not reasonably be
expected to have a material adverse effect on the assets, condition (financial
or otherwise), operating results, or business of the Company (as such business
is presently conducted and as it is proposed to be conducted) (a "Material
Adverse Effect"). The Company has furnished the Investors with copies of its
Articles of Incorporation, all amendments thereto, and Bylaws. Said copies are
true, correct and complete and include all amendments through the Closing Date.
3.2 Corporate Power. The Company has all requisite legal and
corporate power to execute and deliver this Agreement and to adopt the Restated
Articles and the Investors Rights Agreement in the form attached as Exhibit E
(the "Investors Rights Agreement"), to sell and issue the Shares hereunder, to
issue the Conversion Stock, and to carry out and perform its obligations under
the terms of this Agreement, the Restated Articles and the Investors Rights
Agreement.
3.3 Capitalization.
(a) The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, $0.01 par value, and 17,500,000 shares of Preferred
Stock, $0.01 par value, of which 4,000,000 shares have been designated Series A
Preferred Stock, 2,580,000 shares have been designated Series B Preferred Stock
and 10,000,000 shares have been designated Series C Preferred Stock.
(b) Immediately prior to the Closing, 12,407,332 shares of Common
Stock, 3,998,474 shares of Series A Preferred Stock, 2,580,000 shares of Series
B Preferred Stock and no shares of Series C Preferred Stock are issued and
outstanding. The holders of record of the presently issued and outstanding
shares of capital stock of the Company immediately prior to the Closing Date are
as set forth in shareholder lists included in Section 3.3(b) of the Schedule of
Exceptions. All issued and outstanding shares of the Company's capital stock are
duly authorized and validly issued, fully paid and nonassessable, and were
issued in compliance with applicable federal and state securities laws. The
rights, privileges and preferences of each series of Preferred Stock will be as
set forth in the Restated Articles.
(c) Except for (i) the conversion privileges of the Preferred
Stock, (ii) 6,750,000 shares of Common Stock reserved for issuance pursuant to
the Company's 1998 Stock Incentive Compensation Plan, of which 407,332 shares
have been issued upon exercise of options, 3,639,768 shares are subject to
outstanding options, and 2,702,900 shares are available for future grant, (iii)
a warrant to purchase 451,807 shares of Common Stock, (iv) the rights set forth
in the Investors Rights Agreement, and (v) the rights of first refusal of the
Company and the rights of the Company to purchase upon involuntary transfer as
set forth in each of the Share Purchase Agreements entered into between the
Company and each purchaser of the Company's Series A Preferred Stock and in each
of the Series B Preferred Stock Share Purchase Agreements entered into between
the Company and each purchaser of the Company's Series B Preferred Stock, there
are no outstanding shares of capital stock or outstanding rights of first
refusal, preemptive rights or other rights, options, warrants, conversion
rights, or other agreements either directly or indirectly for the purchase or
acquisition from the Company of any shares of its capital stock.
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3.4 Subsidiaries. The Company has no subsidiaries or affiliated
companies and does not otherwise own or control, directly or indirectly, any
equity interest in any corporation, association or business entity.
3.5 Authorization. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution, delivery and performance by the Company of this Agreement and the
Investors Rights Agreement, the authorization, issuance, sale and delivery of
the Shares and the Conversion Stock, and the performance of all of the Company's
obligations hereunder and thereunder have been taken or will be taken prior to
the Closing. This Agreement and the Investors Rights Agreement are valid and
legally binding obligations of the Company enforceable in accordance with their
respective terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies. The Shares and the
Conversion Stock, when issued in compliance with the provisions of this
Agreement, will be duly authorized and validly issued, fully paid and
nonassessable, will be issued in compliance with applicable federal and state
securities laws, and will have the rights, preferences and privileges described
in the Restated Articles; and the Shares and the Conversion Stock will be free
of any liens or encumbrances caused or created by the Company, other than any
liens or encumbrances created by the holders; provided, however, that the Shares
and the Conversion Stock may be subject to restrictions on transfer under
applicable securities laws as set forth herein. The Shares, the Conversion Stock
and the issuance thereof are not subject to any preemptive rights, rights of
first refusal or similar rights.
3.6 Outstanding Indebtedness. The Company has no indebtedness for
borrowed money which the Company has directly or indirectly created, incurred,
assumed or guaranteed, or with respect to which the Company has become directly
or indirectly liable. Except for liabilities and obligations with respect to the
purchase advertising from publisher web-sites which have arisen in the ordinary
course of business, the Company has no liability or obligation, absolute or
contingent, other than liabilities or obligations of less than $50,000 each and
in the aggregate less than $250,000, under purchase orders, sales contracts,
real property leases, equipment leases or similar obligations, all incurred in
the ordinary course of business.
3.7 Financial Statements. The Company has delivered to each Investor
its audited balance sheet and statement of shareholder's equity at December 31,
1998, its audited consolidated statements of operations and cash flows for the
year ended December 31, 1998, its unaudited consolidated statements of
operations and cash flows for the quarter ended March 31, 1999, and its
unaudited balance sheet at March 31, 1999 (collectively, the "Financial
Statements"). The Financial Statements are complete and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(subject, in the case of unaudited financial statements, to normal nonmaterial
year end audit adjustments and the omission of footnotes). The Financial
Statements accurately set out and describe the financial condition and operating
results of the Company as of the dates, and during the periods, indicated
therein. Since December 31, 1998, there has been no material adverse change in
the business, financial condition or results of operations of the Company.
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3.8 Title to Properties and Assets. The Company has good and
marketable title to its properties and assets, and has good title to all its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
loan, encumbrance or charge, except (i) the lien of current taxes not yet due
and payable, and (ii) possible minor liens and encumbrances (of which the
Company has no knowledge) which do not in any case have a Material Adverse
Effect, and which have not arisen otherwise than in the ordinary course of
business. With respect to property it leases as lessee or subleases as
sublessee, the Company is in compliance with such leases or subleases, as the
case may be, in all material respects. The Company does not lease any property
as lessor.
3.9 Patents, Trademarks. The Company has full and complete title or
ownership of, or license rights to, all patents, patent applications, licenses,
trademarks, service marks, trade names, inventions, franchises, copyrights,
trade secrets, information and other proprietary rights or processes
(collectively, "Proprietary Rights"), including Proprietary Rights which
comprise trade secret rights (hereinafter, "Trade Secrets"), necessary for the
operation of its business as now conducted with no known conflict with or
infringement of the rights of others. Except as set forth in Section 3. 9 of the
Schedule of Exceptions, there are no outstanding material options, material
licenses, or material agreements of any kind related to the foregoing, nor is
the Company bound by or a party to any material options, material licenses or
material agreements with respect to the patents, patent applications, licenses,
trade marks, service marks, trade names, inventions, franchises, copyrights,
trade secrets, information, proprietary rights or processes of any other person
or entity. No patents or patent applications are owned or licensed by the
Company. The Company has taken all reasonable actions and made all reasonably
necessary or appropriate applications and filings pursuant to applicable laws to
perfect or protect its interests in all Proprietary Rights. The execution,
delivery and performance of this Agreement, the Investors Rights Agreement and
the Restated Articles and the consummation of the transactions contemplated
hereby and thereby will not (A) cause the forfeiture or termination or give rise
to a right of forfeiture or termination of any Proprietary Right, or (B) in any
way impair the right of the Company to use, sell, license or dispose of or to
bring any action for the infringement of, any Proprietary Right or any products
or technology being designed or developed by the Company (collectively,
"Products"). There is no claim or litigation pending or, to the Company's
knowledge, threatened contesting the validity, ownership or right to use, sell,
license or dispose of any Proprietary Right. To the Company's knowledge, no
third party is infringing on any Proprietary Right where such infringement could
materially limit the protection afforded by the Proprietary Rights to the use,
sale, license, sublicense or disposition of Products or prevent the future
enforcement of such Proprietary Right. The Company has not received any written
or, to its knowledge, oral communications alleging that the Company has
violated, or by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights of any other person or entity. To the Company's
knowledge, none of its employees or consultants (sometimes collectively referred
to as "service providers") is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of the service provider's best efforts to promote the
interests of the Company or that would conflict with the Company's business as
proposed to be conducted. To the Company's knowledge, neither the execution nor
delivery of this Agreement, nor the operation of the Company's business by the
service providers of the Company, nor the conduct of the Company's business as
now conducted or as currently proposed to be conducted, will conflict with or
result in a
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breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of such service providers
is now obligated.
3.10 Compliance with Other Instruments, None Burdensome. The Company
is not in violation of any term of its Restated Articles or Bylaws nor is the
Company in violation of or in default in any material respect under the terms of
any contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree, or order or, to the Company's knowledge, any statute, rule or
regulation applicable to the Company, its business, operations, properties or
assets which violation or default would have a Material Adverse Effect. The
execution, delivery, and performance of and compliance with this Agreement and
the Investors Rights Agreement and the consummation of the transactions
contemplated hereby and thereby, have not resulted and will not (i) result in
any such violation, (ii) be in conflict with or constitute a default under any
such term, (iii) result in the creation of any lien, mortgage, pledge,
encumbrance or charge upon any of the properties or assets of the Company, (iv)
result in the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties or (v)
result in or give to any person or entity any additional rights or entitlement
to increased, additional, accelerated or guaranteed payments under, or any right
of termination, cancellation, acceleration or modification in or with respect to
any contract to which it is a party. The Company is not a party to and is not
bound by any judgment, order or injunction, which would reasonably be expected
to likely result in a Material Adverse Effect.
3.11 Litigation. There are no actions, suits, proceedings or
investigations pending against the Company or any of its officers or directors
in his or her capacity as an officer or director, as the case may be, of the
Company, which would reasonably be expected to likely result in a Material
Adverse Effect (nor, to the Company's knowledge, is there any threat thereof).
To the Company's knowledge, there are no actions pending or threatened involving
the prior employment of any of the Company's service providers or former service
providers or their obligations under any agreements with prior employers, the
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of its former service providers, or obligations
under any agreements with the prior employers of such current or former service
providers which would reasonably be expected to likely result in a Material
Adverse Effect. The Company is not a party or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or governmental agency
or instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or that the Company intends to initiate.
3.12 Tax Returns. The Company has filed or obtained extensions for
all federal, state and other tax returns and reports which are required to have
been filed and has paid all taxes and other assessments which have become due
and payable. The Company has not elected pursuant to the Code to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section
1362(a) or Section 341(f) of the Code, nor has it made any other elections
pursuant to the Code (other than elections that relate solely to methods of
accounting, depreciation or amortization) that would result in a Material
Adverse Effect. The Company has never had any tax deficiency proposed or
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
None of the Company's federal income tax returns and none of its state income or
franchise tax or sales or use tax returns has ever been
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audited by governmental authorities, there is no pending dispute with any taxing
authority relating to any of such returns and the Company has no knowledge of
any proposed liability for any tax to be imposed upon the properties or assets
of the Company for which there is not an adequate reserve reflected in the
financial statements or, if adversely determined against the Company, would have
a Material Adverse Effect. The Company has withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has, within the time frame required under applicable federal and
state withholding requirements, paid the same to the proper tax receiving
officers or authorized depositaries.
3.13 Employees. To the Company's knowledge, no employee of the
Company is in violation of any term of any employment contract, patent
disclosure agreement, invention assignment agreement, proprietary information
agreement or other contract or agreement relating to the relationship of such
employee with the Company or any other party because of the nature of the
business conducted or to be conducted by the Company. The Company does not have
any employment contracts, deferred compensation agreements or bonus, incentive
or profit sharing plans, either currently in effect or proposed, except the 1998
Stock Incentive Compensation Plan adopted by the Company's Board of Directors
and shareholders covering the sale of up to 6,750,000 shares of Common Stock to
employees, consultants, directors, officers, agents, advisors and independent
contractors. The Company has no collective bargaining agreements with any of its
service providers and there is no labor union organizing activity pending or, to
the Company's knowledge, threatened, with respect to the Company. All employees
of the Company have signed a Confidentiality, Inventions Assignment,
Noncompetition and Nonsolicitation Agreement in substantially the form furnished
to Special Counsel and all consultants to the Company have signed agreements
providing for maintenance of the confidentiality of the Company's proprietary
information. There is no strike or other labor dispute involving the Company
pending or, to the Company's knowledge, threatened, that would have a Material
Adverse Effect. The employment of each employee of the Company is terminable at
the will of the Company. The Company has complied in all material respects with
all applicable state and federal equal employment opportunity and other laws
related to employment.
3.14 Insurance. The Company maintains valid fire and casualty
insurance policies, with extended coverage, sufficient in amount (subject to
reasonable deductibles) to allow it to replace any of its properties that might
be damaged or destroyed. None of such policies will terminate or lapse by reason
of the transactions contemplated by this Agreement. Each such policy is valid
and binding and in full force and effect, all premiums due thereunder have been
paid when due and neither the Company nor any other person or entity to which
such policy was issued has received any notice of cancellation or termination in
respect of any such policies or is in default thereunder, and the Company does
not know of any reason or state of facts that could lead to the cancellation of
such policies. Such policies, in light of the business, operations, assets, and
properties of the Company are in amounts and have coverages, including without
limitation, insurance against loss, damage, theft, general liability, and other
risks, that are reasonable and customary for entities engaged in such businesses
and operations and having such assets and properties. The Company has not
received
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notice that any insurer under any such policy is denying liability with respect
to a claim thereunder or defending under a reservation of rights clause.
3.15 Registration Rights. Except as provided in the Investors Rights
Agreement, the Company is not under any contractual obligation to register any
of its presently outstanding securities or any of its securities which may
hereafter be issued.
3.16 Consents.
(a) No consent, approval, order, action or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with the valid execution and delivery
of this Agreement or the Investors Rights Agreement or the offer, sale or
issuance of the Shares (and the Conversion Stock), or the consummation of any
other transaction contemplated hereby, except for the following: (i) the filing
of such notices as may be required under the Securities Act of 1933, as amended
(the " 1933 Act" or the "Act"), and (ii) qualification or registration (or
taking such action as may be necessary to secure an exemption from qualification
or registration, if available) of the offer and sale of the Shares (and the
Conversion Stock) under applicable Blue Sky laws, which filings and
qualifications, if required, will be accomplished in a timely manner.
(b) No consent, approval or authorization of any other third party is
required in connection with the consummation of the transactions contemplated by
this Agreement or the Investors' Rights Agreement.
(c) The Company has obtained all consents, approvals and
authorizations from the holders of its capital stock, including without
limitation the holders of Common Stock and Preferred Stock, as are necessary for
the consummation of the transactions contemplated by this Agreement and the
Investors' Rights Agreement.
3.17 Securities Law Exemption. Subject to the accuracy of the
Investors' representations in Section 4 of this Agreement, the offer, sale and
issuance of the Shares and the issuance of the Conversion Stock constitute
transactions exempt from the registration and prospectus delivery requirements
of the 1933 Act, and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all applicable state securities laws.
3.18 Conflict of Interest. Except for agreements explicitly
contemplated hereby, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, 5% or
greater shareholders (including affiliated shareholders holding an aggregate of
5% or more of the Company's outstanding voting securities) ("5% Shareholders"),
affiliates, or any affiliate thereof. The Company and, to the Company's
knowledge, its officers, directors and 5% Shareholders, have no interest (other
than as holders of less than 1% of any class of securities of a publicly-traded
company), either directly or indirectly, in any entity, including without
limitation thereto, any corporation, partnership, joint venture, proprietorship,
firm, licensee, business or association (whether as an employee, officer,
director, agent, independent contractor, security
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holder, creditor, consultant or otherwise) that presently (i) provides any
services or designs, produces and/or sells any products or product lines, or
engages in any activity which is the same, similar to or competitive with any
activity or business in which it is now engaged; (ii) is a supplier, customer,
creditor, or has an existing contractual relationship with any of its managing
employees; (iii) has any direct or indirect interest in any asset or property,
real or personal, tangible or intangible, of the Company or any property, real
or personal, tangible or intangible, that is necessary or desirable for the
conduct of its business.
3.19 Brokers or Finders: Other Offers. The Company has not incurred,
and will not incur, directly or indirectly, as a result of any action taken by
or on behalf of the Company, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement.
3.20 Disclosure. The copies of all instruments, agreements and other
documents delivered by the Company to the Investors or Special Counsel are and
will be complete and correct in all respects as of the date of delivery thereof.
Neither this Agreement nor written statements in the Exhibits hereto taken as a
whole contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
contained herein and therein not misleading in light of the circumstances under
which they were made.
3.21 Licenses. The Company has all franchises, licenses, permits and
other similar authority necessary to the conduct of its business as currently
being conducted (federal, state, foreign and local), the failure to obtain which
would have a Material Adverse Effect, and such franchises, licenses, permits and
other similar authorities are in full force and effect. The Company believes in
good faith that it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted.
3.22 Certain Actions.
(a) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) made any loans or advances to any person, other than
loans in connection with employee relocations and ordinary advances for travel
expenses, (iii) sold, exchanged or otherwise disposed of any of its assets or
rights other than in the ordinary course of business or (iv) redeemed or
obligated itself to redeem any of its capital stock, other than repurchases of
unvested shares of Common Stock from terminated employees and consultants at a
repurchase price equal to the original issue price for such repurchased shares.
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(b) The Company is not subject to any restrictions under its Restated
Articles or Bylaws, which could reasonably be expected to have a Material
Adverse Effect.
(c) The Company has not engaged in any discussion (i) with any
representative of any corporation or corporations regarding the consolidation or
merger of the Company with or into any such corporation or corporations, (ii)
with any corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or substantially
all of the assets of the Company or a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, or (iii) regarding any other form of acquisition,
liquidation, dissolution or winding up of the Company.
3.23 Changes. Since December 31, 1998, there has not been:
(a) any waiver by the Company of a valuable right or of a
material debt owed to it;
(b) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and which is not material to the assets, properties, financial
condition, operating results, business or prospects of the Company (as such
business is presently conducted and as it is now proposed to be conducted);
(c) any change or amendment to a material contract or arrangement by
which the Company or any of its assets or properties is bound or subject which
would reasonably be expected to likely result in a Material Adverse Effect;
(d) any change in any compensation arrangement or agreement with
any executive officer;
(e) any change in the assets, liabilities, financial condition or
operations of the Company, except changes in the ordinary course of business
which have not, either in any case or in the aggregate, resulted in a Material
Adverse Effect;
(f) any change, except in the ordinary course of business, in the
contingent obligations of the Company (nor any contingent obligation of the
Company regarding any director, shareholder, key service provider or officer of
the Company) by way of guaranty, endorsement, indemnity, warranty or otherwise;
(g) any declaration or payment of any dividend or other distribution
of assets of the Company, any redemption, purchase or acquisition by the Company
of any of its outstanding capital stock, or the adoption or consideration of any
plan or arrangement with respect thereto other than the Series B Preferred Stock
Share Purchase Agreements entered into between the Company and each purchaser of
the Company's Series B Preferred Stock which provide to the Company, in respect
of the Series B Preferred Stock, certain rights of first refusal and certain
rights to purchase upon involuntary transfer;
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(h) any resignation or termination of employment of any key employee
or service provider of the Company, or to the Company's knowledge any plans with
respect thereto;
(i) to the Company's knowledge, any other event or condition of any
character which could reasonably be expected to have a Material Adverse Effect;
(j) any change in the Company's accounting or internal control
procedures and practices that affects the manner in which the Company's
financial statements are prepared or that would require disclosure in the
Company's financial statements;
(k) any transaction which was not in the ordinary course of
business; or
(l) any damage to, destruction of or loss of physical property
(whether or not covered by insurance) resulting or that could reasonably be
expected to result in a Material Adverse Effect.
3.24 Real Property Holding Company. The Company is not and has not
been at any time a "United States real property holding corporation" as defined
in Section 897 of the Internal Revenue Code of 1986, as amended.
3.25 Investment Company. The Company is not, and after the receipt
of the proceeds from the sale of the Shares hereunder will not be, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
3.26 Employee Benefits Plans. Neither the Company nor any entity
required to be aggregated with the Company under Section 414 (b), (c), (m) or
(o) of the Code maintains, contributes to or has any liability with respect to
any Employee Benefit Plan as defined in Section 3(3), of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") that is covered by Title IV of
ERISA. To the Company's knowledge, the transactions contemplated hereby will not
involve any Prohibited Transaction (as defined in Section 4975 (c)(1)(A), (B),
(C) or (D) of the Code) or Section 406 (a) of ERISA (other than a transaction
that is exempted from the prohibitions of such sections by applicable provisions
of ERISA or the Code or administrative exemptions, or regulations issued
thereunder) with respect to any employee benefit plan maintained by the Company.
3.27 Minutes. The minute books of the Company provided to Special
Counsel contain a complete summary of all meetings of directors (including
committees thereof) and shareholders and all actions taken by written consent
since the time of incorporation.
3.28 Holding Company Status. The Company is not a "holding company,"
or a subsidiary or affiliate of a "holding company," or a "subsidiary company"
of a "holding company," or a "public utility," within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or a "public utility" within
the meaning of the Federal Power Act, as amended.
3.29 Accounting. The Company maintains and will continue to maintain
a system of accounting established and administered in accordance with generally
accepted accounting
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principles and has in place reasonable internal controls which are adequate and
appropriate for the Company.
3.30 Section 83(b Elections. To the knowledge of the Company, all
individuals who have purchased shares of the Company's Common Stock subject to
vesting restrictions or other substantial risks of forfeiture have filed timely
elections under Section 83(b) of the Code and any analogous provisions of
applicable state tax laws.
3.31 Environmental and Safety Laws. The Company is not in violation
of, or under investigation with respect to any applicable statute, law or
regulation relating to the environment or occupational health and safety, and to
its knowledge, it has obtained all necessary licenses, permits and other
authorizations under, and no material expenditures are or will be required for
the conduct of its business as planned to be conducted in order to comply with,
any such existing statute, law or regulation. The Company has not handled, or
transported or arranged for the transport of, any "hazardous material" on, to or
from any property now or previously owned or leased by the Company in violation
of applicable environmental laws and regulations. No oral or written
notification of a "release" of a "hazardous material" has been filed by or on
behalf of the Company and, to its knowledge, no property now or previously owned
or leased by the Company is listed or proposed for listing on the "National
Priorities List" or on any similar state list for sites requiring investigation
or clean-up. For purposes of this Section 3.31, the terms "hazardous material,"
"release," and "National Priorities List" shall have the meanings ascribed
thereto in applicable statutes, laws or regulations relating to the environment.
3.32 Manufacturing and Marketing Rights. The Company has not granted
rights to develop, manufacture, produce, assemble, license, distribute, market,
or sell its products and/or services to any other person or entity and is not
bound by any agreement that affects the Company's exclusive right to develop,
manufacture, produce, assemble, license, distribute, market or sell its products
and/or services.
3.33 Undisclosed Liabilities. Except as reflected or reserved
against in the Financial Statements, there are no obligations, indebtedness or
other liabilities (whether absolute, accrued, contingent, known or unknown,
fixed or otherwise, or whether due or to become due) of or relating to the
Company or any of its assets or properties, other than obligations, indebtedness
or other liabilities incurred in the ordinary course of business consistent with
past practice since the date of the most recent financial statements delivered
to the Investor and in accordance with the provisions of this Agreement and the
Investors' Rights Agreement and except for obligations, indebtedness or other
liabilities which in the aggregate do not exceed $50,000 and are not for tort or
breach of contract.
3.34 Qualified Small Business Stock. To the knowledge of the
Company, as of the Closing Date, the Shares and Conversion Stock are eligible to
qualify as "qualified small business stock" as defined in Section 1202(c) of the
Code.
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4. Representations and Warranties of the Investors. Each Investor,
as to itself only, hereby represents and warrants to the Company as follows:
4.1 Authorization. This Agreement when executed and delivered by
such Investor will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject to laws of general
application relating to bankruptcy, insolvency, reorganization, moratorium,
relief of debtors, other laws relating to or affecting enforcement of creditors'
rights and rules of law governing specific performance, injunctive relief or
other equitable remedies.
4.2 Experience. Such Investor has substantial experience in
evaluating and investing in private placement transactions of securities in
companies similar to the Company and has such knowledge and experience in
financial and business matters so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests.
4.3 Investment. Such Investor is acquiring the Shares and the
Conversion Stock for investment for its own account, not as a nominee or agent,
and not with the view to, or for resale in connection with, any distribution
thereof. The Investor understands that the Shares and the Conversion Stock have
not been, and will not be, registered under the 1933 Act by reason of a specific
exemption from the registration provisions of the 1933 Act, the availability of
which depends upon, among other things, the bona fide nature of the investment
intent and the accuracy of such Investor's representations as expressed herein.
Such Investor further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to any third person with respect to any of the Shares (or any
Conversion Stock acquired upon conversion thereof. Such Investor understands and
acknowledges that the offering of the Shares pursuant to this Agreement will
not, and any issuance of Conversion Stock may not, be registered under the 1933
Act on the ground that the sale provided for in this Agreement and the issuance
of securities hereunder is exempt from the registration requirement of the 1933
Act.
4.4 Rule 144. Such Investor acknowledges that the Shares and the
Conversion Stock must be held indefinitely unless subsequently registered under
the 1933 Act or unless an exemption from such registration is available. Such
Investor is aware of the provisions of Rule 144 promulgated under the 1933 Act
which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the Shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after a party has purchased and paid for the security to be sold, the sale
being effected through a "broker's transaction" or in transactions directly with
a "market maker" and the number of shares being sold during any three-month
period not exceeding specified limitations.
4.5 Rule 144A. Such Investor acknowledges that it is familiar with
the provisions of Rule 144A promulgated under the 1933 Act, which permits
resales of securities acquired in a nonpublic offering to certain qualified
institutional buyers, subject to the satisfaction of certain conditions. Such
Investor understands that the conditions under Rule 144A include, among other
things, the right of the Investor and subsequent transferees of the Investor to
obtain from the
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Company certain information about the Company, if the Company has not been
required to file periodic reports pursuant to Section 13 or 1 5(d) of the
Securities Exchange Act of 1934. Such Investor's right to obtain such
information shall be as set forth in Section 2.15 of the Investors Rights
Agreement.
4.6 No Public Market. Such Investor understands that no public
market now exists for any of the securities issued by the Company and that the
Company has made no assurances that a public market will ever exist for the
Company's securities.
4.7 Access to Data. Such Investor has had an opportunity to discuss
the Company's business, management and financial affairs with the Company's
management and has also had an opportunity to ask questions of the Company's
officers, which questions were answered to its satisfaction.
4.8 Accredited Investor. Such Investor acknowledges that such
Investor is an "accredited investor" as defined in Rule 501 of Regulation D as
promulgated by the Securities and Exchange Commission under the 1933 Act and
shall submit to the Company such further assurances of such status as may be
reasonably requested by the Company. For state securities law purposes, the
principal address of such Investor is that set forth under such Investor's name
on Exhibit A.
4.9 Brokers or Finders. The Investor has not engaged any brokers,
finders or agents and has not incurred, and will not incur, directly or
indirectly, any liability for brokerage or finder's fee or agents' commissions
or any similar charges in connection with this Agreement and the transactions
contemplated hereby.
5. Conditions To Closing Of Investors.
5.1 Conditions to Investors' Obligations at the Closing. Each
Investor's obligation to purchase Shares at the Closing under this Agreement is
subject to the fulfillment on or prior to the Closing Date of the following
conditions, any of which may be waived in whole or in part by such Investor:
(a) Representations and Warranties True. The representations and
warranties made by the Company in Section 3 hereof shall be true and correct on
the Closing Date with the same force and effect as if they had been made on and
as of said date.
(b) Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to the Closing Date
shall have been performed or complied with.
(c) Consents. The Company shall have obtained all consents, permits
and waivers necessary to consummate the transactions contemplated by this
Agreement.
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(d) Opinion of the Company's Counsel. The Investors shall have
received from Perkins Coie, counsel to the Company, an opinion letter addressed
to the Investors in the form attached as Exhibit D.
(e) Compliance Certificate. The Company shall have delivered to the
Investors a certificate of the Company, executed by the President or a Vice
President of the Company and dated as of the Closing Date, certifying to the
fulfillment of the conditions specified in Sections 5.1 (a), (b) and (c) and
stating that there shall have been no material adverse change in the business,
affairs, operations, properties, assets, prospects or condition (financial or
otherwise) of the Company since December 31, 1998.
(f) Articles of Incorporation. The Restated Articles in substantially
the form attached as Exhibit B shall have been filed with the Secretary of State
of the State of Washington.
(g) Ancillary Agreements. The Investors Rights Agreement shall have
been executed by the Company, and, for purposes of Section 4 thereof, Nicolas
Hanauer, Michael Galgon, Scott Lipsky and R.M. Leo. The Investors affiliated
with Oak Investment Partners and the Company shall have entered into a Share
Allocation Agreement in form and substance acceptable to the Oak-affiliated
Investors and the Company.
(h) Minimum Aggregate Purchase Price. At the Closing, the Investors
shall purchase Shares having an aggregate purchase price of at least
$19,000,000, provided that no Investor that has not paid for the Shares to be
purchased by it hereunder may use the failure of this condition to be achieved
as a reason for failure to tender the purchase price for the Shares to be
purchased by such Investor.
(i) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby and all
documents and instruments incident to such transactions shall have be reasonably
satisfactory to Special Counsel, and the Investors and Special Counsel shall
have received all such counterpart originals or certified or other copies of
such documents as they may reasonably request.
(j) Reservation of Conversion Stock. The shares of the Conversion
Stock issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(k) Compliance with Laws. The purchase of the Shares by the Investors
hereunder shall be legally permitted by all laws and regulations to which the
Investors or the Company are subject.
(l) Board of Directors. The Company's board of directors at the
Closing shall consist of the following three members: Nicholas Hanauer, Fredric
Harman and Jason Green.
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(m) Good Standing Certificates. The Company shall have delivered to
Special Counsel certificates dated as of a recent date issued by the Secretary
of State of Washington to the effect that the Company is validly existing.
(n) Secretary's Certificate. The Company shall have delivered to
Special Counsel a certificate executed by the Secretary of the Company dated as
of the Closing, certifying the following matters: (a) resolutions adopted by the
Company's Board of Directors and shareholders relating to the transactions
contemplated by this Agreement; (b) Restated Articles; (c) Bylaws of the
Company; (d) incumbency of officers of the Company; and (e) such other matters
as Special Counsel may reasonably request.
6. Conditions to Company's Obligations.
6.1 Conditions to Company's Obligations at the Closing. The
Company's obligation to sell and issue the Shares at the Closing is subject to
the fulfillment on or prior to the Closing Date of the following conditions, any
of which may be waived in whole or in part by the Company (unless the Company
shall have contributed in whole or in part to the nonoccurrence or
nonfulfillment of such condition):
(a) Representations and Warranties True. The representations and
warranties made by the Investors herein shall be true and correct on the Closing
Date with the same force and effect as if they had been made on and as of the
same date.
(b) Consents. The Company shall have obtained all consents, permits
and waivers necessary or appropriate for consummation of the transactions
contemplated by this Agreement which need to be obtained prior to the Closing.
(c) Articles of Incorporation. The Company shall have filed the
Restated Articles in substantially the form attached as Exhibit B with the
Secretary of State of the State of Washington on or prior to the Closing Date.
(d) Ancillary Agreements. The Investors Rights Agreement shall have
been executed by the Company and the Investors, and, for purposes of Section 4
thereof, Nicolas Hanauer, Michael Galgon, Scott Lipsky and R.M. Leo.
(e) Minimum Aggregate Purchase Price; Payment. At the Closing, the
Investors shall purchase Shares having an aggregate purchase price of at least
$19,000,000. Each Investor shall have delivered the purchase price specified in
Section 1.2 against delivery by the Company to such Investor of the Shares set
forth in the Schedule of Investors attached hereto as Exhibit A.
(f) Compliance with all Laws. At the Closing, the purchase of the
Shares by the Investors hereunder shall be legally permitted by all laws and
regulations to which the Investors or the Company are subject.
(g) Proceedings and Documents. All corporate and other proceedings in
connection with the transaction contemplated at the Closing hereby, and all
documents and
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instruments incident to these transactions, shall be reasonably satisfactory in
substance to the Company and its counsel.
7. Covenants of the Company. The Company hereby covenants and agrees as
follows:
7.1 Financial Information. The Company will provide each Investor
with the reports specified in subsection (a) below and, for so long as the
Investor is a holder of a minimum of 250,000 Shares or an equivalent amount of
Conversion Stock or of an equivalent combination of Shares and Conversion Stock,
including for purposes of this Section 7 any such Shares or Conversion Stock
transferred to a constituent partner of an Investor, the reports specified in
subsections (b) and (c) below:
(a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of operations, shareholders' equity and cash flows of
the Company and its subsidiaries, if any, for such year, prepared in accordance
with generally accepted accounting principles and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and audited (without qualification) by independent auditors of national
standing selected by the Company.
(b) As soon as practicable after the end of each quarter and in any
event within forty-five (45) days thereafter, a consolidated balance sheet of
the Company and its subsidiaries, if any, as of the end of each such quarter,
and consolidated statements of operations and cash flows of the Company and its
subsidiaries for such period and for the current fiscal year to date, and
setting forth in comparative form the figures for the comparable prior year
period and for the current fiscal year to date then reported, prepared in
accordance with generally accepted accounting principles (other than for
accompanying notes), subject to changes resulting from year-end audit
adjustments, all in reasonable detail.
(c) As soon as practicable after the end of each month and in any
event within thirty (30) days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any, as of the end of each such month, and
consolidated statements of operations and cash flows of the Company and its
subsidiaries for such period and for the current fiscal year to date, and
setting forth in comparative form the budgeted figures for such period and for
the current fiscal year then reported, prepared in accordance with generally
accepted accounting principles (other than for accompanying notes), subject to
changes resulting from year-end audit adjustments, all in reasonable detail.
(d) A copy of the annual operating plan of the Company for the next
fiscal year and an annual budget for the next fiscal year of the Company
containing profit and loss projections, cash flow projections and capital
expenditures, all on a monthly basis, in the form approved by the Company's
board of directors, as soon as it is available but in any event prior to the end
of the current fiscal year.
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<PAGE>
(e) The obligation of the Company to furnish financial information
under this Section 7.1 shall terminate upon a public offering or when the
Company becomes subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended.
7.2 Additional Information. For so long as an Investor is a holder
of at least 100,000 Shares, Conversion Stock or a combination thereof including
for the purposes of this Section 7 any such Shares or Conversion Stock
transferred to a constituent partner, the Company will deliver or provide to
such Investor with reasonable promptness, such other information and data,
including access to books, records, officers and accountants, with respect to
the Company and its subsidiaries as any such Investor may from time to time
reasonably request; provided, however, that the Company shall not be obligated
to provide any information that it considers in good faith to be a trade secret
or to contain confidential or classified information unless such Investor is a
member of the Company's Board of Directors or agrees to execute a reasonable
covenant or agreement regarding the maintenance of the confidentiality of such
information.
7.3 Assignment of Rights to Financial Information. Subject to the
limitations set forth in Sections 7.1 and 7.2, the rights granted pursuant to
Sections 7.1 and 7.2 may be assigned or otherwise conveyed by the Investors or
by any subsequent transferee to an investor who acquires a minimum of 100,000
Shares, Conversion Stock or a combination thereof, other than a competitor of
the Company, as reasonably determined by the Board of Directors of the Company,
excluding any director with an interest in such transferee, provided that
written notice of such assignment or conveyance is given to the Company.
7 4 Corporate Existence, Licenses and Permits; Maintenance of
Properties. So long as any of the Shares shall remain outstanding, the Company
will at all times cause to be done all things necessary to maintain, preserve
and renew its existence as a corporation organized under the laws of a state of
the United States of America (except in connection with a merger or
consolidation in which the Company is not the surviving corporation) and will do
all things reasonably necessary to preserve and keep in force and effect, and
cause each of its subsidiaries (if any) to preserve and keep in force and
effect, all patents, trademarks, service marks, trade names, copyrights, trade
secrets, proprietary rights, licenses and permits necessary and material to the
conduct of its and their respective businesses, and will maintain and keep, and
cause each of its subsidiaries (if any) to maintain and keep, its and their
properties in good repair, working order and condition (except for normal wear
and tear), and from time to time make all needful and proper repairs, renewals
and replacements.
7.5 Taxes. So long as any of the Shares shall remain outstanding,
the Company will duly pay and discharge, and will cause each of its subsidiaries
(if any) duly to pay and discharge, all taxes, assessments and governmental
charges upon or against the Company, its subsidiaries (if any) or their
respective properties, in each case before the same become delinquent and before
penalties accrue thereon, unless and to the extent that the same are being
contested in good faith by appropriate proceedings and the Company and its
subsidiaries (if any) shall have set aside on its books adequate reserves with
respect thereto.
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<PAGE>
7.6 Insurance. So long as any of the Shares shall remain
outstanding, the Company will apply for and continue in full force and effect
adequate insurance covering the respective risks of the Company and its
subsidiaries (if any) of such types and in at least such amounts and with such
deductibles as are customary for other corporations engaged in similar lines of
business and with good and responsible insurance companies.
7.7 Books and Accounts. So long as any of the Shares shall remain
outstanding, the Company will, and will cause each subsidiary (if any) to,
maintain proper books of record and account in which full, true and correct
entries shall be made of its transactions and set aside on its books from its
earnings for each fiscal year all such proper reserves as in each case shall be
required in accordance with generally accepted accounting principles.
7.8 Rights of First Refusal, Etc. The Company will not waive any
right of first refusal of the Company on transfers of Common Stock by executive
officers, directors or founders without the approval of its board of directors.
7.9 Qualified Small Business Stock. The Company shall take all
reasonable efforts to avoid repurchasing any shares of the Company in a manner
that would cause the Shares purchased hereunder not to qualify as "Qualified
Small Business Stock" and comply with the reporting requirements of Section
1202(d) of the Code and any related Treasury regulations. In addition, within a
reasonable time (which shall not exceed 30 days) after any Investor delivers to
the Company a written request therefor, the Company shall deliver to such
Investor a written statement advising such Investor whether such Investor's
interest in the Company constitutes "qualified small business stock" as defined
n Section 1202(c) of the Code. The Company's obligation to furnish a written
statement pursuant to this Section 7.9 shall continue notwithstanding the fact
that a class of the Company's securities may be traded on an established
securities market.
7.10 Termination of Covenants. The covenants set forth in Sections
7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8 and 7.4 (other than the Company's obligation
to furnish written statements pursuant to Code Section 1202(c) and the Treasury
Regulations thereunder) shall terminate and be of no further force or effect
upon the closing of the Company's initial underwritten public offering pursuant
to an effective registration statement filed by the Company under the 1933 Act
(other than a registration of securities in a Rule 145 transaction or with
respect to an employee benefit plan).
8. Miscellaneous.
8.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Washington as applied to agreements among
Washington residents, made and to be performed entirely within the State of
Washington.
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<PAGE>
8.2 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by the Investors and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder as of the date of such certificate or instrument.
8.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto.
8.4 Entire Agreement. This Agreement, the Exhibits and the other
documents delivered pursuant to this Agreement or contemplated hereby constitute
the full and entire understanding and agreement among the parties with regard to
the subjects hereof and thereof and no party shall be liable or bound to any
other party in any manner by any representations, warranties, covenants, or
agreements except as specifically set forth herein or therein. Nothing in this
Agreement, express or implied, is intended to confer upon any party, other than
the parties hereto and their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided herein.
8.5 Severability. In case any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided, however, that no such severability shall be effective if it
materially, changes the economic benefit of this Agreement to any party.
8.6 Amendment and Waiver. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of a majority of the
shares of the Conversion Stock (assuming for purposes of this Section 8.6
conversion of all then outstanding Shares), provided, however that any amendment
adversely affecting any individual holder only shall require the consent of such
holder. Any amendment or waiver effected in accordance with this Section 8.6
shall be binding upon each holder of any Shares or Conversion Stock purchased
under this Agreement at the time outstanding, each future holder of all such
securities and the Company.
8.7 Delays or Omissions. No delay or omission to exercise any right,
power, or remedy accruing to the Investors or any subsequent holder of any
Shares upon any breach, default or noncompliance of the Company under this
Agreement or under the Restated Articles, shall impair any such right, power, or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent, or approval of any kind or character on the Investors' part of
any breach, default or noncompliance under this Agreement or under the Restated
Articles or any waiver on the Investors' part of any provisions or conditions of
this Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing, and that all remedies, either under this
Agreement, the Restated Articles, by law, or otherwise afforded to the
Investors, shall be cumulative and not alternative.
-19-
<PAGE>
8.8 Notices. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon deposit with the United States Post Office, by
first class mail, postage prepaid, addressed: (a) if to an Investor, at such
Investor's address as set forth on the Schedule of Investors, or at such other
address as such Investor shall have furnished to the Company in writing, or (b)
if to the Company, at its address as set forth at the end of this Agreement, or
at such other address as the Company shall have furnished to the Investors in
writing.
8.9 Expenses. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement. The Company shall also pay the fees and expenses of special
counsel ("Special Counsel") to the Investors in connection with the transactions
contemplated hereby up to a maximum aggregate amount of $20,000. If any action
at law or in equity is necessary to enforce or interpret the terms of this
Agreement, the Investors Rights Agreement or the Restated Articles, the
prevailing party shall be entitled to reasonable attomey's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled at law or in equity.
8.10 Titles and Subtitles. The titles of the sections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
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<PAGE>
The foregoing Series C Preferred Stock Purchase Agreement is executed
as of the date first above written.
COMPANY:
AVENUE A, INC.
By: /s/ Nicholas Hanauer
----------------------------------
Nicolas Hanauer, Chairman
Address: 1100 Olive Way, Suite 1270
Seattle, WA 98101
INVESTORS:
VOYAGER CAPITAL FUND I, L.P.
By: Voyager Capital Management, L.L.C.
Its General Partner
By:
----------------------------------
Enrique Godreau, Managing Director
VOYAGER CAPITAL FOUNDERS FUND, L.P.
By: Voyager Capital Management, L.L.C.
Its General Partner
By:
----------------------------------
Enrique Godreau, Managing Director
-21-
<PAGE>
The foregoing Series C Preferred Stock Purchase Agreement is executed as of
the date first above written.
COMPANY:
AVENUE A, INC.
By:
-----------------------------------
Nicolas Hanauer, Chairman
Address: 1100 Olive Way, Suite 1270
Seattle, WA 98101
INVESTORS:
VOYAGER CAPITAL FUND I, L.P.
By: Voyager Capital Management, L.L.C.
Its General Partner
By: /s/ Enrique Godreau III
-----------------------------------
Enrique Godreau, Managing Director
VOYAGER CAPITAL FOUNDERS FUND, L.P.
By: Voyager Capital Management, L.L.C.
Its General Partner
By: /s/ Enrique Godreau III
-----------------------------------
Enrique Godreau, Managing Director
-22-
<PAGE>
The foregoing Series C Preferred Stock Purchase Agreement is executed as of
the date first above written.
OAK INVESTMENT PARTNERS VIII, L.P.
By: Oak Associates VIII, LLC
Its General Partners
By: /s/ Fredric Harman
-------------------------------
Fredric Harman, Managing Member
OAK VIII AFFILIATES FUND, L.P.
By: Oak VIII Affiliates Fund, L.L.C.
Its General Partner
By: /s/ Fredric Harman
-------------------------------
Fredric Harman, Managing Member
-23-
<PAGE>
The foregoing Series C Preferred Stock Purchase Agreement is executed as of
the date first above written.
U.S. VENTURE PARTNERS VI, L.P.
By: Presidio Management Group VI, L.L.C.
Its General Partner
By: /s/ Michael P. Maher
--------------------------------
Michael P. Maher
Attorney-in-Fact
-24-
<PAGE>
The foregoing Series C Preferred Stock Purchase Agreement is executed as of
the date first above written.
KIRLAN VENTURE PARTNERS II, L.P.
By: Kirlan Venture Capital, Inc.
Its General Partner
By: /s/ Daniel C. Regis
-------------------------------
Daniel C. Regis, President
-25-
<PAGE>
The foregoing Series C Preferred Stock Purchase Agreement is executed as of
the date first above written.
NORMAL H. NIE, TRUSTEE, NORMAN H. NIE REVOCABLE
TRUST DATED 3/15/91
By: /s/ Norman Nie
--------------------------
Norman Nie, TRUSTEE
-26-
<PAGE>
The foregoing Series C Preferred Stock Purchase Agreement is executed as of
the date first above written.
MEDIA PARTNERS
By: /s/ John R. Jacobs
-------------------------
John R. Jacobs, General Partner
-27-
<PAGE>
The foregoing Series C Preferred Stock Purchase Agreement is executed as of
the date first above written.
THE PHOENIX PARTNERS IV LIMITED PARTNERSHIP
By: Phoenix Management IV, L.L.C.
Its General Partner
By: /s/ D. B. J.
--------------------------------
David B. Johnston, Member
-28-
<PAGE>
The foregoing Series C Preferred Stock Purchase Agreement is executed as of
the date first above written.
By: /s/ R. Michael Leo
--------------------------------
R. Michael Leo
-29-
<PAGE>
EXHIBIT 10.9
INVESTORS RIGHTS AGREEMENT
--------------------------
This Agreement is made as of May 4, 1999 by and among Avenue A, Inc., a
Washington corporation (the "Company"), the holders of the Company's Series C
Preferred Stock, Nicolas Hanauer, Michael Galgon, Scott Lipsky and R. Michael
Leo.
RECITAL
-------
Simultaneously herewith, the Company is entering into a Series C Preferred
Stock Purchase Agreement (the "Series C Agreement") and issuing shares of Series
C Preferred Stock to the Purchasers named in the Schedule of Investors to the
Series C Agreement.
NOW, THEREFORE, it is hereby agreed as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the 1933 Act.
"Common Stock" shall mean the Company's common stock, $0.01 par value.
"Conversion Stock" shall mean the shares of Common Stock issued or issuable
upon conversion of the Shares.
"Founder" shall mean each of Nicolas Hanauer, Michael Galgon, Scott Lipsky
and R.M. Leo.
"Holder" shall mean the holders of Registrable Securities, securities
convertible into Registrable Securities or warrants to acquire Registrable
Securities or securities convertible into Registrable Securities and any person
holding such securities to whom the rights under this Agreement have been
transferred in accordance with Section 2.13 hereof.
"Initiating Holders" shall mean any Holder or Holders who in the aggregate
hold or have the power to acquire (through conversion or exercise of other
securities) at least 40% of all Registrable Securities (including, without
limitations, shares of Common Stock issuable on conversion of the Shares).
"Purchasers" shall mean the purchasers of Series C Preferred Stock,
excluding R. Michael Leo (such purchasers of Series C Preferred Stock are also
sometimes referred to as "Series C Purchasers").
<PAGE>
"Registrable Securities" means (i) the Conversion Stock, and (ii) any
Common Stock of the Company issued or issuable with respect to, or in exchange
for or in replacement of the Conversion Stock or other securities convertible
into or exercisable for Conversion Stock upon any stock split, stock dividend,
recapitalization, or similar event; provided, however, that shares of Common
Stock or other securities shall only be treated as Registrable Securities if and
so long as they have not been (A) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction (B) sold
in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act under Section 4(1) thereof so that all
transfer restrictions and restrictive legends with respect thereto are removed
upon the consummation of such sale, or (C) sold pursuant to Rule 144(k); and
provided, further, that excluded from the definition of "Registrable Securities"
are any securities transferred by a person or entity in any transaction in which
either (1) its registration rights under this Agreement are not assigned in
accordance with Section 2.13 or (2) notice of such assignment of registration
rights is not given by the transferor or assignor to the Company within 20 days
of such transfer or assignment in accordance with Section 2.13.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the 1933 Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise stated
below, incurred by the Company in complying with Sections 2.5, 2.6 and 2.7
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"Restricted Securities" shall mean the securities of the Company required
to bear the legend set forth in Section 2.2 hereof.
"1933 Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders.
"Shares" shall mean the shares of the Company's Series C Preferred Stock
issued pursuant to the Series C Agreement.
2. Restrictions on Transferability of Securities: Compliance with 1933
Act; Registration Rights
2
<PAGE>
2.1 Restrictions on Transferability. The Shares and the Conversion
Stock shall not be sold, assigned, transferred or pledged except upon the
conditions specified in this Section 2, which conditions are intended to ensure
compliance with the provisions of the 1933 Act. The Purchasers will cause any
proposed purchaser, assignee, transferee, or pledges of the Shares or the
Conversion Stock held by the Purchasers to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 2.
2.2 Restrictive Legend. Each certificate representing (i) the
Shares, (ii) the Conversion Stock and (iii) any other securities issued in
respect of the Shares or the Conversion Stock upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 2.3 below) be stamped
or otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION UNLESS THE CORPORATION IS SATISFIED THAT THE TRANSFER IS IN
ACCORDANCE WITH RULE 144 OR SIMILAR RULE OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR
TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SHARES AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
The Purchasers and Holders consent to the Company making a notation on
its records and giving instructions to any transfer agent of the Shares or the
Conversion Stock in order to implement the restrictions on transfer established
in this Section 2.
2.3 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 2.3. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) in
transactions involving the distribution without consideration of Restricted
Securities by any Holder to any of its partners, or retired partners, or to the
estate of any of its partners or retired partners, (ii) a transfer to an
affiliated fund or partnership which is not a competitor of the Company, subject
to compliance with applicable securities laws, or (iii) transfers in compliance
with Rule 144, so long as the Company, prior to such transfer, is furnished with
evidence satisfactory to the Company of compliance with such Rule), unless there
is in effect a registration statement under the 1933 Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer,
3
<PAGE>
sale, assignment or pledge. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in sufficient
detail, and shall be accompanied, at such holder's expense, by either (i) a
written opinion of legal counsel who shall, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected without
registration under the 1933 Act; (ii) a "no action" letter from the Commission
to the effect that the transfer of such securities without registration will not
result in a recommendation by the staff of the Commission that action be taken
with respect thereto, or (iii) any other evidence reasonably satisfactory to the
Company, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. Each certificate evidencing the
Restricted Securities transferred (whether or not such transfer required the
giving of notice under this Section 2.3) shall bear, except if such transfer is
made pursuant to Rule 144, the appropriate restrictive legend set forth in
Section 2.2 above, except that such certificate shall not bear such restrictive
legend if in the opinion of counsel for such holder and in the reasonable
opinion of the Company such legend is not required in order to establish
compliance with any provision of the 1933 Act.
2.4 Removal of Restrictions on Transfer of Securities. Any legend
referred to in Section 2.2 hereof stamped on a certificate evidencing (i) the
Shares, (ii) the Conversion Stock or (iii) any other securities issued in
respect of the Shares or the Conversion Stock upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event and the stock
transfer instructions and record notations with respect to such security shall
be removed and the Company shall issue a certificate without such legend to the
holder of such security if such security is registered under the 1933 Act, or if
such holder provides the Company with an opinion of counsel (which may be
counsel for the Company) reasonably acceptable to the Company to the effect that
a public sale or transfer of such security may be made without registration
under the 1933 Act or such holder provides the Company with reasonable
assurances, which may, at the option of the Company, include an opinion of
counsel satisfactory to the Company, that such security can be sold pursuant to
Section (k) of Rule 144 under the 1933 Act. The Company will cause legend
removal to be authorized or provide a written response as to why legends may not
be removed within 15 days of receipt of any such request.
2.5 Requested Registration.
(a) Request for Registration. In case the Company shall receive from
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to shares of Registrable Securities
with an expected aggregate offering price to the public of at least $7,500,000,
the Company will:
(i) within ten days of the receipt by the Company of such notice, give
written notice of the proposed registration, qualification or compliance to all
other Holders; and
4
<PAGE>
(ii) as soon as practicable, use its commercially reasonable efforts
to effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the 1933 Act and any other governmental requirements or regulations) as
may be so requested and as would permit or facilitate the sale and distribution
of all or such portion of such Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified in a written request
received by the Company within 20 days after receipt of such written notice from
the Company;
Provided, however, that the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 2.5:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the 1933 Act;
(B) Prior to the earlier of (i) December 31, 2002 or (ii) the
expiration of one year following completion of the Company's first registered
public offering of its stock;
(C) During the period starting with the date sixty (60) days prior to
the Company's estimated date of filing of, and ending on the date three (3)
months immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction, with respect to an employee benefit plan or with
respect to the Company's first registered public offering of its stock),
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective;
(D) After the Company has effected two such registrations pursuant to
this Section 2.5(a) covering all shares requested to be registered by the
Holders initiating or joining such request, and such registrations have been
declared or ordered effective, and, if the method of disposition specified by
such initiating or requesting Holders shall have been a firm commitment
underwritten public offering, all such shares shall have been sold pursuant
thereto;
(E) If the Company shall furnish to such Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors it would be seriously detrimental to the Company or its
shareholders for a registration statement to be filed in the near future, then
the Company's obligation to use its commercially reasonably efforts to register,
qualify or comply under this Section 2.5 shall be deferred for a period not to
exceed 90 days from the date of receipt of written request from the
5
<PAGE>
Initiating Holders; provided, however, that the Company shall not exercise such
right more than once in any twelve-month period.
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as reasonably practicable, after receipt of the request or
requests of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to Section 2.5
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as part of the notice given pursuant to Section 2.5(a)(i).
In such event, the right of any Holder to registration pursuant to Section 2.5
shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 2.5, and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent requested shall be
limited to the extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter of recognized national standing
selected for such underwriting by the Company and reasonably acceptable to a
majority of the Holders proposing to distribute their securities through such
underwriting. Notwithstanding any other provision of this Section 2.5, if the
managing underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Company shall so advise all holders of Registrable Securities and the number
of shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders thereof in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities
requested by such Holders to be included in such registration statement or in
such other manner as shall be agreed to by the Company and Holders of a majority
of the Registrable Securities proposed to be included in such registration. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of
the underwriting, such Holder may elect to withdraw therefrom by written notice
to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to 180 days after the effective date
of such registration, or such other shorter period of time as the underwriters
may require.
2.6 Company Registration.
(a) Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee
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benefit plans or (ii) a registration relating solely to a Commission Rule 145
transaction, the Company will (but not more than five (5) times pursuant to this
Section 2.6(a)):
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved therein,
all the Registrable Securities specified in a written request or requests, made
within 20 days after receipt of such written notice from the Company, by any
Holder, but only to the extent that such inclusion will not diminish the number
of securities included by Holders of the Company's securities who have demanded
such registration pursuant to Section 2.5 hereof.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.6(a)(i). In such event the right of any Holder to
registration pursuant to Section 2.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 2.6, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the Registrable
Securities to be distributed through such underwriting. The Company shall so
advise all Holders distributing their securities through such underwriting of
such limitation and the number of shares of Registrable Securities that may be
included in the registration (and underwriting if any) shall be allocated among
all Holders in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities requested by such Holders to be included in such
Registration Statement. To facilitate the allocation of shares in accordance
with the above provisions, the Company may round the number of shares allocated
to any Holder or holder to the nearest 100 shares. If any Holder or holder
disapproves of the terms of any such underwriting, such Holder or holder may
elect to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 120 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require.
(c) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 2.6
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration. The Registration Expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 2.8 hereof.
2.7 Registration on Form S-3.
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(a) If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3), for a
public offering of Registrable Securities, the reasonably anticipated aggregate
price to the public of which, net of underwriting discounts and commissions (if
any), would exceed $1,000,000 and the Company is a registrant entitled to use
Form S-3 to register the Registrable Securities for such an offering, the
Company shall use its commercially reasonable efforts to cause such Registrable
Securities to be registered on such form for the offering and to cause such
Registrable Securities to be qualified in such jurisdictions as the Holder or
Holders may reasonably request; provided, however, that the Company shall not be
required to effect more than four registrations pursuant to this Section 2.7 or
more than one such registration in any twelve (12) month period. After the
Company's first public offering of its securities, the Company will use its
commercially reasonable efforts to qualify for Form S-3 registration or a
registration on any successor form to Form S-3.The provisions of Section 2.6(b)
shall be applicable to each registration initiated under this Section 2.7.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 2.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the 1933 Act; (ii) if the Company, within ten
(10) days of the receipt of the request of the initiating Holders, gives notice
of its bona fide intention to effect the filing of a registration statement with
the Commission within ninety (90) days of receipt of such request (other than
with respect to a registration statement relating to a Rule 145 transaction, or
an offering solely to employees); (iii) during the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date three (3) months immediately following, the effective date of any
registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; (iv) after the Company has effected three (3) such registrations
pursuant to this Section 2.7 and each such registration has been declared or
ordered effective; or (v) if the Company shall furnish to such Holder a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for registration statements to be filed in the
near future, then the Company's obligation to use its commercially reasonable
efforts to file a registration statement shall be deferred for a period not to
exceed 90 days from the receipt of the request to file such registration by such
Holder or Holders; provided, however, that the Company shall not exercise such
right more than once in any twelve-month period.
2.8 Expenses of Registration. All Registration Expenses incurred in
connection with any registration pursuant to Sections 2.5 and 2.6 and the
reasonable cost of one special legal counsel to represent all of the Holders
together in any such registration shall be borne by the Company. All
Registration Expenses incurred in connection with any registration pursuant to
Section 2.7 and the cost of any counsel for the Holders in any such registration
shall be borne by the Holders pro rata according to the number of Registrable
Securities included by them in such
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registration. If a registration proceeding is begun upon the request of
Initiating Holders pursuant to Section 2.5, but such request is subsequently
withdrawn, then the Holders of Registrable Securities to have been registered
may either: (i) bear all Registration Expenses of such proceeding, pro rata on
the basis of the number of shares to have been registered, in which case the
Company shall be deemed not to have effected a registration pursuant to
subparagraph 2.5(a) of this Agreement; or (ii) require the Company to bear all
Registration Expenses of such proceeding, in which case the Company shall be
deemed to have effected a registration pursuant to subparagraph 2.5(a) of this
Agreement. All Selling Expenses relating to securities registered on behalf of
the Holders shall be borne by the holders of securities included in such
registration pro rata on the basis of the number of shares so registered.
2.9 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 2,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement with
respect to such securities and use its commercially reasonable efforts to cause
such registration statement to become and remain effective, but in no event
longer than 150 days, until the distribution described in the Registration
Statement has been completed;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
(d) Use its commercially reasonable efforts to furnish, at the request
of any Holder requesting registration of Registrable Securities at the time such
securities are delivered to the underwriters (if any) for sale in connection
with a registration pursuant to this Section 2, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated the
date of commencement of the offering and a "bring-down" letter dated as of the
closing date of such offering, from the independent accountants of the Company,
in form and substance as is customarily given by independent accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
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2.10 Indemnification.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling (or deemed to be
controlling) such Holder within the meaning of Section 15 of the 1933 Act, with
respect to which registration, qualification or compliance has been effected
pursuant to this Section 2, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the 193 3 Act,
against all actual out-of-pocket expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation by the Company of the 1933 Act
or any rule or regulation promulgated under the 1933 Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers, directors
and partners and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
actual out-of-pocket expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the 1933 Act, end each other
Holder, each of its officers, directors and partners and each person controlling
such Holder within the meaning of Section 15 of the 1933 Act, against all actual
out-of-pocket expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, and will reimburse the Company, such Holders, such directors,
officers, persons, underwriters or control persons for any legal or any other
actual out-of-pocket expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage,
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liability or action, as such expenses are incurred, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall not exceed the proceeds received by such Holder from the
sale of Registrable Securities covered by such registration statement. A Holder
will not be required to enter into any agreement or undertaking in connection
with any registration under this Section 2 providing for any indemnification or
contribution on the part of such Holder greater than the Holder's obligations
under this Section 2.10(b).
(c) Each party entitled to indemnification under this Section 2.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, provided, however, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
reasonable fees and expenses of such counsel to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 2 unless the failure to give such notice
is materially prejudicial to an Indemnifying Party's ability to defend such
action. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
(d) If the indemnification provided for paragraphs (a) through (c) of
this Section 2.10 is unavailable or insufficient to hold harmless an Indemnified
Party under such paragraphs in respect of any losses, claims, damages or
liabilities or actions in respect thereof referred to therein, then each
Indemnifying Party shall in lieu of indemnifying such Indemnified Party
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and the Holder of such Registrable Securities, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or actions as well as any other relevant equitable
considerations, including the failure to give any notice under paragraph (c).
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact relates to
information supplied by the Company, on the one hand, or the
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underwriters or the Holders of such Registrable Securities, on the other, and to
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Company and each of the
Holders agrees that it would not be just and equitable if contributions pursuant
to this paragraph were determined by pro rata allocation (even if all of the
Holders of such Registrable Securities were treated as one entity for such
purpose) or by any other method of allocation which did not take account of the
equitable considerations referred to above in this paragraph. The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages,
liabilities or action in respect thereof, referred to above in this paragraph,
shall be deemed to include any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this paragraph, no Holder
shall be required to contribute any amount in excess of the proceeds received by
such Holder for the sale of Registrable Securities covered by such registration
statement. No person guilty of fraudulent misrepresentations (within the meaning
of Section 11(f) of the 1933 Act), shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
2.11 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 2.
2.12 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its commercially reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the 1933 Act, at all times after the
effective date that the Company becomes subject to the reporting requirements of
the 1933 Act or the Securities Exchange Act of 1934, as amended.
(b) Use its commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the 1933 Act and the Securities Exchange Act of 1934, as amended
(at any time after it has become subject to such reporting requirements);
(c) So long as a Purchaser owns any Restricted Securities to furnish
to the Purchaser forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public), and of
the 1933 Act and the Securities Exchange Act of 1934 (at any time after it has
become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents of the
Company and other
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information in the possession of or reasonably obtainable by the Company as a
Purchaser may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Purchaser to sell any such securities without
registration.
2.13 Transfer of Registration Rights. The rights to cause the Company
to register securities granted Holders under Sections 2.5, 2.6 and 2.7 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Holder of not less than 100,000 shares
of Registrable Securities, or to any transferee or assignee who is a constituent
partner of a Holder or the estate of such constituent partner, provided that
(a) such transfer may otherwise be effected in accordance with applicable
securities laws and (b) that the Company is, within 20 days of such assignment
or transfer, furnished by the transferor or assignor with written notice of the
name and address of such transferee or assignee, the securities with respect to
which such registration rights are being assigned and the fact that such
registration rights are being assigned.
2.14 Standoff Agreements. Each Holder agrees in connection with the
Company's initial public offering of the Company's securities, upon request of
the Company or the underwriters managing any underwritten offering of the
Company's securities, not to sell, make any short sale of, loan, pledge (or
otherwise encumber or hypothecate), grant any option for the purchase of, or
otherwise directly or indirectly dispose of any Registrable Securities (other
than those included in the registration) without the prior written consent of
the company or such underwriters, as the case may be, for such period of time
(not to exceed one hundred eighty (180) days) from the effective date of such
registration as may be requested by the underwriters; provided, that the
officers and directors of the company who own stock of the company and all other
holders of 5% or more of the Company's outstanding Common Stock equivalents also
agree to such restrictions.
2.15 Rule 144A Information. Whenever the Company receives a request
for the following information from Initiating Holders on or after December 31,
2002, then the Company shall within 60 days after the date of such request
provide the information required in Rule 144A(d)(4) to such Initiating Holders
and any person or persons designated by the Initiating Holders as a prospective
buyer in a transaction pursuant to Rule 144A. The Company's obligations pursuant
to this Section 2.15 shall extend to any person who acquires shares of the
Company's Preferred Stock and/or Conversion Stock as a result of a transaction
pursuant to Rule 144A.
2.16 Termination of Registration Rights. The rights granted under this
Section 2 shall terminate on the fifth anniversary of the consummation of the
initial underwritten public offering of the Company's securities pursuant to a
registration statement filed under the 1933 Act.
3. Purchasers' Right of First Refusal.
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3.1 Right of First Refusal Upon Issuance of Securities by the
Company.
(a) The Company hereby grants, on the terms set forth in this Section
3.1, to each Purchaser the right of first refusal to purchase all or any part of
such Purchaser's pro rata share of the New Securities (as defined in Section
3.1(b)) which the Company may, from time to time, propose to sell and issue
after the date of this Agreement. The Purchasers may purchase said New
Securities on the same terms and at the same price at which the Company proposes
to sell the New Securities. The pro rata share of each Purchaser, for purposes
of this right of first refusal, is the ratio of the total number of shares of
Common Stock held by such Purchaser, including any shares of Common Stock into
which shares of Preferred Stock held by such Purchaser are convertible, to the
total number of shares of Common Stock outstanding immediately prior to the
issuance of the new Securities (including any shares of Common Stock into which
outstanding shares of Preferred Stock are convertible).
(b) "New Securities" shall mean any capital stock of the Company,
whether now authorized or not, and any rights, options or warrants to purchase
said capital stock, and securities of any type whatsoever that are, or may
become, convertible into said capital stock; provided that "New Securities"
does not include the following issuances (as long as they are approved by the
Company's board of directors): (i) the Shares purchased under this Agreement or
the Conversion Stock, (ii) securities offered pursuant to a registration
statement filed under the 1933 Act, as hereinafter defined, (iii) securities
issued pursuant to the acquisition of another corporation, partnership, limited
liability company or other business entity by the Company by merger, share
exchange, consolidation, purchase of substantially all of the assets or other
reorganization, (iv) up to 6,750,000 shares of Common Stock or other securities
hereafter issued or issuable to officers, directors, employees, advisors,
consultants or agents of, or independent contractors to, the Company pursuant to
any employee or consultant stock offering, plan or arrangement approved by the
Board of Directors of the Company, (v) all shares of Common Stock or other
securities issued pursuant to warrants, rights or options which warrants, rights
or options are issued and outstanding on the date hereof, (vi) all shares of
Common Stock or other securities hereafter issued pursuant to warrants, rights
or options hereafter issued, provided that the rights of first refusal
established hereby applied to the initial sale or grant by the Company of such
warrants, rights or options, and (vii) all shares of Common Stock or other
securities issued in connection with equipment leasing or equipment financing
arrangements.
(c) In the event the Company proposes to undertake an issuance of New
Securities, it shall give to the Purchasers written notice (the "Notice") of its
intention, describing the type of New Securities, the price, the terms upon
which the Company proposes to issue the same, and a statement as to the number
of days (which shall not be more than seven) from receipt of such Notice within
which the Purchasers must respond to such Notice. The Purchasers shall have
thirty (30) days from the date of receipt of the Notice to purchase any or all
of the New Securities for the price and upon the terms specified in the Notice
by giving written notice to the Company and stating therein the quantity of New
Securities to be purchased and forwarding payment for such New Securities to the
Company if immediate payment is required by such terms, or in any event no later
than thirty (30) days after the date of receipt of the Notice.
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(d) In the event the Purchasers fail to exercise in full the right of
first refusal within said thirty (30) day period, the Company shall have ninety
(90) days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within
thirty (30) days from date of said agreement) to sell the New Securities in
respect of which the Purchasers' rights were not exercised, at a price and upon
general terms no more favorable to the Purchasers thereof than specified in the
Notice. In the event the Company has not sold, or entered into an agreement
for the sale of, the New Securities within said ninety (90) day period (or sold
and issued New Securities in accordance with the foregoing within thirty (30)
days from the date of said agreement), the Company shall not thereafter issue
or sell any New Securities without first offering such securities to the
Purchasers in the manner provided above.
(e) The right of first refusal granted under this Section 3.1 shall
expire upon:
(i) the date upon which a registration statement filed by the Company
under the 1933 Act (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan) in connection with an
underwritten public offering of its securities first becomes effective and the
securities registered thereunder are sold; or
(ii) for each Purchaser, the date on which such Purchaser no longer
holds a minimum of 250,000 Shares or Conversion Stock or the number of Shares or
Conversion Shares originally purchased, whichever is less.
4. Series C Right of Co-Sale.
4.1 Grant of Co-Sale Rights.
(a) If a Founder proposes to sell or transfer any shares of Common
Stock now owned by the selling Founder (the shares subject to such offer to be
hereafter called the "Stock" and the selling Founder to be called the "Selling
Party") in one or more related transactions, then, such Party shall promptly
deliver written notice (the "Co-Sale Notice") to each of the Series C
Purchasers at least twenty (20) days prior to the closing of such sale or
transfer. For purposes of this Section 4, "Common Stock" shall mean (i) the
Company's Common Stock (including Conversion Shares), whether now owned or
hereafter acquired by a Founder, (ii) shares of Common Stock issuable upon
conversion of the Shares or any other outstanding convertible securities. The
Co-Sale Notice shall describe in reasonable details the proposed sale or
transfer including, without limitation, the number of shares of Stock to be
sold or transferred, the nature of such sale or transfer, the consideration to
be paid and the name and address of each prospective purchaser or transferee.
(b) Each Series C Purchaser shall have the right, exercisable upon
written notice to such Selling Party within ten (10) days after receipt of the
Notice, to participate in such sale of Stock on the same terms and conditions
provided that no Series C Purchaser shall be required to make any
representation or warranties or perform any undertakings other than with respect
to its title and authority. To the extent one or more of the Series C
Purchasers exercise such right of participation in
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accordance with the terms and conditions set forth below, the number of shares
of Stock that the Selling Party may sell in the transaction shall be
correspondingly reduced.
(c) Each Series C Purchaser who elects to participate in a sale of
Stock under this Section 4 (a "Participant") may sell all or any part of that
number of shares of Stock equal to the product obtained by multiplying (i) the
aggregate number of shares of Stock covered by the Co-Sale Notice by (ii) a
fraction the numerator of which is the number of shares of Common Stock (on a
fully-diluted, as converted basis) owned by the Series C Purchaser at the time
of the sale or transfer and the denominator of which is the total number of
shares of Common Stock owned by the Founders and the Series C Purchasers
(including the Selling Party) (on a fully-diluted, as converted basis) at the
time of the sale or transfer.
(d) If any Series C Purchaser fails to elect to fully participate in
the Selling Party's sale pursuant to this Section 4.1, the Selling Party shall
promptly give notice of such failure and the aggregate number of shares that the
non-participating Series C Purchasers did not elect to sell (the "Unsold
Portion') to each of the Participants. Such notice may be made by telephone if
con- firmed in writing within five (5) days. The Participants shall have two (2)
days from the date such notice was given to agree to sell their pro rata share
of the Unsold Portion. After the expiration of the two (2) day period following
the provision of notice to the Participants and without being subject to the
provisions of this paragraph 4.1(d), the Selling Party shall have the right to
sell or transfer the number of shares of Stock that is equivalent to the balance
of the Unsold Portion that is not elected to be sold by the Participants. For
purposes of this paragraph, a Participant's pro rata share shall be radio of (x)
the number of shares of Common Stock (on a fully-diluted, as converted basis)
held by such Participant to (y) the total number of shares of Common Stock (on a
fully-diluted, as converted basis) held by all the Participants and the Selling
Party.
(e) Each Participant shall effect its participation in the sale by
promptly delivering to the Selling Party for transfer to the prospective
purchaser one or more certificates properly endorsed for transfer, which
represent:
(i) the type and number of shares of Common Stock which such
Participant elects to sell; or
(ii) that number of Shares or other shares of Preferred Stock which is
at such time convertible into the number of shares of Common Stock which such
Participant elects to sell; provided, however, that if the prospective purchaser
objects to the delivery of such Shares or other Preferred Stock in lieu of
Common Stock, such Participant shall convert such Shares or Preferred Stock into
Common Stock upon the closing of the sale contemplated hereby and deliver Common
Stock as provided in subparagraph 4.1(e)(i) above. The Company agrees to make
any such conversion concurrent with the actual transfer of such shares to the
purchaser.
(f) The stock certificate or certificates that the Participant
delivers to the Selling Party pursuant to paragraph 4.l(e) shall be transferred
to the prospective purchaser in consummation of the sale of the Stock pursuant
to the terms and conditions specified in the Co-Sale Notice, and the
16
<PAGE>
Selling Party shall concurrently therewith remit to such Participant that
portion of the sale proceeds to which such Participant is entitled by reason of
its participation in such sale. To the extent that any prospective purchaser or
purchasers prohibits such assignment or otherwise refuses to purchase shares or
other securities from a Participant exercising its rights of co-sale hereunder,
the Selling Party shall not sell to such prospective purchaser or purchasers any
Stock unless and until, simultaneously with such sale, the Selling Party shall
purchase such shares or other securities from such Participant.
(g) The exercise or non-exercise of the rights of the Participants
hereunder to participate in one or more sales of Stock made by a Selling Party
shall not adversely affect their rights to participate in subsequent sales of
Stock subject to paragraph 4.1 (a).
(h) Subject to the rights of the Series C Purchasers who have elected
to participate in the sale of the Stock subject to the Co-Sale Notice, the
Selling Party may, not later than sixty (60) days following delivery to the
Company and each of the Series C Purchasers of the Notice, conclude a transfer
of any or all of the Stock covered by the Notice on terms and conditions not
more favorable to the transferor than those described in the Notice. Any
proposed transfer on terms and conditions more favorable than those described in
the Co-Sale Notice, as well as any sub-sale rights of the Series C Purchasers
and shall require compliance by the Selling Party with the procedures described
in this Section 4.
4.2 Termination of Right of Co-Sale. Notwithstanding anything in
this Section 4 to the contrary, the right of co-sale shall terminate upon (and
shall not be applicable with respect to) the earlier of (i) the closing of the
Company's initial firm commitment underwritten public offering pursuant to an
effective registration statement under the 1933 Act, (ii) the closing of the
Company's sale of all or substantially all of its assets or the acquisition of
the Company by another entity by means of merger or consolidation resulting in
the exchange of the outstanding shares of the Company's capital stock for
securities or consideration issued, or caused to be issued, by the acquiring
entity or its subsidiary, or (iii) such time as the Series C Purchasers hold an
aggregate of less than 1,000,000 (appropriately adjusted for stock splits,
dividends, recapitalizations and similar events) Shares and Conversion Shares.
4.3 Exempt Transfers.
(a) Notwithstanding the foregoing, the co-sale rights of the Series C
Purchasers shall not apply to any transfer to the ancestors, descendants or
spouse or to trusts for the benefit of such persons or the transferring Founder;
provided that (A) the transferring Founder shall inform the Series C Purchasers
or the Company (which shall then inform the Series C Purchasers) of such pledge,
transfer or gift prior to effecting it and (B) the pledgee, transferee or donee
shall furnish the Series C Purchasers with a written agreement to be bound by
and comply with all provisions of Section 4 of this Agreement. Such transferred
Stock shall remain "Stock" hereunder, and such pledgee, transferee shall be
treated as a "Founder" for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 4 shall
not apply to the sale of any Stock (i) to the public pursuant to a registration
statement filed with, and declared effective by, the Commission under the 1933
Act or (ii) to the Company pursuant to the terms
17
<PAGE>
of the Company's right of first refusal, right to purchase on involuntary
transfer or repurchase rights set forth in stock purchase agreements with the
Founders or in connection with the termination of a Founder's employment with
the Company or (iii) if prior to such sale, the Founder held less than one
percent (1%) of the Company's outstanding shares.
(c) This Section 4 shall in no manner limit the right of the Company
to repurchase securities from Founders, consultants, employees or directors
pursuant to its repurchase rights and first refusal rights and rights to
purchase upon involuntary transfers set forth in applicable stock purchase
agreements.
4.4 Prohibited Transfers. Notwithstanding the foregoing, any attempt
by a Founder to transfer Stock in violation of Section 4 hereof shall be void
and the Company agrees it will not effect such a transfer nor will it treat any
alleged transferee as the holder of such shares without the written consent of
the holders of more than fifty percent (50%) of the outstanding shares of
Conversion Stock (assuming, for purposes of this Section 4.4, conversion of all
outstanding shares).
4.5 Legend.
(a) Each certificate representing shares of Stock now or hereafter
owned by the Founders or issued to any person in connection with a transfer
pursuant to paragraph 4.3(a) hereof shall be endorsed with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF AN INVESTORS
RIGHTS AGREEMENT, BY AND BETWEEN THE SHAREHOLDER, THE COMPANY AND CERTAIN
HOLDERS OF SHARES OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
(b) Each Founder agrees that the Company may instruct its transfer
agent to impose transfer restrictions on the shares represented by certificates
bearing the legend referred to in paragraph 4.5(a) above to enforce the
provisions of this Section 4 and the Company agrees to promptly do so. The
legend shall be removed upon termination of the provisions of Section 4 of this
Agreement.
4.6 Assignability of Rights. The co-sale rights granted to the
Series C Purchasers hereunder shall be assignable only to an assignee or
transferee who acquires at least 250,000 shares of Series C Preferred Stock or
Common Stock issued upon conversion thereof.
4.7 Stock Split. All references to numbers of shares in this Section
4 shall be appropriately adjusted to reflect any stock dividend, split,
combination or other recapitalization of shares by the Company occurring after
the date of this Agreement.
5. Miscellaneous.
5.1 Waivers and Amendments. With the written consent of the Company
and the record holders of more than 50% of the Conversion Stock (assuming, for
purposes of this Section
18
<PAGE>
6.1, conversion of all outstanding shares of Series C Preferred Stock), the
obligations of the Company and the rights of the holders of the Shares and the
Conversion Stock under this Agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely), and with the same consent, the
Company, when authorized by resolution of its Board of Directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement;
provided, however, that no such waiver or supplemental agreement shall reduce
the aforesaid percentage of the Conversion Stock (assuming conversion of all
outstanding shares of Series C Preferred Stock), the holders of which are
required to consent to any waiver or supplemental agreement without the consent
of the record holders of all of the Conversion Stock (assuming conversion of all
outstanding shares of Series C Preferred Stock and, provided further that any
amendment to Section 4 hereof shall in addition require the consent of a
majority in interest of the Founders (based on the number of shares of Common
Stock and securities convertible into or exercisable for Common Stock held by
the Founders at the time such consent is sought). Upon the effectuation of each
such waiver, consent, agreement, amendment or modification the Company shall
promptly given written notice thereof to the record holders of the Shares and/or
the Conversion Stock who have not previously consented thereto in writing.
Neither this Agreement nor any provisions hereof may be changed, waived,
discharged or terminated orally, but only by a signed statement in writing.
5.2 Governing Law. This Agreement shall be governed in all respects
by the laws of the State of Washington as such laws are applied to agreements
between Washington residents entered into and to be performed entirely within
Washington.
5.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
5.4 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.
5.5 Notices. All notices and other communications required or
permitted hereunder shall be effective upon receipt and shall be in writing and
may be delivered in person, by telecopy, electronic mail, overnight delivery
service or U.S. mail, in which event it may be mailed by first-class, certified
or registered, postage prepaid, addressed (a) if to a Purchaser or Holder, at
such address as such Purchaser or Holder shall have furnished the Company in
writing, or, until any such holder so furnishes an address to the Company, then
to and at the address of the last holder of such securities who has so furnished
an address to the Company, or (b) if to the Company, at 1100 Olive Way, Suite
1270, Seattle, WA 98101, or at such other address as the Company shall have
furnished to the Purchasers, Holders and each such other holder in writing.
Notwithstanding the foregoing, all notices and communications to addresses
outside the United States shall be given by telecopier and confirmed in writing
sent by overnight or two-day courier service.
19
<PAGE>
5.6 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
5.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.8 Nominees. Securities registered in the name of a nominee for a
Purchaser or a Holder shall, for purposes of this Agreement, be treated as being
owned by such Purchaser or Holder.
20
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
AVENUE A, INC.
By: /s/ Nicolas Hanauer
---------------------------
Nicolas Hanauer, Chairman
FOUNDERS (executing agreement for purposes of being bound by Section 4 hereof)
/s/ Nicolas Hanauer /s/ Michael Galgon
- -------------------------- ---------------------------
Nicolas Hanauer Michael Galgon
/s/ Scott Lipsky /s/ R. Michael Leo
- -------------------------- ---------------------------
Scott Lipsky R. Michael Leo
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
HOLDERS:
VOYAGER CAPITAL FUND L.L.P
By: Voyager Capital Management, LLC
Its General Partner
By: /s/ Enrique Godreau
-----------------------------
Enrique Godreau, Managing Director
VOYAGER CAPITAL FOUNDERS FUND, L.P.
By: Voyager Capital Management, LLC
Its General Partner
By: /s/ Enrique Godreau
-----------------------------
Enrique Godreau, Managing Director
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
OAK INVESTMENT PARTNERS VIII, L.P.
By: Oak Associates VIII, LLC
Its General Partner
By: /s/ Fredric Harman
----------------------------
Fredric Harman, Managing Director
OAK VIII AFFILIATES FUND, L.P.
By: Oak VIII Affiliates Fund, LLC
Its General Partner
By: /s/ Fredric Harman
----------------------------
Fredric Harman, Managing Director
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
U.S. VENTURE PARTNERS VI, L.P.
By: Presidio Management Group VI, LLC
Its General Partner
By: /s/ Michael P. Maher
------------------------------
Michael P. Maher
Attorney-in-Fact
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
KIRLAN VENTURE PARTNERS II, L.P.
By: Kirlan Venture Capital, Inc.
Its General Partner
By: /s/ Daniel C. Regis
-----------------------------------
Daniel C. Regis, President
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
NORMAN H. NIE, TRUSTEE, NORMAN H. NIE
REVOCABLE TRUST DATED 3/15/91
By: /s/ Norman Nie
------------------------
Norman Nie, Trustee
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
MEDIA PARTNERS
By: /s/ John R. Jacobs
------------------------------------
John R. Jacobs, General Partner
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
THE PHOENIX PARTNERS IV LIMITED PARTNERSHIP
By: Phoenix Management IV, LLC
Its General Partner
By: /s/ David B. Johnston
---------------------------
David B. Johnston, Member
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
/s/ R. Michael Leo
----------------------------------
R. Michael Leo
<PAGE>
The foregoing Investors Rights Agreement is hereby executed as of the date
first above written.
INSIGHT VENTURE ASSOCIATES L.L.C.
By: /s/ Jerry Murdock
---------------------------------
Jerry Murdock, Partner
<PAGE>
EXHIBIT 10.10
PROMISSORY NOTE
$_______________ (U.S.) Seattle, Washington
October 8, 1999
For value received, the undersigned, _________, promises to pay on demand
to the order of Avenue A, Inc., a Washington corporation (the "Company"), the
principal sum of ____________________________________________ Dollars
($____________) with interest compounded annually from the date hereof at a rate
equal to the greater of (i) the applicable federal rate for a demand note as
determined on the date hereof and redetermined each year on the anniversary date
of this Note, or (ii) the lowest rate necessary to avoid the imputation of
interest under the Internal Revenue Code of 1986, as amended, from the date
hereof on the unpaid balance until this Note, including the interest thereon, is
paid in full, such interest to be paid annually on each anniversary date of this
Note.
If default be made in the payment of any sum when due, then, at the option
of the holder of this Note, the entire indebtedness hereby represented shall
become immediately due and payable without notice. As long as this Note is in
default, then, at the option of the holder hereof, without prior notice, the
principal sum and interest shall bear interest from such default until paid at
the rate of twelve percent (12 %), compounded quarterly, or the maximum rate
permitted by law, whichever is less.
Principal and interest are payable in lawful money of the United States of
America at such place as the holder may designate. All payments of principal
and interest hereunder shall be applied first against accrued interest and then
against principal. The undersigned shall have the right, upon payment of all
accrued interest to the date of payment, to pre-pay at any time in advance of
maturity, without premium or penalty, all or any part of the principal amount of
this Note.
If suit is brought on this Note, or if it is placed in the hands of an
attorney for collection, after any default in any payment, the undersigned
promises and agrees to pay all costs of collection, including attorneys' fees,
incurred thereby. Such costs of collection include, without limitation, any
attorneys' fees and costs incurred by the holder in a bankruptcy case or
proceeding in which the undersigned is a debtor.
This Note, which is full recourse, is secured by a pledge of certain shares
of Common Stock of the Company and is subject to the terms of the Stock Purchase
Agreement. This Note is to be construed in all respects and enforced according
to the laws of the State of Washington, without regard for any choice of law
rules that might be asserted to subject this
<PAGE>
Note to the laws of any other jurisdiction. Presentment, notice of dishonor and
protest are waived by the undersigned.
This Note shall be fully binding on and inure to the benefit of the
successors, heirs, legal representatives and assigns of the parties hereto.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
Signature:
____________________________________
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<PAGE>
SCHEDULE A
Name Amount
- -------------------------------------
Brian P. McAndrews $676,000
Robert M. Littauer $100,000
Clark Kokich $54,959
Jeffrey M. Miller $44,835
Anna Collins $43,967
Michael T. Galgon $29,013
Neve R. Savage $11,570
-3-
<PAGE>
EXHIBIT 10.11
AVENUE A, INC.
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") made as of the 8th day of
October, 1999, between AVENUE A, INC., a Washington corporation (the "Company"),
and the undersigned ("Purchaser").
1. Sale of Stock
1.1 Purchase. Purchaser hereby purchases ___________ shares of Common
Stock (the "Shares") granted to Purchaser on September 30th, 1999 (the "Grant
Date") to purchase up to 25,000 shares of Common Stock at the purchase price of
$4.00 per share, pursuant to the terms herein.
1.2 Payment. The purchase price for the Shares shall be paid to the
Company by any combination of cash and/or check.
2. Securities Law Compliance
2.1 Purchaser represents and warrants that (a) Purchaser has been
furnished with all information which Purchaser deems necessary to evaluate the
merits and risks of the purchase of the Shares; (b) Purchaser has had the
opportunity to ask questions and receive answers concerning the information
received about the Shares and the Company; and (c) Purchaser has been given the
opportunity to obtain any additional information Purchaser deems necessary to
verify the accuracy of any information obtained concerning the Shares and the
Company.
2.2 Purchaser hereby confirms that Purchaser has been informed that the
Shares have not been registered under the federal Securities Act of 1933, as
amended (the "Securities Act"), or any state securities laws pursuant to
exemptions from registration. Purchaser further confirms that Purchaser
understands that the reliance by the Company on such exemptions is predicated in
part upon the truth and accuracy of the statements by Purchaser in this
Agreement.
2.3 Purchaser hereby represents and warrants that Purchaser is purchasing
the Shares for Purchaser's own account, for investment purposes only, and not
with a view towards the distribution or public offering of all or any part of
the Shares.
2.4 Purchaser hereby confirms that Purchaser understands that because the
Shares have not been registered under the Securities Act, Purchaser must
continue to bear the economic risk of the investment for an indefinite time and
the Shares cannot be sold unless the Shares are subsequently registered or an
exemption from registration is available.
-1-
<PAGE>
2.5 Purchaser hereby agrees that Purchaser shall in no event sell or
distribute all or any part of the Shares unless (a) there is an effective
registration statement under the Securities Act and applicable state securities
laws covering any such transaction involving the Shares or (b) the Company
receives an opinion of Purchaser's legal counsel (concurred in by legal counsel
for the Company) stating that such transaction is exempt from registration or
the Company otherwise satisfies itself that such transaction is exempt from
registration.
2.6 Purchaser hereby consents to the placing of a legend on Purchaser's
certificate(s) as substantially set forth in Section 5 hereof and to the placing
of a stop-transfer order on the books of the Company and with any transfer
agents against the Shares until the Shares may be legally resold or distributed.
2.7 Purchaser hereby confirms that Purchaser understands that at the
present time Rule 144 of the Securities and Exchange Commission (the "SEC") may
not be relied on for the resale or distribution of the Shares by Purchaser.
Purchaser understands that the Company has no obligation to Purchaser to
register the Shares with the SEC and has not represented to Purchaser that it
will register the Shares.
2.8 Purchaser confirms that Purchaser has been advised, prior to
Purchaser's purchase of the Shares, that neither the offering of the Shares nor
any offering materials have been reviewed by any administrator under the
Securities Act, the Washington State Securities Act or any other applicable
securities act (the "Acts") and that the Shares have not been registered under
any of the Acts and therefore cannot be resold unless they are registered under
the Acts or unless an exemption from such registration is available.
2.9 Purchaser hereby agrees to indemnify the Company and hold it harmless
from and against any loss, claim or liability, including attorneys' fees or
legal expenses, incurred by the Company as a result of any breach by Purchaser
of, or any inaccuracy in, any representation, warranty or statement by Purchaser
in this Agreement or the breach by Purchaser of any of the terms or conditions
of this Agreement.
3. Transfer Restrictions
3.1 Restrictions on Transfer. Shares shall not be sold, transferred,
assigned, pledged, encumbered or otherwise of disposed of in contravention of
the market standoff provisions of Section 3.3 hereof or the right of first
refusal under Section 4 hereof. Except as otherwise provided herein, such
restrictions on transfer, however, shall not apply to (a) a gratuitous transfer
of the Shares, provided, and only if, Purchaser obtains the Company's prior
written consent to such transfer, (b) a transfer of title to the Shares effected
pursuant to Purchaser's will or the laws of intestate succession, or (c) a
transfer to the Company in pledge as security for any purchase-money
indebtedness incurred by Purchaser in connection with the acquisition of the
Shares.
3.2 Transferee Obligations. Each person (other than the Company) to whom
the Shares are transferred by means of one of the permitted transfers specified
in Section 3.1
-2-
<PAGE>
hereof must, as a condition precedent to the validity of such transfer,
acknowledge in writing to the Company that such person is bound by the
provisions of this Agreement and that the transferred shares are subject to the
market standoff provisions of Section 3.3 hereof and the right of first refusal
under Section 4 hereof, to the same extent such shares would be so subject if
retained by Purchaser.
3.3 Market Standoff. In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, including the Company's initial public
offering, Purchaser or any transferee (either being sometimes referred to herein
as the "Holder") shall not sell, make any short sale of, loan, hypothecate,
pledge, assign, grant any option for the purchase of, or otherwise dispose or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Shares without the prior written consent of
the Company or its underwriters. Such limitations shall be in effect for such
period of time as may be requested by the Company or such underwriters and
agreed to by the Company's officers and directors with respect to their shares
(other than any of their shares being sold pursuant to the registration
statement for the underwritten public offering); provided, however, that in no
event shall such period exceed 180 days. Holder shall be subject to the market
standoff provisions of this Section 3.3 only if and to the same extent that the
officers and directors of the Company are also subject to similar arrangements.
4. Company's Right of First Refusal
Before any Shares held by the Holder may be sold or otherwise transferred
(including any assignment, pledge, encumbrance or other disposition of the
Shares, but not including a permitted transfer under Section 3.1 hereof), the
Company or its assignee shall have an assignable right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section 4 (the
"Right of First Refusal").
4.1 Notice of Proposed Transfer. In the event any Holder of the Shares
desires to accept a bona fide third-party offer for the sale or transfer of any
or all of the Shares, the Holder shall promptly deliver to the Company a written
notice (the "Notice") stating the terms and conditions of any proposed sale or
transfer, including: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name of each proposed purchaser or other
transferee (the "Proposed Transferee"); (c) the number of Shares to be
transferred to each Proposed Transferee; and (d) the bona fide cash price or
other consideration for which the Holder proposes to transfer the Shares (the
"Offered Price"). The Holder shall provide satisfactory proof that the
disposition of such shares to such Proposed Transferee would not be in
contravention of the provisions of Section 3 hereof and the Holder shall offer
to sell the Shares at the Offered Price to the Company.
4.2 Exercise of Right of First Refusal. At any time within 30 days after
receipt of the Notice, the Company or its assignee may, by giving written notice
to the Holder, elect to purchase all or any portion of the Shares proposed to be
transferred to any one or more of
-3-
<PAGE>
the Proposed Transferees, at the purchase price determined in accordance with
subsection 4.3 below.
4.3 Purchase Price. The purchase price for the Shares purchased under
this Section 4 shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the noncash
consideration shall be determined by the Board of Directors of the Company in
good faith.
4.4 Payment. Payment of the purchase price shall be made, at the option
of the Company or its assignee, either (a) in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company
or such assignee, or by any combination thereof within 30 days after receipt of
the Notice or (b) in the manner and at the time(s) set forth in the Notice.
4.5 Holder's Right to Transfer. If any of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee as provided in this Section 4, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 60 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 4 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
or its assignee shall again be offered the Right of First Refusal before any
Shares held by the Holder may be sold or otherwise transferred.
4.6 Termination of Right of First Refusal. The Right of First Refusal
under this Section 4 shall terminate as to any Shares upon the first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC (other than a
registration statement solely covering an employee benefit plan or corporate
reorganization).
5. Legends
Purchaser understands and agrees that the Shares are subject to
restrictions as substantially set forth herein. Purchaser understands that the
certificate(s) representing the Shares shall bear legends in substantially the
following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY
THE ISSUER AND/OR ITS ASSIGNEE(S) AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
ENCUMBERED OR IN ANY WAY DISPOSED OF EXCEPT AS SET FORTH IN THE CERTAIN
AGREEMENT BETWEEN THE
-4-
<PAGE>
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHTS OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT THE PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS."
6. Stop-Transfer Notices
Purchaser understands and agrees that, in order to ensure compliance with
the restrictions referred to herein, the Company may issue appropriate "stop-
transfer" instructions to its transfer agent, if any, and that, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records. The Company shall not be required to (a) transfer on
its books any Shares that have been sold or transferred in violation of the
provisions of this Agreement or (b) treat as the owner of the Shares, or
otherwise accord voting, dividend or liquidation rights to, any transferee to
whom the Shares have been transferred in contravention of this Agreement.
7. Independent Tax Advice
Purchaser acknowledges that determining the actual tax consequences to each
particular Purchaser of purchasing or disposing of the Shares may be
complicated. These tax consequences will depend, in part, on Purchaser's
specific situation, the resolution of currently uncertain tax law, and other
variables not within the control of the Company. Purchaser is aware that
Purchaser should consult a competent and independent tax advisor for a full
understanding of the specific tax consequences to Purchaser prior to purchasing
or disposing of the Shares. Prior to purchasing shares, Purchaser either has
consulted with a competent tax advisor independent of the Company to obtain tax
advice concerning the purchase of the Shares in light of Purchaser's specific
situation or has had the opportunity to consult with such a tax advisor but
chose not to do so.
-5-
<PAGE>
8. General Provisions
8.1 Assignment. The Company may assign its rights hereunder to any person
or entity selected by the Company's Board of Directors, including, without
limitation, one or more shareholders of the Company.
8.2 Notices. Any notice required in connection with the Company's
exercise of its rights hereunder shall be given in writing and shall be deemed
effective upon personal delivery or upon deposit in the U.S. mail, registered or
certified, postage prepaid and addressed to the party entitled to such notice at
the address indicated below such party's signature line on this Agreement or at
such other address as such party may designate by 10 days' advance written
notice under this Section 8.2 to all other parties to this Agreement.
8.3 No Waiver. No waiver of any provision of this Agreement shall be
valid unless in writing, signed by the person against whom such waiver is sought
to be enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same or a waiver of any other right hereunder.
8.4 Cancellation of Shares. If the Company (or its assignees) shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Shares to be purchased by the Company
pursuant to the exercise of its rights hereunder, then, from and after such
time, the person from whom such shares are to be repurchased shall no longer
have any rights as a holder of such shares (other than the right to receive
payment of such consideration in accordance with this Agreement, as the case may
be). The Company (or its assignees) shall be deemed the owner and holder of
such shares, whether or not the certificates therefor have been delivered.
8.5 Purchaser Undertaking. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Purchaser or the Shares pursuant
to the express provisions of this Agreement.
8.6 Agreement Is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof,
and no modification of any provision hereof shall be binding upon either
Purchaser or the Company unless in writing and signed by the party against whom
such modification is sought to be enforced.
8.7 Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and agreed in writing to
join herein and be bound by the terms and conditions hereof.
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<PAGE>
8.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which, upon
execution, shall constitute one and the same instrument.
8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.
AVENUE A, INC.
By:
-------------------------------
Title:
----------------------------
Address:
--------------------------
--------------------------
PURCHASER
----------------------------------
Printed Name:
--------------------------
Address:
--------------------------
--------------------------
By his or her signature below, the spouse of the Purchaser, if such
Purchaser is legally married as of the date of his or her execution of this
Agreement, acknowledges that he or she has read this Agreement and is familiar
with the terms and provisions hereof and thereof, and agrees to be bound by all
the terms and conditions of this Agreement.
Dated:_________________________ _______________________
Spouse's Signature
_______________________
Printed Name
By his or her signature below, the Purchaser represents that he or she is
not legally married as of the date of executing this Agreement.
Dated:__________________________ ______________________
Purchaser's Signature
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<PAGE>
SCHEDULE A
Name Shares
- ------------------------------
Robert M. Littauer 25,000
Brian P. McAndrews 25,000
Neve Savage 25,000
Jeffrey Miller 25,000
Michael Galgon 25,000
Scott Lipsky 25,000
Anna Collins 13,750
Clark Kokich 6,250
-8-
<PAGE>
EXHIBIT 10.12
AVENUE A, INC.
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") made as of the 26th day of
October 1999, between AVENUE A, INC., a Washington corporation (the "Company"),
and the undersigned ("Purchaser").
1. Sale of Stock
1.1 Purchase. Purchaser hereby purchases 50,000 shares of Common Stock
(the "Shares") granted to Purchaser on August 16, 1999 (the "Grant Date") to
purchase up to 50,000 shares of Common Stock at the purchase price of $1.90 per
share, pursuant to the terms herein.
1.2 Payment. The purchase price for the Shares shall be paid to the
Company by any combination of cash and/or check.
2. Securities Law Compliance
2.1 Purchaser represents and warrants that (a) Purchaser has been
furnished with all information which Purchaser deems necessary to evaluate the
merits and risks of the purchase of the Shares; (b) Purchaser has had the
opportunity to ask questions and receive answers concerning the information
received about the Shares and the Company; and (c) Purchaser has been given the
opportunity to obtain any additional information Purchaser deems necessary to
verify the accuracy of any information obtained concerning the Shares and the
Company.
2.2 Purchaser hereby confirms that Purchaser has been informed that the
Shares have not been registered under the federal Securities Act of 1933, as
amended (the "Securities Act"), or any state securities laws pursuant to
exemptions from registration. Purchaser further confirms that Purchaser
understands that the reliance by the Company on such exemptions is predicated in
part upon the truth and accuracy of the statements by Purchaser in this
Agreement.
2.3 Purchaser hereby represents and warrants that Purchaser is purchasing
the Shares for Purchaser's own account, for investment purposes only, and not
with a view towards the distribution or public offering of all or any part of
the Shares.
2.4 Purchaser hereby confirms that Purchaser understands that because the
Shares have not been registered under the Securities Act, Purchaser must
continue to bear the economic risk of the investment for an indefinite time and
the Shares cannot be sold unless the Shares are subsequently registered or an
exemption from registration is available.
-1-
<PAGE>
2.5 Purchaser hereby agrees that Purchaser shall in no event sell or
distribute all or any part of the Shares unless (a) there is an effective
registration statement under the Securities Act and applicable state securities
laws covering any such transaction involving the Shares or (b) the Company
receives an opinion of Purchaser's legal counsel (concurred in by legal counsel
for the Company) stating that such transaction is exempt from registration or
the Company otherwise satisfies itself that such transaction is exempt from
registration.
2.6 Purchaser hereby consents to the placing of a legend on Purchaser's
certificate(s) as substantially set forth in Section 5 hereof and to the placing
of a stop-transfer order on the books of the Company and with any transfer
agents against the Shares until the Shares may be legally resold or distributed.
2.7 Purchaser hereby confirms that Purchaser understands that at the
present time Rule 144 of the Securities and Exchange Commission (the "SEC") may
not be relied on for the resale or distribution of the Shares by Purchaser.
Purchaser understands that the Company has no obligation to Purchaser to
register the Shares with the SEC and has not represented to Purchaser that it
will register the Shares.
2.8 Purchaser confirms that Purchaser has been advised, prior to
Purchaser's purchase of the Shares, that neither the offering of the Shares nor
any offering materials have been reviewed by any administrator under the
Securities Act, the Washington State Securities Act or any other applicable
securities act (the "Acts") and that the Shares have not been registered under
any of the Acts and therefore cannot be resold unless they are registered under
the Acts or unless an exemption from such registration is available.
2.9 Purchaser hereby agrees to indemnify the Company and hold it harmless
from and against any loss, claim or liability, including attorneys' fees or
legal expenses, incurred by the Company as a result of any breach by Purchaser
of, or any inaccuracy in, any representation, warranty or statement by Purchaser
in this Agreement or the breach by Purchaser of any of the terms or conditions
of this Agreement.
3. Transfer Restrictions
3.1 Restrictions on Transfer. Shares shall not be sold, transferred,
assigned, pledged, encumbered or otherwise of disposed of in contravention of
the market standoff provisions of Section 3.3 hereof or the right of first
refusal under Section 4 hereof. Except as otherwise provided herein, such
restrictions on transfer, however, shall not apply to (a) a gratuitous transfer
of the Shares, provided, and only if, Purchaser obtains the Company's prior
written consent to such transfer, (b) a transfer of title to the Shares effected
pursuant to Purchaser's will or the laws of intestate succession, or (c) a
transfer to the Company in pledge as security for any purchase-money
indebtedness incurred by Purchaser in connection with the acquisition of the
Shares.
3.2 Transferee Obligations. Each person (other than the Company) to whom
the Shares are transferred by means of one of the permitted transfers specified
in Section 3.1
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<PAGE>
hereof must, as a condition precedent to the validity of such transfer,
acknowledge in writing to the Company that such person is bound by the
provisions of this Agreement and that the transferred shares are subject to the
market standoff provisions of Section 3.3 hereof and the right of first refusal
under Section 4 hereof, to the same extent such shares would be so subject if
retained by Purchaser.
3.3 Market Standoff. In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, including the Company's initial public
offering, Purchaser or any transferee (either being sometimes referred to herein
as the "Holder") shall not sell, make any short sale of, loan, hypothecate,
pledge, assign, grant any option for the purchase of, or otherwise dispose or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Shares without the prior written consent of
the Company or its underwriters. Such limitations shall be in effect for such
period of time as may be requested by the Company or such underwriters and
agreed to by the Company's officers and directors with respect to their shares
(other than any of their shares being sold pursuant to the registration
statement for the underwritten public offering); provided, however, that in no
event shall such period exceed 180 days. Holder shall be subject to the market
standoff provisions of this Section 3.3 only if and to the same extent that the
officers and directors of the Company are also subject to similar arrangements.
4. Company's Right of First Refusal
Before any Shares held by the Holder may be sold or otherwise transferred
(including any assignment, pledge, encumbrance or other disposition of the
Shares, but not including a permitted transfer under Section 3.1 hereof), the
Company or its assignee shall have an assignable right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section 4 (the
"Right of First Refusal").
4.1 Notice of Proposed Transfer. In the event any Holder of the Shares
desires to accept a bona fide third-party offer for the sale or transfer of any
or all of the Shares, the Holder shall promptly deliver to the Company a written
notice (the "Notice") stating the terms and conditions of any proposed sale or
transfer, including: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name of each proposed purchaser or other
transferee (the "Proposed Transferee"); (c) the number of Shares to be
transferred to each Proposed Transferee; and (d) the bona fide cash price or
other consideration for which the Holder proposes to transfer the Shares (the
"Offered Price"). The Holder shall provide satisfactory proof that the
disposition of such shares to such Proposed Transferee would not be in
contravention of the provisions of Section 3 hereof and the Holder shall offer
to sell the Shares at the Offered Price to the Company.
4.2 Exercise of Right of First Refusal. At any time within 30 days after
receipt of the Notice, the Company or its assignee may, by giving written notice
to the Holder, elect to purchase all or any portion of the Shares proposed to be
transferred to any one or more of
-3-
<PAGE>
the Proposed Transferees, at the purchase price determined in accordance with
subsection 4.3 below.
4.3 Purchase Price. The purchase price for the Shares purchased under
this Section 4 shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the noncash
consideration shall be determined by the Board of Directors of the Company in
good faith.
4.4 Payment. Payment of the purchase price shall be made, at the option
of the Company or its assignee, either (a) in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company
or such assignee, or by any combination thereof within 30 days after receipt of
the Notice or (b) in the manner and at the time(s) set forth in the Notice.
4.5 Holder's Right to Transfer. If any of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee as provided in this Section 4, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 60 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 4 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
or its assignee shall again be offered the Right of First Refusal before any
Shares held by the Holder may be sold or otherwise transferred.
4.6 Termination of Right of First Refusal. The Right of First Refusal
under this Section 4 shall terminate as to any Shares upon the first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC (other than a
registration statement solely covering an employee benefit plan or corporate
reorganization).
5. Legends
Purchaser understands and agrees that the Shares are subject to
restrictions as substantially set forth herein. Purchaser understands that the
certificate(s) representing the Shares shall bear legends in substantially the
following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY
THE ISSUER AND/OR ITS ASSIGNEE(S) AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
ENCUMBERED OR IN ANY WAY DISPOSED OF EXCEPT AS SET FORTH IN THE CERTAIN
AGREEMENT BETWEEN
-4-
<PAGE>
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND
RIGHTS OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT THE PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS."
6. Stop-Transfer Notices
Purchaser understands and agrees that, in order to ensure compliance with
the restrictions referred to herein, the Company may issue appropriate "stop-
transfer" instructions to its transfer agent, if any, and that, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records. The Company shall not be required to (a) transfer on
its books any Shares that have been sold or transferred in violation of the
provisions of this Agreement or (b) treat as the owner of the Shares, or
otherwise accord voting, dividend or liquidation rights to, any transferee to
whom the Shares have been transferred in contravention of this Agreement.
7. Independent Tax Advice
Purchaser acknowledges that determining the actual tax consequences to each
particular Purchaser of purchasing or disposing of the Shares may be
complicated. These tax consequences will depend, in part, on Purchaser's
specific situation, the resolution of currently uncertain tax law, and other
variables not within the control of the Company. Purchaser is aware that
Purchaser should consult a competent and independent tax advisor for a full
understanding of the specific tax consequences to Purchaser prior to purchasing
or disposing of the Shares. Prior to purchasing shares, Purchaser either has
consulted with a competent tax advisor independent of the Company to obtain tax
advice concerning the purchase of the Shares in light of Purchaser's specific
situation or has had the opportunity to consult with such a tax advisor but
chose not to do so.
-5-
<PAGE>
8. General Provisions
8.1 Assignment. The Company may assign its rights hereunder to any person
or entity selected by the Company's Board of Directors, including, without
limitation, one or more shareholders of the Company.
8.2 Notices. Any notice required in connection with the Company's
exercise of its rights hereunder shall be given in writing and shall be deemed
effective upon personal delivery or upon deposit in the U.S. mail, registered or
certified, postage prepaid and addressed to the party entitled to such notice at
the address indicated below such party's signature line on this Agreement or at
such other address as such party may designate by 10 days' advance written
notice under this Section 8.2 to all other parties to this Agreement.
8.3 No Waiver. No waiver of any provision of this Agreement shall be
valid unless in writing, signed by the person against whom such waiver is sought
to be enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same or a waiver of any other right hereunder.
8.4 Cancellation of Shares. If the Company (or its assignees) shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Shares to be purchased by the Company
pursuant to the exercise of its rights hereunder, then, from and after such
time, the person from whom such shares are to be repurchased shall no longer
have any rights as a holder of such shares (other than the right to receive
payment of such consideration in accordance with this Agreement, as the case may
be). The Company (or its assignees) shall be deemed the owner and holder of
such shares, whether or not the certificates therefor have been delivered.
8.5 Purchaser Undertaking. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Purchaser or the Shares pursuant
to the express provisions of this Agreement.
8.6 Agreement Is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof,
and no modification of any provision hereof shall be binding upon either
Purchaser or the Company unless in writing and signed by the party against whom
such modification is sought to be enforced.
8.7 Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and agreed in writing to
join herein and be bound by the terms and conditions hereof.
-6-
<PAGE>
8.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which, upon
execution, shall constitute one and the same instrument.
8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.
AVENUE A, INC.
By: /s/ ROBERT M. LITTAUER
-----------------------
Title: VICE PRESIDENT
--------------
Address: 506 2nd Avenue
--------------
Seattle, WA 98104
-----------------
PURCHASER
/s/ G. B. MAFFEI
----------------
Printed Name: Gregory B. Maffei
-----------------
Address: 1210 42nd Ave. E.
-----------------
Seattle, WA 98112
-----------------
By his or her signature below, the spouse of the Purchaser, if such
Purchaser is legally married as of the date of his or her execution of this
Agreement, acknowledges that he or she has read this Agreement and is familiar
with the terms and provisions hereof and thereof, and agrees to be bound by all
the terms and conditions of this Agreement.
Dated: 10/26/99 /s/ S. A. MAFFEI
------------------------------------------ ----------------
Spouse's Signature
Sharon Abrams Maffei
--------------------
Printed Name
By his or her signature below, the Purchaser represents that he or she is
not legally married as of the date of executing this Agreement.
Dated:__________________________ __________________________________________
Purchaser's Signature
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<PAGE>
EXHIBIT 10.13
AVENUE A
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") made as of the 26th day of
October 1999, between AVENUE A, INC., a Washington corporation (the "Company"),
and the undersigned ("Purchaser").
1. Sale of Stock
1.1 Purchase. Purchaser hereby purchases 50,000 shares of Common Stock
(the "Shares") granted to Purchaser on October 25, 1999 (the "Grant Date") to
purchase up to 50,000 shares of Common Stock at the purchase price of $4.00 per
share, pursuant to the terms herein.
1.2 Payment. The purchase price for the Shares shall be paid to the
Company by any combination of cash and/or check.
2. Securities Law Compliance
2.1 Purchaser represents and warrants that (a) Purchaser has been
furnished with all information which Purchaser deems necessary to evaluate the
merits and risks of the purchase of the Shares; (b) Purchaser has had the
opportunity to ask questions and receive answers concerning the information
received about the Shares and the Company; and (c) Purchaser has been given the
opportunity to obtain any additional information Purchaser deems necessary to
verify the accuracy of any information obtained concerning the Shares and the
Company.
2.2 Purchaser hereby confirms that Purchaser has been informed that the
Shares have not been registered under the federal Securities Act of 1933, as
amended (the "Securities Act"), or any state securities laws pursuant to
exemptions from registration. Purchaser further confirms that Purchaser
understands that the reliance by the Company on such exemptions is predicated in
part upon the truth and accuracy of the statements by Purchaser in this
Agreement.
2.3 Purchaser hereby represents and warrants that Purchaser is purchasing
the Shares for Purchaser's own account, for investment purposes only, and not
with a view towards the distribution or public offering of all or any part of
the Shares.
2.4 Purchaser hereby confirms that Purchaser understands that because the
Shares have not been registered under the Securities Act, Purchaser must
continue to bear the economic risk of the investment for an indefinite time and
the Shares cannot be sold unless the Shares are subsequently registered or an
exemption from registration is available.
-1-
<PAGE>
2.5 Purchaser hereby agrees that Purchaser shall in no event sell or
distribute all or any part of the Shares unless (a) there is an effective
registration statement under the Securities Act and applicable state securities
laws covering any such transaction involving the Shares or (b) the Company
receives an opinion of Purchaser's legal counsel (concurred in by legal counsel
for the Company) stating that such transaction is exempt from registration or
the Company otherwise satisfies itself that such transaction is exempt from
registration.
2.6 Purchaser hereby consents to the placing of a legend on Purchaser's
certificate(s) as substantially set forth in Section 5 hereof and to the placing
of a stop-transfer order on the books of the Company and with any transfer
agents against the Shares until the Shares may be legally resold or distributed.
2.7 Purchaser hereby confirms that Purchaser understands that at the
present time Rule 144 of the Securities and Exchange Commission (the "SEC") may
not be relied on for the resale or distribution of the Shares by Purchaser.
Purchaser understands that the Company has no obligation to Purchaser to
register the Shares with the SEC and has not represented to Purchaser that it
will register the Shares.
2.8 Purchaser confirms that Purchaser has been advised, prior to
Purchaser's purchase of the Shares, that neither the offering of the Shares nor
any offering materials have been reviewed by any administrator under the
Securities Act, the Washington State Securities Act or any other applicable
securities act (the "Acts") and that the Shares have not been registered under
any of the Acts and therefore cannot be resold unless they are registered under
the Acts or unless an exemption from such registration is available.
2.9 Purchaser hereby agrees to indemnify the Company and hold it harmless
from and against any loss, claim or liability, including attorneys' fees or
legal expenses, incurred by the Company as a result of any breach by Purchaser
of, or any inaccuracy in, any representation, warranty or statement by Purchaser
in this Agreement or the breach by Purchaser of any of the terms or conditions
of this Agreement.
3. Transfer Restrictions
3.1 Restrictions on Transfer. Shares shall not be sold, transferred,
assigned, pledged, encumbered or otherwise of disposed of in contravention of
the market standoff provisions of Section 3.3 hereof or the right of first
refusal under Section 4 hereof. Except as otherwise provided herein, such
restrictions on transfer, however, shall not apply to (a) a gratuitous transfer
of the Shares, provided, and only if, Purchaser obtains the Company's prior
written consent to such transfer, (b) a transfer of title to the Shares effected
pursuant to Purchaser's will or the laws of intestate succession, or (c) a
transfer to the Company in pledge as security for any purchase-money
indebtedness incurred by Purchaser in connection with the acquisition of the
Shares.
3.2 Transferee Obligations. Each person (other than the Company) to whom
the Shares are transferred by means of one of the permitted transfers specified
in Section 3.1
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<PAGE>
hereof must, as a condition precedent to the validity of such transfer,
acknowledge in writing to the Company that such person is bound by the
provisions of this Agreement and that the transferred shares are subject to the
market standoff provisions of Section 3.3 hereof and the right of first refusal
under Section 4 hereof, to the same extent such shares would be so subject if
retained by Purchaser.
3.3 Market Standoff. In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, including the Company's initial public
offering, Purchaser or any transferee (either being sometimes referred to herein
as the "Holder") shall not sell, make any short sale of, loan, hypothecate,
pledge, assign, grant any option for the purchase of, or otherwise dispose or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Shares without the prior written consent of
the Company or its underwriters. Such limitations shall be in effect for such
period of time as may be requested by the Company or such underwriters and
agreed to by the Company's officers and directors with respect to their shares
(other than any of their shares being sold pursuant to the registration
statement for the underwritten public offering); provided, however, that in no
event shall such period exceed 180 days. Holder shall be subject to the market
standoff provisions of this Section 3.3 only if and to the same extent that the
officers and directors of the Company are also subject to similar arrangements.
4. Company's Right of First Refusal
Before any Shares held by the Holder may be sold or otherwise transferred
(including any assignment, pledge, encumbrance or other disposition of the
Shares, but not including a permitted transfer under Section 3.1 hereof), the
Company or its assignee shall have an assignable right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section 4 (the
"Right of First Refusal").
4.1 Notice of Proposed Transfer. In the event any Holder of the Shares
desires to accept a bona fide third-party offer for the sale or transfer of any
or all of the Shares, the Holder shall promptly deliver to the Company a written
notice (the "Notice") stating the terms and conditions of any proposed sale or
transfer, including: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name of each proposed purchaser or other
transferee (the "Proposed Transferee"); (c) the number of Shares to be
transferred to each Proposed Transferee; and (d) the bona fide cash price or
other consideration for which the Holder proposes to transfer the Shares (the
"Offered Price"). The Holder shall provide satisfactory proof that the
disposition of such shares to such Proposed Transferee would not be in
contravention of the provisions of Section 3 hereof and the Holder shall offer
to sell the Shares at the Offered Price to the Company.
4.2 Exercise of Right of First Refusal. At any time within 30 days after
receipt of the Notice, the Company or its assignee may, by giving written notice
to the Holder, elect to purchase all or any portion of the Shares proposed to be
transferred to any one or more of
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<PAGE>
the Proposed Transferees, at the purchase price determined in accordance with
subsection 4.3 below.
4.3 Purchase Price. The purchase price for the Shares purchased under
this Section 4 shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the noncash
consideration shall be determined by the Board of Directors of the Company in
good faith.
4.4 Payment. Payment of the purchase price shall be made, at the option
of the Company or its assignee, either (a) in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company
or such assignee, or by any combination thereof within 30 days after receipt of
the Notice or (b) in the manner and at the time(s) set forth in the Notice.
4.5 Holder's Right to Transfer. If any of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee as provided in this Section 4, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 60 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 4 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
or its assignee shall again be offered the Right of First Refusal before any
Shares held by the Holder may be sold or otherwise transferred.
4.6 Termination of Right of First Refusal. The Right of First Refusal
under this Section 4 shall terminate as to any Shares upon the first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC (other than a
registration statement solely covering an employee benefit plan or corporate
reorganization).
5. Legends
Purchaser understands and agrees that the Shares are subject to
restrictions as substantially set forth herein. Purchaser understands that the
certificate(s) representing the Shares shall bear legends in substantially the
following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY
THE ISSUER AND/OR ITS ASSIGNEE(S) AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
ENCUMBERED OR IN ANY WAY DISPOSED OF EXCEPT AS SET FORTH IN THE CERTAIN
AGREEMENT BETWEEN
-4-
<PAGE>
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND
RIGHTS OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT THE PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS."
6. Stop-Transfer Notices
Purchaser understands and agrees that, in order to ensure compliance with
the restrictions referred to herein, the Company may issue appropriate "stop-
transfer" instructions to its transfer agent, if any, and that, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records. The Company shall not be required to (a) transfer on
its books any Shares that have been sold or transferred in violation of the
provisions of this Agreement or (b) treat as the owner of the Shares, or
otherwise accord voting, dividend or liquidation rights to, any transferee to
whom the Shares have been transferred in contravention of this Agreement.
7. Independent Tax Advice
Purchaser acknowledges that determining the actual tax consequences to each
particular Purchaser of purchasing or disposing of the Shares may be
complicated. These tax consequences will depend, in part, on Purchaser's
specific situation, the resolution of currently uncertain tax law, and other
variables not within the control of the Company. Purchaser is aware that
Purchaser should consult a competent and independent tax advisor for a full
understanding of the specific tax consequences to Purchaser prior to purchasing
or disposing of the Shares. Prior to purchasing shares, Purchaser either has
consulted with a competent tax advisor independent of the Company to obtain tax
advice concerning the purchase of the Shares in light of Purchaser's specific
situation or has had the opportunity to consult with such a tax advisor but
chose not to do so.
-5-
<PAGE>
8. General Provisions
8.1 Assignment. The Company may assign its rights hereunder to any person
or entity selected by the Company's Board of Directors, including, without
limitation, one or more shareholders of the Company.
8.2 Notices. Any notice required in connection with the Company's
exercise of its rights hereunder shall be given in writing and shall be deemed
effective upon personal delivery or upon deposit in the U.S. mail, registered or
certified, postage prepaid and addressed to the party entitled to such notice at
the address indicated below such party's signature line on this Agreement or at
such other address as such party may designate by 10 days' advance written
notice under this Section 8.2 to all other parties to this Agreement.
8.3 No Waiver. No waiver of any provision of this Agreement shall be
valid unless in writing, signed by the person against whom such waiver is sought
to be enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same or a waiver of any other right hereunder.
8.4 Cancellation of Shares. If the Company (or its assignees) shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Shares to be purchased by the Company
pursuant to the exercise of its rights hereunder, then, from and after such
time, the person from whom such shares are to be repurchased shall no longer
have any rights as a holder of such shares (other than the right to receive
payment of such consideration in accordance with this Agreement, as the case may
be). The Company (or its assignees) shall be deemed the owner and holder of
such shares, whether or not the certificates therefor have been delivered.
8.5 Purchaser Undertaking. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Purchaser or the Shares pursuant
to the express provisions of this Agreement.
8.6 Agreement Is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof,
and no modification of any provision hereof shall be binding upon either
Purchaser or the Company unless in writing and signed by the party against whom
such modification is sought to be enforced.
8.7 Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and agreed in writing to
join herein and be bound by the terms and conditions hereof.
-6-
<PAGE>
8.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which, upon
execution, shall constitute one and the same instrument.
8.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.
AVENUE A, INC.
By: /s/ ROBERT M. LITTAUER
----------------------------------------------
Title: Vice President
-------------------------------------------
Address: 506 2nd Ave.
----------------------------------------
Seattle, WA 98104
----------------------------------------
PURCHASER
/s/ G. B. MAFFEI
-------------------------------------------------
Printed Name: Gregory B. Maffei
------------------------------------
Address: 1201 42nd Avenue E.
----------------------------------------
Seattle, WA 98112
----------------------------------------
By his or her signature below, the spouse of the Purchaser, if such
Purchaser is legally married as of the date of his or her execution of this
Agreement, acknowledges that he or she has read this Agreement and is familiar
with the terms and provisions hereof and thereof, and agrees to be bound by all
the terms and conditions of this Agreement.
Dated: 10/26/99 /s/ S. A. MAFFEI
--------------------- -------------------------------------------------
Spouse's Signature
Sharon Abrams Maffei
-------------------------------------------------
Printed Name
By his or her signature below, the Purchaser represents that he or she is
not legally married as of the date of executing this Agreement.
Dated:_____________________ _________________________________________________
Purchaser's Signature
-7-
<PAGE>
EXHIBIT 10.14
AVENUE A
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") made as of the 25th day of
October 1999, between AVENUE A, INC., a Washington corporation (the "Company"),
and the undersigned ("Purchaser").
1. Sale of Stock
1.1 Purchase. Purchaser hereby purchases 125,000 shares of Common Stock
(the "Shares") granted to Purchaser on September 30, 1999 (the "Grant Date") to
purchase up to 125,000 shares of Common Stock at the purchase price of $4.00 per
share, pursuant to the terms herein.
1.2 Payment. The purchase price for the Shares shall be paid to the
Company by any combination of cash and/or check.
2. Securities Law Compliance
2.1 Purchaser represents and warrants that (a) Purchaser has been
furnished with all information which Purchaser deems necessary to evaluate the
merits and risks of the purchase of the Shares; (b) Purchaser has had the
opportunity to ask questions and receive answers concerning the information
received about the Shares and the Company; and (c) Purchaser has been given the
opportunity to obtain any additional information Purchaser deems necessary to
verify the accuracy of any information obtained concerning the Shares and the
Company.
2.2 Purchaser hereby confirms that Purchaser has been informed that the
Shares have not been registered under the federal Securities Act of 1933, as
amended (the "Securities Act"), or any state securities laws pursuant to
exemptions from registration. Purchaser further confirms that Purchaser
understands that the reliance by the Company on such exemptions is predicated in
part upon the truth and accuracy of the statements by Purchaser in this
Agreement.
2.3 Purchaser hereby represents and warrants that Purchaser is purchasing
the Shares for Purchaser's own account, for investment purposes only, and not
with a view towards the distribution or public offering of all or any part of
the Shares.
2.4 Purchaser hereby confirms that Purchaser understands that because the
Shares have not been registered under the Securities Act, Purchaser must
continue to bear the economic risk of the investment for an indefinite time and
the Shares cannot be sold unless the Shares are subsequently registered or an
exemption from registration is available.
-1-
<PAGE>
2.5 Purchaser hereby agrees that Purchaser shall in no event sell or
distribute all or any part of the Shares unless (a) there is an effective
registration statement under the Securities Act and applicable state securities
laws covering any such transaction involving the Shares or (b) the Company
receives an opinion of Purchaser's legal counsel (concurred in by legal counsel
for the Company) stating that such transaction is exempt from registration or
the Company otherwise satisfies itself that such transaction is exempt from
registration.
2.6 Purchaser hereby consents to the placing of a legend on Purchaser's
certificate(s) as substantially set forth in Section 5 hereof and to the placing
of a stop-transfer order on the books of the Company and with any transfer
agents against the Shares until the Shares may be legally resold or distributed.
2.7 Purchaser hereby confirms that Purchaser understands that at the
present time Rule 144 of the Securities and Exchange Commission (the "SEC") may
not be relied on for the resale or distribution of the Shares by Purchaser.
Purchaser understands that the Company has no obligation to Purchaser to
register the Shares with the SEC and has not represented to Purchaser that it
will register the Shares.
2.8 Purchaser confirms that Purchaser has been advised, prior to
Purchaser's purchase of the Shares, that neither the offering of the Shares nor
any offering materials have been reviewed by any administrator under the
Securities Act, the Washington State Securities Act or any other applicable
securities act (the "Acts") and that the Shares have not been registered under
any of the Acts and therefore cannot be resold unless they are registered under
the Acts or unless an exemption from such registration is available.
2.9 Purchaser hereby agrees to indemnify the Company and hold it harmless
from and against any loss, claim or liability, including attorneys' fees or
legal expenses, incurred by the Company as a result of any breach by Purchaser
of, or any inaccuracy in, any representation, warranty or statement by Purchaser
in this Agreement or the breach by Purchaser of any of the terms or conditions
of this Agreement.
3. Transfer Restrictions
3.1 Restrictions on Transfer. Shares shall not be sold, transferred,
assigned, pledged, encumbered or otherwise of disposed of in contravention of
the market standoff provisions of Section 3.3 hereof or the right of first
refusal under Section 4 hereof. Except as otherwise provided herein, such
restrictions on transfer, however, shall not apply to (a) a gratuitous transfer
of the Shares, provided, and only if, Purchaser obtains the Company's prior
written consent to such transfer, (b) a transfer of title to the Shares effected
pursuant to Purchaser's will or the laws of intestate succession, or (c) a
transfer to the Company in pledge as security for any purchase-money
indebtedness incurred by Purchaser in connection with the acquisition of the
Shares.
3.2 Transferee Obligations. Each person (other than the Company) to whom
the Shares are transferred by means of one of the permitted transfers specified
in Section 3.1
-2-
<PAGE>
hereof must, as a condition precedent to the validity of such transfer,
acknowledge in writing to the Company that such person is bound by the
provisions of this Agreement and that the transferred shares are subject to the
market standoff provisions of Section 3.3 hereof and the right of first refusal
under Section 4 hereof, to the same extent such shares would be so subject if
retained by Purchaser.
3.3 Market Standoff. In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act, including the Company's initial public
offering, Purchaser or any transferee (either being sometimes referred to herein
as the "Holder") shall not sell, make any short sale of, loan, hypothecate,
pledge, assign, grant any option for the purchase of, or otherwise dispose or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any Shares without the prior written consent of
the Company or its underwriters. Such limitations shall be in effect for such
period of time as may be requested by the Company or such underwriters and
agreed to by the Company's officers and directors with respect to their shares
(other than any of their shares being sold pursuant to the registration
statement for the underwritten public offering); provided, however, that in no
event shall such period exceed 180 days. Holder shall be subject to the market
standoff provisions of this Section 3.3 only if and to the same extent that the
officers and directors of the Company are also subject to similar arrangements.
4. Company's Right of First Refusal
Before any Shares held by the Holder may be sold or otherwise transferred
(including any assignment, pledge, encumbrance or other disposition of the
Shares, but not including a permitted transfer under Section 3.1 hereof), the
Company or its assignee shall have an assignable right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section 4 (the
"Right of First Refusal").
4.1 Notice of Proposed Transfer. In the event any Holder of the Shares
desires to accept a bona fide third-party offer for the sale or transfer of any
or all of the Shares, the Holder shall promptly deliver to the Company a written
notice (the "Notice") stating the terms and conditions of any proposed sale or
transfer, including: (a) the Holder's bona fide intention to sell or otherwise
transfer such Shares; (b) the name of each proposed purchaser or other
transferee (the "Proposed Transferee"); (c) the number of Shares to be
transferred to each Proposed Transferee; and (d) the bona fide cash price or
other consideration for which the Holder proposes to transfer the Shares (the
"Offered Price"). The Holder shall provide satisfactory proof that the
disposition of such shares to such Proposed Transferee would not be in
contravention of the provisions of Section 3 hereof and the Holder shall offer
to sell the Shares at the Offered Price to the Company.
4.2 Exercise of Right of First Refusal. At any time within 30 days after
receipt of the Notice, the Company or its assignee may, by giving written notice
to the Holder, elect to purchase all or any portion of the Shares proposed to be
transferred to any one or more of
-3-
<PAGE>
the Proposed Transferees, at the purchase price determined in accordance with
subsection 4.3 below.
4.3 Purchase Price. The purchase price for the Shares purchased under
this Section 4 shall be the Offered Price. If the Offered Price includes
consideration other than cash, the cash equivalent value of the noncash
consideration shall be determined by the Board of Directors of the Company in
good faith.
4.4 Payment. Payment of the purchase price shall be made, at the option
of the Company or its assignee, either (a) in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company
or such assignee, or by any combination thereof within 30 days after receipt of
the Notice or (b) in the manner and at the time(s) set forth in the Notice.
4.5 Holder's Right to Transfer. If any of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee as provided in this Section 4, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 60 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 4 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are
not transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
or its assignee shall again be offered the Right of First Refusal before any
Shares held by the Holder may be sold or otherwise transferred.
4.6 Termination of Right of First Refusal. The Right of First Refusal
under this Section 4 shall terminate as to any Shares upon the first sale of
Common Stock of the Company to the general public pursuant to a registration
statement filed with and declared effective by the SEC (other than a
registration statement solely covering an employee benefit plan or corporate
reorganization).
5. Legends
Purchaser understands and agrees that the Shares are subject to
restrictions as substantially set forth herein. Purchaser understands that the
certificate(s) representing the Shares shall bear legends in substantially the
following forms:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON PUBLIC RESALE AND TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY
THE ISSUER AND/OR ITS ASSIGNEE(S) AND MAY NOT BE SOLD, ASSIGNED, TRANSFERRED,
ENCUMBERED OR IN ANY WAY DISPOSED OF EXCEPT AS SET FORTH IN THE CERTAIN
AGREEMENT BETWEEN
-4-
<PAGE>
THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND
RIGHTS OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD
OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN
FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT THE PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS."
6. Right of Repurchase
Purchaser agrees that the Company shall have the right to repurchase the
Shares at a repurchase price of $4.00 per share until the first date that
Purchaser has both (a) entered into an employment agreement with the Company
acceptable to the Company (an "Employment Agreement") which acceptability shall
be conclusively established by execution and delivery of the employment
agreement by an officer of the Company duly authorized by the Company's Board of
Directors and (b) entered into the Company's standard form of Confidentiality,
Inventions Assignment, Non-Competition and Nonsolicitation Agreement (a
"Noncompetition Agreement"). Purchaser further agrees that he may not sell,
transfer or otherwise dispose of the Shares to any person or entity other than
the Company unless and until the Company's right of repurchase has terminated.
The Company may exercise its right of repurchase by providing written notice to
Purchaser, setting forth the date of repurchase, at least one day prior to the
proposed date of repurchase (the "Repurchase Notice"). Payment of the repurchase
price shall be made, at the option of the Company or its assignee, either (a) in
cash (by check), by cancellation of all or a portion of any outstanding
indebtedness of Purchaser to the Company or such assignee, or by an combination
thereof, on the date of repurchase set forth in the Repurchase Notice. The right
of repurchase under this Section 6 shall terminate on the earliest date on which
both an Employment Agreement between the Company and Purchaser and a
Noncompetition Agreement between the Company and Purchaser are in force and
validly binding upon Purchaser.
7. Stop-Transfer Notices
Purchaser understands and agrees that, in order to ensure compliance with
the restrictions referred to herein, the Company may issue appropriate "stop-
transfer" instructions to its transfer agent, if any, and that, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records. The Company shall not be required to (a) transfer on
its books any Shares that have been sold or transferred in violation of the
provisions of this Agreement or (b) treat as the owner of the Shares, or
otherwise accord voting, dividend or liquidation rights to, any transferee to
whom the Shares have been transferred in contravention of this Agreement.
8. Independent Tax Advice
Purchaser acknowledges that determining the actual tax consequences to each
particular Purchaser of purchasing or disposing of the Shares may be
complicated. These tax consequences will depend, in part, on Purchaser's
specific situation, the resolution of currently uncertain tax law, and other
variables not within the control of the Company. Purchaser is aware that
Purchaser should consult a competent and independent tax advisor for a full
understanding of the specific tax consequences to Purchaser prior to purchasing
or disposing of the Shares. Prior to purchasing shares, Purchaser either has
consulted with a competent tax advisor independent of the Company to obtain tax
advice concerning the purchase of the Shares in light of Purchaser's specific
situation or has had the opportunity to consult with such a tax advisor but
chose not to do so.
-5-
<PAGE>
9. General Provisions
9.1 Assignment. The Company may assign its rights hereunder to any person
or entity selected by the Company's Board of Directors, including, without
limitation, one or more shareholders of the Company.
9.2 Notices. Any notice required in connection with the Company's
exercise of its rights hereunder shall be given in writing and shall be deemed
effective upon personal delivery or upon deposit in the U.S. mail, registered or
certified, postage prepaid and addressed to the party entitled to such notice at
the address indicated below such party's signature line on this Agreement or at
such other address as such party may designate by 10 days' advance written
notice under this Section 8.2 to all other parties to this Agreement.
9.3 No Waiver. No waiver of any provision of this Agreement shall be
valid unless in writing, signed by the person against whom such waiver is sought
to be enforced, nor shall failure to enforce any right hereunder constitute a
continuing waiver of the same or a waiver of any other right hereunder.
9.4 Cancellation of Shares. If the Company (or its assignees) shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Shares to be purchased by the Company
pursuant to the exercise of its rights hereunder, then, from and after such
time, the person from whom such shares are to be repurchased shall no longer
have any rights as a holder of such shares (other than the right to receive
payment of such consideration in accordance with this Agreement, as the case may
be). The Company (or its assignees) shall be deemed the owner and holder of
such shares, whether or not the certificates therefor have been delivered.
9.5 Purchaser Undertaking. Purchaser hereby agrees to take whatever
additional action and execute whatever additional documents the Company may deem
necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Purchaser or the Shares pursuant
to the express provisions of this Agreement.
9.6 Agreement Is Entire Contract. This Agreement constitutes the entire
contract between the parties hereto with regard to the subject matter hereof,
and no modification of any provision hereof shall be binding upon either
Purchaser or the Company unless in writing and signed by the party against whom
such modification is sought to be enforced.
9.7 Successors and Assigns. The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Company and its successors and
assigns and Purchaser and Purchaser's legal representatives, heirs, legatees,
distributees, assigns and transferees by operation of law, whether or not any
such person shall have become a party to this Agreement and agreed in writing to
join herein and be bound by the terms and conditions hereof.
-6-
<PAGE>
9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which, upon
execution, shall constitute one and the same instrument.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first indicated above.
AVENUE A, INC.
By: /s/ Jeffrey Miller
----------------------------------------------
Title: Vice President
-------------------------------------------
Address: 506 2nd Ave.
----------------------------------------
Seattle, WA 98104
----------------------------------------
PURCHASER
/s/ SUMIT SEN
-------------------------------------------------
Printed Name: Sumit Sen
------------------------------------
Address: 2908 Weald Way #321
----------------------------------------
Sacramento, CA 95833
----------------------------------------
By his or her signature below, the Purchaser represents that he or she is
not legally married as of the date of executing this Agreement.
Dated: October 25, 1999 /s/ Sumit Sen
--------------------- -------------------------------------------------
Purchaser's Signature
-7-
<PAGE>
EXHIBIT 10.15
Purchase Agreement
among
AVENUE A, INC.
and
STEPHEN D. KLEIN
MICHAEL COHEN
JONATHAN BOND
RICHARD KIRSHENBAUM
MARGARET BOYER
and
DANIEL DeWOLF
Dated as of September 2, 1999
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I - DEFINITIONS.............................................................................................. 1
ARTICLE II - PURCHASE AND SALE OF INTERESTS.......................................................................... 4
2.1 Purchase and Sale of Interests.......................................................................... 4
2.2 Consideration for Interests............................................................................. 5
2.2.1 Closing Consideration............................................................................ 5
2.2.2 Escrow Payment................................................................................... 5
2.3 Closing................................................................................................. 5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE MEMBERS.......................................................... 5
3.1 Member Matters.......................................................................................... 6
3.1.1 Good Title....................................................................................... 6
3.1.2 Enforceability................................................................................... 6
3.1.3 Securities Law Representations and Warranties.................................................... 6
3.1.3(a) Purchase Entirely for Own Account......................................................... 6
3.1.3(b) Access to Information..................................................................... 7
3.1.3(c) Sophistication............................................................................ 7
3.1.3(d) Suitability............................................................................... 7
3.1.3(e) High Degree of Risk....................................................................... 7
3.1.3(f) Restricted Securities..................................................................... 8
3.1.3(g) Residency................................................................................. 8
3.1.3(h) Legends................................................................................... 8
3.1.3(i) Accreditation............................................................................. 8
3.1.4 Consent to Transfer....................................................................... 9
3.2 Organization; Good Standing; Authority.................................................................. 9
3.3 Interests............................................................................................... 9
3.4 Subsidiaries and Affiliates............................................................................. 10
3.5 No Approvals or Notices Required; No Conflicts.......................................................... 10
3.6 Financial Statements; Obligations....................................................................... 10
3.7 Absence of Certain Changes or Events.................................................................... 11
3.8 Taxes................................................................................................... 12
3.9 Property................................................................................................ 12
3.10 Contracts............................................................................................... 13
3.11 Claims and Legal Proceedings............................................................................ 14
3.12 Labor Matters........................................................................................... 14
3.13 Employee Arrangements and Plans......................................................................... 15
3.14 Personnel............................................................................................... 17
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3.15 Intellectual Property.................................................................................... 17
3.15.1 Title............................................................................................. 17
3.15.2 Licenses.......................................................................................... 17
3.15.3 Infringement ..................................................................................... 18
3.15.4 Valid and Subsisting; Applications and Registrations.............................................. 18
3.15.5 Indemnification................................................................................... 19
3.15.6 Year 2000......................................................................................... 19
3.15.7 Restrictions on Intellectual Property............................................................. 19
3.16 Accounts Receivable...................................................................................... 20
3.17 Corporate Books and Records.............................................................................. 20
3.18 Licenses, Permits, Authorizations, etc................................................................... 20
3.19 Compliance With Laws..................................................................................... 21
3.20 Insurance................................................................................................ 21
3.21 Brokers or Finders....................................................................................... 21
3.22 Bank Accounts............................................................................................ 21
3.23 Previous Conduct of Business; Insider Interests.......................................................... 21
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................. 22
4.1 Organization; Good Standing; Authority................................................................... 22
4.2 Enforceability........................................................................................... 22
4.3 No Approvals or Notices Required; No Conflicts With Instruments.......................................... 23
4.4 Claims and Legal Proceedings............................................................................. 23
4.5 Tax Consequences......................................................................................... 23
4.6 Capitalization........................................................................................... 24
4.7 Validly Issued Shares.................................................................................... 24
4.8 Financial Statements..................................................................................... 24
4.9 Absence of Certain Changes or Events..................................................................... 25
4.10 Licenses, Permits, Authorizations, etc................................................................... 25
4.11 Compliance With Laws..................................................................................... 25
4.12 Brokers or Finders....................................................................................... 26
ARTICLE V - COVENANTS................................................................................................. 26
5.1 Further Action........................................................................................... 26
5.2 Publicity................................................................................................ 26
5.3 Limitations on Disposition of Shares; Right of First Refusal............................................. 26
5.4 Noncompetition Agreements................................................................................ 30
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ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER............................................................. 30
6.1 Accuracy of Representations and Warranties............................................................... 30
6.2 Performance of Agreements................................................................................ 30
6.3 Opinion of Counsel for the Members....................................................................... 30
6.4 Members' Certificate..................................................................................... 31
6.5 Approvals and Consents................................................................................... 31
6.6 Legal Proceedings........................................................................................ 31
6.7 Nonforeign Affidavit..................................................................................... 31
6.8 Escrow Agreement......................................................................................... 31
6.9 Registration Rights Agreement............................................................................ 32
ARTICLE VII - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS...................................................... 32
7.1 Accuracy of Representations and Warranties............................................................... 32
7.2 Performance of Agreements................................................................................ 32
7.3 Opinion of Counsel for Buyer............................................................................. 32
7.4 Officer's Certificate.................................................................................... 32
7.5 Approvals and Consents................................................................................... 32
7.6 Legal Proceedings........................................................................................ 33
7.7 Delivery of Certificates................................................................................. 33
7.8 Escrow Agreement......................................................................................... 33
7.9 Registration Rights Agreement............................................................................ 33
7.10 Delivery of Stock Option Letter Agreements............................................................... 33
ARTICLE VIII - AMENDMENT AND WAIVER................................................................................... 33
8.1 Amendment................................................................................................ 33
8.2 Waiver................................................................................................... 33
ARTICLE IX - SURVIVAL AND INDEMNIFICATION............................................................................. 34
9.1 Survival................................................................................................. 34
9.2 Indemnification.......................................................................................... 34
9.2.1 Indemnification by Klein and Cohen................................................................ 34
9.2.2 Indemnification by Buyer.......................................................................... 35
9.3 Limitations.............................................................................................. 35
9.4 Procedure for Indemnification............................................................................ 36
9.4.1 Claim Notice...................................................................................... 36
9.4.2 Dispute Notice.................................................................................... 36
9.4.3 Third-Party Claims................................................................................ 36
9.5 Access to Escrow Amount.................................................................................. 37
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ARTICLE X - GENERAL.................................................................................................. 37
10.1 Expenses................................................................................................ 37
10.2 Specific Enforcement.................................................................................... 37
10.3 Assignment.............................................................................................. 38
10.4 Notices................................................................................................. 38
10.5 Governing Law; Arbitration; Jurisdiction; Venue......................................................... 40
10.6 Successors and Assigns.................................................................................. 40
10.7 Severability............................................................................................ 41
10.8 Entire Agreement; Counterparts.......................................................................... 41
10.9 Consent to Transfer of Interests........................................................................ 41
10.10 Consent of Parties...................................................................................... 41
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EXHIBITS
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2.2.2 - Escrow Agreement
5.4 - Noncompetition Agreement
6.3 - Opinion of Counsel for the Members
6.4 - Members' Certificate of the Company
6.7 - Nonforeign Affidavit
6.9 - Registration Rights Agreement
7.3 - Opinion of Counsel for Buyer
7.4 - Officer's Certificate of Buyer
DISCLOSURE SCHEDULES
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PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement") is entered into as of
September 2, 1999 among Avenue A, Inc., a Washington corporation ("Buyer"), and
Stephen D. Klein ("Klein"), Michael Cohen ("Cohen"), Jonathan Bond, Richard
Kirshenbaum, Margaret Boyer and Daniel DeWolf (collectively, the "Members").
RECITALS
A. I-BALLS LLC, a New York limited liability company (the "Company"),
operates an Internet media planning and buying business.
B. The Members own the Interests (as defined herein) and desire and
intend to sell the Interests to Buyer at the price and on the terms and subject
to the conditions set forth below.
E. Buyer desires and intends to purchase the Interests from the Members
at the price and on the terms and subject to the conditions set forth below.
AGREEMENT
In consideration of the terms hereof, the parties agree as follows:
ARTICLE I - DEFINITIONS
1.1 "Accounts": As defined in Section 3.16.
1.2 "Act": As defined in Section 3.1.3.
1.3 "Buyer Balance Sheet": The balance sheet of Buyer as of July 31,
1999.
1.4 "Buyer Financial Statements": As defined in Section 4.8.
1.5 "Buyer Indemnified Parties": As defined in Section 9.2.1.
1.6 "Buyer Permits": As defined in Section 4.10.
1.7 "Claim": As defined in Section 9.2(c).
1.8 "Claim Notice": As defined in Section 9.4.1.
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1.9 "Closing": The closing of the transactions contemplated by this
Agreement.
1.10 "Closing Amount": As defined in Section 2.2.1.
1.11 "Code": The Internal Revenue Code of 1986, as amended.
1.12 "Company Balance Sheet": The balance sheet of the Company as of
July 31, 1999.
1.13 "Company Financial Statements": As defined in Section 3.6.
1.14 "Company Permits": As defined in Section 3.18.
1.15 "Common Stock": As defined in Section 2.2.1.
1.16 "Disclosure Schedules": The Disclosure Schedules attached and made a
part hereof and which constitute in their entirety a representation and warranty
under Article III.
1.17 "Dispute Notice": As defined in Section 9.4.2.
1.18 "Endorsement": As defined in Section 5.3(b)(vi).
1.19 "Employee Benefit Plan": Any employee benefit plan, fund, program,
contract, arrangement or payroll practice. Any retirement, pension, profit
sharing, deferred compensation, savings, bonus, incentive, cafeteria, flexible
benefits, medical, dental, vision, hospitalization, life insurance, dependent
care assistance, tuition reimbursement, disability, sick pay, holiday, vacation,
severance, fringe benefit and other employee benefit plan, fund, policy,
program, contract, arrangement or payroll practice (including, but not limited
to each "employee benefit plan," as defined in Section 3(3) of ERISA) and each
employment or consulting contract or agreement, whether formal or informal and
whether legally binding or not, (i) sponsored, maintained or contributed to by
the Company, (ii) covering or benefiting any current or former Manager,
employee, agent or independent contractor of the Company (or any dependent or
beneficiary of any such individual) or (iii) with respect to which the Company
has (or could have) any actual or potential obligation or liability.
1.20 "ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
1.21 "Escrow Agent": As defined in Section 2.2.2.
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1.22 "Escrow Agreement": As defined in Section 2.2.2.
1.23 "Escrow Amount": As defined in Section 2.2.2.
1.24 "Fair Market Value": As defined in Section 5.3(b)(ix).
1.25 "GAAP": Generally accepted accounting principles in the United
States.
1.26 "Holder": As defined in Section 5.3(b)(i).
1.27 "Indemnified Parties": As defined in Section 9.2.2.
1.28 "Initial Public Offering": As defined in Section 5.3(b)(xii).
1.29 "Intellectual Properties": As defined in Section 3.15.1.
1.30 "Intellectual Property Rights": As defined in Section 3.15.1.
1.31 "Interests": The limited liability company membership interests of
the Company to be purchased by Buyer, representing 100% of the outstanding
limited liability company interests of the Company.
1.32 "Knowledge": Representations and warranties to a party's knowledge
mean that in acquiring such knowledge, the party representing and warranting
such knowledge has engaged in reasonable inquiry and investigation.
1.33 "Losses": As defined in Section 9.2.
1.34 "Managers": the managers of the Company as set forth in the Operating
Agreement.
1.35 "Member Indemnified Parties": As defined in Section 9.2.2.
1.36 "Millennium Compliant": As defined in Section 3.15.6.
1.37 "Notice": As defined in Section 5.3(b)(ii).
1.38 "Offered Price": As defined in Section 5.3(b)(ii).
1.39 "Operating Agreement": The Restated and Amended Operating agreement
of I-BALLS LLC, dated as of October 1, 1998.
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1.40 "Person": Any person, corporation, partnership, limited liability
company, joint venture, association, organization, other entity or governmental
or regulatory authority.
1.41 "Personal Property": As defined in Section 3.9(b).
1.42 "Proposed Transferee": As defined in Section 5.3(b)(ii).
1.43 "Purchase Price": As defined in Section 5.3(b)(iv).
1.44 "Real Property": As defined in Section 3.9(a).
1.45 "Registration Rights Agreement": As defined in Section 6.12.
1.46 "Returns": Any return, declaration, report, claim or refund,
information return, statement, or other similar document relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
1.47 "Right of First Refusal": As defined in Section 5.3(b)(i).
1.48 "Shares": As defined in Section 2.2.1.
1.49 "Series A Preferred Stock": As defined in Section 4.6(a).
1.50 "Series B Preferred Stock": As defined in Section 4.6(a).
1.51 "Series C Preferred Stock": As defined in Section 4.6(a).
1.52 "Taxes": As defined in Section 3.8(a).
1.53 "Transaction Documents": This Agreement and each of the agreements,
certificates, instruments and documents executed or delivered pursuant to the
terms of this Agreement.
ARTICLE II - PURCHASE AND SALE OF INTERESTS
2.1 Purchase and Sale of Interests
On the terms and subject to the conditions of this Agreement, Buyer agrees
to purchase the Interests from the Members, and the Members agree to sell the
Interests to Buyer.
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2.2 Consideration for Interests
The aggregate consideration for the Interests shall be payable as set forth
in this Section 2.2.
2.2.1 Closing Consideration
Buyer shall pay the Members, by wire transfer at the Closing, a total of
$3,500,000, less the Escrow Amount (the "Closing Amount"). The Closing Amount
shall be paid to the Members as set forth in Schedule 2.2.1. Buyer shall also
issue to the Members a total of 500,000 shares (the "Shares") of Buyer's common
stock, par value $0.01 per share (the "Common Stock"), to be distributed to the
Members pro rata based on their respective Interests.
2.2.2 Escrow Payment
Buyer shall pay $450,000 (the "Escrow Amount") to U.S. Bank Trust National
Association, as escrow agent (the "Escrow Agent"), to be held in escrow for a
period of one year from the date hereof. The Escrow Amount shall be held as
security for the indemnification obligations of Klein and Cohen pursuant to
Section 9.2.1 and in accordance with an Escrow Agreement in substantially the
form attached as Exhibit 2.2 (the "Escrow Agreement") to be entered into by
Buyer, Klein, Cohen and the Escrow Agent as of the date hereof, and shall be
paid out as provided therein. The Escrow Amount shall be deducted pro rata from
that portion of the cash consideration otherwise payable to Klein and Cohen as
set forth in Schedule 2.2.1.
2.3 Closing
The Closing shall be held at 10:00 a.m. (local time) on the date hereof at
the offices of Perkins Coie LLP in Seattle, Washington, or at such other place
as agreed to by Klein, Cohen and Buyer. At the Closing, Buyer and the Members
shall take all such action and deliver all such funds, documents, instruments,
certificates and other items as may be required, under this Agreement or
otherwise, in order to perform or fulfill all covenants, conditions and
agreements on their part to be performed or fulfilled at or before the date
hereof and to cause all conditions precedent to the other parties' obligations
under this Agreement to be satisfied in full.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
OF THE MEMBERS
Except as is otherwise set forth on the Disclosure Schedules, which
exceptions shall specifically identify the paragraph or paragraphs of this
Article III to which such exceptions relate, and which shall constitute in its
entirety a representation and
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warranty under this Article III, Klein and Cohen jointly and severally represent
and warrant, and each Member with respect to Section 3.1 individually but not
jointly represents and warrants, to Buyer as of the date hereof as follows in
this Article III:
3.1 Member Matters
3.1.1 Good Title
Such Member owns the membership interest in the Company as set forth on
Disclosure Schedule 3.1.1 (collectively, the "Interests"). Except as disclosed
on Disclosure Schedule 3.1.1, such Interests are owned free and clear of any
lien, encumbrance, adverse claim, restriction on sale, transfer or voting (other
than restrictions imposed by applicable securities laws), preemptive right,
option or other right to purchase. Upon the consummation of the sale of such
Interests as contemplated hereby, Buyer will have good title to such Interests,
free and clear of any lien, encumbrance, adverse claim, restriction on sale,
transfer or voting (other than restrictions imposed by applicable securities
laws), preemptive right, option or other right to purchase.
3.1.2 Enforceability
This Agreement and the other Transaction Documents to which such Member is
a party have been duly executed and delivered by such Member and are legal,
valid and binding obligations of such Member, enforceable against such Member in
accordance with their terms.
3.1.3 Securities Law Representations and Warranties
Such Member has been advised that the Shares are not being registered under
the Securities Act of 1933, as amended (the "Act"), or applicable state
securities laws, but are being issued pursuant to exemptions from such laws, and
that Buyer's reliance upon such exemptions is predicated in part on such
Member's representations and warranties contained herein.
3.1.3(a) Purchase Entirely for Own Account
The Shares will be acquired for investment for such Member's own account,
not as a nominee or agent, and not with a view to distributing all or any part
thereof; such Member has no present intention of selling, granting any
participation in or otherwise distributing any of the Shares in a manner
contrary to the Act or any applicable state securities law, and such Member does
not have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person
with respect to any of the Shares.
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3.1.3(b) Access to Information
Such Member believes it has been given access to full and complete
information regarding Buyer, including, in particular, the current financial
condition of Buyer and the risks associated therewith, and has utilized such
access to his or her satisfaction for the purpose of obtaining information about
Buyer; particularly, such Member has been given reasonable opportunity to ask
questions of, and receive answers from, Buyer concerning the business,
properties, prospects and financial condition of Buyer and to obtain any
additional information, to the extent reasonably available, necessary to verify
the accuracy of information provided to such Member about Buyer. No such
investigation, however, shall limit or qualify the representations and
warranties of Buyer in this Agreement.
3.1.3(c) Sophistication
Such Member, either alone or with the assistance of its professional
advisor, is a sophisticated investor, is able to fend for himself or herself in
the transactions contemplated by this Agreement, and has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of an investment in Buyer.
3.1.3(d) Suitability
The investment in the Shares is suitable for such Member based upon his or
her investment objectives and financial needs, and such Member has adequate net
worth and means for providing for such Member's current financial needs and
contingencies and has no need for liquidity of investment with respect to the
Shares. Such Member's overall commitment to investments that are not readily
marketable is not disproportionate to his or her net worth, and an investment in
the Shares will not cause such overall commitment to become excessive.
3.1.3(e) High Degree of Risk
SUCH MEMBER RECOGNIZES THAT AN INVESTMENT IN THE SHARES INVOLVES A HIGH
DEGREE OF RISK. Such Member is aware that Buyer is a start-up enterprise with a
limited operating history in a highly competitive market. Such Member
recognizes that Buyer's operations are continuing to incur losses and negative
cash flow, that Buyer will need significant additional capital to be successful,
which capital may not be readily available, and that there can be no assurance
that Buyer's products or services will be accepted in the marketplace or that
Buyer will be able to obtain its projected sales or profits goals.
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3.1.3(f) Restricted Securities
Such Shareholder realizes that (i) the Shares have not been registered
under the Act, are characterized under the Act as "restricted securities" and,
therefore, cannot be sold or transferred unless they are subsequently registered
under the Act or an exemption from such registration is available and (ii) there
is presently no public market for the Common Stock and such Shareholder would
most likely not be able to liquidate his or her investment in the event of an
emergency or to pledge the Shares as collateral security for loans.
3.1.3(g) Residency
Such Shareholder is a bona fide resident of, or is domiciled in, the state
identified in the address for such Shareholder on Disclosure Schedule 3.1.3(g).
3.1.3(h) Legends
Such Shareholder understands that the certificates evidencing the Shares
will bear a legend substantially as follows:
The securities evidenced by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act") or applicable state
securities laws, and no interest may be sold, distributed, assigned,
offered, pledged or otherwise transferred unless (a) there is an effective
registration statement under the Act and applicable state securities laws
covering any such transaction involving said securities, (b) this
corporation receives an opinion of legal counsel for the holder of these
securities satisfactory to this corporation stating that such transaction
is exempt from registration, or (c) this corporation otherwise satisfies
itself that such transaction is exempt from registration.
The shares represented by this certificate may be transferred only in
accordance with the terms of a Purchase Agreement dated as of
September ___, 1999 by and among the Company, the holder of this
certificate and certain other shareholders of the Company, a copy of which
is on file with the Secretary of the Company.
3.1.3(i) Accreditation
Such Shareholder is familiar with the term "accredited investor" and its
use in connection with private placements of securities under applicable
securities laws. Except as set forth on Disclosure Schedule 3.3.3(i), such
Shareholder is an accredited investor as such term is defined in Rule 501(a)
under the Act and as defined pursuant
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to the provisions of state securities laws applicable to such Shareholder
providing for an exemption from registration or qualification of the issuance of
the Shares.
3.1.4 Consent to Transfer
Pursuant to Section 6.1 of the Operating Agreement, such Member hereby
consents to the transfer of Interests by the other Members as contemplated by
this Agreement.
3.2 Organization; Good Standing; Authority
(a) The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the state of New York. The
Company is duly qualified to do business, and is in good standing, in the states
required due to (i) the ownership or lease of real or personal property for use
in the operation of the Company's business or (ii) the nature of the business
conducted by the Company, except where the failure to be so qualified would not
have a material adverse effect on the business, assets, operations, prospects or
condition (financial or other) of the Company. The Company has all requisite
corporate power, right and authority to own, operate and lease its properties
and assets and to carry on its business as now conducted and as proposed to be
conducted.
(b) All actions on the part of the Company and the Members necessary for
the authorization, execution, delivery and performance of this Agreement and the
other Transaction Documents, and the consummation of the transactions
contemplated hereby and thereby, have been taken.
3.3 Interests
(a) The Interests consist solely of six membership interests in the
Company, held by the Members as set forth on Disclosure Schedule 3.1.1. All
Interests are duly authorized and validly issued in compliance with all
applicable federal, state and foreign laws, including the New York Limited
Liability Company Law. Except for the Members, no Person holds any interest in
the Company.
(b) There are no outstanding rights of first refusal, preemptive rights,
options or other agreements, either directly or indirectly, for the purchase or
acquisition from the Company or any Member of any Interest.
(c) The Company is not a party or subject to any agreement or
understanding, and there is no agreement or understanding between any Persons,
that affects or relates to the voting or giving of written consents with respect
to any Interests or the voting by any Member.
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3.4 Subsidiaries and Affiliates
The Company does not own, directly or indirectly, any ownership, equity,
profits or voting interest in, or otherwise control, any Person, and the Company
has no agreement or commitment to purchase any such interest.
3.5 No Approvals or Notices Required; No Conflicts
The execution, delivery and performance of this Agreement and the other
Transaction Documents by the Members, and the consummation of the transactions
contemplated hereby and thereby, will not (a) constitute a violation (with or
without the giving of notice or lapse of time, or both) of any provision of any
law or any judgment, decree, order, regulation or rule of any court, agency or
other governmental authority applicable to the Company, (b) except as disclosed
on Disclosure Schedule 3.5(b), require any consent, approval or authorization
of, or declaration, filing or registration with, any Person, (c) except as
disclosed on Disclosure Schedule 3.5(c), result in a default (with or without
the giving of notice or lapse of time, or both) under, acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other restriction,
encumbrance, obligation or liability to which the Company is a party or by which
it is bound or to which any assets of the Company are subject, (d) result in the
creation of any lien or encumbrance upon the assets of the Company, or upon any
Interests, (e) conflict with or result in a breach of or constitute a default
under any provision of the Operating Agreement or (f) invalidate or adversely
affect any permit, license, authorization or status used in the conduct of the
business of the Company.
3.6 Financial Statements; Obligations
The Company has delivered to Buyer unaudited balance sheets and unaudited
statements of operations and cash flows of the Company at and for the following
periods: December 31, 1997 through July 31, 1999. All the foregoing financial
statements (including the notes thereto) are referred to as the "Company
Financial Statements." The Company Financial Statements have been prepared in
conformity with GAAP consistently applied throughout the periods covered, except
as may be indicated in the notes thereto, and present fairly the financial
position, results of operations and changes in financial position of the Company
as at the dates and for the periods indicated, subject to normal recurring
period-end adjustments. The Company has no material liabilities or obligations
of any nature (absolute, accrued or contingent) that are not fully reflected or
reserved against in the Company Balance Sheet, as prescribed by GAAP and the
Financial Accounting Standards Board, except (i) liabilities or obligations
incurred since the date of the Company Balance Sheet in the ordinary course of
business and consistent with past practice or (ii) as specifically
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set forth on Disclosure Schedule 3.6. The Company maintains standard systems of
accounting established and administered in accordance with GAAP. Except as
disclosed on Disclosure Schedule 3.6, the Company is not a guarantor,
indemnitor, surety or other obligor of any indebtedness of any other Person.
Disclosure Schedule 3.6 sets forth all promissory notes, loans, lines of credits
or similar obligations pursuant to which the Company is an obligor, together
with all the amounts owed by the Company under such obligations, as of the date
hereof. Disclosure Schedule 3.6 sets forth all indebtedness and other
obligations of the Members relating to the Company, together with all the
amounts owed by such Members in respect thereof, as of the date hereof.
3.7 Absence of Certain Changes or Events
Except (a) as and to the extent reflected or reserved against in the
Company Balance Sheet, (b) for liabilities and obligations incurred in the
ordinary course of business since the date of the Company Balance Sheet, which
are not material in amount, and (c) as otherwise disclosed on Disclosure
Schedule 3.7, there are no liabilities or obligations of any nature relating to
the Company, accrued or contingent, whether or not due and payable and whether
or not in dispute, that would be required to be included in a balance sheet
prepared in accordance with GAAP. The Company has not entered into or agreed to
enter into any transaction, agreement or commitment, suffered the occurrence of
any event or events or experienced any change in financial condition, business,
results of operations or otherwise that, in the aggregate, has (i) interfered
with the normal and usual operations of the Company or business prospects of the
Company or (ii) resulted in a material adverse change in the business, assets,
operations, prospects or condition (financial or other) of the Company or could
reasonably be expected to have such material adverse effect. For the purposes
of this Section 3.7, payments of accrued bonuses of $197,058 as reflected in the
Company Financial Statements will not constitute an interference or material
adverse change as described in the foregoing sentence, and distributions
reflected in the Members' capital account balances in an aggregate amount of
$492,177 as disclosed or otherwise provided in the Company Financial Statements
will not constitute an interference or material adverse change as described in
the foregoing sentence.
3.8 Taxes
(a) The Company has (i) timely filed with the appropriate governmental
agencies (domestic and foreign) all material returns (including information
returns reflecting the Members' shares of Company taxable income) for all Taxes
(as defined below) required to have been filed with respect to the Company and
its business ("Returns"), and such Returns are true, correct and complete and
(ii) duly and timely paid all Taxes (whether or not reflected on such Returns)
that are due or claimed to be
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due by any governmental agency, other than (A) Taxes that are due or claimed to
be due by Members and (B) such payments as are being contested in good faith by
appropriate proceedings. "Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, but not limited to, income, excise, gross
receipts, property, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, severance, stamp, occupation,
windfall profits, social security and unemployment or other taxes imposed by the
United States or any agency or instrumentality thereof, any state, county, local
or foreign government, or any agency or instrumentality thereof, and any
interest or fines, and any and all penalties or additions relating to such
taxes, charges, fees, levies or other assessments.
(b) Except as set forth on Disclosure Schedule 3.8: (i) no unresolved
claim for assessment or collection of Taxes has been asserted or, to the
knowledge of Klein and Cohen, threatened against the Company and, to the
knowledge of Klein and Cohen, no audit or investigation of the Company by any
governmental authority is under way with respect to Taxes, interest or other
governmental charges; and (ii) the Company has duly and timely withheld from
employee salaries, wages and other compensation and paid over to the appropriate
governmental authority all amounts required to be so withheld and paid over for
all periods under all applicable laws.
(c) The Company has furnished Buyer with complete and correct copies of all
Returns.
3.9 Property
(a) Disclosure Schedule 3.9(a) contains a complete and accurate list of all
real property that is owned, leased, rented or used by the Company (the "Real
Property"). The Company has delivered to Buyer true and complete copies of all
leases, subleases, rental agreements, contracts of sale, tenancies or licenses
relating to the Real Property.
(b) Disclosure Schedule 3.9(b) contains a complete and accurate list of
personal property as of July 31, 1999 having a book value in excess of $5,000
that is owned, leased, rented or used by the Company (the "Personal Property");
provided, however, that such list need not describe the Company's Intellectual
Properties or its Intellectual Property Rights. The Company has delivered to
Buyer true and complete copies of all leases, subleases, rental agreements,
contracts of sale, tenancies or licenses relating to the Personal Property.
(c) The Company holds good, marketable and insurable title to a fee or
leasehold interest, as applicable, in the Real Property, free and clear of all
liens, mortgages, pledges, deeds of trust, security interests, charges and other
encumbrances.
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(d) Except for (i) assessments for current taxes not yet due and payable,
(ii) mechanics', materialmen's, carriers' and other similar statutory liens
securing indebtedness that is in the aggregate less than $25,000, which was
incurred in the ordinary course of business and is not yet due and payable, and
(iii) those liens disclosed on Disclosure Schedule 3.9(d), the Personal Property
is free and clear of all liens, and except as disclosed on Disclosure Schedule
3.9(d), the Company owns such Personal Property.
(e) Each lease of any portion of the Real Property and each lease, license,
rental agreement, contract of sale or other agreement to which the Personal
Property is subject is listed on Disclosure Schedule 3.9(e) and is valid,
binding and enforceable in accordance with its terms against the parties
thereto; the Company has performed all obligations imposed upon it thereunder;
and the Company is not in default thereunder, nor to the knowledge of Klein or
Cohen is there any event that with notice or lapse of time, or both, would
constitute a default thereunder. Except as disclosed on Disclosure Schedule
3.9(e), no consent is required from any Person under any lease or other
agreement or instrument relating to the Real Property or Personal Property in
connection with the consummation of the transactions contemplated by this
Agreement, and the Company has not received notice that any party to any such
lease or other agreement or instrument intends to cancel, terminate or refuse to
renew the same or to exercise or decline to exercise any option or other right
thereunder.
3.10 Contracts
Disclosure Schedule 3.10 contains a complete and accurate list of all
contracts, agreements, arrangements and understandings with a value in excess of
$5,000, oral or written, to which the Company is a party or by which the Company
is bound, including, without limitation, all security agreements, Intellectual
Property licenses and other license agreements, credit agreements, instruments
relating to the borrowing of money, purchase contracts, sale contracts, research
contracts and scientific collaboration or cooperation agreements. Disclosure
Schedule 3.10 also sets forth all agency agreements to which the Company is a
party or by which it is bound, and all insertion orders that require the Company
to purchase advertising space on Web sites for periods longer than 90 days and
that involve payments that in the aggregate are greater than $50,000. To the
knowledge of Klein or Cohen, all agreements set forth on Disclosure Schedule
3.10 are valid, binding and enforceable in accordance with their terms against
each party thereto and are in full force and effect; the Company has performed
all obligations imposed upon it thereunder; and the Company is not in default
thereunder; nor is there any event that with notice or lapse of time, or both,
would constitute a default thereunder. Furthermore, to the knowledge of Klein
or Cohen, no breach or default by any other party to any such agreement or any
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provision thereof, nor any condition or event that, with notice or lapse of
time, or both, would constitute such a breach or default, has occurred. True and
complete copies of each such agreement have been delivered to Buyer. Except as
disclosed on Disclosure Schedule 3.10, no consent is required from any Person
under any contract, agreement, arrangement or understanding set forth on
Disclosure Schedule 3.10 in connection with the consummation of the transactions
contemplated by this Agreement, and the Company has not received notice, and is
not otherwise aware, that any party to any such contract, agreement, arrangement
or understanding intends to cancel, terminate or refuse to renew such contract,
agreement, arrangement or understanding or to exercise or decline to exercise
any option or right thereunder.
3.11 Claims and Legal Proceedings
There are no claims, actions, suits, arbitrations, criminal or civil
investigations or proceedings pending or involving or, to the knowledge of Klein
or Cohen, threatened against the Company before or by any court or governmental
or nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person. To the knowledge of Klein or Cohen, there
is no valid basis for any claim, action, suit, arbitration, investigation or
proceeding that could reasonably be expected to be materially adverse to the
business, assets, operations, prospects or condition (financial or other) of the
Company before or by any Person. There are no outstanding or unsatisfied
judgments, orders, decrees or stipulations to which the Company is a party that
involve the transactions contemplated herein or that would have a material
adverse effect on the business, assets, operations, prospects or condition
(financial or other) of the Company.
3.12 Labor Matters
There are no labor disputes, employee grievances or discrimination or other
employment related actions pending or, to the knowledge of Klein or Cohen,
threatened against or involving the Company or any present or former employee of
the Company. To the knowledge of Klein or Cohen, the Company has complied in
all material respects with all provisions of law relating to employment and
employment practices, terms and conditions of employment, wages and hours
including, without limitation, equal opportunity, workplace safety, workers'
compensation and other similar laws. The Company is not engaged in any unfair
labor practice and does not have any liability for any arrears of wages or Taxes
or penalties for failure to comply with any such provisions of law. There is no
labor strike, dispute, slowdown or stoppage pending or threatened against or
affecting the Company, and the Company has not experienced any work stoppage or
similar concerted employee activities. No collective bargaining agreement is
binding on the Company.
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3.13 Employee Arrangements and Plans
(a) Disclosure Schedule 3.13 sets forth a true, accurate and complete list
and description of each Employee Benefit Plan. The Company does not have any
agreement, arrangement or commitment, whether formal or informal and whether
legally binding or not, to create any additional Employee Benefit Plan or to
modify any existing Employee Benefit Plan. Except as set forth in Disclosure
Schedule 3.13, the terms of each Employee Benefit Plan permit the Company to
amend or terminate such Employee Benefit Plan at any time and for any reason
without penalty. There has been no amendment, written interpretation or
announcement (whether or not written) by the Company relating to, or change in
participation or coverage under, any Employee Benefit Plan that, either alone or
together with other items or events, would materially increase the expense of
maintaining the Employee Benefit Plans above the level of expense incurred with
respect thereto for the most recent fiscal year included in the Company
Financial Statements. The Company does not have any "employee benefit plans" as
defined in ERISA.
(b) The Company has delivered to Buyer true, correct and complete copies
(or, in the case of unwritten Employee Benefit Plans, descriptions) of all
Employee Benefit Plans (and all amendments thereto), along with, to the extent
applicable to the particular Employee Benefit Plan, the following information:
(i) copies of the annual reports (Form 5500 series) filed for the last three
years; (ii) copies of the summary plan descriptions, summary annual reports,
summaries of material modifications and all material employee manuals or
communications filed or distributed with respect to the Employee Benefit Plan
during the last three years; (iii) copies of any insurance contracts or trust
agreements (and any amendments thereto) through which the Employee Benefit Plan
is funded; (iv) copies of all documents relating to any loans to the Employee
Benefit Plan, including, but not limited to, any and all notes, security
agreements and guarantees; (v) copies of all contracts (and any amendments
thereto) relating to the Employee Benefit Plan, including, but not limited to,
service provider agreements, insurance contracts, investment management
agreements, subscription and prescription agreements and recordkeeping
agreements; (vi) a copy of the most recent Internal Revenue Service
determination letter issued with respect to the Employee Benefit Plan; and (vii)
notice of any material adverse change occurring with respect to the Employee
Benefit Plan since the date of the most recently completed and filed annual
report.
(c) With respect to each Employee Benefit Plan: (i) such Employee Benefit
Plan is, and at all times since inception has been, maintained, administered,
operated and funded in compliance with its terms and with the requirements
prescribed by any and all applicable laws, statutes, orders, rules and
regulations; (ii) all returns, reports
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and other disclosures relating to such Employee Benefit Plan required to be
filed with any governmental entity or agency or furnished to any participant or
beneficiary have been fully and accurately completed or prepared and timely and
properly filed or furnished in accordance with applicable law; (iii) and no
event or omission has occurred, or is about to occur, that could subject the
Company or any other Person, directly or indirectly, to a tax under Chapter 43
of Subtitle D of the Code.
(d) There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the knowledge of Klein or Cohen, threatened with
respect to any Employee Benefit Plan or against the assets of any Employee
Benefit Plan. No Employee Benefit Plan is currently under investigation, audit
or review, directly or indirectly, by the Internal Revenue Service, Department
of Labor or any other governmental entity or agency, and, to the knowledge of
Klein and Cohen, no such action is contemplated or under consideration by the
Internal Revenue Service, Department of Labor or any other governmental entity
or agency.
(e) The consummation of the transactions contemplated by this Agreement and
the other Transaction Documents will not: (i) entitle any current or former
manager, member, employee, agent or independent contractor of the Company to
severance pay, unemployment compensation or any other payment from the Company,
or increase the amount of compensation due to any such individual; (ii) result
in any benefit becoming established, or accelerate the time of payment or
vesting of any benefit, under any Employee Benefit Plan; (iii) require the
Company to make any contribution to a "rabbi" trust or to increase its
contribution to any Employee Benefit Plan; (iv) conflict with the terms of any
Employee Benefit Plan, whether or not some other subsequent action or event
would be required to trigger any of the items specified in clause (i), (ii),
(iii) or (iv) of this Section 3.13(e); or (iv) result in a payment or series of
payments by the Company or any other person or entity, directly or indirectly,
to any person that would constitute a "parachute payment" within the meaning of
Section 280G of the Code.
3.14 Personnel
Disclosure Schedule 3.14 sets forth a true and complete list of the names
and the family relationships, if any, among all Members, employees, contractors
and consultants of the Company.
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3.15 Intellectual Property
3.15.1 Title
The Company owns, or is licensed or otherwise entitled to use without
restriction (free and clear of any encumbrance) (in each case as delineated on
Disclosure Schedule 3.15), its Intellectual Properties (as defined below) and
its Intellectual Property Rights (as defined below) and has rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to use its Intellectual Properties and its Intellectual Property
Rights. "Intellectual Properties" means all services, computer programs,
specifications, source code, object code, graphics, art work, designs, devices,
techniques, know-how, algorithms, methods, technology, processes, procedures,
packaging, trade dress, trade secrets, formulae, drawings, designs,
improvements, discoveries, concepts, user interfaces, "look and feel," software
or development tools, content and inventions, whether or not patentable or
copyrightable and whether or not reduced to practice, all designs, logos,
themes, know-how, promotional ideas, marketing and purchasing strategies,
concepts that are now used, have been used or are currently proposed to be used
in the Company's business and all documentary evidence thereof, including,
without limitation, the intellectual properties listed on Disclosure Schedule
3.15. "Intellectual Property Rights" means all intellectual property and other
proprietary rights in the Intellectual Properties, and all licenses, sublicenses
or like agreements providing any right or concession to use any of the
Intellectual Properties, including all trade names, trademarks, domain names,
service marks, copyrights and their registrations and applications and all
goodwill associated therewith, all domestic and foreign letters patented and
patent applications, if any, whether arising under the laws of the United States
or any other state, country or jurisdiction, including all rights or causes of
action for infringement or misappropriation of any of the foregoing, including,
without limitation, the intellectual property and other proprietary rights
listed on Disclosure Schedule 3.15.
3.15.2 Licenses
Copies of all licenses, sublicenses and other agreements, including
confidential disclosure agreements, relating to the Intellectual Property Rights
or pursuant to which any other Person is authorized to use any of the
Intellectual Properties, are listed on Disclosure Schedule 3.15 and have been
delivered by the Company to Buyer. The Company is not, and as a result of the
execution and delivery of this Agreement or any other Transaction Document or
the performance of the Members' obligations hereunder will not be, in violation
of, or lose any rights pursuant to, any such license, sublicense or agreement.
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3.15.3 Infringement
To the knowledge of Klein and Cohen, the Intellectual Properties do not
infringe any patent, copyright, trade secret, trademark or other intellectual
property or proprietary right of any Person, whether arising under the laws of
the United States or any other state, country or jurisdiction. No claim with
respect to the Intellectual Properties has been asserted or is threatened by any
Person, and the Company is not aware of any claim (a) to the effect that the
manufacture, sale or use of any product or specification used or offered by the
Company or proposed for use or sale by the Company or using or incorporating any
of the Intellectual Properties infringes any copyright, patent, trademark,
service mark, trade secret or other intellectual property or proprietary right
of any Person, whether arising under the laws of the United States or any other
state, country or jurisdiction; (b) against the use by the Company of any of its
Intellectual Properties; or (c) challenging the ownership, validity or
effectiveness of any of its Intellectual Property Rights. To the knowledge of
Klein or Cohen, there has not been and there is not now any unauthorized use,
infringement or misappropriation of any Intellectual Properties or Intellectual
Property Rights by any Person, including, without limitation, any current or
former employee of the Company. To the knowledge of Klein and Cohen, there has
not been and there is not now any unauthorized use, infringement or
misappropriation of any copyright, patent, trademark, service mark, trade secret
or other intellectual property or proprietary right of any Person by the
Company.
3.15.4 Valid and Subsisting; Applications and Registrations
All patents, common law and registered trademarks, service marks, domain
names and other product or service identifiers and registered and unregistered
copyrights (and all applications therefor) of the Company are listed on
Disclosure Schedule 3.15 (together with their current status), and to the
knowledge of Klein and Cohen are valid and subsisting. To the knowledge of
Klein and Cohen, the Company had and does now have the exclusive right to file,
prosecute and maintain all applications and registrations with respect to its
Intellectual Property Rights.
3.15.5 Indemnification
The Company has not entered into any agreement or offered to indemnify any
Person against any charge of infringement of any intellectual property or other
proprietary right. The Company has not entered into any agreement granting any
Person the right to bring any infringement action with respect to, or otherwise
to enforce, any of the Intellectual Property Rights.
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3.15.6 Year 2000
The software included in the Intellectual Properties (including, without
limitation, any software licensed by the Company and incorporated or imbedded in
any product or specification used or offered by the Company or proposed for use
or sale by the Company) is Millennium Compliant. As used in this Agreement,
"Millennium Compliant" means the ability of the software to provide the
following functions: (a) consistently handle date information before, during
and after January 1, 2000, including, but not limited to, accepting date input,
providing date output, and performing calculations on dates or portions of
dates; (b) function accurately in accordance with its specifications and without
interruption before, during and after January 1, 2000, without any change in
operations associated with the advent of the new century (defined for purposes
of this section as commencing at 12:00 A.M., January 1, 2000); (c) respond to
two-digit date input in a way that resolves any ambiguity as to century in a
disclosed, defined and predetermined manner; and (d) store and provide output of
date information in ways that are unambiguous as to century; provided that all
other software and all hardware with which such software interacts or upon which
such software relies in order to properly function is Millennium Compliant.
3.15.7 Restrictions on Intellectual Property
None of the Company's Members, employees, and, to the knowledge of Klein
and Cohen, consultants, distributors, agents, representatives or advisors has
entered into any agreement relating to the Company's business regarding know-
how, trade secrets, assignment of rights in inventions, or prohibition or
restriction of competition or solicitation of customers, or any other similar
restrictive agreement or covenant, whether written or oral, with any Person
other than the Company.
In addition: (a) the Company has not disclosed other than in the ordinary
course consistent with past practice any proprietary information relating to
Intellectual Properties and Intellectual Property Rights to any Person other
than to Buyer or disclosures to Persons who are required contractually to
maintain the confidentiality of such proprietary information; (b) the Company
has at all times maintained reasonable procedures to protect and enforce all
Intellectual Properties and Intellectual Property Rights; and (c) except for
sharing technical data with customers as is typical in the Company's business,
the Company is not under any contractual or other obligation to disclose any
proprietary information relating to Intellectual Properties.
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3.16 Accounts Receivable
Except as disclosed on Disclosure Schedule 3.16, all accounts receivable of
the Company reflected in the Company Balance Sheet or existing through the date
hereof ("Accounts") represent amounts due for services performed or sales
actually made in the ordinary course of business and properly reflect the
amounts due. Except as set forth on Disclosure Schedule 3.16, the bad debt
reserves and allowances reflected in the Company Balance Sheet are adequate in
all material respects. Except as disclosed on Disclosure Schedule 3.16, all
Accounts existing and remaining unpaid as of the date hereof will be collectible
by Buyer in the ordinary course of business consistent with past practice.
3.17 Corporate Books and Records
The Company has furnished to Buyer true and complete copies of (a) the
Operating Agreement as currently in effect, including all amendments thereto,
and (b) records of any meetings of the Board of Managers and any committee
thereof of the Company. Such records reflect all meetings of the Members, the
Managers and any committees thereof since the Company's inception, and such
records accurately reflect the events of and actions taken at such meetings.
3.18 Licenses, Permits, Authorizations, etc.
The Company has received all required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign (the "Company Permits"), the
failure to obtain of which would have a material adverse effect on the business,
assets, operations, prospects or condition (financial or other) of the Company.
The Company is in compliance in all material respects with the terms of all
Company Permits, and all Company Permits are valid and in full force and effect,
and no proceeding is pending or, to the knowledge of Klein or Cohen, threatened,
the object of which is to revoke, limit or otherwise affect any Company Permit.
The Company has not received any notifications of any asserted failure to obtain
any Company Permit.
3.19 Compliance With Laws
The Company is and has been in compliance in all material respects with all
federal, state, local and foreign laws, rules, regulations, ordinances, decrees
and orders applicable to the operation of its business, to its employees, or to
its property, including, without limitation, all such laws, rules, ordinances,
decrees and orders relating to antitrust, consumer protection, currency
exchange, zoning and land use, environmental protection, equal opportunity,
health, occupational safety, good
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laboratory practices, pension, securities and trading-with-the-enemy matters.
The Company has not received any notification of any asserted present or past
unremedied failure by the Company to comply with any of such laws, rules,
ordinances, decrees or orders.
3.20 Insurance
The Company maintains (a) insurance on its property (including leased
premises) that insures against loss or damage by fire or other casualty
(including extended coverage) and (b) insurance against liabilities, claims and
risks which cover all events or occurrences prior to the date hereof regardless
of when the claim is made of a nature and in such amounts as are normal and
customary in the Company's industry. All insurance policies of the Company are
in full force and effect.
3.21 Brokers or Finders
The Company has not incurred, and will not incur, directly or indirectly,
as a result of any action taken by or on behalf of the Company, any liability
for brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.22 Bank Accounts
Disclosure Schedule 3.22 sets forth the names and locations of all banks,
trust companies, savings and loan associations and other financial institutions
at which the Company maintains safe deposit boxes or accounts and the names of
all Persons authorized to draw thereon, make withdrawals therefrom or have
access thereto.
3.23 Previous Conduct of Business; Insider Interests
Except as described in Disclosure Schedule 3.23, all of the transactions of
the Company with third parties have been conducted on an arm's-length basis.
Except as described in Disclosure Schedule 3.23, no employee, contractor,
consultant or other representative of the Company has any direct or indirect
interest, and no Member has any direct or indirect interest, other than as a
Member, (a) in any property, real or personal, tangible or intangible, used in
or directly pertaining to the business of the Company, including, without
limitation, any Intellectual Property, or (b) in any agreement, contract,
arrangement or obligation relating to the Company or its operations. Except as
described on Disclosure Schedule 3.23, and except with regard to holdings of
less than five percent of the outstanding capital stock of any entities whose
shares are publicly traded on any securities exchange, to the knowledge of Klein
or Cohen, neither the Company nor any of its Members, employees, contractors
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or consultants has any interest, either directly or indirectly, in any entity
that (i) provides any services, produces or sells any products or product lines,
or engages in any activity that is the same, similar to or competitive with any
activity or business in which the Company is now engaged or proposes to engage
or (ii) is a supplier, customer or creditor of the Company, or has an existing
contractual relationship with any of the Company's employees (or persons
performing similar functions).
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer represents and warrants to the Members as of the date hereof as
follows in this Article IV:
4.1 Organization; Good Standing; Authority
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the state of Washington. Buyer is duly qualified to
do business, and is in good standing, in the states required due to (i) the
ownership or lease of real or personal property for use in the operation of
Buyer's business or (ii) the nature of the business conducted by Buyer, except
where the failure to be so qualified would not have a material adverse effect on
the business, assets, operations, prospects or condition (financial or other) of
Buyer. Buyer has all requisite corporate power and authority to own, operate
and lease its properties and assets, to carry on its business as now conducted
and as proposed to be conducted, to execute, deliver and perform its obligations
under this Agreement and the other Transaction Documents to which it is a party,
and to carry out the transactions contemplated hereby and thereby.
4.2 Enforceability
All action on the part of Buyer and its officers, directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Agreement and the other Transaction Documents to which it is
a party, the consummation of the transactions contemplated hereby and thereby,
and the performance of all of Buyer's obligations under this Agreement and the
other Transaction Documents to which it is a party has been taken. This
Agreement and the other Transaction Documents to which Buyer is a party have
been duly executed and delivered by Buyer, and this Agreement and each of the
other Transaction Documents to which Buyer is a party is a legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms.
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4.3 No Approvals or Notices Required; No Conflicts With Instruments
The execution, delivery and performance by Buyer of this Agreement and the
other Transaction Documents to which it is a party, and the consummation of the
transactions contemplated hereby and thereby, will not (a) constitute a
violation (with or without the giving of notice or lapse of time, or both) of
any provision of any law or any judgment, decree, order, regulation or rule of
any court, agency or other governmental authority applicable to Buyer, (b)
require Buyer to obtain any consent, approval or authorization of, or
declaration, filing or registration with, any Person, (c) result in a default
(with or without the giving of notice or lapse of time, or both) under,
acceleration or termination of, or the creation in any party of the right to
accelerate, terminate, modify or cancel, any agreement, lease, note or other
restriction, encumbrance, obligation or liability to which Buyer is a party or
by which it is bound or to which any assets of Buyer are subject, (d) result in
the creation of any lien or encumbrance upon the assets of Buyer, (e) conflict
with or result in a breach of or constitute a default under any provision of the
Articles of Incorporation or Bylaws of Buyer or (f) invalidate or adversely
affect any permit, license, authorization or status used in the conduct of the
business of Buyer.
4.4 Claims and Legal Proceedings
There are no claims, actions, suits, arbitrations, criminal or civil
investigations or proceedings pending or involving or, to Buyer's knowledge,
threatened against Buyer before or by any court or governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person. To the knowledge of Buyer, there is no
valid basis for any claim, action, suit, arbitration, investigation or
proceeding that could reasonably be expected to be materially adverse to the
business, assets, operations, prospects or condition (financial or other) of
Buyer before or by any Person. There are no outstanding or unsatisfied
judgments, orders, decrees or stipulations to which Buyer is a party that
involve the transactions contemplated herein or that would have a material
adverse effect on the business, assets, operations, prospects or condition
(financial or other) of Buyer.
4.5 Tax Consequences
Buyer does not make any representation or warranty with respect to, and
expressly disclaims any responsibility for, any Tax consequences to the Members
arising out of the structure or terms of this Agreement, or the negotiation or
consummation hereof. Each Member shall be solely responsible for any such Tax
consequences.
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4.6 Capitalization
(a) The authorized capital stock of Buyer consists of 50,000,000 shares of
Common Stock and 17,500,000 shares of preferred stock, $0.01 par value, of which
4,000,000 shares have been designated Series A Preferred Stock (the "Series A
Preferred Stock"), 2,580,000 shares have been designated Series B Preferred
Stock (the "Series B Preferred Stock"), and 10,000,000 shares have been
designated Series C Preferred Stock (the "Series C Preferred Stock").
(b) Immediately prior to the date hereof, the issued and outstanding
capital stock of Buyer consisted solely of 12,866,096 shares of Common Stock,
3,998,474 shares of Series A Preferred Stock, 2,580,000 shares of Series B
Preferred Stock, and 9,837,623 shares of Series C Preferred Stock. All shares of
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock that are issued and outstanding are duly authorized and validly
issued, fully paid and nonassessable.
4.7 Validly Issued Shares
The Shares have been duly authorized for issuance, and the Shares, when
issued and delivered to the Members pursuant to this Agreement, shall be validly
issued, fully paid and nonassessable and will be free of all encumbrances and
restrictions other than encumbrances and restrictions attributable to the
Members, and the restrictions referred to in the restrictive legend set forth in
Section 3.1.3(h) hereto and the restrictions set forth in Section 5.3.
4.8 Financial Statements
Buyer has delivered to the Company and the Members its audited balance
sheet and statement of stockholders' equity at December 31, 1998, and its
audited statements of operations and cash flows for the year ended December 31,
1998. All the foregoing financial statements (including the notes thereto) are
referred to as the "Buyer Financial Statements." The Buyer Financial Statements
have been prepared in conformity with GAAP consistently applied throughout the
periods covered, except as may be indicated in the notes thereto, and present
fairly the financial position, results of operations and changes in financial
position of Buyer at the dates and for the periods indicated. Buyer has
delivered to the Company and the Members its unaudited income statement for the
seven months ended July 31, 1999, and the Buyer Balance Sheet. Buyer has no
material liabilities or obligations of any nature (absolute, accrued or
contingent) that are not fully reflected or reserved against in the Buyer
Balance Sheet, except (i) liabilities or obligations incurred since the date of
the Buyer Balance Sheet in the ordinary course of business and consistent with
past practice or (ii) as specifically set forth on Disclosure Schedule 4.8.
Buyer maintains
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standard systems of accounting established and administered in accordance with
GAAP.
4.9 Absence of Certain Changes or Events
Except (a) as and to the extent reflected or reserved against in the Buyer
Balance Sheet, (b) for liabilities and obligations incurred in the ordinary
course of business since the date of the Buyer Balance Sheet, which are not
material in amount, and (c) as otherwise disclosed on Disclosure Schedule 4.9,
there are no liabilities or obligations of any nature relating to Buyer, accrued
or contingent, whether or not due and payable and whether or not in dispute,
that would be required to be included in a balance sheet prepared in accordance
with GAAP. Buyer has not entered into or agreed to enter into any transaction,
agreement or commitment, suffered the occurrence of any event or events or
experienced any change in financial condition, business, results of operations
or otherwise that, in the aggregate, has (i) interfered with the normal and
usual operations of Buyer or business prospects of Buyer or (ii) resulted in a
material adverse change in the business, assets, operations, prospects or
condition (financial or other) of Buyer or could reasonably be expected to have
such material adverse effect.
4.10 Licenses, Permits, Authorizations, etc.
Buyer has received all required governmental approvals, authorizations,
consents, licenses, orders, registrations and permits of all agencies, whether
federal, state, local or foreign (the "Buyer Permits"), the failure to obtain of
which would have a material adverse effect on the business, assets, operations,
prospects or condition (financial or other) of Buyer. Buyer is in compliance in
all material respects with the terms of all Buyer Permits, and all Buyer Permits
are valid and in full force and effect, and no proceeding is pending or, to the
knowledge of Buyer, threatened, the object of which is to revoke, limit or
otherwise affect any Buyer Permit. Buyer has not received any notifications of
any asserted failure to obtain any Buyer Permit.
4.11 Compliance With Laws
Buyer is and has been in compliance in all material respects with all
federal, state, local and foreign laws, rules, regulations, ordinances, decrees
and orders applicable to the operation of its business, to its employees, or to
its property, including, without limitation, all such laws, rules, ordinances,
decrees and orders relating to antitrust, consumer protection, currency
exchange, zoning and land use, environmental protection, equal opportunity,
health, occupational safety, good laboratory practices, pension, securities and
trading-with-the-enemy matters. Buyer
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has not received any notification of any asserted present or past unremedied
failure by Buyer to comply with any of such laws, rules, ordinances, decrees or
orders.
4.12 Brokers or Finders
Buyer has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by or on behalf of Buyer, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
ARTICLE V - COVENANTS
The parties covenant and agree as set forth in this Article V.
5.1 Further Action
In case at any time after the date hereof any action is necessary or
desirable to carry out the purposes of this Agreement, each party to this
Agreement shall use its best efforts to take all such action.
5.2 Publicity
None of the parties shall disclose, make or issue, or cause to be
disclosed, made or issued, any comment, statement or communication with respect
to, or otherwise disclose or permit the disclosure of the existence of, this
Agreement or the transactions contemplated hereby to any third parties (other
than its managers, officers, directors, employees, authorized representatives,
legal advisors and financial advisors who need to know such information in
connection with carrying out or facilitating the transactions contemplated
hereby) without the prior written consent of the other parties, except as
required by law and after providing written notice to the other parties of such
required disclosure, which notice shall include the content of the proposed
disclosure, the reasons that such disclosure is required by law, and the time
and place such disclosure will be made.
5.3 Limitations on Disposition of Shares; Right of First Refusal
(a) The Members will not dispose of any portion of the Shares unless and
until:
(i) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement;
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(ii) Such Member shall have furnished Buyer with an opinion of
counsel, reasonably satisfactory to Buyer, that such disposition will not
require registration of such shares under the Act; or
(iii) Buyer shall be satisfied that such proposed disposition
complies with SEC Rule 144 or any successor rule providing a safe harbor for
such dispositions without registration.
For purposes of this Section 5.3, the term "dispose" includes, but is
not limited to, the acts of selling, assigning, transferring, pledging,
encumbering, giving away, devising, and any other form of conveying, including
conveyances caused by marital separation, divorce, receivership, or bankruptcy,
whether voluntary or involuntary or by operation of law. For purposes of this
Section 5.3, the term "Shares" includes the Shares as defined in Section 2.2.1
as well as any shares issued by Buyer in connection with the exercise of stock
options as provided in the employment agreements entered into by Buyer and Klein
and Cohen as of the date hereof.
(b) (i) Notwithstanding the provisions of Section 5.3(a), before any
Shares held by any Member or any transferee of any Member (either being
sometimes referred to as the "Holder") may be sold or otherwise disposed of (as
defined above but excluding transfers described in and governed by Section
5.3(b)(vii), Buyer or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section 5.3(b)
(the "Right of First Refusal").
(ii) The Holder of the Shares shall deliver to Buyer a written
notice (the "Notice") stating: (A) the Holder's bona fide intention to sell or
otherwise transfer such Shares; (B) the name and address of any proposed
purchaser or other transferee ("Proposed Transferee"); (C) the number of Shares
to be transferred; and (D) the terms and conditions of any proposed sale or
transfer, including the proposed purchase price for the Shares to be transferred
(the "Offered Price").
(iii) At any time within thirty (30) days after receipt of the
Notice, Buyer or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all, but not less than all, of the Shares proposed to be
transferred to any one or more of the Proposed Transferees, at the purchase
price determined in accordance with Section 5.3(b)(iv) below.
(iv) The purchase price ("Purchase Price") for the Shares purchased
by Buyer or its assignee(s) under this Section 5.3(b) shall be the Offered
Price. If the Offered Price includes consideration other than cash, the cash
equivalent value of the
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non-cash consideration shall be determined by the Board of Directors of Buyer in
good faith.
(v) Payment of the Purchase Price shall be made, at the option of
Buyer or its assignee(s), in cash (by check), by cancellation of all or a
portion of any outstanding indebtedness of the Holder to Buyer (or, in the case
of repurchase by an assignee, to the assignee), or by any combination thereof
within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(vi) If all of the Shares proposed in the Notice to be transferred
to a given Proposed Transferee are not purchased by Buyer and/or its assignee(s)
as provided in Section 5.3(b)(iii), then the Holder may sell or otherwise
transfer such Shares to that Proposed Transferee at the Offered Price or at a
higher price, provided that such sale or other transfer is consummated within
sixty (60) days after the date of the Notice and provided further that any such
sale or other transfer is effected in accordance with any applicable securities
laws and the Proposed Transferee and any spouse executes an endorsement in the
form attached as Exhibit 5.3(b)(vi), acknowledging that the provisions of this
Agreement shall continue to apply to the Shares in the hands of such Proposed
Transferee (an "Endorsement"). If the Shares are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new Notice
shall be given to Buyer, and Buyer or its assignees shall again be offered the
Right of First Refusal before any Shares held by the Holder may be sold or
otherwise transferred.
(vii) Notwithstanding anything to the contrary in this Section
5.3(b), the transfer of any or all of the Shares during the Member's lifetime or
on the Member's death by will or intestacy to the Member's Immediate Family or a
trust for the benefit of the Member's Immediate Family shall be exempt from the
provisions of this Section 5.3(b). "Immediate Family" as used herein shall mean
the Member's spouse (except in the case of divorce), father, mother, brother,
sister or children or an entity in which all beneficial ownership interests are
held by the Member, any of the aforementioned persons or any other such entity.
In such case, the transferee or other recipient shall receive and hold the
Shares so transferred subject to the provisions of this Section 5.3(b), shall
execute an Endorsement and there shall be no further transfer of such Shares
except in accordance with the terms of this Section 5.3(b).
(viii) Notwithstanding anything to the contrary in this Section
5.3(b), the transfer by gift of up to an aggregate of 30,000 Shares by Klein or
Cohen to employees of the Company shall be exempt from the provisions of this
Section 5.3(b), provided that Klein and Cohen may transfer such Shares to no
more than five employees of the Company, and provided further that the
transferees of such Shares
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shall receive and hold the Shares so transferred subject to the provisions of
this Section 5.3(b), shall execute an Endorsement and there shall be no further
transfer of such Shares except in accordance with the terms of this Section
5.3(b).
(ix) In the event, at any time after the date of this Agreement, of
any transfer by operation of law or other involuntary transfer (including death,
divorce, legal separation or bankruptcy, but excluding a transfer to Immediate
Family as set forth in Section 5.3(b)(vii) above) of all or a portion of the
Shares by the Holder, Buyer or its assignee(s) shall have an option to purchase
all of the Shares transferred at the Fair Market Value (as defined below) of the
Shares on the date of transfer. The Holder or the Holder's executor shall
promptly notify the Secretary of Buyer in writing of such involuntary transfer.
The right to purchase such Shares shall be provided to Buyer or its assignee(s)
for a period of thirty (30) days following receipt by Buyer of such written
notice. In the event that the proposed transfer is required by the order,
judgment or decision of a court, arbitrator or other third party, the Holder or
the Holder's executor shall notify such court, arbitrator or other third party
of Buyer's rights under this Section 5.3(b)(ix).
(x) For purposes of this Agreement, the "Fair Market Value" of the
Shares shall be defined as the value of the Shares as determined by the Board of
Directors of Buyer, which value reflects the then-current value of the Shares in
terms of present earnings and future prospects of Buyer. Buyer shall notify the
Holder or the Holder's executor of the Fair Market Value within thirty (30) days
after receipt by it of written notice of the proposed transfer of Shares.
However, if the Holder or the Holder's executor does not agree with the
valuation as determined by the Board of Directors of Buyer, the Holder or the
Holder's executor shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by Buyer and the Holder or the
Holder's executor and whose fees shall be borne equally by Buyer and the Holder
or the Holder's estate.
(xi) The rights of Buyer to purchase any part of the Shares may be
assigned in whole or in part to any shareholder or shareholders of Buyer or
other persons or organizations.
(xii) All transferees of Shares or any interest therein will receive
and hold such Shares or interest subject to the provisions of this Section
5.3(b). Any sale or transfer of the Shares shall be void unless the provisions
of this Section 5.3(b) are met.
(xiii) This Section 5.3(b) shall terminate upon the closing of the
first sale of Common Stock of Buyer to the general public (an "Initial Public
Offering") under a registration statement declared effective under the Act, or
any successor
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statute. Upon termination of this Section 5.3(b), a new certificate or
certificates representing the Shares shall be issued, on request, without the
second paragraph of the legend required by Section 3.1.3(h) and delivered to
such Member.
5.4 Noncompetition Agreements
The Members shall cause each employee of the Company who will continue
to be employed by the Company after the date hereof to enter into a twelve-month
noncompetition agreement in substantially the form attached as Exhibit 5.4, and
shall terminate any such employees on or before October 31, 1999 who have not
entered into such agreement within 30 days of the date hereof.
5.5 Delivery of Stock Option Letter Agreements
Buyer shall within 10 days after the date hereof deliver to continuing
employees of the Company stock option letter agreements granting options to
purchase up to an aggregate of 125,000 shares of Common Stock, subject to the
terms of the Avenue A, Inc. 1998 Stock Incentive Compensation Plan (as amended
and restated April 20, 1999).
ARTICLE VI - CONDITIONS PRECEDENT TO
OBLIGATIONS OF BUYER
The obligations of Buyer to perform and observe the covenants, agreements
and conditions to be performed and observed by it shall be subject to the
satisfaction of the following conditions, which may be expressly waived only in
writing signed by Buyer.
6.1 Accuracy of Representations and Warranties
Each of the representations and warranties of the Members contained in this
Agreement (including applicable Exhibits or Disclosure Schedules) shall be true
and correct as of the date hereof.
6.2 Performance of Agreements
The Members shall have performed all obligations and agreements and
complied with all covenants and conditions contained in this Agreement to be
performed and complied with by them at or prior to the date hereof.
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6.3 Opinion of Counsel for the Members
Buyer shall have received the opinion of Camhy Karlinsky & Stein LLP,
counsel for the Members, dated as of the date hereof, in substantially the form
attached as Exhibit 6.3.
6.4 Members' Certificate
Buyer shall have received a certificate of the Members of the Company,
dated as of the date hereof, in substantially the form attached as Exhibit 6.4,
certifying that the conditions set forth in Sections 6.1, 6.2 and 6.5 have been
fulfilled.
6.5 Approvals and Consents
All transfers of permits or licenses and all approvals, applications or
notices to public agencies, federal, state, local or foreign, the granting or
delivery of which is necessary for the consummation of the transactions
contemplated hereby or for the continued operation of the Company as set forth
on the Disclosure Schedules, shall have been obtained. All other consents,
approvals and notices material to the consummation of the transactions
contemplated by this Agreement and referred to on the Disclosure Schedules shall
have been obtained or delivered. All such transfers, approvals and consents
shall be satisfactory in all respects to Buyer in its sole and absolute
discretion.
6.6 Legal Proceedings
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement, and
no litigation, investigation or administrative proceeding shall be pending or
threatened that would enjoin, restrain, condition or prevent consummation of
this Agreement or the transactions contemplated hereby.
6.7 Nonforeign Affidavit
Buyer shall have received from the Members, pursuant to Section 1445 of the
Code, a Foreign Investment in Real Property Tax Act Affidavit in the form
attached as Exhibit 6.7.
6.8 Escrow Agreement
Buyer, the Escrow Agent, Klein and Cohen shall have executed and delivered
the Escrow Agreement.
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6.9 Registration Rights Agreement
Buyer and the Members shall have executed and delivered a Registration
Rights Agreement, dated as of the date hereof, in substantially the form
attached as Exhibit 6.9 (the "Registration Rights Agreement").
ARTICLE VII - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS
The obligations of the Members to perform and observe the covenants,
agreements and conditions to be performed and observed by each of them shall be
subject to the satisfaction of the following conditions, which may be expressly
waived only in writing signed by Klein and Cohen.
7.1 Accuracy of Representations and Warranties
Each of the representations and warranties of Buyer contained in this
Agreement (including applicable Exhibits or Disclosure Schedules) shall be true
and correct as of the date hereof.
7.2 Performance of Agreements
Buyer shall have performed all obligations and agreements and complied with
all covenants and conditions contained in this Agreement to be performed and
complied with by it at or prior to the date hereof.
7.3 Opinion of Counsel for Buyer
The Members shall have received the opinion of Perkins Coie LLP, counsel
for Buyer, dated as of the date hereof, in substantially the form attached as
Exhibit 7.3.
7.4 Officer's Certificate
The Members shall have received a certificate of a Vice President of Buyer,
dated as of the date hereof, in substantially the form attached as Exhibit 7.4,
certifying that the conditions in Section 7.1, 7.2 and 7.5 have been fulfilled.
7.5 Approvals and Consents
All transfers of permits or licenses and all approvals, applications or
notices to public agencies, federal, state, local or foreign, required to be
obtained by Buyer for the consummation of the transactions contemplated hereby
shall have been obtained. All other consents, approvals and notices material to
the consummation of the
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transactions contemplated by this Agreement and referred to on the Disclosure
Schedules shall have been obtained or delivered.
7.6 Legal Proceedings
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement, and
no litigation, investigation or administrative proceeding shall be pending or
threatened that would enjoin, restrain, condition or prevent consummation of
this Agreement or the transactions contemplated hereby.
7.7 Delivery of Certificates
Buyer shall have delivered to the Members at the Closing certificates
representing the Shares.
7.8 Escrow Agreement
Buyer, the Escrow Agent, Klein and Cohen shall have executed and delivered
the Escrow Agreement.
7.9 Registration Rights Agreement
Buyer and the Members shall have executed and delivered the Registration
Rights Agreement.
ARTICLE VIII - AMENDMENT AND WAIVER
8.1 Amendment
Buyer and the Members may amend, modify or supplement this Agreement at any
time, but only in writing duly executed by them.
8.2 Waiver
Any party may waive any inaccuracy in the representations and warranties
contained in any Transaction Document, or waive compliance with any agreement or
condition in any Transaction Document. Any such waiver shall be valid only if
set forth in an instrument in writing signed by the party or parties to be
bound. The failure of any party at any time or times to require performance of
any provisions shall in no manner affect its right at a later time to enforce
the same. No waiver by any party of any condition or of any breach of any
terms, covenants, representations, warranties or agreements contained in this
Agreement shall be deemed to be a further
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or continuing waiver of any such condition or breach in other instances or a
waiver of any other condition or any breach of any other terms, covenants,
representations, warranties or agreements.
ARTICLE IX - SURVIVAL AND INDEMNIFICATION
9.1 Survival
All representations and warranties contained in this Agreement or the other
Transaction Documents shall survive for a period of one year following the date
hereof, except that the representations and warranties with respect to Section
3.1.1 (Good Title), Section 3.3 (Interests), Section 3.8 (Taxes), Section 3.15
(Intellectual Property), Section 4.6 (Capitalization) and Section 4.7 (Validly
Issued Shares) shall not terminate and shall survive indefinitely. The
covenants and agreements contained in this Agreement that contemplate
performance after the Closing shall survive the Closing and shall continue until
all obligations with respect thereto shall have been performed or satisfied or
shall have been terminated in accordance with their terms, except the covenants
set forth in Section 5.2 shall survive for a period of five years.
9.2 Indemnification
9.2.1 Indemnification by Klein and Cohen
Klein and Cohen jointly and severally shall indemnify and hold Buyer and
its affiliates (the "Buyer Indemnified Parties") harmless from and against, and
shall reimburse Buyer Indemnified Parties for, any and all losses, damages,
debts, liabilities, obligations, judgments, orders, awards, writs, injunctions,
decrees, fines, penalties, taxes, costs or expenses (including but not limited
to any reasonable legal and accounting fees and expenses) ("Losses") arising out
of or in connection with:
(a) any inaccuracy in or other breach of any representation or
warranty made by any Member in this Agreement or in any other Transaction
Document;
(b) any failure by any Member to perform or comply, in whole or in
part, with any covenant or agreement in this Agreement or any other Transaction
Document to which such Member is a party; or
(c) any claim, demand, cause of action, suit, proceeding, hearing
or investigation ("Claim") by any Person for all Taxes relating to periods on or
prior to the date hereof.
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9.2.2 Indemnification by Buyer
Buyer shall indemnify and hold Klein and Cohen (the "Member Indemnified
Parties"; together with Buyer Indemnified Parties, the "Indemnified Parties")
harmless from and against, and shall reimburse the Member Indemnified Parties
for, any and all Losses arising out of or in connection with:
(a) any inaccuracy in or other breach of any representation or
warranty made by Buyer in this Agreement or in any other Transaction Document;
or
(b) any failure by Buyer to perform or comply, in whole or in part,
with any covenant or agreement in this Agreement or any other Transaction
Document to which it is a party.
9.3 Limitations
(a) No claim for indemnification may be made unless the aggregate
amount of all indemnifiable Losses exceeds $50,000, in which event an
Indemnified Party shall be entitled to indemnification for all Losses.
(b) In no event shall Klein or Cohen be obligated to make any
payments for Losses in an aggregate amount in excess of the Escrow Amount except
for payments made for Losses relating to Section 3.1.1 (Good Title), Section 3.3
(Interests) or Section 3.8 (Taxes), which payments in the aggregate (together
with all other payments made pursuant to Section 9.2.1) shall not exceed
$3,960,000.
(c) In no event shall Buyer be obligated to make any payments for Losses
in an aggregate amount in excess of $450,000 except for payments made for Losses
relating to Section 4.6 (Capitalization) or Section 4.7 (Validly Issued Shares),
which payments in the aggregate (together with all other payments made pursuant
to Section 9.2.2) shall not exceed $3,960,000.
9.4 Procedure for Indemnification
9.4.1 Claim Notice
In the event that any Indemnified Party sustains or incurs any Losses in
respect of which indemnification may be sought pursuant to this Article IX, such
Indemnified Party may assert a claim for indemnification by giving written
notice (the "Claim Notice") to the indemnifying party that will describe in
reasonable detail the facts and circumstances upon which the asserted claim for
indemnification is based. The Claim Notice will also specify how the
Indemnified Party intends to recover such funds pursuant to this Agreement.
Unless the claim described in the Claim Notice is
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contested by the indemnifying party by written notice to the Indemnified Party
(and to the Escrow Agent if the claim is against Klein or Cohen), given within
30 days of the receipt of the Claim Notice, the Indemnified Party may recover
such undisputed amount of the claim described in the Claim Notice. If the
undisputed claim is against Klein or Cohen, such claim may be paid out of the
Escrow Amount by giving written notice of such claim to the Escrow Agent. The
Escrow Agent shall be entitled to rely on any such notice and distribute the
Escrow Amount held in escrow to Buyer in accordance with the terms thereof.
9.4.2 Dispute Notice
If, within 30 days of the receipt by the indemnifying party of the Claim
Notice, the indemnifying party contests in writing to the Indemnified Party and
the Escrow Agent (if such claim is against Klein or Cohen) that such Loss
constitutes an indemnifiable claim (the "Dispute Notice"), then the Indemnified
Party and the indemnifying party, acting in good faith, shall attempt to reach
agreement with respect to such claim. If the Indemnified Party and the
indemnifying party should so agree, a memorandum setting forth such agreement
shall be prepared and signed by the Indemnified Party and the indemnifying party
and shall be furnished to the Escrow Agent if claim is to be made against the
Escrow Amount. The Escrow Agent shall be entitled to rely on any such
memorandum and distribute the Escrow Amount in accordance with the terms
thereof. Any claims for which the indemnifying party and the Indemnified Party
do not reach agreement are subject to arbitration as set forth in Section
10.5(b).
9.4.3 Third-Party Claims
With respect to claims for indemnification resulting from or in connection
with any legal proceeding commenced by a third party, the Indemnified Party will
give the Claim Notice to the indemnifying party no later than 10 days prior to
the time any initial answer or response to the asserted claim is legally
required under any applicable court or procedural rule. Nothing in this Section
9.4.3 limits in any way the right of the Indemnified Party to defend against any
claim or litigation in such manner as it may deem appropriate, including, but
not limited to, settling the claim or litigation (after giving notice of the
same to the indemnifying party) on such terms as the Indemnified Party may in
good faith deem appropriate (provided, however, that no such settlement shall
occur without the indemnifying party's prior written consent, which shall not be
unreasonably withheld). The indemnifying party will, subject to the limitations
set forth in Section 9.3, promptly indemnify the Indemnified Party in accordance
with the provisions of this Article IX and the Escrow Agreement, if applicable.
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9.5 Access to Escrow Amount
The satisfaction of any Losses agreed by the parties, or finally determined
by arbitration, to be owed to Buyer under this Article IX shall be made by
delivery by the Escrow Agent to Buyer of all or a portion of the Escrow Amount.
Any liability for indemnification by Klein or Cohen under this Article IX shall
(subject to the limitations set forth in Section 9.3) be satisfied, first, from
the Escrow Amount pursuant to a set-off under the Escrow Agreement and, second,
to the extent the Escrow Amount is insufficient to satisfy any such liability,
from other assets of Klein or Cohen.
ARTICLE X - GENERAL
10.1 Expenses
Each party shall pay its, his or her own fees and expenses for the
negotiation, preparation and carrying out of this Agreement and the other
Transaction Documents (including any legal and accounting fees and expenses).
The Members shall pay any transfer or similar Taxes which may be payable in
connection with the transactions contemplated by this Agreement.
10.2 Specific Enforcement
The parties expressly agree that they will be irreparably damaged if this
Agreement is not specifically enforced. Upon a breach or threatened breach of
this Agreement by any party, Buyer and the Members shall, in addition to all
other remedies, be entitled to a temporary or permanent injunction, without
showing any actual damage, or a decree for specific performance, in accordance
with the provisions of this Agreement.
10.3 Assignment
This Agreement shall not be assigned by any party or by operation of law or
otherwise, except that Buyer may assign all or any of its rights and obligations
to any of its affiliates. In the event of any such permitted assignment, Buyer
shall guarantee the performance of such obligations by such assignee.
10.4 Notices
Unless otherwise provided, any notice under this Agreement shall be given
in writing and shall be deemed effectively given (a) upon personal delivery to
the party to be notified, (b) upon confirmation of receipt by fax by the party
to be notified, (c) one business day after deposit with a reputable overnight
courier, prepaid for
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overnight delivery and addressed as set forth below, or (d) three days after
deposit with the U.S. Post Office, postage prepaid, registered or certified with
return receipt requested and addressed to the party to be notified at the
address indicated for such party below, or at such other address as such party
may designate by 10 days' advance written notice to the other parties given in
the foregoing manner.
TO BUYER:
Avenue A, Inc.
1100 Olive Way, Suite 1270
Seattle, WA 98101
Facsimile: (206) 521-8808
Attention: Robert M. Littauer
with a copy to:
Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Facsimile: (206) 583-8500
Attention: David F. McShea, Esq.
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TO THE MEMBERS:
Stephen D. Klein
200 West 79/th/ Street, #9S
New York, NY 10024
Jonathan Bond
145 Avenue of the Americas
New York, NY 10013
Michael Cohen
88 Jane Street, #1BW
New York, NY 10014
Richard Kirshenbaum
145 Avenue of the Americas
New York, NY 10013
Margaret Boyer
1100 Olive Way, Suite 1270
Seattle, WA 98101
Daniel DeWolf
214 East 78/th/ Street
New York, NY 10021
with copies to:
Camhy Karlinsky & Stein LLP
1740 Broadway, 16/th/ Floor
New York, NY 10019
Facsimile: (212) 977-8389
Attention: Eric M. Roth, Esq.
and, if to Cohen, a copy to:
Pelino & Lentz, P.C.
One Liberty Place, 32/nd/ Floor
1650 Market Street
Philadelphia, PA 19103
Facsimile: (215) 665-1536
Attention: John W. Pelino, Esq.
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10.5 Governing Law; Arbitration; Jurisdiction; Venue
(a) This Agreement shall be governed by and construed under the laws of
the state of Washington without regard to principles of conflict of laws.
(b) Any controversy, dispute or claim arising out of or relating to this
Agreement or the breach hereof that cannot be settled by mutual agreement
(except for actions by any party seeking equitable, injunctive or other relief)
shall be finally settled by arbitration as follows: Any party who is aggrieved
shall deliver a notice to the other parties hereto setting forth the specific
points in dispute. Any points remaining in dispute 20 days after the giving of
such notice shall be submitted to arbitration in Seattle, Washington, to
JAMS/Endispute, before a single arbitrator appointed in accordance with
JAMS/Endispute's Arbitration Rules, modified as expressly provided therein. 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. The parties to this
Agreement irrevocably consent to submit to the jurisdiction and venue of the
state and federal courts located in King County, Washington for the purpose of
resolving disputes arising out of this Agreement and the transactions
contemplated by this Agreement and hereby waive any claim based on a lack of
personal jurisdiction concerning the matter in dispute. Notwithstanding any
other provision of this Agreement, the arbitrator will be authorized to
apportion its fees and expenses and the reasonable attorneys' fees and expenses
of the parties as the arbitrator deems appropriate. In the absence of any such
apportionment, the fees and expenses of the arbitrator will be borne 50% by
Buyer, on the one hand, and 50% by the Members, on the other hand, and each such
party will bear the fees and expenses of its own attorneys. 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. The parties shall keep confidential, and shall
not disclose to any Person, except as may be required by law, the existence of
any controversy hereunder, the referral of any such controversy to arbitration
or the status or resolution thereof.
10.6 Successors and Assigns
The terms and conditions of this Agreement shall inure to the benefit of
and be binding on the respective heirs, personal representatives, executors,
successors and assigns of the parties.
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10.7 Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
10.8 Entire Agreement; Counterparts
This Agreement (including the exhibits and Disclosure Schedules hereto),
the Transaction Documents (including, but not limited to, the Registration
Rights Agreement, the Escrow Agreement, and certain employment agreements) and
the non-disclosure agreement between Buyer and the Company, dated December 29,
1998, constitute the entire agreement among the parties with respect to this
subject matter and supersede all prior agreements and undertakings, both written
and oral, among the parties with respect to this subject matter, including, but
not limited to, the Letter of Intent, dated May 26, 1999, among Buyer and the
Members. In the event that the terms of this Agreement shall be inconsistent or
conflict with the terms of any other Transaction Document, the terms of this
Agreement shall govern. This Agreement may be executed in two or more
counterparts, which together shall constitute one instrument.
10.9 Consent to Transfer of Interests
The Members hereby consent to the transfer of the Interests to Buyer and
consent to the admission of Buyer as a substitute Member of the Company pursuant
to Article VI of the Operating Agreement.
10.10 Consent of Parties
Unless otherwise expressly stated herein, whenever the consent of a party
is required to be given hereunder, such consent shall not be unreasonably
withheld or delayed.
[SIGNATURE PAGE FOLLOWS]
-41-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.
AVENUE A, INC.
By: /s/ ROBERT M. LITTAUER
------------------------------
Its: Vice President
MEMBERS OF I-BALLS, LLC
/s/ STEPHEN D. KLEIN
---------------------------------
Stephen D. Klein
/s/ MICHAEL COHEN
---------------------------------
Michael Cohen
/s/ JONATHAN BOND
---------------------------------
Jonathan Bond
/s/ RICHARD KIRSHENBAUM
---------------------------------
Richard Kirshenbaum
/s/ MARGARET BOYER
---------------------------------
Margaret Boyer
/s/ DANIEL DEWOLF
---------------------------------
Daniel DeWolf
-42-
<PAGE>
SCHEDULE 2.2.1
SCHEDULE OF MEMBERS AND CLOSING AMOUNTS
- -----------------------------------------------------------------------
Members Closing Amounts Number of Shares
- -----------------------------------------------------------------------
Stephen D. Klein $1,882,800 315,000
- -----------------------------------------------------------------------
Michael Cohen 747,200 125,000
- -----------------------------------------------------------------------
Jonathan Bond 175,000 25,000
- -----------------------------------------------------------------------
Richard Kirshenbaum 175,000 25,000
- -----------------------------------------------------------------------
Margaret Boyer 35,000 5,000
- -----------------------------------------------------------------------
Daniel DeWolf 35,000 5,000
- -----------------------------------------------------------------------
Total $3,050,000 500,000
- -----------------------------------------------------------------------
SCHEDULE OF ESCROW AMOUNT CONTRIBUTIONS
- -----------------------------------------------------------------------
Member Escrow Amount Contribution
- -----------------------------------------------------------------------
Stephen D. Klein $322,200
- -----------------------------------------------------------------------
Michael Cohen 127,800
- -----------------------------------------------------------------------
Total $450,000
- -----------------------------------------------------------------------
-1-
<PAGE>
DISCLOSURE SCHEDULE 4.8
-----------------------
Buyer entered into a lease agreement with Samis Foundation on July 16,
1999, which provides for total lease payments of approximately $5.2 million for
an initial five-year term.
-1-
<PAGE>
DISCLOSURE SCHEDULE 4.9
-----------------------
Buyer entered into a lease agreement with Samis Foundation on July 16,
1999, which provides for total lease payments of approximately $5.2 million for
an initial five-year term.
-1-
<PAGE>
EXHIBIT 10.16
Employment Agreement
between
Avenue A, Inc.
and
Michael Cohen
Dated as of September 2, 1999
<PAGE>
Employment Agreement
This Employment Agreement (this "Agreement"), dated as of September 2,
1999, between Avenue A, Inc., a Washington corporation ("Employer"), and Michael
Cohen ("Employee");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employer has entered into a Purchase Agreement (the "Purchase
Agreement"), dated the date hereof, with the members of I-Balls LLC, a New York
limited liability company (the "Company"), to purchase all of the outstanding
limited liability company membership interests of the Company; and
WHEREAS, Employee has been serving as a manager of the Company; and
Employer desires to retain the services of Employee upon the terms and
conditions set forth herein; and
WHEREAS, Employee is willing to provide services to Employer upon the terms
and conditions set forth herein;
A G R E E M E N T S:
- - - - - - - - - -
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein and for other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, Employer and Employee hereby agree as
follows:
1. EMPLOYMENT
Employer will employ Employee and Employee will accept employment by
Employer as the President of the Company. Employee will perform the duties
customarily performed by the president of a corporation which is, in all
material respects, similar to the Company and such other duties as may
reasonably be assigned from time to time by Employer's management, which relate
to the business of the Company, Employer, its subsidiaries, or any business
ventures in which the Company, Employer or its subsidiaries may participate.
Employee shall perform his duties at Employer's facility located at 487
Greenwich Street, New York City, New York (the "Facility"), or such other
similarly located location of Employer to which Employee may be assigned from
time to time by Employer, provided that nothing herein shall be
<PAGE>
construed to require Employee to perform his duties at a facility located more
than five miles from the Facility.
2. ATTENTION AND EFFORT
Except for during periods of illness, vacation periods aggregating three
weeks per year (not including holidays recognized by Employer) and leaves of
absence (in each case, consistent with Employer's policy with respect to such
matters), Employee will devote all of his entire productive time, ability,
attention and effort to the Company's business and will skillfully serve its
interests during the term of this Agreement; provided, however, that Employee
may devote reasonable periods of time to (a) serving on the Board of Directors
of other corporations, if such service would not otherwise be prohibited by
paragraph 8 hereof, and (b) engaging in charitable or community service
activities, so long as none of the foregoing additional activities materially
interfere with Employee's duties under this Agreement. Employee shall have
three weeks of paid vacation per full calendar year (not including holidays
recognized by Employer).
3. TERM
Unless otherwise terminated pursuant to paragraph 6 of this Agreement,
Employee's initial term of employment under this Agreement shall expire two
years from the date of this Agreement (the "Initial Term"). After the Initial
Term, Employee's employment shall continue for successive one year terms unless
either party provides written notice at least 120 days prior to the end of a
term of such party's intention not to renew. Prior to each one-year renewal
period, Employer and Employee shall mutually agree on Employee's compensation.
4. COMPENSATION
4.1 Base Salary
Employee's compensation shall consist, in part, of an annual base salary of
$150,000 before all customary payroll deductions, for the period from the date
hereof through September __, 2001. Such base salary shall be paid in
substantially equal installments and at the same intervals as other employees of
the Company are paid.
4.2 Bonus
Employee shall be entitled to receive, in addition to the annual base
salary described above, a signing bonus of $50,000 before all customary payroll
deductions, to be awarded as of the date hereof, and an additional bonus of
$50,000 before all
-2-
<PAGE>
customary payroll deductions, if he is employed by the Company through the one-
year anniversary of this Agreement.
4.3 Additional Compensation
On the date hereof, Employer shall grant to Employee nonqualified options
to purchase 75,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), of Employer, at an exercise price equal to the fair market
value of a share of Common Stock of Employer on such date, as determined in
accordance with a stock option letter agreement in substantially the form
attached hereto as Exhibit A (the "Option Letter Agreement"). Such options
shall be subject to the terms and conditions of, and shall vest in accordance
with, the Option Letter Agreement. In addition, during the term of this
Agreement, Employer agrees to pay or cause to be paid to Employee, and Employee
agrees to accept in exchange for the services rendered hereunder by him,
incentive payments of up to an aggregate of $250,000 for 1999 and $250,000 for
2000 (the "Incentive Payments") in accordance with the following tables. The
Incentive Payments will be made to Employee if and only if the Company achieves
annual gross income targets in accordance with the following tables. In
addition, on the date hereof Employer shall grant to Employee, and Employee
agrees to accept in exchange for the services rendered hereunder by him,
nonqualified options to purchase an aggregate of 200,000 shares of Common Stock
of Employer, at an exercise price of $2.50 per share (the "Options"). The
Options shall vest six years from the date of grant unless sooner vested in
accordance with the following tables or unless earlier terminated. The Options
shall be subject to the terms and conditions of a stock option letter agreement
in substantially the form attached hereto as Exhibit B.
1999 Targets and Incentives
<TABLE>
<CAPTION>
1999 Annual "Gross Income" Amount of Incentive Payment Number of Options Which
Target of Company Paid Within 90 days after Vest at 90 days after
December 31, 1999 December 31, 1999
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $1.95 million None None
- ----------------------------------------------------------------------------------------------
At least $1.95 million but $83,334 33,334
less than $2.4 million
- ----------------------------------------------------------------------------------------------
At least $2.4 million but An additional $83,333 An additional 33,333
less than $3 million
- ----------------------------------------------------------------------------------------------
$3 million or greater An additional $83,333 An additional 33,333
- ----------------------------------------------------------------------------------------------
</TABLE>
If the Company's 1999 Annual Gross Income Target of $1.95 million is not met for
the 12 months ended December 31, 1999, Employee may elect to seek to have the
Company meet the Annual Gross Income Target set forth in the table above for the
12-month period ending March 31, 2000 (the "Revised Period"), and if such
election
-3-
<PAGE>
is made and such targets are met for the Revised Period, the Incentive Payments
shall be paid and the Options shall vest in accordance with the table above,
except that the date December 31, 1999 shall be deemed to be replaced with the
date March 31, 2000 wherever it appears in such table.
2000 Targets and Incentives
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
2000 Annual "Gross Amount of Incentive Number of Options
Income" Target of Payment Paid Within 90 Which Vest at 90 days
Company days after December 31, 2000 after December 31, 2000
<S> <C> <C>
Less than $3.45 million None None
- ----------------------------------------------------------------------------------------------
At least $3.45 million but $83,334 33,334
less than $4.2 million
- ----------------------------------------------------------------------------------------------
At least $4.2 million but An additional $83,333 An additional 33,333
less than $5.25 million
- ----------------------------------------------------------------------------------------------
$5.25 million or greater An additional $83,333 An additional 33,333
- ----------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Section 4.3, "Gross Income" means gross ad buy income, plus
commissions, less site payout, as reflected on the Company's financial
statements.
5. BENEFITS AND REIMBURSEMENT OF EXPENSES
5.1 General
During the term of this Agreement, Employee will be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in fringe benefit programs generally available to other members of
Employer's management. Employer shall pay or reimburse Employee for all
reasonable travel and other expenses incurred by Employee in performing his
obligations under this Agreement.
5.2 Benefits Payable Upon Disability
5.2.1 In General
If Employee shall be prevented during the term of this Agreement from
properly performing services hereunder by reason of illness or other physical or
mental incapacity, Employer shall continue to pay Employee his then-current base
salary, any accrued or earned incentive payments and any bonus or additional
compensation as set forth in Sections 4.1, 4.2 and 4.3 of this Agreement and
reimbursement for any unreimbursed business expenses hereunder during the period
of Employee's disability.
-4-
<PAGE>
5.2.2 Limitation on Benefits
Notwithstanding any other provision of Section 5.2,(a) Employee shall
not receive such payments under Section 5.2.1 after the end of the term of this
Agreement, and (b) if Employee is disabled for a period or periods aggregating
90 calendar days, then Employee shall receive the greater of (i) the payments as
set forth under Section 5.2.1 for such 90-day period, provided, however, that
Employer's obligations hereunder shall cease and terminate at the end of such
90-day period, or (ii) any amounts Employee is entitled to receive pursuant to
any Employer-sponsored benefit plans by virtue of his disability or inability to
perform his duties as described in Section 1 herein ("Disability Plans").
5.3 Benefits Payable Upon Death
In the event of the death of Employee during the term of this Agreement,
Employee shall be entitled to receive the greater of (i) Employee's base salary,
any accrued or earned incentive payments and any bonus or additional
compensation due under Sections 4.1, 4.2 or 4.3 of this Agreement and
reimbursement for any unreimbursed business expenses payable hereunder or (ii)
any amount Employee may be entitled to receive pursuant to any Disability Plan
as a result of Employee's death during the term of this Agreement. Any such
amount payable under this Section 5.3 shall be paid to Employee's surviving
spouse, or if there is no spouse surviving, then to Employee's designee or
representative as the case may be through the six-month period following the end
of the calendar month in which death occurs
6. TERMINATION
Employment of Employee pursuant to this Agreement may be terminated as
follows, but in any case, the provisions of the Confidentiality Agreement
referenced in paragraph 8 hereof shall survive the termination of this Agreement
and the termination of Employee's employment hereunder:
6.1 By Employer
6.1.1 For Cause
Notwithstanding anything herein to the contrary, the Employer may,
without liability, terminate Employee's employment hereunder for Cause at any
time immediately upon written notice from the Board of Directors of the
Employer. As used herein the term "Cause" shall mean, without limitation, the
occurrence of one or more of the following events: (i) Employee's material
misconduct or dishonesty in the performance of Employee's duties or other
knowing and material violation of Employer's policies and procedures in effect
from time to time; (ii) actions (or failures
-5-
<PAGE>
to act) by Employee in bad faith with respect to Employer or that materially
impair Employer's business, goodwill or reputation; (iii) the conviction of
Employee for a felony involving an act of dishonesty, moral turpitude, deceit or
fraud; (iv) any breach of Section 8 of this Agreement; (v) a material breach by
Employee of one or more terms of this Agreement, other than Section 8, which
breach Employee has not cured within thirty days of Employee's receipt of
written notice from Employer of such breach; or (vi) Employee's failure to
perform his duties hereunder in a manner reasonably satisfactory to the Board of
Directors or senior management of Employer, provided that Employee shall first
be given written notice specifically describing such unsatisfactory performance
and recommending actions to be taken to cure such failure, and Employee shall
not have cured such failure within sixty days of receipt of such notice.
6.1.2 Other Than for Cause
Notwithstanding anything herein to the contrary, Employer may also
terminate Employee's employment hereunder without Cause at any time, for any
reason.
6.2 By Employee
Employee may terminate his employment at any time, for any reason, upon
giving Notice of Termination (as defined below).
6.3 Automatic Termination
Subject to the provisions of Section 5 herein, this Agreement and
Employee's employment hereunder shall terminate automatically upon the death or
total disability of Employee. The term "total disability" as used herein shall
mean Employee's inability to perform the duties set forth in paragraph 1 hereof
for a period or periods aggregating 90 calendar days in any 12-month period as a
result of physical or mental illness, loss of legal capacity or any other cause
beyond Employee's control, unless Employee is granted a leave of absence by the
Board of Directors of Employer. Employee and Employer hereby acknowledge that
Employee's ability to perform the duties specified in paragraph 1 hereof is of
the essence of this Agreement. Subject to the provisions of Section 5 herein,
termination hereunder shall be deemed to be effective (a) at the end of the
calendar month in which Employee's death occurs or (b) immediately upon a
determination by the Board of Directors of Employer of Employee's total
disability, as defined herein.
-6-
<PAGE>
6.4 Notice
The term "Notice of Termination" shall mean at least 14 days' written
---------------------
notice of termination of Employee's employment, during which period Employee's
employment and performance of services will continue; provided, however, that
-------- -------
Employer may, upon notice to Employee and without reducing Employee's
compensation during such period, excuse Employee from any or all of his duties
during such period. The effective date of the termination of Employee's
employment hereunder shall be the date on which such 14-day period expires.
6.5 Termination of Compensation and Benefits
6.5.1 Termination by Employer
If the Employer terminates Employee's employment other than for Cause
then, notwithstanding anything herein to the contrary, and in complete
satisfaction and discharge of all its obligations to Employee hereunder,
Employer shall (i) continue Employee's base salary, without increase, for the
balance of the period specified in Section 3 of this Agreement; (ii) pay
Employee any bonus due under Section 4.2 of this Agreement; and (iii) pay
Employee any incentive payments earned under Section 4.3 of this Agreement for
the balance of the period specified in Section 3 of this Agreement. In addition,
the Options shall continue to vest in accordance with the tables set forth in
Section 4.3 of this Agreement, and any unvested Options as of 91 days after
December 31, 2000 shall be terminated. If the Employer terminates Employee's
employment for Cause then, notwithstanding anything herein to the contrary, and
in complete satisfaction and discharge of all its obligations to Employee
hereunder, Employer shall (i) pay Employee the pro rata portion of Employee's
base salary specified in Section 4.1 of this Agreement based on the period of
time actually spent by Employee as an employee of Employer; (ii) pay Employee
the pro rata portion of any bonus due under Section 4.2 of this Agreement based
on the period of time actually spent by Employee as an employee of Employer;
(iii) pay Employee the pro rata portion of any incentive payments for 1999 or
2000 (as applicable) earned under Section 4.3 of this Agreement based on the
period of time actually spent by Employee as an employee of Employer during such
year; and (iv) make to Employee a one-time severance payment equal to one
month's base salary. In addition, the Options shall continue to vest in
accordance with the tables set forth in Section 4.3 of this Agreement, and
Employee shall retain the pro rata portion of any such vested Options for 1999
or 2000 (as applicable) based on the period of time actually spent as an
employee of Employer during such year, and any other Options (vested or
unvested) shall be terminated.
-7-
<PAGE>
6.5.2 Termination by Employee
If Employee resigns or otherwise voluntarily leaves Employer's
employment prior to the expiration of this Agreement, then, notwithstanding
anything herein to the contrary, and in complete satisfaction and discharge of
all its obligations to Employee hereunder, Employer shall (i) pay Employee the
pro rata portion of Employee's base salary specified in Section 4.1 of this
Agreement based on the period of time actually spent by Employee as an employee
of Employer; (ii) pay Employee the pro rata portion of any bonus due under
Section 4.2 of this Agreement based on the period of time actually spent by
Employee as an employee of Employer; (iii) pay Employee the pro rata portion of
any incentive payments for 1999 or 2000 (as applicable) earned under Section 4.3
of this Agreement based on the period of time actually spent by Employee as an
employee of Employer during such year; and (iv) make to Employee a one-time
severance payment equal to one month's base salary. In addition, the Options
shall continue to vest in accordance with the tables set forth in Section 4.3 of
this Agreement, and Employee shall retain the pro rata portion of any such
vested Options for 1999 or 2000 (as applicable) based on the period of time
actually spent as an employee of Employer during such year, and any other
Options (vested or unvested) shall be terminated. Employee shall have no further
obligations under this Agreement except as set forth in Sections 7 and 8.
6.5.3. Change of Control
If there is a "Change of Control" of Employer (as such term is defined
below), Employee may, at his option, terminate his employment with the Company
and Employer shall (i) continue Employee's then base salary, without increase,
for the balance of the period specified in Section 3 of this Agreement; (ii) pay
Employee any bonus due under Section 4.2 of this Agreement; and (iii) pay
Employee any incentive payments earned under Section 4.3 of this Agreement for
the balance of the period specified in Section 3 of this Agreement. In
addition, the Options shall continue to vest in accordance with the tables set
forth in Section 4.3 of this Agreement, and any unvested Options as of 91 days
after December 31, 2000 shall be terminated. For purposes of this Agreement,
"Change of Control" means (i) an event following the date of this Agreement in
which any sole person or entity, together with all "affiliates" and "associates"
of such person or entity (as such terms are defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended),
shall become the beneficial owner, directly or indirectly, of a majority of the
voting power of the capital stock of the Employer then outstanding; (ii) the
sale of all or substantially all of the Employer's assets; or (iii) the merger
or consolidation of the Employer with any other corporation or entity (other
than a wholly-owned subsidiary) where the Employer is not the surviving
corporation or survives only as a subsidiary of another corporation.
-8-
<PAGE>
7. LIMITATION ON DISPOSITION OF SHARES; RIGHT OF FIRST REFUSAL
Any shares of Common Stock issued upon exercise of the options described in
subparagraph 4.3 shall be subject to the limitations on disposition of shares
set forth in Section 5.3 of the Purchase Agreement, including, but not limited
to, Employer's right of first refusal with respect to such shares.
Notwithstanding anything herein to the contrary, such limitations shall survive
the termination of Employee's employment with Employer and the expiration of the
term of this Agreement.
8. NONCOMPETITION AND NONSOLICITATION
Employee agrees to enter into a Confidentiality, Inventions Assignment,
Noncompetition and Nonsolicitation Agreement (the "Confidentiality Agreement")
in substantially the form attached as Exhibit C hereto. The Confidentiality
Agreement shall survive the termination of Employee's employment with Employer
and the expiration of the term of this Agreement. Employee and Employer
acknowledge and agree that consideration has been given for Employee entering
into the Confidentiality Agreement, such consideration including, without
limitation, the Incentive Payments. Violation by Employee of the Confidentiality
Agreement shall relieve Employer of any obligation it may have to make the
Incentive Payments, but shall not relieve Employee of his obligations, as
required under the Confidentiality Agreement, not to compete or solicit.
9. REPRESENTATIONS AND WARRANTIES; NO VIOLATION
In order to induce Employer to enter into this Agreement, Employee
represents and warrants to Employer that neither the execution nor the
performance of this Agreement by Employee will violate or conflict in any way
with any other agreement by which Employee may be bound, or with any other
duties imposed upon Employee by corporate or other statutory or common law.
10. INDEMNIFICATION
Employee shall be indemnified by Employer to the extent permitted by
applicable law and as provided by Section 10 of Employer's Bylaws. Employee
shall be entitled to coverage under Employer's director and officer insurance
policy to the extent that such coverage is provided to other officers of
Employer.
11. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this
-9-
<PAGE>
Agreement, before such action is taken, the party asserting the breach of this
Agreement shall give the other party at least 14 days' prior written notice of
the existence and the nature of such breach before taking further action
hereunder and shall give the party purportedly in breach of this Agreement the
opportunity to correct such breach during the 14-day period, unless a longer
period to correct such breach is specifically provided hereunder.
12. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall specifically
refer to this Agreement and shall be personally delivered or sent by telecopy or
other electronic facsimile transmission, by nationally recognized overnight
courier or by registered or certified mail, return receipt requested, at the
address set forth below or at such other address as may hereafter be designated
by notice given in compliance with the terms hereof:
If to Employee: Michael Cohen
88 Jane Street, Apt. 1BW
New York, NY 10014
Copy to: Pelino & Lentz, P.C.
One Liberty Place, 32/nd/ Floor
1650 Market Street
Philadelphia, PA 19103
Facsimile: (215) 665-1536
Attention: John W. Pelino, Esq.
If to Employer: Avenue A, Inc.
1100 Olive Way, Suite 1270
Seattle, WA 98101
Facsimile: (206) 521-8808
Attention: Robert M. Littauer
Copy to: Perkins Coie LLP
1201 Third Avenue, 48/th/ Floor
Seattle, WA 98101-3099
Facsimile: (206) 583-8500
Attention: David F. McShea
If notice is mailed, such notice shall be effective three business days after
mailing, or if notice is personally delivered or sent by telecopy or other
electronic facsimile transmission or by overnight courier, it shall be effective
upon receipt.
-10-
<PAGE>
13. ASSIGNMENT
This Agreement is personal to Employee and shall not be assignable by
Employee. Employer may assign its rights hereunder to (a) any corporation
resulting from any merger, consolidation or other reorganization to which
Employer is a party or (b) any corporation, partnership, association or other
person to which Employer may transfer all or substantially all of the assets and
business of Employer existing at such time. All of the terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
14. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or circumstance. All rights and remedies shall be
cumulative and not exclusive of any other rights or remedies.
15. ARBITRATION
Subject to the provisions of the Confidentiality Agreement, any
controversies or claims arising out of or relating to this Agreement shall be
fully and finally settled by arbitration in New York City, New York in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect (the "AAA Rules"), conducted by one arbitrator either
mutually agreed upon by Employer and Employee or chosen in accordance with the
AAA Rules, except that the parties thereto shall have any right to discovery as
would be permitted by the Federal Rules of Civil Procedure for a period of 90
days following the commencement of such arbitration and the arbitrator thereof
shall resolve any dispute which arises in connection with such discovery. The
prevailing party shall be entitled to costs, expenses and reasonable attorneys'
fees, and judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof.
16. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by Employer
and Employee, and each
-11-
<PAGE>
such amendment, modification, waiver, termination or discharge shall be
effective only in the specific instance and for the specific purpose for which
given. No provision of this Agreement shall be varied, contradicted or explained
by any oral agreement, course of dealing or performance or any other matter not
set forth in an agreement in writing and signed by Employer and Employee.
17. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
18. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the extent
of the activities prohibited or required by it, then, to the full extent
permitted by law (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
19. HEADINGS
All headings used herein are for convenience only and shall not in any way
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
20. COUNTERPARTS
This Agreement, and any amendment or modification entered into pursuant to
paragraph 16 hereof, may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
21. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between Employer and Employee with respect to the subject matter
hereof and all prior or contemporaneous oral or written communications,
understandings or
-12-
<PAGE>
agreements between Employer and Employee with respect to such subject matter are
hereby superseded and nullified in their entireties.
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement on the date set forth above.
EMPLOYEE:
Michael Cohen
/s/ MICHAEL COHEN
-----------------------------------
EMPLOYER:
AVENUE A, INC.
By: /s/ ROBERT M. LITTAUER
--------------------------------
Robert M. Littauer
Vice President, Finance &
Administration, and Secretary
-13-
<PAGE>
AVENUE A, INC.
CONFIDENTIALITY, INVENTIONS ASSIGNMENT,
NONCOMPETITION AND NONSOLICITATION AGREEMENT
In consideration of my employment as an employee or independent contractor
with Avenue A, Inc., a Washington corporation, or any subsidiary of Avenue A,
Inc. (the "Company"), the compensation paid to me by the Company and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, I agree as follows:
Section 1. Definitions
Whenever used in this Agreement, the following terms will have the
following specified meanings:
1.1 "Competing Business" means any business that provides Internet or on-
line media planning or buying services to third parties. Competing
Business does not include a Person who engages in Internet or on-line
media planning or buying for its own account.
1.2 "Confidential Information" means any information that (a) relates to
the business of the Company or the prospective business of the
Company, (b) is not generally available to the public, and (c) is or
was conceived, compiled, developed, discovered or received by, or made
available to, me during the Term, whether solely or jointly with
others, and whether or not while engaged in performing work for the
Company. Without limiting the generality of the foregoing,
Confidential Information includes information relating to Inventions,
trade secrets, products, services, finances, business plans, marketing
plans, legal affairs, suppliers, clients, potential clients,
prospects, opportunities, contracts or assets of the Company.
Confidential Information also includes any information which has been
made available to the Company by or with respect to another Person and
which the Company is obligated to keep confidential. Confidential
Information does not include information which (a) becomes available
to the public other than as a result of a disclosure by me; (b) was
available to me on a non-confidential basis outside of my employment
with the Company; or (c) becomes available to me on a non-confidential
basis from a source other than the Company or any of its officers,
directors, employees, agents, creditors, suppliers, lessors, lessees
or customers.
<PAGE>
1.3 "Invention" means any product, computer program, device, technique,
know-how, algorithm, method, process, procedure, improvement,
discovery, design, development, new concept, new idea, or invention,
whether or not patentable or copyrightable and whether or not reduced
to practice, that (a) is within the scope of the Company's business,
research or investigations or results from or is derived from or is
suggested by any work performed by me for the Company and (b) is
created, conceived, reduced to practice, developed, discovered,
invented or made by me during the Term, whether solely or jointly with
others, and whether or not while engaged in performing work for the
Company.
1.4 "Material" means any product, prototype, model, document, diskette,
tape, picture, drawing, design, recording, report, proposal, paper,
note, writing or other tangible item which contains or manifests,
whether in printed, handwritten, coded, magnetic or other form, any
Confidential Information or Invention.
1.5 "Person" means any corporation, partnership, trust, association,
governmental authority, educational institution, individual or other
entity.
1.6 "Propriety Right" means any patent, copyright, mask work, trade
secret, trademark, trade name, service mark or other protected or
protectable intellectual property right in any Confidential
Information, Invention or Material.
1.7 "Term" means the term of my employment with the Company, whether on a
full-time, part-time or consulting basis.
Section 2. Confidential Information, Inventions and Materials
2.1 The Company will be the exclusive owner of all Confidential
Information, Inventions, Materials and Proprietary Rights. To the
extent applicable, all Materials will constitute "works for hire"
under applicable copyright laws.
2.2 I hereby assign and transfer, and agree to assign and transfer, to the
Company all right, title and interest that I may now or hereafter have
in the Confidential Information, Inventions, Materials and Proprietary
Rights, subject to the limitations set forth in the Notice below.
Additionally, I hereby waive any moral rights that I may have in or to
any Confidential Information, Inventions, Materials and Proprietary
Rights. I will take such action (including, but not limited to, the
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execution, acknowledgment, delivery and assistance in preparation of
documents or giving of testimony) as may be requested by the Company
to evidence, transfer, vest or confirm the Company's right, title and
interest in the Confidential Information, Inventions, Materials and
Proprietary Rights. I will not contest the validity of any Proprietary
Rights.
2.3 Except as required for performance of my work for the Company or as
authorized in writing by the Company, I will not (a) use, disclose,
publish or distribute any Confidential Information, Inventions or
Materials or (b) remove any Materials from the Company's premises. I
will hold all Materials in trust for the Company and I will delivery
them to the Company upon request and in any event at the end of the
Term. In the event that I am required by legal process to disclose any
Confidential Information, I shall provide the Company with prompt
notice of such requirement so that the Company may obtain a protective
order or other appropriate remedy. If a protective order is obtained,
I shall use reasonable efforts to assure that all such information
disclosed will be covered by such order or remedy. If a protective
order is not obtained, the Company shall waive compliance with the
non-disclosure provisions of this Agreement. Whether or not such order
or remedy is obtained, I will disclose only that portion of such
information which I am legally required to disclose.
2.4 I will promptly disclose to the Company all Confidential Information,
Inventions and Materials, as well as any business opportunity which
comes to my attention during the Term and which relates to the
business or prospective business of the Company or which arises in
connection with my employment of the Company. I will not take
advantage of or divert any such opportunity for the benefit of myself
or anyone else either during or after the Term without the prior
written consent of the Company.
NOTICE: Notwithstanding any other provision of this Agreement to the
contrary, this Agreement does not obligate me to assign or offer to the
Company any of my rights in any invention for which no equipment, supplies,
facilities, or trade secret information of the Company was used and which
was developed entirely on my own time, unless (a) the invention relates (i)
directly to the business of the Company or (ii) to the Company's actual or
demonstrably anticipated research or development, or (b) the invention
results from any work performed by me for the Company. This satisfies the
written notice and other requirements of RCW 49.44.140.
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<PAGE>
Section 3. Non-competition and Non-solicitation
3.1 During the Term and for a period of two (2) years after the Term, I
will not directly or indirectly, and whether or not for compensation,
either on my own behalf or in any other capacity, be employed by,
consult with, or otherwise perform services for, own, manage, operate,
join, control or participate in the ownership, management, operation
or control of, or be connected with, in any manner, any Competing
Business.
3.2 During the Term and for a period of two (2) years after the Term, I
will not directly or indirectly solicit, induce, influence or entice,
or attempt to solicit, induce, influence or entice any employee,
consultant, customer, supplier, distributor, joint venturer or
contractor of the Company (a) to cease his, her or its relationship
with the Company or (b) to engage in, be employed by, consult with, or
otherwise perform services for, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or
be connected with, in any manner, any Competing Business.
Section 4. No Conflicting Obligations
4.1 My execution, delivery and performance of this Agreement and the
performance of my other obligations and duties to the Company will not
violate any other employment, nondisclosure, confidentiality,
consulting or other agreement to which I am a party or by which I may
be bound.
4.2 I will not use in performance of my work for the Company or disclose
to the Company any trade secret, confidential or proprietary
information of any prior employer or other Person if and to the extent
that such use or disclosure may violate any obligation or duty that I
owe to such other Person (e.g., under any agreement or applicable
law). My compliance with this paragraph will not prohibit, restrict or
impair the performance of my work, obligations and duties to the
Company.
Section 5. Non-disparagement
5.1 During my employment with the Company and for a period of two (2)
years thereafter, I will not (a) make any false, misleading or
disparaging representations or statements with regard to the Company
or the products or services of the Company or (b) make any statement
that may impair or otherwise adversely affect the goodwill or
reputation of the Company.
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<PAGE>
Section 6. Miscellaneous
6.1 This Agreement is not a contract of employment and no rights of
employment are hereby created. The Company and I have entered into a
written employment agreement dated the date hereof (the "Employment
Agreement"). This Agreement will survive any termination of my
employment.
6.2 In the event of any breach of or default under this Agreement by me,
the Company may suffer irreparable harm and have no adequate remedy at
law. In the event of any such breach or default, or any threat of such
breach or default, the Company will be entitled to injunctive relief,
specific performance and other equitable relief. Further, in any legal
action or other proceeding in connection with this Agreement (e.g., to
recover damages or other relief), the prevailing party will be
entitled to recover, in addition to any other relief to which it may
be entitled, its reasonable attorneys' fees and other costs incurred
in that action or proceeding. The rights and remedies of the Company
under this paragraph are in addition to, and not in lieu of, any other
right or remedy afforded to the Company under any other provision of
this Agreement, by law or otherwise.
6.3 This Agreement will be enforced to the fullest extent permitted by
applicable law. If for any reason any provision of this Agreement is
held to be invalid or unenforceable to any extent, then (a) such
provision will be interpreted, construed or reformed to the extent
reasonably required to render the same valid, enforceable and
consistent with the original intent underlying such provision, and (b)
such invalidity or unenforceability will not affect any other
provision of this Agreement or any other agreement between the Company
and me. If the invalidity or unenforceability is due to the
unreasonableness of the scope or duration of the provision, the
provision will remain effective for such scope and duration as may be
determined to be reasonable.
6.4 The failure of the Company to insist upon or enforce strict
performance of any other provisions of this Agreement or to exercise
any of its rights and remedies under this Agreement will not be
construed as a waiver or a relinquishment to any extent of the
Company's rights to assert or rely on any such provision, right, or
remedy in that or any instance; rather, the same will be and remain in
full force and effect.
6.5 This Agreement is personal to the Employee and shall not be assignable
by the Employee. Subject to Section 6.5.3 of the Employment
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Agreement, the Company may assign its rights hereunder to (a) any
corporation resulting from any merger, consolidation or other re-
organization to which the Company is a party or (b) any corporation,
partnership, association or other person to which the Company may
transfer all or substantially all of the assets and business of the
Company existing at such time. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of and
be enforceable by the parties hereto and their respective heirs,
executors, personal representatives, successors and permitted assigns.
6.6 This Agreement sets forth the entire Agreement, and supersedes any and
all prior agreements, between me and the Company with regard to any of
the following: the Confidential Information, Inventions, Materials and
Proprietary Rights of the Company, noncompetition, nonsolicitation and
nondisparagement. This Agreement may not be amended, except by a
writing signed by the party against whom such amendment is sought to
be enforced.
6.7 This Agreement will be governed by the laws of the State of Washington
without regard to its choice of law provisions, provided however, that
any action, suit or proceeding to enforce the terms of this Agreement
shall be brought in the state or federal courts located in the state
of New York and all applicable appellate courts, in connection with
any action relating to this Agreement. Further, I will not bring any
action relating to this Agreement other than in the courts specified
in this paragraph.
6.8 I have carefully read all of the provisions of this Agreement and
agree that (a) the same are necessary for the reasonable and proper
protection of the Company's business, (b) the Company has been induced
to enter into and continue its relationship with me in reliance upon
my compliance with the provisions of this Agreement, (c) every
provision of this Agreement is reasonable with respect to its scope
and duration, and (d) I have received a copy of this Agreement.
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<PAGE>
This Agreement shall be effective as of September 2, 1999.
/s/ MICHAEL COHEN
---------------------------------------------
Signature
MICHAEL COHEN
----------------------------------------------
FULL NAME (print or type)
Soc. Sec. No.
--------------------------------
ACCEPTED:
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AVENUE A, INC.
By: /s/ ROBERT M. LITTAUER
-----------------------------------------
Robert M. Littauer
Vice President, Finance & Administration,
and Secretary
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<PAGE>
EXHIBIT 10.17
Employment Agreement
between
Avenue A, Inc.
and
Stephen D. Klein
Dated as of September 2, 1999
<PAGE>
Employment Agreement
This Employment Agreement (this "Agreement"), dated as of September 2,
1999, between Avenue A, Inc., a Washington corporation ("Employer"), and Stephen
D. Klein ("Employee");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Employer has entered into a Purchase Agreement (the "Purchase
Agreement"), dated the date hereof, with the members of I-Balls LLC, a New York
limited liability company (the "Company"), to purchase all of the outstanding
limited liability company membership interests of the Company; and
WHEREAS, Employee has been serving as a manager of the Company; and
Employer desires to retain the services of Employee upon the terms and
conditions set forth herein; and
WHEREAS, Employee is willing to provide services to Employer upon the terms
and conditions set forth herein;
A G R E E M E N T S:
- - - - - - - - - -
NOW, THEREFORE, for and in consideration of the mutual promises contained
herein and for other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, Employer and Employee hereby agree,
subject to the execution of the Purchase Agreement and consummation of the
transactions contemplated thereunder, as follows:
1. EMPLOYMENT
Employer will employ Employee and Employee will accept employment by
Employer. Also, Employer will appoint and Employee will accept appointment as
Chairman of the Board of the Company and as an executive officer of the Company.
Employee will have the authority, subject to Employer's Articles of
Incorporation and Bylaws, as may be granted from time to time by the Board of
Directors of Employer. Employee will perform the duties as may be assigned from
time to time by the Board of Directors of Employer, which relate to the business
of the Company, Employer, its subsidiaries, or any business ventures in which
the Company, Employer or its subsidiaries may participate. Employee shall
perform his duties at Employer's facility located at 487 Greenwich Street, New
York City, New York (the "Facility"), or such
<PAGE>
other similarly located location of Employer to which Employee may be assigned
from time to time by Employer, provided that nothing herein shall be construed
to require Employee to perform his duties at a facility located more than five
miles from the Facility.
2. MINIMUM HOURS
Employee will devote a minimum of 20 hours per week to the Company's
business and will skillfully serve its interests during the term of this
Agreement.
3. TERM
Unless otherwise terminated pursuant to paragraph 6 of this Agreement,
Employee's term of employment under this Agreement shall expire two years from
the date of this Agreement.
4. COMPENSATION
During the term of this Agreement, Employee agrees that he will work
without a base salary, and Employer agrees to pay or cause to be paid to
Employee, and Employee agrees to accept in exchange for the services rendered
hereunder by him, incentive payments of up to an aggregate of $750,000 for 1999
and $750,000 for 2000 (the "Incentive Payments") in accordance with the
following tables. The Incentive Payments will be made to Employee if and only if
the Company achieves annual gross income targets in accordance with the
following tables. In addition, on the date hereof Employer shall grant to
Employee, and Employee agrees to accept in exchange for the services rendered
hereunder by him, nonqualified options to purchase an aggregate of 600,000
shares of common stock, par value $0.01 per share (the "Common Stock"), of
Employer, at an exercise price of $2.50 per share (the "Options"). The Options
shall vest six years from the date of grant unless sooner vested in accordance
with the following tables or unless earlier terminated. The Options shall be
subject to the terms and conditions of a stock option letter agreement in
substantially the form attached hereto as Exhibit A.
<TABLE>
<CAPTION>
1999 Targets and Incentives
- ---------------------------------------------------------------------------------------------------------------------------------
1999 Annual "Gross Amount of Incentive Number of Options to
Income" Target of Payment Paid to Employee Which Vest at 90
Company Employee Within 90 days after December 31, 1999
days after December 31, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $1.95 million None None
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At least $1.95 million but $250,000 100,000
less than $2.4 million
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
At least $2.4 million but An additional $250,000 An additional 100,000
less than $3 million
- ---------------------------------------------------------------------------------------------------------------------------------
$3 million or greater An additional $250,000 An additional 100,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
If the Company's 1999 Annual Gross Income Target of $1.95 million is not met for
the 12 months ended December 31, 1999, Employee may elect to seek to have the
Company meet the Annual Gross Income Target set forth in the table above for the
12-month period ending March 31, 2000 (the "Revised Period"), and if such
election is made and such targets are met for the Revised Period, the Incentive
Payments shall be paid and the Options shall vest in accordance with the table
above, except that the date December 31, 1999 shall be deemed to be replaced
with the date March 31, 2000 wherever it appears in such table.
<TABLE>
<CAPTION>
2000 Targets and Incentives
- ---------------------------------------------------------------------------------------------------------------------------------
2000 Annual "Gross Amount of Incentive Payment Number of Options to Employee
Income" Target of Paid to Employee Within 90 Which Vest at 90 days after
Company days after December 31, 2000 December 31, 2000
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Less than $3.45 million None None
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At least $3.45 million but $250,000 100,000
less than $4.2 million
- ---------------------------------------------------------------------------------------------------------------------------------
At least $4.2 million but An additional $250,000 An additional 100,000
less than $5.25 million
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$5.25 million or greater An additional $250,000 An additional 100,000
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</TABLE>
For purposes of this Section 4, "Gross Income" means gross ad buy income, plus
commissions, less site payout, as reflected on the Company's financial
statements.
5. BENEFITS AND REIMBURSEMENT OF EXPENSES
5.1 General
During the term of this Agreement, Employee will be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in fringe benefit programs generally available to other members of
Employer's management. Employer shall pay or reimburse Employee for all
reasonable travel and other expenses incurred by Employee in performing his
obligations under this Agreement.
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<PAGE>
5.2 Benefits Payable Upon Disability
If Employee shall be prevented during the term of this Agreement from
properly performing services hereunder by reason of illness or other physical or
mental incapacity, Employer shall continue to pay Employee any earned incentive
payments as set forth in Section 4 of this Agreement and reimbursement for any
unreimbursed business expenses hereunder during the period of Employee's
disability; provided, however, that (a) Employee shall not receive such payments
after the end of the term of this Agreement, and (b) if Employee is disabled for
a period or periods aggregating 90 calendar days, then Employee shall receive
the greater of (i) the earned incentive payments as set forth in Section 4 for
such 90-day period, provided, however, that Employer's obligations hereunder
shall cease and terminate at the end of such 90-day period, and (ii) any amounts
Employee is entitled to receive pursuant to any Employer-sponsored benefit plans
by virtue of his disability or inability to perform his duties as described in
Section 1 herein ("Disability Plans").
5.3 Benefits Payable Upon Death
In the event of the death of Employee during the term of this Agreement,
Employee shall be entitled to receive the greater of (i) any earned incentive
payments due under Section 4 of this Agreement and reimbursement for any
unreimbursed business expenses payable hereunder, or (ii) any amount Employee
may be entitled to receive pursuant to any Disability Plan as a result of
Employee's death during the term of this Agreement. Any such amount payable
under this Section 5.3 shall be paid to Employee's surviving spouse, or if there
is no spouse surviving, then to Employee's designee or representative as the
case may be through the six-month period following the end of the calendar month
in which death occurs.
6. TERMINATION
Employment of Employee pursuant to this Agreement may be terminated as
follows, but in any case, the provisions of the Confidentiality Agreement
referenced in paragraph 8 hereof shall survive the termination of this Agreement
and the termination of Employee's employment hereunder:
6.1. By Employer
6.1.1 For Cause
Notwithstanding anything herein to the contrary, the Employer may,
without liability, terminate Employee's employment hereunder for Cause at any
time immediately upon written notice from the Board of Directors of the
Employer. As used herein the term "Cause" shall mean, without limitation, the
occurrence of one or
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<PAGE>
more of the following events: (i) Employee's material misconduct or dishonesty
in the performance of Employee's duties or other knowing and material violation
of Employer's policies and procedures in effect from time to time; (ii) actions
(or failures to act) by Employee in bad faith with respect to Employer or that
materially impair Employer's business, goodwill or reputation; (iii) the
conviction of Employee for a felony involving an act of dishonesty, moral
turpitude, deceit or fraud; (iv) any breach of Section 8 of this Agreement; (v)
a material breach by Employee of one or more terms of this Agreement, other than
Section 8, which breach Employee has not cured within thirty days of Employee's
receipt of written notice from Employer of such breach; or (vi) Employee's
failure to perform his duties hereunder in a manner reasonably satisfactory to
the Board of Directors or senior management of Employer, provided that Employee
shall first be given written notice specifically describing such unsatisfactory
performance and recommending actions to be taken to cure such failure, and
Employee shall not have cured such failure within sixty days of receipt of such
notice.
6.1.2 Other Than for Cause
Notwithstanding anything herein to the contrary, Employer may also
terminate Employee's employment hereunder without Cause at any time, for any
reason.
6.2. By Employee
Employee may terminate his employment at any time, for any reason,
upon giving Notice of Termination (as defined below).
6.3. Automatic Termination
Subject to the provisions of Section 5 herein, this Agreement and
Employee's employment hereunder shall terminate automatically upon the death or
total disability of Employee. The term "total disability" as used herein shall
mean Employee's inability to perform the duties set forth in paragraph 1 hereof
for a period or periods aggregating 90 calendar days in any 12-month period as a
result of physical or mental illness, loss of legal capacity or any other cause
beyond Employee's control, unless Employee is granted a leave of absence by the
Board of Directors of Employer. Employee and Employer hereby acknowledge that
Employee's ability to perform the duties specified in paragraph 1 hereof is of
the essence of this Agreement. Subject to the provisions of Section 5 herein,
termination hereunder shall be deemed to be effective (a) at the end of the
calendar month in which Employee's death occurs or (b) immediately upon a
determination by the Board of Directors of Employer of Employee's total
disability, as defined herein.
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<PAGE>
6.4 Notice
The term "Notice of Termination" shall mean at least 14 days' written
---------------------
notice of termination of Employee's employment, during which period Employee's
employment and performance of services will continue; provided, however, that
-------- -------
Employer may, upon notice to Employee and without reducing Employee's
compensation during such period, excuse Employee from any or all of his duties
during such period. The effective date of the termination of Employee's
employment hereunder shall be the date on which such 14-day period expires.
6.5 Termination of Compensation and Benefits
6.5.1 Termination by Employer
If the Employer terminates Employee's employment other than for
Cause then, notwithstanding anything herein to the contrary, and in complete
satisfaction and discharge of all its obligations to Employee hereunder,
Employer shall pay Employee any incentive payments earned under Section 4 of
this Agreement for the balance of the period specified in Section 3 of this
Agreement. In addition, the Options shall continue to vest in accordance with
the tables set forth in Section 4 of this Agreement, and any unvested Options as
of 91 days after December 31, 2000 shall be terminated. If the Employer
terminates Employee's employment for Cause then, notwithstanding anything herein
to the contrary, and in complete satisfaction and discharge of all its
obligations to Employee hereunder, Employer shall pay Employee the pro rata
portion of any incentive payments for 1999 or 2000 (as applicable) earned under
Section 4 of this Agreement based on the period of time actually spent by
Employee as an employee of Employer during such year. In addition, the Options
shall continue to vest in accordance with the tables set forth in Section 4 of
this Agreement, and Employee shall retain the pro rata portion of any such
vested Options for 1999 or 2000 (as applicable) based on the period of time
actually spent as an employee of Employer during such year, and any other
Options (vested or unvested) shall be terminated.
6.5.2 Termination by Employee
If Employee resigns or otherwise voluntarily leaves Employer's
employment prior to the expiration of the Agreement, then, notwithstanding
anything herein to the contrary, and in complete satisfaction and discharge of
all its obligations to Employee hereunder, Employer shall pay Employee the pro
rata portion of any incentive payments for 1999 or 2000 (as applicable) earned
under Section 4 of this Agreement based on the period of time actually spent by
Employee as an employee of Employer during such year. In addition, the Options
shall continue to vest in accordance with the tables set forth in Section 4 of
this Agreement, and Employee
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<PAGE>
shall retain the pro rata portion of any such vested Options for 1999 or 2000
(as applicable) based on the period of time actually spent as an employee of
Employer during such year, and any other Options (vested or unvested) shall be
terminated. Employee shall have no further obligations under this Agreement
except as set forth in Sections 7 and 8.
6.5.3. Change of Control
If there is a "Change of Control" of Employer (as such term is defined
below), Employee may, at his option, terminate his employment with the Company
and Employer shall pay Employee any incentive payments earned under Section 4 of
this Agreement for the balance of the period specified in Section 3 of this
Agreement. In addition, if Employee terminates his employment pursuant to the
preceding sentence, the Options shall continue to vest in accordance with the
tables set forth in Section 4 of this Agreement, and any unvested Options as of
91 days after December 31, 2000 shall be terminated. For purposes of this
Agreement, "Change of Control" means (i) an event following the date of this
Agreement in which any sole person or entity, together with all "affiliates" and
"associates" of such person or entity (as such terms are defined in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended), shall become the beneficial owner, directly or indirectly, of a
majority of the voting power of the capital stock of Employer then outstanding;
(ii) the sale of all or substantially all of the Employer's assets; or (iii) the
merger or consolidation of the Employer with any other corporation or entity
(other than a wholly-owned subsidiary) where the Employer is not the surviving
corporation or survives only as a subsidiary of another corporation.
7. LIMITATION ON DISPOSITION OF SHARES; RIGHT OF FIRST REFUSAL
Any shares of Common Stock issued upon exercise of the Options shall be
subject to the limitations on disposition of shares set forth in Section 5.3 of
the Purchase Agreement, including, but not limited to, Employer's right of first
refusal with respect to such shares. Notwithstanding anything herein to the
contrary, such limitations shall survive the termination of Employee's
employment with Employer and the expiration of the term of this Agreement.
8. NONCOMPETITION AND NONSOLICITATION
Employee agrees to enter into a Confidentiality, Inventions Assignment,
Noncompetition and Nonsolicitation Agreement (the "Confidentiality Agreement")
in substantially the form attached as Exhibit B hereto. The Confidentiality
Agreement shall survive the termination of Employee's employment with Employer
and the expiration of the term of this Agreement. Employee and Employer
acknowledge and
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<PAGE>
agree that consideration has been given for Employee entering into the
Confidentiality Agreement, such consideration including, without limitation, the
Incentive Payments. Violation by Employee of the Confidentiality Agreement shall
relieve Employer of any obligation it may have to make the Incentive Payments,
but shall not relieve Employee of his obligations, as required under the
Confidentiality Agreement, not to compete or solicit.
9. REPRESENTATIONS AND WARRANTIES; NO VIOLATION
In order to induce Employer to enter into this Agreement, Employee
represents and warrants to Employer that neither the execution nor the
performance of this Agreement by Employee will violate or conflict in any way
with any other agreement by which Employee may be bound, or with any other
duties imposed upon Employee by corporate or other statutory or common law.
10. INDEMNIFICATION
Employee shall be indemnified by Employer to the extent permitted by
applicable law and as provided by Section 10 of Employer's Bylaws. Employee
shall be entitled to coverage under Employer's director and officer insurance
policy to the extent that such coverage is provided to other officers of
Employer.
11. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least 14 days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the 14-day period,
unless a longer period to correct such breach is specifically provided
hereunder.
12. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall specifically
refer to this Agreement and shall be personally delivered or sent by telecopy or
other electronic facsimile transmission, by nationally recognized overnight
courier or by registered or certified mail, return receipt requested, at the
address set forth below or at such other address as may hereafter be designated
by notice given in compliance with the terms hereof:
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<PAGE>
If to Employee: Stephen D. Klein
200 West 79/th/ Street, #9S
New York, NY 10024
Copy to: Camhy Karlinsky & Stein LLP
1740 Broadway
16/th/ Floor
New York City, New York 10019-4315
Attn: Eric M. Roth, Esq.
If to Employer: Avenue A, Inc.
1100 Olive Way, Suite 1270
Seattle, WA 98101
Facsimile: (206) 521-8808
Attention: Robert M. Littauer
Copy to: Perkins Coie LLP
1201 Third Avenue, 48/th/ Floor
Seattle, WA 98101-3099
Facsimile: (206) 583-8500
Attention: David F. McShea
If notice is mailed, such notice shall be effective three business days after
mailing, or if notice is personally delivered or sent by telecopy or other
electronic facsimile transmission or by overnight courier, it shall be effective
upon receipt.
13. ASSIGNMENT
This Agreement is personal to Employee and shall not be assignable by
Employee. Employer may assign its rights hereunder to (a) any corporation
resulting from any merger, consolidation or other reorganization to which
Employer is a party or (b) any corporation, partnership, association or other
person to which Employer may transfer all or substantially all of the assets and
business of Employer existing at such time. All of the terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
14. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance
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<PAGE>
or circumstance shall not constitute a waiver thereof in any other instance or
circumstance. All rights and remedies shall be cumulative and not exclusive of
any other rights or remedies.
15. ARBITRATION
Subject to the provisions of the Confidentiality Agreement, any
controversies or claims arising out of or relating to this Agreement shall be
fully and finally settled by arbitration in New York City, New York in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect (the "AAA"Rules"), conducted by one arbitrator either
mutually agreed upon by Employer and Employee or chosen in accordance with the
AAA Rules, except that the parties thereto shall have any right to discovery as
would be permitted by the Federal Rules of Civil Procedure for a period of 90
days following the commencement of such arbitration and the arbitrator thereof
shall resolve any dispute which arises in connection with such discovery. The
prevailing party shall be entitled to costs, expenses and reasonable attorneys'
fees, and judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof.
16. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by Employer
and Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by Employer and Employee.
17. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
18. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the
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<PAGE>
duration of such provision, its geographical scope or the extent of the
activities prohibited or required by it, then, to the full extent permitted by
law (a) all other provisions hereof shall remain in full force and effect in
such jurisdiction and shall be liberally construed in order to carry out the
intent of the parties hereto as nearly as may be possible, (b) such invalidity,
illegality or unenforceability shall not affect the validity, legality or
enforceability of any other provision hereof, and (c) any court or arbitrator
having jurisdiction thereover shall have the power to reform such provision to
the extent necessary for such provision to be enforceable under applicable law.
19. HEADINGS
All headings used herein are for convenience only and shall not in any way
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
20. COUNTERPARTS
This Agreement, and any amendment or modification entered into pursuant to
paragraph 16 hereof, may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
21. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between Employer and Employee with respect to the subject matter
hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between Employer and Employee with respect to such
subject matter are hereby superseded and nullified in their entireties.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement on the date set forth above.
EMPLOYEE:
Stephen D. Klein
/s/ Stephen D. Klein
---------------------------------------------
EMPLOYER:
AVENUE A, INC.
By: /s/ Robert M. Littauer
------------------------------------------
Robert M. Littauer
Vice President, Finance & Administration,
and Secretary
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<PAGE>
AVENUE A, INC.
CONFIDENTIALITY, INVENTIONS ASSIGNMENT,
NONCOMPETITION AND NONSOLICITATION AGREEMENT
In consideration of my employment as an employee or independent contractor
with Avenue A, Inc., a Washington corporation, or any subsidiary of Avenue A,
Inc. (the "Company"), the compensation paid to me by the Company and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, I agree as follows:
Section 1. Definitions
Whenever used in this Agreement, the following terms will have the
following specified meanings:
1.1 "Competing Business" means any business that provides Internet or on-
line media planning or buying services to third parties. Competing
Business does not include a Person who engages in Internet or on-line
media planning or buying for its own account.
1.2 "Confidential Information" means any information that (a) relates to
the business of the Company or the prospective business of the
Company, (b) is not generally available to the public, and (c) is or
was conceived, compiled, developed, discovered or received by, or made
available to, me during the Term, whether solely or jointly with
others, and whether or not while engaged in performing work for the
Company. Without limiting the generality of the foregoing,
Confidential Information includes information relating to Inventions,
trade secrets, products, services, finances, business plans, marketing
plans, legal affairs, suppliers, clients, potential clients,
prospects, opportunities, contracts or assets of the Company.
Confidential Information also includes any information which has been
made available to the Company by or with respect to another Person and
which the Company is obligated to keep confidential. Confidential
Information does not include information which (a) becomes available
to the public other than as a result of a disclosure by me; (b) was
available to me on a non-confidential basis outside of my employment
with the Company; or (c) becomes available to me on a non-confidential
basis from a source other than the Company or any of its officers,
directors, employees, agents, creditors, suppliers, lessors, lessees
or customers.
<PAGE>
1.3 "Invention" means any product, computer program, device, technique,
know-how, algorithm, method, process, procedure, improvement,
discovery, design, development, new concept, new idea, or invention,
whether or not patentable or copyrightable and whether or not reduced
to practice, that (a) is within the scope of the Company's business,
research or investigations or results from or is derived from or is
suggested by any work performed by me for the Company and (b) is
created, conceived, reduced to practice, developed, discovered,
invented or made by me during the Term, whether solely or jointly with
others, and whether or not while engaged in performing work for the
Company.
1.4 "Material" means any product, prototype, model, document, diskette,
tape, picture, drawing, design, recording, report, proposal, paper,
note, writing or other tangible item which contains or manifests,
whether in printed, handwritten, coded, magnetic or other form, any
Confidential Information or Invention.
1.5 "Person" means any corporation, partnership, trust, association,
governmental authority, educational institution, individual or other
entity.
1.6 "Propriety Right" means any patent, copyright, mask work, trade
secret, trademark, trade name, service mark or other protected or
protectable intellectual property right in any Confidential
Information, Invention or Material.
1.7 "Term" means the term of my employment with the Company, whether on a
full-time, part-time or consulting basis.
Section 2. Confidential Information, Inventions and Materials
2.1 The Company will be the exclusive owner of all Confidential
Information, Inventions, Materials and Proprietary Rights. To the
extent applicable, all Materials will constitute "works for hire"
under applicable copyright laws.
2.2 I hereby assign and transfer, and agree to assign and transfer, to the
Company all right, title and interest that I may now or hereafter have
in the Confidential Information, Inventions, Materials and Proprietary
Rights, subject to the limitations set forth in the Notice below.
Additionally, I hereby waive any moral rights that I may have in or to
any Confidential Information, Inventions, Materials and Proprietary
Rights. I will take such action (including, but not limited to, the
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<PAGE>
execution, acknowledgment, delivery and assistance in preparation of
documents or giving of testimony) as may be requested by the Company
to evidence, transfer, vest or confirm the Company's right, title and
interest in the Confidential Information, Inventions, Materials and
Proprietary Rights. I will not contest the validity of any Proprietary
Rights.
2.3 Except as required for performance of my work for the Company or as
authorized in writing by the Company, I will not (a) use, disclose,
publish or distribute any Confidential Information, Inventions or
Materials or (b) remove any Materials from the Company's premises. I
will hold all Materials in trust for the Company and I will delivery
them to the Company upon request and in any event at the end of the
Term. In the event that I am required by legal process to disclose any
Confidential Information, I shall provide the Company with prompt
notice of such requirement so that the Company may obtain a protective
order or other appropriate remedy. If a protective order is obtained,
I shall use reasonable efforts to assure that all such information
disclosed will be covered by such order or remedy. If a protective
order is not obtained, the Company shall waive compliance with the
non-disclosure provisions of this Agreement. Whether or not such
order orremedy is obtained, I will disclose only that portion of such
information which I am legally required to disclose.
2.4 I will promptly disclose to the Company all Confidential Information,
Inventions and Materials, as well as any business opportunity which
comes to my attention during the Term and which relates to the
business or prospective business of the Company or which arises in
connection with my employment of the Company. I will not take
advantage of or divert any such opportunity for the benefit of myself
or anyone else either during or after the Term without the prior
written consent of the Company.
NOTICE: Notwithstanding any other provision of this Agreement to the
contrary, this Agreement does not obligate me to assign or offer to the
Company any of my rights in any invention for which no equipment, supplies,
facilities, or trade secret information of the Company was used and which
was developed entirely on my own time, unless (a) the invention relates (i)
directly to the business of the Company or (ii) to the Company's actual or
demonstrably anticipated research or development, or (b) the invention
results from any work performed by me for the Company. This satisfies the
written notice and other requirements of RCW 49.44.140.
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<PAGE>
Section 3. Non-competition and Non-solicitation
3.1 During the Term and for a period of two (2) years after the Term, I
will not directly or indirectly, and whether or not for compensation,
either on my own behalf or in any other capacity, be employed by,
consult with, or otherwise perform services for, own, manage, operate,
join, control or participate in the ownership, management, operation
or control of, or be connected with, in any manner, any Competing
Business.
3.2 During the Term and for a period of two (2) years after the Term, I
will not directly or indirectly solicit, induce, influence or entice,
or attempt to solicit, induce, influence or entice any employee,
consultant, customer, supplier, distributor, joint venturer or
contractor of the Company (a) to cease his, her or its relationship
with the Company or (b) to engage in, be employed by, consult with, or
otherwise perform services for, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or
be connected with, in any manner, any Competing Business.
Section 4. No Conflicting Obligations
4.1 My execution, delivery and performance of this Agreement and the
performance of my other obligations and duties to the Company will not
violate any other employment, nondisclosure, confidentiality,
consulting or other agreement to which I am a party or by which I may
be bound.
4.2 I will not use in performance of my work for the Company or disclose
to the Company any trade secret, confidential or proprietary
information of any prior employer or other Person if and to the extent
that such use or disclosure may violate any obligation or duty that I
owe to such other Person (e.g., under any agreement or applicable
law). My compliance with this paragraph will not prohibit, restrict or
impair the performance of my work, obligations and duties to the
Company.
Section 5. Non-disparagement
5.1 During my employment with the Company and for a period of two (2)
years thereafter, I will not (a) make any false, misleading or
disparaging representations or statements with regard to the Company
or the products or services of the Company or (b) make any statement
that may impair or otherwise adversely affect the goodwill or
reputation of the Company.
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<PAGE>
Section 6. Miscellaneous
6.1 This Agreement is not a contract of employment and no rights of
employment are hereby created. The Company and I have entered into a
written employment agreement dated the date hereof (the "Employment
Agreement"). This Agreement will survive any termination of my
employment.
6.2 In the event of any breach of or default under this Agreement by me,
the Company may suffer irreparable harm and have no adequate remedy at
law. In the event of any such breach or default, or any threat of such
breach or default, the Company will be entitled to injunctive relief,
specific performance and other equitable relief. Further, in any legal
action or other proceeding in connection with this Agreement (e.g., to
recover damages or other relief), the prevailing party will be
entitled to recover, in addition to any other relief to which it may
be entitled, its reasonable attorneys' fees and other costs incurred
in that action or proceeding. The rights and remedies of the Company
under this paragraph are in addition to, and not in lieu of, any other
right or remedy afforded to the Company under any other provision of
this Agreement, by law or otherwise.
6.3 This Agreement will be enforced to the fullest extent permitted by
applicable law. If for any reason any provision of this Agreement is
held to be invalid or unenforceable to any extent, then (a) such
provision will be interpreted, construed or reformed to the extent
reasonably required to render the same valid, enforceable and
consistent with the original intent underlying such provision, and (b)
such invalidity or unenforceability will not affect any other
provision of this Agreement or any other agreement between the Company
and me. If the invalidity or unenforceability is due to the
unreasonableness of the scope or duration of the provision, the
provision will remain effective for such scope and duration as may be
determined to be reasonable.
6.4 The failure of the Company to insist upon or enforce strict
performance of any other provisions of this Agreement or to exercise
any of its rights and remedies under this Agreement will not be
construed as a waiver or a relinquishment to any extent of the
Company's rights to assert or rely on any such provision, right, or
remedy in that or any instance; rather, the same will be and remain in
full force and effect.
6.5 This Agreement is personal to the Employee and shall not be assignable
by the Employee. The Company may assign its rights hereunder to (a)
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<PAGE>
any corporation resulting from any merger, consolidation or other re-
organization to which the Company is a party or (b) any corporation,
partnership, association or other person to which the Company may
transfer all or substantially all of the assets and business of the
Company existing at such time. All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of and
be enforceable by the parties hereto and their respective successors
and permitted assigns.
6.6 This Agreement sets forth the entire Agreement, and supersedes
any and all prior agreements, between me and the Company with regard
to any of the following: the Confidential Information, Inventions,
Materials and Proprietary Rights of the Company, noncompetition,
nonsolicitation and nondisparagement. This Agreement may not be
amended, except by writing signed by the party against whom such
amendment is sought to be enforced.
6.7 This Agreement will be governed by the laws of the State of Washington
without regard to its choice of law provisions, provided however, that
any action, suit or proceeding to enforce the terms of this Agreement
shall be brought in the state or federal courts located in the state
of New York and all applicable appellate courts, in connection with
any action relating to this Agreement. Further, I will not bring any
action relating to this Agreement other than in the courts specified
in this paragraph.
6.8 I have carefully read all of the provisions of this Agreement and
agree that (a) the same are necessary for the reasonable and proper
protection of the Company's business, (b) the Company has been induced
to enter into and continue its relationship with me in reliance upon
my compliance with the provisions of this Agreement, (c) every
provision of this Agreement is reasonable with respect to its scope
and duration, and (d) I have received a copy of this Agreement.
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<PAGE>
This Agreement shall be effective as of September 2, 1999.
/s/ STEPHEN D. KLEIN
----------------------------------------------
Signature
Stephen D. Klein
----------------------------------------------
FULL NAME (print or type)
Soc. Sec. No.
--------------------------------
ACCEPTED:
---------
AVENUE A, INC.
By: /s/ ROBERT M. LITTAUER
-----------------------------------
Robert M. Littauer
Vice President, Finance & Administration,
and Secretary
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<PAGE>
EXHIBIT 10.18
Avenue A, Inc.
Registration Rights Agreement
Dated
as of
September 2, 1999
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. Definitions...................................................... 1
2. Company Registration............................................. 2
3. Form S-3 Registration............................................ 3
4. Obligations of the Company....................................... 3
5. Furnish Information.............................................. 4
6. Expenses of Registration......................................... 5
7. Underwriting Requirements........................................ 5
8. Delay of Registration............................................ 5
9. Indemnification.................................................. 6
10. Assignment of Registration Rights................................ 8
11. "Market Standoff" Agreement...................................... 8
12. Miscellaneous.................................................... 9
12.1 Notices.................................................... 9
12.2 Amendments and Waivers..................................... 9
12.3 Governing Law.............................................. 9
12.4 Arbitration................................................ 9
12.5 Successors and Assigns..................................... 10
12.6 Severability............................................... 10
12.7 Entire Agreement; Counterparts............................. 10
</TABLE>
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<PAGE>
AVENUE A, INC.
Registration Rights Agreement
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of
September 2, 1999, by and among Avenue A, Inc., a Washington corporation (the
"Company"), and the parties listed on Schedule A hereto.
RECITALS
A. The Company intends to enter into a Purchase Agreement with the
parties listed on Schedule A hereto (the "Members"), wherein the Company will
purchase from the Members all of the outstanding membership interests of I-Balls
LLC, a New York limited liability company ("I-Balls").
B. As partial consideration for such membership interests, the Company
intends to issue 500,000 shares of its common stock, par value $0.01 per share
(the "Common Stock"), to the Members.
C. The execution of this Agreement by the Members is a condition to the
obligation of each Member to enter into the Purchase Agreement.
D. The Company and the Members desire to enter into this Registration
Rights Agreement to facilitate the execution and delivery of the Purchase
Agreement.
AGREEMENT
1. Definitions
For purposes of this Agreement, the following terms have the following
meanings:
(a) "Form S-3" means such form under the Act as in effect on the date
hereof or any registration form under the Act subsequently adopted by the SEC
that similarly permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(b) "Holder" means any person owning or having the right to acquire
Registrable Securities who is a party to this Agreement as of the date hereof or
who may be added as a party pursuant to the terms of this Agreement, and any
assignee thereof.
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(c) "Register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or order of effectiveness of such registration
statement or document.
(d) "Registrable Securities" means the Common Stock, excluding in all
cases, however, any Common Stock sold by a person in a transaction in which such
person's rights under this Agreement are not assigned and any Common Stock which
the holder thereof is entitled to sell into the public market that is at the
time of registration, transferable by the holder thereof in a single brokerage
transaction under the provisions and within the volume limitations of Rule
144(e)(1) promulgated under the Act or any successor to such Rule.
(e) "Registrable Securities then outstanding" means the number of
shares of Common Stock outstanding which are Registrable Securities.
(f) "SEC" means the Securities and Exchange Commission.
2. Company Registration
If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Holders)
any of its stock or other securities under the Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan or
compensatory contract, or a registration relating to a corporate reorganization
or other transaction under Rule 145 promulgated under the Act or any successor
rule, or a registration on any registration form that does not permit secondary
sales), the Company shall, at each such time, promptly give each Holder of
Registrable Securities written notice of such registration. Upon the written
request of each such Holder given within 10 days after the receipt of such
notice by such Holder, the Company shall, subject to the provisions of Section
7, use commercially reasonable efforts to cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered. In the event that the Company decides for any reason not to
complete the registration of shares of Common Stock other than Registrable
Securities, the Company shall have no obligation under this Section 2 to
continue with the registration of Registrable Securities. Any request pursuant
to this Section 2 to register Registrable Securities as part of an underwritten
public offering of Common Stock shall specify that such Registrable Securities
are to be included in the underwriting on the same terms and conditions as the
shares of Common Stock otherwise being sold through underwriters under such
registration. There is no limit as to the number of registrations in which a
Holder may participate pursuant to this Section 2.
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<PAGE>
3. Form S-3 Registration
(a) If the Company shall receive a written request from the Holders of 25%
of the Registrable Securities then outstanding that the Company effect a
registration on Form S-3, then the Company shall, within 14 days after the
receipt of such request, give written notice of such request to all Holders and
shall, subject to the limitations set forth below, use commercially reasonable
efforts to effect as soon as practicable the registration under the Act of all
Registrable Securities that the Holders request to be registered in a written
request to be given within 30 days of the mailing of such notice by the Company.
(b) Notwithstanding the foregoing, the Company shall not be obligated to
effect any such registration pursuant to this Section 3 if (i) Form S-3 is not
available for such offering by the Holders; (ii) the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public (before deduction of any
underwriters' discounts or commissions) of less than $1,500,000; (iii) the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that, in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 registration to be filed or effected at such
time, in which event the Company shall have the right to defer the filing of the
Form S-3 registration statement for a period of not more than 120 days after
receipt of the request of the Holders under this Section 3; or (iv) the Company
within the 12-month period preceding the date of such request has effected a
registration of securities in which the Holders of Registrable Securities
requesting registration pursuant to this Section 3 were entitled to participate
pursuant to Section 2.
(c) The Company is obligated to effect only one registration pursuant to
this Section 3.
4. Obligations of the Company
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become effective.
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<PAGE>
(b) Use commercially reasonable efforts to keep such registration
effective for a period of 120 days or until the Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs.
(c) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(d) Furnish to the Holders such number of prospectuses as the Holders
may reasonably request.
(e) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(f) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such registration shall also enter into and perform its
obligations under such an agreement.
(g) List the Registrable Securities being registered on any national
securities exchange on which a class of the Company's equity securities is
listed or qualify the Registrable Securities being registered for inclusion on
Nasdaq if the Company does not have a class of equity securities listed on a
national securities exchange.
(h) Provide a transfer agent and registrar for the securities being
registered and a CUSIP number, not later than the effective date of the
registration statement.
5. Furnish Information
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Agreement that the selling Holders shall furnish to
the Company such information regarding themselves, the Registrable Securities
held by them and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of their Registrable
Securities and shall execute such
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<PAGE>
documents in connection with such registration as the Company may reasonably
request.
6. Expenses of Registration
In connection with any registration pursuant to this Agreement, the Company
shall be responsible for the payment of all reasonable expenses of the
registration, with the exception of (a) underwriting discounts and commissions,
which shall be paid by the Company, the Holders and any other selling holders of
the Company's securities in proportion to the aggregate value of the securities
offered for sale by each of them, and (b) the fees and expenses of legal counsel
to any of the selling Holders, except as provided in the next sentence. The
expenses to be paid by the Company shall include all registration, filing and
qualification fees, printing and accounting fees, the fees and disbursements of
counsel for the Company and fees and disbursements of up to $10,000 for one
counsel representing all of the Holders; provided, however, that the Holders
shall pay the expenses of any registration proceeding begun pursuant to Section
3 if the registration request is subsequently withdrawn by such Holders.
7. Underwriting Requirements
The Company shall not be required under Section 2 to include any of the
Holders' securities in an underwritten offering of the Company's securities
unless such Holders accept the terms of the underwriting as agreed upon between
the Company and the underwriters selected by it. If the underwriters advise the
Company that marketing factors require a limitation on the number of shares,
including Registrable Securities, to be included in such offering, then the
Company may limit or exclude such Registrable Securities from such offering in
its sole discretion, provided that if the Company limits the number of
Registrable Securities in such offering, then the number of shares included
shall be apportioned pro rata among the selling Holders according to the total
number of Registrable Securities requested to be sold in such offering by such
Holders.
8. Delay of Registration
No Holder shall have any right to obtain or seek an injunction restraining
or otherwise delaying any registration of the Company as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement.
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<PAGE>
9. Indemnification
In the event any Registrable Securities are included in a registration
statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any actual expenses (including legal fees and costs),
losses, claims, damages (including settlement amounts) or liabilities (joint or
several) (collectively, "Losses") to which they may become subject under the
Act, the 1934 Act or other federal or state law, insofar as such Losses arise
out of or are based upon any of the following statements, omissions or
violations (collectively, a "Violation"): (i) any untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein, or any amendments
or supplements thereto, untrue in light of the circumstances under which they
were made, or (ii) the omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company will
reimburse (as incurred) each such Holder, underwriter or controlling person for
any Losses reasonably incurred by them in connection with investigating or
defending any Violations; provided, however, that the indemnity agreement
contained in this Section 9(a) shall not apply to amounts paid in settlement of
any claims for Violations if such settlement is made without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any Losses that arise out of or are based upon a
Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by,
or on behalf of, any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company and its officers, directors, agents and employees,
each underwriter and each other Holder selling securities in such registration
statement, and any person who controls any of the foregoing within the meaning
of the Act or the 1934 Act, against any Losses to which the Company or such
officer, director, agent, employee, or underwriter or other selling Holder or
controlling person may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such Losses arise out of or are based upon any
Violation that occurs in reliance upon and in conformity with written
information furnished by, or on behalf of, such Holder expressly for use in
connection with such registration; and each such Holder will reimburse (as
incurred) any Losses reasonably incurred by the Company
-6-
<PAGE>
or its officers, directors, agents, employees, or underwriters or other selling
Holders or controlling persons in connection with investigating or defending any
Violations; provided, however, that (i) the indemnity agreement contained in
this Section 9(b) shall not apply to amounts paid in settlement of any claims
for Violations if such settlement is made without the consent of the Holder,
which consent shall not be unreasonably withheld, and (ii) the obligations of
such Holders to make payments for Losses shall be limited to an amount equal to
the net proceeds to each such Holder from Registrable Securities sold as
contemplated herein.
(c) Promptly after receipt of notice of the commencement of any action
(including any governmental action), an indemnified party will, if a claim is to
be made against any indemnifying party under this Section 9, deliver to the
indemnifying party a written notice of the commencement, and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if, in the opinion of counsel for the indemnifying
party, representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in the proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable period of time after notice of the
commencement of any such action shall relieve such indemnifying party of any
liability to the indemnified party under this Section 9 to the extent such
failure is prejudicial to its ability to defend such action.
(d) If the indemnification provided for in this Section 9 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any Losses, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the Violations
that resulted in such Losses as well as any other relevant equitable
considerations; provided, however, that in no event shall any such contribution
by a Holder under this Section 9(d) exceed the net proceeds to each such Holder
from Registrable Securities sold as contemplated herein. The relative fault of
the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the Violation resulting in such Losses
relates to information supplied by the indemnifying party or by the indemnified
party and the
-7-
<PAGE>
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such Violation.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section 9
shall survive the completion of any offering of Registrable Securities.
10. Assignment of Registration Rights
The rights to cause the Company to register Registrable Securities pursuant
to this Agreement may be assigned by a Holder to a transferee or assignee of
such securities who shall, upon such transfer or assignment, be deemed a
"Holder" under this Agreement; provided that the Company is, within a reasonable
period of time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act and that such transferee or assignee is (a) a member of
the immediate family or a trust for the benefit of any Holder that is an
individual; (b) a transferee or assignee that after the transfer or assignment
holds (i) all of the Registrable Securities of the transferor, (ii) Registrable
Securities prior to the transfer, or (iii) at least 50,000 shares of Registrable
Securities of the Company immediately after such transfer; or (c) in the case of
shares of Registrable Securities transferred by gift by Stephen D. Klein
("Klein") or Michael Cohen ("Cohen"), an employee of I-Balls, provided that
Klein and Cohen may transfer in the aggregate no more than 3025,000 shares of
Registrable Securities to employees of I-Balls, and may transfer such shares to
no more than five employees of I-Balls.
11. "Market Standoff" Agreement
The Holders hereby agree that they shall not, to the extent requested by
the Company and an underwriter of Common Stock (or other securities) of the
Company, sell or otherwise transfer or dispose (other than to donees who agree
to be similarly bound) of any securities of the Company for 180 days following
the effective date of a registration statement of the Company filed under the
Act, provided that such agreement shall only apply to the first such
registration statement of the Company (the "Initial Registration Statement").
-8-
<PAGE>
To enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the securities of the Holders (and the shares or
securities of every other person subject to the foregoing restriction) until the
end of such period.
12. Miscellaneous
12.1 Notices
Any notice required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given (a) upon personal delivery to the
party to be notified, (b) upon confirmation of receipt by fax by the party to be
notified, (c) one business day after deposit with a reputable overnight courier,
prepaid for overnight delivery and addressed as set forth in (d), or (d) three
days after deposit with the United States Post Office, postage prepaid,
registered or certified with return receipt requested and addressed to the party
to be notified at the address indicated for such party on the signature page, or
at such other address as such party may designate by 10 days' advance written
notice to the other parties given in the foregoing manner.
12.2 Amendments and Waivers
Any term of this Agreement may be amended and the observance of any term
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of 66% of the Registrable Securities then outstanding.
12.3 Governing Law
This Agreement shall be governed by and construed under the laws of the
state of Washington without regard to principles of conflict of laws.
12.4 Arbitration
Any controversies or claims arising out of or relating to this Agreement
shall be fully and finally settled by arbitration in New York City, New York in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect (the "AAA_Rules"), conducted by one arbitrator either
mutually agreed upon by the parties thereto or chosen in accordance with the AAA
Rules, except that the parties thereto shall have any right to discovery as
would be permitted by the Federal Rules of Civil Procedure for a period of 90
days following the commencement of such arbitration and the arbitrator thereof
shall resolve any dispute which arises in connection with such discovery. The
prevailing party shall be entitled to costs, expenses and reasonable attorneys'
fees, and judgment upon the award rendered by the arbitrator may be entered in
any court having jurisdiction thereof.
-9-
<PAGE>
12.5 Successors and Assigns
The terms and conditions of this Agreement shall inure to the benefit of
and be binding on the respective successors and assigns of the parties as
provided herein.
12.6 Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
12.7 Entire Agreement; Counterparts
This Agreement constitutes the entire agreement between the parties about
its subject and supersedes all prior agreements. This Agreement may be executed
in two or more counterparts, which together shall constitute one instrument.
[Signature pages follow]
-10-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
AVENUE A, INC.
By: /s/ ROBERT M. LITTAUER
--------------------------------------
Its:
----------------------------------
Address:
-------------------------------------
-------------------------------------
Fax:
-------------------------------------
Phone:
-----------------------------------
MEMBERS:
/s/ STEPHEN D. KLEIN
-----------------------------------------
Stephen D. Klein
Address:
-------------------------------------
-------------------------------------
Fax:
-------------------------------------
Phone:
-----------------------------------
/s/ MICHAEL COHEN
-----------------------------------------
Michael Cohen
Address:
-------------------------------------
-------------------------------------
Fax:
-------------------------------------
Phone:
-----------------------------------
-11-
<PAGE>
/s/ JONATHAN BOND
----------------------------------------
Jonathan Bond
Address:
----------------------------------
----------------------------------
Fax:
----------------------------------
Phone:
----------------------------------
/s/ RICHARD KIRSHENBAUM
-----------------------------------------
Richard Kirshenbaum
Address:
----------------------------------
----------------------------------
Fax:
----------------------------------
Phone:
----------------------------------
/s/ MARGARET BOYER
-----------------------------------------
Margaret Boyer
Address:
----------------------------------
----------------------------------
Fax:
----------------------------------
Phone:
----------------------------------
/s/ DANIEL DEWOLF
-----------------------------------------
Daniel DeWolf
Address:
----------------------------------
----------------------------------
Fax:
----------------------------------
Phone:
----------------------------------
-12-
<PAGE>
Schedule A
to Registration Rights Agreement
<TABLE>
<CAPTION>
Holder Name Number of Shares
----------------------------- ------------------
<S> <C>
Stephen D. Klein 315,000
Michael Cohen 125,000
Jonathan Bond 25,000
Richard Kirshenbaum 25,000
Margaret Boyer 5,000
Daniel DeWolf 5,000
</TABLE>
-13-
<PAGE>
EXHIBIT 10.19
SEVERANCE AGREEMENT AND RELEASE
This Severance Agreement and Release ("Agreement") is made, entered into
and effective as of October 8, 1999 by and between R. Michael Leo, an individual
("Employee"), and Avenue A, Inc., a Washington corporation ("Employer"), and
sets forth the terms upon which Employer and Employee have agreed to end
Employee's employment with Employer.
RECITALS
A. Employee is a co-founder of Employer and served Employer as Vice
President, Strategic Development.
B. On June 23, 1998, and September 8, 1998, during Employee's tenure with
Employer, Employee was granted various stock options pursuant to Employer's 1998
Stock Incentive Compensation Plan as amended and restated on April 20, 1999, and
three Option Letter Agreements, two dated June 23, 1998, and the third September
8, 1998. Employee received 503,000 options with an exercise price of $0.10 per
share and 100,000 options at an exercise price of $0.50 per share. As of the
Separation Date, 353,000 of these options will have vested, with 253,000 options
having an exercise price of $0.10 per share and 100,000 having an exercise price
of $0.50 per share. Employee exercised 303,000 of the vested share options on
September 29, 1999. The remaining 50,000 vested share options will be exercised
as provided in Paragraph 2(c) below. The remaining 250,000 options will expire
on the Separation Date.
C. Pursuant to the Employer's 1998 Stock Incentive Compensation Plan as
amended and restated on April 20, 1999 and the June 23, 1998 and September 8,
1998 Stock Option Letter Agreements, Employee's options must be exercised within
three months of the Separation Date.
D. Employer and Employee have mutually agreed to end Employee's
relationship with Employer under the terms set forth in this Agreement.
AGREEMENT
1. Separation Date. Employee's final day of employment will be October 9,
---------------
1999 (the "Separation Date").
2. Severance Benefits.
------------------
(a) Severance Payment. Employer will pay Employee as a severance benefit
-----------------
$200,000 (the "Severance Payments"). This benefit shall be paid over a twelve-
month
1
<PAGE>
period commencing October 1, 1999 and ending September 30, 2000, and will be
paid in accordance with the same time schedule that Employer makes its customary
payroll. Employer may deduct customary withholdings including social security,
federal and state income taxes, and state disability insurance from these
Severance Payments; however, any and all such obligations shall be the primary
responsibility of Employee. Employer shall issue and file appropriate Form 1099
or similar documents in connection with the contemplated Severance Payments. The
parties acknowledge and agree that from the Separation Date, Employee shall no
longer be an employee of Employer, and that the Severance Payments are being
made in connection with the severance of Employee's employment.
The Severance Payments described in this paragraph are expressly contingent
upon the Employee's full compliance with the terms of this Agreement and with
Employee's Confidentiality, Inventions Assignment, Noncompetition and
Nonsolicitation Agreement with Employer (the "Confidentiality Agreement"), a
copy of which is attached to this Agreement as Exhibit A. Should Employee fail
to fully comply with the terms of the Confidentiality Agreement, the Severance
Payments will immediately cease, Employee shall forfeit rights to any future
payments, and Employee shall immediately return to Employer any Severance
Payments already made.
(b) Stock Options.
--------------
(i) Vested Options. Employee understands that any unexercised vested
--------------
options held by Employee as of the Separation Date will remain exercisable for
three months from the Separation Date. After such time, such options will
terminate and cease to be exercisable.
(ii) Cancellation of Unvested Options; Grant of New Options. Employee
------------------------------------------------------
understands that the 250,000 options held by Employee that are unvested as of
the Separation Date terminate on that date. Employee has no further rights
under such options and Employer has no further obligations to Employee with
respect to such options. Upon Board approval of this Agreement, Employer agrees
to issue Employee a nonqualified stock option to purchase 250,000 shares of
Employer's common stock, (the "New Option") such option to fully vest and become
exercisable one year from the Separation Date. The exercise price for such
option will be $4.00 per share. The option will automatically terminate and no
longer be exercisable one year and three months from the Separation Date. The
remaining terms of the option will be set forth in an option letter agreement in
substantially the same form as the option letter agreement attached hereto as
Exhibit B.
2
<PAGE>
(iii) Forfeiture of New Options in the Event of Breach. Employee will
-------------------------------------------------
forfeit all outstanding options and any shares received upon exercise of an
option received pursuant to paragraph 2(b)(ii) above in the event of a material
breach by Employee of this Agreement or the Confidentiality Agreement with
Employer within one year from the Separation Date. Upon exercise of an option,
Employee understands that the stock certificates for such shares will be held in
escrow until such time as the Employer no longer has a right of first refusal
with respect to the shares (such right of first refusal is described in the
Incentive Plan). In exercising the New Option, Employee agrees to execute an
appropriate stock purchase agreement to evidence Employer's repurchase and first
refusal rights. Such stock purchase agreement shall be in the form being
customarily used by Employer for stock purchase agreements at the time the New
Option is exercised.
(iv) Corporate Transactions. In the event of a corporate transaction (as
----------------------
such term is defined in the Incentive Plan), the forfeiture conditions
applicable to Employee's options and shares of common stock received upon
exercise of an option and Employer's repurchase and first refusal rights will
remain in full force and effect, unless such restrictions are subsequently
waived by Employer or a successor corporation.
(c) Personal Loan. Within three days of the effective date of this
--------------
Agreement, as defined above, Employer will lend Employee $75,000 the proceeds of
which shall be applied to the exercise of Employee's options as provided below.
This loan will be secured by 18,750 shares of the stock Employee receives as a
result of exercising vested stock options as provided in Paragraph 2(b)(i).(the
"Pledged Shares"). The terms of this loan will be as provided in the Note
attached to this Agreement as Exhibit C. Employer and Employee acknowledge and
agree that $70,000 of the loan proceeds shall be applied toward the exercise of
vested options effective September 29, 1999, and in lieu of the tender made by
Employee on that date as follows: (i) $20,000.00 toward exercise of 250,000
options having an exercise price of $0.10 per share; and (ii) $50,000.00 toward
exercise of 100,000 options having an exercise price of $0.50 per share.
Employer and Employee acknowledge and agree that the remaining $5,000 of the
loan proceeds shall be applied toward the exercise of 50,000 options having an
exercise price of $0.10 per share, that vested on October 1, 1999.
In addition, Employer agrees that, so long as the Pledged Shares are held
by Employer, and provided that Employee is not in default under the Note,
Employee shall have the right to (a) receive all dividends and other amounts
payable to the holder of record of the Pledged Shares; and (b) vote the Pledged
Shares on all Employer matters such Shares are entitled to vote, and Employer
shall execute due and timely proxies in favor of Employee to such end, whenever
such proxies are deemed necessary by Employee.
3
<PAGE>
(d) Health Benefits. Employer has given Employee written notification of
---------------
his/her rights to continuation insurance coverage under the provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"). Employee will
be responsible for the full cost of continued coverage in accordance with the
provisions of COBRA.
(e) Personal Computer. Employee agrees to return any and all other
-----------------
equipment purchased by or otherwise paid for by Employer which is in Employee's
possession or control including, without limitation, the Dell notebook computer
and the cellular phone used by Employee, provided that Employee shall be
entitled to retain possession of the Gateway computer.
3. Payment of Salary; Cancellation of Options. The parties acknowledge
------------------------------------------
and agree that, as of the date of the execution of this Agreement, and except
for the amounts owing to Employee pursuant to Paragraph 3 above and the expense
report for the months of August and September, 1999, to be filed by Employee
within two (2) weeks from the date hereof, Employee has been paid for all salary
and reimbursable business expenses due to him for services rendered to Employer
by Employee up to and including the Separation Date. Employee shall be paid his
regular payroll compensation through and including the Separation Date. Any and
all additional amounts which would have otherwise been due and owing, including,
without limitation, amounts for reimbursable expenses shall be deemed to be
included within the Severance Payment. No further benefits will accrue to
Employee. Employee further agrees that except for the Stock Options described in
Paragraph 2(b), above, and the stock to be issued pursuant to Paragraph 3,
above, all other stock options and warrants of any kind that were previously
issued or promised to Employer shall be deemed cancelled and terminated, and
Employee shall have no further rights thereto.
4. General Release. For and in consideration of the payments and benefits
---------------
set out in this Agreement, Employee, on behalf of himself and his agents, heirs,
successors and assigns, finally, fully and unconditionally releases and
discharges Employer, and any and all of its subsidiaries, affiliates and other
related companies, as well as any and all of their officers, directors, agents,
employees, partners, shareholders, attorneys, predecessors, successors and
assigns (the "Released Parties") from any and all claims, demands, liabilities,
damages, obligations, actions or causes of action of any kind, known or unknown,
past or present, arising out of, relating to, or in connection with Employee's
employment, termination of employment, or the holding of any office with
Employer or any other related entity.
The claims released by Employee include, but are not limited to, claims for
defamation, libel, invasion of privacy, intentional or negligent infliction of
emotional distress, wrongful termination, constructive discharge, breach of
contract, breach of the
4
<PAGE>
covenant of good faith and fair dealing, breach of fiduciary duty, and fraud.
The claims released by Employee further include claims under federal, state or
local laws prohibiting employment discrimination and claims under federal and
state labor statutes and regulations, including, but not limited to, the Age
Discrimination in Employment Act, the Washington Law Against Discrimination,
Title VII of the Civil Rights Act of 1964, as amended, and the Fair Labor
Standards Act, as well as any and all claims, demands, debts, and causes of
action of whatsoever kind or nature, whether known or unknown, suspected or
unsuspected, matured or unmatured, which Employee now has or claims to have or
had at any time or claimed to have against the Released Parties in connection
with Employee's employment, termination from employment, or the holding of any
office with Employer or any other related entity.
Employee agrees to forever refrain from instituting, initiating,
prosecuting, maintaining or voluntarily participating in any lawsuit, claim or
other proceeding in any jurisdiction or forum relating in any way to his
employment, termination from employment, or the holding of any office with
Employer or the termination of that relationship.
5. Release by the Company. In exchange for the covenants, releases and
----------------------
other agreements by Employee pursuant to this Agreement, Employer hereby
unconditionally releases Employee from any and all claims, demands, liabilities,
damages, obligations, actions or causes of action of any kind, known or unknown,
past or present, arising out of, relating to, or in connection with Employee's
employment or the holding of any office with Employer or any other related
entity except for the covenants and reservations contained herein and in the
Confidentiality Agreement..
6. Indemnity Employee shall retain his rights to indemnification as
---------
provided in the documents attached hereto as Exhibit D.
7. No Admission of Liability. It is expressly understood and agreed that
-------------------------
there are no claims or provisions or liabilities not expressed in this Agreement
and that neither the payment of the sums and provision of the benefits set out
in Paragraph 2, nor the execution of this Agreement, shall operate or be
interpreted or construed as an admission of liability of any person, firm or
corporation. Rather, the parties to this Agreement are settling and
compromising claims for which Employee, on the one hand, and the Released
Parties, individually and collectively, on the other hand, expressly deny any
such liability.
8. Confidentiality. Employee and Employer, their respective attorneys and
---------------
other agents, agree not to disclose or cause the disclosure of the monetary or
other terms of settlement, other than as required by law or as necessary for the
preparation of income tax returns and other tax-related matters, or as necessary
in the normal course of
5
<PAGE>
business for the Employer to perform its obligations under this Agreement. Any
such disclosure shall be considered a breach of this Agreement resulting in
damage to Employer or Employee, as pertinent.
9. Tax Consequences. Employer makes no representations or warranties with
----------------
respect to the tax consequences of any payment to Employee by Employer under the
terms of this Agreement nor otherwise with respect to the tax effects of the
extension of the Exercise Date. Employee shall be responsible for all income
taxes and similar taxes and payments due to governmental authorities with
respect to all payments made hereunder which have not been deducted by Employer
and with respect to the exercise of any stock options granted to Employee.
10. Proprietary Information. Employee acknowledges that by reason of his
-----------------------
employment he has had access to substantial proprietary information, trade
secrets and confidential information of Employer, including but not limited to,
financial information, marketing plans, business methods, pricing and contracts,
customer lists, prospective customer lists and client customer information.
Employee warrants that he has maintained the confidentiality of such proprietary
information and has not divulged, disclosed or otherwise used, either directly
or indirectly, any such proprietary information to the detriment of Employer.
Employee covenants and agrees that henceforth he will maintain the
confidentiality of such proprietary information and refrain from divulging,
disclosing or otherwise using, either directly or indirectly, any such
proprietary information without the express written authorization of Employer.
Employee's failure to fully comply with the provisions of this paragraph shall
result in the immediate and complete forfeiture of all severance payments,
stock, stock options and any other severance benefits described in Paragraphs
2(b)(iii), above.
11. Employer Property: Employee hereby represents and warrants to
-----------------
Employer that he has returned to Employer any and all materials and property of
Employer and its affiliates of any type whatsoever, including without limitation
any Proprietary Information (as defined in Paragraph 1.2 of Employee's
Confidentiality Agreement), software, or other confidential or proprietary
material that have been in Employee's possession or control. Further, Employee
has returned to Employer all office keys and company credit cards.
12. Confidentiality, Inventions Assignment, Noncompetition and
----------------------------------------------------------
Nonsolicitation: Employee will continue to abide by the terms of his
- ---------------
Confidentiality Agreement with Employer, a copy of which is attached to this
Agreement as Exhibit A. Employee's failure to fully comply with the terms of
his Confidentiality Agreement shall result in the immediate and complete
forfeiture of all severance payments, stock, stock options and any other
severance benefits, as described in Paragraph 2(b)(iii),
6
<PAGE>
above. Employer shall retain all rights in law and equity to enforce the terms
of the Confidentiality Agreement.
13. Non-Participation in Legal or Administrative Proceedings. Employee
--------------------------------------------------------
covenants that he will not file, nor will he voluntarily participate or assist
in the prosecution of any legal or administrative proceedings against Employer
or any related entities, provided that nothing in this Paragraph 14 shall
prevent Employee's participation in any such proceeding in compliance with a
summons that requires such participation.
14. No Disparagement. Employee agrees that he will not disparage Employer
----------------
in any manner harmful to the Employer's business or business reputation.
Employee further agrees that as of the effective date of this agreement, as
defined above, Employee shall not represent himself or hold himself out as a
current employee, consultant or officer of Employer, or as holding any other
current position with Employer. However, nothing herein shall preclude Employee
from honestly representing himself as a shareholder in, or as a co-founder of,
Employer, provided that Employee does not make such representations in such a
manner that they would cause a reasonable person to believe that Employee is
authorized to speak for or act on behalf of Employer or that Employee retains
any active operational role with Employer.
Employer agrees that it will not disparage Employee in any manner harmful
to the Employee's reputation, provided that Employer shall not be precluded from
confirming to others Employee's separation from Employer.
15. Governing Law; Venue. This Agreement shall be governed by and
--------------------
construed in accordance with the laws of the State of Washington. The venue of
any legal action or arbitration to enforce or interpret this Agreement shall be
before an arbitrator or court of competent jurisdiction located in Seattle,
Washington.
16. Entire Agreement. Except as otherwise provided herein, this Agreement
----------------
constitutes the entire agreement between Employee and Employer. No other
promise or inducement has been offered for this Agreement. Any amendments to
this Agreement must be in writing, signed by duly authorized representatives of
both Employer and Employee, and must state that the parties intend to amend the
Agreement.
17. Partial Invalidity. The invalidity or unenforceability of any
------------------
provision of this Agreement shall in no way affect the validity or
enforceability of any other provision of this Agreement.
7
<PAGE>
18. Integration. Except as otherwise stated herein, this Agreement
-----------
supersedes all prior communications, representations, or agreements, verbal or
written, among the parties relating to Employee's employment with Employer.
19. Arbitration. Any dispute concerning the rights and/or obligations of
-----------
Employee and/or Employer concerning Employee's employment at Employer or
concerning any terms or conditions of this Separation Agreement shall be
submitted for resolution by binding arbitration under the National Rules for
Resolution of Employment Disputes of the American Arbitration Association. Each
party in any such arbitration will be responsible for its own attorneys' fees
and associated costs. The parties agree that the cost of the arbitration itself
will be split equally between the parties.
20. Authority. Each party that is a signatory to this Agreement
---------
represents and warrants that such party has the power and authority to enter
into this Agreement and that this Agreement is the binding agreement of such
party.
Executed this 8th day of October, 1999, at Seattle, Washington.
/s/ R. MICHAEL LEO
----------------------------------
R. Michael Leo
Avenue A, Inc.
By: /s/ BRIAN McANDREWS
--------------------------------
Brian McAndrews
Chief Executive Officer
8
<PAGE>
EXHIBIT 10.20
AVENUE A, INC.
1999 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the Avenue A, Inc. 1999 Stock Incentive Compensation Plan
(the "Plan") is to enhance the long-term shareholder value of Avenue A, Inc., a
Washington corporation (the "Company"), by offering opportunities to selected
persons to participate in the Company's growth and success, and to encourage
them to remain in the service of the Company and its Related Corporations (as
defined in Section 2) and to acquire and maintain stock ownership in the
Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"Award" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Stock Awards and Options, or any
combination of the foregoing.
"Board" means the Board of Directors of the Company.
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Stock" means the common stock, par value $0.01 per share, of the
Company.
"Corporate Transaction" has the meaning set forth in Section 12.3.1.
"Disability," unless otherwise defined by the Plan Administrator, means a
mental or physical impairment of the Participant that is expected to result in
death or that has lasted or is expected to last for a continuous period of 12
months or more and that causes the Participant to be unable, in the opinion of
the Company, to perform his or her duties for the Company or a Related
Corporation and to be engaged in any substantial gainful activity.
"Effective Date" has the meaning set forth in Section 16.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing sales price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the
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closing sales price for the Common Stock as such price is officially quoted in
the composite tape of transactions on such exchange for a single trading day. If
there is no such reported price for the Common Stock for the date in question,
then such price on the last preceding date for which such price exists shall be
determinative of Fair Market Value.
"Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice from the Participant:
(a) a change in the Participant's status, title, position or
responsibilities (including reporting responsibilities) that, in the
Participant's reasonable judgment, represents a substantial reduction in the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Participant of any duties or responsibilities
that, in the Participant's reasonable judgment, are materially inconsistent with
such status, title, position or responsibilities; or any removal of the
Participant from or failure to reappoint or reelect the Participant to any of
such positions, except in connection with the termination of the Participant's
employment for Cause, for Disability or as a result of his or her death, or by
the Participant other than for Good Reason;
(b) a reduction in the Participant's annual base salary;
(c) the Successor Corporation's requiring the Participant (without the
Participant's consent) to be based at any place outside a 35-mile radius of his
or her place of employment prior to a Corporate Transaction, except for
reasonably required travel on the Successor Corporation's business that is not
materially greater than such travel requirements prior to the Corporate
Transaction;
(d) the Successor Corporation's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent thereof) in
which the Participant was participating at the time of a Corporate Transaction,
including, but not limited to, the Plan, or (ii) provide the Participant with
compensation and benefits substantially equivalent (in terms of benefit levels
and/or reward opportunities) to those provided for under each material employee
benefit plan, program and practice as in effect immediately prior to the
Corporate Transaction;
(e) any material breach by the Successor Corporation of its
obligations to the Participant under the Plan or any substantially equivalent
plan of the Successor Corporation; or
(f) any purported termination of the Participant's employment or
services for Cause by the Successor Corporation that does not comply with the
terms of the Plan or any substantially equivalent plan of the Successor
Corporation.
"Grant Date" means the date on which the Plan Administrator completes the
corporate action relating to the grant of an Award and all conditions precedent
to the grant have been satisfied, provided that conditions to the exercisability
or vesting of Awards shall not defer the Grant Date.
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"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
"Option" means the right to purchase Common Stock granted under Section 7.
"Option Term" has the meaning set forth in Section 7.3.
"Parent," except as otherwise provided in Section 8.3 in connection with
Incentive Stock Options, means any entity, whether now or hereafter existing,
that directly or indirectly controls the Company.
"Participant" means (a) the person to whom an Award is granted; (b) for a
Participant who has died, the personal representative of the Participant's
estate, the person(s) to whom the Participant's rights under the Award have
passed by will or by the applicable laws of descent and distribution, or the
beneficiary designated in accordance with Section 11; or (c) the person(s) to
whom an Award has been transferred in accordance with Section 11.
"Plan Administrator" means the Board or any committee or committees
designated by the Board or any person to whom the Board has delegated authority
to administer the Plan under Section 3.1.
"Related Corporation" means any Parent or Subsidiary of the Company.
"Related Party Transaction" means (a) a merger of the Company in which the
holders of shares of Common Stock immediately prior to the merger hold at least
a majority of the shares of Common Stock in the surviving corporation or parent
thereof immediately after the merger; (b) a mere reincorporation of the Company
or; (c) a transaction undertaken for the sole purpose of creating a holding
company.
"Retirement" means retirement as of the individual's normal retirement date
under the Company's 401(k) plan or other similar successor plan applicable to
salaried employees, unless otherwise defined by the Plan Administrator from time
to time for purposes of the Plan.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Award" means shares of Common Stock or units denominated in Common
Stock granted under Section 9, the rights of ownership of which may be subject
to restrictions prescribed by the Plan Administrator.
"Subsidiary," except as otherwise provided in Section 8.3 in connection
with Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company.
"Successor Corporation" has the meaning set forth in Section 12.3.2.
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"Termination Date" has the meaning set forth in Section 7.6.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board and/or a committee or
committees (which term includes subcommittees) appointed by, and consisting of
two or more members of, the Board (a "Plan Administrator"). If and so long as
the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act,
the Board shall consider in selecting the members of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act.
Notwithstanding the foregoing, the Board may delegate the responsibility for
administering the Plan with respect to designated classes of eligible persons to
different committees consisting of two or more members of the Board, subject to
such limitations as the Board deems appropriate. Committee members shall serve
for such term as the Board may determine, subject to removal by the Board at any
time. To the extent consistent with applicable law, the Board may authorize one
or more senior executive officers of the Company to grant Awards to designated
classes of eligible persons, within the limits specifically prescribed by the
Board.
3.2 Administration and Interpretation by Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and the terms of any instrument evidencing the Award and may
from time to time adopt and change rules and regulations of general application
for the Plan's administration. The Plan Administrator's interpretation of the
Plan and its rules and regulations, and all actions taken and determinations
made by the Plan Administrator pursuant to the Plan, shall be conclusive and
binding on all parties involved or affected. The Plan Administrator may
delegate administrative duties to such of the Company's officers as it so
determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 12.1, the
number of shares of Common Stock that shall be available for issuance under the
Plan shall be
(a) 1,000,000 shares plus;
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(b) an annual increase to be added on the first day of the Company's fiscal
year beginning in 2001 equal to the least of (i) 3,000,000 shares; (ii) 5% of
the adjusted average common shares outstanding of the Company used to calculate
fully diluted earnings per share as reported in the annual report to
shareholders for the preceding year; or (iii) a lesser amount determined by the
Board; provided that any shares from any such increases in previous years that
are not actually issued shall be added to the aggregate number of shares
available for issuance under the Plan; plus
(c) as of the effective date of the Company's initial public offering, (i)
any authorized shares not issued or subject to outstanding awards under the
Company's 1998 Stock Incentive Compensation Plan (the "Prior Plan") and (ii) any
shares subject to outstanding awards under the Prior Plan that cease to be
subject to such awards (other than by reason of exercise or payment of the
awards to the extent they are exercised for or settled in vested and
nonforfeitable shares), up to an aggregate maximum of 5,349,768 shares, which
shares shall cease, as of the date of the initial public offering, to be
available for grant and issuance under the Prior Plan, but shall be available
for issuance under the Plan.
Shares issued under the Plan shall be drawn from authorized and unissued
shares or shares now held or subsequently acquired by the Company.
4.2 Reuse of Shares
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in vested and
nonforfeitable shares) shall again be available for issuance in connection with
future grants of Awards under the Plan.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Related Corporations as the Plan Administrator
from time to time selects. Awards may also be made to consultants, agents,
advisors and independent contractors who provide services to the Company and its
Related Corporations; provided, however, that such Participants render bona fide
services that are not in connection with the offer and sale of the Company's
securities in a capital-raising transaction and do not directly or indirectly
promote or maintain a market for the Company's securities.
SECTION 6. AWARDS
6.1 Form and Grant of Awards
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options and Stock Awards. Awards may be granted singly or in combination.
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6.2 Settlement of Awards
The Company may settle Awards through the delivery of shares of Common
Stock, cash payments, the granting of replacement Awards or any combination
thereof as the Plan Administrator shall determine. Any Award settlement,
including payment deferrals, may be subject to such conditions, restrictions and
contingencies as the Plan Administrator shall determine. The Plan Administrator
may permit or require the deferral of any Award payment, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest, or dividend equivalents, including converting such
credits into deferred stock equivalents. The Plan Administrator may at any time
offer to buy out, for a payment in cash or Common Stock, an Award previously
granted based on such terms and conditions as the Plan Administrator shall
establish and communicate to the Participant at the time such offer is made.
6.3 Acquired Company Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
awards shall be deemed to be Participants.
SECTION 7. AWARDS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options. For
Incentive Stock Options granted to a more than 10% shareholder, the Option
exercise price shall be as specified in Section 8.2.
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7.3 Term of Options
The term of each Option (the "Option Term") shall be as established by the
Plan Administrator or, if not so established, shall be ten years from the Grant
Date. For Incentive Stock Options, the maximum Option Term shall be as
specified in Sections 8.2 and 8.4.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which, or the installments in which, the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option shall vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:
<TABLE>
<CAPTION>
Period of Participant's Continuous Employment or
Service With the Company or Its Related Corporations Percent of Total Option
From the Option Grant Date That Is Vested and Exercisable
<S> <C>
After 1 year 20%
Each additional three-month period of An additional 6.667%
continuous service completed thereafter
After 4 years 100%
</TABLE>
The Plan Administrator may adjust the vesting schedule of an Option held by
a Participant who works less than "full-time" as that term is defined by the
Plan Administrator.
To the extent that an Option has vested and become exercisable, the Option
may be exercised from time to time by delivery to the Company of a written stock
option exercise agreement or notice, in a form and in accordance with procedures
established by the Plan Administrator, setting forth the number of shares with
respect to which the Option is being exercised, the restrictions imposed on the
shares purchased under such exercise agreement, if any, and such representations
and agreements as may be required by the Plan Administrator, accompanied by
payment in full as described in Section 7.5. An Option may not be exercised for
less than a reasonable number of shares at any one time, as determined by the
Plan Administrator.
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, in any combination of
(a) cash or check;
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(b) tendering (either actually or, if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, by attestation)
shares of Common Stock already owned by the Participant for at least six months
(or any shorter period necessary to avoid a charge to the Company's earnings for
financial reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price;
(c) if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, delivery of a properly executed exercise notice,
together with irrevocable instructions, to (i) a brokerage firm designated by
the Company to deliver promptly to the Company the aggregate amount of sale or
loan proceeds to pay the Option exercise price and any withholding tax
obligations that may arise in connection with the exercise and (ii) the Company
to deliver the certificates for such purchased shares directly to such brokerage
firm, all in accordance with the regulations of the Federal Reserve Board; or
(d) such other consideration as the Plan Administrator may permit.
In addition, to assist a Participant (including a Participant who is an
officer or a director of the Company) in acquiring shares of Common Stock
pursuant to an Award granted under the Plan, the Plan Administrator, in its sole
discretion, may authorize, either at the Grant Date or at any time before the
acquisition of Common Stock pursuant to the Award, (i) the payment by a
Participant with a full-recourse promissory note, (ii) the payment by the
Participant of the purchase price, if any, of the Common Stock in installments,
or (iii) the guarantee by the Company of a loan obtained by the Participant from
a third party. Subject to the foregoing, the Plan Administrator shall in its
sole discretion specify the terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of and security for repayment.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option shall continue to be exercisable,
and the terms and conditions of such exercise, if a Participant ceases to be
employed by, or to provide services to, the Company or its Related Corporations,
which provisions may be waived or modified by the Plan Administrator at any
time. If not so established in the instrument evidencing the Option, the Option
shall be exercisable according to the following terms and conditions, which may
be waived or modified by the Plan Administrator at any time:
(a) Any portion of an Option that is not vested and exercisable on the date
of termination of the Participant's employment or service relationship (the
"Termination Date") shall expire on such date.
(b) Any portion of an Option that is vested and exercisable on the
Termination Date shall expire upon the earliest to occur of
(i) the last day of the Option Term;
(ii) if the Participant's Termination Date occurs for reasons other
than Cause, death, Disability or Retirement, the three-month anniversary of such
Termination Date; and
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(iii) if the Participant's Termination Date occurs by reason of
death, Disability or Retirement, the one-year anniversary of such Termination
Date.
Notwithstanding the foregoing, if the Participant dies after the
Termination Date while the Option is otherwise exercisable, the portion of the
Option that is vested and exercisable on such Termination Date shall expire upon
the earlier to occur of (y) the last day of the Option Term and (z) the first
anniversary of the date of death, unless the Plan Administrator determines
otherwise.
Also notwithstanding the foregoing, in case of termination of the
Participant's employment or service relationship for Cause, the Option shall
automatically expire upon first notification to the Participant of such
termination, unless the Plan Administrator determines otherwise. If a
Participant's employment or service relationship with the Company is suspended
pending an investigation of whether the Participant shall be terminated for
Cause, all the Participant's rights under any Option likewise shall be suspended
during the period of investigation.
A Participant's transfer of employment or service relationship between or
among the Company and its Related Corporations, or a change in status from an
employee to a consultant, agent, advisor or independent contractor, shall not be
considered a termination of employment or service relationship for purposes of
this Section 7. The effect of a Company-approved leave of absence on the terms
and conditions of an Option shall be determined by the Plan Administrator, in
its sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the
event the Participant holds two or more such Options that become exercisable for
the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.
8.2 More Than 10% Shareholders
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option Term shall not exceed five
years. The determination of more than 10% ownership shall be made in accordance
with Section 422 of the Code.
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8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 Term
Except as provided in Section 8.2, the Option Term shall not exceed ten
years.
8.5 Exercisability
An Option designated as an Incentive Stock Option shall cease to qualify
for favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (if permitted by the terms of the Option) (a) more than three months
after the Termination Date for reasons other than death or Disability, (b) more
than one year after the Termination Date by reason of Disability, or (c) after
the Participant has been on a leave of absence for more than 90 days, unless the
Participant's reemployment rights are guaranteed by statute or contract.
For purposes of this Section 8.5, Disability shall mean "disability" as
that term is defined for purposes of Section 422 of the Code.
8.6 Taxation of Incentive Stock Options
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two years after the Grant Date and
one year from the date of exercise. A Participant may be subject to the
alternative minimum tax at the time of exercise of an Incentive Stock Option.
The Participant shall give the Company prompt notice of any disposition of
shares acquired by the exercise of an Incentive Stock Option prior to the
expiration of such holding periods.
8.7 Promissory Notes
The amount of any promissory note delivered pursuant to Section 7.5 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator, but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. STOCK AWARDS
9.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common Stock or
Awards denominated in units of Common Stock on such terms and conditions and
subject to such restrictions, if any (which may be based on continuous service
with the Company or the
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achievement of performance goals), as the Plan Administrator shall determine, in
its sole discretion, which terms, conditions and restrictions shall be set forth
in the instrument evidencing the Award. The terms, conditions and restrictions
that the Plan Administrator shall have the power to determine shall include,
without limitation, the manner in which shares subject to Stock Awards are held
during the periods they are subject to restrictions and the circumstances under
which forfeiture of the Stock Award shall occur by reason of termination of the
Participant's employment or service relationship.
9.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Participant's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the
Participant or, in the case of the Participant's death, to the personal
representative of the Participant's estate or, as the appropriate court directs,
the appropriate number of shares of Common Stock.
9.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Stock Award under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 10. WITHHOLDING
The Company may require the Participant to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant, vesting or exercise of any Award. Subject to the Plan and applicable
law, the Plan Administrator may, in its sole discretion, permit the Participant
to satisfy withholding obligations, in whole or in part, (a) by paying cash, (b)
by electing to have the Company withhold shares of Common Stock (up to the
minimum required federal tax withholding rate) or (c) by transferring to the
Company shares of Common Stock (already owned by the Participant for the period
necessary to avoid a charge to the Company's earnings for financial reporting
purposes), in such amounts as are equivalent to the Fair Market Value of the
withholding obligation. The Company shall have the right to withhold from any
Award or any shares of Common Stock issuable pursuant to an Award or from any
cash amounts otherwise due or to become due from the Company to the Participant
an amount equal to such taxes. The Company may also deduct from any Award any
other amounts due from the Participant to the Company or a Related Corporation.
SECTION 11. ASSIGNABILITY
Awards granted under the Plan and any interest therein may not be assigned,
pledged or transferred by the Participant and may not be made subject to
attachment or similar proceedings otherwise than by will or by the applicable
laws of descent and distribution, and, during the Participant's lifetime, such
Awards may be exercised only by the Participant. Notwithstanding the foregoing,
and to the extent permitted by Section 422 of the Code, the Plan Administrator,
in its
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sole discretion, may permit such assignment, pledge, transfer and exercisability
and may permit a Participant to designate a beneficiary who may exercise the
Award or receive compensation under the Award after the Participant's death;
provided, however, that any Award so assigned, pledged or transferred shall be
subject to all the same terms and conditions contained in the instrument
evidencing the Award.
SECTION 12. ADJUSTMENTS
12.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1 and (ii) the
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms
of any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a dissolution or liquidation of the Company or a
Corporate Transaction shall not be governed by this Section 12.1 but shall be
governed by Sections 12.2 and 12.3, respectively.
12.2 Dissolution or Liquidation
In the event of the proposed dissolution or liquidation of the Company, the
Plan Administrator shall notify each Participant as soon as practicable prior to
the effective date of such proposed transaction. The Plan Administrator in its
discretion may permit a Participant to exercise an Option until ten days prior
to such transaction with respect to all vested and exercisable shares of Common
Stock covered thereby and with respect to such number of unvested shares as the
Plan Administrator shall determine. In addition, the Plan Administrator may
provide that any forfeiture provision or Company repurchase option applicable to
any Award shall lapse as to such number of shares as the Plan Administrator
shall determine, contingent upon the occurrence of the proposed dissolution or
liquidation at the time and in the manner contemplated. To the extent an Option
has not been previously exercised, the Option shall terminate automatically
immediately prior to the consummation of the proposed action. To the extent a
forfeiture provision applicable to a Stock Award has not been waived by the Plan
Administrator, the Stock Award shall be forfeited automatically immediately
prior to the consummation of the proposed action.
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12.3 Corporate Transaction
12.3.1 Definition
"Corporate Transaction" means either of the following events:
(a) Consummation of any merger or consolidation of the Company with or into
another corporation or
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all the
Company's outstanding securities or all or substantially all the Company's
assets other than a transfer of the Company's securities or assets to a
majority-owned subsidiary corporation (as defined in Section 8.3) of the
Company.
12.3.2 Options
(a) In the event of a Corporate Transaction, except as otherwise provided
in the instrument evidencing the Award, each outstanding Option shall be assumed
or continued or an equivalent option or right substituted by the surviving
corporation, the successor corporation or its parent corporation, as applicable
(the "Successor Corporation"). In the event that the Successor Corporation
refuses to assume, continue or substitute for the Option, the Participant shall
fully vest in and have the right to exercise the Option as to all the shares of
Common Stock subject thereto, including shares as to which the Option would not
otherwise be vested or exercisable. If an Option will become fully vested and
exercisable in lieu of assumption or substitution in the event of a Corporate
Transaction, the Plan Administrator shall notify the Participant in writing or
electronically that the Option shall be fully vested and exercisable for a
specified time period after the date of such notice, and the Option shall
terminate upon the expiration of such period, in each case conditioned on the
consummation of the Corporate Transaction. For the purposes of this Section
12.3, the Option shall be considered assumed if, following the Corporate
Transaction, the option or right confers the right to purchase or receive, for
each share of Common Stock subject to the Option, immediately prior to the
Corporate Transaction, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares); provided,
however, that if such consideration received in the Corporate Transaction is not
solely common stock of the Successor Corporation, the Plan Administrator may,
with the consent of the Successor Corporation, provide for the consideration to
be received upon the exercise of the Option, for each share of Common Stock
subject thereto, to be solely common stock of the Successor Corporation equal in
fair market value to the per share consideration received by holders of Common
Stock in the Corporate Transaction. All Options shall terminate and cease to
remain outstanding immediately following the consummation of the Corporate
Transaction, except to the extent assumed by the Successor Corporation. Any
such Options granted to an "executive officer" (as that term is defined for
purposes of Section 16 of the Exchange Act) of the Company that are assumed or
replaced in the Corporate Transaction, and do not otherwise accelerate at that
time shall be accelerated in the event that the Participant's employment or
services subsequently terminate
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<PAGE>
within two years following such Corporate Transaction, unless such employment or
services are terminated by the Successor Corporation for Cause or by the
Participant voluntarily without Good Reason. Notwithstanding the foregoing, such
acceleration shall not occur if the Corporate Transaction was a Related Party
Transaction.
(b) Options shall not so accelerate under this Section 12.3.2 if, in the
opinion of the Company's outside accountants, acceleration would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment.
12.3.3 Stock Awards
In the event of a Corporate Transaction, except as otherwise provided in
the instrument evidencing the Award, the vesting of shares subject to Stock
Awards shall accelerate, and the forfeiture provisions to which such shares are
subject shall lapse, if and to the same extent that the vesting of outstanding
Options accelerates in connection with the Corporate Transaction. If unvested
Options are to be assumed, continued or substituted by a Successor Corporation
without acceleration upon the occurrence of a Corporate Transaction, the
forfeiture provisions to which such Stock Awards are subject shall continue with
respect to shares of the Successor Corporation that may be issued in exchange
for such shares.
12.4 Further Adjustment of Awards
Subject to Sections 12.2 and 12.3, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the Plan Administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to the Participants, with respect
to Awards. Such authorized action may include (but shall not be limited to)
establishing, amending or waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later, extended or
additional time for exercise, lifting restrictions and other modifications, and
the Plan Administrator may take such actions with respect to all Participants,
to certain categories of Participants or only to individual Participants. The
Plan Administrator may take such action before or after granting Awards to which
the action relates and before or after any public announcement with respect to
such sale, merger, consolidation, reorganization, liquidation or change in
control that is the reason for such action.
12.5 Limitations
The grant of Awards shall in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
12.6 Fractional Shares
In the event of any adjustment in the number of shares covered by any
Award, each such Award shall cover only the number of full shares resulting from
such adjustment.
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<PAGE>
SECTION 13. MARKET STANDOFF
In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company's initial public offering, a person
shall not sell, make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose of or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
any shares issued pursuant to an Award granted under the Plan without the prior
written consent of the Company or its underwriters. Such limitations shall be
in effect for such period of time as may be requested by the Company or such
underwriters and agreed to by the Company's officers and directors with respect
to their shares; provided, however, that in no event shall such period exceed
180 days. The limitations of this paragraph shall in all events terminate two
years after the effective date of the Company's initial public offering.
Holders of shares issued pursuant to an Award granted under the Plan shall be
subject to the market standoff provisions of this paragraph only if the officers
and directors of the Company are also subject to similar arrangements.
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 13, to the same extent the purchased shares are
at such time covered by such provisions.
In order to enforce the limitations of this Section 13, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.
SECTION 14. AMENDMENT AND TERMINATION OF PLAN
14.1 Amendment of Plan
The Plan may be amended only by the Board in such respects as it shall deem
advisable; provided, however, that to the extent required for compliance with
Section 422 of the Code or any applicable law or regulation, shareholder
approval shall be required for any amendment that would (a) increase the total
number of shares available for issuance under the Plan, (b) modify the class of
persons eligible to receive Options, or (c) otherwise require shareholder
approval under any applicable law or regulation. Any amendment made to the Plan
that would constitute a "modification" to Incentive Stock Options outstanding on
the date of such amendment shall not, without the consent of the Participant, be
applicable to such outstanding Incentive Stock Options but shall have
prospective effect only.
14.2 Termination of Plan
The Board may suspend or terminate the Plan at any time. Unless sooner
terminated as provided herein, the Plan shall terminate ten years after the
earlier of the Plan's adoption by the Board and approval by the shareholders.
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<PAGE>
14.3 Consent of Participant
The amendment or termination of the Plan or the amendment of an outstanding
Award shall not, without the Participant's consent, impair or diminish any
rights or obligations under any Award theretofore granted to the Participant
under the Plan. Any change or adjustment to an outstanding Incentive Stock
Option shall not, without the consent of the Participant, be made in a manner so
as to constitute a "modification" that would cause such Incentive Stock Option
to fail to continue to qualify as an Incentive Stock Option. Notwithstanding
the foregoing, any adjustments made pursuant to Section 12 shall not be subject
to these restrictions.
SECTION 15. GENERAL
15.1 Evidence of Awards
Awards granted under the Plan shall be evidenced by a written instrument
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
15.2 No Individual Rights
Nothing in the Plan or any Award granted under the Plan shall be deemed to
constitute an employment contract or confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related Corporation or limit in any way
the right of the Company or any Related Corporation to terminate a Participant's
employment or other relationship at any time, with or without Cause.
15.3 Registration
Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue or deliver any shares of Common Stock under the Plan or make
any other distribution of benefits under the Plan unless such issuance, delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act), and the applicable
requirements of any securities exchange or similar entity.
The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
To the extent that the Plan or any instrument evidencing an Award provides
for issuance of stock certificates to reflect the issuance of shares of Common
Stock, the issuance may be effected on a noncertificated basis, to the extent
not prohibited by applicable law or the applicable rules of any stock exchange.
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<PAGE>
15.4 No Rights as a Shareholder
No Option or Stock Award denominated in units shall entitle the Participant
to any cash dividend, voting or other right of a shareholder unless and until
the date of issuance under the Plan of the shares that are the subject of such
Award.
15.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator, in its sole discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to Participants who are
officers or directors subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
Participants. Additionally, in interpreting and applying the provisions of the
Plan, any Option granted as an Incentive Stock Option pursuant to the Plan
shall, to the extent permitted by law, be construed as an "incentive stock
option" within the meaning of Section 422 of the Code.
15.6 Participants in Foreign Countries
The Plan Administrator shall have the authority to adopt such
modifications, procedures and subplans as may be necessary or desirable to
comply with provisions of the laws of foreign countries in which the Company or
its Related Corporations may operate to assure the viability of the benefits
from Awards granted to Participants employed in such countries and to meet the
objectives of the Plan.
15.7 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
15.8 Severability
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
15.9 Choice of Law
The Plan and all determinations made and actions taken pursuant hereto, to
the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Washington without giving effect to
principles of conflicts of laws.
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SECTION 16. EFFECTIVE DATE
The Effective Date is the date on which the Plan is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
Adopted by the Board on November 16, 1999 and approved by the Company's
shareholders on __________, ______.
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<PAGE>
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
SUMMARY PAGE
<TABLE>
<CAPTION>
Section/Effect of Date of Shareholder
Date of Board Action Amendment Approval
Action
<S> <C> <C>
November 16, 1999 Initial Plan Adoption ____________, ____
</TABLE>
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<PAGE>
EXHIBIT 10.21
STOCK OPTION GRANT PROGRAM
FOR
NONEMPLOYEE DIRECTORS UNDER THE
AVENUE A, INC.
1999 STOCK INCENTIVE COMPENSATION PLAN
The following provisions set forth the terms of the stock option grant
program (the "Program") for nonemployee directors of Avenue A, Inc. (the
"Company") under the Company's 1999 Stock Incentive Compensation Plan (the
"Plan"). The following terms are intended to supplement, not alter or change,
the provisions of the Plan, and in the event of any inconsistency between the
terms contained herein and in the Plan, the Plan shall govern. All capitalized
terms that are not defined herein shall be as defined in the Plan.
1. Eligibility
Each director of the Company elected or appointed who is not otherwise an
employee of the Company or any Subsidiary (an "Eligible Director") shall be
eligible to receive Initial Grants and Annual Grants under the Plan, as
discussed below.
2. Initial Grants
A Nonqualified Stock Option to purchase 50,000 shares of Common Stock
("Initial Grant") shall be granted to each Eligible Director upon such Eligible
Director's initial election or appointment to the Board. Initial Grants shall
vest and become exercisable in equal installments on the first, second and third
anniversaries of the Grant Date, assuming continued service on the Board for
such period.
3. Annual Grants
Commencing with the 2000 Annual Shareholders Meeting, each Eligible
Director shall automatically receive a Nonqualified Stock Option to purchase
15,000 shares of Common Stock immediately following each year's Annual Meeting
(each, an "Annual Grant"); provided that any Eligible Director who received an
Initial Grant within three months prior to an Annual Meeting shall not receive
an Annual Grant until immediately following the second Annual Meeting after the
date of such Initial Grant. Annual Grants shall fully vest and become
exercisable on the first anniversary of the Grant Date, assuming continued
service on the Board for such period.
4. Option Exercise Price
The exercise price of an Option shall be the Fair Market Value of the
Common Stock as applicable, on the date of grant.
5. Manner of Option Exercise
An Option shall be exercised by giving the required notice to the Company,
stating the number of shares of Common Stock with respect to which the Option is
being exercised,
<PAGE>
accompanied by payment in full for such Common Stock, which payment may be in
whole or in part (a) in cash or check, (b) in shares of Common Stock, owned by
the Eligible Director for at least six months (or any shorter period necessary
to avoid a charge to the Company's earnings for financial reporting purposes)
having a Fair Market Value on the day prior to the exercise date equal to the
aggregate Option exercise price, or (c) if and so long as the Common Stock is
registered under the Exchange Act, by delivery of a properly executed exercise
notice, together with irrevocable instructions to a broker, to properly deliver
to the Company the amount of sale or loan proceeds to pay the exercise price,
all in accordance with the regulation of the Federal Reserve Board.
6. Term of Options
Each Option shall expire ten years from the date of grant thereof, but
shall be subject to earlier termination as follows:
(a) In the event that an Eligible Director ceases to be a director of the
Company for any reason other than the death of the Eligible Director, the
unvested portion of any Option granted to such Eligible Director shall terminate
immediately and the vested portion of the Option may be exercised by the
Eligible Director only within three months after the date he or she ceases to be
a director of the Company or prior to the date on which the Option expires by
its terms, whichever is earlier.
(b) In the event of the death of an Eligible Director, the unvested
portion of any Option granted to such Eligible Director shall terminate
immediately and the vested portion of the Option may be exercised only within
one year after the date of death of the Eligible Director or prior to the date
on which the Option expires by its terms, whichever is earlier, by the personal
representative of the Eligible Director's estate, the person(s) to whom the
Eligible Director's rights under the Option have passed by will or the
applicable laws of descent and distribution or the beneficiary designated
pursuant to Section 11 of the Plan.
7. Corporate Transactions
In the event of any Corporate Transaction, other than a Related Party
Transaction, each Initial and Annual Grant that is at the time outstanding shall
automatically accelerate so that each such grant shall, immediately prior to the
specified effective date for the Corporate Transaction, become fully vested and
exercisable. Notwithstanding the foregoing, such acceleration shall not occur
if, in the opinion of the Company's outside accountants, it would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment.
8. Amendment
The Board may amend the provisions contained herein in such respects as it
deems advisable. Any such amendment shall not, without the consent of the
Eligible Director, impair or diminish any rights of an Eligible Director or any
rights of the Company under an Option.
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<PAGE>
Provisions of the Plan (including any amendments) that were not discussed
above, to the extent applicable to Eligible Directors, shall continue to govern
the terms and conditions of Options granted to Eligible Directors.
9. Effective Date
The Program shall become effective on the day shares of the Common Stock
are first offered to the public in an underwritten initial public offering
pursuant to a registration statement filed with and declared effective by the
Securities and Exchange Commission.
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<PAGE>
EXHIBIT 10.22
AVENUE A, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The purposes of the Avenue A, Inc. 1999 Employee Stock Purchase Plan (the
"Plan") are (a) to assist employees of Avenue A, Inc., a Washington corporation
(the "Company"), and its designated subsidiaries in acquiring a stock ownership
interest in the Company pursuant to a plan that is intended to qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended, and (b) to encourage employees to remain in the employ of the
Company and its subsidiaries.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Company's Compensation Committee or any other
committee appointed by the Board to administer the Plan.
"Common Stock" means the common stock, par value $0.01 per share, of the
Company.
"Company" means Avenue A, Inc., a Washington corporation.
"Corporate Transaction" means either of the following events:
(a) Consummation of any merger or consolidation of the Company with
or into another corporation or
(b) Consummation of any sale, lease, exchange or other transfer in
one transaction or a series of related transactions of all or substantially
all the Company's outstanding securities or all or substantially all the
Company's assets other than a transfer of the Company's securities or
assets to a majority-owned Subsidiary Corporation of the Company.
"Designated Subsidiary" has the meaning set forth under the definition of
"Eligible Employee" in this Section 2.
"Eligible Compensation" means all salary and wages, including overtime,
cash bonuses and commissions. Regular cash compensation does not include
severance pay, hiring and relocation bonuses, pay in lieu of vacations, sick
leave, gain from stock option exercises or any other special payments.
<PAGE>
"Eligible Employee" means any employee of the Company, a domestic
Subsidiary Corporation or any other Subsidiary Corporation designated by the
Board or the Committee (each, a "Designated Subsidiary"), who is in the employ
of the Company (or any Designated Subsidiary) on one or more Offering Dates and
who meets the following criteria:
(a) the employee does not, immediately after the Option is granted,
own stock (as defined by the Code) possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company or of
a Parent Corporation or Subsidiary Corporation of the Company;
(b) the employee's customary employment is for 20 hours or more per
week; provided, however, that the Plan Administrator may decrease this
minimum hours requirement for a future Offering;
(c) if specified by the Plan Administrator for a future Offering, the
employee customarily works a minimum of five months per year or any lesser
number of months established by the Plan Administrator; and
(d) if specified by the Plan Administrator for a future Offering, the
employee has been employed for a certain minimum period of time as of an
Offering Date; provided, however, that any such minimum employment period
may not exceed two years.
If the Company permits any employee of a Designated Subsidiary to participate in
the Plan, then all employees of that Designated Subsidiary who meet the
requirements of this paragraph shall also be considered Eligible Employees.
"Enrollment Period" has the meaning set forth in Section 7.1.
"ESPP Broker" has the meaning set forth in Section 10.1.
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing sales price for the Common Stock as reported by the Nasdaq
National Market on the Offering Date or the Purchase Date, as applicable, unless
the Plan Administrator determines otherwise for a future Offering or (b) if the
Common Stock is listed on the New York Stock Exchange or the American Stock
Exchange, the closing sales price for the Common Stock as such price is
officially quoted in the composite tape of transactions on such exchange on the
Offering Date or the Purchase Date, as applicable, unless the Plan Administrator
determines otherwise for a future Offering; provided, however, that for the
first Offering Date under the Plan that occurs on the date shares of Common
Stock are first offered to the public in an underwritten initial public offering
filed with and declared effective by the Securities and Exchange Commission,
Fair Market Value shall be the Common Stock's initial public offering price as
set forth in Section 6(a). If there is no such reported price for the Common
Stock for the date in question, then such price on the last preceding date for
which such price exists shall be determinative of Fair Market Value.
"Offering" has the meaning set forth in Section 5.1.
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<PAGE>
"Offering Date" means the first day of an Offering.
"Option" means an option granted under the Plan to an Eligible Employee to
purchase shares of Common Stock.
"Parent Corporation" means any corporation, other than the Company, in an
unbroken chain of corporations ending with the Company, if, at the time of the
granting of the Option, each of the corporations, other than the Company, owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"Participant" means any Eligible Employee who has elected to participate in
an Offering in accordance with the procedures set forth in Section 7.1 and who
has not withdrawn from the Plan or whose participation in the Plan is not
otherwise terminated.
"Plan" means the Avenue A, Inc. 1999 Employee Stock Purchase Plan.
"Purchase Date" means the last day of each Purchase Period.
"Purchase Period" has the meaning set forth in Section 5.2.
"Purchase Price" has the meaning set forth in Section 6.
"Securities Act" means the Securities Act of 1933, as amended.
"Subscription" has the meaning set forth in Section 7.1.
"Subsidiary Corporation" means any corporation, other than the Company, in
an unbroken chain of corporations beginning with the Company, if, at the time of
the granting of the Option, each of the corporations, other than the last
corporation in the unbroken chain, owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board and/or the Committee or, if and
to the extent the Board or the Committee designates an executive officer of the
Company to administer the Plan, by such executive officer (each, the "Plan
Administrator"). Any decisions made by the Plan Administrator shall be
applicable equally to all Eligible Employees.
3.2 Administration and Interpretation by the Plan Administrator
Subject to the provisions of the Plan, the Plan Administrator shall have
the authority, in its sole discretion, to determine all matters relating to
Options granted under the Plan, including all terms, conditions, restrictions
and limitations of Options; provided, however, that all Participants granted
Options pursuant to the Plan shall have the same rights and privileges within
the meaning of Code Section 423. The Plan Administrator shall also have
exclusive authority to interpret the
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<PAGE>
Plan and may from time to time adopt, and change, rules and regulations of
general application for the Plan's administration. The Plan Administrator's
interpretation of the Plan and its rules and regulations, and all actions taken
and determinations made by the Plan Administrator pursuant to the Plan, unless
reserved to the Board or the Committee, shall be conclusive and binding on all
parties involved or affected. The Plan Administrator may delegate administrative
duties to such of the Company's other officers or employees as the Plan
Administrator so determines.
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment from time to time as provided in Section 21.1, the
maximum number of shares of Common Stock that shall be available for issuance
under the Plan shall be:
(a) 500,000 shares, plus
(b) an annual increase to be added on the first day of the Company's
fiscal year beginning in 2001 equal to the least of (i) 750,000 shares of Common
Stock; (ii) 2% of the adjusted average common shares outstanding of the Company
used to calculate fully diluted earnings per share as reported in the annual
report to shareholders for the preceding year; or (iii) a lesser amount
determined by the Board; provided, however, that any shares from any increases
in previous years that are not actually issued shall be added to the aggregate
number of shares available for issuance under the Plan. Shares issued under the
Plan shall be drawn from authorized and unissued shares or shares subsequently
acquired by the Company.
SECTION 5. OFFERING DATES
5.1 Offerings
(a) Except as otherwise set forth below, the Plan shall be implemented by
a series of Offerings of 12 months' duration (each, an "Offering"). Offerings
shall commence on February 1 and Auigust 1 of each year and end on the next
January 31 and July 31, respectively, occurring thereafter; provided, however,
that the first Offering shall begin on the day (the "IPO Date") on which shares
of Common Stock are first offered to the public in an underwritten initial
public offering of such Common Stock pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission (such day
being the first trading day for the Common Stock on the Nasdaq National Market,
the New York Stock Exchange or other applicable trading market), and shall end
on January 31, 2001.
(b) Notwithstanding the foregoing, the Plan Administrator may establish
(i) a different term for one or more future Offerings and (ii) different
commencing and ending dates for such future Offerings; provided, however, that
an Offering may not exceed five years; and provided, further, that if the
Purchase Price may be less than 85% of the Fair Market Value of the Common Stock
on the Purchase Date, the Offering may not exceed 27 months.
(c) In the event the first or the last day of an Offering is not a regular
business day, then the first day of the Offering shall be deemed to be the next
regular business day and the last day of the Offering shall be deemed to be the
last preceding regular business day.
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<PAGE>
5.2 Purchase Periods
(a) Each Offering shall consist of two consecutive purchase periods of six
months' duration (each, a "Purchase Period"). The last day of each Purchase
Period shall be the Purchase Date for such Purchase Period. Except as otherwise
set forth below, a Purchase Period shall commence on February 1 and August 1 of
each year and end on the next July 31 and January 31, respectively, occurring
thereafter; provided, however, that the Purchase Period for the first Offering
shall commence on the IPO Date and shall end on July 31, 2000.
(b) Notwithstanding the foregoing, the Plan Administrator may establish
for a future Offering (i) a different term for one or more future Purchase
Periods and (ii) different commencing and ending dates for any such Purchase
Period.
(c) In the event the first or last day of a Purchase Period is not a
regular business day, then the first day of the Purchase Period shall be deemed
to be the next regular business day and the last day of the Purchase Period
shall be deemed to be the last preceding regular business day.
5.3 Governmental Approval; Shareholder Approval
Notwithstanding any other provision of the Plan to the contrary, an Option
granted pursuant to the Plan shall be subject to (a) obtaining all necessary
governmental approvals and qualifications for the Plan, the issuance of Options
and the sale of Common Stock pursuant to the Plan and (b) obtaining shareholder
approval of the Plan.
SECTION 6. PURCHASE PRICE
(a) The purchase price (the "Purchase Price") at which Common Stock may be
acquired in an Offering pursuant to the exercise of all or any portion of an
Option shall be 85% of the lesser of (i) the Fair Market Value of the Common
Stock on the Offering Date of such Offering and (ii) the Fair Market Value of
the Common Stock on the Purchase Date; provided, however, that the Purchase
Price for the first Offering that begins on the IPO Date shall be the lesser of
(A) 100% of the initial public offering price per share of Common Stock, before
underwriters' discounts or concessions, set forth in that certain Underwriting
Agreement between the Company and the representatives of the underwriters and
executed in connection with the Company's initial public offering of the Common
Stock and (B) 85% of the Fair Market Value of the Common Stock on the Purchase
Date.
(b) Notwithstanding the foregoing, if an increase in the number of shares
authorized for issuance under the Plan (other than an annual increase pursuant
to Section 4) is approved and all or a portion of such additional shares are to
be issued during one or more Offerings that are underway at the time of
shareholder approval of such increase (the "Additional Shares"), then, if as of
the date of such shareholder approval, the Fair Market Value of a share of
Common Stock is higher than the Fair Market Value on the Offering Date for any
such Offering, the Purchase Price for the Additional Shares shall be 85% of the
lesser of (i) the Common Stock's Fair Market Value on the date of such
shareholder approval and (ii) the Fair Market Value of the Common Stock on the
Purchase Date.
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<PAGE>
SECTION 7. PARTICIPATION IN THE PLAN
7.1 Initial Participation
An Eligible Employee shall become a Participant on the first Offering Date
after satisfying the eligibility requirements and delivering to the Company
during the enrollment period established by the Plan Administrator (the
"Enrollment Period") a subscription (the "Subscription"):
(a) indicating the Eligible Employee's election to participate in the
Plan;
(b) authorizing payroll deductions and stating the amount to be deducted
regularly from the Participant's pay; and
(c) authorizing the purchase of Common Stock for the Participant in each
Purchase Period.
An Eligible Employee who does not deliver a Subscription as provided above
during the Enrollment Period shall not participate in the Plan for that Offering
or for any subsequent Offering unless such Eligible Employee subsequently
enrolls in the Plan by filing a Subscription with the Company during the
Enrollment Period for such subsequent Offering. The Company may, from time to
time, change the Enrollment Period for a future Offering as deemed advisable by
the Plan Administrator, in its sole discretion, for the proper administration of
the Plan.
Except as provided in Section 7.2, an employee who becomes eligible to
participate in the Plan after an Offering has commenced shall not be eligible to
participate in such Offering but may participate in any subsequent Offering,
provided that such employee is still an Eligible Employee as of the commencement
of any such subsequent Offering. Eligible Employees may not participate in more
than one Offering at a time.
7.2 Alternative Initial Participation
Notwithstanding any other provision of the Plan, the Board or the Committee
may provide for a future Offering that any employee of the Company or any
Designated Subsidiary who first meets the requirements of subparagraphs (b)
through (d) of the paragraph "Eligible Employee" in Section 2 during the course
of an Offering shall, on a date or dates specified in the Offering that coincide
with the day on which such person first meets such requirements or that occurs
on a specified date thereafter, receive an Option under that Offering which
Option shall thereafter be deemed to be a part of that Offering. Such Option
shall have the same characteristics as any Options originally granted under that
Offering, except that
(a) the date on which such Option is granted shall be the "Offering Date"
of such Option for all purposes, including determining the Purchase Price of
such Option; provided, however, that if the Fair Market Value of the Common
Stock on the date on which such Option is granted is less than the Fair Market
Value of Common Stock on the first day of the Offering, then, solely for the
purpose of determining the Purchase Price of such Option, the first day of the
Offering shall be the "Offering Date" for such Option;
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(b) the Purchase Period(s) for such Option shall begin on its Offering
Date and end coincident with the remaining Purchase Date(s) for such Offering;
and
(c) the Board or the Committee may provide that if such person first meets
such requirements within a specified period of time before the end of a Purchase
Period for such Offering, he or she will not receive an Option for that Purchase
Period.
7.3 Continued Participation
A Participant shall automatically participate in the next Offering until
such time as such Participant ceases payroll contributions to the Plan,
withdraws from the Plan pursuant to Section 11.2 or terminates employment as
provided in Section 13.
SECTION 8. LIMITATIONS ON RIGHT TO PURCHASE SHARES
8.1 Number of Shares Purchased
(a) No Participant shall be entitled to purchase Common Stock under the
Plan (or any other employee stock purchase plan that is intended to meet the
requirements of Code Section 423 sponsored by the Company, a Parent Corporation
or a Subsidiary Corporation) with a Fair Market Value exceeding $25,000 (such
value determined as of the Offering Date for each Offering or such other limit
as may be imposed by the Code) in any calendar year in which a Participant
participates in the Plan (or other employee stock purchase plan described in
this Section 8.1).
(b) No Participant shall be entitled to purchase more than 5,000 shares of
Common Stock (or such other number as the Board or the Committee shall specify
for a future Offering) under the Plan in any single Purchase Period.
(c) For a future Offering, the Board or the Committee may specify a
maximum number of shares that may be purchased by any Participant, as well as a
maximum aggregate number of shares that may be purchased by all Participants,
pursuant to such Offering. In addition, for a future Offering with more than one
Purchase Date, the Board or the Committee may specify a maximum aggregate number
of shares that may be purchased by all Participants on any given Purchase Date
under the Offering.
8.2 Pro Rata Allocation
In the event the number of shares of Common Stock that might be purchased
by all Participants exceeds the number of shares of Common Stock available in
the Plan, the Plan Administrator shall make a pro rata allocation of the
remaining shares of Common Stock in as uniform a manner as shall be practicable
and as the Plan Administrator shall determine to be equitable. Fractional shares
may not be issued under the Plan unless the Plan Administrator determines
otherwise for a future Offering.
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SECTION 9. PAYMENT OF PURCHASE PRICE
9.1 General Rules
Subject to Section 9.11, Common Stock that is acquired pursuant to the
exercise of all or any portion of an Option may be paid for only by means of
payroll deductions from the Participant's Eligible Compensation. Except as set
forth in this Section 9, the amount of compensation to be withheld from a
Participant's Eligible Compensation during each pay period shall be determined
by the Participant's Subscription.
9.2 Percent Withheld
The amount of payroll withholding for each Participant for purchases
pursuant to the Plan during any pay period shall be at least 1% but shall not
exceed 20% of the Participant's Eligible Compensation for such pay period (or
such other higher percentage as the Plan Administrator may establish from time
to time for a future Offering). Amounts shall be withheld in whole percentages
only.
9.3 Payroll Deductions
Payroll deductions shall commence on the first payday following the
Offering Date and shall continue through the last payday of the Offering unless
sooner altered or terminated as provided in the Plan.
9.4 Memorandum Accounts
Individual accounts shall be maintained for each Participant for memorandum
purposes only. All payroll deductions from a Participant's compensation shall be
credited to such account but shall be deposited with the general funds of the
Company. All payroll deductions received or held by the Company may be used by
the Company for any corporate purpose.
9.5 No Interest
No interest shall be paid on payroll deductions received or held by the
Company.
9.6 Acquisition of Common Stock
On each Purchase Date of an Offering, each Participant shall automatically
acquire, pursuant to the exercise of the Participant's Option, the number of
shares of Common Stock arrived at by dividing the total amount of the
Participant's accumulated payroll deductions for the Purchase Period by the
Purchase Price; provided, however, that the number of shares of Common Stock
purchased by the Participant shall not exceed the number of whole shares of
Common Stock so determined, unless the Plan Administrator has determined for a
future Offering that fractional shares may be issued under the Plan; and
provided, further, that the number of shares of Common Stock purchased by the
Participant shall not exceed the number of shares for which Options have been
granted to the Participant pursuant to Section 8.1.
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9.7 Refund of Excess Amounts
Any cash balance remaining in the Participant's account at the termination
of each Purchase Period shall be refunded to the Participant as soon as
practical after the Purchase Date without the payment of any interest; provided,
however, that if the Participant participates in the next Purchase Period, any
cash balance remaining in the Participant's account shall be applied to the
purchase of Common Stock in the new Purchase Period, provided such purchase
complies with Section 8.1.
9.8 Withholding Obligations
At the time the Option is exercised, in whole or in part, or at the time
some or all the Common Stock is disposed of, the Participant shall make adequate
provision for federal and state withholding obligations of the Company, if any,
that arise upon exercise of the Option or upon disposition of the Common Stock.
The Company may withhold from the Participant's compensation the amount
necessary to meet such withholding obligations.
9.9 Termination of Participation
No Common Stock shall be purchased on behalf of a Participant on a Purchase
Date if his or her participation in the Plan has terminated on or before such
Purchase Date.
9.10 Procedural Matters
The Company may, from time to time, establish (a) limitations on the
frequency and/or number of any permitted changes in the amount withheld during
an Offering, as set forth in Section 11.1, (b) an exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, (c) payroll withholding
in excess of the amount designated by a Participant in order to adjust for
delays or mistakes in the Company's processing of properly completed withholding
elections, and (d) such other limitations or procedures as deemed advisable by
the Company in the Company's sole discretion that are consistent with the Plan
and in accordance with the requirements of Code Section 423.
9.11 Leaves of Absence
During leaves of absence approved by the Company and meeting the
requirements of the applicable Treasury Regulations promulgated under the Code,
a Participant may elect to continue participation in the Plan by delivering cash
payments to the Company on the Participant's normal paydays equal to the amount
of his or her payroll deduction under the Plan had the Participant not taken a
leave of absence. Currently, the Treasury Regulations provide that a Participant
may continue participation in the Plan only during the first 90 days of a leave
of absence unless the Participant's reemployment rights are guaranteed by
statute or contract.
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SECTION 10. COMMON STOCK PURCHASED UNDER THE PLAN
10.1 ESPP Broker
If the Plan Administrator designates or approves a stock brokerage or other
financial services firm (the "ESPP Broker") to hold shares purchased under the
Plan for the accounts of Participants, the following procedures shall apply.
Promptly following each Purchase Date, the number of shares of Common Stock
purchased by each Participant shall be deposited into an account established in
the Participant's name with the ESPP Broker. Each Participant shall be the
beneficial owner of the Common Stock purchased under the Plan and shall have all
rights of beneficial ownership in such Common Stock. A Participant shall be free
to undertake a disposition of the shares of Common Stock in his or her account
at any time, but, in the absence of such a disposition, the shares of Common
Stock must remain in the Participant's account at the ESPP Broker until the
holding period set forth in Code Section 423 has been satisfied. With respect to
shares of Common Stock for which the holding period set forth above has been
satisfied, the Participant may move those shares of Common Stock to another
brokerage account of the Participant's choosing or request that a stock
certificate be issued and delivered to him or her. Dividends paid in the form of
shares of Common Stock with respect to Common Stock in a Participant's account
shall be credited to such account. A Participant who is not subject to payment
of U.S. income taxes may move his or her shares of Common Stock to another
brokerage account of his or her choosing or request that a stock certificate be
delivered to him or her at any time, without regard to the Code Section 423
holding period.
10.2 Notice of Disposition
By entering the Plan, each Participant agrees to promptly give the Company
notice of any Common Stock disposed of within the later of one year from the
Purchase Date and two years from the Offering Date for such Common Stock,
showing the number of such shares disposed of and the Purchase Date and Offering
Date for such Common Stock. This notice shall not be required if and so long as
the Company has a designated ESPP Broker.
SECTION 11. CHANGES IN WITHHOLDING AMOUNTS AND
VOLUNTARY WITHDRAWAL
11.1 Changes in Withholding Amounts
(a) Unless the Plan Administrator establishes otherwise for a future
Offering, during a Purchase Period, a Participant may elect to reduce payroll
contributions to 0% by completing and filing with the Company an amended
Subscription authorizing cessation of payroll deductions. The change in rate
shall be effective as of the beginning of the next calendar month following the
date of filing the amended Subscription if the amended Subscription is filed at
least ten days prior to such date (the "Change Notice Date") and, if not, as of
the beginning of the next succeeding calendar month. All payroll deductions
accrued by a Participant as of a Change Notice Date shall continue to be applied
toward the purchase of Common Stock on the Purchase Date, unless a Participant
withdraws from the Plan, pursuant to Section 11.2. An amended Subscription shall
remain in effect until the Participant changes such Subscription in accordance
with the terms of the Plan.
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(b) Unless the Plan Administrator determines otherwise for a future
Offering, a Participant may elect to increase or decrease the amount to be
withheld from his or her compensation for future Purchase Periods by filing with
the Company an amended Subscription; provided, however, that notice of such
election must be delivered to the Company at least ten days prior to such
Purchase Period in such form and in accordance with such terms as the Plan
Administrator may establish for an Offering. An amended Subscription shall
remain in effect until the Participant changes such Subscription in accordance
with the terms of the Plan.
(c) Notwithstanding the foregoing, to the extent necessary to comply with
Code Section 423 and Section 8.1, a Participant's payroll deductions may be
decreased to 0% during any Purchase Period if the aggregate of all payroll
deductions accumulated with respect to one or more Purchase Periods ending
within the same calendar year exceeds $25,000 of Fair Market Value of the Common
Stock determined as of the first day of an Offering ($21,250 to the extent the
Purchase Price may be 85% of the Fair Market Value of the Common Stock on the
Offering Date of the Offering). Payroll deductions shall re-commence at the rate
provided in such Participant's Subscription at the beginning of the first
Purchase Period that is scheduled to end in the following calendar year, unless
the Participant terminates participation in the Plan or indicates otherwise in
an amended Subscription.
11.2 Withdrawal From the Plan
A Participant may withdraw from the Plan by completing and delivering to
the Company a written notice of withdrawal on a form provided by the Company for
such purpose. Such notice must be delivered prior to the end of the Purchase
Period for which such withdrawal is to be effective. If a Participant withdraws
after the Purchase Date for a Purchase Period of an Offering, the withdrawal
shall not affect Common Stock acquired by the Participant in any earlier
Purchase Periods. A Participant may not resume participation in the same
Offering at any time upon withdrawal from the Plan, but may participate in any
subsequent Offering under the Plan by again satisfying the definition of
Eligible Employee and re-enrolling in the Plan in accordance with Section 7. The
Company may, from time to time, impose a requirement that the notice of
withdrawal be on file with the Company for a reasonable period prior to the
effectiveness of the Participant's withdrawal.
11.3 Return of Payroll Deductions
Upon withdrawal from the Plan pursuant to Section 11.2, the withdrawing
Participant's accumulated payroll deductions that have not been applied to the
purchase of Common Stock shall be returned as soon as practical after the
withdrawal, without the payment of any interest, to the Participant and the
Participant's interest in the Offering shall terminate. Such accumulated payroll
deductions may not be applied to any other Offering under the Plan.
SECTION 12. AUTOMATIC WITHDRAWAL
If the Fair Market Value of the Common Stock on any Purchase Date of an
Offering is less than the Fair Market Value of the Common Stock on the Offering
Date for such Offering, then every Participant shall automatically (a) be
withdrawn from such Offering at the close of such
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Purchase Date and after the acquisition of the shares of Common Stock for such
Purchase Period and (b) be enrolled in the Offering commencing on the first
business date subsequent to such Purchase Period, provided the Participant is
eligible to participate in the Plan and has not elected to terminate
participation in the Plan pursuant to Section 11.2.
SECTION 13. TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any reason,
including retirement, death or the failure of a Participant to remain an
Eligible Employee, shall immediately terminate the Participant's participation
in the Plan. The payroll deductions credited to the Participant's account since
the last Purchase Date shall, as soon as practical, be returned to the
Participant or, in the case of a Participant's death, to the Participant's legal
representative or designated beneficiary as provided in Section 14.2, and all
the Participant's rights under the Plan shall terminate. Interest shall not be
paid on sums returned to a Participant pursuant to this Section 13.
SECTION 14. RESTRICTIONS ON ASSIGNMENT
14.1 Transferability
An Option granted under the Plan shall not be transferable and such Option
shall be exercisable during the Participant's lifetime only by the Participant.
The Company will not recognize, and shall be under no duty to recognize, any
assignment or purported assignment by a Participant of the Participant's
interest in the Plan, of his or her Option or of any rights under his or her
Option.
14.2 Beneficiary Designation
The Plan Administrator may permit a Participant to designate a beneficiary
who is to receive any shares and cash, if any, from the Participant's account
under the Plan in the event the Participant dies after the Purchase Date for an
Offering but prior to delivery to such Participant of such shares and cash. In
addition, the Plan Administrator may permit a Participant to designate a
beneficiary who is to receive any cash from the Participant's account under the
Plan in the event that the Participant dies before the Purchase Date for an
Offering. Such designation may be changed by the Participant at any time by
written notice to the Company.
SECTION 15. MARKET STANDOFF
In connection with the underwritten initial public offering by the Company
of its Common Stock, neither a Participant nor any beneficiary designated
pursuant to Section 14.2 shall sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose of or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to any Common Stock issued under the Plan for a period
of 180 days after the IPO Date, except that the foregoing provision shall not
apply in the event of the Participant's death or "disability" as that term is
defined in Code Section 22(e)(3).
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In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the Common
Stock effected as a class without the Company's receipt of consideration, any
new, substituted or additional securities distributed with respect to the
purchased Common Stock shall be immediately subject to the provisions of this
Section 15.
In order to enforce the limitations of this Section 15, the Company may
issue stop-transfer instructions to the ESPP Broker and/or the Company's
transfer agent until the end of the period ending 180 days after the IPO Date.
SECTION 16. NO RIGHTS AS SHAREHOLDER UNTIL SHARES ISSUED
With respect to shares of Common Stock subject to an Option, a Participant
shall not be deemed to be a shareholder of the Company, and he or she shall not
have any of the rights or privileges of a shareholder. A Participant shall have
the rights and privileges of a shareholder of the Company when, but not until, a
certificate or its equivalent has been issued to the Participant for the shares
following exercise of the Participant's Option.
SECTION 17. LIMITATIONS ON SALE OF COMMON STOCK PURCHASED UNDER THE PLAN
The Plan is intended to provide Common Stock for investment and not for
resale. The Company does not, however, intend to restrict or influence any
Participant in the conduct of his or her own affairs. A Participant, therefore,
may sell Common Stock purchased under the Plan at any time he or she chooses,
subject to compliance with Section 15, Company policies and any applicable
federal and state securities laws. A Participant assumes the risk of any market
fluctuations in the price of the Common Stock.
SECTION 18. AMENDMENT OR TERMINATION OF THE PLAN
(a) The Board may amend the Plan in such respects as it shall deem
advisable; provided, however, that, to the extent required for compliance with
Code Section 423 or any applicable law or regulation, shareholder approval will
be required for any amendment that will (i) increase the total number of shares
as to which Options may be granted under the Plan, (ii) modify the class of
employees eligible to receive Options, or (iii) otherwise require shareholder
approval under any applicable law or regulation; and provided further, that
except as provided in Section 21 and this Section 18, no amendment to the Plan
shall make any change in any Option previously granted that adversely affects
the rights of any Participant.
(b) The Plan shall continue in effect for ten years after the date of its
adoption by the Board. Notwithstanding the foregoing, the Board may at any time
and for any reason terminate or suspend the Plan. During any period of
suspension or upon termination of the Plan, no Options shall be granted.
(c) Except as provided in Section 21, no such termination of the Plan may
affect Options previously granted, except that the Plan or an Offering may be
terminated by the Board
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on a Purchase Date or by the Board's setting a new Purchase Date with respect to
an Offering and a Purchase Period then in progress if the Board determines that
termination of the Plan and/or the Offering is in the best interests of the
Company and the shareholders or if continuation of the Plan and/or the Offering
would cause the Company to incur adverse accounting charges as a result of a
change after the effective date of the Plan in the generally accepted accounting
rules applicable to the Plan.
SECTION 19. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person (including any
Eligible Employee or Participant) the right to remain in the employ of the
Company or a Parent Corporation or Subsidiary Corporation or to affect the right
of the Company or a Parent Corporation or Subsidiary Corporation to terminate
the employment of any person (including any Eligible Employee or Participant) at
any time with or without cause.
SECTION 20. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent Corporation or
Subsidiary Corporation. Nothing in the Plan shall be construed to limit the
right of the Company, any Parent Corporation or Subsidiary Corporation to (a)
establish any other forms of incentives or compensation for employees of the
Company, a Parent Corporation or Subsidiary Corporation or (b) grant or assume
options otherwise than under the Plan in connection with any proper corporate
purpose, including, but not by way of limitation, the grant or assumption of
options in connection with the acquisition, by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
firm or association.
SECTION 21. ADJUSTMENTS
21.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or kind of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock, then (subject to any required action
by the Company's shareholders), the Board or the Committee, in its sole
discretion, shall make such equitable adjustments as it shall deem appropriate
in the circumstances in (i) the maximum number and kind of shares of Common
Stock subject to the Plan as set forth in Section 4, (ii) the number and kind of
securities that are subject to any outstanding Option and the per share price of
such securities and (iii) the maximum number of shares of Common Stock that may
be purchased by a Participant in a Purchase Period. The determination by the
Board or the Committee as to the terms of any of the foregoing adjustments shall
be conclusive and binding. Notwithstanding the foregoing, a merger, asset sale,
dissolution
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or liquidation of the Company shall not be governed by this Section 21.1 but
shall be governed by Sections 21.2 and 21.3, respectively.
21.2 Corporate Transaction
In the event of a proposed Corporate Transaction, each outstanding Option
shall be assumed or an equivalent option substituted by the successor
corporation or parent thereof (the "Successor Corporation"). In the event that
the Successor Corporation refuses to assume or substitute for the Option, the
Offering then in progress shall be shortened by setting a new Purchase Date. The
new Purchase Date shall be a specified date before the date of the proposed
Corporate Transaction. The Board shall notify each Participant in writing prior
to the new Purchase Date that the Purchase Date for the Participant's Option has
been changed to the new Purchase Date and that the Participant's Option shall be
exercised automatically on the new Purchase Date, unless prior to such date the
Participant has withdrawn from the Plan as provided in Section 11.
21.3 Dissolution or Liquidation of the Company
In the event of the proposed dissolution or liquidation of the Company, the
Offering then in progress shall be shortened by setting a new Purchase Date and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The new
Purchase Date shall be a specified date before the date of the Company's
proposed dissolution or liquidation. The Board shall notify each Participant in
writing, at least ten business days prior to the new Purchase Date, that the
Purchase Date for the Participant's Option has been changed to the new Purchase
Date and that the Participant's Option shall be exercised automatically on the
new Purchase Date, unless prior to such date the Participant has withdrawn from
the Offering or the Plan as provided in Section 11.
21.4 Limitations
The grant of Options shall in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 22. REGISTRATION; CERTIFICATES FOR SHARES
Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue or deliver any shares of Common Stock under the Plan or make
any other distribution of benefits under the Plan unless such issuance, delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act), and the applicable
requirements of any securities exchange or similar entity.
The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such
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restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
To the extent that the Plan or any instrument evidencing shares of Common
Stock provides for issuance of stock certificates to reflect the issuance of
such shares, the issuance may be effected on a noncertificated basis, to the
extent not prohibited by applicable law or the applicable rules of any stock
exchange.
SECTION 23. EFFECTIVE DATE
The Plan's effective date is the date on which it is approved by the
Company's shareholders, which was _______________, _______.
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EXHIBIT 10.23
AVENUE A, INC.
1998 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the Avenue A, Inc. 1998 Stock Incentive Compensation Plan
(the "Plan") is to enhance the long-term shareholder value of Avenue A, Inc., a
Washington corporation (the "Company"), by offering opportunities to employees,
directors, officers, consultants, agents, advisors and independent contractors
of the Company and its Subsidiaries (as defined in Section 2) to participate in
the Company's growth and success, and to encourage them to remain in the service
of the Company and its Subsidiaries and to acquire and maintain stock ownership
in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 Award
"Award" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Stock Awards and Options, or any
combination of the foregoing.
2.2 Board
"Board" means the Board of Directors of the Company.
2.3 Cause
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
2.4 Code
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.5 Common Stock
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
2.6 Corporate Transaction
"Corporate Transaction" means any of the following events:
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(a) Consummation of any merger or consolidation of the Company in
which the Company is not the continuing or surviving corporation, or pursuant to
which shares of the Common Stock are converted into cash, securities or other
property, if following such merger or consolidation the holders of the Company's
outstanding voting securities immediately prior to such merger or consolidation
own less than 51% of the outstanding voting securities of the surviving
corporation;
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all of
the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary corporation (as the term "subsidiary corporation" is
defined in Section 8.3) of the Company; or
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
2.7 Disability
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.8 Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.9 Fair Market Value
The "Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the closing selling price for the Common Stock as reported by the Nasdaq
National Market for a single trading day or (b) if the Common Stock is listed on
the New York Stock Exchange or the American Stock Exchange, the closing selling
price for the Common Stock as such price is officially quoted in the composite
tape of transactions on such exchange for a single trading day. If there is no
such reported price for the Common Stock for the date in question, then such
price on the last preceding date for which such price exists shall be
determinative of the Fair Market Value.
2.10 Good Reason
"Good Reason" means the occurrence of any of the following events or
conditions and the failure of the Successor Corporation to cure such event or
condition within 30 days after receipt of written notice from the Participant:
(a) a change in the Participant's status, title, position or
responsibilities (including reporting responsibilities) that, in the
Participant's reasonable judgment, represents a substantial reduction in the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Participant of any duties or responsibilities
that, in the Participant's reasonable judgment, are materially inconsistent with
such status, title, position or responsibilities; or any removal of the
Participant from or failure to reappoint or reelect the Participant to any of
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such positions, except in connection with the termination of the Participant's
employment for Cause, for Disability or as a result of his or her death, or by
the Participant other than for Good Reason;
(b) a reduction in the Participant's annual base salary;
(c) the Successor Corporation's requiring the Participant (without the
Participant's consent) to be based at any place outside a 35-mile radius of his
or her place of employment prior to a Corporate Transaction, except for
reasonably required travel on the Successor Corporation's business that is not
materially greater than such travel requirements prior to the Corporate
Transaction;
(d) the Successor Corporation's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent thereof) in
which the Participant was participating at the time of a Corporate Transaction,
including, but not limited to, the Plan, or (ii) provide the Participant with
compensation and benefits substantially equivalent (in terms of benefit levels
and/or reward opportunities) to those provided for under each material employee
benefit plan, program and practice as in effect immediately prior to the
Corporate Transaction;
(e) any material breach by the Successor Corporation of its
obligations to the Participant under the Plan or any substantially equivalent
plan of the Successor Corporation; or
(f) any purported termination of the Participant's employment or
services for Cause by the Successor Corporation that does not comply with the
terms of the Plan or any substantially equivalent plan of the Successor
Corporation.
2.11 Grant Date
"Grant Date" means the date the Plan Administrator adopted the granting
resolution or a later date designated in a resolution of the Plan Administrator
as the date an Award is to be granted.
2.12 Incentive Stock Option
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
2.13 Nonqualified Stock Option
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
2.14 Option
"Option" means the right to purchase Common Stock granted under Section 7.
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2.15 Participant
"Participant" means (a) the person to whom an Award is granted; (b) for a
Participant who has died, the personal representative of the Participant's
estate, the person(s) to whom the Participant's rights under the Award have
passed by will or by the applicable laws of descent and distribution, or the
beneficiary designated in accordance with Section 10; or (c) person(s) to whom
an Award has been transferred in accordance with Section 10.
2.16 Plan Administrator
"Plan Administrator" means the Board and/or any committee of the Board
designated to administer the Plan under Section 3.1.
2.17 Securities Act
"Securities Act" means the Securities Act of 1933, as amended.
2.18 Stock Award
"Stock Award" means shares of Common Stock or units denominated in Common
Stock granted under Section 9, the rights of ownership of which may be subject
to restrictions prescribed by the Plan Administrator.
2.19 Subsidiary
"Subsidiary," except as provided in Section 8.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.
2.20 Successor Corporation
"Successor Corporation" has the meaning set forth under Section 11.2.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board and/or a committee or
committees (which term includes subcommittees) appointed by, and consisting of
two or more members of, the Board. If and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, the Board shall
consider in selecting the Plan Administrator and the membership of any committee
acting as Plan Administrator, with respect to any persons subject or likely to
become subject to Section 16 of the Exchange Act, the provisions regarding (a)
"outside directors" as contemplated by Section 162(m) of the Code and (b)
"nonemployee directors" as contemplated by Rule 16b-3 under the Exchange Act.
The Board may delegate the responsibility for administering the Plan with
respect to designated classes of eligible persons to different committees
consisting of two or more members of the Board, subject to such limitations as
the
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Board deems appropriate. Committee members shall serve for such term as the
Board may determine, subject to removal by the Board at any time.
3.2 Administration and Interpretation by the Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 11.1, a
maximum of 9,250,000 shares of Common Stock shall be available for issuance
under the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares or shares now held or subsequently acquired by the Company.
4.2 Reuse of Shares
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
SECTION 6. AWARDS
6.1 Form and Grant of Awards
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not
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limited to, Incentive Stock Options, Nonqualified Stock Options and Stock
Awards. Awards may be granted singly or in combination.
6.2 Settlement of Awards
The Company may settle Awards through the delivery of shares of Common
Stock, cash payments, the granting of replacement Awards or any combination
thereof as the Plan Administrator shall determine. Any Award settlement,
including payment deferrals, may be subject to such conditions, restrictions and
contingencies as the Plan Administrator shall determine. The Plan Administrator
may permit or require the deferral of any Award payment, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest, or dividend equivalents, including converting such
credits into deferred stock equivalents. The Plan Administrator may at any time
offer to buy out, for a payment in cash or Common Stock, an Award previously
granted based on such terms and conditions as the Plan Administrator shall
establish and communicate to the Participant at the time such offer is made.
6.3 Acquired Company Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
awards shall be deemed to be Participants.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall not be less
than 100% of the Fair Market Value of the Common Stock on the Grant Date with
respect to both Incentive Stock Options and Nonqualified Stock Options. For
Incentive Stock Options granted to a more than 10% shareholder, the Option
exercise price shall be as specified in Section 8.2.
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7.3 Term of Options
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date. For Incentive
Stock Options, the maximum Option term shall be as specified in Sections 8.2 and
8.4.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option shall vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:
<TABLE>
<CAPTION>
Period of Participant's Continuous Employment or
Service With the Company or Its Subsidiaries Percent of Total Option
From the Grant Date That Is Vested and Exercisable
- ----------------------------------------------------- -----------------------------------
<S> <C>
After 1 year 20%
Each quarter thereafter an additional 6.66%
After 4 years 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5. The Plan
Administrator may determine at any time that an Option may not be exercised as
to less than 100 shares at any one time (or the lesser number of remaining
shares covered by the Option).
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either actually
or, if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned by the
Participant for at least six months (or any shorter period necessary to avoid a
charge to the Company's earnings for financial reporting purposes) having a Fair
Market Value on the day prior to the exercise date equal to the aggregate Option
exercise price or (b) if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the
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Company the aggregate amount of sale or loan proceeds to pay the Option exercise
price and any withholding tax obligations that may arise in connection with the
exercise and (ii) the Company to deliver the certificates for such purchased
shares directly to such brokerage firm, all in accordance with the regulations
of the Federal Reserve Board. In addition, the exercise price for shares
purchased under an Option may be paid, either singly or in combination with one
or more of the alternative forms of payment authorized by this Section 7.5, by
such other consideration as the Plan Administrator may permit.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option shall continue to be exercisable,
and the terms and conditions of such exercise, if a Participant ceases to be
employed by, or to provide services to, the Company or its Subsidiaries, which
provisions may be waived or modified by the Plan Administrator at any time. If
not so established in the instrument evidencing the Option, the Option shall be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.
In case of termination of the Participant's employment or services with the
Company other than by reason of death or Cause, the Option shall be exercisable,
to the extent of the number of shares purchasable by the Participant at the date
of such termination, only (a) within one year after the date of such termination
if the termination is coincident with Disability or (b) within three months
after the date of such termination if the termination is for any reason other
than Disability, but in no event later than the remaining term of the Option.
Any Option exercisable at the time of the Participant's death may be exercised,
to the extent of the number of shares purchasable by the Participant at the date
of the Participant's death, by the personal representative of the Participant's
estate, the person(s) to whom the Participant's rights under the Option have
passed by will or the applicable laws of descent and distribution or the
beneficiary designated pursuant to Section 10 at any time or from time to time
within one year after the date of death, but in no event later than the
remaining term of the Option. Any portion of an Option that is not exercisable
on the date of termination of the Participant's employment or services shall
terminate on such date, unless the Plan Administrator determines otherwise. In
case of termination of the Participant's employment or services for Cause, the
Option shall automatically terminate upon first notification to the Participant
of such termination, unless the Plan Administrator determines otherwise. If a
Participant's employment or services with the Company are suspended pending an
investigation of whether the Participant shall be terminated for Cause, all the
Participant's rights under any Option likewise shall be suspended during the
period of investigation.
A transfer of employment or services between or among the Company and its
Subsidiaries shall not be considered a termination of employment or services.
The effect of a Company-approved leave of absence on the terms and conditions of
an Option shall be determined by the Plan Administrator, in its sole discretion.
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7.7 Forfeiture Conditions
In case of (a) termination of the Participant's employment for Cause, (b)
the Participant's breach of such restrictive covenants (e.g., noncompetition and
confidentiality restrictions) as may apply to the Participant, or (c) the
Participant's having engaged in an activity that is detrimental to the Company
(including, without limitation, criminal activity or accepting employment or
serving as a consultant, advisor, or in any other capacity with a competitor of
the Company), the Plan Administrator may impose conditions of forfeiture on a
Participant's rights with respect to an Option. Such conditions of forfeiture
may include, in the discretion of the Plan Administrator, (i) suspension or
cancellation of the Participant's right to exercise an Option (whether or not
then otherwise exercisable) or (ii) within the period of six months following
the issuance of shares of Common Stock pursuant to an Award either (y)
cancellation of the shares so issued (and repayment to the Participant of the
full purchase price, if any, paid for such shares) or (z) requiring the
Participant to pay to the Company in cash an amount equal to the gain realized
by the Participant upon exercise of such Option (measured at the date of
exercise) or the receipt of such Award. Notwithstanding the foregoing, this
Section 7.7 shall be of no force and effect in the event of a Corporate
Transaction.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the
event the Participant holds two or more such Options that become exercisable for
the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.
8.2 10% Shareholders
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
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8.4 Term
The term of an Incentive Stock Option shall not exceed 10 years.
8.5 Exercisability
To qualify for Incentive Stock Option tax treatment, an Option designated
as an Incentive Stock Option must be exercised within three months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total disability, such Option must be
exercised within one year after such termination. Employment shall not be
deemed to continue beyond the first 90 days of a leave of absence unless the
Participant's reemployment rights are guaranteed by statute or contract. For
purposes of this Section 8.5, "total disability" shall mean a mental or physical
impairment of the Participant that is expected to result in death or that has
lasted or is expected to last for a continuous period of 12 months or more and
that causes the Participant to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company and to be
engaged in any substantial gainful activity. Total disability shall be deemed
to have occurred on the first day after the Company and the two independent
physicians have furnished their opinion of total disability to the Plan
Administrator.
8.6 Taxation of Incentive Stock Options
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two years after the Grant Date of
the Incentive Stock Option and one year from the date of exercise. A
Participant may be subject to the alternative minimum tax at the time of
exercise of an Incentive Stock Option. The Plan Administrator may require a
Participant to give the Company prompt notice of any disposition of shares
acquired by the exercise of an Incentive Stock Option prior to the expiration of
such holding periods.
SECTION 9. STOCK AWARDS
9.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common Stock or
Awards denominated in units of Common Stock on such terms and conditions and
subject to such restrictions, if any (which may be based on continuous service
with the Company or the achievement of performance goals) as the Plan
Administrator shall determine, in its sole discretion, which terms, conditions
and restrictions shall be set forth in the instrument evidencing the Award. The
terms, conditions and restrictions that the Plan Administrator shall have the
power to determine shall include, without limitation, the manner in which shares
subject to Stock Awards are held during the periods they are subject to
restrictions and the circumstances under which forfeiture of the Stock Award
shall occur by reason of termination of the Participant's employment or service
relationship.
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9.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Participant's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the
Participant or, in the case of the Participant's death, to the personal
representative of the Participant's estate or as the appropriate court directs,
the appropriate number of shares of Common Stock.
9.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Stock Award under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 10. ASSIGNABILITY
Awards granted under the Plan may not be assigned, pledged or transferred
by the Participant other than by will or by the applicable laws of descent and
distribution, and, during the Participant's lifetime, such Awards may be
exercised only by the Participant or a permitted assignee or transferee of the
Participant (as provided below). Notwithstanding the foregoing, and to the
extent permitted by Section 422 of the Code, the Plan Administrator, in its sole
discretion, may permit such assignment, transfer and exercisability and may
permit a Participant to designate a beneficiary who may exercise the Award or
receive compensation under the Award after the Participant's death; provided,
however, that any Award so assigned or transferred shall be subject to all the
same terms and conditions contained in the instrument evidencing the Award.
SECTION 11. ADJUSTMENTS
11.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1 and (ii) the
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms
of any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a Corporate Transaction shall not be governed by
this Section 11.1 but shall be governed by Section 11.2.
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11.2 Corporate Transaction
(a) Except as otherwise provided in the instrument that evidences the
Option, in the event of any Corporate Transaction, each Option that is at the
time outstanding shall automatically accelerate so that each such Option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become 100% vested and exercisable.
(b) Such Option shall not so accelerate, however, if and to the extent that
such Option is, in connection with the Corporate Transaction, either to be
assumed by the successor corporation or parent thereof (the "Successor
Corporation") or to be replaced with a comparable award for the purchase of
shares of the capital stock of the Successor Corporation. The determination of
Option comparability shall be made by the Plan Administrator, and its
determination shall be conclusive and binding. Any such Options granted to an
"executive officer" (as that term is defined for purposes of Section 16 of the
Exchange Act) of the Company that are assumed or replaced in the Corporate
Transaction and do not otherwise accelerate at that time shall be accelerated in
the event that the Participant's employment or services subsequently terminate
within two years following such Corporate Transaction, unless such employment or
services are terminated by the Successor Corporation for Cause or by the
Participant voluntarily without Good Reason. Such acceleration shall not occur
if, in the opinion of the Company's outside accountants, it would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment.
(c) All such Options shall terminate and cease to remain outstanding
immediately following the consummation of the Corporate Transaction, except to
the extent assumed by the Successor Corporation.
11.3 Further Adjustment of Options
Subject to Section 11.2, the Plan Administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the Plan
Administrator, to take such further action as it determines to be necessary or
advisable, and fair and equitable to Participants, with respect to Awards. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Options so as to provide for earlier, later, extended or additional time for
exercise and other modifications, and the Plan Administrator may take such
actions with respect to all Participants, to certain categories of Participants
or only to individual Participants. The Plan Administrator may take such action
before or after granting Awards to which the action relates and before or after
any public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or change in control that is the reason for such
action.
11.4 Limitations
The grant of Awards shall in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
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SECTION 12. WITHHOLDING
The Company may require the Participant to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant, vesting or exercise of any Award. Subject to the Plan and applicable
law, the Plan Administrator may, in its sole discretion, permit the Participant
to satisfy withholding obligations, in whole or in part, by paying cash, by
electing to have the Company withhold shares of Common Stock or by transferring
shares of Common Stock to the Company, in such amounts as are equivalent to the
Fair Market Value of the withholding obligation. The Company shall have the
right to withhold from any Award or any shares of Common Stock issuable pursuant
to an Award or from any cash amounts otherwise due or to become due from the
Company to the Participant an amount equal to such taxes. The Company may also
deduct from any Award any other amounts due from the Participant to the Company
or a Subsidiary.
SECTION 13. REPURCHASE AND FIRST REFUSAL RIGHTS
13.1 Repurchase Rights
The Plan Administrator shall have the discretion to authorize the issuance
of unvested shares of Common Stock pursuant to the exercise of an Option.
Should the Participant cease to be employed by or provide services to the
Company, then all shares of Common Stock issued upon exercise of an Option which
are unvested at the time of cessation of employment or services shall be subject
to repurchase at the exercise price paid for such shares. The terms and
conditions upon which such repurchase right shall be exercisable (including the
period and procedure for exercise) shall be established by the Plan
Administrator and set forth in the agreement evidencing such right.
All of the Company's outstanding repurchase rights under this Section 13.1
are assignable by the Company at any time. Such rights shall automatically
terminate, and all shares subject to such terminated rights shall immediately
vest in full, upon the occurrence of a Corporate Transaction, except to the
extent: (a) any such repurchase right is expressly assigned to the Successor
Corporation in connection with the Corporate Transaction or (b) such termination
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
The Plan Administrator shall have the discretionary authority, exercisable
either before or after the Participant's cessation of employment or services, to
cancel the Company's outstanding repurchase rights with respect to one or more
shares purchased or purchasable by the Participant under an Option and thereby
accelerate the vesting of such shares in whole or in part at any time.
13.2 First Refusal Rights
Until the date on which the initial registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act first becomes effective, the Company
shall have the right of first refusal with respect to any proposed sale or other
disposition by the holder of any shares of Common Stock issued pursuant to an
Award granted under the Plan. Such right of first refusal
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shall be exercisable in accordance with the terms and conditions established by
the Plan Administrator and set forth in the agreement evidencing such right.
SECTION 14. MARKET STANDOFF
In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company's initial public offering, a person
shall not sell, or make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose of transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to,
any shares issued pursuant to an Award granted under the Plan without the prior
written consent of the Company or its underwriters. Such limitations shall be
in effect for such period of time as may be requested by the Company or such
underwriters and agreed to by the Company's officers and directors with respect
to their shares; provided, however, that in no event shall such period exceed
180 days. The limitations of this paragraph shall in all events terminate two
years after the effective date of the Company's initial public offering.
Holders of shares issued pursuant to an Award granted under the Plan shall be
subject to the market standoff provisions of this paragraph only if the officers
and directors of the Company are also subject to similar arrangements.
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 14, to the same extent the purchased shares are
at such time covered by such provisions.
In order to enforce the limitations of this Section 14, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.
SECTION 15. AMENDMENT AND TERMINATION OF PLAN
15.1 Amendment of Plan
The Plan may be amended only by the Board in such respects as it shall deem
advisable; however, to the extent required for compliance with Section 422 of
the Code or any applicable law or regulation, shareholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Awards may be granted under the Plan, (b) modify the class of persons
eligible to receive Options, or (c) otherwise require shareholder approval under
any applicable law or regulation.
15.2 Termination of Plan
The Board may suspend or terminate the Plan at any time. The Plan shall
have no fixed expiration date; provided, however, that no Incentive Stock
Options may be granted more than 10 years after the earlier of the Plan's
adoption by the Board and approval by the shareholders.
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15.3 Consent of Participant
The amendment or termination of the Plan or the amendment of an outstanding
Award shall not, without the consent of the Participant, impair or diminish any
rights or obligations under any Award theretofore granted under the Plan;
provided, however, that adjustments made pursuant to Section 11 shall not be
subject to these restrictions.
Any change or adjustment to an outstanding Incentive Stock Option shall
not, without the consent of the Participant, be made in a manner so as to
constitute a "modification" that would cause such Incentive Stock Option to fail
to continue to qualify as an Incentive Stock Option.
SECTION 16. FOREIGN PARTICIPATION
To the extent the Plan Administrator deems it necessary, appropriate or
desirable to comply with foreign law or practice and to further the purpose of
this Plan, the Plan Administrator may, without amending this Plan, (a) establish
special rules applicable to Awards granted to Participants who are foreign
nationals, are employed outside the United States, or both, including rules that
differ from those set forth in this Plan, and (b) grant Awards to such
Participants in accordance with those rules.
SECTION 17. GENERAL
17.1 Evidence of Awards
Awards granted under the Plan shall be evidenced by a written instrument
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
17.2 Continued Employment or Services; Rights in Awards
None of the Plan, participation in the Plan or any action of the Plan
Administrator taken under the Plan shall be construed as giving any person any
right to be retained in the employ of the Company or limit the Company's right
to terminate the employment or services of any person.
17.3 Registration
The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and
-15-
<PAGE>
sale of any shares hereunder shall relieve the Company of any liability in
respect of the nonissuance or sale of such shares as to which such requisite
authority shall not have been obtained.
As a condition to the exercise of an Option or the receipt of Common Stock
pursuant to an Award under the Plan, the Company may require the Participant to
represent and warrant at the time of any such exercise or receipt that such
shares are being purchased or received only for the Participant's own account
and without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
relevant provision of the aforementioned laws. At the option of the Company, a
stop-transfer order against any such shares may be placed on the official stock
books and records of the Company, and a legend indicating that such shares may
not be pledged, sold or otherwise transferred, unless an opinion of counsel is
provided (concurred in by counsel for the Company) stating that such transfer is
not in violation of any applicable law or regulation, may be stamped on stock
certificates to ensure exemption from registration. The Plan Administrator may
also require such other action or agreement by the Participant as may from time
to time be necessary to comply with the federal and state securities laws.
17.4 No Rights as a Shareholder
No Option or Stock Award denominated in units shall entitle the Participant
to any cash dividend, voting or other right of a shareholder unless and until
the date of issuance under the Plan of the shares that are the subject of such
Award, free of all applicable restrictions.
17.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Participants who are officers or
directors subject to Section 16 of the Exchange Act without so restricting,
limiting or conditioning the Plan with respect to other Participants.
Additionally, in interpreting and applying the provisions of the Plan, any
Option granted as an Incentive Stock Option pursuant to the Plan shall, to the
extent permitted by law, be construed as an "incentive stock option" within the
meaning of Section 422 of the Code.
17.6 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
17.7 Severability
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or
-16-
<PAGE>
deemed amended to conform to applicable laws, or, if it cannot be so construed
or deemed amended without, in the Plan Administrator's determination, materially
altering the intent of the Plan or the Award, such provision shall be stricken
as to such jurisdiction, person or Award, and the remainder of the Plan and any
such Award shall remain in full force and effect.
SECTION 18. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
Adopted by the Board on June 23, 1998 and approved by the Company's
shareholders on July 13, 1998 and originally named the 1998 Stock Option Plan.
-17-
<PAGE>
APPENDIX A FOR CALIFORNIA RESIDENTS
TO THE AVENUE A, INC.
1998 STOCK INCENTIVE COMPENSATION PLAN
This Appendix to the Avenue A, Inc. 1998 Stock Incentive Compensation Plan
(the "Plan") shall have application only to Participants who are residents of
the State of California. Capitalized terms contained herein shall have the same
meanings given to them in the Plan, unless otherwise provided in this Appendix.
Notwithstanding any provision contained in the Plan to the contrary and to the
extent required by applicable law, the following terms and conditions shall
apply to all Awards granted to residents of the State of California, until such
time as the Common Stock becomes a "listed security" under the Securities Act:
1. Nonqualified Stock Options shall have an exercise price that is not
less than 85% of the Fair Market Value of the stock at the time the Option is
granted, as determined by the Board, except that the exercise price shall be
110% of the Fair Market Value in the case of any person who owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or its parent or subsidiary corporations.
2. The purchase price for any Stock Awards that may be purchased under the
Plan ("Stock Purchase Rights") shall be at least 85% of the Fair Market Value of
the Common Stock at the time the Participant is granted the Stock Purchase Right
or at the time the purchase is consummated. Notwithstanding the foregoing, the
purchase price shall be 100% of the Fair Market Value of the Common Stock at the
time the Participant is granted the Stock Purchase Right or at the time the
purchase is consummated in the case of any person who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or its parent or subsidiary corporations.
3. Options shall have a term of not more than ten years from the date the
Option is granted.
4. Awards shall be nontransferable other than by will or the laws of
descent and distribution. Notwithstanding the foregoing, and to the extent
permitted by Section 422 of the Code, the Plan Administrator, in its discretion,
may permit distribution of an Option to an inter vivos or testamentary trust in
which the Option is to be passed to beneficiaries upon the death of the trustor
(settlor), or by gift to "immediate family" as that term is defined in Rule 16a-
1(e) of the Exchange Act.
5. Options shall become exercisable at the rate of at least 20% per year
over five years from the date the Option is granted, subject to reasonable
conditions such as continued employment. However, in the case of an Option
granted to officers, directors or consultants of the Company or any of its
affiliates, the Option may become fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company or any of its affiliates.
-1-
<PAGE>
6. Unless employment is terminated for Cause, the right to exercise an
Option in the event of termination of employment, to the extent that the
Participant is otherwise entitled to exercise an Option on the date employment
terminates, shall be
a. at least six months from the date of termination of
employment if termination was caused by death or Disability; and
b. at least 30 days from the date of termination if termination
of employment was caused by other than death or Disability;
c. but in no event later than the remaining term of the Option.
7. No Award may be granted to a resident of California more than ten years
after the earlier of the date of adoption of the Plan and the date the Plan is
approved by the shareholders.
8. Any Award exercised before shareholder approval is obtained shall be
rescinded if shareholder approval is not obtained within 12 months before or
after the Plan is adopted. Such shares shall not be counted in determining
whether such approval is obtained.
9. The Company shall provide annual financial statements of the Company to
each California resident holding an outstanding Award under the Plan. Such
financial statements need not be audited and need not be issued to key employees
whose duties at the Company assure them access to equivalent information.
-2-
<PAGE>
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
<TABLE>
<CAPTION>
Date of
Adoption/
Amendment/ Date of Shareholder
Adjustment Section Effect of Amendment Approval
- ---------------------- ----------------------- ----------------------- ---------------------
<S> <C> <C> <C>
Adoption by Board on July 13, 1998
6/23/98
Plan amended and Added availability of Section 4.1 and
restated by Board on stock awards, California appendix
November 16, 1999 increased authorized approved on _______,
shares to 5,000,000 1999
and added California
appendix
</TABLE>
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<PAGE>
EXHIBIT 10.24
--------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
AVENUE A, INC.
--------------------------------------------------------------
1
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
1. ACCOUNTING AND OTHER TERMS................................................................ 4
--------------------------
2. LOAN AND TERMS OF PAYMENT................................................................. 4
-------------------------
2.1 Credit Extensions................................................................ 4
2.2 Interest Rate, Payments.......................................................... 4
2.3 Fees............................................................................. 4
3. CONDITIONS OF LOANS....................................................................... 5
-------------------
3.1 Conditions Precedent to Initial Credit Extension................................. 5
3.2 Conditions Precedent to All Credit Extension..................................... 5
4. CREATION OF SECURITY INTEREST............................................................. 5
4.1 Grant of Security Interest....................................................... 5
5. REPRESENTATIONS AND WARRANTIES............................................................ 5
------------------------------
5.1. Due Organization and Authorization............................................... 5
5.2 Collateral....................................................................... 5
5.3. Litigation....................................................................... 5
5.4 No Material Adverse Change in Financial Statements............................... 6
5.5 Solvency......................................................................... 6
5.6 Regulatory Compliance............................................................ 6
5.7 Subsidiaries..................................................................... 6
5.8 Full Disclosure.................................................................. 6
6. AFFIRMATIVE COVENANTS..................................................................... 6
---------------------
6.1 Government Compliance............................................................ 6
6.2 Financial Statements, Reports, Certificates...................................... 6
6.3 Taxes............................................................................ 7
6.4 Insurance........................................................................ 7
6.5 Primary Accounts................................................................. 7
6.6 Financial Covenants.............................................................. 7
6.7 Further Assurances............................................................... 7
7. NEGATIVE COVENANTS........................................................................ 8
------------------
7.1 Dispositions..................................................................... 8
7.2 Changes in Business, Ownership, Management or Business Locations................. 8
7.3 Mergers or Acquisitions.......................................................... 8
7.4 Indebtedness..................................................................... 8
7.5 Distributions; Investments....................................................... 8
7.6 Transactions with Affiliates..................................................... 8
7.7 Subordinated Debt................................................................ 8
7.8 Compliance....................................................................... 8
8. EVENTS OF DEFAULT......................................................................... 8
-----------------
8.1 Payment Default.................................................................. 9
8.2 Covenant Default................................................................. 9
8.3. Material Adverse Change.......................................................... 9
8.4 Attachment....................................................................... 9
8.5 Attachment....................................................................... 9
8.5 Insolvency....................................................................... 9
8.6 Other Agreements................................................................. 9
</TABLE>
2
<PAGE>
<TABLE>
<S> <C> <C>
8.7 Judgments........................................................................ 9
8.8 Misrepresentations............................................................... 9
9. BANK'S RIGHTS AND REMEDIES................................................................ 10
--------------------------
9.1 Rights and Remedies.............................................................. 10
9.2 Power of Attorney................................................................ 10
9.3 Bank Expenses.................................................................... 10
9.4 Bank's Liability for Collateral.................................................. 10
9.5 Remedies Cumulative.............................................................. 10
9.6 Demand Waiver.................................................................... 11
10. NOTICES................................................................................... 11
-------
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER................................................ 11
------------------------------------------
12. GENERAL PROVISIONS........................................................................ 11
------------------
12.1 Successors and Assigns........................................................... 11
12.2 Indemnification.................................................................. 11
12.3 Time of Essence.................................................................. 11
12.4 Severability of Provision........................................................ 11
12.5 Amendments in Writing, Integration............................................... 11
12.6 Counterparts..................................................................... 12
12.7 Survival......................................................................... 12
12.8 Confidentiality.................................................................. 12
12.9 Attorneys' Fees, Costs and Expenses.............................................. 12
13. DEFINITIONS............................................................................... 12
-----------
13.1 Definitions...................................................................... 12
</TABLE>
3
<PAGE>
This LOAN AND SECURITY AGREEMENT dated May 25, 1999, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 with a loan production office located at 915 118th Ave. S.E.,
Ste. 250, Bellevue, Washington 98005 and AVENUE A, INC. ("Borrower"), whose
address is 1100 Olive Way, Suite 1270, Seattle, Washington 98101 provides the
terms on which Bank will lend to Borrower and Borrower will repay Bank. The
parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
--------------------------
Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Credit Extensions.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 Equipment Advances.
(a) Through November 25, 1999 (the "Equipment Availability End Date"),
Bank will make advances ("Equipment Advance" and, collectively, "Equipment
Advances") not exceeding the Committed Equipment Line. The Equipment Advances
may only be used to finance Equipment and may not exceed 100% of the equipment
invoice excluding taxes, shipping, warranty charges, freight discounts and
installation expense. The invoices must be dated no earlier than 90 days prior
to the date of the Equipment Advance. Notwithstanding the foregoing, Borrower's
initial Equipment Advance may include invoices dated as early as 180 days before
the date of the Equipment Advance.
(b) Interest accrues from the date of each Equipment Advance at the
rate in Section 2.2((a)) and is payable monthly until the Equipment Availability
End Date occurs. Equipment Advances outstanding on the Equipment Availability
End Date are payable in 36 equal monthly installments of principal, plus accrued
interest, beginning on the 25th of each month following the Equipment
Availability End Date and ending on November 25, 2002 (the "Equipment Maturity
Date"). Equipment Advances when repaid may not be reborrowed.
(c) To obtain an Equipment Advance, Borrower will deliver an
Advance/Payment Form signed by a Responsible Officer of Borrower, a completed
UCC Financing Statement covering the Equipment to be purchased, together with
the invoice for the Equipment to be purchased and such additional information as
Bank may request at least 1 Business Day before the day on which the Equipment
Advance is to be made.
2.2 Interest Rate, Payments.
(a) Interest Rate. Equipment Advances accrue interest on the
outstanding principal balance at a per annum rate of 1 percentage points above
the Prime Rate. After an Event of Default, Obligations accrue interest at 5
percent above the rate effective immediately before the Event of Default. The
interest rate increases or decreases when the Prime Rate changes. Interest is
computed on a 360 day year for the actual number of days elapsed.
(b) Payments. Interest due on the Equipment Advances is payable on the
25th of each month. Bank may debit any of Borrower's deposit accounts including
Account Number______________________________ for principal and interest payments
owing or any amounts Borrower owes Bank. Bank will promptly notify Borrower when
it debits Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
2.3 Fees.
Borrower will pay:
4
<PAGE>
(a) Facility Fee. A fully earned, non-refundable Facility Fee of $2,500
due on the Closing Date; and Bank Expenses. All Bank Expenses (including
reasonable attorneys' fees and reasonable expenses) incurred through and after
the date of this Agreement, are payable when due.
3 CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Credit Extension.
Bank's obligation to make the initial Credit Extension is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.
3.2 Conditions Precedent to All Credit Extensions.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form, together with an
invoice; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
of Section 5 remain true.
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.
5 REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Authorization.
Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified, except where the failure to do so could
not reasonably be expected to cause a Material Adverse Change.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause reasonably be expected to cause a
Material Adverse Change.
5.2 Collateral.
Borrower has good title to the Collateral, free of Liens except Permitted
Liens.
5.3 Litigation.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to the knowledge or Borrower's Responsible Officers and legal
counsel, threatened by or against Borrower or any Subsidiary in which an adverse
decision could reasonably be expected to cause a Material Adverse Change.
5
<PAGE>
5.4 No Material Adverse Change an Financial Statements.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 Solvency.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 Regulatory Compliance.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Change.
5.7 Subsidiaries.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 Full Disclosure.
No written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank (taken together with all such
written certificates and written statements to Bank)contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading. It
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected and forecasted results.
6 AFFIRMATIVE COVENANTS
---------------------
Borrower will do all of the following:
6.1 Government Compliance.
Borrower will maintain its and all Subsidiaries' legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
cause a material adverse effect on Borrower's business or operations. Borrower
will comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower's business or operations or would reasonably
be expected to cause a Material Adverse Change.
6.2 Financial Statements, Reports, Certificates.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month (or quarter after Borrower
completes an initial public offering "IPO"), a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during the period, in a form and certified by a Responsible Officer acceptable
to Bank; (ii) as soon as available, but no later than 90 days after the last day
of Borrower's fiscal year, audited consolidated financial statements prepared
under GAAP, consistently applied,
6
<PAGE>
together with an unqualified opinion on the financial statements from an
independent certified public accounting firm reasonably acceptable to Bank;
(iii) a prompt report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of $100,000 or more; and (iv) budgets, sales projections,
operating plans or other financial information Bank requests.
(b) Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit C; provided, however,
that following such date as Borrower completes the IPO, such Compliance
Certificates shall be due to Bank within 30 days after the end of each quarter.
(c) Bank has the right to audit Borrower's Collateral at such time as
an Event of Default has occurred and is continuing.
6.3 Taxes.
Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments and will deliver to
Bank, on demand, appropriate certificates attesting to the payment.
6.4 Insurance.
Borrower will keep its business and the Collateral insured for risks and
in amounts, as Bank may reasonably request. Insurance policies will be in a
form, with companies, and in amounts that are satisfactory to Bank. All property
policies will have a lender's loss payable endorsement showing Bank as an
additional loss payee and all liability policies will show the Bank as an
additional insured and provide that the insurer must give Bank at least 20 days
notice before canceling its policy. At Bank's request, Borrower will deliver
certified copies of policies and evidence of all premium payments. Proceeds
payable under any policy will, at Bank's option, be payable to Bank on account
of the Obligations. Statutory notice regarding insurance:
WARNING
Unless you provide us with evidence of the insurance coverage as required
by our contract or loan agreement, we may purchase insurance at your expense to
protect our interest. This insurance may, but need not, also protect your
interest. If the collateral becomes damaged, the coverage we purchase may not
pay any claim you make or any claim made against you. You may later cancel this
coverage by providing evidence that you have obtained property coverage
elsewhere.
You are responsible for the cost of any insurance purchased by us. The
cost of this insurance maybe added to your contract or loan balance. If the cost
is added to your contract or loan balance, the interest rate on the underlying
contract or loan will apply to this added amount. The effective date of coverage
maybe the date your prior coverage lapsed or the date you failed to provide
proof of coverage.
This coverage we purchased may be considerably more expensive than
insurance you can obtain on your own and may not satisfy any need for property
damage coverage or any mandatory liability insurance requirements imposed by
applicable law.
6.5 Primary Accounts.
Borrower will maintain its primary depository and operating accounts with
Bank.
6.6 Financial Covenants.
Borrower will maintain as of the last day of each month:
(i) Liquidity Coverage. Cash plus Accounts of not less than
$1,000,000.
6.7 Further Assurances.
Borrower will execute any further instruments and take further action as
Bank reasonably requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
7
<PAGE>
7 NEGATIVE COVENANTS
------------------
Borrower will not do any of the following without Bank's prior written
consent, which will not be unreasonably withheld:
7.1 Dispositions.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its significant business or property.
7.2 Changes in Business, Ownership, Management or Business Locations
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or reasonably related
thereto or have a material change in its ownership(other than the sale of
Borrower's equity securities in a public offering or to venture capital
investors approved by Bank) of greater than 25%. Borrower will not, without at
least 30 days prior written notice, relocate its chief executive office or add
any new offices or business locations.
7.3 Mergers or Acquisitions.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and result in a decrease of more than 25% of Tangible Net Worth. A
Subsidiary may merge or consolidate into another Subsidiary or into Borrower.
7.4 Indebtedness.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 Distributions; Investments.
Directly or indirectly acquire or own any Person, or make any Investment
in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.6 Transactions with Affiliates.
Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.
7.7 Subordinated Debt.
Maker or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
7.8 Compliance.
Become an "investment company" or a company controlled by an "investment
company," under the Investment Company Act of 1940 or undertake as one of its
important activities extending credit to purchase or carry margin stock, or use
the proceeds of any Credit Extension for that purpose; fail to meet the minimum
funding requirements of ERISA, permit a Reportable Event or Prohibited
Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, if the violation
could reasonable be expected to have a material adverse effect on Borrower's
business or operations or would reasonably be expected to cause a Material
Adverse Change, or permit any of its Subsidiaries to do so.
8
<PAGE>
8 EVENTS OF DEFAULT
-----------------
Any one of the following is an Event of Default:
8.1 Payment Default.
If Borrower fails to pay any of the Obligations within 3 days after their
due date. During the additional time the failure to cure the default is not an
Event of Default (but no Credit Extension will be made during the cure period);
8.2 Covenant Default.
If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, the
failure to cure the default is not an Event of Default (but no Credit Extensions
will be made during the cure period);
8.3 Material Adverse Change.
(i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral (other than normal depreciation) which is not covered by adequate
insurance or (ii) if the Bank determines, based upon information available to it
and in its reasonable judgment, that there is a reasonable likelihood that
Borrower will fail to comply with one or more of the financial covenants in
Section 6 during the next succeeding financial reporting period.
8.4 Attachment.
If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 Insolvency.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
8.6 Other Agreements.
If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;
8.7 Judgments.
If a money judgment(s) in the aggregate of at least $100,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 Misrepresentations.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9
<PAGE>
9 BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies.
When an Event of Default occurs and continues Bank may, without notice or
demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral.
Borrower will assemble the Collateral if Bank requires and make it
available as Bank designates. Bank may enter premises where the Collateral is
located, take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or superior
to its security interest and pay all expenses incurred. Borrower grants Bank a
license to enter and occupy any of its premises, without charge, to exercise any
of Bank's rights or remedies;
(d) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(e) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
(f) Dispose of the Collateral according to the Code.
9.2 Power of Attorney.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) make, settle, and
adjust all claims under Borrower's insurance policies; and(ii) transfer the
Collateral into the name of Bank or a third party as the Code permits. Bank may
exercise the power of attorney to sign Borrower's name on any documents
necessary to perfect or continue the perfection of any security interest
regardless of whether an Event of Default has occurred. Bank's appointment as
Borrower's attorney in fact, and all of Bank's rights and powers, coupled with
an interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank's obligation to provide Credit extensions terminates.
9.3 Bank Expenses.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.4, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.4 Bank's Liability for Collateral.
If Bank complies with reasonable banking practices and Section 9-207 of
the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any
loss or damage to the Collateral; (c) any diminution in the value of the
Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or
other person. Borrower bears all risk of loss, damage or destruction of the
Collateral.
9.5 Remedies Cumulative.
Bank's rights and remedies under this Agreement, the Loan Documents, and
all other agreements are cumulative. Bank has all rights and remedies provided
under the Code, by law, or in equity. Bank's exercise of one right or remedy is
not an election, and Bank's waiver of any Event of Default is not a continuing
waiver. Bank's delay is not a
10
<PAGE>
waiver, election, or acquiescence. No waiver is effective unless signed by Bank
and then is only effective for the specific instance and purpose for which it
was given.
9.6 Demand Waiver.
Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.
10 NOTICES
-------
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other party
written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
------------------------------------------
Washington law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in King County, Washington.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
------------------
12.1 Successors and Assigns.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent Whitman be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 Indemnification.
Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 Severability of Provision.
Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.
12.5 Amendments in Writing, Integration.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents. UNDER WASHINGTON AND OREGON LAW, MOST
AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE BANK AFTER OCTOBER 3, 1989
CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL, FAMILY
OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN
WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY US TO BE ENFORCEABLE.
11
<PAGE>
12.6 Counterparts.
This Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 Survival.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 Confidentiality.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 Attorneys' Fees, Costs and Expenses.
In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other reasonable costs and expenses incurred, in addition to
any other relief to which it may be entitled.
13 DEFINITIONS
-----------
13.1 Definitions.
In this Agreement:
"Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Affiliate" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"Bank Expenses" are all audit fees and expenses and reasonable costs and
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"Borrower's Books" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
"Business Day" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"Closing Date" is the date of this Agreement.
"Code" is the Washington Uniform Commercial Code.
"Collateral" is the property described on Exhibit A.
---------
"Committed Equipment Line" is a Credit Extension of up to $500,000.
12
<PAGE>
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligations" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Credit Extension" is each Equipment Advance or any other extension of
credit by Bank for Borrower's benefit.
"Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"Equipment Advance" is defined in Section 2.1.1.
"Equipment Availability End Date" is defined in Section 2.1.1.
"Equipment Maturity Date" is defined in Section 2.1.1.
"ERISA" is the Employment Retirement Income Security Act of 1974, and its
regulations .
"GAAP" is generally accepted accounting principles.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and
(d)Contingent Obligations.
"Insolvency Proceeding" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"Investment" is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.
"Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"Loan Documents" are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"Material Adverse Change" is defined in Section 8.3.
"Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.
"Permitted Indebtedness" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
13
<PAGE>
"Permitted Investments" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue; and
(c) investments made in accordance with the Borrower's Corporate Cash
Management investment policy.
"Permitted Liens" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
--
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"Person" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"Prime Rate" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Schedule" is any attached schedule of exceptions.
"Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"Subsidiary" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
-----
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.
---
"Total Liabilities" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
14
<PAGE>
BORROWER:
Avenue A, Inc.
By: /s/ Robert M. Littauer
-------------------------------
Title: Vice President
BANK:
SILICON VALLEY BANK
By: /s/ Geir Hansen
-------------------------------
Title: Vice President
15
<PAGE>
EXHIBIT 10.25
- --------------------------------------------------------------------------------
Smith Tower
LEASE AGREEMENT
BETWEEN
SAMIS FOUNDATION
Landlord
and
AVENUE A, INC.
Tenant
- --------------------------------------------------------------------------------
<PAGE>
LEASE AGREEMENT
SMITH TOWER
THIS LEASE made this _____ day of July, 1999 between Samis Foundation, a
Washington 501(c)(3) non-profit corporation ("Landlord"), and Avenue A, Inc., a
Washington corporation ("Tenant").
As parties hereto, Landlord and Tenant agree:
1. LEASE DATA AND EXHIBITS
The following terms as used herein shall have the meanings provided in this
Section 1, unless otherwise specifically modified by provisions of this Lease:
(a) Building:
Known as Smith Tower, or such other name as Landlord may designate from
time to time, situated on a portion of the real property more particularly
described in Section 2 hereof, with an address of 506 Second Avenue, Seattle,
Washington 98104.
(b) Premises:
Consisting of the area on the 4th, 7th, 8th, and 9th floor(s) of the
Building, as outlined on the floor plan(s) attached hereto as Exhibit A,
---------
including tenant improvements, if any, as described in Exhibit B.
---------
(c) Tenant's Pro Rata Share:
Landlord and Tenant agree that, for purposes of this Lease, the rentable
area of the Premises is approximately 44,112 square feet, the Building total is
256,481 square feet, and Tenant's Pro Rata Share of the Building is
approximately 17.1989% (provided, the Premises will be approximately 33,084
square feet and Tenant's Pro Rata Share is 12.8992% until the Premises includes
Floor 4 pursuant to Addendum C). The Premises will be measured per 1996 BOMA
standards upon completion of the Tenant Improvements, and the figures in the
preceding sentence and the monthly rent will be adjusted if needed based on such
measurement.
In the event a portion of the Building is damaged or condemned or any other
event occurs which alters the rentable area of the Premises or the rentable area
of the Building, Landlord may adjust Tenant's Percentage of the Building to
properly reflect the proportion of the rentable area of the Building (as altered
by such event) which is attributable to the rentable area of the Premises (as
altered by such event).
(d) Basic Plans Delivery Date:
See Exhibit B.
(e) Final Plans Delivery Date:
See Exhibit B.
1
<PAGE>
(f) Commencement Date:
October 1, 1999.
(g) Expiration Date:
Five (5) years after the Commencement Date.
(h) Rent:
The monthly rental payments shall be:
Month 1-6 $62,721.75 per month
Month 7-12* $83,629.00 per month
Month 13-24 $86,386.00 per month
Month 25-36 $89,143.00 per month
Month 37-48 $91,900.00 per month
Month 49-60 $94,657.00 per month
*Rent will be increased to $83,629.00 per month upon occupancy of the 4th
floor, if earlier than March 1, 2000, per Addendum C, "Expansion of
Premises," attached hereto.
Rent shall be adjusted from time to time pursuant to Sections 9 and 10 of the
Lease. Tenant has deposited with Landlord on the date hereof Sixty-two Thousand
Seven Hundred Twenty-one and 75/100 ($62,721.75) to be applied to the first Rent
payment due hereunder.
(i) Security Deposit:
Ninety Four Thousand Six Hundred Fifty Seven and 00/100 ($94,657.00)
(j) Base Year:
For purposes of this Lease, the Base Year shall be: Calendar year 2000
(k) Landlord's and Tenant's Leasing Broker/Agent:
Washington Partners Corporate Real Estate is the agent of Tenant.
There is no agent of the Landlord.
(l) Parking:
See Addendum D
(m) Notice Addresses:
Landlord: Samis Foundation
c/o Smith Tower Management Office
506 Second Avenue, Suite 310
Seattle, WA 98104
Tenant: Before Commencement Date:
1100 Olive Way, Suite 1270
-2-
<PAGE>
Seattle, WA 98101
Attn: V.P. Finance and Administration
After Commencement Date:
Avenue A, Inc.
506 Second Avenue, Suite 900
Seattle, WA 98104
Attn: V.P., Finance and Administration
(n) Payment Address:
Samis Foundation
208 James Street, Suite C
Seattle, WA 98104
(o) Exhibits:
The following exhibits or riders are made a part of this Lease:
Exhibit A Floor Plan of Premises
Exhibit B Tenant Improvements (Includes Exhibits B-1 & B-2)
Exhibit C Rules and Regulations
(p) Addendums:
The following addendums or riders are made a part of this Lease:
Addendum A Right of Early Occupancy
Addendum B Option to Extend
Addendum C Expansion of Premises (Includes Addendum C-1)
Addendum D Parking
(q) Permitted Use:
Offices for data center for internet advertising business, general office
related thereto, and for no other purpose(s) whatsoever.
2. PREMISES:
Landlord does hereby lease to Tenant, and Tenant does hereby lease from
Landlord, upon the terms and conditions herein set forth, the Premises described
in Section l(b) hereof as shown on Exhibit A attached hereto and incorporated
herein, together with rights of ingress and egress over common areas in the
Building located on the land ("Land") more particularly described as:
Lots 5 and 8, Block 2, Town of Seattle, as laid out on claims of C.D.
Boren and A.A. Denny (commonly known as Boren and Denny's Addition to the
City of Seattle), according to the plat thereof recorded in Volume 1 of
Plats, page 27, in King County, Washington; EXCEPT that portion of said
Lots taken for widening of Second Avenue
-3-
<PAGE>
by judgment entered in District Court Cause No. 7097 pursuant to Ordinance
No. 1107, of the City of Seattle.
3. COMMENCEMENT AND EXPIRATION DATES:
(a) Commencement Date:
Landlord and Tenant shall use their best efforts to complete tenant
improvements in the Premises in accordance with Exhibit B hereto on the date
specified in Section l(f) or as soon thereafter as practicable. The
Commencement Date shall be the date specified in Section 1 (f).
(b) Delays:
In the event, due to delays from any cause other than Tenant's failure to
comply with the terms of this Lease, the Premises are not available for
occupancy by Tenant within three (3) months following the date specified in
Section l(f), Tenant may terminate this Lease by written notice to Landlord
given within ten (10) days of said date; provided, however, (i) such three-month
period shall be extended for delays due to causes beyond the reasonable control
of Landlord; and (ii) Tenant has complied with the Work Schedule of Exhibit B on
---------
dates for line items designated "Prepare TI Construction Documents" and
"Approval of TI Construction Documents." Termination under this Section 3(b)
shall be Tenant's sole remedy and Tenant shall have no other rights or claims
hereunder at law or in equity. Landlord shall also have the right to terminate
this Lease within the same time frame provided to Tenant above, so long as the
delay is not caused by Landlord; provided, however, such three-month period
shall be extended for delays due to causes beyond the reasonable control of
Landlord. In any event, this Lease shall terminate if the Premises are not
available for occupancy by Tenant within two (2) years from the date hereof.
(c) Confirmation of Commencement Date:
In the event the Commencement Date is established as a later or earlier
date than the date provided in Section l(f) hereof, Landlord shall confirm the
same to Tenant in writing.
(d) Expiration Date:
This Lease shall expire on the date specified in Section l(g).
4. ACCEPTANCE OF PREMISES:
If this Lease shall be entered into prior to the completion of tenant
improvements in the Premises, the acceptance of the Premises by Tenant shall be
deferred until the giving of written notice by Landlord to Tenant of the
completion of such construction. Within five (5) business days ("Inspection
Period") after Landlord gives such notice, Tenant shall make such inspection of
the Premises as Tenant deems appropriate. At Landlord's or Tenant's request,
Landlord's representative shall accompany Tenant in making Tenant's inspection.
Except as otherwise specified by Tenant in writing to Landlord within seventy-
two hours after the close of the Inspection Period, and except for latent
defects not reasonably observable by Tenant, Tenant shall be deemed to have
accepted the Premises at the end of the Inspection Period. If, as a result of
such inspection, Tenant discovers minor deviations or variations from the plans
and specifications for Tenant's improvements which do not materially affect
Tenant's use of the
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<PAGE>
Premises and are of a nature commonly found on a "punch list" (as that term is
used in the construction industry), Tenant shall, during the Inspection Period,
notify Landlord in writing of such deviations. Landlord shall promptly repair
all punch list items. The existence of such punch list items shall not postpone
the Commencement Date of this Lease nor the obligation of Tenant to pay Rent.
5. RENT AND ADDITIONAL RENT:
Tenant shall pay Landlord without notice the Rent stated in Section l(h)
hereof and Additional Rent as provided in Section 9 and Section 10 and any other
payments due under this Lease without deduction or offset in lawful money of the
United States in advance on or before the first day of each month at Landlord's
Payment Address set forth in Section l(n) hereof, or to such other party or at
such other place as Landlord may hereafter from time to time designate in
writing. Rent and Additional Rent for any partial month at the beginning or end
of the Lease term shall be prorated in proportion to the number of days in such
month. All amounts which Tenant assumes or agrees to pay to Landlord pursuant
to this Lease shall be deemed Additional Rent hereunder and, in the event of
nonpayment thereof, Landlord shall have all remedies provided for in the case of
nonpayment of Rent.
6. SECURITY DEPOSIT:
As security for the performance of this Lease by Tenant, Tenant has paid to
Landlord the Security Deposit as specified in Section l(i) hereof, receipt of
which is hereby acknowledged. Landlord may apply all or any part of the
Security Deposit to the payment of any sum in default or any other sum which
Landlord may in its reasonable discretion deem necessary to spend or incur by
reason of Tenant's default. In such event, Tenant shall, within five (5) days
of written demand therefore by Landlord, deposit with Landlord the amount so
applied. The amount of the Security Deposit then held by Landlord shall be
repaid to Tenant within thirty (30) days after the expiration or sooner
termination of this Lease. Landlord shall not be required to keep any Security
Deposit separate from its general funds and Tenant shall not be entitled to any
interest thereon.
7. PARKING:
The parking made available by Landlord to Tenant shall be subject to the
reasonable rules and regulations of the parking operator, or the city of Seattle
may publish from time to time. Tenant shall provide Landlord with thirty (30)
days prior written notice of the number of parking stalls required by Tenant, up
to the maximum number specified in Addendum D, and of any changes in those
requirements. Landlord shall provide a security person on Second Avenue and
James Street to serve as an escort from the Butler Garage and Metro bus stop on
Second Avenue, and another security person at Yesler and Third Avenue for escort
services from the Metro bus stop on Third Avenue and the Metro bus tunnel on
Yesler, or other security arrangements reasonably satisfactory to Landlord and
Tenant.
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<PAGE>
8. USES:
The Premises are to be used only for the purposes specified in Section l(q)
hereof ("Permitted Uses"), and for no other business or purpose without the
prior written consent of Landlord, which consent may be withheld if Landlord, in
its sole discretion, determines that any proposed use is inconsistent with or
detrimental to the maintenance and operation of the Building which will cause
any substantial noise, vibration or fumes. Tenant shall not permit smoking in
the Premises; Landlord has designated all internal portions of the Building as a
smoke-free zone. If any of Tenant's office machines or equipment should disturb
the quiet enjoyment of any other tenant in the Building, then Tenant shall
provide adequate insulation, or take other action as may be necessary to
eliminate the disturbance. Tenant shall comply with all laws relating to its
use or occupancy of the Premises and shall observe such reasonable rules and
regulations (not inconsistent with the terms of this Lease) as may be adopted
and made available to Tenant by Landlord from time to time for the safety, care
and cleanliness of the Premises or the Building, and for the preservation of
good order therein.
9. SERVICES AND UTILITIES:
(a) Standard Services:
Landlord shall maintain the Premises and the public and common areas of the
Building in good order and condition consistent with the operation and
maintenance of a first-class office building in downtown Seattle, Washington.
Landlord shall furnish the Premises with electricity for normal office use,
including lighting and operation of low power usage office machines, water and
elevator service at all times during the term of the Lease. Landlord shall also
provide lamp replacement service for building standard light fixtures, toilet
room supplies, window washing at reasonable intervals, and customary building
janitorial service. No janitorial service shall be provided for Saturdays,
Sundays or legal holidays. The costs of any janitorial or other service
provided by Landlord to Tenant which are in addition to the services ordinarily
provided Building tenants shall be repaid by Tenant as Additional Rent upon
receipt of billings therefor.
(b) Normal Business Hours:
From 7:30 a.m. to 6:00 p.m. on weekdays, and from 7:30 a.m. to noon on
Saturdays, excluding legal holidays ("Normal Business Hours"), Landlord shall
furnish to the Premises heat and air conditioning. If requested by Tenant,
Landlord shall furnish heat and air conditioning at times other than Normal
Business Hours and the actual cost to Landlord of such services as reasonably
calculated by Landlord shall be paid by Tenant as Additional Rent. During other
than Normal Business Hours, Landlord may restrict access to the Building in
accordance with the Building's security system, provided that Tenant shall have
at all times during the term of this Lease (24 hours of all days) reasonable
access to the Premises.
(c) Interruption of Services:
Landlord shall not be liable for any loss, injury or damage to person or
property caused by or resulting from any variation, interruption, or failure of
any services or facilities provided by Landlord pursuant to this Lease due to
any cause whatsoever. No temporary interruption
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<PAGE>
or failure of such services or facilities incident to the making of repairs,
alterations, or improvements, or due to accident, strike or conditions or events
beyond Landlord's reasonable control shall be deemed an eviction of Tenant or
relieve Tenant from any of Tenant's obligations hereunder; provided, however, if
such interruption or failure shall continue for five (5) business days, Tenant's
Rent hereunder shall thereafter abate to the extent the Premises are thereby
rendered untenantable for Tenant's normal business operations until such
services are restored. Landlord shall use its best efforts in good faith to
minimize any disruption of Tenant's use of the Premises arising from any
interruption or failure of such services or facilities.
(d) Additional Services:
The Building mechanical system is designed to accommodate heating loads
generated by lights and equipment using up to 5 watts per square foot. Before
installing lights and equipment in the Premises which in the aggregate exceed
such amount ("Additional Lights/Equipment"), Tenant shall obtain the written
permission of Landlord. Landlord may refuse to grant such permission unless
Tenant shall agree to pay the costs of Landlord for installation of
supplementary air conditioning capacity or electrical systems as necessitated by
such Additional Lights/Equipment.
(e) Additional Lights/Equipment
Tenant desires a dual-power feed to the Premises, but acknowledges Landlord
has informed it in dual-power feed will probably be removed in two (2) years.
Landlord and Tenant agree that if the second power feed is withdrawn from the
Building, Tenant will be permitted to purchase and install (in a manner and
location approved by Landlord) additional battery back-up for Tenant's
operations. If that occurs, Landlord shall reimburse Tenant up to $20,000
towards Tenant's out-of-pocket costs incurred in purchasing and installing
adequate additional battery back-up within fifteen (15) days after presentation
of Tenant's paid invoice(s) therefor.
(f) Costs of Additional Services:
In addition, Tenant shall in advance, on the first day of each month during
the Lease term, pay Landlord as Additional Rent the reasonable amount estimated
by Landlord as the cost of furnishing electricity for the operation of such
Additional Lights/Equipment and the reasonable amount estimated by Landlord as
the costs of operation and maintenance of supplementary air conditioning units
necessitated by Tenant's use of such equipment or lights. Landlord shall be
entitled to install and operate at Tenant's cost a monitoring/metering system in
the Premises to measure the added demands on electricity, heating, ventilation,
and air conditioning systems resulting from such equipment or lights and from
Tenant's after-hours heating, ventilation and air conditioning service
requirements. Tenant shall comply with Landlord's reasonable instructions for
the use of drapes, blinds and thermostats in the Building.
(g) Year 2000 Compliance:
All equipment, products, systems and processes utilized by Landlord in
fulfilling its obligations under this Lease, including without limitation: all
hardware, software and networks shall be fully and effectively Year 2000
compliant.
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<PAGE>
10. COSTS OF OPERATIONS AND REAL ESTATE TAXES:
(a) Additional Rent:
Tenant shall pay as Additional Rent its pro rata share of increases in
taxes and operating costs in excess of taxes and operating costs in the Base
Year ("Base Amounts"). Operating costs for the Base Year and each year
thereafter shall be adjusted to reflect 95% occupancy in the Building.
Increases in taxes and in operating costs over the applicable Base Amounts shall
be determined and shall be payable separately under this Section 10.
(b) Definitions:
(i) For the purposes of this section, "Taxes" shall mean taxes and
assessments (including special district levies) on real and personal property
payable during any calendar year or fiscal year, based on the actual assessment
period, with respect to the Land, the Building and all property of Landlord,
real or personal, used directly in the operation of the Building and located in
or on the Building, together with any taxes levied or assessed in addition to or
in lieu of any such taxes or any tax upon leasing of the Building or the rents
collected (excluding any net income or franchise tax) ("Taxes").
Due to the Historic Designation of the Smith Tower, the Building
should qualify for a special tax valuation designation pursuant to the Special
Valuation of Property Act, RCW 84.26, and as a result of this Special Valuation
of Property Act, the Taxes may be reduced below the amount that would be due and
owing if the Building does not qualify for the special tax valuation. This
designation is a material economic element necessary to induce the Landlord to
undertake and finance the rehabilitation of the Building. For the purposes of
this Section 10, the Base Year Taxes and subsequent lease year Taxes shall be
calculated based on full assessed value multiplied by the applicable millage
rate then in effect.
(ii) For purposes of this Section, "Operating Costs" or "Costs" shall
mean all expenses of Landlord for maintaining, operating and repairing the Land
and Building and the personal property used in connection therewith, including
without limitation insurance premiums, utilities, customary management fees of
not more than four percent (4%) of the gross rents from the Building and other
expenses which in accordance with generally accepted accounting and management
practices would be considered an expense of maintaining, operating or repairing
the Building ("Operating Costs" or "Costs"); excluding, however, the following:
Casualties and Condemnations. Costs occasioned by casualties of a type,
----------------------------
and to the extent, that is covered by a fire and extended coverage (all-
risk) policy of insurance (except any deductibles), or occasioned by the
exercise of the power of eminent domain.
Capital Costs. Costs of improvements required to be capitalized in
-------------
accordance with generally accepted accounting principles, except Operating
Costs shall include amortization of capital improvements (A) made
subsequent to initial development of the Building which are designed with a
reasonable probability of improving the
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<PAGE>
operating efficiency of the Building, or providing savings in the cost of
operating the Building; or, (B) which are reasonably responsive to
requirements imposed with respect to the Building under any amendment to
any applicable building, health, safety, fire, nondiscrimination, or
similar law or regulation ("law"), or any new law, or any new
interpretation of an existing law ("new interpretation"), which amendment,
law or new interpretation is adopted or arose after the Commencement Date
of this Lease.
Reimbursable Expenses. Costs for which Landlord has a right of
---------------------
reimbursement from others.
Construction Defects. Costs to correct any construction defect in the
--------------------
Premises or the Building, or to comply with any CC&R, underwriter's
requirement or law applicable to the Premise or the Building which was in
effect as of the Commencement Date, except if the construction or
compliance was obligation of Tenant.
Interior Improvements. Costs of any renovation, - improvement, painting or
---------------------
redecorating of any portion of the Building for other Tenants.
Leasing Expenses. Fees, commissions, attorneys' fees, auditing fees,
----------------
brokerage fees or commissions, and other costs incurred in connection with
negotiations or disputes with any other current, past, or prospective
occupant or tenant of the Land or in preparing, negotiating or enforcing
leases or lease-related documents such as guarantees, estoppels,
nondisturbance agreements, amendments, subleases, assignments, and the
like; and costs arising from the violation by Landlord or any occupant of
the Land (other than Tenant) of the terms and conditions of any lease or
other agreement, and any rental concessions or buyouts or tenant
relocations.
Mortgages. Interest charges and fees incurred on debt, payment on
---------
mortgages and rent under ground leases; and costs expended in connection
with any sale, hypothecation, financing, refinancing, or ground lease of
the Building or Land or of the Landlord's interest therein.
Off-Site Parking. Operating expenses or subsidies paid by Landlord for
----------------
off-site parking (the Building does not have parking in it).
Reserves and Depreciation. Any depreciation of any of the real or personal
-------------------------
property associated with the Premises, Building or Land, including any
leasehold improvements; any reserves for any purpose; any bad debt, rent
loss, or reserves for bad debt or rent loss.
Promotion. Advertising, promotional costs, costs related to artwork, or
---------
market study fees.
Insurance. Increases in insurance costs caused by the activities of any
---------
other occupancy of the Property.
Hazardous Materials. Costs incurred to remove or remediate any hazardous
-------------------
material from the Building or Land unless caused by Tenant, its employees,
agents, contractors, subtenants, or assigns, and any judgments, fines,
penalties, or other costs incurred in connection with any hazardous
material exposure or release, except to the extent that
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<PAGE>
the foregoing is caused by the illegal storage, use or disposal of the
hazardous material in question by Tenant, its employees, agents,
contractors, subtenant or assigns.
Management. Wages, salaries, compensation, and labor burden for any
----------
employee not stationed on the Building on a full-time basis or above the
level of Landlord's Building manager or nay fee, profit or compensation
retained by Landlord or its affiliates for management and administration of
the Building in excess of the management fee which would be charged by an
independent professional management service for operation of comparable
projects in the vicinity; and Landlord's general overhead or any other
expense not directly related to the Building or the Land.
Governmental Costs. Any governmental fines, penalties, or interest imposed
------------------
on Landlord unless caused by Tenant, its employees, agents, contractors,
subtenants, or assigns; any costs related to public transportation,
transit, or vanpool, unless imposed by governmental authority or at the
request of Tenant.
(iii) "Year" shall mean the calendar year.
(c) Estimated Costs:
At the beginning of each year after the Base Year, Landlord shall furnish
Tenant a written statement of estimated Operating Costs and Taxes for such year;
a calculation of the amount, if any, by which such estimated Operating Costs and
Taxes will exceed the relevant Base Amounts; and a calculation of Tenant's Pro
Rata Share of any such amount. Tenant shall pay one-twelfth (1/12) of that
amount as Additional Rent for each month during the year. If at any time during
the year Landlord reasonably believes that the actual Operating Costs or Taxes
will vary from such estimated Operating Costs or Taxes by more than five percent
(5%), Landlord may by written notice to Tenant revise the estimate for such
year, and Additional Rent for the balance of such year shall be paid based upon
such revised estimates.
(d) Actual Costs:
Within ninety (90) days after the end of each year after the Base Year or
as soon thereafter as practicable, Landlord shall deliver to Tenant a written
statement setting forth Tenant's Pro Rata Share of the actual Operating Costs
and Taxes in excess of the Base Amounts during the preceding year. If the
actual Operating Costs in excess of the Base Amount or actual Taxes in excess of
the Base Amount, or both, exceed the estimates for each paid by Tenant during
the year, Tenant shall pay the amount of such excess to Landlord as Additional
Rent within forty-five (45) days after receipt of such statement. If the actual
Operating Costs in excess of the Base Amount or actual Taxes in excess of the
Base Amount, or both, are less than the amount paid by Tenant to Landlord, then
the amount of such overpayment by Tenant shall be, at Landlord's option,
credited against any amounts owed by Tenant under this Lease, refunded by check
to Tenant, or credited against the next Rent payable by Tenant hereunder.
Notwithstanding any other provision of this Section 10, Tenant shall not receive
any credit or offset against any other amount payable under this Lease to the
extent either actual Operating Costs or Taxes are less than the applicable Base
Amount.
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<PAGE>
(e) Records and Adjustments:
Landlord shall keep records showing all expenditures made in connection
with Operating Costs and Taxes, and such records shall be available for
inspection by Tenant for a period of one hundred twenty (120) days after receipt
of the statement of actual costs ("Record Review Period"); Landlord and Tenant
agree the results of any such audit or review shall remain confidential. Tenant
hereby waives any right to any adjustment of sums paid under this Section 10
unless a claim in writing specifying the reasons therefor is delivered to
Landlord no later than sixty (60) days after the Record Review Period for the
year for which the sums were paid. Operating Costs and Taxes shall be prorated
for any portion of a year at the beginning or end of the term of this Lease.
Notwithstanding this Section 10, the Rent payable by Tenant shall in no event be
less than the Rent specified in Section 1(h) hereof.
(f) Personal Property Taxes:
Tenant shall pay all personal property taxes with respect to property of
Tenant located on the Premises or in the Building. "Property of Tenant" shall
include all improvements which are paid for by Tenant and "personal property
taxes" shall include all property taxes assessed against the property of Tenant,
whether assessed as real or personal property.
11. CARE OF PREMISES:
Landlord shall perform all normal maintenance and repairs reasonably
determined by Landlord as necessary to maintain the Premises and the Building as
a first-class office building; provided that Landlord shall not be required to
maintain or repair any property of Tenant or any appliances (such as
refrigerators, water heaters, microwave ovens, and the like) which are part of
the Premises. Tenant shall take good care of the Premises. Tenant shall not
make any alterations, additions or improvements ("Alterations") in or to the
Premises, or make changes to locks on doors, or add, disturb or in any way
change any plumbing or wiring ("Changes") without first obtaining the written
consent of Landlord and, where appropriate, in accordance with plans and
specifications reasonably approved by Landlord. As a condition to its approval
imposed at the time such approval is given, Landlord may require Tenant to
remove such Alterations or Changes upon the expiration or earlier termination of
the Term and to restore the Premises to the condition they were in prior to such
Alterations or Changes, including restoring any damage resulting from such
removal, all at Tenant's Expense; provided, however, that Tenant shall not be
required to remove Tenant's initial Tenant Improvements made pursuant to Exhibit
-------
B. Any Alterations or Changes required to be made to Tenant's Premises by any
- -
amendment to any applicable building, health, safety, fire, nondiscrimination,
or similar law or regulation ("law"), or any new law shall be made at Tenant's
sole expense and shall be subject to the prior written consent of Landlord;
provided, however, any such alterations or changes that constitute a Capital
Cost that may be included in Operating Costs pursuant to Section 10(b)(ii) above
shall not be Tenant's sole expense, but shall be included in Operating Costs.
Tenant shall reimburse Landlord for any reasonable sums expended for examination
and approval of the architectural and mechanical plans and specifications of the
Alterations and Changes and direct costs reasonably incurred during any
inspection or supervision of the Alterations or Changes. All damage or injury
done to the Premises or Building by Tenant or by any persons who may be in or
upon the Premises or (with respect to damage to the Building)
-11-
<PAGE>
by Tenant officers, employees, contractors, agents, invitees or licensees,
including but not limited to the cracking or breaking of any glass of windows
and doors, shall be paid for by Tenant. Landlord shall cooperate with Tenant to
the extent reasonably possible to schedule janitorial service to the Premises
between the hours of 6:00 p.m. and 8:00 p.m.
12. ACCESS:
Tenant shall permit Landlord and its agents to enter into and upon the
Premises upon prior notice that is reasonable under the circumstances and
(except in case of an emergency) during Normal Business Hours and a
representative of Tenant has right to accompany Landlord (as a condition of such
entry) for the purpose of inspecting the same or for the purpose of cleaning,
repairing, altering or improving the Premises or the Building. Upon reasonable
notice, Landlord shall have the right to enter the Premises for the purpose of
showing the Premises to prospective tenants within the period of one hundred
eighty (180) days prior to the expiration or sooner termination of the Lease
term.
13. DAMAGE OR DESTRUCTION:
(a) Damage and Repair:
If the Building is damaged by fire or any other cause to such extent that
the cost of restoration, as reasonably estimated by Landlord, will equal or
exceed thirty percent (30%) of the replacement value of the Building (exclusive
of foundations) just prior to the occurrence of the damage, or if insurance
proceeds sufficient for restoration are for any reason unavailable and the cost
to repair estimated by Landlord is over $100,000, then Landlord may no later
than the sixtieth day following the damage, give Tenant a notice of election to
terminate this Lease. If the Premises are substantially damaged, and if they
cannot be substantially repaired within 180 days as estimated by Landlord,
Tenant or Landlord has the right to cancel this Lease shall be deemed to
terminate on the thirtieth (30/th/) day after the giving of said notice, and
Tenant shall surrender possession of the Premises within a reasonable time
thereafter, and the Rent and Additional Rent shall be apportioned as of the date
of said surrender and any Rent and Additional Rent paid for any period beyond
such date shall be repaid to Tenant. If the cost of restoration as estimated by
Landlord shall amount to less than thirty percent (30%) of said replacement
value of the Building, and insurance proceeds sufficient for restoration are
available, or if Landlord does not elect to terminate this Lease, Landlord shall
restore the Building and the Premises (to the extent of improvements to the
Premises originally provided by Landlord hereunder) with reasonable promptness,
subject to delays beyond Landlord's control and delays in the making of
insurance adjustments by Landlord, and Tenant shall have no right to terminate
this Lease except as herein provided. To the extent that the Premises are
rendered untenantable, the Rent and Additional Rent shall proportionately abate,
only to the extent such abatement is of the type covered by a standard policy of
rental loss insurance to compensate Landlord for such loss. No damages,
compensation or claim shall be payable by Landlord for inconvenience, loss of
business or annoyance arising from any repair or restoration of any portion of
the Premises or of the Building. Landlord shall use its best efforts to effect
such repairs promptly.
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<PAGE>
(b) Destruction During Last Year of Term:
In case the Building shall be substantially destroyed by fire or other
cause at any time during the last twelve months of the term of this Lease,
either Landlord or Tenant may terminate this Lease upon written notice to the
other party hereto given within sixty (60) days of the date of such destruction.
(c) Tenant Improvements:
Landlord will not carry insurance of any kind on any improvements paid for
by Tenant as provided in Exhibit B or on Tenant's furniture or furnishings or on
any fixtures, equipment, improvements or appurtenances of Tenant under this
Lease and Landlord shall not be obligated to repair any damage thereto or
replace the same.
14. WAIVER OF SUBROGATION:
Whether a loss or damage is due to the negligence of either Landlord or
Tenant, their agents or employees, or any other cause, Landlord and Tenant do
each hereby release and relieve the other, their agents or employees, from
responsibility for, and waive their entire claim of recovery (by way of
subrogation or otherwise) for (i) any loss or damage to the real or personal
property of either, or of any third party, located anywhere in the Building or
on the Land, including the Building itself, arising out of or incident to the
occurrence of any of the perils which would be covered by a fire and extended
coverage (all risk) policy of insurance, and (ii) any loss resulting from
business interruption at the Premises or loss of rental income from the
Building, arising out of or incident to the occurrence of any of the perils
which are of the type covered by a standard business interruption insurance
policy or loss of rental income insurance policy. Each party shall use best
efforts to cause its insurance carriers to consent to the foregoing waiver of
rights of subrogation against the other party.
15. INDEMNIFICATION:
(a) Tenant shall indemnify and hold Landlord harmless from and against
liabilities, damages, losses, claims, and expenses, including attorneys fees,
arising from any act, omission, or negligence of Tenant or its officers,
contractors, licensees, agents, employees, clients or customers in or about the
Building or Premises or arising from any breach or default under this Lease by
Tenant. The foregoing provisions shall not be construed to make Tenant
responsible for loss, damage, liability or expense resulting from injuries to
third parties caused by the negligence of Landlord, or its officers,
contractors, licensees, agents, employees, clients or customers or other tenants
of the Building.
(b) Landlord shall indemnify and hold Tenant harmless from and against all
liabilities, damages, losses, claims, and expenses, including attorneys' fees
arising from any act, omission, or negligence of Landlord or its officers,
contractors, licensees, agents, employees, clients, or customers in or about the
Building or Premises, or arising from any breach or default under this Lease by
Landlord. Except as provided in the foregoing sentence, Landlord shall not be
liable for any loss or damage to persons or property sustained by Tenant or
other persons, which may be caused by theft, or by any act or neglect of Tenant
or any other tenant
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<PAGE>
or occupant of the Building or any third parties. Except as provided in the
foregoing sentence, in no event shall Landlord be liable to Tenant for any
damage to the Premises or for any loss, damage or injury to any property therein
or thereon occasioned by bursting, rupture, leakage or overflow of any plumbing
or other pipes (including, without limitation, water, steam and/or refrigerant
lines), sprinklers, tanks, drains, drinking fountains or washstands or other
similar cause in, above, upon or about the Premises or the Building.
16. INSURANCE:
(a) Liability Insurance:
Tenant shall, throughout the term of this Lease and any renewal hereof, at
its own expense, keep and maintain in full force and effect, a policy of
commercial general liability (occurrence form) insurance, including contractual
liability insuring Tenant's activities upon, in or about the Premises or the
Building against claims of bodily injury or death or property damage or loss
with a combined single limit of not less than One Million Dollars ($1,000,000)
per occurrence and Three Million Dollars ($3,000,000) in the aggregate.
Landlord and the Building manager shall be named as an additional insureds.
(b) Property Insurance:
Tenant shall, throughout the term of this Lease and any renewal- thereof,
at its own expense, keep and maintain in full force and effect, what is commonly
referred to as "All Risk" or "Special" coverage insurance (excluding earthquake
and flood) on Tenant's Leasehold Improvements in an amount not less than one
hundred percent (100%) of the replacement value thereof. As used in this Lease,
"Tenant's Leasehold Improvements" shall mean any alterations, additions or
improvements installed in or about the Premises by or with Landlord's permission
or otherwise permitted by this Lease, whether or not the cost thereof was paid
for by Tenant.
(c) Insurance Policy Requirements:
All insurance required under this Section 16 shall be with companies rated
AV or better by A.M. Best or otherwise reasonably approved by Landlord. No
insurance policy required under this Section 16 shall be cancelled or reduced in
coverage except after thirty (30) days prior written notice to Landlord, except
after ten (10) days prior written notice to Landlord in the case of nonpayment
of premium.
(d) Certificate of Insurance:
Tenant shall deliver to Landlord prior to the Commencement Date, and from
time to time thereafter, copies of policies of such insurance or certificates
evidencing the existence and amounts of same and evidencing Landlord and the
Building manager as additional insureds thereunder. In no event shall the
limits of any insurance policy required under this Section 16 be considered as
limiting the liability of Tenant under this Lease.
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<PAGE>
(e) Primary Policies:
All policies required under Section 16(a) shall be written as primary
policies and not contributing to or in excess of any coverage Landlord may
choose to maintain.
17. ASSIGNMENT AND SUBLETTING:
(a) Assignment or Sublease:
Tenant shall not assign, mortgage, encumber or otherwise transfer this
Lease nor sublet the whole or any part of the Premises without in each case
first obtaining Landlord's prior written consent, such consent is not to be
unreasonably withheld, conditioned, or delayed except: (1) Landlord may withhold
its consent if (i) in Landlord's judgment the nature of the proposed occupant,
its business, experience or reputation in the community is not consistent with
the maintenance or operation of a first-class office building, or (ii) the
nature of the proposed occupant or its business is likely to cause disturbance
to the normal use and occupancy of the Building; (2) Landlord may withhold in
its absolute and sole discretion consent to any mortgage, hypothecation, pledge,
or other encumbrance of any interest in this Lease or the Premises by Tenant or
any subtenant; (3) Landlord may withhold its consent to the extent it deems
necessary to comply with any restriction on use of the Premises, the Building,
or the Land contained in any applicable laws or in any lease, mortgage, or other
agreement or instrument by which the Landlord is bound or to which any of such
property is subject; provided, however, that Landlord shall provide to Tenant a
complete and accurate copy of the applicable portions of such agreement or
instrument.
No such assignment, subletting or other transfer shall relieve Tenant of
any liability under this Lease. Consent to any such assignment, subletting or
transfer shall not operate as a waiver of the necessity for consent to any
subsequent assignment, subletting or transfer. No subtenant may assign its
sublease without Landlord's consent. Each request for an assignment or
subletting must be accompanied by a Processing Fee of $500 in order to reimburse
Landlord for expenses, including attorneys fees, incurred in connection with
such request ("Processing Fee"). Tenant shall provide Landlord with copies of
all assignments, subleases and assumption instruments.
Tenant may without Landlord's prior consent assign this Lease, in whole or
in part, and may lease all or any part of the Premises, to (a) a parent or
subsidiary of Tenant, the entity with which or into which Tenant may merge
(whether or not Tenant is the survivor of that merger), an entity that is
controlled by, controls or is under common control with Tenant, or an entity
which acquires all of Tenant's assets; (b) so long as Tenant (as assignor or
sublessor) is and remains principally and primarily liable for the obligations
of Tenant under this Lease, and any assignee expressly assumes Tenant's
obligations under this Lease by a written assignment provided to Landlord.
For purposes of this Section 17, the term "control" means the possession,
direct or indirect, of the power to direct or cause the direction of the
management and policies of a
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<PAGE>
person or entity, or majority ownership of any sort, whether through the
ownership of voting securities, by contract or otherwise.
(b) Tenant Transfer of Lease:
Except as to assignments, subleases or other transfers not requiring
Landlord's consent as set forth above, if a Tenant is a corporation,
partnership, or any other entity, any transfer of this Lease by merger,
consolidation or liquidation, or any change in the ownership of or power to vote
a majority of its outstanding voting stock, partnership interests, or other
ownership interests, shall constitute an assignment for the purpose of this
Section, except this provision shall not apply to publicly traded stock. If
Tenant is a partnership, conversion of Tenant to a limited liability company or
partnership or to a corporation (or to another entity by which the parties in
Tenant would be relieved of liability to any creditors of Tenant) shall
constitute an assignment for purposes of this Section. An assignment or
sublease to an affiliate or subsidiary of tenant shall not constitute a
transfer.
(d) Assignee Obligations:
As a condition to Landlord's approval, any potential assignee otherwise
approved by Landlord shall assume in writing all obligations of Tenant under
this Lease and shall be jointly and severally liable with Tenant for rental and
other payments arid performance of all terms, covenants and conditions of this
Lease.
(c) Sublessee Obligations:
Any sublessee shall assume all obligations of Tenant as to that portion of
the Premises which is subleased and shall be jointly and severally liable with
Tenant for rental and other payments and performance of all terms, covenants,
and conditions of this Lease with respect to such portion of the Premises.
18. SIGNS:
Tenant shall not place or in any manner display any sign, graphics, or
other advertising matter anywhere in or about the Premises or the Building at
places visible (either directly or indirectly) from anywhere outside the
Premises without first obtaining Landlord's written consent thereto, such
consent to be at Landlord's sole discretion. Any such consent by Landlord shall
be upon the understanding and condition that Tenant shall remove the same at the
expiration or sooner termination of this Lease and Tenant shall repair any
damage to the Premises or the Building caused thereby. Landlord shall not
unreasonably withhold its consent to normal Tenant signage within the Premises
which is consistent in Landlord's opinion with the Building's image and signage
and graphics program. Signage other than Building directory or building
standard elevator lobby directory signage is at Tenant's sole expense.
19. LIENS AND INSOLVENCY:
(a) Liens:
Tenant shall keep its interest in this Lease, the Premises, the Land and
the Building free from any liens arising out of any work performed and materials
ordered or obligations incurred
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by or on behalf of Tenant and hereby indemnifies and holds Landlord harmless
from any liability from any such lien, including without limitation liens
arising from the work performed pursuant to Section IV of Exhibit B hereto. In
the event any lien is filed against the Building, the Land or the Premises by
any person claiming by, through or under Tenant, Tenant shall, upon request of
Landlord and at Tenant's expense, immediately cause such lien to be released of
record or furnish to Landlord a bond, in form and amount and issued by a surety
reasonably satisfactory to Landlord, indemnifying Landlord, the Land and the
Building against all liability, costs and expenses, including attorneys fees,
which Landlord may incur as a result thereof. Provided that such bond has been
furnished to Landlord, Tenant, at its sole cost and expense and after written
notice to Landlord, may contest, by appropriate proceedings conducted in good
faith and with due diligence, any lien, encumbrance or charge against the
Premises arising from work done or materials provided to or for Tenant, if, and
only if, such proceedings suspend the collection thereof against Landlord,
Tenant and the Premises and neither the Premises, the Building nor the Land nor
any part thereof or interest therein is or will be in any danger of being sold,
forfeited or lost.
(b) Insolvency:
If Tenant becomes insolvent or voluntarily or involuntarily bankrupt, or if
a receiver, assignee or other liquidating officer is appointed for the business
of Tenant, Landlord at its option may terminate this Lease and Tenant's right of
possession under this Lease and in no event shall this Lease or any rights or
privileges hereunder be an asset of Tenant in any bankruptcy, insolvency or
reorganization proceeding.
20. DEFAULT:
(a) Cumulative Remedies:
All rights of Landlord herein enumerated shall be cumulative, and none
shall exclude any other right or remedy allowed by law. In addition to the
other remedies provided in this Lease, Landlord shall be entitled to restrain by
injunction the violation or threatened violation of any of the covenants,
agreements or conditions of this Lease.
(b) Tenant's Right to Cure:
Tenant shall have a period of three (3) business days from the date of
written notice from Landlord to Tenant within which to cure any default in the
payment of Rent, Additional Rent and other sums due hereunder. Tenant shall
have a period of twenty (20) days from the date of written notice from Landlord
to Tenant within which to cure any other default hereunder; provided, however,
that with respect to any such default capable of being cured by Tenant which
cannot be cured within twenty (20) days, the default shall not be deemed to be
uncured if Tenant commences to cure within twenty (20) days and for so long as
Tenant is diligently pursuing the cure thereof.
(c) Abandonment:
Abandonment shall be defined as an absence from the Premises of five (5)
days or more while Tenant is in default or Landlord otherwise reasonably
determines that Tenant has abandoned the Premises and its interest under this
Lease. Any abandonment by Tenant shall be
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considered a default with no right to cure, allowing Landlord to re-enter the
Premises as hereinafter set forth.
(d) Landlord's Reentry:
Upon abandonment or an uncured default of this Lease by Tenant, Landlord,
in addition to any other rights or remedies it may have, at its option, may
enter the Premises or any part thereof, and expel, remove or put out Tenant or
any other persons who may be thereon, together with all personal property found
therein; and Landlord may terminate this Lease, or it may from time to time,
without terminating this Lease, relate the Premises or any part thereof for such
term or terms (which may be for a term less than or extending beyond the term
hereof) and at such rental or rentals and upon such other terms and conditions
as Landlord in its sole discretion may deem advisable, with the right to repair,
renovate, remodel, redecorate, alter and change the Premises, Tenant remaining
liable for any deficiency computed as hereinafter set forth. In the case of any
default, reentry and/or dispossession all Rent and Additional Rent shall become
due thereupon, together with such expenses as Landlord may reasonably incur for
attorneys fees, advertising expenses, brokerage fees and/or putting the Premises
in good order or preparing the same for re-rental, together with interest
thereon as provided in Section 37(f) hereof, accruing from the date of any such
expenditure by Landlord. No such re-entry or taking possession of the Premises
shall be construed as an election on Landlord's part to terminate this Lease
unless a written notice of such intention be given to Tenant.
(e) Reletting the Premises:
At the option of Landlord, rents received by Landlord from such reletting
shall be applied first to the payment of any indebtedness from Tenant to
Landlord other than Rent and Additional Rent due hereunder; second, to the
payment of any costs and expenses of such reletting and including, but not
limited to, attorneys fees, advertising fees and brokerage fees, and to the
payment of any repairs, renovations, remodeling, redecoration, alterations and
changes in the Premises; third, to the payment of Rent and Additional Rent due
and to become due hereunder, and, if after so applying said Rents there is any
deficiency in the Rent or Additional Rent to be paid by Tenant under this Lease,
Tenant shall pay any deficiency to Landlord monthly on the dates specified
herein. Any payment made or suits brought to collect the amount of the
deficiency for any month shall not prejudice in any way the right of Landlord to
collect the deficiency for any subsequent month. The failure of Landlord to
relet the Premises or any part or parts thereof shall not release or affect
Tenant's liability hereunder, nor shall Landlord be liable for failure to relet,
or in the event of reletting, for failure to collect the Rent thereof, and in no
event shall Tenant be entitled to receive any excess of net Rents collected over
sums payable by Tenant to Landlord hereunder. Notwithstanding any such
reletting without termination, Landlord may at any time elect to terminate this
Lease for such previous breach and default. Should Landlord terminate this
Lease by reason of any default, in addition to any other remedy it may have, it
may recover from Tenant the then present value of Rent and Additional Rent
reserved in this Lease for the balance of the Term, as it may have been
extended, over the then fair market rental value of the Premises for the same
period, plus all court costs and attorneys fees incurred by Landlord in the
collection of the same.
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(f) Trade Fixtures:
Tenant shall have no right to, and Tenant agrees that it will not, remove
any trade fixtures or movable furniture from the Premises (without comparable
replacements) at any time while Tenant is in default hereunder.
21. PRIORITY:
(a) This Lease shall be subordinate to any first mortgage or deed of trust
(and any other mortgage or deed of trust upon the written election of Landlord)
now existing or hereafter placed upon the Land, the Building or the Premises,
created by or at the instance of Landlord, and to any and all advances to be
made thereunder and to interest thereon and all modifications, renewals and
replacements or extensions thereof ("Landlord's Mortgage"); provided, however,
that notwithstanding any such subordination, as long as Tenant performs its
obligations under this Lease, no foreclosure of, deed given in lieu of
foreclosure of, or sale under, any mortgage or deed of trust, and no steps or
procedures taken under such mortgage or deed of trust, shall affect Tenant's
rights under this Lease or disturb Tenant's peaceful possession of the Premises.
(b) Upon request Tenant shall attorn to the Holder of any Landlord's
Mortgage or any person or persons purchasing or otherwise acquiring the Land,
Building or Premises at any sale or other proceeding under any Landlord's
Mortgage. Tenant shall properly execute, acknowledge and deliver instruments
which the holder of any Landlord's Mortgage may reasonably require to effectuate
the provisions of this Section.
22. SURRENDER OF POSSESSION:
Subject to the terms of Section 13 relating to damage and destruction, upon
expiration of the term of this Lease, whether by lapse of time or otherwise,
Tenant shall promptly and peacefully surrender the Premises to Landlord in as
good condition as when received by Tenant from Landlord or as thereafter
improved (subject to Tenant's obligation to remove any Alterations or Changes if
requested by Landlord pursuant to Section 11, above), reasonable use and wear
and tear and damage from fire and other casualty not required to be repaired by
Tenant, and from condemnation, excepted.
23. REMOVAL OF PROPERTY:
Tenant shall, prior to the expiration or earlier termination of this Lease,
remove all of its movable personal property, telephone, data and computer
cabling, and trade fixtures paid for by Tenant at the expiration or earlier
termination of this Lease, and shall pay Landlord any damages for injury to the
Premises or Building resulting from such removal. All other improvements and
additions to the Premises shall thereupon become the property of Landlord.
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24. NON-WAIVER:
Waiver by Landlord or Tenant of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant, or condition or of any subsequent breach of the same or any other
term, covenant, or condition herein contained. The subsequent acceptance of any
payment hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the amount so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
payment.
25. HOLDOVER:
If Tenant shall, with the written consent of Landlord, hold over after the
expiration of the term of this Lease, such tenancy shall be deemed a month-to-
month tenancy, which tenancy may be terminated as provided by applicable law.
During such tenancy, except as otherwise agreed in writing by the parties,
Tenant agrees to pay to Landlord the greater of (a) the then quoted rates for
similar space in the Building or (b) one hundred twenty-five percent (125%) of
the Rent and Additional Rent in effect upon the date of such expiration as
stated herein, and to be bound by all of the terms, covenants and conditions
herein specified, so far as applicable. Acceptance by Landlord of Rent and
Additional Rent after such expiration or earlier termination shall not result in
a renewal of this Lease. The foregoing provisions of this Section 25 are in
addition to and do not affect Landlord's right of re-entry or any rights of
Landlord hereunder or as otherwise provided by law. If Tenant shall hold over
after the expiration or earlier termination of this Lease without the written
consent of Landlord, such occupancy shall be deemed an unlawful detainer of the
Premises subject to the applicable laws of the state in which the Building is
located and, in addition, Tenant shall be liable for any costs, damages, losses
and expenses incurred by Landlord as a result of Tenant's failure to surrender
the Premises in accordance with this Lease.
26. CONDEMNATION:
(a) Entire Taking:
If all of the Premises or such portions of the Building as may be required
for the reasonable use of the Premises, are taken by eminent domain, this Lease
shall automatically terminate as of the date title vests in the condemning
authority and all Rent, Additional Rent and other payments shall be paid to that
date.
(b) Constructive Taking of Entire Premises:
In the event of a taking of a material part of but less than all of the
Building, where Landlord shall reasonably determine that the remaining portions
of the Premises cannot be economically and effectively used by it (whether on
account of physical, economic, aesthetic or other reasons), or if, in the
opinion of Landlord, the Building should be restored in such a way as to alter
the Premises materially, Landlord shall forward a written notice to Tenant of
such determination not more than sixty (60) days after the date of taking. The
term of this Lease shall expire upon such date as Landlord shall specify in such
notice but not earlier than the taking of possession pursuant to the taking.
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(c) Partial Taking:
In case of taking of a part of the Premises, or a portion of the Building
not required for the reasonable use of the Premises, then this Lease shall
continue in full force and effect and the Rent shall be equitably reduced based
on the proportion by which the floor area of the Premises is reduced, such Rent
reduction to be effective as of the date title to such portion vests in the
condemning authority. If a portion of the Premises shall be so taken which
renders the remainder of the Premises unsuitable for continued occupancy by
Tenant under this Lease, Tenant may terminate this Lease by written notice to
Landlord within sixty (60) days after the date of such taking and the term of
this Lease shall expire upon such date as Tenant shall specify in such notice
not earlier than thirty (30) days after the date of such notice.
(d) Awards and Damages:
Landlord reserves all rights to damages to the Premises for any partial,
constructive, or entire taking by eminent domain, and Tenant hereby assigns to
Landlord any right Tenant may have to such damages or award, and Tenant shall
make no claim against Landlord or the condemning authority for damages for
termination of the leasehold interest or interference with Tenant's business.
Tenant shall have the right, however, to claim and recover from the condemning
authority compensation for any loss to which Tenant may be put for Tenant's
moving expenses, business interruption or taking of Tenant's personal property
and leasehold improvements paid for by Tenant (not including Tenant's leasehold
interest) provided that such damages may be claimed only if they are awarded
separately in the eminent domain proceedings and not out of or as part of the
damages recoverable by Landlord.
27. NOTICES:
All notices under this Lease shall be in writing and delivered in person or
sent by registered or certified mail, or nationally recognized courier (such as
Federal Express, DHL, etc.), postage prepaid, to Landlord and to Tenant at the
Notice Addresses provided in Section l(m) and to the holder of any mortgage or
deed of trust at such place as such holder shall specify to Tenant in writing;
or such other addresses as may from time to time be designated by any such party
in writing. Notices mailed as aforesaid shall be deemed given on the date of
such mailing.
28. COSTS AND ATTORNEYS FEES:
If Tenant or Landlord shall bring any action for any relief against the
other, declaratory or otherwise, arising out of this Lease, including any suit
by Landlord for the recovery of Rent, Additional Rent or other payments
hereunder or possession of the Premises, the losing party shall pay the
substantially prevailing party a reasonable sum for attorneys fees in such suit,
at trial and on appeal, and such attorneys fees shall be deemed to have accrued
on the commencement of such action.
29. LANDLORD'S LIABILITY:
Notwithstanding anything to the contrary contained in this Lease, the
liability of Landlord (and of any successor Landlord hereunder) to Tenant shall
be limited to the interest of the Building, and Tenant agrees to look solely to
Landlord's interest in the Building for the recovery of any judgment or award
against the Landlord, it being intended that neither Landlord nor any member,
principal, partner, shareholder, of ricer, director or beneficiary of
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Landlord shall be personally liable for any judgment or deficiency. Tenant
hereby covenants that, prior to the filing of any suit for an alleged default by
Landlord hereunder, it shall give Landlord and all mortgagees whom Tenant has
been notified hold mortgages or deed of trust liens on the Land, Building or
Premises notice and reasonable time to cure such alleged default by Landlord.
30. ESTOPPEL CERTIFICATES:
Tenant shall, from time to time, upon written request of Landlord, execute,
acknowledge and deliver to Landlord or its designee a written statement prepared
by Landlord stating: The date this Lease was executed and the date it expires;
the date the term commenced and the date Tenant accepted the Premises; the
amount of minimum monthly Rent and the date to which such Rent has been paid;
and certifying to the extent true: That this Lease is in full force and effect
and has not been assigned, modified, supplemented or amended in any way (or
specifying the date and terms of agreement so affecting this Lease); that this
Lease represents the entire agreement between the parties as to this leasing;
that all conditions under this Lease to be performed by Landlord have been
satisfied; that all required contributions by Landlord to Tenant on account of
Tenant's improvements have been received; that on this date there are no
existing claims, defenses or offsets which Tenant has against the enforcement of
this Lease by Landlord; that the security deposit is as stated in the Lease; and
such other matters concerning the status of this Lease as Landlord may
reasonably request. It is intended that any such statement delivered pursuant
to this paragraph may be relied upon by a prospective purchaser of Landlord's
interest or the holder of any mortgage upon Landlord's interest in the Building.
If Tenant shall fail to respond within twenty (20) days of receipt by Tenant of
a written request by Landlord as herein provided, Tenant shall be deemed to have
given such certificate as above provided without modification and shall be
deemed to have admitted the accuracy of any information supplied by Landlord to
a prospective purchaser or mortgagee and that this Lease is in full force and
effect, that there are no uncured defaults in Landlord's performance, that the
security deposit is as stated in the Lease, and that not more than one month's
Rent has been paid in advance.
31. TRANSFER OF LANDLORD'S INTEREST:
In the event of any transfers of Landlord's interest in the Premises or in
the Building, other than a transfer for security purposes only, then upon
assumption by the transferee of Landlord's obligations under this Lease, the
transferor shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord accruing from and after the date of such
transfer and such transferee shall have no obligation or liability with respect
to any matter occurring or arising prior to the date of such transfer. Tenant
agrees to attorn to the transferee.
32. RIGHT TO PERFORM:
If Tenant shall fail to pay any sum of money, other than Rent and
Additional Rent required to be paid by it hereunder, or shall fail to perform
any other act on its part to be performed hereunder, and such failure shall
continue for ten (10) days after notice thereof by Landlord, Landlord may, but
shall not be obligated so to do, and without waiving or releasing Tenant from
any obligations of Tenant, make such payment or perform any such other act on
Tenant's part to be made or performed as provided in this Lease. Any sums paid
by Landlord hereunder shall be immediately due and payable by Tenant to Landlord
and Landlord shall have
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(in addition to any other right or remedy of Landlord) the same rights and
remedies in the event of the nonpayment of sums due under this Section as in the
case of default by Tenant in the payment of Rent.
33. QUIET ENJOYMENT:
Tenant shall have the right to the peaceable and quiet use and enjoyment of
the Premises, subject to the provisions of this Lease, as long as Tenant is not
in default hereunder.
34. AUTHORITY:
If Tenant is a corporation, limited liability company, limited liability
partnership or limited or general partnership, each individual executing this
Lease on behalf of Tenant represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of Tenant, in accordance
with a duly adopted resolution or consents of all appropriate persons or
entities required therefor and in accordance with the formation documents of
Tenant, and that this Lease is binding upon Tenant in accordance with its terms.
At Landlord's request, Tenant shall, prior to execution of this Lease, deliver
to Landlord a copy of a resolution or consent, certified by an appropriate
officer, partner or manager of Tenant authorizing or ratifying the execution of
this Lease.
35. HAZARDOUS MATERIALS:
(a) Tenant Obligations:
(i) Tenant shall not dispose of or otherwise allow the release of any
hazardous waste or materials in, on or under the Premises or the Building, or
any adjacent property, or in any improvements placed on the Premises, except
only ordinary and general office supplies typically used in first-class downtown
office buildings and only in such quantities or concentrations as allowed under
applicable laws, rules and regulations. Tenant represents and warrants to
Landlord that Tenant's intended use of the Premises does not involve the use,
production, disposal or bringing on to the Premises of any hazardous waste or
materials, except only ordinary and general office supplies typically used in
first-class downtown office buildings and only in such quantities or
concentrations as allowed under applicable laws, rules and regulations. As used
in this Section, the term "hazardous waste or materials" includes any substance,
waste or material defined or designated as hazardous, toxic or dangerous (or any
similar term) pursuant to any statute, regulation, rule or ordinance now or
hereafter in effect. Tenant shall promptly comply with all such statutes,
regulations, rules and ordinances, and if Tenant fails to so comply Landlord
may, after reasonable prior notice to Tenant (except in case of emergency)
effect such compliance on behalf of Tenant. Tenant shall immediately reimburse
Landlord for all costs incurred in effecting such compliance.
(ii) Tenant agrees to indemnify and hold harmless Landlord against any
and all losses, liabilities, suits, obligations, fines, damages, judgements,
penalties, claims, charges, cleanup costs, remedial actions, costs and expenses
(including, without limitation, consultant fees, attorneys' fees and
disbursements) which may be imposed on, incurred or paid by Landlord, or
asserted in connection with (i) any misrepresentation, breach of warranty or
other default by Tenant under this Section 35, or (ii) the acts or omissions of
Tenant, or any subtenant or other person for whom Tenant would otherwise be
liable, resulting in the release of any hazardous waste or materials.
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(b) Landlord Obligations:
Tenant acknowledges that the Premises may contain Hazardous Substances, and
Tenant accepts the Premises and the Building notwithstanding such Hazardous
Substances subject to the provisions of this subparagraph (b). If Landlord is
required by any law to take any action to remove or abate any Hazardous
Substances, or if Landlord deems it necessary to conduct special maintenance or
testing procedures with regard to any Hazardous Substances, or to remove or
abate any Hazardous Substances, Landlord may take such action or conduct such
procedures at times and in a manner that Landlord deems appropriate under the
circumstances, and Tenant shall permit the same; provided, however, that
Landlord shall minimize any disturbance of Tenant's normal business operations.
If any abatement or removal of such Hazardous Substances is caused by the act or
omission of Tenant, or its Authorized Representative, Tenant shall bear the cost
of such abatement or removal. Landlord, at its sole cost and expense, will
remove the existing floor tiles and other materials which contain asbestos or
Hazardous Substances from within the Premises to Tenant's reasonable
satisfaction; provided, Tenant acknowledges and agrees that certain items (such
as encapsulated asbestos covering pipes within walls and lead paint on original
doors and trim) will not be removed. Landlord will indemnify Tenant from and
against damage or injury caused by pre-existing Hazardous Substances in the
Building or the premises.
36. TELECOMMUNICATIONS LINES AND EQUIPMENT:
(a) Location of Tenant's Equipment and Landlord Consent:
(i) Tenant may install, maintain, replace, remove and use communications
or computer wires, cables and related devices (collectively, the "Lines") at the
Building in or serving the Premises, only with Landlord's prior written consent,
which consent may not be unreasonably withheld. Tenant shall locate all
electronic telecommunications equipment within the Premises or within the
Building telephone closets or riser spaces, at Tenant's cost. Request for
Landlord's consent shall contain detailed plans, drawings and specifications
identifying all work to be performed, the time schedule for completion of the
work, the identity of the entity that will provide service to the Lines and the
identity of the entity that will perform the proposed work (which entity shall
be subject to Landlord's approval). Landlord shall have a reasonable time in
which to evaluate the request after it is submitted by Tenant.
(ii) Landlord will consider the following factors, among others, in making
its determination: (A) the experience, qualifications and prior work practice of
the proposed contractor and its ability to provide sufficient insurance coverage
for its work at the Building; (B) whether or not the proposed work will
interfere with the use of any then existing Lines at the Building; (C) whether
or not an acceptable number of spare Lines and space for additional Lines shall
be maintained for existing and future occupants of the Building; (D) a
requirement that Tenant remove existing abandoned Lines located in or servicing
the Premises, as a condition to permitting the installation of new lines; (E)
whether or not Tenant is in default of any of its obligations under this Lease;
(F) whether the proposed work or resulting Lines will impose new obligations on
Landlord, expose Landlord to liability of any nature or description, increase
Landlord's insurance premiums for the Building, create liabilities for which
Landlord is unable to obtain insurance protection or imperil Landlord's
insurance coverage; (G) whether
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Tenant's proposed service provider is willing to pay reasonable monetary
compensation for the use and occupation of the Building; and (H) whether the
work or resulting Lines would adversely affect the Land, Building or any space
in the Building in any manner.
(iii) Landlord's approval of, or requirements concerning, the Lines or
any equipment related thereto, the plans, specifications or designs related
thereto, the contractor or subcontractor, or the work performed hereunder, shall
not be deemed a warranty as to the adequacy thereof, and Landlord hereby
disclaims any responsibility or liability for the same. Landlord disclaims all
responsibility for the condition or utility of the intra-building network
cabling ("INC") and makes no representation regarding the suitability of the INC
for Tenant's intended use.
(iv) If Landlord consents to Tenant's proposal, Tenant shall (A) pay all
costs in connection therewith (including all costs related to new Lines); (B)
comply with all requirements and conditions of this Section; (C) use, maintain
and operate the Lines and related equipment in accordance with and subject to
all laws governing the Lines and equipment. Tenant shall further insure that (I)
Tenant's contractor complies with the provisions of this Section and Landlord's
reasonable requirements governing any work performed; (II) Tenant's contractor
provides all insurance required by Landlord; (III) any work performed shall
comply with all Laws; and (IV) as soon as the work in completed, Tenant shall
submit "as-built" drawings to Landlord.
(v) Landlord reserves the right to require that Tenant remove any Lines
located in or serving the Premises which are installed by Tenant in violation of
these provisions, or which are at any time in violation of any laws or present a
dangerous or potentially dangerous condition and were installed by Tenant within
three (3) days after written notice.
(vi) Upon Landlord's request, and notwithstanding anything in the above
paragraphs, Tenant shall remove any Lines located in or serving the Premises and
installed by Tenant promptly upon expiration or sooner termination of this
Lease.
(b) Landlord's Rights:
Landlord may (but shall not have the obligation to):
(i) install new lines at the Building;
(ii) create additional space for Lines at the Building; and
(iii) direct, monitor and/or supervise the installation, maintenance,
replacement and removal of, the allocation and periodic re-allocation of
available space (if any) for any Lines now or hereafter installed at the
Building by Landlord, Tenant or any other party (but Landlord shall have no
right to monitor or control the information transmitted through such Lines).
(c) Indemnification:
In addition to any other indemnification obligations under this Lease,
Tenant shall indemnify and hold harmless Landlord and its employees, agents,
officers, and contractors from and against any and all claims, demands,
penalties, fines, liabilities, settlements, damages, costs or expenses
(including reasonable attorneys' fees) arising out of or in any way related to
the acts and omissions of Tenant, Tenant's officers, directors, employees,
agents, contractors,
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subcontractors, subtenants, and invitees with respect to: (i) any Lines or
equipment related thereto installed by and serving Tenant in the Building; (ii)
any personal injury (including wrongful death) or property damage arising out of
or related to any Lines or equipment related thereto installed by and serving
Tenant in the Building; (iii) any lawsuit brought or threatened, settlement
reached, or governmental order, fine or penalty relating to such Lines or
equipment related thereto; and (iv) any violations of Laws or demands of
governmental authorities, or any reasonable policies or requirement of Landlord,
which are based upon or in any way related to such Lines or equipment. This
indemnification and hold harmless agreement shall survive the termination of
this Lease.
(d) Limitation of Liability:
Except to the extent arising from the gross negligence or willful
misconduct of Landlord or Landlord's agents or employees, Landlord shall have no
liability for damages arising from, and Landlord does not warrant that the
Tenant's use of any Lines will be free from the following (collectively called
"Line Problems"): (I) any shortages, failures, variations, interruptions,
disconnections, loss or damage caused by the installation, maintenance, or
replacement, use or removal of Lines by or for other tenants or occupants at the
Building, by any failure of the environmental conditions or the power supply for
the Building to conform to any requirement of the Lines or any associated
equipment, or any other problems associated with any Lines by any other cause;
(ii) any failure of any Lines to satisfy Tenant's requirements; or (iii) any
eavesdropping or wire-tapping by unauthorized parties. Landlord in no event
shall be liable for damages by reason of loss of profits, business interruption
or other consequential damage arising from any Line Problems. Under no
circumstances shall any Line Problems be deemed an actual or constructive
eviction of Tenant, render Landlord liable to Tenant for abatement of Rent, or
relieve Tenant from performance of Tenant's obligations under this Lease.
(e) Electromagnetic Fields:
If Tenant at any time uses any equipment that may create an electromagnetic
field exceeding the normal insulation ratings of ordinary twisted pair riser
cable or cause radiation higher than normal background radiation, Landlord
reserves the right to require Tenant to appropriately insulate the Lines
therefore (including riser cables) to prevent such excessive electromagnetic
fields or radiation.
37. GENERAL:
(a) Headings:
Titles to Sections of this Lease are not a part of this Lease and shall
have no effect upon the construction or interpretation of any part hereof.
(b) Successors and Assigns:
All of the covenants, agreements, terms and conditions contained in this
Lease shall inure to and be binding upon the Landlord and Tenant and their
respective, successors and assigns.
-26-
<PAGE>
(c) Payment of Brokers:
Landlord shall pay the commissions due those real estate brokers or agents
named in Section l(k). If Tenant has dealt with any other person or real estate
broker with respect to leasing or renting space in the Building, Tenant shall be
solely responsible for the payment of any fee due said person or firm and Tenant
shall indemnify and hold Landlord harmless against any liability in respect
thereto, including Landlord's attorneys' fees and costs in defense of any such
claim.
(d) Entire Agreement:
This Lease contains all covenants and agreements between Landlord and
Tenant relating in any manner to the leasing, use and occupancy of the Premises,
to Tenant's use of the Building and other matters set forth in this Lease. No
prior agreements or understanding pertaining to the same shall be valid or of
any force or effect and the covenants and agreements of this Lease shall not be
altered, modified or added to except in writing signed by Landlord and Tenant.
(e) Severability:
Any provision of this Lease which shall be held invalid, void or illegal
shall in no way affect, impair or invalidate any other provision hereof and the
remaining provisions hereof shall nevertheless remain in full force and effect.
(f) Overdue Payments:
Tenant acknowledges that a late payment of Rent or other sums due hereunder
will cause Landlord to incur costs not contemplated by this Lease. Such costs
may include, but not be limited to, processing and accounting charges, and
penalties imposed by terms of any contracts, mortgages or deeds of trust
covering the Building. Therefore, in the event Tenant shall fail to pay any
Rent, Additional Rent or other sums payable by Tenant under this Lease for seven
(7) days after such amount is due, then Tenant shall pay Landlord, as Additional
Rent, a late charge ("Late Charge") equal to 5% of such amount owing, but not in
excess of the highest rate permitted by law. In addition to any Late Charges
which may be incurred hereunder, any Rent, Additional Rent or other sums payable
by Tenant under this Lease which are more than thirty (30) days past due, shall
bear interest at a rate equal to 18% per annum but not in excess of the highest
lawful rate permitted under applicable laws, calculated from the original due
date thereof to the date of payment ("Overdue Fee"); provided, however, the
minimum Overdue Fee shall be $100.00.
In addition, if payments are received by check or draft from Tenant, and
two (2) or more of such checks or drafts are dishonored by the bank or other
financial institution they were drawn upon in any twelve (12) month period,
Landlord may thereafter require all Rent and other payments due hereunder from
Tenant to Landlord to be made by bank cashier's or bank certified check or other
similar means of payment and Landlord shall not be required to accept any checks
or drafts of Tenant which do not comply with such requirements.
(g) Consent and Discretion:
Whenever the consent of a party to this Lease is required, except where
this Lease expressly provides otherwise, such consent shall not be unreasonably
withheld, conditioned or
-27-
<PAGE>
delayed. Whenever a party exercises its discretion under the terms of this
Lease, except where this Lease provides that such party shall be entitled to
exercise its sole discretion, that discretion shall be exercised reasonably.
(h) Force Majeure:
Except for the payment of Rent, Additional Rent and other sums payable by
Tenant, time periods for Tenant's or Landlord's performance under any provisions
of this Lease shall be extended for periods of time during which Tenant's or
Landlord's performance is prevented due to circumstances beyond Tenant's or
Landlord's reasonable control.
(i) Right to Change Public Spaces:
Landlord shall have the right at any time, without thereby creating an
actual or constructive eviction or incurring any liability to Tenant therefor,
to change the arrangement or location of such of the following as are not
contained within the Premises or any part thereof: entrances, passageways, doors
and doorways, corridors, stairs, toilets and other like public service portions
of the Building. Nevertheless, in no event shall Landlord diminish any service,
change the arrangement or location of the elevators serving the Premises, make
any change which shall diminish the area of the Premises, make any change which
shall interfere with access to the Premises or change the character of the
Building from that of a first-class office building.
(j) Governing Law:
This Lease shall be governed by and construed in accordance with the laws
of the State of Washington.
(k) Building Directory:
Landlord shall maintain in the lobby of Building a directory which shall
include the name of Tenant and any other names reasonably requested by Tenant in
proportion to the number of listings given to comparable tenants of the
Building.
(l) Building Name:
The Building shall be known by such name as Landlord may designate from
time to time.
IN WITNESS WHEREOF this Lease has been executed the day and year first above set
forth.
TENANT: Avenue A, Inc., a Washington corporation
By: /s/ Robert M. Littauer
-----------------------------------------
Robert M. Littauer
Its: Vice President of Finance and Administration
LANDLORD: Samis Foundation,
-28-
<PAGE>
a Washington 501(c)(3) nonprofit corporation
By: /s/ Eddie I. Hasson
-------------------------------------------
Eddie I. Hasson
Its: President
TENANT CORPORATE ACKNOWLEDGMENT
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 16 day of July 1999, before me, the
-- ----
undersigned, a notary public in and for the state of Washington commissioned and
sworn, personally appeared Robert M. Littauer, to me known be Vice President of
Finance and Administration respectively, of Avenue A, Inc., the corporation that
executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation for the
uses and purposes therein mentioned, and on oath stated that they were
authorized to execute said instrument, and that the seal affixed, if any, is the
corporate seal of said corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
GIVEN under my hand and official seal the ____ day of _____________________,
1999.
/s/ Patricia E. Baker
---------------------------------------
SIGNATURE
_______________________________________
PRINTED NAME
Notary Public in and for the State of__________________, residing at____________
My Commission Expires: ____________________
-29-
<PAGE>
LANDLORD CORPORATE ACKNOWLEDGMENTS
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
THIS IS TO CERTIFY that on this 20 day of July 1999, before me, the
---- ---------
undersigned, a notary public in and for the state of Washington commissioned and
sworn, personally appeared Eddie I. Hasson, to me known be the President
respectively, Samis Foundation, the corporation that executed the within and
foregoing instrument, and acknowledged the said instrument to be the free and
voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that they were authorized to execute said
instrument, and that the seal affixed, if any, is the corporate seal of said
corporation.
WITNESS my hand and official seal the day and year in this certificate
first above written.
GIVEN under my hand and official seal the 20th day of July , 1999.
------ -------
/s/ Jenny Smalley
---------------------------------
SIGNATURE
/s/ Jenny Smalley
---------------------------------
PRINTED NAME
Notary Public in and for the State of Washington, residing at Bremerton
---------
My Commission Expires: Dec 4, 2002
-----------
-30-
<PAGE>
ADDENDUM 'A'
RIGHT OF EARLY OCCUPANCY
This Early Occupancy Addendum ("Addendum") is attached to and made a part
of that certain Lease Agreement (the "Lease") between Samis Foundation, a
Washington 501(c)(3) non-profit corporation ("Landlord ") and Avenue A, Inc., a
Washington corporation ("Tenant"). Defined terms used in this Addendum shall
have the meanings given them in the Lease. In the event of conflict between the
terms of the Lease and the terms of this Addendum, the terms of this Addendum
shall prevail.
Landlord has agreed to allow Tenant to occupy space in the Building on a
temporary basis while the tenant improvements in the Premises are being
completed, subject to the terms and conditions contained herein. Accordingly,
in consideration of the mutual covenants contained herein, Landlord and Tenant
now agree:
1. Tenant, its agents, and contractors shall be allowed access to the premises
seven (7) days prior to the Commencement Date or other designated occupancy
date, as the case may be, with no obligations to pay rent, for the purpose of
planning, measuring and installing improvements such as telephone systems,
computer cabling, etc. Landlord shall approve in writing the items to be
installed, the plan and method of installation, and timing thereof, in advance.
Tenant shall not interfere with Landlord's work taking place in or about the
Premises. Tenant shall defend, indemnify and hold Landlord harmless from and
against any and all damage, claims, causes of action or liability (including
actual attorneys' fees and costs) arising from Tenant's early occupancy.
<PAGE>
ADDENDUM 'B'
OPTION TO EXTEND TERM
Tenant is granted the right to extend the term of this lease for a total of one
(1) term of five (5) years, (which shall be referred to herein as "Extension
Period"), on the same terms and conditions (except Rent) as set forth in this
Lease. The right to extend (hereinafter referred to as the "Option") may be
exercised only in the event the Tenant is not in default (past applicable cure
periods) at the time said Option right is exercised, at the time the Extension
Period is to commence, or more than three (3) times during the Term.
In the event Tenant wishes to exercise its Option to Extend, Tenant shall notify
Landlord in writing no later than nine (9) months before the expiration of the
then-lease term. If the above conditions are satisfied, Landlord and Tenant
shall be bound to extend the term of the Lease on the same terms and conditions
as the original Lease, except for the Minimum Monthly Rent, which shall be
Market Rent (as defined herein).
"Market Rent" as used herein shall mean the then prevailing market rental rate
on a level basis (i.e., both lease renewals and new leases) for office space of
comparable quality, design and location in the Seattle Central Business District
market area (I-5 to Elliott Bay, and from Lake Union to Union Station) for
tenants occupying 25,000 square feet or more, taking into consideration the
length of the Option term and tenant improvements paid for by Landlord and
Tenant.
The parties shall negotiate in good faith to establish the Market Rent. If the
parties are unable to agree on Market Rent within thirty (30) days after Tenant
gives Landlord its notice exercising the Option (the "Notice Date"), then the
Market Rent shall be determined by independent appraisers or by arbitration (as
applicable) and each party shall promptly appoint a disinterested, independent
appraiser who is a member of the American Institute of Real Estate Appraisers
(an "Appraiser") and has at least ten (10) years experience appraising office
---------
rental properties in the Puget Sound area. If the Appraisers are unable to
reach agreement about Market Rent within thirty (30) days after the Notice Date,
then either party on notice to the other may request appointment of a single
arbitrator by the American Arbitration Association ("AAA") in accordance with
its then prevailing real estate valuation arbitration rules as modified by this
Section. If the AAA does not appoint an arbitrator meeting the same
qualifications of an Appraiser within thirty (30) days after the request, then
either party may apply to the presiding judge of the King County Superior Court
who, acting in his individual (not judicial) capacity, shall make the
appointment.
Once the arbitrator is appointed, each Appraiser promptly shall submit his
determination of Market Rent to the arbitrator. The arbitrator shall determine
Market Rent (applying the definition stated above) within ten (10) days based
solely on the materials submitted by the Appraisers and the determination shall
not exceed or be less than the Market Rent
-2-
<PAGE>
determinations of the Appraisers. Each party shall bear the expense of retaining
its Appraiser. The fees and expenses of the arbitrator and other expenses of the
arbitration shall be borne equally by the parties. The arbitrator's
determination of Market Rent shall be final and binding on the parties. Judgment
upon the determination of Market Rent rendered by the arbitrator may be entered
in and court having jurisdiction.
-3-
<PAGE>
ADDENDUM 'C'
EXPANSION OF PREMISES
FLOOR 4 TO BE OCCUPIED:
- ------------------------
The Premises shall include the entire fourth floor, as shown on Exhibit A
--------
as of March 1, 2000. If Tenant occupies any portion of the fourth floor
prior to March 1, 2000, except pursuant to Addendum A rent and all other
---------
charges due under this Lease applicable to such space will become due upon
such occupancy, prorated for partial months, as set forth in Section 1 (h)
above.
-4-
<PAGE>
ADDENDUM 'D'
PARKING
PERMANENT PARKING:
- ------------------
Landlord will make available to Tenant one and one-half (1-1/2) parking stalls
per 1,000 rentable square feet of the Premises at either the Morrison Hotel
Parking Garage (also known as Smith Tower Parking Garage) or the Butler Garage,
at Tenant's election, throughout the term of the Lease at the going market rate.
The Butler Garage will undergo a full remodel and expansion in 2000. Interim
parking will be provided at the Ampco Parking lot across the street from the
Smith Tower or at the Union Station parking lot which is the next stop south on
the bus tunnel.
-5-
<PAGE>
EXHIBIT A
OUTLINE DRAWING OF THE PREMISES
[DRAWING]
---------
THE ABOVE FLOOR PLAN REPRESENTS THE
FLOOR PLATE FOR FLOOR 4, 7, 8 & 9
<PAGE>
EXHIBIT B
TENANT IMPROVEMENTS
WORK LETTER AGREEMENT
(Page 1 of 3)
Work Letter Agreement ("Agreement"), dated as of the 16 day of July, 1999,
------
by and between Samis Foundation, a Washington 501(c)(3) nonprofit corporation
("Landlord"), and Avenue A, Inc. a Washington corporation ("Tenant").
Concurrently with the execution of this Agreement, Landlord and Tenant have
entered into a lease ("Lease") covering certain premises ("Premises") more
particularly described in Exhibit A attached to the Lease.
As part of the Lease and the consideration therefore, Landlord and Tenant hereby
agree as follows:
1. COMPLETION SCHEDULE
-------------------
1.1 Attached is a schedule ("Work Schedule") setting forth a timetable for
the planning and completion of the installation of the Tenant Improvements to be
constructed in the Premises prior to the commencement Date of the Lease. The
Work Schedule sets forth each of the various items of work to be done by or
approval to be given by Landlord and Tenant in connection with the completion of
the Tenant Improvements. The Work Schedule shall be the basis for completing the
Tenant Improvement work. Landlord and Tenant shall each exert their good faith,
reasonable and diligent efforts to achieve completion or approval of the matters
described in the Work Schedule on or before the dates set forth therein; and
Landlord and Tenant each agree to promptly and diligently respond to all
questions and concerns raised by architects, engineers and other consultants in
connection therewith.
2. TENANT IMPROVEMENTS; TENANT IMPROVEMENT PLANS
---------------------------------------------
2.1 In this Agreement "Tenant Improvements" shall include all work to be
done in the Premises, beyond the definition of Building Shell, as outlined in
Exhibit B-l attached hereto, and pursuant to the Tenant Improvements Plans
described in and developed in accordance with this Section 2, as modified by
Tenant pursuant to Section 3. Landlord and Tenant shall prepare Schematic Space
Plan for the Tenant Improvements in accordance with the Work Schedule, upon
which Schematic Space Plan, Landlord and Tenant shall then prepare the Tenant
Improvements construction documents, (i.e., final working drawings and
specifications for the Tenant Improvements) for the approval of Landlord and
Tenant in accordance with the Work Schedule, which Tenant Improvements
construction documents shall then constitute the "Tenant Improvements Plans".
2.2 After determination of the Tenant Improvements Plans, the same shall
be submitted to the appropriate governmental body for plan checking and issuance
of necessary permits and approvals. Landlord, with Tenant's cooperation, shall
cause to be made any changes in the Tenant Improvements Plans necessary to
obtain such permits and approvals.
2.3 Tenant agrees to utilize Building Standard materials as set forth in
Exhibit B-2 attached hereto.
3. TENANT REQUESTED CHANGES TO TENANT IMPROVEMENTS PLANS
-----------------------------------------------------
3.1 After determination of the Tenant Improvements Plans, Tenant may, at
Tenant's election, request revisions, modifications, changes and amendments to
the Tenant Improvements Plans; and, subject to Landlord's consent and approval,
in the exercise of Landlord's reasonable discretion, the Tenant Improvements
Plans shall be so revised, provided, however, that all costs relating to re-
design of the Tenant Improvements for such change, costs for changes to the
Tenant Improvements Plans, additional permitting or fees which may be required
in connection with such change, and any increased Tenant Improvements
construction costs shall be paid by Tenant. Additionally, delays resulting from
any such changes together with the time period for the preparation of estimates
and review and approval by Landlord and Tenant shall constitute a Tenant Delay
in accordance with the provisions of Section 7 herein. If approved by Landlord,
changes to the Tenant Improvements Plans shall be evidenced by written change
order signed by Landlord, Tenant and the construction contractor. Landlord
shall have the right to decline Tenant's request for a change to the Tenant
Improvements Plans if such changes are inconsistent with the other provisions of
this Agreement or if the change would, in Landlord's opinion, delay completion
of the Tenant Improvements beyond the Commencement Date.
4. DETERMINATION OF FINAL PRICING
------------------------------
<PAGE>
4.1 After the determination of the Tenant Improvements Plans, Landlord
shall prepare a final pricing for Tenant's approval in accordance with the Work
Schedule, taking into account any modifications which may be required to reflect
changes in the Tenant Improvements Plans required by such governmental body in
connection with the issuance of permits and approvals.
5. CONSTRUCTION OF TENANT IMPROVEMENTS
-----------------------------------
5.1 Landlord shall cause the Tenant Improvements to be substantially
completed sufficient for the issuance of a temporary certificate of occupancy
for the Premises on or before the Commencement Date of the Lease in accordance
with the provisions set forth in this Work Letter. Landlord shall supervise the
completion of such work and shall use diligent efforts to secure substantial
completion of the work in accordance with the Work Schedule. The cost of such
work shall be paid as provided in Section 6.
5.2 In connection with the construction of the Tenant Improvements,
Landlord and Tenant shall arrange for Tenant to have access to the Premises
commencing approximately ten (10) days prior to the estimated date for
substantial completion shown on the Work Schedule, in order to allow Tenant to
install systems furniture/workstations, telephone lines and telephone systems,
fiber optics, computer cabling, and related similar matters, and, on a "space
ready" basis only, to commence installation of Tenant's trade fixtures. Tenant
shall schedule installation of such items with Landlord and Landlord's
contractor so as not to unreasonably impede, interfere with or delay the
progress of construction of the Tenant Improvements; and Tenant shall perform
such installation in accordance with guidelines promulgated by Landlord's
contractor. Delay, interference or damage arising out of Tenant's installation
of such items shall constitute a Tenant Delay under Section 7. Any and all
costs of installation of such items shall be at Tenant's sole cost and expense.
5.3 During the period of construction of the Tenant Improvements, Landlord
shall consult with Tenant from time to time as necessary to achieve approval of
certain matters and installations related to the Tenant Improvements. Such
approvals shall be forthcoming from Tenant within a reasonable time period as
requested by Landlord, which time period shall enable Landlord to maintain the
schedule for substantial completion of the Tenant Improvements stated in the
Work Schedule. Failure of Tenant to respond within such requested time period
shall constitute a Tenant Delay.
-2-
<PAGE>
EXHIBIT B
TENANT IMPROVEMENTS
WORK LETTER AGREEMENT
(Page 2 of 3)
5.4 During the period of construction of the Tenant Improvements, Landlord
and Tenant shall meet at regular meetings occurring at least once monthly
regarding the status of the construction and occurring at least once weekly
during the final month of construction. If timely, matters requiring Tenant's
approval may be determined at such meetings and decisions shall be reflected in
the minutes of such meetings.
6. PAYMENT OF COST OF THE TENANT IMPROVEMENTS
------------------------------------------
6.1 Tenant is entitled to a "Tenant Improvement Allowance" of $25.00
per rentable square foot. Rentable square footage is identified as 44,112 square
feet. Such tenant allowance shall be used for:
6.1.1 Payment of the cost of preparing the space plan and final working
drawings and specifications including mechanical, electrical, plumbing and
structural drawings and of all other aspects of the Tenant Improvement Plans.
6.1.2 The payment of plan check, permit and license fees relating to
construction of the Tenant Improvements.
6.1.3 Construction of the Tenant Improvements, including without
limitation the following:
6.1.3.1 Installation within the Premises of all partitioning, doors,
floor coverings, ceilings, wall coverings and painting, millwork and similar
items.
6.1.3.2 All electrical wiring, installation of building standard lighting
fixtures, outlets and switches and other electrical work to be installed within
the Premises.
6.1.3.3 The furnishing and installation of all duct work, terminal boxes,
diffusers and accessories required for the completion of the heating,
ventilation and air conditioning systems within the Premises, including the cost
of meter and key control for after hours heating, ventilation and air
conditioning.
6.1.3.4 Any additional Tenant requirements including but not limited to
odor control, special heating, ventilation and air conditioning, noise or
vibration control or other special systems.
6.1.3.5 All fire and life safety control systems such as fire walls,
halon, fire alarms, including piping, wiring and accessories installed within
the Premises, except fire sprinklers.
6.1.3.6 All plumbing, fixtures, pipes and accessories to be installed
within the Premises.
6.1.3.7 Testing and inspection costs.
6.1.3.8 Contractor's fees, including but not limited to any fees based on
general conditions.
6.1.3.9 All applicable Washington State sales taxes.
6.1.3.10 All demolition and patching of existing walls, doors, relites,
electrical, floor covering, lighting, etc. are included in the allowance.
Landlord shall bear the cost of abatement of any hazardous materials disturbed
as a result of the tenant improvements.
6.2 The cost of each item shall be charged against the Tenant
Improvement Allowance. In the event that the cost of installing the Tenant
Improvements, as established by the final pricing schedule to be determined by
Landlord and Tenant, exceeds the Tenant Improvement Allowance, or if any of the
Tenant Improvements are not to be paid out of the Tenant Improvement Allowance,
then at Tenant's option, the excess of up to $10.00 per rentable square foot or
$441,120 shall be paid by Tenant to Landlord over the term of the lease. This
excess of up to $441,120 shall be amortized over the term of the lease at an
interest rate of 10%, and tenant shall pay Landlord this monthly amortized
amount as
-3-
<PAGE>
additional rent. In the event excess Tenant Improvement costs exceed the Tenant
Improvement Allowance and the amount to amortized of $10.00 per rentable square
foot, or $441,120, then this excess shall be paid in full by Tenant to Landlord
not later than ten (10) days after invoice from Landlord to Tenant for same.
The parties acknowledge that Tenant may apply for a sales tax exclusion or
abatement available to certain businesses for certain equipment and
improvements. Landlord shall reasonably cooperate with Tenant to apply for and
implement same if it is available to Tenant.
6.3 If, after the Tenant Improvement Plans have been established and the
final pricing has occurred, Tenant shall require changes or substitutions to the
Tenant Improvement Plans, any additional costs thereof shall be paid by Tenant
to Landlord not later than ten (10) days after invoice from Landlord to Tenant
for the same. Landlord shall have the right to decline Tenant's request for a
change to the Tenant Improvement Plans if such changes are inconsistent with the
other provisions of this Agreement or if the change would, in Landlord's
opinion, delay completion of the Tenant Improvements beyond the Commencement
Date.
6.4 In the event that the cost of the Tenant Improvements increases as set
forth in Landlord's final pricing due to the requirements of any governmental
agency and such increases exceed any available remaining amount of the Tenant
Improvement Allowance, Tenant shall pay Landlord the amount of such increase
within ten (10) days after receipt of Landlord's invoice for the same.
7. SUBSTANTIAL COMPLETION
----------------------
7.1 The Tenant Improvements shall be deemed substantially complete
notwithstanding the fact that minor details of construction, mechanical
adjustments or decorations which do not materially interfere with Tenant's use
and enjoyment of the Premises remain to be performed (items normally referred to
as "punch list" items). Landlord shall proceed with all due diligence to
complete the punch list items as soon as reasonably possible.
-4-
<PAGE>
EXHIBIT B
TENANT IMPROVEMENTS
WORK LETTER AGREEMENT
(Page 3 of 3)
8. TENANT REPRESENTATIVE
---------------------
8.1 Tenant shall appoint, within thirty (30) days of lease signing, a
Tenant's Representative to act for Tenant in all matters under this Agreement.
All inquiries, requests, instructions, authorizations and other communications
under this Agreement may be made by Landlord to Tenant's Representative. Tenant
may change the identity of Tenant Representative by notice in writing to
Landlord.
9. SIGNAGE DURING CONSTRUCTION
---------------------------
9.1 During the construction period, to the extent permitted by the City of
Seattle, Landlord may provide such signage stating the future tenancy of Tenant
as Landlord deems appropriate.
10. WARRANTIES
----------
10.1 Landlord shall obtain from all contractors and subcontractors
providing material and labor in the construction of the Tenant Improvements all
commercially reasonable warranties (including manufacturers' warranties) for
their respective materials or labor which are available from such contractors or
subcontractors. All such warranties shall be in writing and shall run to
Landlord. To the extent there exists any defect in the Tenant Improvements,
which is covered by the warranties obtained under this Section, Landlord shall
seek to enforce such warranties in accordance with their terms.
11. GENERAL
-------
11.1 The provisions of the lease and of the Exhibits hereto are made a part
of this Agreement. The parties shall execute such further documents and
instruments and take such other further actions as may be reasonably necessary
to carry out the intent and provisions of this Agreement.
-5-
<PAGE>
EXHIBIT B
(continued)
Avenue A, Inc.
WORK SCHEDULE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
ACTION RESPONSIBILITY COMMENCE COMPLETE
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Select Space Planner Tenant & Landlord Complete Complete
- ---------------------------------------------------------------------------------------------
Prepare Schematic Space Plans Tenant Complete Complete
- ---------------------------------------------------------------------------------------------
Approval of Schematic Space Plans Tenant & Landlord 7-1-99 7-8-99
- ---------------------------------------------------------------------------------------------
Contractor Budgeting based on Schematic Space Plans Landlord 7-1-99 7-9-99
- ---------------------------------------------------------------------------------------------
Approval of Preliminary Budget Tenant 7-12-99 7-15-99
- ----------------------------------------------------------------------------------------------
Prepare Tl Construction Documents Tenant 7-8-99 7-19-99
- ---------------------------------------------------------------------------------------------
Approval of Tl Construction Documents Tenant & Landlord 7-19-99 7-21-99
- ---------------------------------------------------------------------------------------------
Building Permit Submittal/City Review Landlord 7-21-99 7-21-99
- ---------------------------------------------------------------------------------------------
Contractor Bidding Landlord 7-20-99 7-27-99
- ---------------------------------------------------------------------------------------------
Receive Bid(s) for Tl Construction Landlord 7-27-99 7-28-99
- ---------------------------------------------------------------------------------------------
Approve Construction Costs Tenant 7-28-99 7-30-99
- ---------------------------------------------------------------------------------------------
Execute Construction Contract Landlord 8-2-99 8-3-99
- ---------------------------------------------------------------------------------------------
Select Carpet and other Finishes Tenant 7-8-99 7-19-99
- ---------------------------------------------------------------------------------------------
Construct Tenant improvements Landlord 7-19-99 10-1-99
- ---------------------------------------------------------------------------------------------
Substantial Completion Landlord 10-1-99 10-1-99
- ---------------------------------------------------------------------------------------------
Commencement Date Tenant & Landlord 10-1-99 10-1-99
- ---------------------------------------------------------------------------------------------
</TABLE>
-6-
<PAGE>
EXHIBIT `B-1'
(Page 1 of 2)
Definition of Building Shell - General Conditions
. New slab infills are included to provide larger floor plates and to improve
circulation.
. Vertical shafts for new HVAC mechanical, electrical, fire protection
systems and stairs will be installed as required through the 21 st floor.
. One new stairwell will be added to the tower serving floors 3 through 21.
The existing north stairwell will remain and will continue to service these
floors, as well as the upper floors.
. Common areas to be finished during shell construction include the elevator
lobbies on all floors 2 - 21, handicap restrooms and mechanical/electrical
rooms. Balance of floor will be in its "as is" condition.
. New unisex rest rooms will be installed on floors 3 to 21 to meet building
code. Restrooms on floors 3 through 21 are to remain as existing.
. Existing interior doors will be reused as is practical to preserve the
character of the building.
. Existing historic operable windows in the Smith Tower will remain.
. Elevator lobbies finished to building standard.
Exterior Walls
. Retaining the existing exterior walls and window systems will preserve the
historic character of the building.
HVAC
. Four-pipe, high-rise, vertical fan coils will provide cooling and heating.
Twenty One (21 ) zones per floor will allow for maximum comfort conditions.
. Main heating energy will be produced via natural gas.
. Two 433-ton high-efficiency water-cooled chillers
. Plate and frame heat exchanger to provide water-side economizer capacity
per WSEC
. Central toilet exhaust system utilizing quiet utility-set type rooftop
centrifugal fan, sized for twenty-five percent (25%) future growth
allowance
. Direct digital controls provide accurate temperature control, minimizing
drift and overshoot; heating signals are "pulsed" to exactly match load
requirements
. Extremely efficient centrifugal water chillers will provide the cooling
energy.
. Decoupled, variable speed controlled chilled water and hot water pumping.
. Provisions for the addition of future cooling capacity is provided for
special use machine rooms, equipment rooms, computer rooms, etc.
. Within the historic Smith Tower, the windows will remain operable,
satisfying requirements for fresh air ventilation on a 24hour basis. Smith
Tour will seal individual windows as requested by Tenant.
Lighting
. Lighting is included in main lobby, stairwells, elevator, mechanical and
utility rooms and other core areas and as required by code.
. An upgraded electrical system is included to service the building (4000
amps, 480 volts). New service is included at each floor sized for
contemporary office loads.
. Common area light fixtures will be upgraded to enhance lighting and the
character of the building.
-7-
<PAGE>
. Landlord will purchase building standard fixtures for the interior of the
premises in an allowance of 1 lineal foot of light fixture per every 20
unfinished square feet of tenant space. Installation of these fixtures will
be included in the tenant improvement allowance.
-8-
<PAGE>
EXHIBIT `B-1'
(Page 2 of 2)
Life Safety
. The space will be fully sprinkled for fire and life safety in an open
office configuration. Additional sprinkler heads required by partitioning
is a tenant improvement cost.
. Exit signs at all stairwells.
. Smoke detectors as required by code. Additional smoke detectors required by
partitioning is a tenant improvement cost.
. Visible and audible fire alarms as required by code. Additional fire alarms
required by partitioning is a tenant improvement cost.
Communication System
. Telephone and data communications to each floor will include Tl, T3 and
fiber optic access.
. Conduit and sleeves to link voice/data backboards floor to floor.
. Communication raceways are included from the phone company vault to a
central communication room and from the communication room to a location on
each floor Communication Improvements are based upon the following design
criteria:
A. Telecommunications Cabling Design Criteria:
1. Cu Riser Sizing- 100 pair per lOK square feet plus 50%
2. F.O. riser Sizing 6 strands per 10K square feet
B. Telecommunications Rooms sizing
1. MDF 0.06% of total building square feet = 150 square feet minimum
2. Stacked IDF/ Electrical room 80 square feet minimum
Elevators and Freight Facilities
. The Smith Tower has an elevator dedicated exclusively for freight on a
scheduled basis.
. The alley accesses the loading area.
Security Access
. Card key system will access building garages(s), of rice building and
inter-connecting stairwell through single card. Tenant will pay for inter-
connecting stair card readers.
Electrical
. New 480 volt service distributed to electrical room on every other floor'
distribution from the electrical room is a tenant improvement cost.
-9-
<PAGE>
EXHIBIT `B-2'
(Page 1 of 3)
Definition of Building Standards
Building Standards shall be defined as follows:
Demising Walls
Existing:
[_] Existing clay tile/plaster walls or metal stud/drywall walls if consistent
with space plan.
[_] Patch to a smooth surface to receive paint.
[_] One coat PVA sealer and one coat interior latex paint per Room Finish
Legend, TI space. Optional colors per lines 11,14,15,16 or 17.
New:
[_] 3-1/2", 25-guage metal studs, one layer 5/8" drywall on finish side of
wall, taped smooth to receive paint. Drywall installed on other side of
wall when adjacent space is occupied.
[_] Height from floor slab to underside of structure above fitted tight to
finish ceiling surfaces including beams and coffers.
[_] 3-1/2" unfaced fiberglass batt insulation between studs full height
[_] One coat PVA sealer and one coat- interior latex paint per Room Finish
Legend, TI Space. Optional colors per lines 11,14,15,16 or 17.
Interior Partitions
Existing:
[_] Existing clay tile/plaster walls or metal stud/drywall walls if consistent
with space plan.
[_] Patch to a smooth surface to receive paint.
[_] One coat PVA sealer and one coat interior latex paint per Room Finish
Legend, TI Space. Optional colors per lines 11,14,15,16 or 17.
New:
[_] 3-1/2", 25-guage metal studs, one layer 5/8" drywall each side of stud,
taped smooth to receive paint.
[_] Height from floor slab to underside of structure above fitted tight to
finish ceiling surfaces including beams and coffers.
[_] One coat PVA sealer and one coat interior latex paint per Room Finish
Legend, TI space. Optional colors per lines 11,14,15,16 or 17.
Exterior Walls and Core Area Walls
[_] Patch to a smooth surface to receive paint.
[_] One coat PVA sealer and one coat interior latex paint per Room Finish
Legend, TI Space. Optional colors per lines 11,14,15,16 or 17.
Interior Columns
[_] Patch to a smooth surface to receive paint or fur with metal framing and
5/8 drywall taped smooth to receive paint.
[_] Height from floor slab to underside of structure above fitted tight to
finish ceiling surfaces including beams and coffers.
-10-
<PAGE>
[_] One coat PVA sealer and one coat interior latex paint per Room Finish
Legend, TI Space. Optional colors per lines 11, 14, 15, 16 or 17.
Ceilings
[_] Patch existing beams and coffers to a smooth surface to receive paint.
[_] One coat PVA sealer and one coat interior latex paint per room Finish
Legend, TI Space colors per lines 12 and 13.
-11-
<PAGE>
EXHIBIT `B-2'
(Page 2 of 3)
Interior Door
[_] Reuse existing metal doors, casing and hardware from building stock.
[_] Existing painted wood grain finish must be maintained in elevator lobbies
and will be maintained in other areas.
[_] Alternatively, doors (except in elevator lobby) and casing may be re-
painted per Room Finish Legend, TI Space, frame and casing color per line 9
and door color per line 10 (provided the wood grain paint has already been
painted over).
[_] Alternate hardware, with bronze finish may be used if approved by Landlord.
Window Frames
[_] Existing painted wood grain finish will be maintained.
[_] Alternatively, window frames may be re-painted per Room Finish Legend, TI
Space, color per line 9.
Wall Base
[_] Existing base will be maintained in existing painted wood grain finish.
[_] Alternatively, existing base or new MDF base (profile to match existing)
can be re-painted per Room Finish Legend, TI Space, color per line 8.
[_] Rubber base in utilitarian areas per Room Finish Legend, TI Space, line 4.
Floor Covering
[_] Carpet is Carnegie W612 Stonehaven, color options per Room Finish Legend,
TI Space, lines 5,6 and 7.
[_] VCT for utilitarian areas iS Armstrong or Mannington per Room Finish
Legend, TI Space, lines 21,22, and 23.
Plastic Laminate (if used)
[_] Plastic laminate selection is Pionite per Room Finish Legend, TI Space,
lines 18,19, and 20.
Heating and Air Conditioning Distribution
[_] HVAC system to and including fan coil box installed under shell
construction.
[_] Any distribution required due to space configuration shall be tenant
improvement construction.
[_] Ductwork shall be exposed round sheet metal routed neatly in the open
ceiling space.
[_] Include diffusers, returns if necessary, and remote thermostats if desired.
Light Fixtures
[_] Light fixtures are ceiling hung direct/indirect linear fluorescent fixtures
with T-8 lamps. Light fixtures are stocked on the floor in a quantity of
one (1) lineal foot of fixture per 20 SF of unfinished space.
[_] Electrical routing for fixtures through existing raceway system or new
neatly organized raceway system in exposed ceiling space.
Conduit/Date Lines
[_] Power distribution and phone data distribution throughout the space shall
be routed along the walls or overhead in a neat and orderly manner by a
raceway system approved by Landlord.
-12-
<PAGE>
EXHIBIT `B-2'
(Page 3 of 3)
Room Finish Legend
Tl Space
Base
- ---------------------------------------------------------------------
Line # Item # Color ID
- ---------------------------------------------------------------------
3 Base-1 IP-10, MDF profile to
match existing
- ---------------------------------------------------------------------
Flexco Base (wallflowers - WF-071)
- ---------------------------------------------------------------------
Line # Item # Color ID
- ---------------------------------------------------------------------
4 RB-1 Black-Brown
- ---------------------------------------------------------------------
Carpet (Carnegie, W612 Stonehaven)
- ---------------------------------------------------------------------
Line # Item # Color ID
- ---------------------------------------------------------------------
5 CPT-3 Cooper Penny (3889)
- ---------------------------------------------------------------------
6 CPT-4 Basket Weave (3880)
- ---------------------------------------------------------------------
7 CPT-5 Lava Stone (3773)
- ---------------------------------------------------------------------
Paint (Sherman Williams - SW Benjamin Moore - BM CresLite --CL)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Line # Item # Color ID Mfgr. Product Location
- -----------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
8 IP-10 #661 (Rev 2) CL Dtm alkyd semigloss Paint at bass in TI spaces
- -----------------------------------------------------------------------------------------------------------
9 IP-11 #661 Statuary CL Metallic with enamel base Paint at window and door trim
- -----------------------------------------------------------------------------------------------------------
10 IP-12 #2820 SW Latex Semi-Gloss Paint at doors
- -----------------------------------------------------------------------------------------------------------
11 IP-13 #1522 SW Latex Satin Paint at walls-typical
- -----------------------------------------------------------------------------------------------------------
12 IP-14 #1131 SW Latex Semi-Gloss Paint at beams in ceiling
- -----------------------------------------------------------------------------------------------------------
13 IP-15 #323 BM Satin Paint at ceiling, Note:
Sprinkler pipes to match
ceiling
- -----------------------------------------------------------------------------------------------------------
14 IP-16 #1550 BM Satin Paint option for wall in TI
Space
- -----------------------------------------------------------------------------------------------------------
15 IP-17 #2206 SW Satin Paint option for wall in TI
Space
- -----------------------------------------------------------------------------------------------------------
16 IP-18 #1128 SW Satin Paint option for wall in TI
Space
- -----------------------------------------------------------------------------------------------------------
17 IP-19 #928 BM Satin Print option for wall in TI
Space
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Plastic Laminate (Pionite)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Line # Item # Color ID Mfgr. Product Location
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
18 P-Lam 1 Sage SV720-S Plastic Laminate option
for casework
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-13-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
19 P-Lam 2 Greige SG210-S Plastic Laminate option
for casework
- -----------------------------------------------------------------------------------------------------------
20 P-Lam 3 Slate SG228-S Plastic Laminate option
for casework
- -----------------------------------------------------------------------------------------------------------
</TABLE>
VCT Tile (Armstrong - ARM Mannington - Man)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Line # Item # Color ID Mfgr. Product Location
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
21 VCT-1 Sandrift White ARM 51858 Floor Tile
- -----------------------------------------------------------------------------------------------------------
22 VCT-2 Earthstone Greige ARM 51804 Floor Tile
- -----------------------------------------------------------------------------------------------------------
23 VCT-3 Verde Medley MAN 405 Floor Tile
- -----------------------------------------------------------------------------------------------------------
</TABLE>
-14-
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the exterior or in any area visible from
the exterior of the Building without the prior written consent of the Landlord,
which consent shall not be unreasonably withheld or delayed. Landlord shall have
the right to remove, at Tenant's expense and without notice, any sign installed
or displayed in violation of this rule. All signs or levering on doors and walls
shall be printed, painted, affixed or inscribed at the expense of Tenant. At the
expiration or termination of Tenant's Lease, Tenant, at Tenant's sole cost and
expense, shall remove all tenant-installed signage and repair and paint any and
all damage resulting from installation and/or removal of said signage.
2. Tenant shall not install any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection with
any window or door of the Premises except building-standard drapes approved by
Landlord. No awning shall be permitted on any part of the Premises. Tenant shall
not place anything against or near glass partitions or doors or windows which
may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, lobbies, halls, passages,
exits, entrances, elevators, or stairways of the Building. The halls, passages,
exits, entrances, lobbies, elevators, and stairways are not open to the general
public. Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of Landlord would
be prejudicial to the safety, character, reputation and interest of the Building
and its Tenants; provided that nothing herein contained shall be construed to
prevent such access to persons with whom any Tenant normally deals in the
ordinary course of its business, unless such persons are engaged in illegal
activities. No Tenant and no employee or invitee of any tenant shall go upon the
roof of the Building without Landlord's prior written consent.
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants' business only, and Landlord
reserves the right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Building and the
Premises, unless otherwise provided in the Lease, shall be provided exclusively
through Landlord, and except with the written consent of Landlord, no person or
persons other than those approved by Landlord shall be employed by Tenant or
permitted to enter the Building for the purpose of cleaning the same. Tenant
shall not cause any unnecessary labor by carelessness or indifference to the
good order and cleanliness of the Premises. Landlord shall not in any way be
responsible to any tenant for any loss of property on the Premises, however
occurring, or for any damage to any tenant's property by the janitor or any
other employee or any other person.
6. Landlord shall furnish Tenant with an appropriate number of keys to
each door lock in the Premises and to the main entrance door of the Building and
Premises. Landlord may make a reasonable charge for any additional keys. Tenant
shall not make or have made additional keys, and Tenant shall not alter any lock
or install a new additional lock or bolt on any door of its Premises. Tenant,
upon termination of its tenancy, shall deliver to Landlord all keys to all doors
which have been furnished to Tenant, and in the event of loss of any keys so
furnished, shall reimburse Landlord for the cost of any new lock(s) required due
to such loss.
7. Tenant shall not install computer cabling, telephone, burglar alarm or
similar services without Landlord's approval for installation of same. Upon
termination of Tenant's tenancy, at Landlord's option, Tenant shall remove any
equipment and/or services from the Premises and shall restore the Premises to
its condition prior to such installation.
8. Freight elevator(s), if any, shall be available for use by all tenants
in the Building, subject to such reasonable scheduling as Landlord in its
discretion shall deem appropriate. No equipment, materials, furniture, packages,
supplies, merchandise or other property will be received in the Building or
carried in the passenger elevators except between such hours and in such
elevators as may be designated by Landlord.
9. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the
-16-
<PAGE>
Building. Heavy objects shall, if considered necessary by Landlord, stand on
such platforms as determined by Landlord to be necessary to properly distribute
the weight of such objects. Business machines and mechanical equipment belonging
to Tenant which cause noise or vibration that may be transmitted to the
structure of the Building or to any space therein or to any tenants in the
Building shall be placed and maintained by Tenant, at Tenant's sole cost and
expense, on vibration eliminators or other devices sufficient to eliminate noise
or vibration. Landlord will not be responsible for loss of, or damage to, any
such equipment or other property from any cause, and all damage done to the
Building by maintaining or moving such equipment or other properly shall be
repaired at the expense of Tenant.
10. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall
not use or permit to be used in the Premises any foul or noxious gas or
substance, or permit or allow the premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Building by
reason of noise, odors, or vibrations, nor shall Tenant bring into or keep in or
about the Premises any animals, including dogs (except seeing-eye dogs)
11. Tenant shall not use any method of heating other than that supplied by
Landlord.
12. Tenant shall not waste electricity, water or air conditioning, and
Tenant agrees to cooperate fully with Landlord to assure the most effective
operation of the Building's heating and air-conditioning system and to comply
with any governmental energy-saving rules, laws or regulations, of which Tenant
has actual notice, and shall refrain from attempting to adjust controls. Tenant
shall keep corridor and exterior doors closed and shall close windows and window
coverings at the end of each business day.
13. The name of the Building is the Smith Tower Building. Landlord
reserves the right, exercisable without notice and without liability to Tenant,
-16-
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF AVENUE A, INC.
I-Balls LLC, a New York limited liability company
Ad Club, Inc., a Washington corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made part of this
registration statement and prospectus.
/s/ Arthur Andersen LLP
Seattle, Washington
December 7, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 847 6,292
<SECURITIES> 0 11,539
<RECEIVABLES> 1,615 19,285
<ALLOWANCES> 70 752
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,401 36,609
<PP&E> 1,184 4,223
<DEPRECIATION> 157 641
<TOTAL-ASSETS> 3,441 45,923
<CURRENT-LIABILITIES> 2,431 23,658
<BONDS> 0 0
0 0
40 164
<COMMON> 121 159
<OTHER-SE> 849 21,942
<TOTAL-LIABILITY-AND-EQUITY> 3,441 45,923
<SALES> 599 34,098
<TOTAL-REVENUES> 599 34,098
<CGS> 125 28,007
<TOTAL-COSTS> 507 30,592
<OTHER-EXPENSES> 3,750 9,091
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (12) (335)
<INCOME-PRETAX> (3,646) (5,250)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,646) (5,250)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,646) (5,250)
<EPS-BASIC> (.50) (.42)
<EPS-DILUTED> (.50) (.42)
</TABLE>
