<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1998
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
--------------------------
MININGCO.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7379 13-4034015
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
220 EAST 42ND STREET, 24(TH) FLOOR
NEW YORK, NEW YORK 10017
(212) 849-2000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------------
MR. SCOTT P. KURNIT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MININGCO.COM, INC.
220 EAST 42ND STREET, 24(TH) FLOOR
NEW YORK, NEW YORK 10017
(212) 849-2000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
------------------------------
Copies to:
<TABLE>
<S> <C>
ALEXANDER D. LYNCH, ESQ. JULIE M. ALLEN, ESQ.
ALAN P. BLAUSTEIN, ESQ. O'SULLIVAN GRAEV & KARABELL, LLP
BROBECK, PHLEGER & HARRISON LLP 30 ROCKEFELLER PLAZA
1633 BROADWAY, 47(TH) FLOOR NEW YORK, NEW YORK 10112
NEW YORK, NEW YORK 10019 (212) 408-2400
(212) 581-1600
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE(2)
<S> <C> <C>
Common Stock, par value $.001 per share $50,000,000 $13,900
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase from the
Company solely to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of computing the amount of the registration
fee.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THIS PROSPECTUS IS DELIVERED IN FINAL FORM. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1998
PROSPECTUS
SHARES
MININGCO.COM, INC. [LOGO]
COMMON STOCK
---------------------
This is an initial public offering of shares of common stock of
MiningCo.com, Inc. MiningCo.com, Inc. is selling all of the shares of
common stock offered under this prospectus.
There is currently no public market for the shares. We intend to apply to have
our common stock approved for listing on the Nasdaq National Market under the
symbol "MINE."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT CERTAIN RISKS THAT YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
-------------------- --------------------
<S> <C> <C>
Public offering price................................................ $ $
Underwriting discounts and commissions............................... $ $
Proceeds, before expenses, to us..................................... $ $
</TABLE>
------------------------
The underwriters may, under certain circumstances, purchase up to an additional
shares of common stock from us at the initial public offering price less
the underwriting discount.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on , 1999.
------------------------
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN & COMPANY
The date of this Prospectus is , 1999.
<PAGE>
[PICTURES OF THE MININGCO.COM HOME PAGE AND
VARIOUS OTHER SCREENS WITHIN MININGCO.COM'S GUIDESITES]
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU
SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS OF INVESTING
IN OUR COMMON STOCK DISCUSSED UNDER "RISK FACTORS." REFERENCES IN THIS
PROSPECTUS TO THE "COMPANY," "WE," "OUR" AND "US" REFER TO MININGCO.COM, INC., A
DELAWARE CORPORATION.
THE COMPANY
MININGCO.COM is a leading Internet news, information and entertainment
service. The Company's network is comprised of over 600 GuideSites, each of
which focuses on a specific topic and is managed by a knowledgeable human guide.
MININGCO.COM provides enhanced Internet navigation through annotated Internet
directories that include more than 400,000 pre-screened links to other web
sites, enabling users to quickly find relevant Internet content. The GuideSite
network also aggregates original high-quality content that is created regularly
by the guides on thousands of subjects. Additionally, the Company's GuideSites
provide focused forums around which organized and moderated online communities
develop. The Company believes that its service offers an enjoyable and efficient
Internet experience for users across a broad range of topics, creating highly
targeted marketing opportunities for advertisers and e-commerce marketers.
According to Media Metrix, Inc., over 4.2 million unique users visited
MININGCO.COM in November 1998, making MININGCO.COM the fourth largest
news/information/ entertainment Internet property in terms of audience reach and
the 26th largest Internet property overall.
MININGCO.COM'S guides are independent contractors and are located in over 40
states and 18 countries. The guides complete a comprehensive 16-week training
process and are monitored for quality and consistency. The Company has exclusive
online rights to all of the guide-developed content. MININGCO.COM'S guides are
compensated based on the greater of a monthly guarantee or a percentage of
revenues generated by all of the GuideSites, which is distributed among the
guides based on the traffic on each guide's respective GuideSite.
The Company believes that its network provides a highly targeted platform
for advertisers and
e-commerce marketers over a broad range of consumer and business categories.
Advertisers and e-commerce partners have significant flexibility in determining
the level of targeting that they want to achieve on MININGCO.COM. For several of
its e-commerce partners, the Company has developed promotional vehicles that
integrate original content from MININGCO.COM with the e-commerce partners'
offerings. The Company believes that such vehicles create a relevant, engaging
purchasing environment for users, while enhancing the value of the Company's
service as an e-commerce platform. Some of the Company's recent advertisers and
e-commerce partners include Bertelsmann Music Group, Citibank, eBay, IBM,
Lowestfare.com, Office Max and Schering-Plough.
STRATEGY
The Company's objective is to become a primary Internet destination and a
leading advertising and e-commerce platform. The Company is focused on
increasing the number of users and page views on MININGCO.COM by:
- Building brand awareness through expanded online and offline marketing
campaigns;
- Broadening existing and developing new distribution and syndication
partnerships; and
- Expanding MININGCO.COM'S functionality, features and content.
1
<PAGE>
The Company also intends to convert traffic into revenues by:
- Broadening its base of advertisers and e-commerce partners and optimizing
its advertising rates by leveraging the increasing flow of traffic in
highly targeted sections within the GuideSite network; and
- Expanding its internal advertising sales force, which will enable the
Company to establish and maintain closer relationships with its
advertisers, advertising agencies and e-commerce marketers, and reduce
advertising sales costs as a percentage of revenues.
The Company was incorporated in New York on June 27, 1996 as General
Internet Inc., and reincorporated in Delaware in December 1998 as MiningCo.com,
Inc. Our principal executive offices are located at 220 East 42nd Street, 24th
Floor, New York, New York 10017. Our telephone number at that location is (212)
849-2000 and our e-mail address is [email protected]. INFORMATION CONTAINED
ON OUR WEB SITE DOES NOT CONSTITUTE PART OF THIS PROSPECTUS.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered............................... shares
Common Stock Outstanding After this Offering (1)... shares
Use of Proceeds.................................... We intend to use the net proceeds of
this offering for working capital and
other general corporate purposes,
including advertising and brand
promotion. We may also use a portion of
the proceeds for strategic alliances
and acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol............. MINE
</TABLE>
- ------------------------
(1) This information excludes (i) 1,178,675 shares of common stock issuable upon
the exercise of stock options outstanding as of the date of this prospectus,
with a weighted average exercise price of $0.82 per share and (ii) 65,860
shares of common stock issuable upon the exercise of warrants outstanding as
of the date of this prospectus, with a weighted-average exercise price of
$9.80 per share. See "Management--1998 Stock Option/Stock Issuance Plan" and
"Description of Securities."
------------------------------
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS: (I) REFLECTS
A 1.00 FOR 2.809 REVERSE STOCK SPLIT OF OUR COMMON STOCK TO BE EFFECTED PRIOR TO
THE CLOSING OF THIS OFFERING; (II) REFLECTS THE AUTOMATIC CONVERSION OF ALL
OUTSTANDING SHARES OF OUR CONVERTIBLE PREFERRED STOCK INTO 6,139,641 SHARES OF
OUR COMMON STOCK UPON THE CLOSING OF THIS OFFERING; AND (III) ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
General Internet, GuideSite, Mining Co., The Mining Company and
MiningCo.com, Inc.'s logo are trademarks of MiningCo.com, Inc. Each trademark,
trade name or service mark of any other company appearing in this prospectus
belongs to its holder.
3
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth certain summary financial data for the
Company. You should read this information together with the financial statements
and the notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------
1996 1997 1997 1998
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues.............................................................. $ -- $ 391 $ 181 $ 1,578
Gross profit (loss)................................................... (91) (1,466) (1,121) (1,271)
Loss from operations.................................................. (2,381) (8,341) (6,702) (8,664)
Net loss.............................................................. (2,438) (8,640) (6,912) (9,109)
Net loss attributable to common stockholders.......................... (2,438) (8,640) (6,912) (9,764)
Basic and diluted net loss per common share (1)....................... $ (1.20) $ (4.94) $ (3.90) $ (5.69)
Weighted average shares outstanding used in basic and diluted net loss
per common share calculation (1).................................... 2,035,144 1,748,850 1,774,167 1,715,927
Pro forma basic and diluted net loss per common share (1)(2).......... $ (1.04) $ (1.10)
Weighted average shares outstanding used in pro forma basic and
diluted net loss per common share calculation (1)(2)................ 8,309,236 8,276,314
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
--------- ------------- ---------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 1,241 $ 15,940
Working capital (deficit).......................................................... (1,704) 12,994
Total assets....................................................................... 3,141 17,839
Notes payable, excluding current portion........................................... 2,432 328
Capital leases, excluding current installments..................................... 199 199
Convertible preferred stock........................................................ 17,297 --
Total stockholders' (deficit) equity............................................... (20,529) 13,570
</TABLE>
- --------------------------
(1) See the financial statements and the notes to such statements appearing
elsewhere in this prospectus for the determination of shares used in
computing basic and diluted and pro forma basic and diluted net loss per
common share.
(2) Gives pro forma effect to (i) the issuance of shares of convertible
preferred stock during the fourth quarter of 1998 in consideration for net
cash proceeds of approximately $12.4 million and the conversion of $1.8
million in outstanding notes payable, (ii) the issuance of 639,634 shares of
common stock upon the exercise of certain warrants in December 1998 in
consideration for net proceeds of approximately $2.3 million and (iii) the
automatic conversion of all outstanding shares of convertible preferred
stock into 6,139,641 shares of common stock upon the closing of this
offering. See "Certain Transactions."
(3) As adjusted to reflect the sale of shares of common stock offered
hereby at an assumed initial public offering price of $ per share
after deducting underwriting discounts and the estimated offering expenses
payable by the Company. See "Use of Proceeds" and "Capitalization."
4
<PAGE>
RISK FACTORS
ANY INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER CAREFULLY THE FOLLOWING INFORMATION ABOUT THESE RISKS, TOGETHER
WITH THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, BEFORE YOU DECIDE TO
BUY OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR
BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION WOULD LIKELY SUFFER. IN
SUCH CASE, THE MARKET PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE
ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK.
LIMITED OPERATING HISTORY
We were incorporated in June 1996 and launched MININGCO.COM in April 1997.
Accordingly, we have a limited operating history upon which you can evaluate our
business. In order to be successful, we must attract more traffic to
MININGCO.COM and generate significant advertising revenues. However, as an early
stage company in the new and rapidly evolving market for Internet services, we
face numerous risks and uncertainties. Some of these risks and uncertainties
relate to our ability to:
- anticipate and adapt to the changing market for Internet services;
- attract a larger audience to, and increase frequency of use of,
MININGCO.COM;
- generate significant advertising revenues;
- increase our internal advertising sales force;
- implement sales and marketing initiatives;
- offer compelling original content;
- attract, retain and motivate qualified personnel;
- respond to actions taken by our competitors;
- build an operations and technical infrastructure to effectively manage our
growth; and
- integrate acquired businesses, technologies and services.
We may not be successful in accomplishing these objectives.
We also depend on the growing use of the Internet for advertising and
e-commerce, and on general economic conditions. The number of Internet users may
not continue to grow and the use of the Internet for advertising or e-commerce
may not become more widespread. If we are unsuccessful in addressing these risks
or in executing our business strategy, our business, results of operations and
financial condition will be materially adversely effected. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAIN PROFITABILITY; HISTORY OF LOSSES; ANTICIPATED CONTINUING LOSSES
Our ability to generate significant revenue is uncertain. We have incurred
substantial costs to create, launch and enhance MININGCO.COM, to build brand
awareness and to grow our business. We incurred net losses of $2.4 million for
the period from June 27, 1996 (inception) to December 31, 1996, $8.6 million for
the year ended December 31, 1997, $6.9 million for the nine months ended
September 30, 1997 and $9.1 million for the nine months ended September 30,
1998. At September 30, 1998, our accumulated deficit was $20.8 million. We
expect losses from operations and negative cash flows to continue for the
foreseeable future because we plan to continue to incur significant expenses. If
our revenues do not increase and if our spending levels are not adjusted
accordingly, we may not generate sufficient revenues to achieve profitability.
Even if we do achieve profitability, we may not sustain or increase
profitability on a quarterly or annual basis in the future. Please see "Selected
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
5
<PAGE>
VOLATILITY OF QUARTERLY OPERATING RESULTS
We expect our quarterly operating results to vary significantly in the
future due to a variety of factors, many of which are outside of our control.
These factors include:
- the demand for advertising on the Internet in general or on MININGCO.COM;
- traffic levels on MININGCO.COM;
- our ability to attract and retain advertisers and e-commerce partners;
- our ability to meet the minimum impressions guarantees required by many of
our advertising contracts;
- the relatively short terms (i.e., one to three months) of many of our
advertising agreements;
- the timing and uncertainty of advertising sales cycles;
- changes in rates paid for Internet advertising resulting from competition
or other factors;
- technical difficulties or system downtime affecting the Internet or the
operation of MININGCO.COM;
- the amount and timing of our costs related to ad sales and marketing
efforts and other initiatives;
- fees we may pay for distribution or content or other costs we may incur as
we expand our operations;
- costs related to acquisitions of businesses, technologies and services;
and
- economic conditions specific to the Internet and Internet services.
Since we expect to be substantially dependent on revenues from advertising
for the foreseeable future, our quarterly revenues are likely to be particularly
affected by traffic levels on MININGCO.COM. Our operating expenses are based on
our expectations of our future traffic levels and revenues and are relatively
fixed in the short term. In particular, we intend to significantly expand our
internal advertising sales force. In addition, in order to build brand awareness
of MININGCO.COM, we intend to significantly increase our marketing budget.
Traffic levels and revenues are difficult to forecast accurately. We may be
unable to adjust spending quickly enough to offset any unexpected revenue
shortfall. If we have a shortfall in revenues in relation to our expenses, or if
our expenses precede increased revenues, then our business, results of
operations and financial condition would be materially and adversely affected.
This could affect the market price of our common stock.
Traffic levels on web sites have typically fluctuated during the summer and
year-end vacation and holiday periods, which could result in a decrease in user
traffic on MININGCO.COM during these periods. We believe that advertising sales
in traditional media, such as television and radio, generally are lower in the
first and third calendar quarters of each year. Similar seasonal or other
patterns may develop in the Internet advertising industry.
Due to all of the foregoing factors and the other risks discussed in this
section, you should not rely on quarter-to-quarter comparisons of our results of
operations as an indication of future performance. It is possible that in some
future periods our results of operations may be below the expectations of public
market analysts and investors. In this event, the price of our common stock is
likely to fall. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE ON THE INTERNET; RISKS ASSOCIATED WITH EVOLVING MARKET
Our future success is substantially dependent on the continued growth in the
use of the Internet. The Internet is relatively new and is rapidly evolving. Our
business would be adversely affected if Internet usage does not continue to
grow. Internet usage may be inhibited for a number of reasons, such as:
- the Internet infrastructure may not be able to support the demands placed
on it, or its performance and reliability may decline as usage grows;
6
<PAGE>
- security and authentication concerns with respect to transmission over the
Internet of confidential information, such as credit card numbers, and
attempts by unauthorized computer users (so-called hackers) to penetrate
online security systems; and
- privacy concerns, such as those related to the placement by web sites of
certain information to gather user information, known as cookies, on a
user's hard drive without the user's knowledge or consent.
Our market is characterized by rapidly changing technologies, evolving
industry standards, frequent new service introductions and changing customer
demands. To be successful, we must adapt to our rapidly evolving market by
continually enhancing MININGCO.COM and introducing new services to address our
customers' changing demands. We could incur substantial costs if we need to
modify our services or infrastructure in order to adapt to these or other
changes affecting providers of Internet services. Our business, results of
operations and financial condition could be materially adversely affected if we
incurred significant costs to adapt, or cannot adapt, to these changes.
RISKS ASSOCIATED WITH INTERNET ADVERTISING
We expect to generate a significant amount of our revenues from Internet
advertising for the foreseeable future. The Internet advertising market is new
and rapidly evolving, and we cannot yet gauge its effectiveness as compared to
traditional advertising media. Our business, results of operations and financial
condition would be materially adversely affected if the market for Internet
advertising fails to develop or develops more slowly than expected. Most of our
current or potential advertising and e-commerce partners have little or no
experience using the Internet for advertising purposes and they have allocated
only a limited portion of their advertising budgets to Internet advertising. The
adoption of Internet advertising, particularly by those entities that have
historically relied upon traditional media for advertising, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. Advertisers that have traditionally relied
upon other advertising media may be reluctant to advertise on the Internet. Such
customers may find Internet advertising to be less effective than traditional
advertising media for promoting their products and services. No standards have
been widely accepted to measure the effectiveness of Internet advertising or to
measure the demographics of the Company's user base. If such standards do not
develop, advertisers may not advertise on the Internet. In addition, we depend
on third parties to provide these measurement services. If they are unable to
provide these services in the future, we would be required to perform them
ourselves or obtain them from another provider. This could cause us to incur
additional costs or cause interruptions in our business during the time we are
replacing these services. We are currently implementing additional systems
designed to record demographic data on our users. If we do not implement these
systems successfully, we may not be able to accurately evaluate the demographic
characteristics of our users. Advertisers and e-commerce marketers may choose to
not advertise on MININGCO.COM or may pay less for advertising on MININGCO.COM if
they do not perceive our measurement or measurements made by third parities to
be reliable, which could have a material adverse effect on our business, results
of operations and financial condition.
Various pricing models are used to sell advertising on the Internet. For
example, advertising rates may be based on the number of "click throughs" (or
user requests for additional information made by clicking on the advertisement)
or on the number of impressions (or times an advertisement is displayed to a
user). Impression-based advertising comprises virtually all of our current
revenues. To the extent that minimum impression levels are not achieved for any
reason, we may be required to provide additional impressions after the contract
term, which may adversely affect the availability of our advertising inventory
and which could have a material adverse effect on our business, results of
operations and financial condition. To the extent minimum guaranteed impressions
are not met, we defer recognition of the corresponding revenues until guaranteed
impression levels are achieved.
Our revenues could be adversely affected if we are unable to adapt to other
pricing models for Internet advertising if they are adopted. It is difficult to
predict which, if any, pricing models for
7
<PAGE>
Internet advertising will emerge as the industry standard. This makes it
difficult to project our future advertising rates and revenues. Moreover,
"filter" software programs that limit or prevent advertising from being
delivered to a Internet user's computer are available. Widespread adoption of
this software could adversely affect the commercial viability of Internet
advertising. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
POTENTIAL LIABILITY FOR CONTENT; GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
There is an increasing number of laws and regulations pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation, quality of products
and services. Moreover, the applicability to the Internet of existing laws
governing issues such as intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment and personal
privacy is uncertain and developing. Any new legislation or regulation, or the
application or interpretation of existing laws, may decrease the growth in the
use of the Internet. This could decrease the demand for our service, increase
our cost of doing business or otherwise have a material adverse effect on our
business, results of operations and financial condition.
Content may be accessed in MININGCO.COM or on the web sites of our
distribution partners, and this content may be downloaded by users and
subsequently transmitted to others over the Internet. In addition, MININGCO.COM
contains over 400,000 annotated links to other web sites. This could result in
claims against us based on a variety of theories, including defamation,
obscenity, negligence, copyright or trademark infringement. Other theories may
be brought based on the nature, publication and distribution of MININGCO.COM
content or based on errors or false or misleading information provided on
MININGCO.COM, including information deemed to constitute professional advice
such as legal, medical, financial or investment advice. We could also be exposed
to liability for third-party content posted by users in chat rooms or bulletin
boards offered on the GuideSites. Potential liability for information
disseminated through MININGCO.COM could lead us to implement measures to reduce
our exposure to such liability, which may require us to spend substantial
resources and limit the attractiveness of our service to users. Please see
"Business--Government Regulations and Legal Uncertainties."
IMPORTANCE OF BRAND IDENTITY
To be successful, we must build the brand identity of MININGCO.COM. In order
to build brand awareness, we must succeed in our marketing efforts, provide
high-quality services and increase traffic to MININGCO.COM. We intend to
increase our marketing budget substantially as part of our brand-building
efforts. If our marketing efforts are unsuccessful or if we cannot increase our
brand awareness, our business, financial condition and results of operations
would be materially adversely affected. Please see "Use of Proceeds."
DEVELOPMENT OF DIRECT ADVERTISING SALES FORCE
On December 28, 1998, our internal advertising sales force had nine members.
In order to support our growth, we need to substantially increase our internal
advertising sales force in the near future. Our ability to do this involves a
number of risks, including:
- the competition we face in hiring and retaining advertising sales
personnel;
- our ability to integrate and motivate additional advertising sales and
advertising sales support personnel;
- our ability to manage a multi-location advertising sales organization; and
- the length of time it takes new advertising sales personnel to become
productive.
8
<PAGE>
Our business, results of operations and financial condition will be adversely
affected if we do not develop and maintain an effective internal advertising
sales force.
HIGHLY COMPETITIVE MARKETS
The number of web sites competing for users and Internet advertisers' and
e-commerce marketers' spending has increased significantly. We expect such
competition to continue to increase because there are no substantial barriers to
entry in our market. Competition may also increase as a result of industry
consolidation. Increased competition could result in less traffic to our web
site, price reductions for our advertising inventory, reduced margins or loss of
market share, any of which would have a material adverse effect on our business,
results of operations and financial condition.
We compete for users, advertisers and e-commerce marketers with the
following:
- Internet retrieval companies, search engines and other Internet "portal"
companies (such as Excite, InfoSeek, Lycos and Yahoo!);
- online content web sites (such as C--net, ESPN.com and ZDNet.com);
- online community web sites (such as iVillage);
- online personal homepage services (such as GeoCities and theglobe.com);
- publishers and distributors of television, radio and print (such as CBS,
Disney, NBC and Time Warner);
- general purpose consumer online services (such as America Online and
Microsoft Network); and
- web sites maintained by Internet service providers (such as AT&T Worldnet,
Earthlink and Netcom).
We believe that our ability to compete depends on many factors, many of
which are outside of our control. These factors include the quality of content
provided by us and our competitors, the ease of use of services developed either
by us or our competitors, the timing and market acceptance of new and enhanced
services developed either by us or our competitors, and 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
customer bases and significantly greater financial, technical and marketing
resources than we do. This may allow them to devote greater resources than we
can to the development and promotion of their services. Such competitors may
also engage in more extensive research and development, undertake more
far-reaching marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to existing and potential employees, guides,
distribution partners, and advertisers and e-commerce partners. Our competitors
may develop services that are equal or superior to MININGCO.COM or that achieve
greater market acceptance than MININGCO.COM. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their services to
address the needs of advertisers and e-commerce marketers. As a result, it is
possible that new competitors may emerge and rapidly acquire significant market
share. We may not be able to compete successfully or competitive pressures may
have a material adverse effect on our business, results of operations and
financial condition.
We also compete with television, radio, cable and print (traditional
advertising media) for a share of advertisers' total advertising budgets. If
advertisers perceive the Internet or MININGCO.COM to be a limited or ineffective
advertising medium, advertisers may be reluctant to devote a significant portion
of their advertising budget to Internet advertising or to advertise on
MININGCO.COM. Please see "Business-- Competition."
DEPENDENCE ON GUIDE NETWORK
Our success depends on our ability to provide a wide range of in-depth,
high-quality content. We are substantially dependent on our network of
independent contractor guides for the provision of
9
<PAGE>
up-to-date content covering thousands of subjects. Our guides may not provide us
with a sufficient amount of high-quality content covering a broad enough range
of subjects. Furthermore, any number of guides may discontinue their
relationship with us. Our business, results of operations and financial
condition would be materially adversely affected if our guides fail to provide
us with adequate content or if we fail to successfully replace the content
provided by former guides on a timely basis. Our business, results of operations
and financial condition would also be materially adversely affected if we are
required to treat guides as employees for tax or employee benefit purposes or
otherwise. Please see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--The Guide Relationship."
NEED TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH THIRD PARTIES
A portion of our traffic comes from non-exclusive, short-term distribution
and other relationships with third-party web sites. These web sites may not
attract significant numbers of users and MININGCO.COM may not receive a
significant number of additional users from these relationships. Moreover, we
may have to pay significant fees to establish additional relationships or
maintain existing relationships in the future. We may also enter into agreements
with advertisers, e-commerce martketers or other third-party web sites that
require us to exclusively feature these parties in certain sections or on
certain pages of MININGCO.COM. Such exclusivity agreements may limit our ability
to enter into other advertising or sponsorship agreements or other strategic
relationships. Many companies we may pursue for strategic relationships also
offer competing services. As a result, these competitors may be reluctant to
enter into strategic relationships with us. Our business, results of operations
and financial condition could be materially adversely affected if we do not
establish and maintain strategic relationships on commercially reasonable terms
or if any of our strategic relationships do not result in increased traffic on
MININGCO.COM. Please see "Business--Distribution Partnerships."
NEED TO MANAGE GROWTH
As of June 30, 1997, we had a total of 59 employees and 460 guides, and, as
of December 21, 1998, we had a total of 104 employees and 601 guides. The 601
guides are independent contractors located in over 40 states and 18 countries.
Certain of our key employees have recently been hired, including our Vice
President--Marketing who was hired in November 1998, and do not have significant
experience working with us or our management team. In addition, we expect to
hire a new Chief Financial Officer in the near future. We expect that the number
of our employees, including management-level employees, will continue to
increase for the foreseeable future. In addition, we expect that the number of
guides will continue to increase as new GuideSites are established. This growth
has placed, and our anticipated future growth will continue to place, a
significant strain on our management systems and resources. We must continue to
improve our operational and financial systems and managerial controls and
procedures, and we will need to continue to expand, train and manage our
workforce. We must also maintain close coordination among our technical,
accounting, finance, marketing, sales and editorial organizations. Our inability
to manage growth effectively could have a material adverse effect on our
business, results of operations and financial condition.
DEPENDENCE ON KEY PERSONNEL
Our future success depends, in part, on the continued service of our key
management personnel, particularly Mr. Scott P. Kurnit, our President, Chief
Executive Officer and Chairman of the Board of Directors, and Mr. William C.
Day, our Chief Operating Officer and Chief Financial Officer. Although we are
the beneficiary of a key person life insurance policy on Mr. Kurnit's life, the
loss of his services, or the services of certain other key employees, would have
a material adverse effect on our business, results of operations and financial
condition.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in our industry is
intense. We may be unable to attract,
10
<PAGE>
assimilate or retain other highly qualified employees in the future. We have
from time to time in the past experienced, and we expect to continue to
experience in the future, difficulty in hiring and retaining highly skilled
employees with appropriate qualifications. Please see "Management."
SYSTEM RISKS
The performance of MININGCO.COM is critical to our business and reputation,
and to our ability to attract users, advertisers and e-commerce partners to
MININGCO.COM. Any system failure, including network, software or hardware
failure, that causes an interruption in our service or a decrease in
responsiveness of MININGCO.COM could result in reduced traffic and reduced
revenue, and could impair our reputation and brand. In March 1998, we entered
into a one-year Internet-hosting agreement with Frontier Global Center
("Frontier") to maintain all of our production servers at Frontier's Manhattan
Data Center. Although Frontier provides comprehensive facilities management
services, including human and technical monitoring of all production servers 24
hours-per-day, seven days-per-week, Frontier does not guarantee that our
Internet access will be uninterrupted, error-free or secure. Our operations
depend on Frontier's ability to protect its and our systems against damage from
fire, power loss, water damage, telecommunications failures, vandalism and other
malicious acts, and similar unexpected adverse events. Any disruption in the
Internet access provided by Frontier could have a material adverse effect on our
business, results of operations and financial condition. Our insurance policies
have low coverage limits and therefore our insurance may not adequately
compensate us for any losses that may occur due to any failures in our system or
interruptions in our service. MININGCO.COM could also be affected by computer
viruses, electronic break-ins or other similar disruptions. MININGCO.COM must
accomodate a high volume of traffic and MININGCO.COM has in the past and may in
the future experience slower response times for a variety of reasons. An
increase in volume of users accessing MININGCO.COM could lead to systems
failures or slower response times and adversely affect our advertising revenues.
Users may become dissatisfied by any system failure that interrupts our ability
to provide MININGCO.COM to them or results in slower response time. Our
business, results of operations and financial condition could be materially
adversely affected by any damage or failure that interrupts or delays our
operations.
Our users and our guides depend on Internet service providers, online
service providers and other web site operators for access to MININGCO.COM. Each
of these providers has experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems. Moreover, the Internet infrastructure may not be able
to support continued growth in its use. Any of these problems could materially
adversely affect our business, results of operations and financial condition.
Please see "Business--Operating Infrastructure."
INTELLECTUAL PROPERTY
We seek to protect our proprietary rights, but our actions may be inadequate
to protect our patents (if issued), trademarks or other proprietary rights or to
prevent others from claiming violations of their proprietary rights. Third
parties may infringe or misappropriate our proprietary rights, which could have
a material adverse effect on our business, results of operations or financial
condition. The validity, enforceability and scope of protection of proprietary
rights in Internet-related industries is uncertain and still evolving.
Furthermore, third parties may assert infringement claims against us. From time
to time we have been, and we expect to continue to be, subject to claims in the
ordinary course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties by us or our
guides. Such claims and any resultant litigation, should it occur, could subject
us to significant liability for damages and could result in the invalidation of
our proprietary rights. In addition, even if we prevail, such litigation could
be time-consuming and expensive to defend, and could result in the diversion of
our time and attention, any of which could materially adversely affect our
business, results of operations and financial condition. Any claims from third
parties may also result in limitations on our ability to use the trademarks and
other intellectual
11
<PAGE>
property subject to such claims unless we enter into agreements with the third
parties responsible for such claims, which may be unavailable on commercially
reasonable terms.
We generally enter into confidentiality agreements with our employees,
guides, consultants and strategic partners, and generally control access to and
distribution of our proprietary information. Despite our efforts to protect our
proprietary rights from unauthorized use or disclosure, parties may attempt to
disclose, obtain or use our proprietary information. The steps we have taken may
not prevent misappropriation of our proprietary information. Please see
"Business--Intellectual Property."
YEAR 2000 RISKS
We have begun to assess the Year 2000 readiness of our software. We are also
in the process of contacting certain third-party vendors, licensors and
providers of hardware, software and services regarding their Year 2000
readiness. Following an assessment and after contacting these third parties, we
will be able to make an evaluation of our state of readiness, potential risks
and costs, and to determine whether a contingency plan is necessary. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of the Year 2000."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
We currently anticipate that the net proceeds from this offering, together
with available funds, will be sufficient to meet our anticipated needs for at
least the next 12 months. We may need to raise additional funds in the future in
order to fund more aggressive brand promotion or more rapid expansion, to
develop new or enhanced services, to respond to competitive pressures or to
acquire complementary businesses, technologies or services. There can be no
assurance that any required additional financing will be available on terms
favorable to us, or at all. If additional funds are raised by our issuing equity
securities, stockholders may experience dilution of their ownership interest and
such securities may have rights senior to those of the holders of our common
stock. If additional funds are raised by our issuing debt, we may be subject to
certain limitations on our operations, including limitations on the payment of
dividends. If adequate funds are not available or not available on acceptable
terms, we may be unable to fund our expansion, successfully promote our brand
name, take advantage of acquisition opportunities, develop or enhance services
or respond to competitive pressures, which could have a material adverse effect
on our business, results of operations and financial condition. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS OR INVESTMENTS
From time to time we have had discussions with companies regarding
acquisitions or investments in complementary companies, technologies or
services. However, we have no present understandings or agreements relating to
any such acquisition or investment. We have no experience in making such
acquisitions or investments. If we make an acquisition, we could have difficulty
in assimilating the acquired company's personnel and operations. In addition,
the key personnel of the acquired business may not continue to work for us.
These difficulties could disrupt our ongoing business, distract our management
and employees, increase our expenses and adversely affect our results of
operations due to increased operating expenses and charges, such as amortization
of goodwill.
SHARES ELIGIBLE FOR FUTURE SALE
The market price of our common stock could decline as a result of sales of a
large number of shares of our common stock in the market after this offering, or
the perception that such sales could occur. Such sales also might make it more
difficult for us to sell equity securities in the future at a time and at a
price that we deem appropriate. After this offering, we will have outstanding
shares of
12
<PAGE>
common stock. Of these shares, the shares being offered hereby will be
freely tradeable. This leaves 8,342,199 shares eligible for sale in the public
market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ------------------ -------------------------------------------------------------------------
<C> <S>
3,128 After the date of this prospectus
3,280 Upon the filing of a registration statement to register for resale shares
of common stock issuable upon the exercise of options granted under our
stock option plan
12,584 At various times after 90 days from the date of this prospectus
5,084,116 After 180 days from the date of this prospectus (subject, in some cases,
to volume limitations)
3,239,091 At various times after 180 days from the date of this prospectus
</TABLE>
As of the date of this prospectus, options to purchase a total of 1,178,675
shares of common stock are outstanding, of which options to purchase 477,722
shares are currently exercisable. Of the options to purchase 700,953 shares of
common stock that are not currently exercisable, options to purchase 373,667
shares of common stock shall immediately vest and become exercisable upon the
closing of this offering. Upon the closing of this offering, we intend to file a
registration statement to register for resale the 1,886,800 shares of common
stock reserved for issuance under our 1998 Stock Option/Stock Issuance Plan (the
"1998 Plan"). We expect such registration statement to become effective
immediately upon filing. Shares issued upon the exercise of stock options
granted under the 1998 Plan will be eligible for resale in the public market
from time to time subject to vesting and, in the case of certain options, the
expiration of the lock-up agreements referred to below.
Upon the closing of this offering, we intend to grant non-qualified stock
options to purchase approximately 350,000 shares of common stock to a
substantial majority of our guides. The exercise price per share of such options
is expected to be the initial public offering price of the common stock. A
majority of these option grants are expected to vest in the following manner:
(i) 10% upon the closing of this offering, (ii) 15% six months following the
closing of this offering and (iii) 25% in each of three semi-annual installments
commencing one year from the closing of this offering. None of the shares
issuable upon the exercise of these options will be subject to a lock-up
agreement with the underwriters as described below.
Our directors and officers and certain of our stockholders who hold
8,204,671 shares in the aggregate, together with the holders of options to
purchase 1,072,756 shares of common stock and the holders of warrants to
purchase 35,600 shares of common stock, have entered into lock-up agreements
pursuant to which they have agreed that they will not sell, directly or
indirectly, any shares of common stock without the prior written consent of
Bear, Stearns & Co. Inc. for a period of 180 days from the date of this
prospectus.
Certain stockholders, holding approximately 6,779,275 shares of common
stock, have the right, subject to certain conditions and limitations, to include
their shares in certain registration statements relating to our securities. By
exercising their registration rights and causing a large number of shares to be
registered and sold in the public market, these holders may cause the price of
the common stock to fall. In addition, any demand to include such shares in our
registration statements could have an adverse effect on our ability to raise
needed capital. Please see "Management--1998 Stock Option/ Stock Incentive
Plan," "Principal Stockholders," "Description of Securities--Registration
Rights," "Shares Eligible for Future Sale" and "Underwriting."
13
<PAGE>
CONTROL BY OFFICERS, DIRECTORS AND AFFILIATED ENTITIES
Our executive officers and directors and entities affiliated with them will,
in the aggregate, beneficially own approximately % of our common stock
following this offering. These stockholders will be able to exercise control
over all matters requiring approval by our stockholders, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of us, which could have a material adverse effect on our stock
price. Please see "Management" and "Principal Stockholders."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for our common
stock. We cannot predict the extent to which investor interest in the Company
will lead to the development of an active trading market or how liquid that
market might become. The initial public offering price for the shares will be
determined by negotiations between the Company and the representatives of the
underwriters and may not be indicative of the market price for the common stock
that will prevail in the trading market. The market price of the common stock
may decline below the initial public offering price. The stock market has
experienced extreme price and volume fluctuations. The market prices of the
securities of Internet-related companies have been especially volatile. In the
past, securities class action litigation has often been instituted against a
company following periods of volatility in the market price of such company's
securities. If instituted against us, regardless of the outcome, such litigation
could result in substantial costs and a diversion of our management's attention
and resources and have a material adverse effect on our business, results of
operations and financial condition. Please see "Underwriting."
BROAD DISCRETION AS TO USE OF PROCEEDS
Our management will have broad discretion with respect to the expenditure of
proceeds. Investors will be relying on the judgment of our management regarding
the application of the proceeds of this offering. Please see "Use of Proceeds."
ANTI-TAKEOVER PROVISIONS
Certain provisions of our Certificate of Incorporation, our Bylaws and
Delaware law could make it more difficult for a third party to acquire us, even
if doing so might be beneficial to our stockholders. Please see "Description of
Securities."
DILUTION
The initial public offering price per share will exceed the net tangible
book value per share. Accordingly, investors purchasing shares in this offering
will incur immediate and substantial dilution in their investment. To the extent
outstanding options to purchase common stock are exercised, there will be
further dilution. Please see "Dilution."
14
<PAGE>
FORWARD LOOKING STATEMENTS; MARKET DATA
Certain statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements. Such forward-looking statements are not historical
facts. Because such forward-looking statements involve risks and uncertainties,
there are important factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements, including
those discussed under "Risk Factors."
This prospectus contains market data related to the Company and the
Internet. Such data has been included in the studies prepared by the Internet
market research firms of International Data Corporation, Jupiter Communications
and Media Metrix, Inc. Such market data includes projections that are based on a
number of assumptions. The assumptions include that: (i) no catastrophic failure
of the Internet will occur; (ii) the number of people online and the total
number of hours spent online will increase significantly over the next five
years; (iii) the value of online advertising dollars spent per online user hour
will increase; (iv) the download speed of content will increase dramatically;
and (v) Internet security and privacy concerns will be adequately addressed. If
any one or more of these assumptions turns out to be incorrect, actual results
may differ from the projections based on such assumptions. The Internet-related
markets may not grow over the next three to four years at the rates projected by
International Data Corporation, Jupiter Communications or Media Metrix, Inc., or
at all. The failure of these markets to grow at such projected rates may have a
material adverse effect on the Company's business, results of operations and
financial condition, and the market price of the Company's common stock.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares offered hereby,
after deducting underwriting discounts and the estimated offering expenses
payable by the Company, are estimated to be approximately $ ($
if the underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $ per share.
The Company intends to use the net proceeds of this offering for working
capital and other general corporate purposes, including advertising and brand
promotion. The Company may also use a portion of the proceeds for strategic
alliances and acquisitions. The Company has not yet determined the amount of net
proceeds to be used specifically for each of the foregoing purposes.
Accordingly, management will have significant flexibility in applying the net
proceeds of this offering. Pending any such use, as described above, the Company
intends to invest the net proceeds in interest-bearing instruments. See "Risk
Factors--Risks Associated with Potential Acquisitions or Investments" and
"--Broad Discretion as to Use of Proceeds."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since inception and does not expect to pay any cash dividends for the
foreseeable future. The Company currently intends to retain future earnings, if
any, to finance the expansion of its business.
16
<PAGE>
CAPITALIZATION
The following table sets forth, as of September 30, 1998, the capitalization
of the Company (i) on an actual basis, (ii) on a pro forma basis to reflect (a)
the issuance of shares of convertible preferred stock during the fourth quarter
of 1998 in consideration for net cash proceeds of approximately $12.4 million
and the conversion of $1.8 million in outstanding notes payable, (b) the
issuance of 639,634 shares of common stock upon the exercise of certain warrants
during December 1998 in consideration for net proceeds of approximately $2.3
million and (c) the automatic conversion of all outstanding shares of
convertible preferred stock into 6,139,641 shares of common stock upon the
closing of this offering, and (iii) on a pro forma as adjusted basis to give
effect to the sale of the shares offered hereby at an assumed initial
public offering price of $ per share, after deducting underwriting
discounts and the estimated offering expenses payable by the Company. This
information should be read in conjunction with the Company's financial
statements and the notes relating to such statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------
<S> <C> <C> <C>
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.......................................... $ 1,241 $ 15,940 $
---------- ----------- -------------
---------- ----------- -------------
Notes payable, excluding current portion........................... $ 2,432 $ 328 $
Obligations under capital leases, excluding current installments... 199 199
Convertible preferred stock, $0.001 par value; 18,662,260 shares
authorized, 9,944,311 shares issued and outstanding actual; no
shares issued and outstanding pro forma or pro forma as
adjusted......................................................... 17,297 -- --
---------- ----------- -------------
Stockholders' (deficit) equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized;
no shares issued and outstanding actual, pro forma or pro forma
as adjusted.................................................... -- --
Common stock, $0.001 par value, 50,000,000 shares authorized;
1,548,540 shares issued and outstanding actual; 8,327,815
shares issued and outstanding pro forma; and shares
issued and outstanding pro forma as adjusted (1)............... 1 8
Additional paid-in capital......................................... 750 34,842
Deferred compensation.............................................. (438) (438)
Accumulated deficit................................................ (20,842) (20,842)
---------- ----------- -------------
Total stockholders' (deficit) equity............................. (20,529) 13,570
---------- ----------- -------------
Total capitalization........................................... $ (601) $ 14,097 $
---------- ----------- -------------
---------- ----------- -------------
</TABLE>
- ------------------------
(1) This information excludes (i) 1,055,340 shares of common stock issuable upon
the exercise of stock options outstanding as of September 30, 1998, with a
weighted average exercise price of $0.59 per share and (ii) 736,341 shares
of common stock issuable upon the exercise of outstanding warrants
outstanding as of September 30, 1998, with a weighted average exercise price
of $4.17 per share. See "Management--1998 Stock Option/Stock Issuance Plan"
and "Description of Securities."
17
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1998 was $13,570,400, or $1.63 per share of common stock. Pro forma net tangible
book value per share is equal to the amount of the Company's total tangible
assets (total assets less intangible assets) less total liabilities, divided by
the pro forma number of shares of common stock outstanding as of September 30,
1998. Assuming the sale by the Company of the shares offered hereby at an
assumed initial public offering price of $ per share and after
deducting the underwriting discounts and the estimated offering expenses payable
by the Company, the pro forma net tangible book value of the Company as of
September 30, 1998 would have been $ , or $ per share of common
stock. This represents an immediate increase in pro forma net tangible book
value of $ per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $ per share to new investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................... $
Pro forma net tangible book value per share as of September 30, 1998.... $
Pro forma increase in net tangible book value attributable to new
investors.............................................................
---------
Pro forma net tangible book value per share after this offering...........
---------
Pro forma dilution per share to new investors............................. $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis, as of September 30,
1998, the total number of shares of common stock purchased from the Company, the
total consideration paid to the Company and the average price per share paid by
existing stockholders and by new investors purchasing shares in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... 8,327,815 % $ 33,512,400 % $ 4.02
New investors..................................
---------- ----- ------------- ----- -----
Total...................................... 100% $ 100% $
---------- ----- ------------- ----- -----
---------- ----- ------------- ----- -----
</TABLE>
The foregoing tables and calculations assume no exercise of outstanding
options or warrants. At September 30, 1998, there were (i) 1,055,340 shares of
common stock reserved for issuance upon exercise of outstanding options at a
weighted average exercise price of $0.59 per share and (ii) 736,341 shares of
common stock reserved for issuance upon exercise of outstanding warrants at a
weighted average exercise price of $4.17 per share, of which warrants to
purchase 639,634 shares of common stock at a weighed average exercise price of
$3.57 per share were exercised during December 1998. To the extent that these
options or warrants are exercised, there will be further dilution to new
investors. See "Management--1998 Stock Option/Stock Issuance Plan" and
"Description of Securities."
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes to such statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. The statement of operations data for the
period from June 27, 1996 (inception) through December 31, 1996 and for the year
ended December 31, 1997, and the balance sheet data at December 31, 1996 and
1997, are derived from the audited financial statements of the Company included
elsewhere in this prospectus. The statement of operations data for each of the
nine-month periods ended September 30, 1997 and 1998, and the balance sheet data
at September 30, 1998, are derived from unaudited interim financial statements
of the Company included elsewhere in this prospectus. The unaudited financial
statements have been prepared on substantially the same basis as the audited
financial statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for such periods. Historical results
are not necessarily indicative of the results to be expected in the future, and
results of interim periods are not necessarily indicative of results for the
entire year.
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1996
(INCEPTION) NINE MONTHS ENDED
THROUGH YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------
1996 1997 1997 1998
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues................................................... $ -- $ 391 $ 181 $ 1,578
Cost of revenues........................................... 91 1,857 1,302 2,849
------------- ------------ ---------- ----------
Gross profit (loss)........................................ (91) (1,466) (1,121) (1,271)
Operating expenses:
Sales and marketing...................................... 241 1,669 1,440 3,202
General and administrative............................... 1,101 2,415 1,923 2,374
Product development...................................... 948 2,791 2,218 1,817
------------- ------------ ---------- ----------
Total operating expenses................................... 2,290 6,875 5,581 7,393
------------- ------------ ---------- ----------
Loss from operations....................................... (2,381) (8,341) (6,702) (8,664)
Other income (expense), net................................ (57) (299) (210) (445)
------------- ------------ ---------- ----------
Net loss................................................... $ (2,438) $ (8,640) $ (6,912) $ (9,109)
------------- ------------ ---------- ----------
------------- ------------ ---------- ----------
Accretion of convertible preferred stock to liquidation
value.................................................... -- -- -- (655)
------------- ------------ ---------- ----------
Net loss attributable to common stockholders............... $ (2,438) $ (8,640) $ (6,912) $ (9,764)
------------- ------------ ---------- ----------
------------- ------------ ---------- ----------
Basic and diluted net loss per common share (1)............ $ (1.20) $ (4.94) $ (3.90) $ (5.69)
------------- ------------ ---------- ----------
------------- ------------ ---------- ----------
Weighted average shares outstanding used in basic and
diluted net loss per common share
calculation (1).......................................... 2,035,144 1,748,850 1,774,167 1,715,927
------------- ------------ ---------- ----------
------------- ------------ ---------- ----------
Pro forma basic and diluted net loss per common share
(1)(2)................................................... $ (1.04) $ (1.10)
------------ ----------
------------ ----------
Weighted average shares used in computing pro forma basic
and diluted net loss per common share calculation
(1)(2)................................................... 8,309,236 8,276,314
------------ ----------
------------ ----------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1998
--------------------- -------------------------
<S> <C> <C> <C> <C>
1996 1997 ACTUAL PRO FORMA(2)
--------- ---------- ---------- -------------
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ 1,647 $ 303 $ 1,241 $ 15,940
Working capital (deficit)....................................... 1,195 (3,098) (1,704) 12,994
Total assets.................................................... 2,039 1,357 3,141 17,839
Notes payable, excluding current portion........................ 3,972 3,348 2,432 328
Capital leases, excluding current installments.................. -- 252 199 199
Convertible preferred stock..................................... -- -- 17,297 --
Total stockholders' (deficit) equity............................ (2,425) (10,944) (20,529) 13,570
</TABLE>
- ------------------------
(1) See the financial statements and the notes to such statements appearing
elsewhere in this prospectus for the determination of shares used in
computing basic and diluted net loss per common share and pro forma basic
and diluted net loss per common share.
(2) Gives pro forma effect to (i) the issuance of shares of convertible
preferred stock during the fourth quarter of 1998 in consideration for net
cash proceeds of approximately $12.4 million and the conversion of $1.8
million in notes payable, (ii) the issuance of 639,634 shares of common
stock upon the exercise of certain warrants during December 1998 in
consideration for net cash proceeds of approximately $2.3 million and (iii)
the automatic conversion of all outstanding shares of convertible preferred
stock into 6,139,641 shares of common stock upon the closing of this
offering. Please see "Certain Transactions."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND THE NOTES TO THOSE STATEMENTS INCLUDED ELSEWHERE IN THIS
PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. PLEASE SEE "RISK FACTORS" AND "FORWARD LOOKING
STATEMENTS; MARKET DATA."
OVERVIEW
MININGCO.COM is a leading Internet news, information and entertainment
service. The Company's network is comprised of over 600 GuideSites, each of
which focuses on a specific topic and is managed by a knowledgeable human guide.
MININGCO.COM provides enhanced Internet navigation through annotated Internet
directories that include more than 400,000 pre-screened links to other web
sites, enabling users to quickly find relevant Internet content. The GuideSite
network also aggregates original high-quality content that is created regularly
by the guides on thousands of subjects. Additionally, the Company's GuideSites
provide focused forums around which organized and moderated online communities
develop. The Company believes that its service offers an enjoyable and efficient
Internet experience for users across a broad range of topics, creating highly
targeted marketing opportunities for advertisers and e-commerce marketers.
For the period from the Company's incorporation on June 27, 1996 through
April 1997, the Company's operating activities related primarily to the initial
development of MININGCO.COM, recruitment of employees and guides, and the
establishment of the Company's organizational and technical infrastructure.
Since the launch of MININGCO.COM in April 1997, revenues and operating expenses
have increased as the Company enhanced its network of guides, expanded its
editorial and operating staff, improved MININGCO.COM's functionality and
promoted MININGCO.COM to increase brand awareness. As part of its marketing
efforts, the Company has conducted online campaigns and, beginning in June 1998,
an offline campaign consisting of a national trade magazine print campaign, and
outdoor and radio advertisements in selected cities.
To date, substantially all of the Company's revenues have been derived from
the sale of advertisements on MININGCO.COM. These sales have been made to both
advertisers (companies that advertise their products and services over the
Internet) and e-commerce marketers (companies that advertise and consummate
transactions over the Internet). The Company expects to derive its revenue
principally from the sale of advertising on MININGCO.COM for the foreseeable
future. The Company currently offers advertisers and e-commerce partners
numerous sizes and types of advertising placement, including banner
advertisements, button advertisements and text links. The Company also offers
sponsorship programs and contests to build brand awareness and drive traffic to
an advertiser's or e-commerce partner's web site. To date, sales of
advertisements on MININGCO.COM have been generated primarily by the Company's
internal advertising sales organization and, to a lesser extent, by third-party
advertising sales representatives. For the nine months ended September 30, 1998,
third-party advertising sales representatives accounted for approximately 27% of
the Company's total revenues. As of December 28, 1998, the Company had an
internal advertising sales organization consisting of nine professionals. The
Company believes that it needs to significantly increase the size of its
internal advertising sales organization to successfully execute its growth
strategy and, accordingly, the Company intends to hire additional advertising
sales professionals. By doing so, the Company believes it can reduce its
advertising sales costs as a percentage of revenue and develop and maintain
closer relationships with advertisers, agencies and e-commerce marketers.
Revenues from advertising sales are recognized ratably in the period in
which the advertisement is displayed, provided that no significant Company
obligations remain and collection of the resulting receivable is probable.
Payments received from advertisers prior to displaying their advertisements on
21
<PAGE>
MININGCO.COM are recorded as deferred revenue and are recognized as revenue
ratably as the advertisements are displayed. Pursuant to its agreements with
advertisers, the Company generally guarantees a minimum number of impressions
(times that an advertisement appears in pages viewed by the users of
MININGCO.COM) for a fixed fee. To the extent minimum guaranteed impression
levels are not met, the Company defers recognition of the corresponding revenues
until the guaranteed impression levels are achieved. During the first nine
months of 1998, 10% of the Company's revenues were generated by barter
agreements (agreements whereby the Company trades advertisements on MININGCO.COM
in exchange for advertisements on third-party web sites). The corresponding
barter expenses, which equal the amount of barter revenues, are included as a
component of cost of revenues.
Advertisers on MININGCO.COM enter into short-term agreements (typically, one
to three months). The Company's agreements with its e-commerce partners are
typically longer in duration, ranging from six months to two years and, in
certain cases, these agreements entitle the Company to a share of revenues
generated by sales of merchandise and services over a particular threshold
resulting from direct links from MININGCO.COM. Through September 30, 1998, the
Company had not recognized any revenues from such revenue sharing agreements.
Any revenues the Company derives from such revenue sharing agreements will be
recognized by the Company upon notification from its advertisers and e-commerce
partners of sales attributable to MININGCO.COM.
Guides are currently compensated at an amount equal to the greater of a
monthly minimum guarantee or a percentage of net revenues generated by the
entire GuideSite network, which is distributed among the guides based on the
traffic on their respective GuideSites. For these purposes, net revenues is
total revenues received less certain non-cash revenues, third-party advertising
sales representative fees, commissions payable to internal advertising sales
personnel and direct distribution costs. In addition, management distributes a
semi-annual discretionary bonus to guides. Guide compensation is included as a
component of cost of revenues.
The Company has recorded deferred compensation expense of approximately
$535,000 for the nine months ended September 30, 1998 in connection with the
grant of certain stock options to employees and directors, representing the
difference between the deemed value of the Company's common stock at the date of
grant for accounting purposes and the exercise price of such options. Such
amount is presented as a reduction of stockholders' equity and amortized over
the vesting period (typically four years) of the applicable options.
Amortization of deferred compensation expense is included in general and
administrative expenses. The Company currently expects to amortize the following
amounts of deferred compensation expense annually: 1998--$136,000;
1999--$108,000; 2000--$108,000; 2001-- $108,000; and 2002--$75,000. However,
$31,000 of the deferred compensation expense will amortize upon the closing of
this offering as a result of the automatic acceleration of certain options.
Amortization of deferred compensation was $98,000 for the nine months ended
September 30, 1998.
During October and December 1998, the Company granted stock options to
purchase 10,111 and 76,629 shares of common stock, respectively, to employees.
The exercise price of such options is $2.81 per share for the October grants and
$4.21 per share for the December grants. As a result, the Company expects to
record deferred compensation expense of approximately $333,000 in the fourth
quarter of 1998, representing the difference between the deemed value of the
Company's common stock at the date of grant and the exercise price of the
options. Such amount will be presented as a reduction of stockholders' equity
and amortized over the vesting period (typically four years) of the applicable
options. The Company also expects to record compensation expense of
approximately $23,000 in the fourth quarter of 1998 in connection with options
granted to consultants in December 1998 to purchase 15,000 shares of common
stock at an exercise price of $4.21 per share.
Upon the closing of this offering, the Company intends to grant
non-qualified stock options to purchase approximately 350,000 shares of common
stock to a substantial majority of its guides. The exercise price per share of
such options is expected to be the initial public offering price of the
22
<PAGE>
common stock. Since the guides are independent contractors, the Company expects
to record deferred compensation expense representing the fair market value of
the options at the date of grant. Such amount will be presented as a reduction
of stockholders' equity and amortized over the vesting period (typically two
years) of the applicable options.
RESULTS OF OPERATIONS
REVENUES. Revenues consist primarily of advertising revenue on
MININGCO.COM. MININGCO.COM was launched in April 1997. Revenues were $0 for the
period from June 27, 1996 (inception) to December 31, 1996 and $391,000 for the
year ended December 31, 1997, which included $73,000 of barter revenues.
Revenues increased from $181,000 for the nine months ended September 30, 1997 to
$1.6 million for the nine months ended September 30, 1998. The Company recorded
$152,000 of barter revenues, representing approximately 10% of total revenues,
for the nine months ended September 30, 1998. The period-to-period growth in
revenues was primarily attributable to an increase in the number of advertisers
and the number of impressions delivered. The Company anticipates that revenues
from advertising will continue to account for substantially all of the Company's
revenues for the foreseeable future, and that barter revenues will remain
relatively constant as a percentage of the Company's total revenues in the
future.
COST OF REVENUES. Since the launch of MININGCO.COM in April 1997, cost of
revenues has consisted primarily of fees paid to guides, third-party Internet
advertising sales commissions, internal advertising sales commissions, salaries
of operations personnel, site hosting and depreciation costs and barter
advertising expenses. In 1996, the Company's first year of operation, cost of
revenues consisted of guide fees and site hosting and depreciation costs
incurred in connection with developing the Company's service. Cost of revenues
was $91,000 for the period from June 27, 1996 (inception) to December 31, 1996
and $1.9 million for the year ended December 31, 1997. Commencing in June 1998,
the Company engaged a third-party Internet advertising sales representative
organization to assist its internal advertising sales force in selling
MININGCO.COM'S advertising inventory in exchange for a service fee. Cost of
revenues was $1.3 million for the nine months ended September 30, 1997 and $2.8
million for the nine months ended September 30, 1998. This period-to-period
growth in cost of revenues was primarily attributable to an increase in the fees
paid to guides and site hosting and depreciation costs, an increase in the
number of operations personnel and the inclusion of commissions and fees paid to
a third-party Internet advertising sales organization.
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist
primarily of online and offline advertising costs, salaries and commissions of
sales and marketing personnel, public relations costs and other marketing
expenses. In 1996, the Company did not dedicate meaningful funds to sales and
marketing as MININGCO.COM was not launched until April 1997. Sales and marketing
expenses were $241,000 for the period from June 27, 1996 (inception) to December
31, 1996 and $1.7 million for the year ended December 31, 1997. The
period-to-period increase in sales and marketing expenses from 1996 to 1997 was
primarily attributable to the initiation of the Company's online advertising and
other promotional expenditures, as well as increased sales and marketing
personnel and related expenses. Sales and marketing expenses increased from $1.4
million for the nine months ended September 30, 1997 to $3.2 million for the
nine months ended September 30, 1998. The period-to-period increase in sales and
marketing expenses was primarily attributable to the initiation of the Company's
offline marketing efforts in June 1998, including a radio, print and outdoor
advertising campaign, and the expansion of the Company's online advertising, as
well as increased sales and marketing personnel and related expenses. Sales and
marketing expenses as a percentage of total revenues have increased as a result
of the continued development and implementation of the Company's branding and
marketing campaigns. The Company expects that sales and marketing expenses will
continue to increase in absolute dollars for the foreseeable future as the
Company increases expenditures for marketing,
23
<PAGE>
promotion and branding, expands its internal advertising sales force and hires
additional marketing personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of salaries and related costs for general corporate functions,
including finance, accounting, facilities and legal expenses, and fees for
professional services. General and administrative expenses were $1.1 million for
the period from June 27, 1996 (inception) to December 31, 1996 and $2.4 million
for the year ended December 31, 1997. General and administrative expenses
increased from $1.9 million for the nine months ended September 30, 1997 to $2.4
million for the nine months ended September 30, 1998. The absolute dollar
increase in general and administrative expenses was primarily attributable to
increased salaries and related expenses associated with hiring additional
personnel, and increased professional fees and facility-related expenses to
support the growth of the Company's operations. The Company expects that it will
incur additional general and administrative expenses as it hires additional
personnel and incurs additional costs related to the growth of its business and
its operation as a public company, including directors' and officers' liability
insurance, investor relations programs and professional service fees.
Accordingly, the Company anticipates that general and administrative expenses
will continue to increase in absolute dollars in future periods.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses include
personnel and consulting costs associated with the design, development and
testing of MININGCO.COM and the Company's systems, editorial personnel costs and
software licensing costs. The Company generally expenses its product development
costs as incurred. Product development expenses were $948,000 for the period
from June 27, 1996 (inception) to December 31, 1996 and $2.8 million for the
year ended December 31, 1997. The increase in absolute dollars was primarily
attributable to increased staffing levels required to support MININGCO.COM and
related back-office systems. Product development expenses decreased from $2.2
million for the nine months ended September 30, 1997 to $1.8 million for the
nine months ended September 30, 1998. The absolute dollar decrease in product
development expenses was primarily attributable to costs, including consulting
fees, associated with the pre-launch development of MININGCO.COM incurred during
the first six months of 1997. The Company believes that timely deployment of new
and enhanced features and technology are critical to attaining its strategic
objectives. Accordingly, the Company intends to continue recruiting and hiring
experienced product development personnel and to make additional investments in
product development. The Company expects that product development expenditures
will increase in absolute dollars in future periods.
OTHER INCOME (EXPENSE), NET. Other income (expense), net includes interest
expense related to the Company's debt and capital lease obligations, net of
income from consulting activities and interest income from the Company's cash
and cash equivalents. Other income (expense), net was $(57,000) for the period
from June 27, 1996 (inception) to December 31, 1996 and $(299,000) for the year
ended December 31, 1997. Other income (expense), net changed from $(210,000) for
the nine months ended September 30, 1997 to $(445,000) for the nine months ended
September 30, 1998. The change was primarily attributable to interest accrued on
outstanding debt obligations. During 1997, the Company provided certain
consulting services to a major financial institution for an aggregate amount of
$450,000. Fees generated by these services, net of expenses, have been recorded
as other income, net of which $350,000 and $194,000 was recorded for the year
ended December 31, 1997 and the nine-month period ended September 30, 1997,
respectively. The Company did not provide consulting services during 1998 and
does not anticipate providing such services in the future.
QUARTERLY RESULTS OF OPERATIONS DATA
The following table sets forth certain unaudited quarterly statement of
operations data for each of the seven quarters ended September 30, 1998. In the
opinion of management, this data has been prepared substantially on the same
basis as the audited financial statements appearing elsewhere in this
24
<PAGE>
prospectus, and include all necessary adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of such data. The
quarterly data should be read in conjunction with the financial statements and
the notes to such statements appearing elsewhere in this prospectus. The results
of operations for any quarter are not necessarily indicative of the results of
operations for any future period.
The Company has a limited operating history upon which to evaluate its
business and predict revenues and plan operating expenses. In order to be
successful, the Company must attract more traffic to MININGCO.COM and generate
significant advertising revenues. The Company expects its quarterly operating
results to vary significantly in the future due to a variety of factors, many of
which are outside its control. Since the Company expects to be substantially
dependent on revenues from advertising for the foreseeable future, its quarterly
revenues are likely to be particularly affected by traffic levels on
MININGCO.COM. In addition, traffic levels on web sites have typically fluctuated
during the summer and year-end periods, which could result in a decrease in user
traffic on MININGCO.COM during these periods. See "Risk Factors--Limited
Operating History" and "--Volatility of Quarterly Operating Results."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MARCH 31, JUNE 30, SEPT 30, DEC 31, MARCH 31, JUNE 30, SEPT 30,
1997 1997 1997 1997 1998 1998 1998
----------- --------- --------- --------- ----------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................. $ -- $ 46 $ 135 $ 210 $ 152 $ 396 $ 1,030
Cost of revenues.......................... 292 495 515 555 582 812 1,455
----------- --------- --------- --------- ----------- --------- ---------
Gross profit (loss)................... (292) (449) (380) (345) (430) (416) (425)
Operating expenses:
Sales and marketing..................... 359 846 235 229 247 948 2,007
General and administrative.............. 729 631 563 492 631 712 1,031
Product development..................... 664 743 811 573 471 594 752
----------- --------- --------- --------- ----------- --------- ---------
Total operating expenses.............. 1,752 2,220 1,609 1,294 1,349 2,254 3,790
----------- --------- --------- --------- ----------- --------- ---------
Loss from operations...................... (2,044) (2,669) (1,989) (1,639) (1,779) (2,670) (4,215)
Other income (expense), net............... (75) (120) (15) (89) (295) (89) (61)
----------- --------- --------- --------- ----------- --------- ---------
Net loss.................................. $ (2,119) $ (2,789) $ (2,004) $ (1,728) $ (2,074) $ (2,759) $ (4,276)
----------- --------- --------- --------- ----------- --------- ---------
----------- --------- --------- --------- ----------- --------- ---------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily through
the private placement of equity securities and the incurrence of indebtedness.
As of September 30, 1998, the Company had $1.2 million in cash and cash
equivalents.
To date, the Company has experienced negative cash flows from operating
activities. Net cash used in operating activities was $6.0 million for the year
ended December 31, 1997 and $7.6 million for the nine months ended September 30,
1998. Net cash used in operating activities for these periods was primarily
attributable to the Company's net losses during these periods, adjusted for
certain non-cash items, a higher level of accounts receivable due to the time
between revenue recognition and the receipt of payments from advertisers, which
was partially offset by increases in accounts payable, accrued expenses and
deferred revenues. For the nine months ended September 30, 1998, the increase in
net cash used in operating activities was primarily attributable to the
Company's net operating loss of $9.1 million.
Net cash used in investing activities was $148,000 for the year ended
December 31, 1997 and $448,000 for the nine months ended September 30, 1998. All
net cash used in investing activities related to capital expenditures, primarily
the acquisition of equipment.
25
<PAGE>
Net cash provided by financing activities was $4.8 million for the year
ended December 31, 1997 and $9.0 million for the nine months ended September 30,
1998. Net cash provided by financing activities in 1997 was primarily
attributable to net proceeds received by the Company from the issuance of notes
payable. Net cash provided by financing activities in 1998 was primarily
attributable to net proceeds from the issuances of loans payable and preferred
stock, and, to a lesser extent, borrowings under a secured credit facility
related to equipment financing.
As of September 30, 1998, the Company's principal capital commitments
consisted of obligations outstanding under capital and operating leases. The
Company has spent approximately $954,000 on capital expenditures since
inception, excluding capital lease agreements. The Company estimates that its
capital expenditures will be approximately $1.7 million for the fourth quarter
of 1998 and will be approximately $4.0 million for 1999. The Company currently
expects that its principal capital expenditures through 1999 will relate to
improvements to its technical infrastructure and expansion of the Company's
headquarters.
The Company's ability to generate significant revenue is uncertain. The
Company has incurred substantial costs to create, launch and enhance
MININGCO.COM, to build brand awareness and to grow its business. The Company
incurred net losses of $2.4 million for the period from June 27, 1996
(inception) to December 31, 1996, $8.6 million for the year ended December 31,
1997, $6.9 million for the nine months ended September 30, 1997, and $9.1
million for the nine months ended September 30, 1998. At September 30, 1998, the
Company had an accumulated deficit of $20.8 million. The Company expects losses
from operations and negative cash flow to continue for the foreseeable future as
a result of its expansion plans and its expectation that its operating expenses,
particularly sales and marketing expenses, will increase significantly in the
next several years. Although the Company has experienced revenue growth in
recent periods, the Company's revenues may not remain at their current level or
increase in the future. If the Company's revenues do not increase and if the
Company's spending levels are not adjusted accordingly, the Company may not
generate sufficient revenues to achieve profitability, which would have a
material adverse effect on the Company's business, results of operations and
financial condition. Even if the Company achieves profitability, it may not
sustain or increase profitability on a quarterly or annual basis in the future.
The Company currently anticipates that the net proceeds of this offering,
together with available funds, will be sufficient to meet its anticipated needs
for at least the next 12 months. The Company may need to raise additional funds
in the future in order to fund more aggressive brand promotion or more rapid
expansion, to develop new or enhanced services, to respond to competitive
pressures or to acquire complementary businesses, technologies or services.
There can be no assurance that any required additional financing will be
available on terms favorable to the Company, or at all. If additional funds are
raised by the issuance of the Company's equity securities, stockholders may
experience dilution of their ownership interest and such securities may have
rights senior to those of the holders of the common stock. If additional funds
are raised by the issuance of debt by the Company, the Company may be subject to
certain limitations on its operations, including limitations on the payment of
dividends. If adequate funds are not available or not available on acceptable
terms, the Company may be unable to fund its expansion, successfully promote its
brand name, take advantage of acquisition opportunities, develop or enhance
services or respond to competitive pressures, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
IMPACT OF THE YEAR 2000
Many currently installed computer systems and software products are coded to
accept or recognize only two digit entries in the date code field. These systems
may recognize a date using "00" as the year 1900 rather than the year 2000. As a
result, computer systems and/or software used by many companies and governmental
agencies may need to be upgraded to comply with such Year 2000 requirements or
risk system failure or miscalculations causing disruptions of normal business
activities.
26
<PAGE>
STATE OF READINESS. The Company has begun to assess the Year 2000 readiness
of its information technology ("IT") systems, including the hardware and
software that enable the Company to provide and deliver MININGCO.COM, and its
non-IT systems. The Company's assessment plan consists of (i) quality assurance
testing of its internally developed proprietary software incorporated in
MININGCO.COM ("Service Software"); (ii) contacting third-party vendors and
licensors of material hardware, software and services that are both directly and
indirectly related to the delivery of MININGCO.COM; (iii) contacting vendors of
material non-IT systems; (iv) assessment of repair or replacement requirements;
(v) repair or replacement; (vi) implementation; and (vii) creation of
contingency plans in the event of Year 2000 failures.
The Company plans to perform a Year 2000 simulation on its Service Software
during the first quarter of 1999 to test system readiness. Based on the results
of its Year 2000 simulation test, the Company intends to revise the code of its
Service Software as necessary to improve the Year 2000 compliance of its Service
Software. The Company has been informed by many of its vendors of material
hardware and software components of its IT systems that the products used by the
Company are currently Year 2000 compliant. The Company will require vendors of
its other material hardware and software components of its IT systems to provide
assurances of their Year 2000 compliance. The Company plans to complete this
vendor process during the first half of 1999. The Company is currently assessing
the materiality of its non-IT systems and will seek assurances of Year 2000
compliance from providers of material non-IT systems. Until such testing is
complete and such vendors and providers are contacted and have responded, the
Company will not be able to completely evaluate whether its IT systems or non-IT
systems will need to be revised or replaced.
COSTS. To date, the Company has not incurred any material costs in
identifying or evaluating Year 2000 compliance issues. Most of its expenses have
related to, and are expected to continue to relate to, the operating costs
associated with time spent by employees in the evaluation process and Year 2000
compliance matters generally. At this time, the Company does not possess the
information necessary to estimate the potential costs of revisions to its
Service Software should such revisions be required or the replacement of
third-party software, hardware or services that are determined not to be Year
2000 compliant. Although the Company does not anticipate that such expenses will
be material, such expenses, if higher than anticipated, could have a material
adverse effect on the Company's business, results of operations and financial
condition.
RISKS. The Company is not currently aware of any Year 2000 compliance
problems relating to Service Software or its IT or non-IT systems that would
have a material adverse effect on the Company's business, results of operations
and financial condition, without taking into account the Company's efforts to
avoid or fix such problems. There can be no assurance that the Company will not
discover Year 2000 compliance problems in its Service Software that will require
substantial revisions or replacements. In addition, there can be no assurance
that third-party software, hardware or services incorporated into the Company's
material IT and non-IT systems will not need to be revised or replaced, which
could be time consuming and expensive. The failure of the Company to fix its
Service Software or to fix or replace third-party software, hardware or services
on a timely basis could result in lost revenues, increased operating costs and
other business interruptions, any of which could have a material adverse effect
on the Company's business, results of operations and financial condition.
Moreover, the failure to adequately address Year 2000 compliance issues in its
Service Software, and its IT and non-IT systems could result in claims of
mismanagement, misrepresentation or breach of contract and related litigation,
which could be costly and time-consuming to defend.
In addition, there can be no assurance that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside the Company's control will be Year 2000 compliant. The failure by such
entities to be Year 2000 compliant could result in a systemic failure beyond the
control of the Company, such as a prolonged Internet, telecommunications or
electrical failure, which could also prevent the Company from delivering
MININGCO.COM, decrease the use of the
27
<PAGE>
Internet or prevent users from accessing MININGCO.COM, any of which would have a
material adverse effect on the Company's business, results of operations and
financial condition.
CONTINGENCY PLAN. As discussed above, the Company is engaged in an ongoing
Year 2000 assessment and has not developed any contingency plans. The results of
the Company's Year 2000 simulation testing and the responses received from
third-party vendors and service providers will be taken into account in
determining the need for and nature and extent of any contingency plans.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued the
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). The Company adopted the provisions of SFAS
130 as of January 1, 1998. SFAS 130 requires the Company to report in its
financial statements, in addition to its net income (loss), comprehensive income
(loss), which includes all changes in equity during a period from non-owner
sources including, as applicable, foreign currency items, minimum pension
liability adjustments and unrealized gains and losses on certain investments in
debt and equity securities. The Company's comprehensive net loss is equal to its
net loss for all periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards
for reporting information about operating segments. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131 is effective for fiscal years beginning after
December 15, 1997. The Company has determined that it does not have any
separately reportable business segments.
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") which provides guidance for
determining whether computer software is internal-use software and accounting
for the proceeds of computer software originally developed or obtained for
internal use and then subsequently sold to the public. SOP 98-1 also provides
guidance on capitalization of the costs incurred for computer software developed
or obtained for internal use. The Company has not yet determined the impact, if
any, of adopting SOP 98-1, which will be effective for the Company's year ending
December 31, 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and for hedging activities.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company currently does not engage or plan to engage in
derivative instruments or hedging activities.
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BUSINESS
OVERVIEW
MININGCO.COM is a leading Internet news, information and entertainment
service. The Company's network is comprised of over 600 GuideSites, each of
which focuses on a specific topic and is managed by a knowledgeable human guide.
MININGCO.COM provides enhanced Internet navigation through annotated Internet
directories that include more than 400,000 pre-screened links to other web
sites, enabling users to quickly find relevant Internet content. The GuideSite
network also aggregates original high-quality content that is created regularly
by the guides on thousands of subjects. Additionally, the Company's GuideSites
provide focused forums around which organized and moderated online communities
develop. The Company believes that its service offers an enjoyable and efficient
Internet experience for users across a broad range of topics, creating highly
targeted marketing opportunities for advertisers and e-commerce marketers.
According to Media Metrix, Inc., over 4.2 million unique users visited
MININGCO.COM in November 1998, making MININGCO.COM the fourth largest
news/information/ entertainment Internet property in terms of audience reach and
the 26th largest Internet property overall.
INDUSTRY BACKGROUND
The Internet is a significant and rapidly growing global medium for
collecting and exchanging information, communicating, entertaining and
conducting business. The growth of this medium is being driven by the
development of compelling Internet content, increasing consumer awareness of the
Internet and inexpensive web access. International Data Corporation estimates
that the number of Internet users worldwide exceeded 68 million in 1997 and will
grow to over 319 million by 2002.
INTERNET ADVERTISING AND E-COMMERCE. Unlike most traditional media, the
Internet allows advertisers to target specific audiences while tracking
impression levels, user demographics and advertisement effectiveness. Jupiter
Communications estimates that online advertising revenues will grow from
approximately $940 million in 1997 to approximately $7.7 billion in 2002.
Since online purchases of goods and services can be less expensive and more
convenient than traditional transactions, the Internet is becoming a powerful
e-commerce platform. The Company believes that as the volume of e-commerce
transactions expands, retailers will offer a greater variety of products and
services over the Internet. Jupiter Communications estimates that the amount of
goods and services purchased in online consumer transactions will grow from
approximately $2.6 billion in 1997 to approximately $37.5 billion in 2002.
INTERNET NAVIGATION. The rapid growth in the amount of information
available on the Internet presents significant challenges for users seeking
specific information and resources. A number of tools have emerged to enable
users to find this information, including Internet directories and search
engines. Internet directories generally list web sites by specific topics of
interest and by their Internet address, thus enabling an interested user to go
directly to the listed site by clicking on the address. However, with the growth
of the content available on the Internet, these directories have become
increasingly difficult to build and maintain with a high level of quality.
Search engines typically use software that searches the Internet to capture,
store and index web site information in order to retrieve web site listings in
response to a query. These software programs have a limited ability to
accurately determine the quality or relevance of the web sites being referenced.
As the Internet grows, the ability of traditional Internet directories and
search engines to provide current and relevant references is likely to diminish,
making these services less useful.
CONTENT. A vast amount of content is being added to the Internet every day
and the quality of this content varies significantly. The Company believes that
higher quality Internet content is typically
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found on topic-specific sites, and is created by individuals who are
knowledgable about their topics. Because these sites tend to be widely
dispersed, users generally must visit a number of unaffiliated sites in order to
access high-quality content on more than one topic. The Company believes that
few Internet services offer aggregated high-quality content across a wide range
of topics.
COMMUNITY. Internet users often seek organized online communities where
they can interact with individuals who share similar interests and find related
information, products and services. The Company believes that few Internet
services provide a broad range of community features. For example, home page
services allow users to create their own web pages and interact with other
users, but often do not provide quality information, products and services. In
addition, home page services often lack paid individuals responsible for
monitoring and organizing the communities.
The Company believes that Internet users are seeking (i) Internet navigation
that enables users to efficiently locate high-quality, relevant content, (ii)
original content developed by knowledgeable authors on a broad range of topics
and (iii) moderated and organized online communities. In addition, the Company
believes that Internet advertisers and e-commerce marketers are seeking a highly
targeted audience with a propensity to purchase goods and services online.
THE MININGCO.COM SOLUTION
The Company, through its network of knowledgeable and paid guides, offers
(i) relevant, filtered Internet directories, (ii) high-quality original content
on thousands of subjects and (iii) hundreds of full-featured online communities.
The guides complete a comprehensive 16-week training process and are monitored
for quality and consistency. The Company believes that MININGCO.COM fosters
brand loyalty, repeat usage and increased duration of visits by providing an
enjoyable, efficient Internet experience. The breadth of the GuideSite network
and the focus of each GuideSite on MININGCO.COM provides advertisers and
e-commerce marketers with highly targeted marketing opportunities across
numerous consumer and business categories.
ENHANCED INTERNET NAVIGATION SERVICE. The Company's network of over 600
GuideSites features annotated Internet directories that include more than
400,000 links to other web sites. The guides regularly search the Internet to
find relevant content sites, or specific pages within a site, and evaluate their
quality and timeliness, saving the user from this time-consuming and often
frustrating task. In addition to pre-screening and selecting links, the guides
provide concise descriptions of the content on each link, enabling users to
quickly indentify relevant Internet content.
HIGH-QUALITY, AGGREGATED CONTENT. The Company's service provides original
content (through features and newsletters) that is created by the guides on a
regular basis. The aggregation of GuideSites allows users to find a broad range
of high-quality content within a single network. The Company has exclusive
online rights to all guide-developed content, which enables the Company to
increase both MININGCO.COM usage and related revenue opportunities. For example,
the Company is able to syndicate this content to other Internet services to
drive traffic to MININGCO.COM. Additionally, the Company can use this content to
create promotional vehicles for its e-commerce partners that integrate this
content with content provided by the e-commerce partner.
RICHER COMMUNITY EXPERIENCE. The Company believes that its GuideSites
provide focused forums around which online communities develop. Each GuideSite
includes a variety of community features that are moderated by the guides,
including bulletin boards, chat and events calendars, as well as quality
information, products and services. The Company believes that its knowledgeable
and paid guides maintain high-quality interaction and organization in their
communities. Users may also e-mail guides directly to seek information.
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TARGETED ADVERTISING AND E-COMMERCE. The Company believes that its service
provides advertisers and e-commerce marketers with a broad range of highly
targeted marketing opportunities. According to the winter 1999 survey of 40,000
Internet users conducted by @Plan, an Internet market research company, the
percentage of MININGCO.COM users that purchase online is higher than users of
leading navigation sites in some of the largest e-commerce categories, including
books, airline tickets/ reservations, computer hardware, general software,
musical CDs/tapes, stocks and mutual funds, event tickets, home banking
software, flowers, Internet software and business equipment.
THE MININGCO.COM STRATEGY
The Company's objective is to become a primary Internet destination and a
leading Internet advertising and e-commerce platform. The key elements of the
Company's strategy include:
BUILDING BRAND AWARENESS. The Company believes that establishing brand
awareness is critical to attracting and retaining users, advertisers and
e-commerce partners. In June 1998, the Company augmented its online marketing
efforts with the initiation of its first significant offline marketing campaign.
The Company intends to build its brand awareness and traffic by significantly
expanding its marketing efforts, including both offline and online marketing
initiatives. The Company also intends to build brand awareness through content
distribution and syndication partnerships.
INCREASING TRAFFIC THROUGH DISTRIBUTION AND SYNDICATION PARTNERSHIPS. In
addition to its marketing and brand building initiatives, the Company believes
that distribution and syndication partnerships are a valuable way to drive
traffic to MININGCO.COM. Through these partnerships, the Company provides
content to a partner's web site, and users can link to MININGCO.COM by clicking
on this content. The Company has formed partnerships with Internet service
providers such as AT&T Worldnet, BellSouth.net and Earthlink; content web sites
such as CBS SportsLine, LifetimeTV.com and Weather.com; and search
engines/Internet directories such as GoTo.com, LookSmart, Metacrawler and
Netscape Communications' NetSearch. The Company intends to expand its existing
distribution and syndication partnerships and to develop relationships with
additional partners in the future.
INCREASING USAGE OF MININGCO.COM. The Company believes that expanding the
functionality, features and content of MININGCO.COM, as well as increasing
internal cross-promotion between GuideSites, will increase user loyalty, repeat
usage and duration per visit. The Company plans to further develop its
registration and personalization processes and to introduce programs to convert
users to members.
EXPANDING INTERNAL ADVERTISING SALES CAPABILITIES. The Company believes
that a strong internal advertising sales organization is essential to
effectively generate revenues from MININGCO.COM. As of December 28, 1998, the
Company had an internal advertising sales staff of nine professionals. To
supplement the efforts of its internal advertising sales staff, the Company uses
third-party advertising sales representatives to sell advertisements. The
Company intends to significantly increase the size of its internal sales staff
in order to maintain closer relationships with its advertisers and e-commerce
partners, to optimize its advertising rates and to reduce advertising sales
costs as a percentage of revenues.
CONVERTING TRAFFIC INTO REVENUES. The Company's service is designed to
offer a highly targeted platform for advertisers and e-commerce partners. The
Company intends to increase its advertising revenues by focusing on a number of
key strategies, including broadening its base of advertisers and e-commerce
partners and optimizing its advertising rates by leveraging the increasing flow
of traffic in highly targeted sections within the GuideSite network.
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MININGCO.COM
The Company's service is a scalable network of more than 600 GuideSites,
each of which focuses on a particular topic and is managed by a knowledgeable
guide who is paid by the Company. The Company's GuideSites are currently
organized into 13 channels and 67 sections:
ARTS/ENTERTAINMENT
Books/Writing
Comedy
Movies
Music
Performing Art
The Arts
TV/Radio
BUSINESS
Business
Finance/Investments
Industries
CAREERS/EDUCATION
Careers
College/Universities
Education
COMPUTING/SCIENCE
Hardware
Multimedia
Net/Online
Operating Systems
Programming
Science
Software
CULTURES/BELIEFS
Americas
Beliefs
Languages
Religion and Philosophy
World
FAMILY
Kids
Parenting
Teens
HEALTH
Alternative Medicine
Disabilities
Diseases/Conditions
Fitness/Wellness
Medicine
Mental Health
Women's Health
HOBBIES/GAMES
Arts/Crafts
Cars/Cycles
Collecting
Electronic
Games-General
Pastimes
LIVING
Food/Drink
Home/Garden
Pets
Relationships
Sexuality
Style
LOCAL
Midatlantic U.S.
Midwest U.S.
New England U.S.
Pacific U.S.
Southeast U.S.
Southwest U.S.
Western U.S.
NEWS/ISSUES
History
Issues/Causes
News/Events
Politics
SPORTS
Individual/Spectator
Recreational
Sports-General
Team/Spectator
Water Sports
TRAVEL
Resources
United States
Vacations
World
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The Company has developed a template for consistent presentation of each
GuideSite's navigational features, content and community tools. This template
includes:
- a welcome page that promotes various aspects of a GuideSite, including the
guide's latest featured article;
- the name, e-mail address and photograph of the guide managing the
GuideSite;
- an Internet directory that provides annotated links to the guide's
selected third-party Internet content;
- an archive of the guide's original content features;
- a guide-created e-mail newsletter to allow GuideSite users to stay in
touch with developments on the GuideSite and the GuideSite's topic;
- a guide-moderated bulletin board where visitors can post questions,
opinions or information;
- a chat room for visitors that is used for regularly scheduled,
guide-hosted chat sessions and unscheduled open chat;
- an events calendar maintained by the guide that lists various activities
and events related to the GuideSite's topic;
- a guide biography page that provides users with background information
regarding the guide; and
- a feedback form for users to submit comments directly to the guide
regarding a particular GuideSite.
In order to receive e-mail newsletters and to access GuideSite bulletin boards
and chat rooms, users first register with MININGCO.COM by providing basic
information.
The Company's editors regularly identify noteworthy content features within
the GuideSites, and combine this content in a variety of formats for users. This
content is used to create daily features on pages within MININGCO.COM (e.g.,
"MININGCO TODAY"), and to develop e-mail newsletters. The Company believes that
these features and newsletters are effective site promotion and user retention
tools.
DISTRIBUTION AND SYNDICATION PARTNERSHIPS
The Company believes that its distribution and syndication partnerships
drive traffic to MININGCO.COM. Through these partnerships, the Company provides
content to a partner's web site, and users can link to MININGCO.COM by clicking
on the content. The flexibility and breadth of the Company's content enables it
to partner with a broad range of Internet companies, including Internet service
providers, content web sites and search engines/Internet directories. The
Company has agreements to provide content to some of the leading Internet
service providers, such as AT&T WorldNet, BellSouth.net and EarthLink.
Additionally, the Company provides content to popular content web sites such as
CBS SportsLine, LifetimeTV.com and Weather.com. The Company also currently has
agreements with search engines/Internet directories such as GoTo.com, LookSmart,
Metacrawler and Netscape Communications' NetSearch. These agreements typically
require the Company to make payments that are either fixed or are based on the
amount of traffic directed from the partner's site to MININGCO.COM. In some
instances, the Company will display a partner's logo and/or color scheme to
users who are directed to MININGCO.COM by that partner.
ADVERTISING AND E-COMMERCE RELATIONSHIPS
The Company believes its service provides a highly targeted platform for
advertisers and e-commerce partners over a broad range of consumer and business
categories. To date, sales of
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advertisements on MININGCO.COM have been generated primarily by the Company's
internal advertising sales organization and, to a lesser extent, by third-party
advertising sales representatives. As of December 28, 1998, the Company had an
internal advertising sales organization consisting of nine professionals,
located in New York, Los Angeles and San Francisco. The Company intends to
significantly increase the size of its internal advertising sales organization.
The Company's internal advertising sales force maintains close relationships
with advertisers and advertising agencies by consulting regularly with them on
design and placement of their Internet-based advertising, by providing them with
advertising measurement analysis and by providing a high level of customer
support. The Company's agreements with its third-party advertising sales
representatives are generally terminable by either party with 90 days' prior
written notice.
The Company's advertisers and advertising agencies enter into short-term
agreements (one to three months) under which they generally receive a guaranteed
number of impressions for a fixed fee. The Company's agreements with its
e-commerce partners are typically longer in length, ranging from six months to
two years and, in certain cases, these agreements entitle the Company to a share
of revenues generated by sales of merchandise or services over a particular
threshold resulting from direct links from MININGCO.COM. Advertisers and
e-commerce partners have significant flexibility in determining the placement of
their advertisements based on the level of targeting they want to achieve. The
Company offers advertisers and e-commerce partners numerous sizes and types of
advertising placement, including banner advertisements, button advertisements
and text links. The Company also offers sponsorship programs and contests to
build brand awareness and to drive traffic to the web sites of its advertisers
and e-commerce partners.
ADVERTISING CUSTOMERS. The following is a list of some of the advertisers
that have advertised on MININGCO.COM during 1998:
- @Hand
- Auction Universe
- Bid.com
- Bell Atlantic's Big Yellow
- Citibank
- Dow Jones Interactive
- eBay
- HomeShark
- House.net
- IBM
- Intellipost
- Schering-Plough
- Tripod
- ValuPage
- Ziff Davis' ZD University
E-COMMERCE PARTNERS. As of December 15, 1998, the Company had e-commerce
partnerships with the following entities:
- Beyond.com (Software)
- BigStar Entertainment (Videos)
- Bertelsmann Music Group (Music CD's)
- EJeweler (Jewelry)
- LowestFare.com (Travel)
- Office Max (Office supplies)
- Trading Direct (Online brokerage)
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The Company leverages its content to facilitate online sales of merchandise
and services. For several of its e-commerce partners, the Company has developed
promotional features that integrate original content from MININGCO.COM with
traditional commercial advertising. The Company provides links to these
integrated promotional web sites by prominently displaying an e-commerce
partner's advertisement within MININGCO.COM. For example, the Company has
developed an online video store for BigStar that integrates BigStar's video
offerings with movie reviews independently written by MININGCO.COM guides. As
part of this promotion, guides can make recommendations for movies related to
their GuideSites' topics that are linked to the BigStar video store. As of
December 26, 1998, over 130 guides had created annotated links to BigStar's
video store within their GuideSites. The Company believes that such features
create a more relevant, engaging purchasing vehicle for users, while enhancing
the value of the Company's service as an e-commerce platform.
MARKETING AND BRAND PROMOTION
The Company believes that an aggressive brand promotion campaign will
increase usage of MININGCO.COM, as well as attract additional advertisers and
e-commerce partners. The Company's markets its service through online
advertising. In addition, the Company has been advertising in selected cities
through traditional offline media, including outdoor and radio advertisements,
and a national trade magazine campaign. The Company also utilizes public
relations, trade shows and ongoing customer communications programs. The Company
intends to use a portion of the net proceeds from this offering to expand its
marketing and brand promotion initiatives.
THE GUIDE RELATIONSHIP
As of December 21, 1998, the Company's 601 guides, 330 of which had been
guides for at least one year, were located in over 40 states and 18 countries.
Through the GuideSites, these independent contractors create annotated Internet
directories, original content and moderate community tools such as bulletin
boards and chat.
APPLICATION AND TRAINING. The Company recruits its guides through various
methods, including searches of the Internet for topic-specific web sites run by
individuals, MININGCO.COM user inquiries, referrals by existing guides and
Internet-based classified job listings. Guide applications are available on
MININGCO.COM and are screened by a team of editors who read and evaluate the
applicant's sample feature and Internet directories, as well as assess the
applicant's knowledge of that topic. Once an application is accepted, the
applicant becomes an associate guide and is placed into a four-week preliminary
training class. During this period, the associate guide is taught how to
construct and maintain a GuideSite, how to administer a bulletin board and chat,
and how to create features and newsletters. At the same time, the Company
reviews the associate guide's feature articles and directories for quality of
organization, annotation, completeness, direct linking to relevant pages within
web sites and writing skills. If the associate guide meets certain qualification
criteria at the end of this period, his or her web site becomes a live GuideSite
and the associate guide becomes a guide.
Following successful completion of the training class, each guide is placed
in a comprehensive 12-week follow-on training and quality control process.
During this period, the editorial staff provides guides with feedback on the
strengths and weaknesses of their particular GuideSite and makes recommendations
for further improvements of both quality and consistency. At the end of this
12-week period, the quality of the GuideSite is rated. This rating is regularly
revisited by the editors and is one of the factors that determines a guide's
minimum compensation.
GUIDE CONTRACTS. Pursuant to the standard guide contract, the Company is
granted an exclusive perpetual license to use guide-developed MININGCO.COM
content on the Internet and on any other commercial online service. In addition,
the Company also retains the right, on a non-exclusive basis, to use the content
in any offline media, subject to the guide sharing in any associated revenue.
The guides
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have agreed to share with the Company any revenue derived from the guide's use
of such content in any offline media. The standard guide contract is terminable
by either party upon 15 days' prior written notice.
GUIDE COMPENSATION. Guides are currently compensated based on the greater
of a monthly guarantee or a percentage of net revenues generated by all of the
GuideSites on MININGCO.COM, which is distributed among the guides based on the
traffic on each guide's respective GuideSite. By compensating guides based on
the net revenues of all of the GuideSites, the guides are provided incentives to
help and encourage each other. In addition, the Company has the ability to
distribute a discretionary bonus to guides based on outstanding content,
exceptional performance and longevity. Upon the closing of this offering, the
Company intends to grant non-qualified stock options to a significant majority
of its guides to purchase an aggregate of approximately 350,000 shares of common
stock at an exercise price per share equal to the initial public offering price.
See "Management--1998 Stock Option/Stock Issuance Plan" and "Shares Eligible for
Future Sale."
EDITORIAL PROCEDURES. The guides are directly supported by a team of 33
Company employees, including 23 editors. Editors regularly monitor each
GuideSite to assess the relevance and quality of features, the management of
community tools and compliance with Company policies. Editors also provide
weekly newsletters and host chats with guides to better communicate GuideSite
tips, including news, ideas for improving sites and marketing information.
ONLINE GUIDE LOUNGE. The Company provides relevant information to the
guides through this password-protected web site and via bulletin boards, chat
and newsletters. The guide lounge includes a library of reference information
for the guides, including Company policies, publishing regulations and other
useful information. The guide lounge also enables guides to become members of
their own community.
OPERATING INFRASTRUCTURE
MININGCO.COM's operating infrastructure is designed to provide timely and
efficient delivery of the service to users. In response to end-user requests,
each page on a GuideSite is generated and delivered by one of the Company's web
and applications servers. The Company's service uses Microsoft Windows NT and
Sun Solaris as operating systems, and Microsoft's Internet Index Server and
Netscape's Enterprise Web server software. MININGCO.COM's functionality
integrates commercial and Company-developed software. All of the Company's
internally developed applications utilize Active Server Page technology, and
many interact with various third-party applications licensed by the Company,
including Microsoft's Internet Index Server search function, Microsoft's SQL
Server database software, Proxicom's Forum Bulletin Board System, Paralogic's
Parachat and L-Soft's Listserv for e-mail newsletters. The Company intends to
add to its serving and technical capabilities as required to meet usage demands.
The Administrative Control Center ("ACC") is the Company's internally
developed Internet-based site management environment. The ACC enables the
Company's globally distributed guides to remotely manage their GuideSites at any
time via a password-protected interface in order to preview and upload content,
view usage and feedback reports, and access administrative tools for
newsletters, chat, bulletin boards and events calendars.
In March 1998, the Company entered into a one-year Internet-hosting
agreement with Frontier to maintain all of the Company's production servers at
Frontier's Manhattan Data Center. Frontier provides a comprehensive facilities
management services including human and technical monitoring of all production
servers 24 hours per day, seven days per week. Frontier provides the means of
connectivity for MININGCO.COM's servers to end-users via the Internet through
multiple DS3 and OC12 connections. These connections link to many different
parts of the Internet via a combination of public
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and private peering agreements. The facility has two independent uninterruptible
power supplies ("UPSs"), which are battery-powered, as well as two independent
diesel generators designed to provide power to the UPS systems within seconds of
a power outage. The diesel generators can supply the data center's power for 9
days before refueling is required. Frontier does not guarantee that the
Company's Internet access will be uninterrupted, error-free or secure. The
Company's operations are dependent on Frontier's ability to protect both
Frontier's and the Company's systems against damage from fire, power loss, water
damage, telecommunications failures, vandalism and other malicious acts, and
similar unexpected adverse events. Any disruption in the Internet access
provided by Frontier could have a material adverse effect on the Company's
business, results of operations and financial condition. Our insurance policies
have low coverage limits and therefore our insurance may not adequately
compensate us for any losses that may occur due to any failures in our system or
interruptions in our service. MININGCO.COM could also be affected by computer
viruses, electronic break-ins or other similar disruptions. MININGCO.COM must
accommodate a high volume of traffic and MININGCO.COM has in the past and may in
the future experience slower response times for a variety of reasons. An
increase in volume of users accessing MININGCO.COM could lead to systems
failures or slower response times and adversely affect our advertising revenues.
Users may become dissatisfied by any system failure that interrupts the
Company's ability to provide MININGCO.COM to them or results in slower response
time. The Company's business, results of operations and financial condition
could be materially adversely affected by any damage or failure that interrupts
or delays our operations.
All of the Company's production data is copied to backup tapes each night
and these backup tapes are rotated to a third-party facility for off-site
storage. The Company is in the process of developing a comprehensive disaster
recovery plan to respond to system failures. The Company keeps all of its
production servers behind packet-filtered routers and does not allow any outside
access to any administrative functions. Strict password management and physical
security measures are followed.
The Company's users and guides depend on Internet service providers, online
service providers and other web site operators for access to MININGCO.COM. Each
of these providers and operators has experienced significant outages in the
past, and could experience outages, delays and other difficulties due to system
failures unrelated to the Company's systems. Moreover, the Internet
infrastructure may not be able to support continued growth in its use. Any of
these problems could materially adversely affect the Company's business, results
of operations and financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
GENERAL. There is an increasing number of laws and regulations pertaining
to the Internet. In addition, a number of legislative and regulatory proposals
are under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and quality of
products and services. Moreover, the applicability to the Internet of existing
laws governing issues such as intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment and personal
privacy is uncertain and developing. Any new legislation or regulation, or the
application or interpretation of existing laws, may decrease the growth in the
use of the Internet, which could in turn decrease the demand for the Company's
service, increase the Company's cost of doing business or otherwise have a
material adverse effect on the Company's business, results of operations and
financial condition.
LIABILITY FOR INFORMATION RETRIEVED FROM MININGCO.COM AND FROM THE
INTERNET. Content may be accessed on MININGCO.COM or on the web sites of the
Company's distribution partners, and this content may be downloaded by users and
subsequently transmitted to others over the Internet. This could result in
claims against the Company based on a variety of theories, including defamation,
obscenity, negligence, copyright or trademark infringement or other theories
based on the nature, publication and distribution of this content. These types
of claims have been brought, sometimes successfully, against
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providers of Internet services in the past. The Company could also be exposed to
liability with respect to third-party content that may be posted by users in
chat rooms or bulletin boards offered on the GuideSites. It is also possible
that if any information, including information deemed to constitute professional
advice such as legal, medical, financial or investment advice, provided on
MININGCO.COM contains errors or false or misleading information, third parties
could make claims against the Company for losses incurred in reliance on such
information. MININGCO.COM contains over 400,000 human-filtered annotated links
to other web sites. As a result, the Company may be subject to claims alleging
that, by directly or indirectly providing links to other web sites, the Company
is liable for copyright or trademark infringement or the wrongful actions of
third parties through their respective web sites. The Communications Decency Act
of 1996 (the "CDA") provides that, under certain circumstances, a provider of
Internet services shall not be treated as a publisher or speaker of any
information provided by a third-party content provider. This safe harbor has
been interpreted to exempt certain activities of providers of Internet services.
The Company's activities may prevent it from being able to take advantage of
this safe harbor provision. While the Company attempts to reduce its exposure to
such potential liability through, among other things, provisions in guide
agreements, user policies and disclaimers, the enforceability and effectiveness
of such measures are uncertain.
The Company's general liability insurance may not cover all potential claims
to which the Company is exposed and may not be adequate to indemnify the Company
for all liability that may be imposed. Any imposition of liability that is not
covered by insurance or is in excess of insurance coverage could have a material
adverse effect on the Company's business, results of operations and financial
condition. Even to the extent that such claims do not result in liability to the
Company, the Company could incur significant costs in investigating and
defending against such claims. Potential liability for information disseminated
through MININGCO.COM could lead the Company to implement measures to reduce its
exposure to such liability, which may require the expenditure of substantial
resources and limit the attractiveness of the Company's service to users.
STATUS OF THE GUIDES AS INDEPENDENT CONTRACTORS. The Company treats the
guides as independent contractors for tax and employee benefit purposes. One or
more jurisdictions may deem the guides to be employees of the Company rather
than independent contractors and seek to impose taxes (and any applicable
interest and penalties) on the Company. The law regarding the distinction
between independent contractors and employees is not entirely clear. The Company
could have substantial tax and employee benefit liabilities if it were
ultimately determined that the guides are employees of the Company.
ONLINE CONTENT REGULATIONS. Several federal and state statutes prohibit the
transmission of certain types of indecent, obscene or offensive content over the
Internet to certain persons. In addition, pending legislation seeks to ban
Internet gambling and federal and state officials have taken action against
businesses that operate Internet gambling activities. The enforcement of these
statutes and initiatives, and any future enforcement activities, statutes and
initiatives, may result in limitations on the type of content and advertisements
available on MININGCO.COM. Legislation regulating online content could dampen
the growth in use of the Internet generally and decrease the acceptance of the
Internet as an advertising and e-commerce medium, which could have a material
adverse effect on the Company's business, results of operations and financial
condition.
PRIVACY CONCERNS. The Federal Trade Commission (the "FTC") is considering
adopting regulations regarding the collection and use of personal identifying
information obtained from individuals when accessing web sites, with particular
emphasis on access by minors. Such regulations may include requirements that
companies establish certain procedures to, among other things: (i) give adequate
notice to consumers regarding information collection and disclosure practices,
(ii) provide consumers with the ability to have personal identifying information
deleted from a company's database, (iii) provide consumers with access to their
personal information and with the ability to rectify inaccurate
38
<PAGE>
information, (iv) clearly identify affiliations or a lack thereof with third
parties that may collect information or sponsor activities on a company's web
site and (v) obtain express parental consent prior to collecting and using
personal identifying information obtained from children under 13 years of age.
Such regulation may also include enforcement and redress provisions. While the
Company has implemented or intends to implement programs designed to enhance the
protection of the privacy of its users, including children, there can be no
assurance that such programs will conform with any regulations adopted by the
FTC. Moreover, even in the absence of such regulations, the FTC has begun
investigations into the privacy practices of companies that collect information
on the Internet. One such investigation has resulted in a consent decree
pursuant to which an Internet company agreed to establish programs to implement
the principles noted above. The Company may become subject to such an
investigation, or the FTC's regulatory and enforcement efforts may adversely
affect the ability to collect demographic and personal information from users,
which could have an adverse effect on the Company's ability to provide highly
targeted opportunities for advertisers and e-commerce marketers. Any such
developments would have a material adverse effect on the Company's business,
results of operations and financial condition.
It is also possible that cookies (information keyed to a specific server,
file pathway or directory location that is stored on a user's hard drive,
possibly without the user's knowledge) used to track demographic information and
to target advertising may become subject to laws limiting or prohibiting their
use. A number of Internet commentators, advocates and governmental bodies in the
United States and other countries have urged the passage of laws limiting or
abolishing the use of cookies. Limitations on or elimination of the Company's
use of cookies could limit the effectiveness of the Company's targeting of
advertisements, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
The European Union (the "EU") has adopted a directive (the "Directive") that
imposes restrictions on the collection and use of personal data. Under the
Directive, EU citizens are guaranteed certain rights, including the right of
access to their data, the right to know where the data originated, the right to
have inaccurate data rectified, the right to recourse in the event of unlawful
processing and the right to withhold permission to use their data for direct
marketing. The Directive could, among other things, affect U.S. companies that
collect information over the Internet from individuals in EU member countries,
and may impose restrictions that are more stringent than current Internet
privacy standard in the United States. In particular, companies with offices
located in EU countries will not be allowed to send personal information to
countries that do not maintain adequate standards of privacy. The Directive does
not, however, define what standards of privacy are adequate. As a result, there
can be no assurance that the Directive will not adversely affect the activities
of entities such as the Company that engage in data collection from users in EU
member countries.
DATA PROTECTION. Legislative proposals have been made by the federal
government that would afford broader protection to owners of databases of
information (e.g., stock quotes and sports scores). Such protection already
exists in the EU. If enacted, this legislation could result in an increase in
the price of services that provide data to web sites. In addition, such
legislation could create potential liability for unauthorized use of such data.
Either of these possibilities could have a material adverse effect on the
Company's business, results of operations and financial condition.
INTERNET TAXATION. A number of legislative proposals have been made at the
federal, state and local level, and by certain foreign governments, that would
impose additional taxes on the sale of goods and services over the Internet and
certain states have taken measures to tax Internet-related activities. Although
Congress recently placed a three-year moratorium on state and local taxes on
Internet access or on discriminatory taxes on electronic commerce, existing
state or local laws were expressly excepted from this moratorium. Further, once
such moratorium is lifted, some type of federal and/or state taxes may be
imposed upon Internet commerce. Such legislation or other attempts at regulating
commerce
39
<PAGE>
over the Internet may substantially impair the growth of commerce on the
Internet and, as a result, adversely affect the Company's opportunity to derive
financial benefit from such activities.
ARRANGEMENTS WITH E-COMMERCE PARTNERS. The Company enters into agreements
with certain e-commerce partners under which the Company may be entitled to
receive a share of certain revenue generated from the purchase of goods and
services through direct links from MININGCO.COM. Such agreements may expose the
Company to additional legal risks and uncertainties, including potential
liabilities to consumers of such products and services by virtue of the
Company's involvement in providing access to such products or services, even if
the Company does not itself provide such products or services. Any
indemnification provided to the Company in its agreements with these parties, if
available, may not be adequate.
DOMAIN NAMES. Domain names are the user's Internet "addresses." The current
system for registering, allocating and managing domain names has been the
subject of litigation, including trademark litigation, and of proposed
regulatory reform. The Company has registered the domain name "MININGCO.COM."
Although the Company is seeking to register "MININGCO.COM" as a trademark, third
parties may bring claims for infringement against the Company for the use of
this trademark. There can be no assurance that the Company's domain names will
not lose their value, or that the Company will not have to obtain entirely new
domain names in addition to or in lieu of its current domain names if reform
efforts result in a restructuring in the current system.
JURISDICTIONS. Due to the global nature of the Internet, it is possible
that, although transmissions by the Company over the Internet originate
primarily in New York, the governments of other states and foreign countries
might attempt to regulate the Company's transmissions or prosecute the Company
for violations of their laws. Such laws may be modified, or new laws enacted, in
the future. Any of the foregoing developments could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, as the Company's service is available over the Internet in multiple
states and foreign countries, such jurisdictions may claim that the Company is
required to qualify to do business as a foreign corporation in each such state
or foreign country. The Company is qualified to do business only in California
and New York, and failure by the Company to qualify as a foreign corporation in
a jurisdiction where it is required to do so could subject the Company to taxes
and penalties and could result in the inability of the Company to enforce
contracts in such jurisdictions. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to the Company's business, or the application of existing laws
and regulations to the Internet and other online services could have a material
adverse effect on the Company's business, results of operations and financial
condition.
INTELLECTUAL PROPERTY
The Company seeks to protect its proprietary rights, but its actions may be
inadequate to protect its patents (if issued), trademarks or other proprietary
rights or to prevent others from claiming violations of their proprietary
rights. As of the date hereof, the Company has one United States patent pending,
four patent applications on file with the United States Patent and Trademark
Office and one international patent application. Third parties may infringe or
misappropriate the Company's proprietary rights, which could have a material
adverse affect on the Company's business, results of operations and financial
condition. The validity, enforceability and scope of protection of proprietary
rights in Internet-related industries is uncertain and still evolving.
Furthermore, third parties may assert infringement claims against the Company.
From time to time the Company has been, and the Company expects to continue to
be, subject to claims in the ordinary course of its business, including claims
of alleged infringement of the trademarks and other intellectual property rights
of third parties by the Company or its guides. Such claims and any resultant
litigation, should it occur, could subject the Company to significant liability
for damages and could result in the invalidation of the Company's
40
<PAGE>
proprietary rights. In addition, even if the Company prevails, such litigation
could be time-consuming and expensive to defend, and could result in the
diversion of management's time and attention, any of which could materially
adversely affect the Company's business, results of operations and financial
condition. Any claims from third parties may also result in limitations on the
Company's ability to use the trademarks and other intellectual property subject
to such claims unless the Company enters into agreements with the third parties
responsible for such claims, which may be unavailable on commercially reasonable
terms.
The Company generally enters into confidentiality agreements with its
employees, guides, consultants and strategic partners, and generally controls
access to and distribution of its proprietary information. Despite the Company's
efforts to protect its proprietary rights from unauthorized use or disclosure,
parties may attempt to disclose, obtain or use its proprietary information. The
steps the Company has taken may not prevent misappropriation of its proprietary
information.
COMPETITION
The number of web sites competing for users and Internet advertisers' and
e-commerce marketers' spending has increased significantly. The Company expects
such competition to continue to increase because there are no substantial
barriers to entry in its market. Competition may also increase as a result of
industry consolidation. Increased competition could result in less traffic on
the Company's web site, price reductions for advertising inventory, reduced
margins or loss of market share, any of which would have a material adverse
effect on the Company's business, results of operations and financial condition.
The Company competes for users, advertisers and e-commerce marketers with
the following:
- Internet retrieval companies, search engines and other Internet "portal"
companies (such as Excite, InfoSeek, Lycos and Yahoo!);
- online content web sites (such as C--net, ESPN.com and ZDNet.com);
- online community web sites (such as iVillage);
- online personal homepage services (such as GeoCities and theglobe.com);
- publishers and distributors of television, radio and print (such as CBS,
Disney, NBC and Time Warner);
- general purpose consumer online services (such as America Online and
Microsoft Network); and
- web sites maintained by Internet service providers (such as AT&T WorldNet,
EarthLink and Netcom).
The Company believes that its ability to compete depends on many factors,
many of which are outside of its control. These factors include the quality of
content provided by the Company and its competitors, the ease of use of services
developed either by the Company or its competitors, the timing and market
acceptance of new and enhanced services developed either by the Company or its
competitors, and sales and marketing efforts.
Many of the Company's existing competitors, as well as a number of potential
new competitors, have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than the Company. This may allow them to devote greater
resources than the Company can to the development and promotion of their
services. Such competitors may also engage in more extensive research and
development, undertake more far-reaching marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to existing and
potential employees, guides, distribution partners, and advertisers and
e-commerce partners. The Company's competitors may develop services that are
equal or superior to MININGCO.COM or that achieve
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greater market acceptance than MININGCO.COM. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their services to
address the needs of advertisers and e-commerce marketers. As a result, it is
possible that new competitors may emerge and rapidly acquire significant market
share. The Company may not be able to compete successfully or competitive
pressures may have a material adverse effect on the Company's business, results
of operations and financial condition.
The Company also competes with television, radio, cable and print
(traditional advertising media) for a share of advertisers' total advertising
budgets. If advertisers perceive the Internet or MININGCO.COM to be a limited or
ineffective advertising medium, advertisers may be reluctant to devote a
significant portion of their advertising budget to Internet advertising or to
advertise on MININGCO.COM.
EMPLOYEES AND GUIDES
As of December 21, 1998, the Company had 104 full-time employees, including
23 in marketing and sales, 33 in editorial and guide support, nine in finance
and administration and 39 in product development, operations and technical
support. As of December 21, 1998, the Company had 601 guides and an additional
79 guides in training. None of the guides are employed by the Company, but
rather they are engaged by the Company as independent contractors. None of the
Company's employees are represented by a union. The Company believes its
relationship with its employees and the guides is good.
FACILITIES
The Company's headquarters are currently located in a leased facility in New
York City, consisting of approximately 12,000 square feet of office space that
is under a four-year lease with two years remaining. The Company also entered
into a six-month lease for approximately 3,000 square feet of commercial space
in Westchester, New York. The Company believes that additional space will be
available on commercially acceptable terms.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
The following table sets forth, as of December 29, 1998, the name, age and
position within the Company of each director, executive officer and other key
employee of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Scott P. Kurnit*(1)....................... 44 Chairman of the Board of Directors, President and Chief
Executive Officer
William C. Day*........................... 34 Chief Operating Officer and Chief Financial Officer
Alan T. Wragg*............................ 55 President--Advertising Sales and E-Commerce
John R. Caplan............................ 29 Vice President--Marketing
A. Jeffrey Radov.......................... 47 Vice President--Business Development
Elizabeth A. Maier........................ 46 Vice President--Product Design and Development
Eric W. Bingham........................... 39 Vice President--Business Operations
Olga V. Taller............................ 41 Vice President--Guide Operations
Robert W. Harris.......................... 41 Vice President--Finance and Administration
Kenneth H. Appleman....................... 40 Vice President--Chief Technology Officer
Michael S. Broos.......................... 48 Vice President--Systems Operations
Frank J. Biondi, Jr....................... 53 Director
Dixon R. Doll (1)......................... 56 Director
Ronald Unterman (1)(2).................... 52 Director
Marc M. Watson (1)(2)..................... 53 Director
Kristopher A. Wood (2).................... 27 Director
</TABLE>
- ------------------------
* Denotes executive officer.
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
SCOTT P. KURNIT has served as the Company's Chairman of the Board of
Directors, President and Chief Executive Officer since he founded the Company in
June 1996. From March 1995 to February 1996, Mr. Kurnit served as President and
Chief Executive Officer of MCI/News Corporation Internet Ventures with
responsibility for the Internet initiatives of the parent companies. From June
1993 to March 1995, Mr. Kurnit served as Executive Vice President of Prodigy
Service Co., an online services company ("Prodigy"). From March 1985 to June
1993, Mr. Kurnit was the President for both Viewer's Choice and Showtime Event
Television for Viacom Inc. From June 1979 to March 1985, Mr. Kurnit was employed
by Warner Communication in various capacities, including Director of Programming
for Qube and Vice President of Programming and Advertising Sales for all of the
company's cable systems. Mr. Kurnit received his B.A. in Sociology and
Communications from Hampshire College.
WILLIAM C. DAY has served as the Company's Chief Operating Officer since he
co-founded the Company in June 1996, and as the Company's Chief Financial
Officer since December 1998. From October 1995 to June 1996, Mr. Day served as
Vice President, Software Development for Prodigy. From July 1994 to October
1995, Mr. Day served as Vice President, General Manager for Content and
Community for Prodigy, and from May 1993 to July 1994, he served as Director,
Internet Development for Prodigy. Mr. Day received his B.S. in Mechanical
Engineering from Yale University, and an M.B.A. from The Wharton School of the
University of Pennsylvania.
ALAN T. WRAGG has served as the Company's President--Advertising Sales and
E-Commerce since August 1996. From September 1987 to August 1996, Mr. Wragg
served as the Publisher of TVSM, Inc. (now owned by News Corporation), a U.S.
publisher of cable television programming guides, including The Cable Guide,
Total TV Weekly and Total TV Online. Mr. Wragg also spent 14 years at Time Inc.
as Advertising Director at LIFE Monthly and as a sales executive at Sports
Illustrated. Mr. Wragg
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received his B.B.A. in Marketing from Cleveland State University, and an M.B.A.
from Adelphi University.
JOHN R. CAPLAN has served as the Company's Vice President--Marketing since
November 1998. From October 1995 to November 1998, Mr. Caplan served as Director
of Marketing for Berenter Greenhouse & Webster, an advertising and marketing
agency specializing in consumer brands. From October 1994 to September 1995, he
served as President of Advertising & Diversity, Inc., a marketing strategy firm.
From September 1991 to October 1994, Mr. Caplan served as an Account Executive
for TDI Worldwide (now owned by CBS Corporation), an outdoor advertising
company. Mr. Caplan received his B.A. in English from the University of
Rochester.
A. JEFFREY RADOV has served as the Company's Vice President--Business
Development since September 1996, and also served as the Company's Chief
Financial Officer from November 1997 to December 1998. From January 1996 to
August 1996, Mr. Radov served as Director of Content and Communities for
Prodigy. From January 1992 to December 1995, Mr. Radov served as a principal of
Radov & Associates, a private consulting firm. Mr. Radov received his B.A. in
Social Science from Cornell University, and an M.B.A. from The Wharton School of
the University of Pennsylvania.
ELIZABETH A. MAIER has served as the Company's Vice President--Product
Design and Development since July 1996. From November 1995 to July 1996, Ms.
Maier served as Prodigy's Senior Director, Product Design. From July 1995 to
November 1995, Ms. Maier served as Prodigy's Manager, Customer Applications.
From October 1988 to July 1995, Ms. Maier held a variety of product design and
management positions with Prodigy. Ms. Maier received her B.A. in Psychology
from Syracuse, and a Ph.D. in Cognitive Psychology from Michigan State
University.
ERIC W. BINGHAM has served as the Company's Vice President--Business
Operations since July 1996. From June 1995 to June 1996, Mr. Bingham served as
Director, Business Development for News Corporation, an international media
company. From January 1990 to May 1995, Mr. Bingham served as Director,
International Operations for Home Box Office, a division of Time Warner Inc. Mr.
Bingham received his B.A. in History from Allegheny College, and an M.B.A. from
Boston University.
OLGA V. TALLER has served as the Company's Vice President--Guide Operations
since August 1996. From April 1987 to August 1996, Ms. Taller held various
positions at Prodigy, including Director, Server Infrastructure and Manager of
the Advanced Connectivity and Database Group. Ms. Taller received her M.S. in
Economics from the Moscow Institute of Economics and Statistics.
ROBERT W. HARRIS has served as the Company's Vice President--Finance and
Administration since July 1996. From January 1994 to June 1996, Mr. Harris was a
private consultant to media start-up venture companies. From 1986 to December
1993, Mr. Harris worked in various capacities for Home Box Office and Paramount
Pictures Corp. Mr. Harris received his B.S. in Commerce from the University of
Virginia and is a Certified Public Accountant.
KENNETH H. APPLEMAN has served as the Company's Vice President--Chief
Technology Officer since July 1996. From October 1995 to July 1996, Mr. Appleman
served as President of Precognetics, Inc., a technical consulting firm. From
September 1985 to October 1995, Mr. Appleman held a variety of technical
management and software development positions at Prodigy. Mr. Appleman received
his B.A. in English from S.U.N.Y. Albany, and an M.S. in Computer Science from
Pace University.
MICHAEL S. BROOS has served as the Company's Vice President--Systems
Operations since May 1998. From February 1990 to February 1998, Mr. Broos served
in various capacities for The Dun & Bradstreet Corporation, Inc., a business
information services company, most recently as Assistant Vice President of
Product Development. Mr. Broos attended the Massachusetts Institute of
Technology.
44
<PAGE>
FRANK J. BIONDI, JR. has served as a director of the Company since December
1998. From April 1996 to November 1998, Mr. Biondi served as Chairman and Chief
Executive Officer of Universal Studios, Inc., an international entertainment
company. From July 1987 to January 1996, Mr. Biondi served as President and
Chief Executive Officer of Viacom Inc., an international entertainment company.
Mr. Biondi currently serves on the Boards of Directors of Bank of New York
Company, Inc., a bank holding company, and Vail Resorts, Inc., a mountain resort
company. Mr. Biondi received his B.A. in Psychology from Princeton University,
and an M.B.A. from Harvard University.
DIXON R. DOLL has served as a director of the Company since August 1997.
Since June 1996, Mr. Doll has served as Managing General Partner of Doll Capital
Management, a venture capital investment firm. From September 1994 to June 1996,
Mr. Doll was an independent venture capitalist. From 1985 to September 1994, Mr.
Doll served as General Partner of Accel Partners, a venture capital investment
firm. Since 1973, Mr. Doll has held various senior management positions at DMW
Group LLC and predecessor entities, a network integration and professional
services firm, including Chairman of the Board of Directors and Chief Executive
Officer. Mr. Doll serves on the Boards of Directors of International
Manufacturing Services, Inc., a provider of advanced manufacturing services,
Network Equipment Technologies, Inc., a manufacturer of multi-service
communications products, Zamba Corp., a supplier of mobile data communication
software, and a number of private companies. Mr. Doll received a B.S. in
Electrical Engineering from Kansas State University, and an M.S.E. and Ph.D.
from the University of Michigan.
RONALD UNTERMAN has served as a director of the Company since January 1997.
From August 1988 to December 1997, Mr. Unterman served as Vice President of
Envirogen, Inc. Since December 1997, Mr. Unterman has served as Senior Vice
President, Technology Development of Envirogen, Inc., an environmental
biotechnology company. Mr. Unterman received his B.A. in Biology from Haverford
College, and a Ph.D. from Columbia University in Biochemistry.
MARC M. WATSON has served as a director of the Company since April 1998. In
1998, Mr. Watson co-founded C-Max Capital Corp., an investment firm focusing on
private technology and medical-related companies and currently serves as its
Managing Director. From October 1993 to October 1998, Mr. Watson was Chairman of
the Board of Sano Corporation, a drug delivery systems development company. Mr.
Watson currently serves on the Board of Directors of Equitrac Corporation, a
provider of computer system solutions. Mr. Watson received both his B.B.A. in
Accounting and his J.D. from the University of Miami.
KRISTOPHER A. WOOD has served as a director of the Company since November
1998. Since September 1997, Mr. Wood has served as Vice President and Chief
Financial Officer of XL Capital Corporation, a subsidiary of Big Flower
Holdings, Inc., an advertising, marketing and information services company.
Since September 1995, Mr. Wood has also served as Director--Mergers &
Acquisitions for Big Flower Holdings, Inc. (and its predecessor Big Flower Press
Holdings, Inc.). From July 1993 to May 1995, Mr. Wood was a member of the Global
Finance Group at BT Alex. Brown Incorporated, an investment banking firm. Mr.
Wood received his B.S. in Economics from The Wharton School of the University of
Pennsylvania.
DIRECTORS' TERMS
All directors hold office until the next annual meeting of stockholders or
until their successors have been duly elected and qualified. Each of Messrs.
Doll, Unterman, Watson and Wood was originally elected to the Board of Directors
pursuant to an agreement that will terminate upon the closing of this offering.
Mr. Kurnit was originally elected to the Board of Directors pursuant to a
provision of his employment agreement, which provision will terminate upon the
closing of this offering.
45
<PAGE>
BOARD COMMITTEES
The Audit Committee of the Board of Directors was established in May 1998
and reviews, acts on and reports to the Board of Directors with respect to
various auditing and accounting matters, including the recommendation of the
Company's independent auditors, the scope of the annual audits, fees to be paid
to the independent auditors, the performance of the Company's independent
auditors and the accounting practices of the Company. The members of the Audit
Committee are Messrs. Unterman, Watson and Wood.
The Compensation Committee of the Board of Directors was established in May
1998 and determines the salaries, benefits and stock option grants for the
Company's employees, consultants, directors and other individuals compensated by
the Company. The Compensation Committee also administers the Company's
compensation plans. The members of the Compensation Committee are Messrs. Doll,
Kurnit, Unterman and Watson.
DIRECTOR COMPENSATION
Other than reimbursing directors for customary and reasonable expenses of
attending Board of Directors or committee meetings, the Company does not
currently compensate its directors. Under the Company's 1998 Stock Option/Stock
Issuance Plan, each individual who is serving as a non-employee member of the
Board of Directors on the date that the underwriting agreement relating to this
offering is executed will automatically receive a grant of an option on that
date to purchase 17,800 shares of common stock, provided such individual has not
previously been employed by the Company or any parent or subsidiary corporation.
Each individual who first becomes a non-employee member of the Board of
Directors at any time thereafter will be granted an option to purchase 17,800
shares of common stock on the date such individual joins the Board of Directors,
provided such individual has not previously been employed by the Company or any
parent or subsidiary corporation. In addition, on the date of each annual
stockholders' meeting beginning in 1999, each non-employee member of the Board
of Directors will automatically be granted an option to purchase 3,560 shares of
common stock, provided such individual has served as a non-employee member of
the Board of Directors for at least six months. See "--1998 Stock Option/Stock
Issuance Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of Messrs. Doll,
Kurnit, Unterman and Watson. Other than Mr. Kurnit, the Company's President and
Chief Executive Officer, none of the members of the Compensation Committee has
been an officer or employee of the Company at any time since the Company's
inception. Prior to the formation of the Compensation Committee in May 1998, the
Board of Directors as a whole made decisions relating to compensation of the
Company's executive officers. Mr. Kurnit has participated in all discussions and
decisions concerning the compensation of the Company's executive officers,
except that he was excluded from discussions by the Board of Directors regarding
his own compensation.
EMPLOYMENT, SEVERANCE AND OTHER AGREEMENTS
The Company and Mr. Kurnit are parties to a letter agreement dated October
20, 1996, as amended, governing his employment with the Company. The agreement
provides that Mr. Kurnit will receive a base salary of $195,000 per annum and
will be eligible to receive a bonus at the discretion of the Board of Directors,
which bonus shall not be less than $100,000 per annum. Mr. Kurnit's employment
may be terminated by the Company at any time. In the event that Mr. Kurnit is
terminated by the Company without cause, Mr. Kurnit shall be entitled to be paid
his base salary for 12 months following such termination. This agreement expires
in June 1999.
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<PAGE>
The Company and Mr. Wragg are parties to a letter agreement dated July 28,
1996, as amended on October 21, 1998, governing his employment with the Company.
The agreement provides that Mr. Wragg will receive a base salary of $125,000 per
annum and will be eligible to receive a quarterly commission bonus based on
annual gross advertising sales revenue. The agreement also provides that Mr.
Wragg's salary, bonus and option grants are to be reviewed annually by the
Compensation Committee of the Board of Directors. In the event that Mr. Wragg's
employment is terminated for any reason by the Company other than for gross
misconduct, Mr. Wragg shall be entitled to be paid his base salary for 12 months
following such termination and he shall receive the Company's standard benefits
for six months following such termination.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and the other two executive
officers of the Company whose annual salary and bonus exceeded $100,000 in 1998
(the "Named Executive Officers") for services rendered in all capacities to the
Company during 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-----------------
ANNUAL COMPENSATION(1) AWARDS
-----------------
---------------------- SHARES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- ---------------------------------------------------------------------- ---------- ---------- -----------------
<S> <C> <C> <C>
Scott P. Kurnit....................................................... $ 170,750 $ 100,000 9,204
President, Chief Executive Officer and Chairman of the Board of
Directors
William C. Day........................................................ 125,625 25,000 74,012
Chief Operating Officer and Chief Financial Officer
Alan T. Wragg......................................................... 133,170 -- 11,840
President--Advertising Sales and E-Commerce
</TABLE>
- ------------------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), other compensation in the form of perquisites and other
personal benefits has been omitted for the Named Executive Officers because
the aggregate amount of such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total of annual
salary and bonuses for each of such Named Executive Officers in 1998.
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<PAGE>
OPTION GRANTS IN LAST YEAR
The following table sets forth certain information regarding options granted
to the Named Executive Officers during the year ended December 31, 1998. The
Company has not granted any stock appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS(1) AT ASSUMED ANNUAL
-------------------------- RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(3)
OPTIONS EMPLOYEES EXERCISE MARKET EXPIRATION ----------------------
NAME GRANTED IN 1998(2) PRICE PRICE DATE 0% 5%
- ---------------------------------- ----------- ------------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Scott P. Kurnit................... 9,204 2.2% $ 0.56 $ 1.26 03/30/08 $ 6,903 $ 14,196
William C. Day.................... 6,372 1.5 0.51 1.26 03/30/08 4,779 9,828
67,640 16.3 1.01 2.64 07/02/08 110,253 222,555
Alan T. Wragg..................... 4,720 1.1 0.51 1.26 03/30/08 3,540 7,280
7,120 1.7 1.01 2.64 07/02/08 11,606 23,427
<CAPTION>
NAME 10%
- ---------------------------------- ----------
<S> <C>
Scott P. Kurnit................... $ 25,386
William C. Day.................... 17,575
394,847
Alan T. Wragg..................... 13,018
41,563
</TABLE>
- ------------------------
(1) Each option represents the right to purchase one share of common stock. The
options shown in this column were granted pursuant to the Company's 1997
Employee Stock Incentive Plan or the Company's 1998 Stock Option/Stock
Issuance Plan. The options shown in this table become exercisable at a rate
of 25% annually over four years from the date of grant, provided that all
options that expire prior to July 2008 shall accelerate and become
exercisable upon the closing of this offering. To the extent not already
exercisable, certain of these options may also accelerate and become
exercisable in the event of a merger in which the Company is not the
surviving corporation or upon the sale of substantially all of the Company's
assets. See "--1998 Stock Option/Stock Issuance Plan."
(2) During the year ended December 31, 1998, the Company granted to employees
options to purchase an aggregate of 415,612 shares of common stock.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The 0%, 5%
and 10% assumed annual rates of compounded stock price appreciation are
mandated by rules of the Commission and do not represent the Company's
estimate or projection of the Company's future common stock prices. These
amounts represent certain assumed rates of appreciation in the value of the
Company's common stock. Actual gains, if any, on stock option exercises are
dependent on the future performance of the common stock and overall stock
market conditions. The amounts reflected in the table may be more or less
than the amounts actually achieved.
48
<PAGE>
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED DECEMBER 31, 1998 AND YEAR-END
OPTION VALUES
The following table sets forth certain information concerning the number and
value of unexercised options held by each of the Named Executive Officers at
December 31, 1998. None of the Named Executive Officers exercised options to
purchase common stock during the year ended December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE- MONEY OPTIONS AT
1998 DECEMBER 31, 1998(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Scott P. Kurnit........................................... 30,678 --
William C. Day............................................ 123,282 129,940(2)
Alan T. Wragg............................................. 69,769 60,520(3)
</TABLE>
- ------------------------
(1) There was no public trading market for the Common Stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $ per share, less the
applicable exercise price per share, multiplied by the number of shares
underlying such options.
(2) Options to purchase 62,300 of these shares shall accelerate and become
exercisable upon the closing of this offering, which will result in an
increase in the value of Mr. Day's unexercised in-the-money exercisable
options of $ .
(3) Options to purchase 53,400 of these shares shall accelerate and become
exercisable upon the closing of this offering, which will result in an
increase in the value of Mr. Wragg's unexercised in-the-money exercisable
options of $ .
1998 STOCK OPTION/STOCK ISSUANCE PLAN
The Company's 1998 Stock Option/Stock Issuance Plan (the "1998 Plan") serves
as the successor equity incentive program to the Company's 1997 Employee
Incentive Stock Option Plan (the "Predecessor Plan"). The 1998 Plan became
effective on July 2, 1998 upon adoption by the Board of Directors and was
approved by the stockholders on the same day. 1,886,800 shares of Common Stock
were initially authorized for issuance under the 1998 Plan. This initial share
reserve was comprised of (i) the shares that remained available for issuance
under the Predecessor Plan on the effective date of the 1998 Plan, including the
shares subject to outstanding options thereunder plus (ii) an additional
increase of 890,000 shares. Outstanding options under the Predecessor Plan were
incorporated into the 1998 Plan upon the date of the approval of the 1998 Plan,
and no further option grants are being made under the Predecessor Plan. The
incorporated options will continue to be governed by their existing terms,
unless the Plan Administrator elects to extend one or more features of the 1998
Plan to those options.
As of the date of this prospectus, there are outstanding options to purchase
a total of 1,128,890 shares of common stock under the 1998 Plan, of which
options to purchase 477,722 shares are currently exercisable. Of the options to
purchase 651,168 shares of common stock that are not currently exercisable, the
options to purchase 373,667 shares of common stock originally granted under the
Predecessor Plan shall immediately vest and become exercisable upon the closing
of this offering. Since the Company intends to file a Registration Statement on
Form S-8 as soon as practicable following the closing of this offering, any
shares issued upon exercise of these options will be immediately available for
sale in the public market, subject to the terms of lock-up agreements entered
into by and between substantially all of these optionholders and the
underwriters.
Upon the closing of this offering, the Company intends to grant
non-qualified stock options to purchase approximately 350,000 shares of common
stock to a substantial majority of its guides. The
49
<PAGE>
exercise price per share of such options is expected to be the initial public
offering price of the common stock. A majority of these option grants are
expected to vest in the following manner: (i) 10% upon the closing of this
offering, (ii) 15% six months following the closing of this offering and (iii)
25% in each of three semi-annual installments commencing one year from the
closing of this offering. None of the shares issuable upon the exercise of these
options will be subject to a lock-up agreement with the underwriters. See
"Shares Eligible for Future Sale."
Except as otherwise noted in the previous paragraph or below, the
outstanding options under the Predecessor Plan contain substantially the same
terms and conditions summarized below for the discretionary option grant program
in effect under the 1998 Plan. The 1998 Plan is divided into three separate
components: (i) the discretionary option grant program under which eligible
individuals in the Company's employ or service (including officers, non-employee
members of the Board of Directors, consultants and guides) may, at the
discretion of the Plan Administrator, be granted options to purchase shares of
common stock at an exercise price determined by the Plan Administrator, (ii) the
stock issuance program under which such individuals may, in the Plan
Administrator's discretion, be issued shares of common stock directly, through
the purchase of such shares at a price determined by the Plan Administrator or
as a bonus tied to the performance of services and (iii) the automatic option
grant program under which option grants will automatically be made at periodic
intervals to eligible non-employee members of the Board of Directors to purchase
shares of common stock at an exercise price equal to 100% of the fair market
value of those shares on the grant date. However, in no event may any one
participant in the 1998 Plan receive option grants or direct stock issuances for
more than 89,000 shares in the aggregate per calendar year. Under the
Predecessor Plan, only employees were eligible to receive option grants and the
exercise price could not be less than the fair market value per share on the
grant date.
The discretionary option grant program and the stock issuance program are
administered by the Compensation Committee of the Board of Directors. The
Compensation Committee as Plan Administrator has complete discretion to
determine which eligible individuals are to receive option grants or stock
issuances, the time or times when such option grants or stock issuances are to
be made, the number of shares subject to each such grant or issuance, the status
of any granted option as either an incentive stock option or a non-statutory
stock option under the Federal tax laws, the vesting schedule to be in effect
for the option grant or stock issuance and the maximum term for which any
granted option is to remain outstanding. The administration of the automatic
option grant program is self-executing in accordance with the express provisions
of that program. Under the Predecessor Plan, only incentive stock options were
granted.
The exercise price for the shares of common stock subject to option grants
made under the 1998 Plan may be paid in cash or in shares of common stock valued
at fair market value on the exercise date. The option may also be exercised
through a same-day sale program without any cash outlay by the optionee. In
addition, the Plan Administrator may provide financial assistance to one or more
participants in the 1998 Plan in connection with their acquisition of shares, by
allowing such individuals to deliver a full-recourse, interest-bearing
promissory note in payment of the option exercise price and any associated
withholding taxes incurred in connection with such acquisition.
In the event of an acquisition of the Company, whether by merger or asset
sale or a sale by the stockholders of more than 50% of the total voting power of
the Company that is recommended by the Board of Directors, each outstanding
option under the discretionary option grant program which is not to be assumed
by the successor corporation or otherwise continued will automatically
accelerate in full, and all repurchase rights relating to shares under the
discretionary option grant program and stock issuance program will immediately
lapse, except to the extent the Company's repurchase rights with respect to
those shares are to be assigned to the successor corporation or otherwise
continued in effect. The Plan Administrator will have the authority under the
discretionary option grant program to provide that the shares subject to options
granted under that program will automatically vest (i) upon an acquisition of
the Company whether or not those options are assumed or continued, (ii) a
hostile
50
<PAGE>
change in control of the Company effected through a successful tender offer for
more than 50% of the Company's outstanding voting stock or by proxy contest for
the election of Board of Directors members or (iii) in the event the
individual's service is terminated, whether involuntarily or through a
resignation for good reason, within a designated period (not to exceed eighteen
(18) months) following an acquisition in which those options are assumed or
otherwise continued in effect or a hostile change in control. The vesting of
outstanding shares under the stock issuance program may be accelerated upon
similar terms and conditions. Options currently outstanding under the
Predecessor Plan will accelerate either at the time of an acquisition or a
change in control or upon the termination of the optionee's service following an
acquisition or change in control. All outstanding options under the Predecessor
Plan will accelerate in connection with this offering.
Stock appreciation rights are authorized for issuance under the
discretionary option grant program, which rights provide the holders with the
election to surrender their outstanding options for an appreciation distribution
from the Company equal to the excess of (i) the fair market value of the vested
shares of common stock subject to the surrendered option over (ii) the aggregate
exercise price payable for such shares. Such appreciation distribution may be
made in cash or in shares of common stock. There are currently no outstanding
stock appreciation rights.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the discretionary option grant program (including
options incorporated from the Predecessor Plan) in return for the grant of new
options for the same or different number of option shares with an exercise price
per share based upon the fair market value of the common stock on the new grant
date.
Under the automatic option grant program, each individual who is serving as
a non-employee member of the Board of Directors on the date the underwriting
agreement for this offering is executed and who has not previously been in the
employ of the Company will receive at that time an option grant for 17,800
shares of common stock with an exercise price equal to the initial public
offering price per share. Each individual who first joins the Board of Directors
after the effective date of this offering as a non-employee Board of Directors
member will also receive an option grant for 17,800 shares of common stock at
the time of his or her commencement of Board of Director service, provided such
individual has not otherwise been in the prior employ of the Company. In
addition, at each annual meeting of stockholders, beginning with the first
annual meeting of stockholders held after this offering, each individual who is
to continue to serve as a non-employee member of the Board of Directors will
receive an option grant to purchase 3,560 shares of common stock, whether or not
such individual has been in the prior employ of the Company provided such
individual has served as a non-employee member of the Board of Directors for at
least six months.
Each automatic grant will have an exercise price equal to the fair market
value per share of common stock on the grant date and will have a maximum term
of 10 years, subject to earlier termination following the optionee's cessation
of Board of Directors service. Each automatic option will be immediately
exercisable; however, any shares purchased upon exercise of the option will be
subject to repurchase, at the option exercise price paid per share, should the
optionee's service as a non-employee member of the Board of Directors cease
prior to vesting in the shares. Each 17,800-share grant will vest in four equal
and successive annual installments over the optionee's period of Board of
Director service. Each annual 3,560-share grant will vest upon the optionee's
completion of one year of Board of Directors service measured from the grant
date. However, each outstanding option will immediately vest upon (i) certain
changes in the ownership or control of the Company or (ii) the death or
disability of the optionee while serving as a Board of Directors member.
The Board of Directors may amend or modify the 1998 Plan at any time,
subject to any required stockholder approval. The 1998 Plan will terminate on
the earliest of (i) July 1, 2008, (ii) the date on which all shares available
for issuance under the 1998 Plan have been issued as fully-vested shares or
(iii) the termination of all outstanding options in connection with certain
changes in control or ownership of the Company.
51
<PAGE>
CERTAIN TRANSACTIONS
SERIES A FINANCING
Between March 1997 and January 1998, the Company issued a number of secured
subordinated notes (the "Series A Notes") in favor of certain parties, including
Zero Stage Capital V, L.P., Doll Technology Investment Fund, Doll Technology
Affiliates Fund, L.P., Doll Technology Side Fund, L.P., Crystal Internet Venture
Fund, L.P. and Mr. Scott P. Kurnit, in the aggregate principal amount of
$4,950,000. Pursuant to their terms, the principal due on the Series A Notes was
automatically convertible into shares of the Company's capital stock upon the
closing of the next equity financing conducted by the Company. Simultaneously
with the delivery of the Series A Notes, the Company also issued to such parties
warrants to purchase an aggregate of 309,743 shares of common stock, of which
warrants to purchase 218,889 shares of common stock had an exercise price of
$0.03 per share and warrants to purchase 90,854 shares of common stock had an
exercise price of $4.21 per share. The warrants were exercisable by the holders
thereof at any time prior to 10 years from their date of issuance; provided
that, under certain circumstances, the Company had the right to cancel the
warrants after providing the holders thereof a reasonable period of time to
exercise such warrants prior to their cancellation. In December 1998, the
Company exercised its right to cancel the warrants and, prior to cancellation,
(i) warrants to purchase an aggregate of 218,889 shares of the common stock were
exercised at an exercise price of $0.03 per share and (ii) warrants to purchase
an aggregate of 66,749 shares of the common stock were exercised at an exercise
price of $4.21 per share.
On April 23, 1998, simultaneously with the closing of the Series B financing
described below, the Company issued an aggregate of 3,346,715 shares of Series A
Convertible Preferred Stock, at a purchase price of $1.50 per share, to the
holders of the Series A Notes, in consideration for the cancellation of all
principal owed under the Series A Notes and interest accrued under the Series A
Notes prior to August 12, 1997. All interest under the Series A Notes which
accrued after August 12, 1997 was evidenced by newly-issued unsecured promissory
notes (the "Unsecured Notes") of the Company. Upon the closing of this offering,
(i) all of the outstanding shares of Series A Convertible Preferred Stock will
convert into an aggregate of 1,191,432 shares of common stock and (ii) all
amounts due under the Unsecured Notes will be cancelled.
<TABLE>
<CAPTION>
NUMBER OF $0.03 NUMBER OF $4.21
NUMBER OF SHARES WARRANTS WARRANTS
ENTITIES AFFILIATED WITH EXECUTIVE OFFICERS, OF SERIES A TO PURCHASE COMMON TO PURCHASE COMMON
DIRECTORS AND 5% STOCKHOLDERS PREFERRED STOCK STOCK EXERCISED STOCK EXERCISED
- ---------------------------------------------------- ----------------- -------------------- ---------------------
<S> <C> <C> <C>
Mr. Scott P. Kurnit................................. 200,000 4,154 11,125
Zero Stage Capital V, L.P........................... 917,803 98,263 3,400
Doll Technology Investment Fund..................... 836,542 89,563 3,099
Doll Technology Affiliates Fund, L.P................ 49,217 5,270 183
Doll Technology Side Fund, L.P...................... 32,044 3,431 119
Open Text Corporation............................... 433,333 -- --
Crystal Internet Venture Fund, L.P.................. 711,109 14,748 39,556
</TABLE>
SERIES B FINANCING
Between November 1997 and February 1998, the Company issued a number of
secured subordinated notes (the "Series B Notes") in favor of certain parties,
including Zero Stage Capital V, L.P., Doll Technology Investment Fund, Doll
Technology Affiliates Fund, L.P., Doll Technology Side Fund, L.P., and Crystal
Internet Venture Fund, L.P., in the aggregate principal amount of $2,800,000.
Pursuant to their terms, the Series B Notes were automatically convertible into
shares of the Company's Series B Convertible Preferred Stock upon the closing of
the next equity financing conducted by the Company.
52
<PAGE>
Simultaneously with the delivery of the Series B Notes, the Company also issued
to such parties warrants to purchase an aggregate of 250,192 shares of the
Company's common stock at an exercise price of $5.06 per share. The warrants
were exercisable by the holders thereof at any time prior to 10 years from their
date of issuance; provided that, under certain circumstances, the Company had
the right to cancel the warrants after providing the holders thereof a
reasonable period of time to exercise such warrants prior to their cancellation.
In December 1998, the Company exercised its right to cancel the warrants and,
prior to cancellation, warrants to purchase an aggregate of 250,192 shares of
the common stock were exercised.
On April 23, 1998, the Company issued an aggregate of 5,397,600 shares of
Series B Convertible Preferred Stock, at a purchase price of $1.80 per share, to
(i) the holders of the Series B Notes in consideration for the cancellation of
all indebtedness of the Company under the Series B Notes, (ii) Open Text
Corporation, in consideration for the cancellation of certain indebtedness of
the Company, and (iii) other investors, including C-Max Capital Limited
Partnership-I (the "Additional Investors"). In addition, the Company issued to
the Additional Investors warrants to purchase an aggregate of 107,695 shares of
the common stock at an exercise price of $7.02 per share. The warrants were
exercisable by the holders thereof at any time prior to 10 years from their date
of issuance; provided that, under certain circumstances, the Company had the
right to cancel the warrants after providing the holders thereof a reasonable
period of time to exercise such warrants prior to their cancellation. In
December 1998, the Company exercised its right to cancel the warrants and, prior
to cancellation, warrants to purchase an aggregate of 103,801 shares of the
common stock were exercised.
At a subsequent closing, the Company issued an aggregate of 1,199,996 shares
of Series B Convertible Preferred Stock, at a purchase price per share of $1.80
per share, to various investors, including Doll Technology Investment Fund, Doll
Technology Affiliates Fund, L.P., Doll Technology Side Fund, L.P., Crystal
Internet Venture Fund, L.P. and XL Capital Corporation. Upon the closing of this
offering, all of the outstanding shares of Series B Convertible Preferred Stock
will convert into an aggregate of 2,348,753 shares of common stock.
<TABLE>
<CAPTION>
NUMBER OF $5.06 NUMBER OF $7.02
NUMBER OF SHARES WARRANTS WARRANTS
ENTITIES AFFILIATED WITH EXECUTIVE OFFICERS, OF SERIES B TO PURCHASE COMMON TO PURCHASE COMMON
DIRECTORS AND 5% STOCKHOLDERS PREFERRED STOCK STOCK EXERCISED STOCK EXERCISED
- ---------------------------------------------------- ----------------- --------------------- ---------------------
<S> <C> <C> <C>
Open Text Corporation............................... 1,114,327 -- --
Zero Stage Capital V, L.P........................... 428,771 68,234 --
Doll Technology Investment Fund..................... 517,339 62,192 --
Doll Technology Affiliates Fund, L.P................ 30,437 3,659 --
Doll Technology Side Fund, L.P...................... 19,817 2,383 --
C-Max Capital Limited Partnership-I................. 2,222,222 -- 85,440
XL Capital Corporation.............................. 277,778 -- --
Crystal Internet Venture Fund, L.P.................. 482,136 54,884 --
</TABLE>
SERIES C FINANCING
On October 5, 1998, the Company issued a number of convertible promissory
notes (the "Series C Notes") in favor of certain parties, including Zero Stage
Capital V, L.P., Doll Technology Investment Fund, Doll Technology Affiliates
Fund, L.P., Doll Technology Side Fund, L.P., Crystal Internet Venture Fund, L.P.
and C-Max Capital Limited Partnership-I, in the aggregate principal amount of
$1,081,000. Pursuant to their terms, the Series C Notes were automatically
convertible into shares of the Company's Series C Convertible Preferred Stock,
at a conversion price equal to the lesser of $3.60 per share or the purchase
price per share of the Series C Convertible Preferred Stock, upon the closing of
the next equity financing conducted by the Company.
53
<PAGE>
On November 13, 1998, the Company issued an aggregate of 6,910,726 shares of
Series C Convertible Preferred Stock, at a purchase price of $1.95 per share, to
(i) the holders of the Series C Notes in consideration for the cancellation of
all indebtedness under the Series C Notes plus, in certain cases, the payment by
such holders of additional amounts and (ii) other investors, including XL
Capital Corporation, Zero Stage Capital VI L.P., and Prospect Street NYC
Discovery Fund, L.P. At a subsequent closing, the Company issued an aggregate of
391,085 shares of Series C Convertible Preferred Stock, at a purchase price of
$1.95 per share, to existing stockholders pursuant to participation rights
granted to such stockholders under the terms of an agreement entered into in
connection with the Series A financing and the Series B financing described
above. Upon the closing of this offering, all of the outstanding shares of
Series C Convertible Preferred Stock will convert into an aggregate of 2,599,456
shares of common stock.
<TABLE>
<CAPTION>
ENTITIES AFFILIATED WITH EXECUTIVE OFFICERS, NUMBER OF SHARES OF
DIRECTORS AND 5% STOCKHOLDERS SERIES C PREFERRED STOCK
- ------------------------------------------------------------------- -------------------------
<S> <C>
Open Text Corporation.............................................. 913,856
Zero Stage Capital V, L.P.......................................... 121,503
Zero Stage Capital VI, L.P......................................... 512,821
Doll Technology Investment Fund.................................... 469,792
Doll Technology Affiliates Fund, L.P............................... 27,640
Doll Technology Side Fund, L.P..................................... 17,996
C-Max Capital Limited Partnership-I................................ 599,123
XL Capital Corporation............................................. 1,794,872
Prospect Street NYC Discovery Fund, L.P............................ 1,794,872
Crystal Internet Venture Fund, L.P................................. 513,635
</TABLE>
OPEN TEXT CORPORATION
On October 17, 1996, the Company executed a promissory note payable to Open
Text Corporation in the original principal amount of $3,905,616 (the "Open Text
Note"). On August 27, 1997, the Company and Open Text Corporation amended the
Open Text Note to, among other things, reduce the principal amount outstanding
thereunder to $3,255,616, reflecting a reduction of $650,000 which was converted
into a secured subordinated note (the "Open Text Subordinated Note"). On April
23, 1998, the Company issued 433,333 shares of Series A Convertible Preferred
Stock in consideration for the cancellation of all principal and interest owed
under the Open Text Subordinated Note. Effective April 23, 1998, the Company and
Open Text Corporation amended the Open Text Note to, among other things, (i)
reduce the principal amount outstanding thereunder to $1,555,616, reflecting a
reduction of $1,700,000 which was simultaneously converted into Series B
Convertible Preferred Stock, (ii) reduce the interest amount outstanding
thereunder by $305,789, which was simultaneously converted into Series B
Convertible Preferred Stock and (iii) provide that, under certain circumstances,
the remaining principal and interest would automatically convert into shares of
the Company's Series C Convertible Preferred Stock upon the closing of the next
equity financing conducted by the Company. On November 13, 1998, the Company
issued 913,856 shares of the Company's Series C Convertible Preferred Stock in
cancellation of all remaining principal and interest outstanding under the Open
Text Note.
On August 27, 1997, in connection with the execution of the Open Text
Subordinated Note, the Company issued Open Text Corporation warrants to purchase
24,105 shares of the Company's common stock at an exercise price of $4.21 per
share. In January 1998, the Company issued Open Text Corporation warrants to
purchase an additional 2,670 shares of common stock at an exercise price of
$4.21 per share in consideration for its entering into a subordination agreement
with another creditor of the
54
<PAGE>
Company. In addition, the Company agreed to issue additional warrants to
purchase common stock in the event that the Company incurs additional debt from
such other creditor. In June and July of 1998, the Company issued Open Text
Corporation warrants to purchase an aggregate of 6,230 shares of common stock at
an exercise price of $4.21 per share.
C-MAX CAPITAL CORPORATION
Effective on April 20, 1998, the Company and a director of C-Max Capital
Corporation executed an Advisory Agreement, pursuant to which he agreed to
provide consulting and advisory services to the Company. These services include,
but are not limited to, introducing the Company to members of the investment
community and assisting the Company with respect to financial and strategic
matters. In consideration for his services under this agreement, this individual
was granted a warrant to purchase up to an aggregate of 21,360 shares of common
stock, at an exercise price of $5.06 per share. This warrant is exercisable at
any time during the 10 year period commencing on the date of the closing of this
offering.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
On April 23, 1998, the Company and the purchasers of the Company's Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock executed an
Investors' Rights Agreement. On November 13, 1998, the Investors' Rights
Agreement was amended and restated (the "Amended and Restated Investors' Rights
Agreement") to include the purchasers of the Company's Series C Convertible
Preferred Stock. Under the terms of the Amended and Restated Investors' Rights
Agreement, holders of the Company's Series A Convertible Preferred Stock, Series
B Convertible Preferred Stock and Series C Convertible Preferred Stock were
granted certain registration rights with respect to the registration under the
Securities Act of the shares of common stock issuable upon conversion of their
respective shares of the Company's convertible preferred stock. See "Description
of Securities--Registration Rights."
STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS
On March 30, 1998, the Company granted options to purchase an aggregate of
9,204 shares of common stock to Mr. Scott P. Kurnit, the Company's President and
Chief Executive Officer, at an exercise price of $0.56 per share.
On March 30, 1998, the Company granted options to purchase an aggregate of
6,372 shares of common stock to Mr. William C. Day, the Company's Chief
Operating Officer and Chief Financial Officer, at an exercise price of $0.51 per
share. On July 2, 1998, the Company granted options to purchase an aggregate of
67,640 shares of common stock to Mr. Day at an exercise price of $1.01 per
share.
On March 30, 1998, the Company granted options to purchase an aggregate of
4,720 shares of common stock to Mr. Alan T. Wragg, the Company's
President--Advertising Sales and E-Commerce, at an exercise price of $0.51 per
share. On July 2, 1998, the Company granted options to purchase an aggregate of
7,120 shares of common stock to Mr. Wragg at an exercise price of $1.01 per
share.
For additional information regarding the grant of stock options to executive
officers and directors, see "Management--Director Compensation," "--Executive
Compensation," "--1998 Stock Option/ Stock Incentive Plan" and "Principal
Stockholders."
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the common stock as of December 5, 1998, and as adjusted
to reflect the sale of the shares of common stock offered hereby, by (i) each
person (or group of affiliated persons) who is known by the Company to
beneficially own 5% or more of the common stock, (ii) each director and Named
Executive Officer of the Company and (iii) all directors and executive officers
of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THIS OFFERING(1) THIS OFFERING(1)
----------------------- -----------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Scott P. Kurnit (2).................................................. 1,537,597 19.9% 1,537,597
Marc M. Watson (3)................................................... 1,107,640 14.2 1,107,640
C-Max Capital Limited Partnership-I (4).............................. 1,089,840 14.0 1,089,840
Open Text Corporation (5)............................................ 909,306 11.8 909,306
Dixon R. Doll (6).................................................... 904,445 11.5 904,445
Doll Funds (7)....................................................... 882,195 11.2 882,195
Zero Stage Capital Entities (8)...................................... 875,099 11.1 875,099
XL Capital Corporation (9)........................................... 737,864 9.6 737,864
Kristopher A. Wood (10).............................................. 737,864 9.6 737,864
Crystal Internet Venture Fund, L.P. (11)............................. 716,839 9.2 698,839
Prospect Street NYC Discovery Fund, L.P. (12)........................ 638,975 8.3 638,975
William C. Day (13).................................................. 135,742 1.7 135,742
Alan T. Wragg (14)................................................... 69,769 * 69,769
Ronald Unterman (15)................................................. 17,800 * 17,800
Frank J. Biondi, Jr.................................................. -- -- --
All directors and executive officers as a group (8 persons) (16)..... 4,510,857 55.1 4,510,857
</TABLE>
- ------------------------
* Less than 1% of total.
(1) Gives effect to the shares of common stock issuable within 60 days of
December 5, 1998 upon the exercise of all options and other rights
beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Commission and
includes voting and investment power with respect to shares. Unless
otherwise indicated, the persons named in the table have sole voting and
sole investment control with respect to all shares beneficially owned.
(2) Includes 30,678 shares of common stock issuable upon the exercise of stock
options and 15,279 shares of common stock issuable upon the exercise of
warrants.
(3) Includes 1,089,840 shares of common stock beneficially owned by C-Max
Capital Limited Partnership-I. Mr. Watson is a director of C-Max Capital
Corporation, the general partner of C-Max Capital Limited Partnership-I. Mr.
Watson disclaims beneficial ownership of the shares held by C-Max Capital
Limited Partnership-I except to the extent of his pecuniary interest
therein. Also includes 17,800 shares of common stock subject to a repurchase
right by the Company.
(4) Includes 85,440 shares of common stock issuable upon the exercise of
warrants. The address of C-Max Capital Limited Partnership-I is 1515 E.
Broward Boulevard, Suite 321, Fort Lauderdale, Florida 33301.
(5) Includes 33,005 shares of common stock issuable upon the exercise of
warrants. The address of Open Text Corporation is 185 Columbia Street West,
Waterloo, Ontario, Canada N2L 5Z5.
(6) Includes 22,250 shares of common stock held by the Dixon and Carol Doll
Family Trust, of which 17,800 shares of common stock are subject to a
repurchase right of the Company. Mr. Doll is a beneficiary of the Dixon and
Carol Doll Family Trust. Also includes (i) 804,082 shares of common stock
beneficially owned by Doll Technology Investment Fund, (ii) 47,310 shares of
common stock
56
<PAGE>
beneficially owned by Doll Technology Affiliates Fund, L.P. and (iii) 30,803
shares of common stock beneficially owned by Doll Technology Side Fund, L.P.
Mr. Doll is the managing member of Doll Technology Investment Management,
L.L.C., the general partner of each of these funds. Mr. Doll disclaims
beneficial ownership of the shares held by these funds except to the extent
of his pecuniary interest therein.
(7) Consists of (i) 649,228 shares of common stock held by Doll Technology
Investment Fund, (ii) 154,854 shares of common stock issuable to Doll
Technology Investment Fund upon the exercise of warrants and (iii) 38,198
shares of common stock held by Doll Technology Affiliates Fund, L.P., (iv)
9,112 shares of common stock issuable to Doll Technology Affiliates Fund,
L.P. upon the exercise of warrants, (v) 24,870 shares of common stock held
by Doll Technology Side Fund, L.P. and (vi) 5,933 shares of common stock
issuable to Doll Technology Side Fund, L.P. upon the exercise of warrants.
The address of each of these entities is 3000 Sand Hill Road, Building 3,
Suite 210, Menlo Park, California 94025.
(8) Consists of (i) 522,637 shares of common stock held by Zero Stage Capital V
Limited Partnership, (ii) 169,897 shares of common stock issuable to Zero
Stage V Limited Partnership upon the exercise of warrants and (iii) 182,565
shares of common stock held by Zero Stage Capital VI Limited Partnership.
The address of each of these entities is 101 Main Street, 17th Floor,
Cambridge, Massachusetts 02142-1519.
(9) The address of XL Capital Corporation is 3 East 54th Street, 17th Floor, New
York, New York 10022.
(10) Consists of 737,864 shares of common stock held by XL Capital Corporation,
of which Mr. Wood is an employee. Mr. Wood disclaims beneficial interest of
such shares.
(11) Includes 109,188 shares of common stock issuable to Crystal Internet
Venture Fund, L.P. upon the exercise of warrants. The address of Crystal
Internet Venture Fund, L.P. is 1120 Chester Avenue, Suite 310, Cleveland,
Ohio 44114.
(12) The address of Prospect Street NYC Discovery Fund, L.P. is 10 East 40th
Street, 44th Floor, New York, New York 10016.
(13) Includes 123,282 shares of common stock issuable upon the exercise of
options. Does not include (i) 62,300 shares of common stock issuable upon
the exercise of options which will be exercisable upon the closing of this
offering or (ii) 67,640 shares of common stock issuable upon the exercise of
options that do not vest within 60 days of December 5, 1998.
(14) Consists of 69,769 shares of common stock issuable upon the exercise of
options. Does not include 53,400 shares of common stock issuable upon the
exercise of options which will be exercisable upon the closing of this
offering or (ii) 7,120 shares of common stock issuable upon the exercisable
of options that do not vest within 60 days of December 5, 1998.
(15) All 17,800 shares of common stock are subject to a repurchase right by the
Company.
(16) Includes (i) 225,509 shares of common stock issuable upon the exercise of
stock options that vest within 60 days of December 5, 1998 and (ii) 270,618
shares of common stock issuable upon the exercise of warrants. See notes 2
through 15.
57
<PAGE>
DESCRIPTION OF SECURITIES
The following description of the Company's common stock and preferred stock
and certain provisions of the Company's Certificate of Incorporation (as will be
in effect upon the closing of this offering, the "Certificate") and the Bylaws
(as will be in effect upon the closing of this offering, the "Bylaws") are
summaries thereof and are qualified by reference to the Certificate and the
Bylaws. Copies of these documents have been or will be filed with the Commission
as exhibits to the Company's Registration Statement, of which this prospectus
forms a part. The descriptions of the common stock and preferred stock reflect
changes to the Company's capital structure that will occur upon the closing of
this offering in accordance with the terms of the Certificate.
The authorized capital stock of the Company consists of 50,000,000 shares of
common stock, par value $.001 per share, and 5,000,000 shares of preferred
stock, par value $.001 per share.
COMMON STOCK
As of the date of this prospectus, there are 2,202,558 shares of common
stock outstanding and held of record by 46 stockholders. There will be
shares of common stock outstanding upon the closing of this offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and they do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding preferred stock. Upon the liquidation, dissolution or winding up
of the Company the holders of common stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding preferred stock.
Holders of the common stock have no preemptive, subscription, redemption or
conversion rights. The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which the Company may
designate and issue in the future. Upon the closing of this offering, there will
be no shares of preferred stock outstanding.
PREFERRED STOCK
As of the date of this prospectus, there are 17,246,122 shares of
convertible preferred stock outstanding. All outstanding shares of convertible
preferred stock will be converted into an aggregate of 6,139,641 shares of
common stock upon the closing of this offering. After such time, these shares of
convertible preferred stock will no longer be authorized, issued or outstanding.
Upon the closing of this offering, the Board of Directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 5,000,000 shares of preferred stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series. The Company has no present plans to issue any
shares of preferred stock. See "--Anti-Takeover Effects of Certain Provisions of
Delaware Law and the Company's Certificate of Incorporation and Bylaws."
OPTIONS
Options to purchase a total of 1,886,800 shares of common stock may be
granted under the 1998 Plan. As of the date of this prospectus, there are
outstanding options to purchase a total of 1,128,890
58
<PAGE>
shares of common stock under the 1998 Plan, of which options to purchase 477,722
shares are currently exercisable. Of the options to purchase 651,168 shares of
common stock that are not currently exercisable, the options to purchase 373,667
shares of common stock originally granted under the Predecessor Plan shall
immediately vest and become exercisable upon the closing of this offering. Since
the Company intends to file a Registration Statement on Form S-8 as soon as
practicable following the closing of this offering, any shares issued upon
exercise of these options will be immediately available for sale in the public
market, subject to the terms of lock-up agreements entered into by and between
substantially all of these optionholders and the underwriters. See
"Management--1998 Stock Option/ Stock Issuance Plan" and "Shares Eligible for
Future Sale."
COMMON STOCK WARRANTS
As of the date of this prospectus, the Company has outstanding warrants to
purchase a total of 65,860 shares of common stock, at an average exercise price
of $9.80 per share. Of these warrants, the holders of warrants to purchase a
total of 35,600 shares of common stock have entered into lock-up agreements with
the underwriters. The warrants contain anti-dilution provisions providing for
adjustments of the exercise price and the number of shares of common stock
underlying the warrants upon the occurrence of certain events, including any
recapitalization, reclassification, stock dividend, stock split, stock
combination or similar transaction. The warrants grant to the holders thereof
certain registration rights with respect to the Common Stock issuable upon their
exercise, which are described below. See "Shares Eligible for Future Sale."
REGISTRATION RIGHTS
Pursuant to the terms of the Amended and Restated Investors' Rights
Agreement, after the closing of this offering the holders of 6,779,275 shares of
common stock will be entitled to certain demand registration rights with respect
to the registration of their shares under the Securities Act. The holders of
such shares are divided into three groups based on the respective series of
convertible preferred stock held by each holder prior to this offering. The
holders of 50% or more of the shares of common stock to be issued upon the
conversion of each series of convertible preferred stock upon the closing of
this offering are entitled to demand that the Company register their shares
under the Securities Act, subject to certain limitations. The Company is not
required to effect more than one such registration for each group pursuant to
such demand registration rights. In addition, after the closing of this offering
these holders will be entitled to certain piggyback registration rights with
respect to the registration of such shares of common stock under the Securities
Act. In the event that the Company proposes to register any shares of common
stock under the Securities Act, either for its account or for the account of
other security holders, the holders of shares having piggyback rights are
entitled to receive notice of such registration and are entitled to include
their shares therein, subject to certain limitations. Further, at any time after
the Company becomes eligible to file a registration statement on Form S-3, the
holders of 6,779,275 shares of common stock may require the Company to file on
two occasions registration statements under the Securities Act on Form S-3 with
respect to their shares of common stock. These registration rights are subject
to certain conditions and limitations, among them the right of the underwriters
of an offering to limit the number of shares of common stock held by security
holders with registration rights to be included in such registration. The
Company is generally required to bear all of the expenses of all such
registrations, except underwriting discounts and selling commissions.
Registration of any of the shares of common stock held by security holders with
registration rights would result in such shares becoming freely tradable without
restriction under the Securities Act immediately upon effectiveness of such
registration.
59
<PAGE>
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF DELAWARE LAW AND THE COMPANY'S
CERTIFICATE OF INCORPORATION AND BYLAWS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (as amended from time to time, the "DGCL"). Subject to
certain exceptions, Section 203 of the DGCL prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained such status with the approval of the board of directors or
unless the business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, fifteen percent (15%) or more
of a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire the
Company.
In addition, certain provisions of the Certificate and Bylaws, which
provisions will be in effect upon the closing of this offering and are
summarized in the following paragraphs, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
BOARD OF DIRECTORS VACANCIES. The Certificate authorizes the Board of
Directors to fill vacant directorships or increase the size of the Board of
Directors. This may deter a stockholder from removing incumbent directors and
simultaneously gaining control of the Board of Directors by filling the
vacancies created by such removal with its own nominees.
STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. The Certificate
provides that stockholders may not take action by written consent, but only at
duly called annual or special meetings of stockholders. The Certificate further
provides that special meetings of stockholders of the Company may be called only
by the Chairman of the Board of Directors or a majority of the Board of
Directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual meeting of stockholders, must provide timely notice
thereof in writing. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Company not less
than 120 days nor more than 150 days prior to the first anniversary of the date
of the Company's notice of annual meeting provided with respect to the previous
year's annual meeting of stockholders; provided, that if no annual meeting of
stockholders was held in the previous year or the date of the annual meeting of
stockholders has been changed to be more than 30 calendar day earlier than or 60
calendar days after such anniversary, notice by the stockholder, to be timely,
must be so received not more than 90 days nor later than the later of (i) 60
days prior to the annual meeting of stockholders or (ii) the close of business
on the 10th day following the date on which notice of the date of the meeting is
given to stockholders or made public, whichever first occurs. The Bylaws also
specify certain requirements as to the form and content of a stockholder's
notice. These provisions may preclude stockholders from bringing matters before
an annual meeting of stockholders or from making nominations for directors at an
annual meeting of stockholders.
AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
stockholder approval, subject to certain limitations imposed by the Nasdaq
National Market. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved
60
<PAGE>
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger or otherwise.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Certificate provides that, except to the extent prohibited by the DGCL,
the Company's directors shall not be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of the Company. Under the DGCL, the directors have a fiduciary duty to the
Company that is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Company for acts or omissions which are found by a court
of competent jurisdiction to be not in good faith or that involve intentional
misconduct, or knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under a corporation's bylaws, any agreement, a vote of
stockholders or otherwise. The Certificate eliminates the personal liability of
directors to the fullest extent permitted by Section 102(b)(7) of the DGCL and
provides that the Company may fully indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Company or is or was serving at the request of the Company as a
director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
The Company has entered into agreements to indemnify its directors and
executive officers, in addition to the indemnification provided for in the
Company's Bylaws. The Company believes that these provisions and agreements are
necessary to attract and retain qualified directors and executive officers. The
Company's Bylaws also permit it to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions, regardless of whether the DGCL would permit indemnification. The
Company has applied for liability insurance for its officers and directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Company is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
TRANSFER AGENT AND REGISTRAR
Upon the closing of this offering, the transfer agent and registrar for the
common stock will be American Stock Transfer & Trust Company, New York, New
York.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for the common
stock, and no prediction can be made as to the effect, if any, that market sales
of shares of common stock or the availability of shares of common stock for sale
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock in the public market,
or the perception that such sales could occur, could adversely affect the market
price of the common stock and could impair the Company's future ability to raise
capital through the sale of its equity securities.
Upon the closing of this offering, the Company will have an aggregate of
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of the
outstanding shares, the shares sold in this offering will be freely tradable,
except that any shares held by "affiliates" of the Company (as that term is
defined in Rule 144 promulgated under the Securities Act) may only be sold in
compliance with the limitations described below. The remaining 8,342,199 shares
of common stock will be deemed "restricted securities" as defined under Rule
144. Restricted securities 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 rules are summarized below.
Subject to the lock-up agreements described below and the provisions of Rules
144, 144(k) and 701, additional shares will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE
- ------------------ -------------------------------------------------------------------------
<C> <S>
3,128 After the date of this prospectus
3,280 Upon the filing of a registration statement to register for resale shares
of common stock issuable upon the exercise of options granted under the
Company's stock option plan
12,584 At various times after 90 days from the date of this prospectus (Rule
144)
5,084,116 After 180 days from the date of this prospectus (subject, in some cases,
to volume limitations)
3,239,091 At various times after 180 days from the date of this prospectus (Rule
144)
</TABLE>
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of common stock (approximately shares immediately after
this offering) or (ii) the average weekly trading volume in the common stock
during the four calendar weeks preceding the date on which notice of such sale
is filed, subject to certain restrictions. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the 90 days
preceding a sale and who has beneficially owned the shares proposed to be sold
for at least two years would be entitled to sell such shares under Rule 144(k)
without regard to the requirements described above. To the extent that shares
were acquired from an affiliate of the Company such person's holding period for
the purpose of effecting a sale under Rule 144 commences on the date of transfer
from the affiliate.
As of the date of this prospectus, options to purchase a total of 1,178,675
shares of common stock are outstanding, of which 477,722 are currently
exercisable. Of the options to purchase 700,953 shares of common stock that are
not currently exercisable, options to purchase 373,667 shares of common
62
<PAGE>
stock shall vest and become exercisable upon the filing of the registration
statement relating to the Company's 1998 Stock Option/Stock Issuance Plan. Upon
the closing of this offering, the Company intends to file a registration
statement to register for resale the 1,886,800 shares of common stock reserved
for issuance under the Company's 1998 Stock Option/Stock Issuance Plan. Such
registration statement will automatically become effective upon filing.
Accordingly, shares covered by that registration statement will thereupon be
eligible for sale in the public markets, unless such options are subject to
vesting restrictions or the lock-up agreements referred to below. Upon the
closing of this offering, 65,860 shares of common stock will be issuable upon
the exercise of outstanding warrants.
Upon the closing of this offering, the Company intends to grant
non-qualified stock options to purchase approximately 350,000 shares of common
stock to a substantial majority of its guides. The exercise price per share of
such options is expected to be the initial public offering price of the common
stock. A majority of these option grants are expected to vest in the following
manner: (i) 10% upon the closing of this offering, (ii) 15% six months following
the closing of this offering and (iii) 25% in each of three semi-annual
installments commencing one year from the closing of this offering. None of the
shares issuable upon the exercise of these options will be subject to a lock-up
agreement with the underwriters.
The Company's directors and officers and certain stockholders who hold
8,204,671 shares in the aggregate, together with the holders of options to
purchase 1,072,756 shares of common stock and the holders of warrants to
purchase 35,600 shares of common stock, have agreed that they will not sell,
directly or indirectly, any shares of common stock without the prior written
consent of Bear, Stearns & Co. Inc. for a period of 180 days from the date of
this prospectus. See "Underwriting."
The Company has agreed not to sell or otherwise dispose of any shares of
common stock during the 180-day period following the date of the prospectus,
except the Company may issue, and grant options to purchase, shares of common
stock under the 1998 Stock Option/Stock Issuance Plan. In addition, the Company
may issue shares of common stock in connection with any acquisition of another
company if the terms of such issuance provide that such common stock shall not
be resold prior to the expiration of the 180-day period referenced in the
preceding sentence. See "Risk Factors--Shares Eligible for Future Sale."
Following this offering, under certain circumstances and subject to certain
conditions, holders of 6,779,275 shares of the Company's outstanding common
stock will have certain demand registration rights with respect to their shares
of common stock (subject to the 180-day lock-up arrangement described above) to
require the Company to register their shares of common stock under the
Securities Act, and they will have certain rights to participate in any future
registration of securities by the Company. The Company is not required to effect
more than an aggregate of three demand registrations on behalf of such holders.
These holders are subject to lock-up periods of not more than 180 days following
the date of this prospectus or any subsequent prospectus. See "Description of
Securities-- Registration Rights."
63
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an agreement among the
underwriters and the Company (the "Underwriting Agreement"), each of the
underwriters named below (the "Underwriters"), through their representatives
Bear, Stearns & Co. Inc. and Volpe Brown Whelan & Company, LLC (the
"Representatives"), has severally agreed to purchase from the Company the
aggregate number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
Bear, Stearns & Co. Inc...............................................................................
Volpe Brown Whelan & Company, LLC.....................................................................
-----------
Total.............................................................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of common stock if any are purchased.
The Underwriters propose to offer the shares of common stock directly to the
public at the "initial public offering price" set forth on the cover page of
this prospectus and at such price less a concession not in excess of $ per
share of common stock to certain other dealers who are members of the National
Association of Securities Dealers, Inc. The Underwriters may allow, and such
dealers may reallow, concessions not in excess of $ per share of common stock
to certain other dealers. After this offering, this offering price, concessions
and other selling terms may be changed by the Underwriters. The common stock is
offered subject to receipt and acceptance by the Underwriters and to certain
other conditions, including the right to reject orders in whole or in part.
The Company has granted a 30-day over-allotment option to the Underwriters
to purchase up to an aggregate of additional shares of common stock of the
Company exercisable at the "initial public offering price" less the
"underwriting discounts", each as set forth on the cover page of this
prospectus. If the Underwriters exercise such option in whole or in part, then
each of the Underwriters will be severally committed, subject to certain
conditions, including the approval of certain matters by counsel, to purchase
the additional shares of common stock in proportion to their respective purchase
commitments as indicated in the preceding table.
The Underwriters, at the request of the Company, have reserved for sale at
the initial public offering price up to five percent (5%) of the shares of
common stock to be sold in this offering for sale to employees of the Company
and its affiliates, and to their associates and related persons. The number of
shares available for sale to the general public will be reduced to the extent
that any reserved shares are purchased. Any reserved shares not so purchased
will be offered by the Underwriters on the same basis as the other shares
offered hereby.
The Underwriters do not expect to confirm sales of common stock to any
accounts over which they exercise discretionary authority.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities under the Securities Act of 1933, as
amended, or will contribute to payments that the Underwriters may be required to
make in respect thereof.
The Company's directors and officers and certain stockholders who hold
8,204,671 shares in the aggregate, together with the holders of options to
purchase 1,072,756 shares of common stock and the
64
<PAGE>
holders of warrants to purchase 35,600 shares of common stock, have agreed that
they will not sell, directly or indirectly, any shares of common stock without
the prior written consent of Bear, Stearns & Co. Inc. for a period of 180 days
from the date of this prospectus.
In addition, the Company has agreed that for a period of 180 days after the
date of this prospectus it will not, without the prior written consent of Bear,
Stearns & Co. Inc., offer, sell or otherwise dispose of any shares of common
stock except for the shares of common stock offered hereby, the shares of common
stock issuable upon exercise of outstanding warrants and the shares issued and
options granted pursuant to the Company's existing 1998 Stock Option/Stock
Issuance Plan.
Prior to this offering, there has been no public market for the common stock
of the Company. Consequently, the initial offering price for the common stock
will be determined by negotiations between the Company and the Representatives.
Among the factors to be considered in such negotiations will be the results of
operations of the Company in recent periods, estimates of the prospects of the
Company and the industry in which the Company competes, an assessment of the
Company's management, the general state of the securities markets at the time of
this offering and the prices of similar securities of generally comparable
companies. The Company intends to apply for approval for the quotation of its
common stock on the Nasdaq National Market, under the symbol MINE. There can be
no assurance, however, that an active or orderly trading market will develop for
the common stock or that the common stock will trade in the public markets
subsequent to this offering at or above the initial offering price.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Company's common
stock including over-allotment, stabilizing and short-covering transactions and
the impositions of penalty bids. Certain persons participating in this offering
may also engage in passive market making transactions in the common stock on the
Nasdaq National Market.
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the common stock during and after this offering. Specifically, the
Underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than have
been sold to them by the Company. The Underwriters may elect to cover any such
short position by purchasing shares of common stock in the open market or by
exercising the over-allotment option granted to the Underwriters. In addition,
the Underwriters may stabilize or maintain the price of the common stock by
bidding for or purchasing shares of common stock in the open market and may
impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in this offering are reclaimed if
shares of common stock previously distributed in this offering are repurchased
in connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the common stock to the extent that it
discourages resales thereof. No representation is made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
65
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for the Company by Brobeck, Phleger & Harrison LLP, New York, New York.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by O'Sullivan Graev and Karabell, LLP, New York, New York.
EXPERTS
The financial statements for MiningCo.com, Inc. as of December 31, 1996 and
1997 and for the period from June 27, 1996 (inception) to December 31, 1996 and
the year ended December 31, 1997 included in this prospectus and elsewhere in
the registration statement have been so included in reliance on the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, upon the authority of said firm as experts in auditing and
accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 (including the exhibits, schedules and
amendments thereto) under the Securities Act with respect to the shares of
common stock to be sold in this offering. This prospectus does not contain all
the information set forth in the Registration Statement. For further information
with respect to the Company and the shares of common stock to be sold in this
offering, reference is made to the Registration Statement. Statements contained
in this prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract, agreement or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
You may read and copy all or any portion of the Registration Statement or
any other information the Company files at the Securities and Exchange
Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C.
20549. You can request copies of these documents, upon payment of a duplicating
fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. The Company's Securities and
Exchange Commission filings, including the Registration Statement, are also
available to you on the Securities and Exchange Commission's web site
(http://www.sec.gov).
As a result of this offering, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission.
Upon approval of the common stock for the quotation on the Nasdaq National
Market, such reports, proxy and information statements and other information may
also be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and with quarterly reports for the first
three quarters of each year containing unaudited interim financial information.
66
<PAGE>
[LOGOS OF ADVERTISERS AND E-COMMERCE PARTNERS]
[TAXONOMY OF MININGCO.COM]
67
<PAGE>
MININGCO.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Independent Auditors' Report.............................................................................. F-2
Balance Sheets as of December 31, 1996 and 1997, and September 30, 1998 (unaudited)....................... F-3
Statement of Operations for the period from June 27, 1996 (inception) to December 31, 1996, for the year
ended December 31, 1997, and for the nine months ended September 30, 1997 (unaudited) and 1998
(unaudited)............................................................................................. F-4
Statements of Stockholders' Deficit for the period from June 27, 1996 (inception) to December 31, 1996,
for the year ended December 31, 1997, and for the nine months ended September 30, 1998 (unaudited)...... F-5
Statements of Cash Flows for the period from June 27, 1996 (inception) to December 31, 1996, for the year
ended December 31, 1997, and for the nine months ended September 30, 1997 (unaudited) and 1998
(unaudited)............................................................................................. F-6
Notes to Financial Statements............................................................................. F-7
</TABLE>
F-1
<PAGE>
The Board of Directors and Stockholders
MiningCo.com, Inc.:
When the reverse stock split referred to in Note 13 of the Notes to
Financial Statements has been consummated, we will be in a position to render
the following report.
KPMG Peat Marwick LLP
/S/ KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
MiningCo.com, Inc.:
We have audited the accompanying balance sheets of MiningCo.com, Inc. as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' deficit and cash flows for the period from June 27, 1996
(inception) to December 31, 1996 and for the year ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MiningCo.com, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the period from June 27, 1996 (inception) to December 31, 1996 and for the
year ended December 31, 1997 in conformity with generally accepted accounting
principles.
New York, New York
December 15, 1998, except as to Note 13,
which is as of January , 1999
F-2
<PAGE>
MININGCO.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
(SEE NOTE
DECEMBER 31, 2(A))
---------------------- SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998 1998
--------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents............................................ $1,647,300 $ 303,200 $ 1,241,300 $ 15,939,700
Accounts receivable, less allowance for doubtful accounts of $6,000
in 1997 and $96,000 in 1998........................................ 300 118,300 669,100 669,100
Prepaid assets....................................................... -- -- 75,400 75,400
--------- ----------- ------------- --------------
Total current assets............................................... 1,647,600 421,500 1,985,800 16,684,200
Property and equipment, net............................................ 328,400 748,400 1,050,400 1,050,400
Debt issuance costs, net of amortization of $24,500 in 1997............ -- 97,800 -- --
Deposits............................................................... 62,900 89,400 104,300 104,300
--------- ----------- ------------- --------------
Total assets....................................................... $2,038,900 $ 1,357,100 $ 3,140,500 $ 17,838,900
--------- ----------- ------------- --------------
--------- ----------- ------------- --------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Trade accounts payable and accrued expenses.......................... $ 301,600 $ 1,257,300 $ 2,463,900 $ 2,463,900
Deferred compensation payable--related party......................... 151,300 414,700 155,700 155,700
Guide fees payable................................................... -- 157,300 270,300 270,300
Deferred revenue..................................................... -- 529,600 455,000 455,000
Convertible loans payable............................................ -- 1,010,200 -- --
Current portion of notes payable....................................... -- -- 132,500 132,500
Current installments of obligations under capital leases............... -- 150,000 212,800 212,800
--------- ----------- ------------- --------------
Total current liabilities.......................................... 452,900 3,519,100 3,690,200 3,690,200
Convertible notes payable, net of unamortized debt discount of $38,700
in 1997.............................................................. -- 5,132,900 -- --
Notes payable, excluding current portion............................... 3,971,700 3,348,200 2,432,300 328,200
Deferred rent.......................................................... 39,100 49,600 51,100 51,100
Obligations under capital leases, excluding current installments....... -- 251,600 199,000 199,000
--------- ----------- ------------- --------------
Total liabilities.................................................. 4,463,700 12,301,400 6,372,600 4,268,500
Convertible preferred stock, $0.001 par value;
Series A--3,346,715 shares authorized, issued and outstanding at
September 30, 1998; liquidation preference of $1.50 per share
plus unpaid dividends of 9% per annum ($5,214,700 in the
aggregate at September 30, 1998)................................. -- -- 5,138,600 --
Series B--6,597,596 shares authorized, issued and outstanding at
September 30, 1998; liquidation preference of $1.80 per share
plus unpaid dividends of 9% per annum ($12,335,700 in the
aggregate at September 30, 1998)................................. -- -- 12,158,200 --
Series C--8,717,949 shares authorized, no shares issued and
outstanding at September 30, 1998; liquidation preference of
$1.95 per share plus unpaid dividends of 9% per annum............ -- -- -- --
Stockholders' (deficit) equity:
Preferred stock, $0.001 par value; 5,000,000 shares authorized, no
shares issued and outstanding...................................... -- -- -- --
Common stock, $0.001 par value; 50,000,000 shares authorized,
1,816,255, 1,475,336 and 1,548,540 shares issued and outstanding at
December 31, 1996 and 1997, and September 30, 1998, respectively,
8,327,815 issued and outstanding pro forma (unaudited)............. 1,800 1,500 1,500 8,300
Additional paid-in capital........................................... 11,500 132,700 749,800 34,842,300
Deferred compensation................................................ -- -- (437,700) (437,700)
Accumulated deficit.................................................. (2,438,100) (11,078,500) (20,842,500) (20,842,500)
--------- ----------- ------------- --------------
Total stockholders' (deficit) equity............................... (2,424,800) (10,944,300) (20,528,900) 13,570,400
--------- ----------- ------------- --------------
Commitments and contingencies
Total liabilities and stockholders deficit....................... $2,038,900 $ 1,357,100 $ 3,140,500 $ 17,838,900
--------- ----------- ------------- --------------
--------- ----------- ------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
MININGCO.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27, 1996
(INCEPTION) NINE MONTHS ENDED
TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ----------------------------
1996 1997 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues.............................................. $ -- $ 390,600 $ 180,500 $ 1,577,700
Cost of revenues...................................... 90,800 1,857,100 1,301,500 2,848,600
------------- ------------- ------------- -------------
Gross profit (loss)............................. (90,800) (1,466,500) (1,121,000) (1,270,900)
Operating expenses:
Sales and marketing................................. 240,900 1,669,100 1,439,800 3,202,600
General and administrative.......................... 1,100,900 2,414,400 1,923,300 2,373,700
Product development................................. 948,000 2,791,200 2,217,700 1,817,300
------------- ------------- ------------- -------------
Total operating expenses.......................... 2,289,800 6,874,700 5,580,800 7,393,600
------------- ------------- ------------- -------------
Loss from operations............................ (2,380,600) (8,341,200) (6,701,800) (8,664,500)
Other income (expense):
Other income, net................................... -- 349,800 193,500 --
Interest income..................................... 9,200 8,800 8,800 27,500
Interest expense, including $65,300 and $34,300
(unaudited) of amortization of debt discount in
1997 and 1998 and $24,500 and $6,100 (unaudited)
of debt issuance costs in 1997 and 1998,
respectively...................................... (66,700) (657,800) (412,400) (472,300)
------------- ------------- ------------- -------------
Total other income (expense), net............... (57,500) (299,200) (210,100) (444,800)
------------- ------------- ------------- -------------
Net loss.............................................. (2,438,100) (8,640,400) (6,911,900) (9,109,300)
Accretion of convertible preferred stock to
liquidation value................................... -- -- -- (654,700)
------------- ------------- ------------- -------------
Net loss attributable to common stockholders.... $ (2,438,100) $ (8,640,400) $ (6,911,900) $ (9,764,000)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic and diluted net loss per common share........... $ (1.20) $ (4.94) $ (3.90) $ (5.69)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares outstanding used in basic and
diluted net loss per common share calculation....... 2,035,144 1,748,850 1,774,167 1,715,927
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Pro forma basic and diluted net loss per common
share............................................... $ (1.04) $ (1.10)
------------- -------------
------------- -------------
Weighted average shares outstanding used in pro forma
basic and diluted net loss per common share
calculation......................................... 8,309,236 8,276,314
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
MININGCO.COM, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------- PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT DEFICIT
---------- --------- ---------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock................ 1,816,255 $ 1,800 $ 11,500 $ -- $ -- $ 13,300
Net loss for the period from June 27,
1996 (inception) to December 31,
1996.................................. -- -- -- -- (2,438,100) (2,438,100)
---------- --------- ---------- ------------ -------------- --------------
Balance as of December 31, 1996......... 1,816,255 1,800 11,500 -- (2,438,100) (2,424,800)
Cancellation of common stock............ (367,802) (300) 300 -- -- --
Issuance of warrants in connection with
debt transactions..................... -- -- 104,000 -- -- 104,000
Exercise of stock options............... 26,886 -- 13,600 -- -- 13,600
Issuance of stock options in lieu of
services.............................. -- -- 3,300 -- -- 3,300
Net loss for the year ended December 31,
1997.................................. -- -- -- -- (8,640,400) (8,640,400)
---------- --------- ---------- ------------ -------------- --------------
Balance as of December 31, 1997......... 1,475,339 1,500 132,700 -- (11,078,500) (10,944,300)
Issuance of warrants in connection with
debt transactions (unaudited)......... -- -- 12,000 -- -- 12,000
Deferred compensation related to stock
options granted (unaudited)........... -- -- 535,200 (535,200) -- --
Amortization of deferred compensation
(unaudited)........................... -- -- -- 97,500 -- 97,500
Common stock issued for stock options
(unaudited)........................... 73,201 -- 69,900 -- -- 69,900
Accretion of convertible preferred stock
to liquidation value (unaudited)...... -- -- -- -- (654,700) (654,700)
Net loss for the nine months ended
September 30, 1998 (unaudited)........ -- -- -- -- (9,109,300) (9,109,300)
---------- --------- ---------- ------------ -------------- --------------
Balance as of September 30, 1998
(unaudited)........................... 1,548,540 $ 1,500 $ 749,800 $ (437,700) $ (20,842,500) $ (20,528,900)
---------- --------- ---------- ------------ -------------- --------------
---------- --------- ---------- ------------ -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
MININGCO.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JUNE 27,
1996
(INCEPTION) NINE MONTHS ENDED
TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ------------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss................................................ $(2,438,100) $(8,640,400) ($6,911,700) ($9,109,300)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization of property and
equipment........................................... 29,400 213,400 160,100 325,600
Amortization of debt issuance costs................... -- 24,500 12,200 6,100
Amortization of debt discount......................... -- 65,300 41,400 34,300
Amortization of deferred compensation expense......... -- -- -- 97,500
Stock options issued in lieu of services.............. -- 3,300 3,300 --
Deferred rent......................................... 39,100 10,500 9,700 1,500
Deferred compensation--related party.................. 151,300 263,400 237,500 41,000
Deferred interest on debt............................. 66,100 558,300 358,800 369,800
Bad debt expense...................................... -- 6,000 -- 90,000
Changes in operating assets and liabilities:
Accounts receivable................................. (300) (124,000) (167,600) (640,800)
Prepaid assets...................................... -- -- -- (75,400)
Deposits............................................ (62,900) (26,500) (3,400) (14,900)
Accounts payable and accrued expenses............... 301,600 955,700 439,900 1,206,600
Guide fees payable.................................. -- 157,300 124,400 113,000
Deferred revenue.................................... -- 529,600 705,500 (74,600)
------------ ------------ ----------- -----------
Net cash used in operating activities............. (1,913,800) (6,003,600) (4,989,900) (7,629,600)
------------ ------------ ----------- -----------
Cash flows from investing activities:
Capital expenditures.................................... (357,800) (148,000) (110,400) (448,300)
------------ ------------ ----------- -----------
Net cash used in investing activities............. (357,800) (148,000) (110,400) (448,300)
------------ ------------ ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock.................. 13,300 -- 3,300 --
Proceeds from secured credit facility, net.............. -- -- -- 460,700
Proceeds from issuance of convertible preferred stock,
net................................................... -- -- -- 6,854,500
Proceeds from issuance of loans payable................. 3,905,600 5,000,000 3,750,000 1,800,000
Principal payments under capital lease obligations...... -- (83,800) (47,200) (169,100)
Proceeds from exercise of common stock options.......... -- 13,600 -- 69,900
Deferred financing costs................................ -- (122,300) (79,700) --
------------ ------------ ----------- -----------
Net cash provided by financing activities......... 3,918,900 4,807,500 3,626,400 9,016,000
------------ ------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................... 1,647,300 (1,344,100) (1,473,900) 938,100
Cash and cash equivalents at beginning of period.......... -- 1,647,300 1,647,300 303,200
------------ ------------ ----------- -----------
Cash and cash equivalents at end of period................ $1,647,300 $ 303,200 $ 173,400 $1,241,300
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Supplemental disclosures of cash flow information:
Interest paid........................................... $ 600 $ 8,100 $ 2,100 $ 60,800
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Noncash transactions:
Equipment acquired under capital leases................. $ -- $ 485,400 $ 210,700 $ 179,300
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
Barter transactions..................................... $ -- $ 72,500 $ -- $ 152,400
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(1) ORGANIZATION AND BUSINESS
MiningCo.com, Inc. (the "Company" or "MiningCo") was incorporated in New
York on June 27, 1996 (inception) as General Internet Inc. and commenced
operations on that date. In December 1998, the Company reincorporated in
Delaware. The Company's Internet service, MININGCO.COM, is an Internet news,
information and entertainment service. The Company's network is comprised of
numerous GuideSites, each of which focuses on a particular topic and is managed
by a human guide. The guides are independent contractors who are compensated
based on the greater of a monthly guarantee or a percentage of revenues
generated by all of the GuideSites. The Company's primary revenue source is the
sale of advertising.
The Company's business is characterized by rapid technological change, new
product and service development and evolving industry standards. Inherent in the
Company's business are various risks and uncertainties, including its limited
operating history, uncertain profitabillity, history of losses, anticipated
continuing losses, the dependence on the Internet and risks associated with
Internet advertising.
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
(A) INITIAL PUBLIC OFFERING AND UNAUDITED PRO FORMA BALANCE SHEET
In December 1998, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO").
If the IPO is consummated under the terms presently anticipated, upon the
closing of the proposed IPO, each of the then outstanding shares of the
Company's convertible preferred stock will automatically convert into 0.356
shares of common stock.
The accompanying pro forma balance sheet as of September 30, 1998 gives
effect to (a) the issuance of 7,301,811 shares of Series C convertible preferred
stock during November and December 1998 in consideration for net cash proceeds
of approximately $12.4 million and the conversion of $1.8 million in outstanding
notes payable (see note 10), (b) the issuance of 639,634 shares of common stock
upon the exercise of certain investor warrants in December 1998 in consideration
for net cash proceeds of approximately $2.3 million (see note 10) and (c) the
automatic conversion of 3,346,715, 6,597,596, and 7,301,811 shares of Series A,
B and C convertible preferred stock, respectively, representing all outstanding
shares of convertible preferred stock, into 6,139,641 shares of common stock
upon the closing of this offering.
(B) UNAUDITED INTERIM FINANCIAL INFORMATION
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
as of September 30, 1998, and the results of its operations and its cash flows
for the nine months ended September 30, 1997 and 1998. The results for the nine
months ended September 30, 1997 and 1998 are not necessarily indicative of the
results to be expected for the entire year.
F-7
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(C) 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 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.
(D) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid securities with original maturities
of three months or less to be cash equivalents, which principally consist of
money market accounts.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over three
years, which is the estimated useful life of the related assets. Leasehold
improvements are amortized over their estimated useful lives, or the term of the
related lease, whichever is shorter. Equipment under capital leases is stated at
the present value of minimum lease payments and is amortized using the
straight-line method over the shorter of the lease term or the estimated useful
life of the assets.
(F) DEBT ISSUANCE COSTS
Amortization of debt issuance costs is calculated on the straight-line
method over the life of the related debt instrument.
(G) IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the assets to future net cash flows
expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. To date, no
such impairment has occurred.
(H) INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in results of operations in
the period that includes the enactment date.
F-8
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) REVENUE RECOGNITION
To date, substantially all of the Company's revenues have been derived from
the sale of advertisements on MININGCO.COM. The Company offers numerous sizes
and types of advertising placement, including banner advertisements, button
advertisements and text links. The Company also offers sponsorship programs and
contests. Revenues from advertising sales are recognized ratably in the period
in which the advertisement is displayed, provided that no significant Company
obligations remain and collection of the resulting receivable is probable.
Payments received from advertisers prior to displaying their advertisements on
MININGCO.COM are recorded as deferred revenue and are recognized as revenue
ratably as the advertisements are displayed. Pursuant to its agreements with
advertisers, the Company generally guarantees a minimum number of impressions
(times that an advertisement appears in pages viewed by the users of
MININGCO.COM) for a fixed fee. To the extent minimum guaranteed impression
levels are not met, the Company defers recognition of the corresponding revenues
until guaranteed impression levels are achieved. The Company's short-term
advertising agreements are generally terminable by either party upon relatively
short notice. The Company's agreements with its e-commerce partners are
typically longer in length, and in certain cases, entitle the Company to a share
of revenues generated by sales over a particular threshold resulting from direct
links from MININGCO.COM. To date, the Company has not recognized any revenues
from such revenue sharing agreements. The Company's revenue derived from such
revenue sharing agreements will be recognized by the Company upon notification
from its advertisers and e-commerce partners of sales attributable to
MININGCO.COM.
A portion of the Company's revenues are from barter advertisements
(agreements whereby the Company trades advertisements on MININGCO.COM in
exchange for advertisements on third-party web sites). Barter advertising
revenues and expenses are recorded at the fair market value of services provided
or received, whichever is more determinable in the circumstances. Revenue from
barter advertising transactions is recognized as income when advertisements are
delivered on MININGCO.COM. Barter expense is recognized when the Company's
advertisements are run on third-party web sites, which is typically in the same
period when barter revenue is recognized. Barter expense is included as a
component of cost of revenues. Barter advertising revenues and expenses were $0
and $72,500 for the period from June 27, 1996 (inception) through December 31,
1996 and for the year ended December 31, 1997, respectively, and $0 and $152,400
for the nine months ended September 30, 1997 and 1998, respectively.
(J) PRODUCT DEVELOPMENT EXPENSES
Product development expenses include personnel and consulting costs
associated with the design, development and testing of MININGCO.COM and the
Company's systems, editorial personnel costs and software licensing costs. The
Company generally expenses its product development expenses as incurred.
Software development costs are required to be capitalized when a product's
technological feasibility has been established by completion of a working model
of the product. To date, completion of a working model of the Company's service
and general release have substantially coincided. As a result, the Company has
not capitalized any software development costs since such costs have not been
significant.
F-9
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(K) ADVERTISING EXPENSES
The Company expenses the costs of advertising its service as incurred. Such
costs amounted to $60,000 and $510,900 for the period from June 27, 1996
(inception) through December 31, 1996 and for the year ended December 31, 1997,
respectively, and $510,600 and $2,225,000 for the nine months ended September
30, 1997 and 1998, respectively, and are included in sales and marketing in the
Company's statements of operations.
(L) STOCK-BASED COMPENSATION
The Company accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation expense related to employee stock options is recorded only
if, on the date of grant, the fair value of the underlying stock exceeds the
exercise price. The Company adopted the disclosure-only requirements of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," which allows entities to continue to apply the
provisions of APB Opinion No. 25 for transactions with employees and provide pro
forma net income and pro forma earnings per share disclosures for employee stock
as if the fair-value-based method of accounting in SFAS No. 123 had been applied
to these transactions.
The Company accounts for non-employee stock-based awards in which goods or
services are the consideration received for the equity instruments issued based
on the fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measured.
(M) BASIC AND DILUTED NET LOSS PER COMMON SHARE
The Company adopted SFAS No. 128, "Computation of Earnings Per Share,"
during the year ended December 31, 1997. In accordance with SFAS No. 128 and the
SEC Staff Accounting Bulletin No. 98, basic earnings per share is computed using
the weighted average number of common and dilutive common equivalent shares
outstanding during the period. Common equivalent shares consist of the
incremental common shares issuable upon the conversion of the convertible
preferred stock (using the if-converted method) and shares issuable upon the
exercise of stock options and warrants (using the Treasury Stock method); common
equivalent shares are excluded from the calculation if their effect is
anti-dilutive. Pursuant to SEC Staff Accounting Bulletin No. 98, all options,
warrants or other potentially dilutive instruments issued for nominal
consideration, prior to the anticipated effective date of an initial public
offering (including the IPO), are required to be included in the calculation of
basic and diluted net loss per share, as if they were outstanding for all
periods presented. As a result, the Company has included 218,889 shares of
common stock in the calculation of basic and diluted net loss per common share
for all periods presented which relate to certain investor warrants issued for
nominal consideration (see notes 8 and 10).
Diluted net loss per common share for the period from June 27, 1996
(inception) through December 31, 1996, the year ended December 31, 1997, and the
nine months ended September 30, 1998, does not include the effects of options to
purchase 0, 768,851, and 1,055,340 shares of common stock, respectively, 0,
391,394, and 736,341 common stock warrants, respectively, or 0, 0 and 3,540,185
F-10
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
shares of convertible preferred stock on an "as if" converted basis,
respectively, as the effect of their inclusion is anti-dilutive during each
period.
The pro forma net loss per common share for the year ended December 31, 1997
and the nine months ended September 30, 1998, is computed by dividing the net
loss by the sum of the weighted average number of shares of common stock
outstanding and the shares resulting from (i) the automatic conversion of all of
outstanding convertible preferred stock, totalling 6,139,641, and (ii) the
issuance of 639,634 common shares upon the exercise of certain investor warrants
called by the Company in December 1998 (which included investor warrants issued
for nominal consideration), as if they had been outstanding during each period.
(N) STOCK SPLIT
In August 1996, the Company authorized and implemented an additional
1-for-40,000 common stock split. Accordingly, all share and per share
information in the accompanying financial statements has been retroactively
restated to reflect the effect of the stock split (see note 13).
(O) RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income", which establishes standards for reporting and
displaying comprehensive income and its components in a full set of general
purpose financial statements. The adoption of this standard has had no impact on
the Company's financial statements. Accordingly, the Company's comprehensive net
loss is equal to its net loss for all periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which establishes standards for the way
that a public enterprise reports information about operating segments in annual
financial statements, and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997. In the initial
year of application, comparative information for earlier years must be restated.
The Company has determined that it does not have any separately reportable
business segments.
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"), 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. The Company has not yet determined the
impact, if any, of adopting SOP 98-1, which will be effective for the Company's
year ending December 31, 1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133 is
F-11
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(2) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
This statement is not expected to affect the Company as the Company currently
does not engage or plan to engage in derivative instruments or hedging
activities.
(3) BUSINESS AND CREDIT CONCENTRATIONS
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents, accounts receivable,
accounts payable and accrued liabilities. The carrying amounts of these
instruments approximate fair value. The carrying amount of the Company's capital
leases and other equipment financing obligations approximates the fair value of
such instruments based upon management's best estimate of interest rates that
would be available to the Company for similar debt obligations.
The Company maintains cash and cash equivalents with a domestic financial
institution. The Company performs periodic evaluations of the relative credit
standing of this institution. From time to time, the Company's cash balances
with this financial institution may exceed Federal Deposit Insurance Corporation
insurance limits.
The Company's customers are 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 each customer, historical trends and other information; to
date, such amounts have been within management's expectations.
For the period from June 27, 1996 (inception) to December 31, 1996, there
were no customers that accounted for over 10% of total revenues generated by the
Company, or of gross accounts receivable at December 31, 1996.
For the year ended December 31, 1997, one customer accounted for
approximately 19% of total revenues generated by the Company. No customers
accounted for over 10% of gross accounts receivable at December 31, 1997. As of
December 31, 1997, the Company had receivables in excess of $10,000 from three
separate customers totaling approximately $43,000.
For the nine months ended September 30, 1998, a third-party advertising
representation firm accounted for approximately 27% of total revenues generated
by the Company. Two customers accounted for approximately 39% and 12% of gross
accounts receivable at September 30, 1998, totaling approximately $393,000.
In June 1997, the Company entered into a consulting agreement with a major
financial institution pursuant to which the Company agreed to provide consulting
assistance in connection with the development of micro communities for an
aggregate amount of $450,000. Fees in connection with this agreement have been
recognized as performance occurred under the terms of the agreement, net of any
expenses, and have been recorded as other income for the year ended December 31,
1997. In connection with this agreement, the Company issued the financial
institution a warrant to purchase 35,600 shares of common stock at $14.05 per
share with an expiration date of December 31, 1999. The fair value of the
warrants, using the Black-Scholes model, was deemed insignificant on the date of
grant.
F-12
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1996 1997 1998
---------- ----------- -------------
<S> <C> <C> <C>
(UNAUDITED)
Equipment and computer hardware, including
assets under capital leases of $0, $485,400
and $664,700, respectively......................... $ 315,700 $ 949,100 $ 1,572,100
Leasehold improvements............................... 32,400 32,400 32,400
Furniture and fixtures............................... 9,700 9,700 14,300
---------- ----------- -------------
357,800 991,200 1,618,800
Less accumulated depreciation and amortization,
including assets under capital leases of $0,
$64,500, and $234,400, respectively................ (29,400) (242,800) (568,400)
---------- ----------- -------------
Total................................................ $ 328,400 $ 748,400 $ 1,050,400
---------- ----------- -------------
---------- ----------- -------------
</TABLE>
(5) INCOME TAXES
No provision for US federal or state income taxes has been recorded for any
period as the Company has incurred operating losses since inception.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------- 1998
1996 1997 (UNAUDITED)
----------- ------------ -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 1,033,000 $ 4,887,000 $ 9,147,000
Allowance for doubtful accounts.................. -- 1,000 44,000
Deferred compensation............................ 70,000 191,000 72,000
Depreciation..................................... -- (14,000) (26,000)
Deferred rent.................................... 18,000 23,000 23,000
----------- ------------ -------------
Less valuation allowance......................... (1,121,000) (5,088,000) (9,260,000)
----------- ------------ -------------
Deferred tax assets................................ $ -- $ -- $ --
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
Realization of deferred tax assets is dependent upon future earnings, if
any. The Company has recorded a full valuation allowance against its deferred
tax assets since management believes that it is not more likely than not that
these assets will be realized. No income tax benefit has been recorded for all
periods presented because of the valuation allowance.
F-13
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(5) INCOME TAXES (CONTINUED)
During the period from June 27, 1996 (inception) to December 31, 1996, the
year ended December 31, 1997, and the nine months ended September 30, 1998 the
valuation allowance for the deferred tax assets increased by $1,121,000,
$3,967,000, and $4,172,000, respectively.
As of December 31, 1997, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $10.6 million. There can be no
assurance that the Company will realize the benefit of the net operating loss
carryforwards. The federal net operating loss carryforwards are available to
offset future taxable income and expire at various dates beginning in fiscal
year 2011 through 2012 if not utilized.
Due to the "change in ownership" provisions of the Internal Revenue Code,
the availability of the Company's net operating loss and credit carryforwards
will be subject to an annual limitation against taxable income in future periods
if a change in ownership of more than 50% of the value of the Company's stock
should occur over a three-year period, which could substantially limit the
eventual utilization of these carryforwards.
(6) RELATED PARTY TRANSACTIONS
At December 31, 1996 and 1997, and September 30, 1998, Mr. Scott P. Kurnit,
the Company's President and Chief Executive Officer and Chairman of the Board of
Directors, elected to defer compensation in the amount of $151,300, $414,700,
and $155,700 respectively, for accrued but unpaid salary and bonuses. In January
1998, Mr. Kurnit converted $300,000 of such amount into a convertible note
payable.
On April 20, 1998, the Company and a director of an investor in the Company
executed an advisory agreement, pursuant to which, the individual agreed to
provide consulting and advisory services to the Company including, but not
limited to, introducing the Company to members of the investment community and
assisting the Company with respect to financial and strategic matters. In
consideration for his services under the advisory agreement, the individual was
issued a warrant to purchase up to an aggregate of 21,360 shares of the
Company's common stock, at an exercise price of $5.06 per share. The warrant is
exerciseable at any time during the 10-year period commencing on the date of the
closing of a qualified initial public offering (which would include the IPO).
The fair value of the warrants, using the Black-Scholes model, was deemed
insignificant on the date of grant.
(7) NOTES PAYABLE
8.25% NOTES PAYABLE
On October 17, 1996, the Company executed a secured 8.25% Promissory Note
("8.25% Note") in the original principal amount of $3,905,600. On August 27,
1997, the 8.25% Note was amended to, among other things, reduce the principal
amount outstanding thereunder to $3,255,600, reflecting a reduction of $650,000
which was converted into a convertible note payable. In connection with the
execution of the convertible note payable (see note 8), the Company issued
warrants to purchase 24,105 shares of the Company's common stock at an exercise
price of $4.21 per share. The fair value of the warrants, using a Black-Scholes
model, was deemed insignificant on the date of grant. On April 23, 1998, the
Company issued 433,333 shares of Series A convertible preferred stock ("Series A
Preferred') in consideration for the cancellation of all principal owed under
the convertible note payable.
F-14
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(7) NOTES PAYABLE (CONTINUED)
On April 23, 1998, the 8.25% Note was amended again to, among other things,
(i) reduce the principal amount outstanding thereunder to $1,555,600, reflecting
a reduction of $1,700,000 which was simultaneously converted into 944,444 shares
of Series B convertible preferred stock ("Series B Preferred") (see notes 9 and
10), (ii) reduce the interest amount outstanding thereunder by $305,800, which
was simultaneously converted into 169,883 shares of Series B Preferred, and
(iii) provide that the remaining principal and interest would automatically
convert into shares of the Company's Series C convertible preferred stock
("Series C Preferred") upon the closing of the next financing conducted by the
Company. On November 13, 1998, the Company issued 913,856 shares of the
Company's Series C Preferred in consideration for the cancellation of all
remaining principal and $226,400 of interest outstanding under the 8.25% Note.
In January, June and July 1998, the Company issued to the holder of the
8.25% Note warrants to purchase an additional 2,670, 2,111 and 4,119 shares of
the Company's common stock at an exercise price of $4.21 per share in
consideration for entering into a subordination agreement with another creditor
of the Company. The value attributed to the warrants, using a Black-Scholes
pricing model, was $7,000 in the aggregate, based upon the respective grant
dates, which was recorded as additional interest expense during the nine months
ended September 30, 1998.
NOTES PAYABLE--CREDIT FACILITY
During January 1998, the Company entered into an asset backed credit
facility with Phoenix Leasing Incorporated ("Phoenix") which was funded as the
Company pledged fixed assets as security to Phoenix. During the nine months
ended September 30, 1998, the Company received a total loan of $507,700. As of
September 30, 1998, the balance outstanding was $460,700 of which $132,500 was
due within one year.
(8) CONVERTIBLE NOTES PAYABLE--SERIES A NOTES
Between March 27, 1997 and January 15, 1998, the Company issued several
secured subordinated notes, which converted into Series A Notes ("Series A
Notes"), for an aggregate principal amount of $4,950,000, which amount included
(i) the conversion of $650,000 from the 8.25% Notes and (ii) the conversion of
$300,000 of deferred compensation owed to Mr. Kurnit. These notes bore interest
at a variable rate equal to the prime rate plus two percent per annum. At
December 31, 1997, prime rate plus 2% was 10.5%. Pursuant to their terms, the
principal due on the Series A Notes were automatically convertible into shares
of the Company's common stock or convertible preferred stock upon the closing of
the next equity financing conducted by the Company. The conversion price for
such preferred shares was $1.50 per share.
In connection with the issuance of this debt, the Company issued warrants to
purchase 218,889 shares of the Company's common stock at an exercise price of
$0.03 per share and 90,857 shares of the Company's common shares at an exercise
price of $4.21 per share (which includes warrants to purchase 24,105 shares
relating to the conversion of $650,000 from the 8.25% Notes), all of which
expire ten years from their date of issuance; provided that, under certain
circumstances, the Company may cancel the warrants after providing the holders
thereof a reasonable period of time to exercise such warrants prior to their
cancellation. The value attributed to the warrants, using a Black-Scholes
pricing model, was $106,000 for warrants issued with an exercise price of $0.03
and $3,000 for warrants issued with an
F-15
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(8) CONVERTIBLE NOTES PAYABLE--SERIES A NOTES (CONTINUED)
exercise price of $4.21 per share. These amounts were recorded as an original
issue debt discount and amortized to interest expense over the life of the
loans.
On April 23, 1998, the Company issued an aggregate of 3,346,715 shares of
Series A Preferred, at a purchase price of $1.50 per share, to holders of the
Series A Notes, in consideration for the cancellation of all principal owed
under the Series A Notes and $70,100 of interest accrued under the Series A
Notes prior to August 12, 1997. All interest under the Series A Notes which
accrued after August 12, 1997 was evidenced by newly issued unsecured promissory
notes of the Company which amounted to $332,700 as of September 30, 1998. Upon
the closing of a qualified initial public offering (including the IPO), all
amounts due under such unsecured promissory notes will be canceled.
(9) CONVERTIBLE LOAN PAYABLE--SERIES B NOTES
Between November 1997 and February 1998, the Company issued several secured
subordinated notes ("Series B Notes") for an aggregate principal amount of
$2,800,000, of which $1,000,000 bore interest at a variable rate equal to the
prime rate plus two percent per annum and $1,800,000 bore interest at 10%
percent per annum. At December 31, 1997, prime rate plus 2% was 10.5%. Pursuant
to their terms, the Series B Notes were automatically convertible into shares of
the Company's Series B Preferred upon the closing of the next equity financing
conducted by the Company. The conversion price for such shares was $1.80 per
preferred share.
In connection with the issuance of this debt, the Company issued warrants to
purchase 250,192 shares of the Company's common stock at an exercise price of
$5.06 per share, all of which expire ten years from their date of issuance;
provided that, under certain circumstances, the Company may cancel the warrants
after providing the holders thereof a reasonable period of time to exercise such
warrants prior to their cancellation. The fair value of the warrants, using the
Black-Scholes model, was deemed insignificant on the date of grant.
On April 23, 1998, the Company issued 6,597,596 shares of Series B
Preferred, at a purchase price of $1.80 per share, to holders of the Series B
Notes, in consideration for the cancellation of all indebtedness of the Company
under the Series B Notes.
(10) CAPITALIZATION
AUTHORIZED SHARES
During 1996 and 1997, the Company amended and restated its certificate of
incorporation. As a result, at December 31, 1997, the total number of shares
which the Company was authorized to issue was 30,000,000; 26,500,000 of these
shares were common stock, each having a par value of $0.001; and 3,500,000
shares were preferred stock, each having a par value of $0.001. During each of
April 1998 and November 1998, the Company amended and restated its certificate
of incorporation. As a result, at December 15, 1998, the total number of shares
which the Company was authorized to issue was 53,662,260; 35,000,000 of these
shares were common stock, each having a par value of $0.001; and 18,662,260
shares were preferred stock, each having a par value of $0.001 of which
3,346,715, 6,597,596, and 8,717,949 have been designated as Series A Preferred,
Series B Preferred and Series C Preferred, respectively (see note 13).
F-16
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(10) CAPITALIZATION (CONTINUED)
CONVERTIBLE PREFERRED STOCK
On April 23, 1998, the Company issued an aggregate of 3,346,715 shares of
Series A Preferred, at a purchase price of $1.50 per share, to holders of the
Series A Notes, in consideration for the cancellation of all principal owed
under the Series A Notes, amounting to $4,950,000, and $70,100 of interest
accrued under the Series A Notes prior to August 12, 1997.
On April 23, 1998, the Company issued an aggregate of 6,597,596 shares of
Series B Preferred, at a purchase price of $1.80 per share, to (i) holders of
the Series B Notes in consideration for the cancellation of all indebtedness of
the Company under the Series B Notes, amounting to $2,869,900, (ii) the 8.25%
Note holder, in consideration for the cancellation of $1,700,000 in principal
and $305,800 in accrued interest, and (iii) $7,000,000 from other investors.
In connection with the issuance of the Series B Preferred, the Company
issued warrants to purchase 107,695 shares of the Company's common stock at an
exercise price of $7.02 per share, all of which expire ten years from their date
of issuance; provided that, under certain circumstances, the Company may cancel
the warrants after providing the holders thereof a reasonable period of time to
exercise such warrants prior to their cancellation.
On October 5, 1998, the Company delivered a number of convertible promissory
notes ("Series C Notes") in the aggregate principal amount of $1,081,000.
Pursuant to their terms, the Series C Notes were automatically convertible into
shares of the Company's Series C convertible preferred stock ("Series C
Preferred"), at a conversion price equal to the lesser of $3.60 per share of
Series C Preferred or the purchase price per share of the Series C Preferred,
upon the closing of the next equity financing conducted by the Company.
On November 13, 1998 and December 4, 1998, the Company issued an aggregate
of 7,301,811 shares of Series C Preferred, at a purchase price of $1.95 per
share, to (i) holders of the Series C Notes in consideration for the
cancellation of all indebtedness of the Company under the Series C Notes,
amounting to $1,089,900 (ii) the holders of the Series C Notes in consideration
for the payment of $2,322,000, (iii) the 8.25% Note holder, in consideration for
the cancellation of $1,782,000 in principal and accrued interest, and (iv) other
investors in consideration for the payment of $9,044,600, including $762,600
from existing stockholders pursuant to participation rights granted to such
stockholders.
Each share of Series A Preferred, Series B Preferred and Series C Preferred
is entitled to a cumulative dividend at the rate of $0.135, $0.162, and $0.176
per share per annum, respectively, payable in preference and priority to any
payment of any cash dividend on common stock, when and as declared by the Board
of Directors of the Company. Upon the closing of a qualified initial public
offering (including the IPO), all cumulative dividends will be canceled. Each
holder of Series A Preferred, Series B Preferred and Series C Preferred shares
shall be entitled to the number of votes equal to the number of whole shares of
common stock into which the shares of preferred stock are convertible into on
the date of the vote.
Each share of Series A Preferred, Series B Preferred and Series C Preferred
is convertible into 0.356 shares of common stock, as adjusted for dilutive
issuances of stock and other securities. In the event of any liquidation or
dissolution of the Company, including certain mergers, consolidations and
F-17
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(10) CAPITALIZATION (CONTINUED)
asset sales, holders of the Series A Preferred, Series B Preferred and Series C
Preferred will receive a liquidation preference if the total proceeds of the
sale or liquidation are less than $60,000,000. Series A Preferred, Series B
Preferred and Series C Preferred stockholders first receive the purchase price
of their Series A Preferred, Series B Preferred and Series C Preferred shares,
as applicable, plus all accrued and/or declared but unpaid dividends, before
sharing the balance of the proceeds on an as-converted basis with common
stockholders. At the option of the stockholders, Series A Preferred, Series B
Preferred and Series C Preferred may be converted into shares of common stock;
however, such shares automatically convert into common shares in the event of a
qualified initial public offering (including the IPO) resulting in proceeds to
the Company of not less than $15 million and at an offering price per share
equal to at least $10.00 per common share.
Upon request of Series A Preferred, Series B Preferred and Series C
Preferred stockholders on or after March 31, 2003, the Company may be required
to redeem Series A Preferred, Series B Preferred and Series C Preferred at an
amount equal to $1.50, $1.80 and $1.95 per share, respectively, plus all accrued
and/or declared but unpaid dividends.
COMMON STOCK
During 1996, the Company issued shares of common stock to its founders and
original employees at approximately $0.03 per share. The Company's right to
repurchase such shares in certain circumstances was to lapse over a period of
three years. During 1997, the Company's Board of Directors approved a resolution
to cancel such shares in exchange for incentive stock options. Accordingly, on
March 20, 1997, the Company canceled 367,802 common shares and exchanged these
shares on a one-for-one basis for participation in the 1997 Employee Stock
Incentive Plan. These incentive stock options were granted with an exercise
price equal to their fair market value, or $0.51 per share, at the date of grant
as determined by an independent valuation.
WARRANTS
At September 30, 1998, there were 736,341 shares of common stock reserved
for issuance upon exercise of outstanding warrants at a weighted average
exercise price of $4.17 per share. In December 1998, the Company exercised its
right to call certain investor warrants which resulted in the issuance of
639,634 shares of common stock with a weighted average exercise price of $3.57
per share, for net cash proceeds of approximately $2.3 million. As a result,
warrants to purchase 30,847 common shares were cancelled, with a weighted
average exercise price of $4.76 per share.
After giving effect to the exercise and cancellation of these warrants, the
following number of warrants to purchase common shares will remain outstanding:
8,900 shares at $4.21 per share; 21,360 shares at $5.06 per share; and 35,600
shares at $14.05 per share.
(11) STOCK OPTION PLAN
The Company's Board of Directors has authorized 996,800 shares at December
31, 1997 and 1,886,800 shares at September 30, 1998 of its common stock for
issuance pursuant to its 1998 Stock Option/Stock Issuance Plan (successor plan
to the Company's 1997 Employee Incentive Stock Option
F-18
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(11) STOCK OPTION PLAN (CONTINUED)
Plan). Such options have ten year terms and have been issued at the fair market
value of the Company's common stock on the date of the applicable grant (except
for certain 1998 options issued with exercise prices less than the deemed fair
value at the date of grant). Incentive options granted to stockholders who own
more than 10% of the outstanding stock of the Company must be issued at 110% of
the fair market value of the stock on the date that the options are granted.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS GRANTED EXERCISE PRICE
--------------- -----------------
<S> <C> <C>
Options outstanding at December 31, 1996.................. --
Granted at $0.51.......................................... 892,816 $ 0.51
Exercised................................................. (26,884) $ 0.51
Canceled.................................................. (97,081) $ 0.51
--------------- -----
Outstanding as of December 31, 1997....................... 768,851 $ 0.51
--------------- -----
Granted at $0.51 (unaudited).............................. 155,966 $ 0.51
Granted at $1.01 (unaudited).............................. 237,884 $ 1.01
Exercised (unaudited)..................................... (73,198) $ 0.96
Canceled (unaudited)...................................... (34,163) $ 0.53
--------------- -----
Outstanding as of September 30, 1998 (unaudited).......... 1,055,340 $ 0.59
--------------- -----
--------------- -----
Exercisable at December 31, 1997.......................... 244,123
---------------
---------------
Exercisable at September 30, 1998 (unaudited)............. 450,962
---------------
---------------
Total options available as of December 31, 1997........... 325,030
---------------
---------------
Total options available as of September 30, 1998
(unaudited)............................................. 962,704
---------------
---------------
</TABLE>
For the nine months ended September 30, 1998, the Company recorded deferred
compensation expense of approximately $535,000, in connection with the grant of
certain options to employees and directors, representing the difference between
the deemed fair value of the Company's common stock at the date of grant for
accounting purposes and the exercise price of such options. Such amount is
presented as a reduction of stockholders equity (deficit) and amortized over the
vesting period of the applicable options, generally four years. Amortization of
deferred compensation is allocated to the general and administrative expense
line identified on the statement of operations. The Company granted
approximately 393,850 options at a weighted average exercise price of $0.81 per
share; all of which were granted at less than the deemed fair value at the date
of grant. As a result, the Company expects to amortize the following amounts of
deferred compensation annually: 1998--$136,000; 1999-- $108,000; 2000--$108,000;
2001--$108,000; and 2002--$75,000. However, $31,000 of the deferred compensation
will amortize upon the closing of a qualified initial public offering (including
the IPO) as a result of the automatic acceleration of certain options.
Amortization of deferred compensation was approximately $98,000 for the nine
months ended September 30, 1998.
F-19
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(11) STOCK OPTION PLAN (CONTINUED)
On October 31, 1998 and December 9, 1998, the Company granted stock options
to purchase 10,110 and 76,629 shares of common stock, respectively, to
employees; all of which were granted at less than the deemed fair value at the
date of grant. The exercise price of such options is equal to $2.81 per share
for the October grants and $4.21 per share for the December grants. As a result,
the Company expects to record deferred compensation expense of approximately of
$333,000 in the fourth quarter of 1998, representing the difference between the
deemed fair value of the Company's common stock at the date of grant for
accounting purposes and the exercise price of such options. Such amount will be
amortized over the vesting period of the applicable options, generally four
years. The Company also expects to record compensation expense of approximately
$23,000 in connection with options granted to consultants in December 1998 to
purchase 15,000 shares of common stock at an exercise price of $4.21 per share.
Had the Company determined compensation expense based on the fair value on
the grant date for its stock options issued to employees under SFAS No. 123, the
Company's net loss would have been adjusted to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
-------------
<S> <C>
Net loss--as reported.......................................................... $ (8,640,400)
-------------
-------------
Net loss--pro forma per SFAS No. 123........................................... $ (8,675,900)
-------------
-------------
Basic and diluted net loss per share--as reported.............................. $ (4.94)
-------------
-------------
Basic and diluted net loss per share--pro forma per SFAS No. 123............... $ (4.96)
-------------
-------------
</TABLE>
The per share weighted-average fair value of stock options granted during
1997 was $0.03, on the date of grant using the Black Scholes option pricing
model with the following weighted-average assumptions for 1997: (i) risk-free
interest rate--5.6%; (ii) dividend yield--0.0%; and (iii) expected life 3.4
years. As permitted under the provisions of SFAS No. 123, and based on the
historical lack of a public market for the Company's options, no factor for
volatility has been reflected in the option pricing calculation. The
weighted-average remaining life of the 768,851 options outstanding at December
31, 1997 is 9.5 years.
(12) COMMITMENTS AND CONTINGENCIES
(A) LEASES
The Company leases certain facilities in New York and equipment under
non-cancelable operating leases. These leases generally provide for rental
increases at specified intervals. In addition, the Company is a lessee, under
several capital lease agreements with third parties for certain equipment. Total
rent expense for the period ended December 31, 1996 and for the year ended
December 31, 1997 was $69,400 and $320,900, respectively.
F-20
<PAGE>
MININGCO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1997 IS UNAUDITED)
(12) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under non-cancelable operating leases and
capital leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ---------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
1998.................................................................. $ 185,700 $ 277,400
1999.................................................................. 181,500 284,700
2000.................................................................. 94,300 197,300
---------- ----------
Total minimum lease payments.................................... 461,500 $ 759,400
----------
----------
Less amount representing interest (at rates ranging from 9.7% to
18.7%).............................................................. 59,900
----------
Present value of net minimum lease payments........................... 401,600
Less current installment of obligations under capital leases.......... 150,000
----------
Obligations under capital leases, excluding current installments...... $ 251,600
----------
----------
</TABLE>
(B) EMPLOYMENT AGREEMENTS
The Company has employment agreements with two senior employees which
provide for severance benefits, among other items. In the event these agreements
are terminated, the Company may be liable for severance up to $420,000 payable
during the year following such termination.
(13) SUBSEQUENT EVENTS--UNAUDITED
STOCK SPLIT
In December 1998, the Company's Board of Directors approved a 1.00-for-2.809
reverse stock split of the Company's common stock (subject to stockholder
approval) to be effected at or prior to the effectiveness of the IPO. All common
share and per share amounts in the accompanying financial statements have been
adjusted retroactively.
Effective upon the closing of the IPO, the Company will be authorized to
issue 50,000,000 shares of common stock and 5,000,000 shares of undesignated
preferred stock.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER MININGCO.COM, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE
TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 5
Forward Looking Statements; Market Data........ 15
Use of Proceeds................................ 16
Dividend Policy................................ 16
Capitalization................................. 17
Dilution....................................... 18
Selected Financial Data........................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 21
Business....................................... 29
Management..................................... 43
Certain Transactions........................... 52
Principal Stockholders......................... 56
Description of Securities...................... 58
Shares Eligible for Future Sale................ 62
Underwriting................................... 64
Legal Matters.................................. 66
Experts........................................ 66
Available Information.......................... 66
Index to Financial Statements.................. F-1
</TABLE>
MININGCO.COM, INC.
SHARES
COMMON STOCK
----------------
PROSPECTUS
----------------
BEAR, STEARNS & CO. INC.
VOLPE BROWN WHELAN
& COMPANY
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 discount, payable by the Registrant in connection with the sale of
the Common Stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
------------
<S> <C>
SEC registration fee................................................................................ $ 13,700
NASD filing fee..................................................................................... 5,500
Nasdaq National Market listing fee.................................................................. 95,000
Legal fees and expenses............................................................................. 350,000
Accounting fees and expenses........................................................................ 325,000
Printing and engraving.............................................................................. 250,000
Blue sky fees and expenses (including legal fees)................................................... 20,000
Transfer agent fees................................................................................. 15,000
Miscellaneous....................................................................................... 150,800
------------
Total......................................................................................... $ 1,225,000
------------
------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Amended and Restated Certificate of Incorporation in effect
as of the date hereof, and the Registrant's Second Amended and Restated
Certificate of Incorporation to be in effect upon the closing of this offering
(collectively, the "Certificate") provides that, except to the extent prohibited
by the Delaware General Corporation Law, as amended (the "DGCL"), the
Registrant's directors shall not be personally liable to the Registrant or its
stockholders for monetary damages for any breach of fiduciary duty as directors
of the Registrant. Under the DGCL, the directors have a fiduciary duty to the
Registrant which is not eliminated by this provision of the Certificate and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under the DGCL for breach of the director's
duty of loyalty to the Registrant, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are prohibited by the DGCL. This provision
also does not affect the directors' responsibilities under any other laws, such
as the Federal securities laws or state or Federal environmental laws. The
Registrant has applied for liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv)
for any transaction from which the director derived an improper personal
benefit. The DGCL provides further that the indemnification permitted thereunder
shall not be deemed exclusive of any other rights to which the directors and
officers may be entitled under the corporation's bylaws, any agreement, a vote
of stockholders or otherwise. The Certificate eliminates the personal liability
of directors to the fullest extent permitted by Section 102(b)(7) of the
II-1
<PAGE>
DGCL and provides that the Registrant may fully indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Registrant, or is or was serving at the request of the Registrant
as a director or officer of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent as to which indemnification will be
required or permitted under the Certificate. The Registrant is not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has sold and issued the following securities since June 27,
1996 (inception):
COMMON STOCK AND PREFERRED STOCK. In June 1996, the Registrant issued (i)
an aggregate of 100 shares of its common stock, no par value per share, to its
founder Mr. Scott P. Kurnit in exchange for $10,000 in cash and (ii) an
aggregate of 7.5 shares of its common stock, no par value per share, to its
co-founder Mr. William C. Day in exchange for $750 in cash. Such shares were
subsequently recapitalized into 4,000,000 and 300,000 shares of the Registrant's
common stock, par value $.001 per share (the "Common Stock"), respectively.
On April 23, 1998, the Registrant issued an aggregate of 3,346,715 shares of
Series A Convertible Preferred Stock (the "Series A Preferred"), at a purchase
price of $1.50 per share, to certain investors in consideration for the
cancellation of outstanding indebtedness. Upon the closing of this offering, all
of the outstanding shares of Series A Preferred will convert into an aggregate
of 1,191,432 shares of Common Stock.
On April 23, 1998, the Registrant issued an aggregate of 5,397,600 shares of
Series B Convertible Preferred Stock (the "Series B Preferred"), at a purchase
price of $1.80 per share, to certain investors in consideration for the
cancellation of certain outstanding indebtedness and the payment of additional
cash. At a subsequent closing, the Registrant issued an aggregate of 1,199,996
shares of Series B Preferred to certain investors for $1,799,994. Upon the
closing of this offering, all of the outstanding shares of Series B Preferred
will convert into an aggregate of 2,348,753 shares of Common Stock.
On November 13, 1998, the Registrant issued an aggregate of 6,910,726 shares
of Series C Convertible Preferred Stock (the "Series C Preferred"), at a
purchase price of $1.95 per share, to certain investors in consideration for the
cancellation of certain outstanding indebtedness and cash. At a subsequent
closing, the Registrant issued an aggregate of 391,085 shares of Series C
Preferred to certain investors for $1.95. Upon the closing of this offering, all
of the outstanding shares of Series C Preferred will convert into an aggregate
of 2,599,456 shares of Common Stock.
WARRANTS. The Registrant from time to time has granted warrants to
investors, consultants and
other third parties in connection with business transactions in reliance upon
exemption from registration pursuant to Section 4(2) of the Securities Act of
1933, as amended. The following table sets
II-2
<PAGE>
forth certain information regarding such grants and assumes a 1.00 for 2.809
reverse stock split of the Registrant's Common Stock to be effected prior to the
closing of this offering.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
----------- --------------
<S> <C> <C>
June 27, 1996 (inception) to December 31, 1996.................. -- --
January 1, 1997 to December 31, 1997............................ 426,995 $0.03-$14.04
January 1, 1998 to December 30, 1998............................ 309,335 $4.21-$7.02
</TABLE>
OPTIONS. The Registrant from time to time has granted stock options to
employees and consultants in reliance upon exemption from registration pursuant
to either (i) Section 4(2) of the Securities Act of 1933, as amended, or (ii)
Rule 701 promulgated under the Securities Act of 1933, as amended. The following
table sets forth certain information regarding such grants and assumes a 1.00
for 2.809 reverse stock split of the Registrant's Common Stock to be effected
prior to the closing of this offering.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICES
----------- -------------
<S> <C> <C>
June 27, 1996 (inception) to December 31, 1996.................... -- --
January 1, 1997 to June 30, 1998.................................. 1,098,546 $0.51-$0.56
July 1, 1998 to December 30, 1998................................. 329,959 $1.01-$4.21
</TABLE>
The above securities were offered and sold by the Registrant in reliance
upon exemptions from registration pursuant to either (i) Section 4(2) of the
Securities Act of 1933, as amended, as transactions not involving any public
offering, or (ii) Rule 701 promulgated under the Securities Act of 1933, as
amended. No underwriters were involved in connection with the sales of
securities referred to in this Item 15.
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 Certificate of Incorporation
3.2* Form of Certificate of Amendment to Amended and Restated Certificate of Incorporation.
3.3* Form of Second Amended and Restated Certificate of Incorporation to be in effect upon the closing of
this offering.
3.4 Bylaws.
3.5* Form of Amended and Restated Bylaws to be in effect upon the closing of this offering.
4.1* Specimen Common Stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1997 Employee Incentive Stock Option Plan.
10.2 1998 Stock Option/Stock Issuance Plan.
10.3 Amended and Restated Investors' Rights Agreement, dated as of November 13, 1998.
10.4 Sublease, dated as of November 1, 1996, by and between the Registrant and Minet, Inc., and Lease, dated
as of January 27, 1998, by and between Two Twenty East Limited Partnership and Minet, Inc.
10.5 Form of MiningCo.com, Inc. Guide Agreement
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.6 Letter Agreement, dated as of October 20, 1996, by and between the Registrant and Mr. Scott P. Kurnit,
as amended.
10.7* Agreement, dated as of March 1998, by and between the Registrant and Frontier Global Center.
10.8 Letter Agreement, dated as of July 28, 1996, by and between the Registrant and Mr. Alan Wragg, as
amended.
11.1 Statement re: Computation of Basic and Diluted Net Loss Per Share.
23.1 Consent of KPMG Peat Marwick LLP
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (See Signature Page on Page II-6).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be supplied by amendment.
(b) Financial Statement Schedules.
Valuation and Qualifying Accounts--Allowance for Doubtful Accounts
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424 (b)(1) or
(4), or 497(h) under the Securities Act of 1933, shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this 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 New York,
State of New York, on this 30th day of December, 1998.
<TABLE>
<S> <C> <C>
MININGCO.COM, INC.
By: /s/ SCOTT P. KURNIT
-----------------------------------------
Name: SCOTT P. KURNIT
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
</TABLE>
POWER OF ATTORNEY
We, the undersigned directors and/or officers of MiningCo.com, Inc. (the
"Company"), hereby severally constitute and appoint Scott P. Kurnit, President
and Chief Executive Officer, and William C. Day, Chief Operating Officer and
Chief Financial Officer, and each of them individually, with full powers of
substitution and resubstitution, our true and lawful attorneys, with full powers
to them and each of them to sign for us, in our names and in the capacities
indicated below, the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission, and any and all amendments to said
Registration Statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, in connection with the registration under the Securities Act
of 1933, as amended, of equity securities of the Company, and to file or cause
to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as each of them might or could
do in person, and hereby ratifying and confirming all that said attorneys, and
each of them, or their substitute or substitutes, shall do or cause to be done
by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on December 30, 1998:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President and Chief
/s/ SCOTT P. KURNIT Executive Officer, and
- ------------------------------ Chairman of the Board of
Scott P. Kurnit Directors (principal
executive officer)
Chief Operating Officer and
/s/ WILLIAM C. DAY Chief Financial Officer
- ------------------------------ (principal financial and
William C. Day accounting officer)
/s/ FRANK J. BIONDI, JR. Director
- ------------------------------
Frank J. Biondi, Jr.
/s/ DIXON R. DOLL Director
- ------------------------------
Dixon R. Doll
/s/ RONALD UNTERMAN Director
- ------------------------------
Ronald Unterman
/s/ MARC M. WATSON Director
- ------------------------------
Marc M. Watson
/s/ KRISTOPHER A. WOOD Director
- ------------------------------
Kristopher A. Wood
II-5
<PAGE>
The Board of Directors and Stockholders
MiningCo.com, Inc.:
When the reverse split referred to in Note 13 of the Notes to Financial
Statements has been consummated, we will be in a position to render the
following report.
KPMG PEAT MARWICK LLP
/S/ KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors and Stockholders
MiningCo.com, Inc.:
Under date of December 15, 1998, except as to Note 13, which is as of
January , 1999, we reported on the balance sheets of MiningCo.com, Inc. as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' deficit and cash flows for the period from June 27, 1996
(inception) to December 31, 1996 and for the year ended December 31, 1997, as
contained in the Registration Statement. In connection with our audits of the
aforementioned financial statements, we also audited the related financial
statement schedule as listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
New York, New York
December 15, 1998
S-1
<PAGE>
MININGCO.COM, INC.
VALUATION AND QUALIFYING ACCOUNTS--
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
PROVISION
BALANCE AT FOR BALANCE AT
BEGINNING DOUBTFUL END
OF PERIOD ACCOUNTS DEDUCTIONS OF PERIOD
----------- ----------- --------------- -----------
<S> <C> <C> <C> <C>
For the period from June 27, 1996 (inception) to December 31,
1996:
Allowance for doubtful accounts.............................. $ 0 $ 0 $ 0 $ 0
--
--
----------- ----------- -----------
----------- ----------- -----------
For the year ended December 31, 1997:
Allowance for doubtful accounts.............................. $ 0 $ 6,000 $ 0 $ 6,000
--
--
----------- ----------- -----------
----------- ----------- -----------
For the nine months ended September 30, 1998:
Allowance for doubtful accounts (unaudited).................. $ 6,000 $ 90,000 $ 0 $ 96,000
--
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</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation.
3.2* Form of Certificate of Amendment to Amended and Restated Certificate of Incorporation.
3.3* Form of Second Amended and Restated Certificate of Incorporation to be in effect upon the closing of
this offering.
3.4 Bylaws.
3.5* Form of Amended and Restated Bylaws to be in effect upon the closing of this offering.
4.1* Specimen Common Stock certificate.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
10.1 1997 Employee Incentive Stock Option Plan.
10.2 1998 Stock Option/Stock Issuance Plan.
10.3 Amended and Restated Investors' Rights Agreement, dated as of November 13, 1998.
10.4 Sublease, dated as of November 1, 1996, by and between the Registrant and Minet, Inc., and Lease, dated
as of January 27, 1989, by and between Two Twenty East Limited Partnership and Minet, Inc.
10.5 Form of MiningCo.com, Inc. Guide Agreement.
10.6 Letter Agreement, dated as of October 20, 1996, by and between the Registrant and Mr. Scott P. Kurnit,
as amended.
10.7* Agreement, dated as of March 1998, by and between the Registrant and Frontier Global Center.
10.8 Letter Agreement, dated as of July 28, 1996, by and between the Registrant and Mr. Alan Wragg, as
amended.
11.1 Statement re: Computation of Basic and Diluted Net Loss Per Common Share.
23.1 Consent of KPMG Peat Marwick LLP.
23.2* Consent of Brobeck, Phleger & Harrison LLP (included in Exhibit 5.1).
24.1 Powers of Attorney (See Signature Page on Page II-6).
27.1 Financial Data Schedule.
</TABLE>
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* To be supplied by amendment.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
MININGCO.COM, INC.
(Pursuant to Sections 107, 241 and 245 of the
General Corporation Law of the State of Delaware)
MiningCo.com, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law"),
DOES HEREBY CERTIFY:
FIRST: That the Corporation was originally incorporated in Delaware
under the name MiningCo.com, Inc., and the date of filing of its original
Certificate of Incorporation with the Secretary of State of the State of
Delaware was November 17, 1998.
SECOND: That the Corporation has not received any payment for
any of its stock.
THIRD: That this Amended and Restated Certificate of Incorporation
was duly adopted, in accordance with Sections 107, 241 and 245 of the General
Corporation Law, by the consent of the sole incorporator.
FOURTH: That the text of the Certificate of Incorporation is
hereby amended and restated to read as herein set forth in full.
ARTICLE I
NAME
The name of the Corporation is MiningCo.com, Inc.
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
<PAGE>
ARTICLE III
POWERS
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law. The Corporation is to have a perpetual existence.
ARTICLE IV
CAPITAL STOCK
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock". The total number
of shares which the Corporation is authorized to issue is 53,662,260 shares,
consisting of (i) 35,000,000 shares of Common Stock, $.001 par value per share,
and (ii) 18,662,260 shares of Preferred Stock, $.001 par value per share, of
which Preferred Stock 3,346,715 shares are designated Series A Convertible
Preferred Stock, 6,597,596 shares are designated Series B Convertible Preferred
Stock and 8,717,949 shares are designated Series C Convertible Preferred Stock.
Article IV hereof contains a description of the Preferred Stock and a statement
of the designations and the powers, privileges and rights, and the
qualifications, limitations or restrictions of the Series A Convertible
Preferred Stock, the Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock. The consideration for the issuance of the shares
shall be paid to or received by the Corporation in full before their issuance
and shall not be less than the par value per share. The number of authorized
shares of Common Stock may be increased or decreased (but not below the number
of shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote, irrespective of the
provisions of Section 242(b)(2) of the General Corporation Law.
Common Stock
A. General. All shares of Common Stock will be identical and will
entitle the holders thereof to the same rights, powers and privileges. The
rights, powers and privileges of the holders of the Common Stock are subject to
and qualified by the rights of holders of any then outstanding Preferred Stock.
B. Voting Rights. Except as otherwise required by law or this Amended
and Restated Certificate of Incorporation, each holder of record of Common Stock
shall be entitled to one vote for each share of Common Stock standing in such
holder's name on the books of the Corporation. Action required or permitted to
be taken by stockholder vote may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Except as otherwise required by law or Article IV of
this Amended and Restated Certificate of Incorporation, the holders of Common
Stock and the holders of Preferred Stock shall vote together as a single class
on all matters submitted to stockholders for a vote (including any action by
written consent). There shall be no cumulative voting.
2
<PAGE>
C. Dividends. Subject to provisions of law and Article IV of this
Amended and Restated Certificate of Incorporation, the holders of Common Stock
shall be entitled to receive dividends out of funds legally available therefor
at such times and in such amounts as the Board of Directors may determine in its
sole discretion.
D. Dissolution, Liquidation or Winding Up. Subject to provisions of law
and Article IV of this Amended and Restated Certificate of Incorporation, in the
event of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, after the payment or provisions
for payment of all debts and liabilities of the Corporation and all preferential
amounts to which the holders of the Preferred Stock are entitled with respect to
the distribution of assets in liquidation, the holders of Common Stock shall be
entitled to share ratably in the remaining assets of the Corporation available
for distribution.
E. Redemption. The Common Stock is not redeemable.
F. Preemptive Rights. No holder of any of the shares of the Common
Stock or of options, warrants or other rights to purchase shares of the Common
Stock shall have any preemptive right to purchase or subscribe for any unissued
stock of any class or series, or any unissued bonds, certificates indebtedness,
debentures or other securities convertible into or exchangeable for stock of any
class or series or carrying any right to purchase stock of any class or series;
but any such unissued stock, bonds, certificates or indebtedness, debentures or
other securities convertible into or exchangeable for stock or carrying any
right to purchase stock may be issued pursuant to resolution of the Board of
Directors of the Corporation to such persons, firms, corporations or
associations, whether or not holders thereof, and upon such terms as may be
deemed advisable by the Board of Directors in the exercise of its sole
discretion.
Preferred Stock
A. General.
1. Issuance of Preferred Stock in Classes or Series. The Preferred
Stock of the Corporation may be issued in one or more classes or series at such
time or times and for such consideration as the Board of Directors of the
Corporation may determine. Each class or series shall be so designated as to
distinguish the shares thereof from the shares of all other classes and series.
Except as to the relative designations, preferences, powers, qualifications,
rights and privileges referred to in this Article IV, in respect of any or all
of which there may be variations between different classes or series of
Preferred Stock, all shares of Preferred Stock shall be identical. Different
series of Preferred Stock shall not be construed to constitute different classes
of shares for the purpose of voting by classes unless otherwise specifically set
forth herein.
2. Authority to Establish Variations Between Classes or Series of
Preferred Stock. The Board of Directors of the Corporation is expressly
authorized, subject to the limitations prescribed by law and the provisions of
this Amended and Restated Certificate of Incorporation, to provide by adopting a
resolution or resolutions, for the issue of the undesignated Preferred Stock in
one or more classes or series, each with such designations, preferences, voting
powers, qualifications, special or relative rights and privileges as shall be
stated in a certificate, which shall be filed in accordance with the General
Corporation Law, and
3
<PAGE>
the resolutions of the Board of Directors creating such class or series. The
authority of the Board of Directors with respect to each such class or series
shall include, without limitation of the foregoing, the right to determine and
fix:
(a) the distinctive designation of such class or series and the
number of shares to constitute such class or series;
(b) the rate at which dividends on the shares of such class or
series shall be declared and paid, or set aside for payment, whether dividends
at the rate so determined shall be cumulative or accruing, and whether the
shares of such class or series shall be entitled to any participating or other
dividends in addition to dividends at the rate so determined, and if so, on what
terms;
(c) the right or obligation, if any, of the Corporation to redeem
shares of the particular class or series of Preferred Stock and, if redeemable,
the price, terms and manner of such redemption;
(d) the special and relative rights and preferences, if any, and
the amount or amounts per share, which the shares of such class or series of
Preferred Stock shall be entitled to receive upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
(e) the terms and conditions, if any, upon which shares of such
class or series shall be convertible into, or exchangeable for, shares of
capital stock of any other class or series, including the price or prices or the
rate or rates of conversion or exchange and the terms of adjustment, if any;
(f) the obligation, if any, of the Corporation to retire, redeem
or purchase shares of such class or series pursuant to a sinking fund or fund of
a similar nature or otherwise, and the terms and conditions of such obligation;
(g) voting rights, if any, including special voting rights with
respect to the election of directors and matters adversely affecting any class
or series of Preferred Stock;
(h) limitations, if any, on the issuance of additional shares of
such class or series or any shares of any other class or series of Preferred
Stock; and
(i) such other preferences, powers, qualifications, special or
relative rights and privileges thereof as the Board of Directors of the
Corporation, acting in accordance with this Amended and Restated Certificate of
Incorporation, may deem advisable and are not inconsistent with law and the
provisions of this Amended and Restated Certificate of Incorporation.
4
<PAGE>
B. Description and Designation of Series A
Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred
Stock.
1. Designation. A total of 3,346,715 shares of the Corporation's
Preferred Stock is designated as "Series A Convertible Preferred Stock," a total
of 6,597,596 shares of the Corporation's Preferred Stock is designated as
"Series B Convertible Preferred Stock" and a total of 8,717,949 shares of the
Corporation's Preferred Stock is designated as "Series C Convertible Preferred
Stock." As used herein, the term "Preferred Stock" used without references to
the Series A Convertible Preferred Stock, the Series B Convertible Preferred
Stock or the Series C Convertible Preferred Stock means the shares of Series A
Convertible Preferred Stock, the shares of Series B Convertible Preferred Stock,
the shares of Series C Convertible Preferred Stock and the shares of series of
authorized Preferred Stock of the Corporation issued and designated from time to
time by a resolution or resolutions of the Board of Directors, share for share
alike and without distinction as to class or series, except as otherwise
expressly provided for in this Article IV of this Amended and Restated
Certificate of Incorporation or as the context otherwise requires.
2. Dividends.
(a) The holders of record of shares of the Series A Convertible
Preferred Stock shall be entitled to receive cash dividends, which shall be
payable when, as and if declared by the Board of Directors out of assets which
are legally available for the payment of such dividends, including any special
dividends declared by the Board of Directors as well as ordinary dividends at an
annual rate equal to $0.135 per share of Series A Convertible Preferred Stock
(which amount shall be subject to equitable adjustment whenever there shall
occur a stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving the Series A
Convertible Preferred Stock), provided that such dividends shall not be
currently payable and shall only be payable when and if specifically provided
herein. Dividends shall be cumulative, without compounding, and shall accrue
daily on each share of Series A Convertible Preferred Stock from the date of
issue thereof. Any dividends payable on shares of Series A Convertible Preferred
Stock pursuant to the terms hereof shall be pari passu with the Company's
obligation to pay dividends on shares of Series B Convertible Preferred Stock
and Series C Convertible Preferred Stock, as set forth below in Section 2(b) and
Section 2(c), respectively. Dividends payable on the Series A Convertible
Preferred Stock for any period less than a full year shall be computed on the
basis of the actual number of days elapsed and a 365-day year. No dividends
shall be paid or declared, and no other distribution shall be made, on or with
respect to the Series B Convertible Preferred Stock, the Series C Convertible
Preferred Stock or the Common Stock of the Corporation as long as there are
shares of Series A Convertible Preferred Stock issued and outstanding. Upon the
conversion of shares of the Series A Convertible Preferred Stock into Common
Stock of the Corporation, all cumulative dividends with respect to such
converted shares of Series A Convertible Preferred Stock shall be cancelled.
(b) The holders of record of shares of the Series B Convertible
Preferred Stock shall be entitled to receive cash dividends, which shall be
payable when, as and if declared by the Board of Directors out of assets which
are legally available for the payment of
5
<PAGE>
such dividends, including any special dividends declared by the Board of
Directors as well as ordinary dividends at an annual rate equal to $0.162 per
share of Series B Convertible Preferred Stock (which amount shall be subject to
equitable adjustment whenever there shall occur a stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving the Series B Convertible Preferred Stock), provided that such
dividends shall not be currently payable and shall only be payable when and if
specifically provided herein. Dividends shall be cumulative, without
compounding, and shall accrue daily on each share of Series B Convertible
Preferred Stock from the date of issue thereof. Any dividends payable on shares
of Series B Convertible Preferred Stock pursuant to the terms hereof shall be
pari passu with the Company's obligation to pay dividends on shares of Series A
Convertible Preferred Stock and Series C Convertible Preferred Stock, as set
forth in Section 2(a) above and Section 2(c) below, respectively. Dividends
payable on the Series B Convertible Preferred Stock for any period less than a
full year shall be computed on the basis of the actual number of days elapsed
and a 365-day year. No dividends shall be paid or declared, and no other
distribution shall be made, on or with respect to the Series A Convertible
Preferred Stock, the Series C Convertible Preferred Stock or the Common Stock of
the Corporation as long as there are shares of Series B Convertible Preferred
Stock issued and outstanding. Upon the conversion of shares of the Series B
Convertible Preferred Stock into Common Stock of the Corporation, all cumulative
dividends with respect to such converted shares of Series B Convertible
Preferred Stock shall be cancelled.
(c) The holders of record of shares of the Series C Convertible
Preferred Stock shall be entitled to receive cash dividends, which shall be
payable when, as and if declared by the Board of Directors out of assets which
are legally available for the payment of such dividends, including any special
dividends declared by the Board of Directors as well as ordinary dividends at an
annual rate equal to $0.176 per share of Series C Convertible Preferred Stock
(which amount shall be subject to equitable adjustment whenever there shall
occur a stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving the Series C
Convertible Preferred Stock), provided that such dividends shall not be
currently payable and shall only be payable when and if specifically provided
herein. Dividends shall be cumulative, without compounding, and shall accrue
daily on each share of Series C Convertible Preferred Stock from the date of
issue thereof. Any dividends payable on shares of Series C Convertible Preferred
Stock pursuant to the terms hereof shall be pari passu with the Company's
obligation to pay dividends on shares of Series A Convertible Preferred Stock
and shares of Series B Convertible Preferred Stock as set forth above in Section
2(a) and Section 2(b), respectively. Dividends payable on the Series C
Convertible Preferred Stock for any period less than a full year shall be
computed on the basis of the actual number of days elapsed and a 365-day year.
No dividends shall be paid or declared, and no other distribution shall be made,
on or with respect to the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock or the Common Stock of the Corporation as long as
there are shares of Series C Convertible Preferred Stock issued and outstanding.
Upon the conversion of shares of the Series C Convertible Preferred Stock into
Common Stock of the Corporation, all cumulative dividends with respect to such
converted shares of Series C Convertible Preferred Stock shall be cancelled.
6
<PAGE>
3. Liquidation, Dissolution or Winding Up.
(a) Treatment at Sale, Liquidation, Dissolution or Winding Up.
(i) Transaction Value Less Than or Equal to Sixty Million
Dollars. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, in which the Transaction Value
(as defined below) is less than or equal to sixty million dollars ($60,000,000),
before any distribution or payment is made to any holders of any shares of
Common Stock or any other class or series of capital stock of the Corporation
designated to be junior to the Series A Convertible Preferred Stock, the Series
B Convertible Preferred Stock and the Series C Convertible Preferred Stock, and
subject to the liquidation rights and preferences of any class or series of
Preferred Stock designated to be senior to, or on a parity with, the Series A
Convertible Preferred Stock, the Series B Convertible Preferred Stock and the
Series C Convertible Preferred Stock, the holders of shares of Series A
Preferred Stock, the holders of shares of Series B Convertible Preferred Stock
and the holders of shares of Series C Convertible Preferred Stock shall be
entitled to be paid first out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock whether such assets
are capital, surplus or earnings, pari passu with the amount payable to all
holders of Preferred Stock, amounts equal to (A) with respect to holders of
Series A Convertible Preferred Stock, $1.50 per share of Series A Convertible
Preferred Stock (which amount shall be subject to equitable adjustment whenever
there shall occur a stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving the Series A
Convertible Preferred Stock), plus any dividends accrued or declared but unpaid
on such shares (such amount, as so determined, is referred to herein as the
"Series A Liquidation Value" with respect to such shares), (B) with respect to
holders of Series B Convertible Preferred Stock, $1.80 per share of Series B
Convertible Preferred Stock (which amount shall be subject to equitable
adjustment whenever there shall occur a stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving the Series B Convertible Preferred Stock), plus any dividends
accrued or declared but unpaid on such shares (such amount, as so determined, is
referred to herein as the "Series B Liquidation Value" with respect to such
shares), and (C) with respect to holders of Series C Convertible Preferred
Stock, $1.95 per share of Series C Convertible Preferred Stock (which amount
shall be subject to equitable adjustment whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving the Series C Convertible
Preferred Stock), plus any dividends accrued or declared but unpaid on such
shares (such amount, as so determined, is referred to herein as the "Series C
Liquidation Value" with respect to such shares). After payment has been made to
the holders of the Series A Convertible Preferred Stock, the holders of the
Series B Convertible Preferred Stock, the holders of the Series C Convertible
Preferred Stock and any series of Preferred Stock designated to be senior to, or
on a parity with, the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock and the Series C Convertible Preferred Stock of the
full liquidation preference to which such holders shall be entitled as
aforesaid, the remaining assets shall be distributed among the holders of the
Series A Convertible Preferred Stock, the holders of the Series B Convertible
Preferred Stock, the holders of the Series C Convertible Preferred Stock and the
holders of the Common Stock on a pro-rata basis, with such distribution to the
holders of the Series A Convertible Preferred Stock, the holders of the Series B
Preferred Stock and the holders of the Series C Convertible Preferred Stock as
would have been payable had each such share been converted to
7
<PAGE>
Common Stock pursuant to the provisions of Section 5 hereof immediately prior to
such event of liquidation, dissolution or winding up of the Corporation.
(ii) Transaction Value Greater Than Sixty Million Dollars. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, in which the Transaction Value is greater than
sixty million dollars ($60,000,000), the holders of Series A Convertible
Preferred Stock, the holders of Series B Convertible Preferred Stock and the
holders of Series C Convertible Preferred Stock shall be entitled to be paid
their pro-rata distribution of the assets or proceeds as would have been payable
had each such share been converted to Common Stock pursuant to the provisions of
Section 5 hereof immediately prior to such event of liquidation, dissolution or
winding up of the Corporation.
(iii) Transaction Value. For purposes of this Section 3(a),
"Transaction Value" shall mean the fair market value of the Corporation at such
time or the value of all consideration payable in connection with any such
transaction described in Section 3(a) hereof, including assumption of
indebtedness, as the case may be, as determined by cash value or as determined
in accordance with Section 3(d) hereof.
(b) Insufficient Funds. If upon such liquidation, dissolution or
winding up of the Corporation the assets or surplus funds of the Corporation to
be distributed to the holders of shares of Series A Convertible Preferred Stock,
the holders of shares of Series B Convertible Preferred Stock, the holders of
shares of Series C Convertible Preferred Stock and any other then outstanding
shares of the Corporation's capital stock ranking on a parity with respect to
payment on liquidation with the Series A Convertible Preferred Stock, the Series
B Convertible Preferred Stock and the Series C Convertible Preferred Stock (such
shares being referred to herein as the "Series A/B/C Parity Preferred Stock")
shall be insufficient to permit payment to such respective holders of the full
Series A Liquidation Value, the full Series B Liquidation Value, the full Series
C Liquidation Value and all other preferential amounts payable with respect to
the Series A Convertible Preferred Stock, the Series B Convertible Preferred
Stock, the Series C Convertible Preferred Stock and such Series A/B/C Parity
Preferred Stock, then the assets available for payment or distribution to such
holders shall be allocated among the holders of the Series A Convertible
Preferred Stock, the Series B Convertible Preferred Stock, the Series C
Convertible Preferred Stock and such Series A/B/C Parity Preferred Stock, pro
rata, in proportion to the full respective preferential amounts to which the
Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock,
the Series C Convertible Preferred Stock and such Series A/B/C Parity Preferred
Stock are each entitled.
(c) Certain Transactions Treated as Liquidation. For purposes of
this Section 3, (A) any acquisition of the Corporation by means of merger or
other form of corporate reorganization or consolidation with or into another
corporation in which outstanding shares of this Corporation, including shares of
Series A Convertible Preferred Stock, shares of Series B Convertible Preferred
Stock and shares of Series C Convertible Preferred Stock, are exchanged for
securities or other consideration issued, or caused to be issued, by the other
corporation or its subsidiary and, as a result of which transaction, the
stockholders of this Corporation immediately prior to such transaction own less
than fifty percent (50%) of the voting power of the surviving entity immediately
following such transaction (other than a mere reincorporation transaction), or
(B) a sale, transfer or lease (other than a pledge or grant of a security
interest to a bona fide
8
<PAGE>
lender) of all or substantially all of the assets of the Corporation (other than
to or by a wholly-owned subsidiary or parent of the Corporation), shall be
treated as a liquidation, dissolution or winding up of the Corporation and shall
entitle the holders of Series A Convertible Preferred Stock, the holders of
Series B Convertible Preferred Stock and the holders of Series C Convertible
Preferred Stock to receive the amount that would be received in a liquidation,
dissolution or winding up pursuant to Section 3(a)(i) or (ii) hereof, as
applicable, if the holders of at least fifty percent (50%) of the then
outstanding shares of Series A Convertible Preferred Stock, the holders of at
least fifty percent (50%) of the then outstanding shares of Series B Convertible
Preferred Stock and the holders of at least fifty percent (50%) of the then
outstanding shares of Series C Convertible Preferred Stock so elect by giving
written notice thereof to the Corporation at least three (3) days before the
effective date of such event. The Corporation will provide the holders of
Preferred Stock with notice of all transactions which may be treated as a
liquidation, dissolution or winding up of the Corporation pursuant to this
Section 3(c) twenty (20) days prior to the earlier of the vote relating to such
transaction or the closing of such transaction.
(d) Distributions of Property. Whenever the distribution provided
for in this Section 3 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors, unless the holders of at least fifty
percent (50%) of the then outstanding shares of Series A Convertible Preferred
Stock, the holders of at least fifty percent (50%) of the then outstanding
shares of Series B Convertible Preferred Stock and the holders of at least fifty
percent (50%) of Series C Convertible Preferred Stock request, in writing, that
an independent appraiser perform such valuation, then by an independent
appraiser selected by the Board of Directors and reasonably acceptable to the
holders of fifty percent (50%) or more of each series of Preferred Stock
requesting such appraiser.
4. Voting Power.
(a) General. Except as otherwise expressly provided in Section 9
hereof or as otherwise required by law, each holder of Series A Convertible
Preferred Stock, each holder of Series B Convertible Preferred Stock and each
holder of Series C Convertible Preferred Stock shall be entitled to vote on all
matters and shall be entitled to that number of votes equal to the number of
whole shares of Common Stock into which such holder's respective shares of
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or
Series C Convertible Preferred Stock could then be converted, pursuant to the
provisions of Section 5 hereof, at the record date for the determination of
stockholders entitled to vote on such matter or, if no such record date is
established, at the date such vote is taken or any written consent of
stockholders is solicited. Except as otherwise expressly provided in Section 9
hereof or as otherwise required by law, the holders of shares of Preferred Stock
and Common Stock shall vote together as a single class on all matters in
accordance with Article IV of this Amended and Restated Certificate of
Incorporation.
5. Conversion Rights. The holders of Series A Convertible Preferred
Stock, the holders of Series B Convertible Preferred Stock and the holders of
Series C Convertible Preferred Stock shall have the following rights with
respect to the conversion of such shares into shares of Common Stock:
9
<PAGE>
(a) General. Subject to and in compliance with the provisions of
this Section 5, any or all shares of the Series A Convertible Preferred Stock,
the Series B Convertible Preferred Stock and the Series C Convertible Preferred
Stock may, at the option of the holder thereof, be converted at any time into
fully-paid and non-assessable shares of Common Stock. The number of shares of
Common Stock to which a holder of Series A Convertible Preferred Stock shall be
entitled to receive upon conversion thereof shall be the product obtained by
multiplying the Series A Applicable Conversion Rate (determined as provided in
Section 5(b)) by the number of shares of Series A Convertible Preferred Stock
being converted into Common Stock at any time. Subject to and in compliance with
the provisions of this Section 5, any or all shares of the Series B Convertible
Preferred Stock may, at the option of the holder thereof, be converted at any
time into fully-paid and non-assessable shares of Common Stock. The number of
shares of Common Stock to which a holder of Series B Convertible Preferred Stock
shall be entitled to receive upon conversion thereof shall be the product
obtained by multiplying the Series B Applicable Conversion Rate (determined as
provided in Section 5(b)) by the number of shares of Series B Convertible
Preferred Stock being converted into Common Stock at any time. Subject to and in
compliance with the provisions of this Section 5, any or all shares of the
Series C Convertible Preferred Stock may, at the option of the holder thereof,
be converted at any time into fully-paid and non-assessable shares of Common
Stock. The number of shares of Common Stock to which a holder of Series C
Convertible Preferred Stock shall be entitled to receive upon conversion thereof
shall be the product obtained by multiplying the Series C Applicable Conversion
Rate (determined as provided in Section 5(b)) by the number of shares of Series
C Convertible Preferred Stock being converted into Common Stock at any time.
(b) Applicable Conversion Rate. The conversion rate in effect at
any time for the Series A Convertible Preferred Stock (the "Series A Applicable
Conversion Rate") shall be the quotient obtained by dividing $1.50 by the Series
A Applicable Conversion Value (as defined in Section 5(c)). Initially, the
Series A Applicable Conversion Rate shall be one (1), and initially each share
of Series A Convertible Preferred Stock shall be convertible into one (1) share
of Common Stock. The conversion rate in effect at any time for the Series B
Convertible Preferred Stock (the "Series B Applicable Conversion Rate") shall be
the quotient obtained by dividing $1.80 by the Series B Applicable Conversion
Value (as defined in Section 5(c)). Initially, the Series B Applicable
Conversion Rate shall be one (1), and initially each share of Series B
Convertible Preferred Stock shall be convertible into one (1) share of Common
Stock. The conversion rate in effect at any time for the Series C Convertible
Preferred Stock (the "Series C Applicable Conversion Rate") shall be the
quotient obtained by dividing $1.95 by the Series C Applicable Conversion Value
(as defined in Section 5(c)). Initially, the Series C Applicable Conversion Rate
shall be one (1), and initially each share of Series C Convertible Preferred
Stock shall be convertible into one (1) share of Common Stock.
(c) Applicable Conversion Value. The Series A Applicable
Conversion Value in effect from time to time, except as adjusted in accordance
with Section 5(d) hereof, shall be $1.50 with respect to the Series A
Convertible Preferred Stock (the "Series A Applicable Conversion Value"). The
Series B Applicable Conversion Value in effect from time to time, except as
adjusted in accordance with Section 5(d) hereof, shall be $1.80 with respect to
the Series B Convertible Preferred Stock (the "Series B Applicable Conversion
Value"). The Series C Applicable Conversion Value in effect from time to time,
except as adjusted in
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accordance with Section 5(d) hereof, shall be $1.95 with respect to the Series C
Convertible Preferred Stock (the "Series C Applicable Conversion Value").
(d) Adjustment to Series A Applicable
Conversion Value, Series B Applicable
Conversion Value and Series C Applicable
Conversion Value.
(i) (A) Effect on Series A Applicable Conversion Value Upon
Dilutive Issuances of Common Stock or Convertible Securities. If the Corporation
shall, while there are any shares of Series A Convertible Preferred Stock
outstanding, issue or sell shares of its Common Stock (or Common Stock
Equivalents, as defined below) without consideration or at a price per share
less than the Series A Applicable Conversion Value in effect immediately prior
to such issuance or sale, then and in such event, such Series A Applicable
Conversion Value upon each such issuance or sale, except as hereinafter
provided, shall be reduced, concurrently with such issue, to a price (calculated
to the nearest cent) determined by multiplying the Series A Applicable
Conversion Value in effect immediately prior to such calculation by a fraction:
(1) the numerator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock or Common Stock Equivalents (calculated on a
fully diluted basis assuming the exercise or conversion of all then exercisable
options, warrants, purchase rights or convertible securities), plus (b) the
number of shares of Common Stock which the net aggregate consideration, if any,
received by the Corporation for the total number of such additional shares of
Common Stock or Common Stock Equivalents so issued would purchase at the Series
A Applicable Conversion Value in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock or Common Stock Equivalents (calculated on a
fully diluted basis assuming the exercise or conversion of all then exercisable
options, warrants, purchase rights or convertible securities), plus (b) the
number of such additional shares of Common Stock or Common Stock Equivalents so
issued.
The provisions of this Section 5(d)(i)(A) may be waived in any instance (without
the necessity of convening any meeting of stockholders of the Corporation) upon
the written consent of the holders of at least 66.66% of the then outstanding
shares of Series A Convertible Preferred Stock.
(i) (B) Effect on Series A Applicable Conversion Value Upon
Other Dilutive Issuances of Warrants, Options and Purchase Rights to Common
Stock or Convertible Securities.
(1) For the purposes of this Section 5(d)(i), the issuance
of any warrants, options, subscription or purchase rights with respect to shares
of Common Stock and the issuance of any securities convertible into or
exchangeable for shares of Common Stock,
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or the issuance of any warrants, options, subscription or purchase rights with
respect to such convertible or exchangeable securities (collectively, "Common
Stock Equivalents"), shall be deemed an issuance of Common Stock with respect to
the Series A Convertible Preferred Stock if the Net Consideration Per Share (as
hereinafter determined) which may be received by the Corporation for such Common
Stock Equivalents shall be less than the Series A Applicable Conversion Value in
effect at the time of such issuance. Any obligation, agreement or undertaking to
issue Common Stock Equivalents at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking is made or
arises. No adjustment of the Series A Applicable Conversion Value shall be made
under this Section 5(d)(i) upon the issuance of any shares of Common Stock which
are issued pursuant to the exercise, conversion or exchange of any Common Stock
Equivalents if any adjustment shall previously have been made upon the issuance
of any such Common Stock Equivalents as above provided.
(2) Should the Net Consideration Per Share of any such
Common Stock Equivalents be decreased from time to time, then, upon the
effectiveness of each such change, the Series A Applicable Conversion Value will
be that which would have been obtained (1) had the adjustments made upon the
issuance of such Common Stock Equivalents been made upon the basis of the actual
Net Consideration Per Share of such securities, and (2) had adjustments made to
the Series A Applicable Conversion Value since the date of issuance of such
Common Stock Equivalents been made to such Series A Applicable Conversion Value
as adjusted pursuant to (1) above. Any adjustment of the Series A Applicable
Conversion Value with respect to this paragraph which relates to Common Stock
Equivalents shall be disregarded if, as, and when all of such Common Stock
Equivalents expire or are cancelled without being exercised, so that the Series
A Applicable Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Series A Applicable Conversion Value in effect
at the time of the issuance of the expired or cancelled Common Stock
Equivalents, with such additional adjustments as would have been made to the
Series A Applicable Conversion Value had the expired or cancelled Common Stock
Equivalents not been issued.
(3) For purposes of this Section 5(d)(i), the "Net
Consideration Per Share" which may be received by the Corporation shall be
determined as follows:
(a) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any, received by the
Corporation for the issuance of such Common Stock Equivalents, plus the minimum
amount of consideration, if any, payable to the Corporation upon exercise, or
conversion or exchange thereof, divided by the aggregate number of shares of
Common Stock that would be issued if all such Common Stock Equivalents were
exercised, exchanged or converted.
(b) The "Net Consideration Per Share" which may be
received by the Corporation shall be determined in each instance as of the date
of issuance of Common Stock Equivalents without giving effect to any possible
future upward price adjustments or rate adjustments which may be applicable with
respect to such Common Stock Equivalents.
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(i) (C) Effect on Series B Applicable Conversion Value Upon
Dilutive Issuances of Common Stock or Convertible Securities. If the Corporation
shall, while there are any shares of Series B Convertible Preferred Stock
outstanding, issue or sell shares of its Common Stock (or Common Stock
Equivalents) without consideration or at a price per share less than the Series
B Applicable Conversion Value in effect immediately prior to such issuance or
sale, then and in such event, such Series B Applicable Conversion Value upon
each such issuance or sale, except as hereinafter provided, shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying the Series B Applicable Conversion Value in effect
immediately prior to such calculation by a fraction:
(1) the numerator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock or Common Stock Equivalents (calculated on a
fully diluted basis assuming the exercise or conversion of all then exercisable
options, warrants, purchase rights or convertible securities), plus (b) the
number of shares of Common Stock which the net aggregate consideration, if any,
received by the Corporation for the total number of such additional shares of
Common Stock or Common Stock Equivalents so issued would purchase at the Series
B Applicable Conversion Value in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock or Common Stock Equivalents (calculated on a
fully diluted basis assuming the exercise or conversion of all then exercisable
options, warrants, purchase rights or convertible securities), plus (b) the
number of such additional shares of Common Stock or Common Stock Equivalents so
issued.
The provisions of this Section 5(d)(i)(C) may be waived in any instance (without
the necessity of convening any meeting of stockholders of the Corporation) upon
the written consent of the holders of at least 66.66% of the then outstanding
shares of Series B Convertible Preferred Stock.
(i) (D) Effect on Series B Applicable Conversion Value Upon
Other Dilutive Issuances of Warrants, Options and Purchase Rights to Common
Stock or Convertible Securities.
(1) For the purposes of this Section 5(d)(i), the issuance
of any Common Stock Equivalents shall be deemed an issuance of Common Stock with
respect to the Series B Convertible Preferred Stock if the Net Consideration Per
Share (as hereinafter determined) which may be received by the Corporation for
such Common Stock Equivalents shall be less than the Series B Applicable
Conversion Value in effect at the time of such issuance. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Series B Applicable
Conversion Value shall be made under this Section 5(d)(i) upon the issuance of
any shares of Common Stock which are issued pursuant to the exercise, conversion
or exchange of any Common Stock Equivalents if any adjustment shall previously
have been made upon the issuance of any such Common Stock Equivalents as above
provided.
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(2) Should the Net Consideration Per Share of any such
Common Stock Equivalents be decreased from time to time, then, upon the
effectiveness of each such change, the Series B Applicable Conversion Value will
be that which would have been obtained (1) had the adjustments made upon the
issuance of such Common Stock Equivalents been made upon the basis of the actual
Net Consideration Per Share of such securities, and (2) had adjustments made to
the Series B Applicable Conversion Value since the date of issuance of such
Common Stock Equivalents been made to such Series B Applicable Conversion Value
as adjusted pursuant to (1) above. Any adjustment of the Series B Applicable
Conversion Value with respect to this paragraph which relates to Common Stock
Equivalents shall be disregarded if, as, and when all of such Common Stock
Equivalents expire or are cancelled without being exercised, so that the Series
B Applicable Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Series B Applicable Conversion Value in effect
at the time of the issuance of the expired or cancelled Common Stock
Equivalents, with such additional adjustments as would have been made to the
Series B Applicable Conversion Value had the expired or cancelled Common Stock
Equivalents not been issued.
(i) (E) Effect on Series C Applicable Conversion Value Upon
Dilutive Issuances of Common Stock or Convertible Securities. If the Corporation
shall, while there are any shares of Series C Convertible Preferred Stock
outstanding, issue or sell shares of its Common Stock (or Common Stock
Equivalents) without consideration or at a price per share less than the Series
C Applicable Conversion Value in effect immediately prior to such issuance or
sale, then and in such event, such Series C Applicable Conversion Value upon
each such issuance or sale, except as hereinafter provided, shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying the Series C Applicable Conversion Value in effect
immediately prior to such calculation by a fraction:
(1) the numerator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock or Common Stock Equivalents (calculated on a
fully diluted basis assuming the exercise or conversion of all then exercisable
options, warrants, purchase rights or convertible securities), plus (b) the
number of shares of Common Stock which the net aggregate consideration, if any,
received by the Corporation for the total number of such additional shares of
Common Stock or Common Stock Equivalents so issued would purchase at the Series
C Applicable Conversion Value in effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock or Common Stock Equivalents (calculated on a
fully diluted basis assuming the exercise or conversion of all then exercisable
options, warrants, purchase rights or convertible securities), plus (b) the
number of such additional shares of Common Stock or Common Stock Equivalents so
issued.
The provisions of this Section 5(d)(i)(E) may be waived in any instance (without
the necessity of convening any meeting of stockholders of the Corporation) upon
the written consent of the holders of at least 66.66% of the then outstanding
shares of Series C Convertible Preferred Stock.
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<PAGE>
(i) (F) Effect on Series C Applicable Conversion Value Upon
Other Dilutive Issuances of Warrants, Options and Purchase Rights to Common
Stock or Convertible Securities.
(1) For the purposes of this Section 5(d)(i), the issuance
of any Common Stock Equivalents shall be deemed an issuance of Common Stock with
respect to the Series C Convertible Preferred Stock if the Net Consideration Per
Share (as hereinafter determined) which may be received by the Corporation for
such Common Stock Equivalents shall be less than the Series C Applicable
Conversion Value in effect at the time of such issuance. Any obligation,
agreement or undertaking to issue Common Stock Equivalents at any time in the
future shall be deemed to be an issuance at the time such obligation, agreement
or undertaking is made or arises. No adjustment of the Series C Applicable
Conversion Value shall be made under this Section 5(d)(i) upon the issuance of
any shares of Common Stock which are issued pursuant to the exercise, conversion
or exchange of any Common Stock Equivalents if any adjustment shall previously
have been made upon the issuance of any such Common Stock Equivalents as above
provided.
(2) Should the Net Consideration Per Share of any such
Common Stock Equivalents be decreased from time to time, then, upon the
effectiveness of each such change, the Series C Applicable Conversion Value will
be that which would have been obtained (1) had the adjustments made upon the
issuance of such Common Stock Equivalents been made upon the basis of the actual
Net Consideration Per Share of such securities, and (2) had adjustments made to
the Series C Applicable Conversion Value since the date of issuance of such
Common Stock Equivalents been made to such Series C Applicable Conversion Value
as adjusted pursuant to (1) above. Any adjustment of the Series C Applicable
Conversion Value with respect to this paragraph which relates to Common Stock
Equivalents shall be disregarded if, as, and when all of such Common Stock
Equivalents expire or are cancelled without being exercised, so that the Series
C Applicable Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Series C Applicable Conversion Value in effect
at the time of the issuance of the expired or cancelled Common Stock
Equivalents, with such additional adjustments as would have been made to the
Series C Applicable Conversion Value had the expired or cancelled Common Stock
Equivalents not been issued.
(i) (G) Stock Dividends for Holders of Capital Stock Other
Than Common Stock. In the event that the Corporation shall make or issue, or
shall fix a record date for the determination of holders of any capital stock of
the Corporation other than holders of Common Stock entitled to receive a
dividend or other distribution payable in Common Stock or securities of the
Corporation convertible into or otherwise exchangeable for the Common Stock of
the Corporation, then such Common Stock or other securities issued in payment of
such dividend shall be deemed to have been issued for a consideration of $.001,
except for (i) dividends payable in shares of Common Stock payable pro rata to
holders of Series A Convertible Preferred Stock, holders of Series B Convertible
Preferred Stock, holders of Series C Convertible Preferred Stock and holders of
any other class of stock (whether or not paid to holders of any other class of
stock), (ii) with respect to the Series A Convertible Preferred Stock, dividends
payable in shares of Series A Convertible Preferred Stock, (iii) with respect to
the Series B Convertible Preferred Stock, dividends payable in shares of Series
B Convertible
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Preferred Stock or (iv) with respect to the Series C Convertible Preferred
Stock, dividends payable in shares of Series C Convertible Preferred Stock.
(i) (H) Consideration Other than Cash. For purposes of this
Section 5(d)(i), if a part or all of the consideration received by the
Corporation in connection with the issuance of shares of the Common Stock or the
issuance of any of the securities described in this Section 5(d)(i) consists of
property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Corporation.
(i) (I) Exceptions to Anti-dilution. This Section 5(d)(i)
shall not apply under any of the circumstances which would constitute an
Extraordinary Common Stock Event (as described below). Further, this Section
5(d)(i) shall not apply with respect to:
(1) the issuance of up to an aggregate of 5,300,000 shares
(inclusive of shares subject to outstanding employee options) of Common Stock
(or options to purchase such shares of Common Stock), issuable or issued
pursuant to any stock incentive plan administered by the Corporation including,
without limitation, the 1998 Stock Option/Stock Incentive Plan, at prices or
exercise prices determined by the Board of Directors to be not less than fair
market value;
(2) the issuance of up to an aggregate of 200,000 shares of
Common Stock (or options or warrants to purchase such shares of Common Stock),
issuable to consultants or vendors to the Corporation at prices or exercise
prices determined by the Board of Directors to be not less than fair market
value;
(3) the issuance of shares of Common Stock upon the
conversion of any shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock or pursuant to
the exercise of options and warrants outstanding as of October 30, 1998;
(4) the issuance of securities in connection with equipment
or debt financing or leases (including securities issued in consideration of
guarantees of such financing or leases) provided such issuance and the terms of
such issuance have been approved by a majority of the Series A Investor
Director, the Series B Investor Director and the Series C Investor Director (as
such terms are defined in the Amended and Restated Stockholders Agreement), in
his or her reasonable discretion;
(5) the issuance of securities to vendors, customers or
co-venturers or to other persons in similar commercial or corporate partnering
situations with the Corporation provided such issuance and the terms of such
issuance have been approved by a majority of the Series A Investor Director, the
Series B Investor Director and the Series C Investor Director, in his or her
reasonable discretion; and
(6) the issuance of securities in connection with an
acquisition of a business by the Corporation provided such issuance and the
terms of such
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issuance have been approved by a majority of the Series A Investor Director, the
Series B Investor Director and the Series C Investor Director, in his or her
reasonable discretion.
(ii) Upon Extraordinary Common Stock Event. Upon the happening
of an Extraordinary Common Stock Event (as hereinafter defined), the Series A
Applicable Conversion Value, the Series B Applicable Conversion Value and the
Series C Applicable Conversion Value (and all other conversion values set forth
in Section 5(d)(i) above) shall, simultaneously with the happening of such
Extraordinary Common Stock Event, be adjusted by multiplying each of the Series
A Applicable Conversion Value, the Series B Applicable Conversion Value and the
Series C Applicable Conversion Value, respectively, by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such Extraordinary Common Stock Event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Series A Applicable Conversion Value, the Series B Applicable Conversion
Value and the Series C Applicable Conversion Value, as applicable. The Series A
Applicable Conversion Value, the Series B Applicable Conversion Value and the
Series C Applicable Conversion Value, as applicable, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive Extraordinary
Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall mean (i) the issuance of
additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (ii) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii) a
combination or reverse stock split of outstanding shares of Common Stock into a
smaller number of shares of Common Stock.
(e) Automatic Conversion Upon Initial Public Offering.
(i) Mandatory Conversion of Preferred Stock. Immediately upon
the closing of an underwritten public offering on a firm commitment basis with a
nationally recognized full-service investment bank pursuant to an effective
registration statement filed pursuant to the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the Corporation
in which (i) the gross proceeds of such offering are equal to or greater than
$15,000,000 (calculated before deducting underwriting discounts and commissions
and before calculation of expenses), and (ii) the price per share is at least
$10.00 (following appropriate adjustment in the event of any stock dividends,
stock split, combination or other similar recapitalization affecting such
shares), all then outstanding shares of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
shall be converted automatically into the number of shares of Common Stock into
which such shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock are then convertible
pursuant to Section 5 hereof as of the closing of such underwritten public
offering, without any further action by the holders of such shares and whether
or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent.
(ii) Surrender of Certificates Upon Mandatory Conversion. Upon
the occurrence of the conversion events specified in the preceding paragraph
(i), the
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<PAGE>
holders of the Series A Convertible Preferred Stock, the holders of Series B
Convertible Preferred Stock and the holders of the Series C Convertible
Preferred Stock shall, upon notice from the Corporation, surrender the
certificates representing such shares at the office of the Corporation or of its
transfer agent for the Common Stock. Thereupon, there shall be issued and
delivered to such holder a certificate or certificates for the number of shares
of Common Stock into which the shares of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock so
surrendered were convertible on the date on which such conversion occurred. The
Corporation shall not be obligated to issue such certificates unless
certificates evidencing the shares of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
being converted are either delivered to the Corporation or any such transfer
agent, or the holder notifies the Corporation that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith.
(f) Dividends. In the event the Corporation shall make or issue,
or shall fix a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution (other than a distribution
in liquidation or other distribution otherwise provided for herein) with respect
to the Common Stock payable in (i) securities of the Corporation other than
shares of Common Stock, or (ii) other assets (excluding cash dividends or
distributions), then and in each such event provision shall be made so that the
holders of the Series A Convertible Preferred Stock, the holders of Series B
Convertible Preferred Stock and the holders of Series C Convertible Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities or such other
assets of the Corporation which they would have received had their Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the Conversion Date (as that term is hereafter defined in Section
5(j)), retained such securities or such other assets receivable by them during
such period, giving application to all other adjustments called for during such
period under this Section 5 with respect to the rights of the holders of Series
A Convertible Preferred Stock, the holders of Series B Convertible Preferred
Stock and the holders of Series C Convertible Preferred Stock.
(g) Capital Reorganization or Reclassification. If the Common
Stock issuable upon the conversion of the Series A Convertible Preferred Stock,
the Series B Convertible Preferred Stock or the Series C Convertible Preferred
Stock shall be changed into the same or different number of shares of any class
or classes of capital stock, whether by capital reorganization,
recapitalization, reclassification or otherwise (other than a subdivision or
combination of shares or stock dividend provided for elsewhere in this Section
5, or a merger, consolidation or sale of all or substantially all of the
Corporation's capital stock or assets to any other person), then and in each
such event the holder of each share of Series A Convertible Preferred Stock, the
holder of each share of Series B Convertible Preferred Stock and the holder of
each share of Series C Convertible Preferred Stock shall have the right
thereafter to convert such shares into the kind and amount of shares of capital
stock and other securities and property receivable upon such reorganization,
recapitalization, reclassification or other change by the holders of the number
of shares of Common Stock into which such shares of Series A
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Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock might have been converted immediately prior to such
reorganization, recapitalization, reclassification or change, all subject to
further adjustment as provided herein.
(h) Merger, Consolidation or Sale of Assets. If at any time or
from time to time there shall be a merger or consolidation of the Corporation
with or into another corporation where the Corporation's stockholders
immediately prior to such transaction do not own at least fifty percent (50%) of
the voting equity securities of the surviving corporation immediately following
such transaction (other than a merger or reorganization involving only a change
in the state of incorporation of the Corporation), or the sale of all or
substantially all of the Corporation's capital stock or assets to any other
person, then, as a part of such reorganization, merger, or consolidation or
sale, provision shall be made so that the holders of Series A Convertible
Preferred Stock, the holders of Series B Convertible Preferred Stock and the
holders of Series C Convertible Preferred Stock shall thereafter be entitled to
receive upon conversion of the Series A Convertible Preferred Stock, the Series
B Convertible Preferred Stock and the Series C Convertible Preferred Stock the
number of shares of stock or other securities or property of the Corporation, or
of the successor corporation resulting from such merger or consolidation, to
which such holder would have been entitled if such holder had converted its
shares of Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock or Series C Convertible Preferred Stock immediately prior to such capital
reorganization, merger, consolidation or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
to the end that the provisions of this Section 5 (including adjustment of the
Series A Applicable Conversion Value, the Series B Applicable Conversion Value
and the Series C Applicable Conversion Value then in effect and the number of
shares of Common Stock or other securities issuable upon conversion of such
shares of Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock and Series C Convertible Preferred Stock) shall be applicable after that
event in as nearly equivalent a manner as may be practicable.
(i) Certificate as to Adjustments; Notice by Corporation. In each
case of an adjustment or readjustment of the Series A Applicable Conversion
Rate, the Series B Applicable Conversion Rate or the Series C Applicable
Conversion Rate, the Corporation at its expense will furnish each holder of
Series A Convertible Preferred Stock, each holder of Series B Convertible
Preferred Stock and each holder of Series C Convertible Preferred Stock with a
certificate prepared by the Treasurer or Chief Financial Officer of the
Corporation, showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based.
(j) Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock or Series C Convertible Preferred Stock shall
surrender the certificate or certificates representing the shares being
converted to the Corporation at its principal office, and shall give written
notice to the Corporation at that office that such holder elects to convert such
shares. Such notice shall also state the name or names (with address or
addresses) in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued. The certificate or certificates
for shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock or Series C Convertible Preferred Stock surrendered for
conversion shall be accompanied
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by proper assignment thereof to the Corporation or in blank. The date when such
written notice is received by the Corporation, together with the certificate or
certificates representing the shares of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock or Series C Convertible Preferred Stock
being converted, shall be the "Conversion Date." As promptly as practicable
after the Conversion Date, the Corporation shall issue and shall deliver to the
holder of the shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock or Series C Convertible Preferred Stock being
converted, or on its written order, such certificate or certificates as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock or Series C Convertible Preferred Stock in
accordance with the provisions of this Section 5, rounded up to the nearest
whole share as provided in Section 5(k), in respect of any fraction of a share
of Common Stock issuable upon such conversion. Such conversion shall be deemed
to have been effected immediately prior to the close of business on the
Conversion Date, and at such time the rights of the holder as holder of the
converted shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock or Series C Convertible Preferred Stock shall cease and the
person(s) in whose name(s) any certificate(s) for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby.
(k) No Issuance of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock or Series C Convertible Preferred Stock. Instead of
any fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock or Series C Convertible Preferred Stock, the Corporation shall
round up to the next whole share of Common Stock issuable upon the conversion of
shares of Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock or Series C Convertible Preferred Stock. The determination as to whether
any fractional shares of Common Stock shall be rounded up shall be made with
respect to the aggregate number of shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock being converted at any one time by any holder thereof, not with respect to
each share of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock or Series C Convertible Preferred Stock being converted.
(l) Partial Conversion. In the event some but not all of the
shares of Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock or Series C Convertible Preferred Stock represented by a certificate(s)
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock which were not converted.
(m) Reservation of Common Stock. 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 Series A Convertible Preferred Stock, Series B Convertible Preferred Stock
and Series C Convertible Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
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outstanding shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock (including any shares
of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock
and Series C Convertible Preferred Stock represented by any warrants, options,
subscription or purchase rights for Series A Convertible Preferred Stock, Series
B Convertible Preferred Stock and Series C Convertible 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 Convertible Preferred Stock, Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock (including any shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock represented by any warrants, options, subscriptions
or purchase rights for such Preferred Stock), the Corporation shall take such
action as may be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
(n) No Reissuance of Preferred Stock. No share or shares of
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or
Series C Convertible Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be cancelled, retired and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation shall from time to
time take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock or Series C Convertible Preferred Stock.
6. Redemption.
(a) Optional Redemption. Commencing on November 11, 2003, and
thereafter, the Corporation shall, at any time and from time to time, at the
option of and on the written request of the holders of a majority of the
outstanding shares of Preferred Stock (based upon the relative liquidation
preferences of the Preferred Stock) (delivered to the Corporation not less than
45 nor more than 90 days prior to the date of redemption) redeem, on the date
(the "Redemption Date") specified in such request, all, but not less than all,
of the shares of Preferred Stock such holders are requesting to be redeemed. The
redemption price for each share of Series A Convertible Preferred Stock redeemed
pursuant to this Section 6(a) shall be $1.50 per share in cash plus all accrued
and/or declared but unpaid dividends on such shares up to and including the date
fixed for redemption (the "Series A Redemption Price"). The redemption price for
each share of Series B Convertible Preferred Stock redeemed pursuant to this
Section 6(a) shall be $1.80 per share in cash plus all accrued and/or declared
but unpaid dividends on such shares up to and including the date fixed for
redemption (the "Series B Redemption Price"). The redemption price for each
share of Series C Convertible Preferred Stock redeemed pursuant to this Section
6(a) shall be $1.95 per share in cash plus all accrued and/or declared but
unpaid dividends on such shares up to and including the date fixed for
redemption (the "Series C Redemption Price"). The Series A Redemption Price, the
Series B Redemption Price and the Series C Redemption Price set forth in this
Section 6 shall be subject to equitable adjustment whenever there shall occur a
stock split, stock dividend, combination, recapitalization, reclassification or
other similar event involving a change in the Series A Convertible Preferred
Stock, the Series B Convertible Preferred Stock or the Series C Convertible
Preferred Stock. The Series A Redemption Price, the Series B Redemption Price
and the Series C Redemption
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Price shall be payable in installments, without interest, commencing with
one-third of the Series A Redemption Price, the Series B Redemption Price and
the Series C Redemption Price on the Redemption Date and one-third on each of
the next two anniversaries of the Redemption Date. To the extent that the
Company may not legally redeem such shares of Preferred Stock, such redemption
shall take place as soon as legally permitted.
(b) Insufficient Funds for Redemption.
(i) If the funds of the Corporation legally available for
redemption of the shares of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock on the
Redemption Date are insufficient to redeem the then outstanding shares of Series
A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock to be so redeemed on such Redemption Date, the
holders of shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock who are entitled to
such redemption shall share ratably in any funds legally available for
redemption of such shares according to the respective amounts which would be
payable with respect to the number of shares owned by them if the shares to be
so redeemed on such Redemption Date were redeemed in full. The shares of Series
A Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock entitled to be redeemed but not redeemed shall
remain outstanding and entitled to all rights and preferences provided herein.
(ii) At any time thereafter when additional funds of the
Corporation are legally available for the redemption of such shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock, such funds will be used, as soon as practicable but
no later than the end of the next succeeding fiscal quarter, to redeem the
balance of such shares to be redeemed, or such portion thereof for which funds
are then legally available, on the basis set forth above.
(c) Redemption Proportionate. Each redemption of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock pursuant to this Section 6 shall be made so that the
number of shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock to be redeemed from
each registered owner shall be on a pro rata basis according to the respective
liquidation preferences of shares of Series A Convertible Preferred Stock,
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock
which each such holder of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock owns of
record as of the applicable Redemption Date.
(d) Redemption Notice. At least 15 days prior to the Redemption
Date, written notice (hereinafter referred to as the "Redemption Notice") shall
be mailed, first class or certified mail, postage prepaid, by the Corporation to
each holder of record of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock which are
to be redeemed, at its address as shown on the records of the Corporation;
provided, however, that the Corporation's failure to give such Redemption Notice
as to any holder shall not affect its obligation to redeem the Series A
Convertible Preferred Stock, the Series B Convertible Preferred Stock or the
Series C Convertible Preferred Stock as
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<PAGE>
provided in this Section 6 hereof as to such holder. The Redemption Notice shall
contain the following information:
(i) the number of shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock held by the holder which are to be redeemed by the Corporation;
(ii) the Redemption Date and the Series A Redemption Price,
Series B Redemption Price and Series C Redemption Price; and
(iii) that the holder is to surrender to the Corporation, at
the place designated therein, its certificate or certificates representing the
Series A Convertible Preferred Stock, the Series B Convertible Preferred Stock
or the Series C Convertible Preferred Stock to be redeemed.
(e) Surrender of Certificates. Each holder of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock shall surrender the certificate(s) representing such
shares to the Corporation at the place designated in the Redemption Notice, and
thereupon the Series A Redemption Price, the Series B Redemption Price or the
Series C Redemption Price for such shares as set forth in this Section 6 shall
be paid to the order of the person whose name appears on such certificate(s) and
each surrendered certificate shall be canceled and retired. In the event some
but not all of the Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock or Series C Convertible Preferred Stock represented by a
certificate(s) surrendered by a holder is being redeemed, the Corporation shall
execute and deliver to or on the order of the holder, at the expense of the
Corporation, a new certificate representing the number of shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C
Convertible Preferred Stock which were not redeemed.
The rights of redemption of the holders of Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock are subject to the rights and preferences of any class or series
of preferred stock that may be designated to be senior to, or on parity with,
the Series A Convertible Preferred Stock, the Series B Convertible Preferred
Stock or the Series C Convertible Preferred Stock with respect to rights of
redemption.
(f) Dividends and Conversion after Redemption. From and after
payment in full of the Series A Redemption Price, the Series B Redemption Price
and the Series C Redemption Price, no shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock subject to redemption shall be entitled to any further dividends pursuant
to Section 2 hereof or to the conversion provisions set forth in Section 5
hereof; provided, however, that in all events such redemption is consummated.
(g) Waiver of Redemption. Each holder of Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock shall have the right to waive redemption under this Section 6 of
shares owned by such holder; provided that such waiver shall not affect the
number of shares to be redeemed from any other holder.
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7. Registration of Transfer. The Corporation will keep at its
principal office a register for the registration of shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock. Upon the surrender of any certificate representing
shares of Series A Convertible Preferred Stock, Series B Convertible Preferred
Stock or Series C Convertible Preferred Stock at such place, the Corporation
will, at the request of the record holders of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefore representing the aggregate number of shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C
Convertible Preferred Stock represented by the surrendered certificate. Each
such new certificate will be registered in such name and will represent such
number of shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock or Series C Convertible Preferred Stock as is required by the
holder of the surrendered certificate and will be substantially identical in
form to the surrendered certificate.
8. Replacement. Upon receipt of evidence reasonably satisfactory to
the Corporation (an affidavit of the registered holder will be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock or Series C Convertible Preferred Stock, and in the case of any
such loss, theft or destruction, upon receipt of an unsecured indemnity from the
holder reasonably satisfactory to the Corporation or, in the case of such
mutilation upon surrender of such certificate, the Corporation will (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the number of shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock represented by such lost, stolen, destroyed or mutilated certificate and
dated the date of such lost, stolen, destroyed or mutilated certificate.
9. Restrictions and Limitations on Corporate Action and Amendments
to Charter.
(a) The Corporation shall not take any corporate action or
otherwise amend its Amended and Restated Certificate of Incorporation without
the approval by vote or written consent of the holders of at least 66.66% of the
then outstanding shares of Series A Convertible Preferred Stock, the holders of
at least 66.66% of the then outstanding shares of Series B Convertible Preferred
Stock, and the holders of at least 66.66% of the then outstanding shares of
Series C Convertible Preferred Stock, each voting or consenting separately as a
single series, each share of Series A Convertible Preferred Stock, Series B
Convertible Preferred Stock and Series C Convertible Preferred Stock to be
entitled to one vote in each instance, if such corporate action or amendment
would:
(i) amend any of the rights, preferences, privileges of or
limitations provided for herein for the benefit of any shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C
Convertible Preferred Stock;
(ii) authorize or issue, or obligate the Corporation to
authorize or issue, (1) additional shares of Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock or Series C Convertible Preferred
Stock (excluding additional shares of Series C Convertible Preferred Stock
issuable in any additional closing pursuant to the exercise of
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<PAGE>
participation rights by certain stockholders), (2) Series A/B/C Parity Preferred
Stock (as defined in Section 3(b)), or (3) shares of Preferred Stock senior to
the Series A Convertible Preferred Stock, the Series B Convertible Preferred
Stock or the Series C Convertible Preferred Stock with respect to liquidation
preferences, dividend rights or redemption rights;
(iii) decrease the authorized number of shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock or Series C
Convertible Preferred Stock (excluding a decrease in the authorized number of
shares of Series C Convertible Preferred Stock which results from the failure to
exercise participation rights held by certain stockholders); or
(iv) cause the Corporation to redeem, purchase or otherwise
acquire for value (or pay into or set aside for a sinking fund for such
purpose), any share or shares of Preferred Stock other than pursuant to Section
6 hereof or a redemption, purchase or other acquisition for cash of shares of
Series A Convertible Preferred Stock, Series B Convertible Preferred Stock or
Series C Convertible Preferred Stock, which is effected pro rata with the
holders thereof, in proportion to the full respective preferential amounts to
which such holders are entitled; or
(v) amend any provisions of this Section 9(a).
(b) In the event that (i) the shares of Series A Convertible
Preferred Stock and any warrants of the Corporation owned by Zero Stage Capital
V Limited Partnership and Doll Technology Investment Fund together constitute
greater than or equal to 15% of the outstanding voting equity of the Corporation
on a fully diluted, as-converted basis, or (ii) shares of Series B Convertible
Preferred Stock are outstanding, the Corporation will not amend its Amended and
Restated Certificate of Incorporation or take any other corporate action without
the approval by the holders of at least 50% of the then outstanding shares of
Series A Convertible Preferred Stock or Series B Convertible Preferred Stock,
each voting or consenting separately as a single series, if such amendment or
corporate action would authorize the Company to:
(i) merge, consolidate or reorganize the Corporation, or sell
all or substantially all of the Corporation's assets or effect any transaction
or series of transactions in which more than 50% of the voting power of the
Corporation is disposed; or
(ii) repurchase or redeem any securities of the Corporation;
or
(iii) increase the number of directors constituting the Board
of Directors of the Corporation beyond seven members; or
(iv) establish borrowing from banks or financial institutions
in the aggregate of more than $250,000; or
(v) pledge any of the assets of the Corporation in the
aggregate with a fair market value in excess of $250,000 or pledge any
intellectual property of the Corporation; or
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<PAGE>
(vi) amend the Amended and Restated Certificate of
Incorporation or By-Laws of the Corporation which amendment adversely affects
the rights of the Series A Convertible Preferred Stock or the Series B
Convertible Preferred Stock (except for amendments to increase the authorized
number of shares of the Corporation or to create additional classes of Preferred
Stock permissible under this Amended and Restated Certificate of Incorporation
which requires the approval by vote or written consent of the holders of at
least 66.66% of the then outstanding shares of Series A Convertible Preferred
Stock and the holders of at least 66.66% of the then outstanding shares of
Series B Convertible Preferred Stock, each voting or consenting separately as a
single series.)
10. No Dilution or Impairment. The Corporation will not, by
amendment of its Amended and Restated Certificate of Incorporation or through
any reorganization, transfer of capital stock or 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 of the Series A
Convertible Preferred Stock, the Series B Convertible Preferred Stock or the
Series C Convertible Preferred Stock set forth herein, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the holders of the Series A Convertible Preferred Stock, the Series B
Convertible Preferred Stock and the Series C Convertible Preferred Stock against
dilution or other impairment. Without limiting the generality of the foregoing,
the Corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Series A Convertible Preferred Stock, the
Series B Convertible Preferred Stock or the Series C Convertible Preferred Stock
above the amount payable therefor on such conversion, and (b) will take all such
action as may be necessary or appropriate in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of stock on the
conversion of all Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock from time to time
outstanding.
11. Notices of Record Date. In the event of:
(a) any taking by the Corporation of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other corporation, or
any other entity or person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the Corporation shall
mail or cause to be mailed to each holder of Series A Convertible Preferred
Stock, each holder of Series B Convertible Preferred Stock and each holder
Series C Convertible Preferred Stock a notice specifying (i) the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such
26
<PAGE>
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (iii) the time, if any, that is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up. Such
notice shall be mailed by first class mail, postage prepaid, at least ten (10)
days prior to the earlier of (1) the date specified in such notice on which such
record is to be taken and (2) the date on which such action is to be taken.
12. Notices. Except as otherwise expressly provided, all notices
referred to herein will be in writing and will be delivered by registered or
certified mail, return receipt requested, postage prepaid and will be deemed to
have been given when so mailed (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated in
writing by any such holder).
ARTICLE V
DIRECTORS
The number of directors of the Corporation shall be set forth in
either the Bylaws or in resolutions duly adopted from time to time by the Board
of Directors. Subject to the terms of this Amended and Restated Certificate of
Incorporation, vacancies in the Board of Directors of the Corporation, however
caused, and newly created directorships shall be filled by a vote of a majority
of the directors then in office, whether or not a quorum, and any director so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of the director expires and when the director's
successor is elected and qualified.
ARTICLE VI
LIMITATION OF DIRECTOR'S LIABILITY
Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. If the General Corporation Law is amended after approval by the
stockholders of this ARTICLE VI to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended. No amendment to or repeal of this provision shall apply to or have any
effect on the liability or alleged liability of any director of the Corporation
for or with respect to any acts or omissions of such director occurring prior to
such amendment.
ARTICLE VII
AMENDMENT
Except as otherwise required by law or this Amended and Restated
Certificate of Incorporation, the Corporation reserves the right to amend,
alter, change or repeal any provision
27
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contained in this Amended and Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred on a
stockholder herein are granted subject to this reservation.
ARTICLE VIII
Section 203
The Corporation hereby elects in this Amended and Restated
Certificate of Incorporation not to be governed by Section 203 of the General
Corporation Law.
ARTICLE IX
STOCKHOLDER MEETINGS
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
BYLAWS
Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE XI
INDEMNIFICATION
The Corporation may, to the fullest extent permitted by Section 145
of the General Corporation Law, as amended from time to time, indemnify each
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is or
was, or has agreed to become, a director or officer of the Corporation, or is or
was serving, or has agreed to serve, at the request of the Corporation, as a
director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan) (all such persons being referred to hereafter as an
"Indemnitee"), or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with such action, suit or proceeding and any appeal
therefrom.
Indemnification may include payment by the Corporation of expenses
in defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the Indemnitee to repay
such payment if it is ultimately determined that such person is not entitled to
indemnification under this ARTICLE XII, which undertaking may be accepted
without reference to the financial ability of such person to make such
repayment.
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The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this ARTICLE XI (i) shall not
be deemed exclusive of any other rights to which Indemnitees may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this ARTICLE XI.
* * *
FIFTH: That said amendments were duly adopted in accordance with
the provisions of 107, 241 and 245 of the General Corporation Law.
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<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed by the Sole Incorporator of the Corporation this
18th day of November, 1998, and he hereby affirms under the penalties of perjury
that the statements made herein are true.
/s/ John Bessonette
-----------------------------------------
John Bessonette, Sole Incorporator
30
<PAGE>
Exhibit 3.4
BY-LAWS
OF
MININGCO.COM, INC.
<PAGE>
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE 1 - Stockholders.................................................... 1
1.1 Place of Meetings...................................................... 1
1.2 Annual Meeting......................................................... 1
1.3 Special Meetings....................................................... 1
1.4 Notice of Meetings..................................................... 1
1.5 Voting List............................................................ 1
1.6 Quorum................................................................. 2
1.7 Adjournments........................................................... 2
1.8 Voting and Proxies..................................................... 2
1.9 Action at Meeting...................................................... 2
1.10 Action without Meeting................................................ 3
ARTICLE 2 - Directors....................................................... 3
2.1 General Powers......................................................... 3
2.2 Number; Election and Qualification..................................... 3
2.3 Enlargement of the Board............................................... 3
2.4 Tenure................................................................. 3
2.5 Vacancies.............................................................. 3
2.6 Resignation............................................................ 4
2.7 Regular Meetings....................................................... 4
2.8 Special Meetings....................................................... 4
2.9 Notice of Special Meetings............................................. 4
2.10 Meetings by Telephone Conference Calls................................ 4
2.11 Quorum................................................................ 4
2.12 Action at Meeting..................................................... 5
2.13 Action by Consent..................................................... 5
2.14 Removal............................................................... 5
2.15 Committees............................................................ 5
2.16 Compensation of Directors............................................. 5
ARTICLE 3 - Officers........................................................ 6
3.1 Enumeration............................................................ 6
3.2 Election............................................................... 6
3.3 Qualification.......................................................... 6
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3.4 Tenure................................................................. 6
3.5 Resignation and Removal................................................ 6
3.6 Vacancies.............................................................. 6
3.7 Chairman of the Board and Vice-Chairman of the Board................... 7
3.8 President.............................................................. 7
3.9 Vice Presidents........................................................ 7
3.10 Secretary and Assistant Secretaries................................... 7
3.11 Treasurer and Assistant Treasurers.................................... 8
3.12 Salaries.............................................................. 8
ARTICLE 4 - Capital Stock................................................... 8
4.1 Issuance of Stock...................................................... 8
4.2 Certificates of Stock.................................................. 8
4.3 Transfers.............................................................. 9
4.4 Lost, Stolen or Destroyed Certificates................................. 9
4.5 Record Date............................................................ 9
ARTICLE 5 - Indemnification................................................. 10
ARTICLE 6 - General Provisions.............................................. 11
6.1 Fiscal Year............................................................ 11
6.2 Corporate Seal......................................................... 11
6.3 Waiver of Notice....................................................... 11
6.4 Voting of Securities................................................... 11
6.5 Evidence of Authority.................................................. 12
6.6 Certificate of Incorporation........................................... 12
6.7 Transactions with Interested Parties................................... 12
6.8 Severability........................................................... 12
6.9 Pronouns............................................................... 13
ARTICLE 7 - Amendments...................................................... 13
7.1 By the Board of Directors.............................................. 13
7.2 By the Stockholders.................................................... 13
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<PAGE>
BY-LAWS
OF
MININGCO.COM, INC.
ARTICLE 1 - STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of stockholders shall be held
at such place within or without the State of Delaware as may be designated
from time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 ANNUAL MEETING. The annual meeting of stockholders for the
election of directors and for the transaction of such other business as may
properly be brought before the meeting shall be held on a date to be fixed by
the Board of Directors or the President (which date shall not be a legal
holiday in the place where the meeting is to be held) at the time and place
to be fixed by the Board of Directors or the President and stated in the
notice of the meeting. If no annual meeting is held in accordance with the
foregoing provisions, the Board of Directors shall cause the meeting to be
held as soon thereafter as convenient. If no annual meeting is held in
accordance with the foregoing provisions, a special meeting may be held in
lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and
in such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
1.3 SPECIAL MEETINGS. Special meetings of stockholders may be
called at any time by the President or by the Board of Directors. Business
transacted at any special meeting of stockholders shall be limited to matters
relating to the purpose or purposes stated in the notice of meeting.
1.4 NOTICE OF MEETINGS. Except as otherwise provided by law,
written notice of each meeting of stockholders, whether annual or special,
shall be given not less than 10 nor more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting. The notices of
all meetings shall state the place, date and hour of the meeting. The notice
of a special meeting shall state, in addition, the purpose or purposes for
which the meeting is called. If mailed, notice is given when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
1.5 VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the
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stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, at a place within the city where the meeting is to be held. The
list shall also be produced and kept at the time and place of the meeting
during the whole time of the meeting, and may be inspected by any stockholder
who is present.
1.6 QUORUM. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of
the capital stock of the corporation issued and outstanding and entitled to
vote at the meeting, present in person or represented by proxy, shall
constitute a quorum for the transaction of business.
1.7 ADJOURNMENTS. Any meeting of stockholders may be adjourned to
any other time and to any other place at which a meeting of stockholders may
be held under these By-Laws by the stockholders present or represented at the
meeting and entitled to vote, although less than a quorum, or, if no
stockholder is present, by any officer entitled to preside at or to act as
Secretary of such meeting. It shall not be necessary to notify any
stockholder of any adjournment of less than 30 days if the time and place of
the adjourned meeting are announced at the meeting at which adjournment is
taken, unless after the adjournment a new record date is fixed for the
adjourned meeting. At the adjourned meeting, the corporation may transact
any business which might have been transacted at the original meeting.
1.8 VOTING AND PROXIES. Each stockholder shall have one vote for
each share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise
provided in the Certificate of Incorporation. Each stockholder of record
entitled to vote at a meeting of stockholders, or to express consent or
dissent to corporate action in writing without a meeting, may vote or express
such consent or dissent in person or may authorize another person or persons
to vote or act for him by written proxy executed by the stockholder or his
authorized agent and delivered to the Secretary of the corporation. No such
proxy shall be voted or acted upon after three years from the date of its
execution, unless the proxy expressly provides for a longer period.
1.9 ACTION AT MEETING. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a
matter (or if there are two or more classes of stock entitled to vote as
separate classes, then in the case of each such class, the holders of shares
of stock of that class representing a majority of the votes cast on a matter)
shall decide any matter to be voted upon by the stockholders at such meeting,
except when a different vote is required by express provision of law, the
Certificate of Incorporation or these By-Laws. When a quorum is present at
any meeting, any election by stockholders shall be determined by a plurality
of the votes cast on the election.
1.10 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may
be taken without a meeting,
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without prior notice and without a vote, if a consent in writing, setting
forth the action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote on such action were present and voted. Prompt notice of the taking of
corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - DIRECTORS
2.1 GENERAL POWERS. The business and affairs of the corporation
shall be managed by or under the direction of a Board of Directors, who may
exercise all of the powers of the corporation except as otherwise provided by
law or the Certificate of Incorporation. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 NUMBER; ELECTION AND QUALIFICATION. The number of directors
which shall constitute the whole Board of Directors shall be determined by
resolution of the stockholders or the Board of Directors, but in no event
shall be less than one. The number of directors may be decreased at any time
and from time to time either by the stockholders or by a majority of the
directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of
stockholders by such stockholders as have the right to vote on such election.
Directors need not be stockholders of the corporation.
2.3 ENLARGEMENT OF THE BOARD. The number of directors may be
increased at any time and from time to time by the stockholders or by a
majority of the directors then in office.
2.4 TENURE. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
2.5 VACANCIES. Unless and until filled by the stockholders, any
vacancy in the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may be filled by vote of a
majority of the directors then in office, although less than a quorum, or by
a sole remaining director. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office, and a director
chosen to fill a position resulting from an increase in the number of
directors shall hold office until the next annual meeting of stockholders and
until his successor is elected and qualified, or until his earlier death,
resignation or removal.
2.6 RESIGNATION. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
speci-fied to be effective at some other time or upon the happening of some
other event.
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2.7 REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and place, either within or without
the State of Delaware, as shall be determined from time to time by the Board
of Directors; provided that any director who is absent when such a
determination is made shall be given notice of the determination. A regular
meeting of the Board of Directors may be held without notice immediately
after and at the same place as the annual meeting of stockholders.
2.8 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held at any time and place, within or without the State of Delaware,
designated in a call by the Chairman of the Board, President, two or more
directors, or by one director in the event that there is only a single
director in office.
2.9 NOTICE OF SPECIAL MEETINGS. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer
or one of the directors calling the meeting. Notice shall be duly given to
each director (i) by giving notice to such director in person or by telephone
at least 48 hours in advance of the meeting, (ii) by sending a telegram or
telex, or delivering written notice by hand, to his last known business or
home address at least 48 hours in advance of the meeting, or (iii) by mailing
written notice to his last known business or home address at least 72 hours
in advance of the meeting. A notice or waiver of notice of a meeting of the
Board of Directors need not specify the purposes of the meeting.
2.10 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any
members of any committee designated by the directors may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation by such
means shall constitute presence in person at such meeting.
2.11 QUORUM. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of
Directors. In the event one or more of the directors shall be disqualified
to vote at any meeting, then the required quorum shall be reduced by one for
each such director so disqualified; provided, however, that in no case shall
less than one-third (1/3) of the number so fixed constitute a quorum. In the
absence of a quorum at any such meeting, a majority of the directors present
may adjourn the meeting from time to time without further notice other than
announcement at the meeting, until a quorum shall be present.
2.12 ACTION AT MEETING. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law,
the Certificate of Incorporation or these By-Laws.
2.13 ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee of the
Board of Directors may be taken
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without a meeting, if all members of the Board or committee, as the case may
be, consent to the action in writing, and the written consents are filed with
the minutes of proceedings of the Board or committee.
2.14 REMOVAL. Except as otherwise provided by the General
Corporation Law of Delaware, any one or more or all of the directors may be
removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors, except that the directors
elected by the holders of a particular class or series of stock may be
removed without cause only by vote of the holders of a majority of the
outstanding shares of such class or series.
2.15 COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at
the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors
and subject to the provisions of the General Corporation Law of the State of
Delaware, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to
all papers which may require it. Each such committee shall keep minutes and
make such reports as the Board of Directors may from time to time request.
Except as the Board of Directors may otherwise determine, any committee may
make rules for the conduct of its business, but unless otherwise provided by
the directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-Laws for the Board of
Directors.
2.16 COMPENSATION OF DIRECTORS. Directors may be paid such
compensation for their services and such reimbursement for expenses of
attendance at meetings as the Board of Directors may from time to time
determine. No such payment shall preclude any director from serving the
corporation or any of its parent or subsidiary corporations in any other
capacity and receiving compensation for such service.
ARTICLE 3 - OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents,
Assistant Treasurers, and Assistant Secretaries. The Board of Directors may
appoint such other officers as it may deem appropriate.
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3.2 ELECTION. The President, Treasurer and Secretary shall be
elected annually by the Board of Directors at its first meeting following the
annual meeting of stockholders. Other officers may be appointed by the Board
of Directors at such meeting or at any other meeting.
3.3 QUALIFICATION. No officer need be a stockholder. Any two or
more offices may be held by the same person.
3.4 TENURE. Except as otherwise provided by law, by the Certificate
of Incorporation or by these By-Laws, each officer shall hold office until
his successor is elected and qualified, unless a different term is specified
in the vote choosing or appointing him, or until his earlier death,
resignation or removal.
3.5 RESIGNATION AND REMOVAL. Any officer may resign by delivering
his written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt
unless it is specified to be effective at some other time or upon the
happening of some other event.
Any officer may be removed at any time, with or without cause, by
vote of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an
officer for any period following his resignation or removal, or any right to
damages on account of such removal, whether his compensation be by the month
or by the year or otherwise, unless such compensation is expressly provided
in a duly authorized written agreement with the corporation.
3.6 VACANCIES. The Board of Directors may fill any vacancy
occurring in any office for any reason and may, in its discretion, leave
unfilled for such period as it may determine any offices other than those of
President, Treasurer and Secretary. Each such successor shall hold office
for the unexpired term of his predecessor and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
3.7 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Board
of Directors may appoint a Chairman of the Board and may designate the
Chairman of the Board as Chief Executive Officer. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess
such powers as are assigned to him by the Board of Directors. If the Board
of Directors appoints a Vice-Chairman of the Board, he shall, in the absence
or disability of the Chairman of the Board, perform the duties and exercise
the powers of the Chairman of the Board and shall perform such other duties
and possess such other powers as may from time to time be vested in him by
the Board of Directors.
3.8 PRESIDENT. The President shall, subject to the direction of the
Board of
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Directors, have general charge and supervision of the business of
the corporation. Unless otherwise provided by the Board of Directors, he
shall preside at all meetings of the stockholders and, if he is a director,
at all meetings of the Board of Directors. Unless the Board of Directors has
designated the Chairman of the Board or another officer as Chief Executive
Officer, the President shall be the Chief Executive Officer of the
corporation. The President shall perform such other duties and shall have
such other powers as the Board of Directors may from time to time prescribe.
3.9 VICE PRESIDENTS. Any Vice President shall perform such duties
and possess such powers as the Board of Directors or the President may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the President, the Vice President (or if there shall be more than one,
the Vice Presidents in the order determined by the Board of Directors) shall
perform the duties of the President and when so performing shall have all the
powers of and be subject to all the restrictions upon the President. The
Board of Directors may assign to any Vice President the title of Executive
Vice President, Senior Vice President or any other title selected by the
Board of Directors.
3.10 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall
perform such duties and shall have such powers as the Board of Directors or
the President may from time to time prescribe. In addition, the Secretary
shall perform such duties and have such powers as are incident to the office
of the secretary, including without limitation the duty and power to give
notices of all meetings of stockholders and special meetings of the Board of
Directors, to attend all meetings of stockholders and the Board of Directors
and keep a record of the proceedings, to maintain a stock ledger and prepare
lists of stockholders and their addresses as required, to be custodian of
corporate records and the corporate seal and to affix and attest to the same
on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Secretary, the Assistant Secretary, (or if there shall be more
than one, the Assistant Secretaries in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary secretary to keep a record of the meeting.
3.11 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall
perform such duties and shall have such powers as may from time to time be
assigned to him by the Board of Directors or the President. In addition, the
Treasurer shall perform such duties and have such powers as are incident to
the office of treasurer, including without limitation the duty and power to
keep and be responsible for all funds and securities of the corporation, to
deposit funds of the corporation in depositories selected in accordance with
these By-Laws, to disburse such funds as ordered by the Board of Directors,
to make proper accounts of such funds, and
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to render as required by the Board of Directors statements of all such
transactions and of the financial condition of the corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from
time to time prescribe. In the event of the absence, inability or refusal to
act of the Treasurer, the Assistant Treasurer, (or if there shall be more
than one, the Assistant Treasurers in the order determined by the Board of
Directors) shall perform the duties and exercise the powers of the Treasurer.
3.12 SALARIES. Officers of the corporation shall be entitled to
such salaries, compensation or reimbursement as shall be fixed or allowed
from time to time by the Board of Directors.
ARTICLE 4 - CAPITAL STOCK
4.1 ISSUANCE OF STOCK. Unless otherwise voted by the stockholders
and subject to the provisions of the Certificate of Incorporation, the whole or
any part of any unissued balance of the authorized capital stock of the
corporation or the whole or any part of any unissued balance of the authorized
capital stock of the corporation held in its treasury may be issued, sold,
transferred or otherwise disposed of by vote of the Board of Directors in such
manner, for such consideration and on such terms as the Board of Directors may
determine.
4.2 CERTIFICATES OF STOCK. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by,
or in the name of the corporation by, the Chairman or Vice-Chairman, if any,
of the Board of Directors, or the President or a Vice President, and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant
Secretary of the corporation. Any or all of the signatures on the
certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have
conspicuously noted on the face or back of the certificate either the full
text of the restriction or a statement of the existence of such restriction.
4.3 TRANSFERS. Except as otherwise established by rules and
regulations adopted by the Board of Directors, and subject to applicable law,
shares of stock may be transferred on the books of the corporation by the
surrender to the corporation or its transfer agent of the certificate
representing such shares properly endorsed or accompanied by a written
assignment or power of attorney properly executed, and with such proof of
authority or the authenticity of signature as the corporation or its transfer
agent may reasonably require. Except as may be otherwise required by law, by
the Certificate of Incorporation or by these By-Laws, the
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corporation shall be entitled to treat the record holder of stock as shown on
its books as the owner of such stock for all purposes, including the payment
of dividends and the right to vote with respect to such stock, regardless of
any transfer, pledge or other disposition of such stock until the shares have
been transferred on the books of the corporation in accordance with the
requirements of these By-Laws.
4.4 LOST, STOLEN OR DESTROYED CERTIFICATES. The cor-poration may
issue a new certificate of stock in place of any previously issued
certificate alleged to have been lost, stolen, or destroyed, upon such terms
and conditions as the Board of Directors may prescribe, including the
presentation of reasonable evidence of such loss, theft or destruction and
the giving of such indemnity as the Board of Directors may require for the
protection of the corporation or any transfer agent or registrar.
4.5 RECORD DATE. The Board of Directors may fix in advance a date
as a record date for the determination of the stockholders entitled to notice
of or to vote at any meeting of stockholders or to express consent (or
dissent) to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action. Such record date shall not be more than
60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day before the day on which notice
is given, or, if notice is waived, at the close of business on the day before
the day on which the meeting is held. The record date for determining
stockholders entitled to express consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent is expressed.
The record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts
the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
ARTICLE 5 - INDEMNIFICATION
The corporation may, to the fullest extent authorized under the laws
of the State of Delaware, as those laws may be amended and supplemented from
time to time, indemnify any director, officer, employee and/or agent made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of being a director,
officer and/or employee of the corporation or a predecessor corporation or,
at the
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corporation's request, a director or officer of another corporation,
provided, however, that the corporation shall indemnify any such agent in
connection with a proceeding initiated by such agent only if such proceeding
was authorized by the Board of Directors of the corporation. The
indemnification provided for in this Article 5 shall: (i) not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any bylaw, agreement or vote of stockholders or disinterested directors
or otherwise, both as to action in their official capacities and as to action
in another capacity while holding such office, (ii) continue as to a person
who has ceased to be a director, officer, employee and/or agent, as the case
may be, and (iii) inure to the benefit of the heirs, executors and
administrators of such a person. The corporation's obligation to provide
indemnification under this Article 5 shall be offset to the extent of any
other source of indemnification or any otherwise applicable insurance
coverage under a policy maintained by the corporation or any other person.
Expenses incurred by a director of the corporation in defending a
civil or criminal action, suit or proceeding by reason of the fact that he is
or was a director of the corporation (or was serving at the corporation's
request as a director or officer of another corporation) shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized by relevant
sections of the General Corporation Law of Delaware. Notwithstanding the
foregoing, the corporation shall not be required to advance such expenses to
an agent who is a party to an action, suit or proceeding brought by the
corporation and approved by a majority of the Board of Directors of the
corporation which alleges willful misappropriation of corporate assets by
such agent, disclosure of confidential information in violation of such
agent's fiduciary or contractual obligations to the corporation or any other
willful and deliberate breach in bad faith of such agent's duty to the
corporation or its stockholders.
The foregoing provisions of this Article 5 shall be deemed to be a
contract between the corporation and each director who serves in such
capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole
or in part upon any such state of facts.
The Board of Directors in its discretion shall have power on behalf
of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that he, his
testator or intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Article 5 of all directors,
officers and employees who are determined by the corporation or otherwise to
be or to have been "fiduciaries" of any employee benefit plan of the
corporation which may exist from time to time, Section 145 of the General
Corporation Law of Delaware shall, for the purposes of this Article 5, be
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interpreted as follows: an "other enterprise" shall be deemed to include such
an employee benefit plan, including without limitation, any plan of the
corporation which is governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from time to time; the
corporation shall be deemed to have requested a person to serve an employee
benefit plan where the performance by such person of his duties to the
corporation also imposes duties on, or otherwise involves services by, such
person to the plan or participants or beneficiaries of the plan; excise taxes
assessed on a person with respect to an employee benefit plan pursuant to
such Act of Congress shall be deemed "fines."
ARTICLE 6 - GENERAL PROVISIONS
6.1 FISCAL YEAR. Except as from time to time otherwise designated
by the Board of Directors, the fiscal year of the corporation shall end on
the last day of December in each year.
6.2 CORPORATE SEAL. The corporate seal shall be in such form as
shall be approved by the Board of Directors.
6.3 WAIVER OF NOTICE. Whenever any notice whatsoever is required to
be given by law, by the Certificate of Incorporation or by these By-Laws, a
waiver of such notice either in writing signed by the person entitled to such
notice or such person's duly authorized attorney, or by telegraph, cable or
any other available method, whether before, at or after the time stated in
such waiver, or the appearance of such person or persons at such meeting in
person or by proxy, shall be deemed equivalent to such notice.
6.4 VOTING OF SECURITIES. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
6.5 EVIDENCE OF AUTHORITY. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith
be conclusive evidence of such action.
6.6 CERTIFICATE OF INCORPORATION. All references in these By-Laws
to the Certificate of Incorporation shall be deemed to refer to the
Certificate of Incorporation of the corporation, as amended and in effect
from time to time.
6.7 TRANSACTIONS WITH INTERESTED PARTIES. No contract or
transaction between the corporation and one or more of the directors or
officers, or between the corporation and any other corporation, partnership,
association, or other organization in which one or more of the
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directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or a committee of the Board of Directors which authorizes
the contract or transaction or solely because his or their votes are counted
for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in
good faith authorizes the contract or transaction by the affirmative
votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board
of Directors, a committee of the Board of Directors, or the
stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.8 SEVERABILITY. Any determination that any provision of these
By-Laws is for any reason inapplicable, illegal or ineffective shall not
affect or invalidate any other provision of these By-Laws.
6.9 PRONOUNS. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the
identity of the person or persons may require.
ARTICLE 7 - AMENDMENTS
7.1 BY THE BOARD OF DIRECTORS. These By-Laws may be altered,
amended or repealed or new by-laws may be adopted by the affirmative vote of
a majority of the directors present at any regular or special meeting of the
Board of Directors at which a quorum is present.
7.2 BY THE STOCKHOLDERS. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders
of a majority of the shares of the capital stock of the corporation issued
and outstanding and entitled to vote at any regular meeting of stockholders,
or at any special meeting of stockholders, provided notice of such
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alteration, amendment, repeal or adoption of new by-laws shall have been
stated in the notice of such special meeting.
(The remainder of this page is intentioanally left blank.)
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Exhibit 10.1
GENERAL INTERNET 1997 EMPLOYEE INCENTIVE STOCK OPTION PLAN
1. Purpose
The purpose of the General Internet 1997 Employee Incentive Stock Option Plan is
to attract and retain high performing individuals who will make an immediate and
long-term contribution to General Internet's business by providing such
individuals with the opportunity to acquire an ownership interest in General
Internet Inc. through the award of Incentive Stock Options.
2. Definitions
Whenever the following words are capitalized and used in the Plan, they shall
have the respective meanings set forth below.
a. "Board of Directors" means the Board of Directors of the Company.
b. "Cause" shall include, but not be limited to (i) an act or acts of personal
dishonesty of a Participant at the expense of the Company or any of its
subsidiaries, (ii) a willful violation of the Participant's employment
duties and responsibilities, (iii) a conviction of the Participant of a
felony or a crime involving moral turpitude, (iv) unauthorized disclosure
of confidential information, (v) competing with the Company or (vi) conduct
substantially prejudicial to the Company. The Committee shall have the
exclusive right to determine whether Cause exists and the Committee's
determination shall be binding and conclusive on all Participants and the
Company.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Committee" means a committee of at least two individuals appointed by the
Board of Directors to administer the Plan. If the Company shall register
its Common Stock under the Securities Act, then the Committee shall consist
of at least two or more individuals meeting both the "Nonemployee Director"
standard set forth in Rule 16b-3 promulgated under Section 16 of the
Exchange Act and the "Outside Director" standard set forth in the
regulations promulgated under Section 1 62(m) of the Code.
e. "Company" means General Internet Inc. and its subsidiaries.
f. "Disability" means the permanent and total disability of Participant as
defined in Section 22(e)(3) of the Code.
g. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
h. "Exercise Price" the price at which Shares may be purchased upon exercise
of an Incentive Stock Option covering such shares in accordance with the
terms and conditions prescribed by this Plan.
<PAGE>
i. "Fair Market Value" means as of any given date, the fair market value of
the Shares as determined by the Committee in good faith in its sole
discretion, or if the Shares are publicly traded, the mean of the highest
and lowest quoted selling prices of the Shares on the exchange on which the
Shares are listed (consolidated trading) or, if applicable, the mean of the
highest and lowest quoted bid prices of the Shares as furnished by the
National Association of Securities Dealers Inc.'s Automated Quotation
System, as of the most recent trading date.
j. "Grant Agreement" means an agreement setting forth the terms of an award of
Incentive Stock Options to an employee of the Company which is entered into
by the Company and such employee.
k. "Incentive Stock Option" means a stock option which complies with Section
422 of the Internal Revenue Code of 1986, as amended and which is granted
under this Plan to an employee of the Company.
l. "Participant" means an individual selected by the Committee for an
Incentive Stock Option award by the Committee in accordance with Section 5
below.
m. "Plan" means this General Internet 1997 Incentive Stock Option Plan, as
amended or restated from time to time.
n. "Securities Act" shall mean the Securities Act of 1933, as amended.
o. "Share" means a share of the Company's common stock .001 par value per
share.
3. Number of Shares
2,307,000 Shares shall be available for grant under this Plan. If any Incentive
Stock Option granted under the Plan shall terminate or expire for any reason
without having been exercised in full, the unissued Shares covered by such
Incentive Stock Option shall again be available for grant under the Plan. The
Shares issued by the Company under this Plan may be either unissued Shares or
treasury Shares.
4. Administration
This Plan shall be administered by the Committee. A majority of the Committee
shall constitute a quorum. The Committee shall have full power and authority to:
(a) prescribe, amend and rescind rules and procedures governing the
administration of this Plan;
(b) interpret the provisions of this Plan and to establish and interpret rules
and procedures with respect to the operation of this Plan;
(c) determine the eligibility of employees to participate in this Plan in
accordance with the standards set forth in this Plan;
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(d) determine, in accordance with the Plan and Section 422 of the Code, the
terms of Incentive Stock Options granted to employees; and
(e) delegate certain of the duties of the Committee to one or more agents to
facilitate the administration of this Plan. Each action of the Committee
which is within the scope of the authority delegated to the Committee shall
be binding on all persons.
5. Eligibility and Participation
Incentive Stock Options may be granted only to employees of the Company upon
selection by the Committee, in its sole discretion. An employee who has been
selected by the Committee for a grant of an Incentive Stock Option must, as a
condition to receiving such grant, enter into a Grant Agreement with the Company
specifying the terms of such grant.
Selection of an employee for an award shall not require the Committee to make
another grant to such Participant at any other time during such Participant's
employment with the Company.
6. Incentive Stock Options
6.1. Power to Grant Stock Options
The Committee shall have the right and the power to grant, in accordance with
this Plan, Incentive Stock Options on such terms and conditions as may be
established by Committee in accordance with this Plan and Section 422 of the
Code on or prior to the date of grant of such Incentive Stock Options.
6.2. Exercise Price
The Exercise Price of an Incentive Stock Option shall be equal to the
established Fair Market Value of the Shares at the time of Grant; provided that
the Exercise Price of an Incentive Stock Option granted to a holder of more than
10% of the outstanding Shares shall be 110% of the Fair Market Value of the
Shares on the date of grant.
6.3. Term
The term of an Incentive Stock Option granted under this Plan shall be
established by the Committee at the date of grant and shall not exceed 10 years
from the date of grant for all Incentive Stock Options; provided however, in the
case of an Incentive Stock Option with an Exercise Price set at 1 10% of Fair
Market Value in accordance with Paragraph 6.2 above, the term of such Incentive
Stock Option shall not exceed 5 years from the date of grant.
6.4. Vesting
An Incentive Stock Option granted under this Plan shall become exercisable upon
such date or dates specified by the Committee, in its sole discretion, in the
Grant Agreement relating to such Incentive Stock Option. To the extent required
by Section 422 of the Code, the aggregate Fair
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Market Value, determined as of the date of grant, of Shares for which Incentive
Stock Options are exercisable for the first time by a Participant during any
calendar year shall not exceed $100,000.
6.5. Exercise
An Incentive Stock Option may be exercised by a Participant upon the date or
dates and in accordance with the conditions specified in the Grant Agreement
executed by such Participant which relates to such Incentive Stock Option.
However, no Incentive Stock Option shall be exercised for a fraction of a share.
To exercise an Incentive Stock Option, the Participant must deliver written
notice to the Chief Financial Officer of the Company or any other Company
executive provided by the applicable Grant Agreement after the date such
Incentive Stock Option becomes exercisable but prior to the expiration of the
term of such Incentive Stock Option or of the cancellation or forfeiture of such
Incentive Stock Option.
Written notice delivered to the Company by the Participant must state the number
of Shares being purchased and must be accompanied by payment of the full
purchase price for such Shares. Method of payment for the Shares for which
Incentive Stock Options are exercised shall be set forth in the Participant's
Grant Agreement and, at the Committee's sole discretion, may include any or all
of the following methods: (1) delivery of a personal check or money order
payable to the Company; (2) delivery of Shares which have been held by such
Participant for at least six months; (3) delivery by the Participant of a
promissory note with recourse, and/or, (4) if there is a public market
for the Shares, the delivery of a properly executed exercise notice, together
with irrevocable instructions to a broker to promptly deliver to the Company
either sale proceeds of Shares sold to pay the purchase price or the amount
loaned by the broker to pay the purchase price.
6.6. Limitation on Transfer of Incentive Stock Options
No Incentive Stock Option granted under this Plan shall be transferable
otherwise than by will or the laws of descent and distribution, and any
Incentive Stock Option granted under this Plan may be exercised during the
lifetime of the person to whom the Incentive Stock Option shall initially have
been granted only by such person or by such person's guardian or legal
representative.
7. Termination
7.1. Death, Disability, or Termination of the Participant's employment by the
Company other than for Cause
In the event of Death or Disability of the Participant, or termination of the
Participant's employment by the Company other than for Cause, all vested
Incentive Stock Options shall be exercisable by the Participant's estate,
personal representative, or Participant for a period which shall not exceed the
expiration date(s) of any such Incentive Stock Options determined by the
Committee and set forth in the applicable Grant Agreement(s) or the period
permitted by Section 422 of the Code.
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All unvested Incentive Stock Options may become exercisable to the extent
determined by the Committee, in its sole discretion.
7.2. Voluntary Termination
In the event of a voluntary termination of employment by Participant, all vested
and unvested Incentive Stock Options shall be immediately forfeited by the
Participant without any consideration.
7.3. Termination For Cause
In the event of termination for Cause, all vested and unvested Incentive Stock
Options shall be immediately forfeited by the Participant without any
consideration.
7.4. Obligation to enter into Voting Trust Agreement with Company
If a Participant terminates employment with the Company under Paragraphs 7.1,
7.2 or 7.3 above and the Company has not registered its Shares under the
Securities Act, at the request of the Company, such Participant shall be
required to enter into a voting trust agreement with the Company on such terms
and conditions as may be determined by the Committee in its sole discretion. In
accordance with the voting trust agreement, such Participant shall give an
authorized representative of the Company an irrevocable right to exercise all
voting and consent rights in connection with Shares purchased upon exercise of
Incentive Stock Options granted to such Participant under this Plan.
The obligation set forth under this Paragraph 7.4 shall terminate on the date
the Company registers Shares under the Securities Act.
8. Change of Control
8.1. Acceleration of Incentive Stock Options
Notwithstanding any provision of this Plan to the contrary, upon the occurrence
of a Change in Control as set forth in Paragraph 8.2 below, all unvested
Incentive Stock Options then outstanding under this Plan shall become fully
exercisable as of the date of the Change in Control.
8.2. Definition of "Change in Control"
A Change in Control shall be deemed to have occurred on the earliest of the
following dates:
(i) the acquisition, other than from the Company or with the approval of the
Board of Directors of the Company, of 50 percent or more of either the
then outstanding Shares or the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors;
(ii) Registration of the Company's Common Stock under the Securities Act;
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<PAGE>
(iii) Approval by the stockholders of the Company of the sale or other
disposition of all or substantially all of the Company's assets or a sale
of all of the outstanding shares of Common Stock of the Company to an
unaffiliated entity or individual; or
(iv) Liquidation or dissolution of the Company.
9. No Right to Continued Employment
Nothing in the Plan or in any Grant Agreement shall confer on any individual any
right to continue in the employ of the Company or interfere in any way with the
right of the Company to terminate such individual's employment at any time.
10. Limitation on Right to Shares
No Participant shall have any rights as a shareholder to any Shares subject to
Incentive Stock Options until such Incentive Stock Options have been exercised.
11. Investment Representation and Legending of Share Certificates
As a condition to receiving an Incentive Stock Option grant under the Plan,
Participant shall agree that, unless the Shares subject such Incentive Stock
Options have been effectively registered under the Securities Act, the Company
shall be under no obligation to issue the Shares covered by such Incentive Stock
Options unless and until the following conditions have been met:
a. That Participant or any other individual who exercises such Incentive
Stock Options on behalf of or as a result of a transfer from Participant,
shall warrant to the Company prior to receipt of the Shares that such
person(s) are acquiring such Shares for their own respective accounts for
investment, and not with a view to, or for sale in connection with, the
distribution of any such Shares.
b. The Company shall have received an opinion of its counsel that the Shares
may be issued upon such particular exercise in compliance with the
Securities Act without registration.
All Share certificates issued upon the exercise of an Incentive Stock Option
shall be subject to such stop transfer orders and other restrictions as the
Committee may deem advisable under the Plan; the rules, regulations or other
requirements of the Securities Act and the Exchange Act, the rules of any stock
exchange upon which such Shares are listed, or under any other applicable
Federal or state laws; and the Committee may have a legend placed on any such
certificates to make appropriate reference to such restrictions.
12. Adjustment of Shares
In the event of any corporate change through recapitalization, merger,
consolidation, stock dividend, split-up, combination or exchange of Shares or
otherwise, which affects the character and amount of the Company's Shares prior
to exercise of any Incentive Stock Option granted under this Plan, any such
Incentive Stock Options, to the extent not exercised, shall entitle a
Participant holding such Incentive Stock Options to such number and kind of
Shares as such
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Participant would have been entitled to had such Participant actually owned
the Shares subject to such Incentive Stock Options at the time of such
change. The Committee, in its sole discretion, shall determine any
adjustments necessary to ensure that the Incentive Stock Option after such
change is equivalent in value to such Incentive Stock Option prior to such
change including, but not limited to, changes in the Incentive Stock Option
Exercise Price or the number of Shares covered by such Incentive Stock
Option(s).
13. Withholding Tax
Whenever the Company is required to issue Shares upon exercise of an Incentive
Stock Option by a Participant, such Participant shall remit to the Company an
amount sufficient to satisfy any federal, state or local income and payroll tax
withholding liability prior to the delivery of any certificate(s) for such
Shares. Upon approval by the Committee, in its sole discretion, any such
liability may be satisfied prior to delivery of any certificate(s) by
Participant electing to have the Company withhold a number of Shares equal in
value to such liability, from the number of Shares to be issued to such
Participant.
14. Termination and Amendment of Plan
The Plan shall terminate on March 19, 2007, unless previously terminated by
action of the holders of a majority of the Shares outstanding. Upon termination,
no additional Incentive Stock Option grants shall be made; however, outstanding
Incentive Stock Options shall remain exercisable under the Plan in accordance
with the terms of the applicable Grant Agreement(s).
The Committee may amend the Plan without further approval of the holders of a
majority of the Shares outstanding provided that no amendment may materially and
adversely affect any Incentive Stock Options previously issued unless the
written consent of such affected Participant(s) is received prior to approval of
such proposed amendment.
15. Miscellaneous
15.1. Headings
Section headings used in this Plan are for convenience only and shall not be
deemed to limit, characterize or affect in any way any provision of this Plan.
All provisions in this Plan shall be construed as if no headings had been used
in this Plan.
15.2. Severability
Whenever possible, each provision in this Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Plan is held to be prohibited by or invalid under applicable law, then
(i) such provision shall be deemed amended to accomplish the objectives of the
provision as originally written to the fullest extent permitted by law and (ii)
all other provisions of this Plan shall remain in full force and effect.
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15.3. No Strict Construction
No rule of strict construction shall be applied against the Company, the
Committee or any other person in the interpretation of any term of this Plan or
any rule or procedure established by the Committee.
16. Governing Law
All issues and questions concerning the construction, validity, enforcement and
interpretation of this plan shall be governed by, and construed in accordance
with, the laws of the state of New York, without giving effect to any choice of
law or conflict of law rules or provisions (whether of the state of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the state of New York.
Dated: As of March 20, 1997
General Internet Inc.
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Exhibit 10.2
GENERAL INTERNET INC.
1998 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Option/Stock Issuance Plan is intended to promote the
interests of General Internet Inc., a New York corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
(i) the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
(ii) the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary), and
(iii) the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive options at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the Discretionary
Option Grant and Stock Issuance Programs may be administered by the Board
(which authority may be delegated to the Primary Committee or Secondary
Committee). Beginning with the Section 12 Registration Date, the following
provisions shall govern the administration of the Plan:
<PAGE>
(i) The Board shall have the authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders but may delegate such authority in whole or in part to the Primary
Committee.
(ii) Administration of the Discretionary Option Grant and Stock
Issuance Programs with respect to all other persons eligible to participate in
those programs may, at the Board's discretion, be vested in the Primary
Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons.
(iii) Administration of the Automatic Option Grant Program shall
be self-executing in accordance with the terms of that program.
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full power and authority
subject to the provisions of the Plan:
(i) to establish such rules as it may deem appropriate for proper
administration of the Plan, to make all factual determinations, to construe and
interpret the provisions of the Plan and the awards thereunder and to resolve
any and all ambiguities thereunder;
(ii) to determine, with respect to awards made under the
Discretionary Option Grant and Stock Issuance Programs, which eligible persons
are to receive such awards, the time or times when such awards are to be made,
the number of shares to be covered by each such award, the vesting schedule (if
any) applicable to the award, the status of a granted option as either an
Incentive Option or a Non-Statutory Option and the maximum term for which the
option is to remain outstanding;
(iii) to amend, modify or cancel any outstanding award with the
consent of the holder or accelerate the vesting of such award; and
(iv) to take such other discretionary actions as permitted
pursuant to the terms of the applicable program.
Decisions of each Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties.
C. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any options or stock issuances under the Plan.
<PAGE>
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only non-employee Board members shall be eligible to participate in
the Automatic Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
5,300,000 shares. Such authorized share reserve consists of (i) the number of
shares which remain available for issuance, as of the Plan Effective Date, under
the Predecessor Plan as last approved by the Corporation's stockholders,
including the shares subject to the outstanding options to be incorporated into
the Plan and the additional shares which would otherwise be available for future
grant, plus (ii) an increase of 2,500,000 shares authorized by the Board but
subject to stockholder approval prior to the Section 12 Registration Date.
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 250,000 shares of Common Stock in the aggregate per calendar year,
beginning with the 1998 calendar year.
C. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent those options
expire, terminate or are cancelled for any reason prior to exercise in full.
Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the original exercise or issue price paid per share, pursuant to
the Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent options
or direct stock issuances under the Plan. However, should the exercise price of
an option under the Plan be paid with shares of Common Stock or should shares of
Common Stock otherwise issuable under the Plan be withheld by the Corporation in
satisfaction of the withholding taxes incurred in connection with the exercise
of an option or the vesting of a stock issuance under the Plan, then the number
of shares of Common Stock available for issuance under the Plan shall be reduced
by the gross number of shares for which the option is exercised or which vest
under the stock issuance, and not by the net number of shares of Common Stock
issued to the holder of such option or stock issuance.
<PAGE>
Shares of Common Stock underlying one or more stock appreciation rights
exercised under the Plan shall not be available for subsequent issuance.
D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the number and/or class of securities for which any one person may be
granted options, separately exercisable stock appreciation rights and direct
stock issuances under this Plan per calendar year, (iii) the number and/or class
of securities for which grants are subsequently to be made under the Automatic
Option Grant Program to new and continuing non-employee Board members, (iv) the
number and/or class of securities and the exercise price per share in effect
under each outstanding option under the Plan and (v) the number and/or class of
securities and price per share in effect under each outstanding option
incorporated into this Plan from the Predecessor Plan. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive. In no event shall any such adjustments be made in connection with
the conversion of one or more outstanding shares of the Corporation's preferred
stock into shares of Common Stock.
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan
Administrator at the time of the option grant.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section II of Article Five
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. Should the Common Stock be registered under Section
12 of the 1934 Act at the time the option is exercised, then the exercise price
may also be paid as follows:
(i) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to which
the Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-approved brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be
withheld by the Corporation by reason of such exercise and (b) the
Corporation to deliver the certificates for the purchased shares directly
to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Exercise and Term of Options. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Cessation of Service.
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1. The following provisions shall govern the exercise of any
options outstanding at the time of the Optionee's cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan Administrator
and set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by his or her
Beneficiary.
(iii) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the number
of vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term, the
option shall terminate and cease to be outstanding for any vested shares
for which the option has not been exercised. However, the option shall,
immediately upon the Optionee's cessation of Service, terminate and cease
to be outstanding to the extent the option is not otherwise at that time
exercisable for vested shares.
(iv) Should the Optionee's Service be terminated for
Misconduct or should the Optionee engage in Misconduct while his or her
options are outstanding, then all such options shall terminate immediately
and cease to be outstanding.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding:
(i) to extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service to such
period of time as the Plan Administrator shall deem appropriate, but in no
event beyond the expiration of the option term, and/or
(ii) to permit the option to be exercised, during the
applicable post-Service exercise period, for one or more additional
installments in which the Optionee would have vested had the Optionee
continued in Service.
D. Stockholder Rights. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms
<PAGE>
upon which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. Limited Transferability of Options. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. Non-Statutory Options shall be
subject to the same restrictions, except that a Non-statutory Option may, to the
extent permitted by the Plan Administrator, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for Optionee and/or one
or more such family members. The terms applicable to the assigned portion shall
be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Five shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Exercise Price. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. Each option outstanding at the time of a Change in Control but not
otherwise fully-vested shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all of the shares of Common Stock at the time subject to that
option and may be exercised for any or all of those
<PAGE>
shares as fully-vested shares of Common Stock. However, an outstanding option
shall not so accelerate if and to the extent: (i) such option is, in connection
with the Change in Control, assumed or otherwise continued in full force and
effect by the successor corporation (or parent thereof) pursuant to the terms of
the Change in Control, (ii) such option is replaced with a cash incentive
program of the successor corporation which preserves the spread existing at the
time of the Change in Control on the shares of Common Stock for which the option
is not otherwise at that time exercisable and provides for subsequent payout in
accordance with the same vesting schedule applicable to those option shares or
(iii) the acceleration of such option is subject to other limitations imposed by
the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) or otherwise continue in full force and effect
pursuant to the terms of the Change in Control or (ii) such accelerated vesting
is precluded by other limitations imposed by the Plan Administrator at the time
the repurchase right is issued.
C. Immediately following the consummation of the Change in Control,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof) or otherwise
expressly continued in full force and effect pursuant to the terms of the Change
in Control.
D. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted, immediately after such Change in Control, to
apply to the number and class of securities which would have been issuable to
the Optionee in consummation of such Change in Control had the option been
exercised immediately prior to such Change in Control. Appropriate adjustments
to reflect such Change in Control shall also be made to (i) the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same, (ii) the maximum number
and/or class of securities available for issuance over the remaining term of the
Plan and (iii) the maximum number and/or class of securities for which any one
person may be granted options, separately exercisable stock appreciation rights
and direct stock issuances under the Plan per calendar year.
E. The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Change in Control,
whether or not those options are assumed or otherwise continued in full force
and effect pursuant to the terms of the Change in Control. Any such option shall
accordingly become exercisable, immediately prior to the effective date of such
Change in Control, for all of the shares of Common Stock at the time subject to
that option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. In addition, the Plan Administrator may at any time
provide that one or more of the Corporation's repurchase rights shall not be
assignable in connection with such Change in Control and shall terminate upon
the consummation of such Change in Control.
F. The Plan Administrator may at any time provide that one or more
options will automatically accelerate upon an Involuntary Termination of the
Optionee's Service within a designated period (not to exceed eighteen (18)
months) following the effective date of any Change in Control in which those
options do not otherwise accelerate. Any options so
<PAGE>
accelerated shall remain exercisable for fully-vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one
(1)-year period measured from the effective date of the Involuntary Termination.
In addition, the Plan Administrator may at any time provide that one or more of
the Corporation's repurchase rights shall immediately terminate upon such
Involuntary Termination.
G. The Plan Administrator may at any time provide that one or more
options will automatically accelerate in connection with a Hostile Take-Over.
Any such option shall become exercisable, immediately prior to the effective
date of such Hostile Take-Over, for all of the shares of Common Stock at the
time subject to that option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. In addition, the Plan Administrator may
at any time provide that one or more of the Corporation's repurchase rights
shall terminate automatically upon the consummation of such Hostile Take-Over.
Alternatively, the Plan Administrator may condition such automatic acceleration
and termination upon an Involuntary Termination of the Optionee's Service within
a designated period (not to exceed eighteen (18) months) following the effective
date of such Hostile Take-Over. Each option so accelerated shall remain
exercisable for fully-vested shares until the expiration or sooner termination
of the option term.
H. The portion of any Incentive Option accelerated in connection with
a Change in Control or Hostile Take Over shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
IV. STOCK APPRECIATION RIGHTS
The Plan Administrator may, subject to such conditions as it may
determine, grant to selected Optionees stock appreciation rights which will
allow the holders of those rights to elect between the exercise of the
underlying option for shares of Common Stock and the surrender of that option in
exchange for a distribution from the Corporation in an amount equal to the
excess of (a) the Option Surrender Value of the number of shares for which the
option is surrendered over (b) the aggregate exercise price payable for such
shares. The distribution may be made in shares of Common Stock valued at Fair
Market Value on the option surrender date, in cash, or partly in shares and
partly in cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
<PAGE>
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening options. Shares
of Common Stock may also be issued under the Stock Issuance Program pursuant to
share right awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals or Service requirements. Each such
award shall be evidenced by one or more documents which comply with the terms
specified below.
A. Purchase Price.
1. The purchase price per share of Common Stock subject to direct
issuance shall be fixed by the Plan Administrator.
2. Subject to the provisions of Section II of Article Five,
Shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. Vesting/Issuance Provisions.
1. The Plan Administrator may issue shares of Common Stock which
are fully and immediately vested upon issuance or which are to vest in one or
more installments over the Participant's period of Service or upon attainment of
specified performance objectives. Alternatively, the Plan Administrator may
issue share right awards which shall entitle the recipient to receive a
specified number of vested shares of Common Stock upon the attainment of one or
more performance goals or Service requirements established by the Plan
Administrator.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to his or her unvested
shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with
respect to the issued shares of Common Stock, whether or not the Participant's
interest in those shares is
<PAGE>
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock, or should the performance
objectives not be attained with respect to one or more such unvested shares of
Common Stock, then those shares shall be immediately surrendered to the
Corporation for cancellation, and the Participant shall have no further
stockholder rights with respect to those shares. To the extent the surrendered
shares were previously issued to the Participant for consideration paid in cash
or cash equivalent (including the Participant's purchase-money indebtedness),
the Corporation shall repay to the Participant the cash consideration paid for
the surrendered shares and shall cancel the unpaid principal balance of any
outstanding purchase-money note of the Participant attributable to the
surrendered shares.
5. The Plan Administrator may waive the surrender and
cancellation of one or more unvested shares of Common Stock (or other assets
attributable thereto) which would otherwise occur upon the cessation of the
Participant's Service or the non-attainment of the performance objectives
applicable to those shares. Such waiver shall result in the immediate vesting of
the Participant's interest in the shares of Common Stock as to which the waiver
applies. Such waiver may be effected at any time, whether before or after the
Participant's cessation of Service or the attainment or non-attainment of the
applicable performance objectives.
6. Outstanding share right awards shall automatically terminate,
and no shares of Common Stock shall actually be issued in satisfaction of those
awards, if the performance goals or Service requirements established for such
awards are not attained. The Plan Administrator, however, shall have the
authority to issue shares of Common Stock in satisfaction of one or more
outstanding share right awards as to which the designated performance goals or
Service requirements are not attained.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. All of the Corporation's outstanding repurchase rights shall
terminate automatically, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Change in
Control, except to the extent (i) those repurchase rights are assigned to the
successor corporation (or parent thereof) or otherwise continue in full force
and effect pursuant to the terms of the Change in Control or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
B. The Plan Administrator may at any time provide for the automatic
termination of one or more of those outstanding repurchase rights and the
immediate vesting of the shares of Common Stock subject to those terminated
rights upon (i) a Change in Control or Hostile Take-Over or (ii) an Involuntary
Termination of the Participant's Service within a designated period (not to
exceed eighteen (18) months) following the effective date of any Change in
Control or Hostile Take-Over in which those repurchase rights are assigned to
the successor corporation (or parent thereof) or otherwise continue in full
force and effect.
<PAGE>
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
<PAGE>
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Options shall be made on the dates specified below:
1. Each individual serving as a non-employee Board member on the
Underwriting Date shall automatically be granted at that time a Non-Statutory
Option to purchase 50,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or
Subsidiary.
2. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 50,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as a non-employee
Board member, whether or not that individual is standing for re-election to the
Board, shall automatically be granted a Non-Statutory Option to purchase 10,000
shares of Common Stock, provided such individual has served as a non-employee
Board member for at least six (6) months.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years
measured from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. Each initial 50,000-share option shall vest,
and the Corporation's repurchase right shall lapse, in a series of four (4)
successive equal annual installments upon the Optionee's completion of each year
of Board service over the four (4)-year period measured from the grant date.
Each annual 10,000-share option shall vest, and the Corporation's repurchase
right shall lapse, upon the Optionee's completion of one (1) year of Board
service measured from the grant date.
<PAGE>
E. Cessation of Board Service. The following provisions shall govern
the exercise of any options outstanding at the time of the Optionee's cessation
of Board service:
(i) Any option outstanding at the time of the Optionee's
cessation of Board service for any reason shall remain exercisable for a
twelve (12)-month period following the date of such cessation of Board
service, but in no event shall such option be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised by his or her
Beneficiary.
(iii) Following the Optionee's cessation of Board service,
the option may not be exercised in the aggregate for more than the number
of shares in which the Optionee was vested on the date of such cessation of
Board service. Upon the expiration of the applicable exercise period or (if
earlier) upon the expiration of the option term, the option shall terminate
and cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Board service, terminate and cease to be
outstanding for any and all shares in which the Optionee is not otherwise
at that time vested.
(iv) However, should the Optionee cease to serve as a Board
member by reason of death or Permanent Disability, then all shares at the
time subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
II. CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Change in Control or Hostile Take-Over, the
shares of Common Stock at the time subject to each outstanding option but not
otherwise vested shall automatically vest in full so that each such option may,
immediately prior to the effective date of such Change in Control the Hostile
Take-Over, be exercised for all or any portion of those shares as fully-vested
shares of Common Stock. Each such option accelerated in connection with a Change
in Control shall terminate upon the Change in Control, except to the extent
assumed by the successor corporation (or parent thereof) or otherwise continued
in full force and effect pursuant to the terms of the Change in Control. Each
such option accelerated in connection with a Hostile Take-Over shall remain
exercisable until the expiration or sooner termination of the option term.
B. All outstanding repurchase rights shall also terminate
automatically, and the shares of Common Stock subject to those terminated rights
shall immediately vest in full, in the event of any Change in Control or Hostile
Take-Over.
<PAGE>
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have
a thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding options. The Optionee shall in return be entitled to a cash
distribution from the Corporation in an amount equal to the excess of (i) the
Option Surrender Value of the shares of Common Stock at the time subject to each
surrendered option (whether or not the Optionee is otherwise at the time vested
in those shares) over (ii) the aggregate exercise price payable for such shares.
Such cash distribution shall be paid within five (5) days following the
surrender of the option to the Corporation.
D. Each option which is assumed in connection with a Change in Control
shall be appropriately adjusted to apply to the number and class of securities
which would have been issuable to the Optionee in consummation of such Change in
Control had the option been exercised immediately prior to such Change in
Control. Appropriate adjustments shall also be made to the exercise price
payable per share under each outstanding option, provided the aggregate exercise
price payable for such securities shall remain the same.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for options made under
the Discretionary Option Grant Program.
<PAGE>
ARTICLE FIVE
MISCELLANEOUS
I. NO IMPAIRMENT OF AUTHORITY
Outstanding awards shall in no way affect the right of the Corporation
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.
II. FIRST REFUSAL RIGHT
Until the Section 12(g) Registration Date, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee or the Participant (or any successor in interest) of any shares of
Common Stock issued under the Plan. Such right of first refusal shall be
exercisable in accordance with the terms established by the Plan Administrator
and set forth in the document evidencing such right.
III. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares plus (ii) any Federal,
state and local income and employment tax liability incurred by the Optionee or
the Participant in connection with the option exercise or share purchase.
IV. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Taxes incurred by such holders in connection with the exercise of their
options or the vesting of their shares. Such right may be provided to any such
holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value
<PAGE>
equal to the percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
V. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective with respect to the Discretionary
Option Grant and Stock Issuance Programs immediately upon the Plan Effective
Date. The Automatic Option Grant Program shall become effective on the
Underwriting Date. Options may be granted under the Discretionary Option Grant
at any time on or after the Plan Effective Date. However, no options granted
under the Plan may be exercised, and no shares shall be issued under the Plan,
until the Plan is approved by the Corporation's stockholders. If such
stockholder approval is not obtained within twelve (12) months after the Plan
Effective Date, then all options previously granted under this Plan shall
terminate and cease to be outstanding, and no further options shall be granted
and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and
no further options or direct stock issuances shall be made under the Predecessor
Plan after the Section 12 Registration Date. All options outstanding under the
Predecessor Plan on the Section 12 Registration Date shall be incorporated into
the Plan at that time and shall be treated as outstanding options under the
Plan. However, each outstanding option so incorporated shall continue to be
governed solely by the terms of the documents evidencing such option, and no
provision of the Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to their
acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Changes in
Control, may, in the Plan Administrator's discretion, be extended to one or more
options incorporated from the Predecessor Plan which do not otherwise contain
such provisions.
D. The Plan shall terminate upon the earliest of (i) July 2, 2008,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Change in Control. Upon such plan
termination, all outstanding options and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing such grants or issuances.
VI. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock
<PAGE>
issuances at the time outstanding under the Plan unless the Optionee or the
Participant consents to such amendment or modification. In addition, certain
amendments may require stockholder approval pursuant to applicable laws or
regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs shall be held in escrow until there
is obtained stockholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
VII. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VIII. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
IX. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option
grant program in effect under the Plan.
B. Beneficiary shall mean, in the event the Plan Administrator
implements a beneficiary designation procedure, the person designated by an
Optionee or Participant, pursuant to such procedure, to succeed to such person's
rights under any outstanding awards held by him or her at the time of death. In
the absence of such designation or procedure, the Beneficiary shall be the
personal representative of the estate of the Optionee or Participant or the
person or persons to whom the award is transferred by will or the laws of
descent and distribution.
C. Board shall mean the Corporation's Board of Directors.
D. Change in Control shall mean a change in ownership or control of
the Corporation effected through any of the following transactions:
(i) a merger, consolidation or reorganization approved by the
Corporation's stockholders, unless securities representing more than fifty
percent (50%) of the total combined voting power of the voting securities
of the successor corporation are immediately thereafter beneficially owned,
directly or indirectly and in substantially the same proportion, by the
persons who beneficially owned the Corporation's outstanding voting
securities immediately prior to such transaction,
(ii) any stockholder-approved transfer or other disposition of
all or substantially all of the Corporation's assets, or
(iii) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly
to the Corporation's stockholders which the Board recommend such
stockholders to accept.
E. Code shall mean the Internal Revenue Code of 1986, as amended.
F. Common Stock shall mean the Corporation's common stock.
G. Corporation shall mean General Internet Inc., a New York
corporation, and its successors.
<PAGE>
H. Discretionary Option Grant Program shall mean the discretionary
option grant program in effect under the Plan.
I. Employee shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. Exercise Date shall mean the date on which the Corporation shall
have received written notice of the option exercise.
K. Fair Market Value per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price is
reported on the Nasdaq National Market or any successor system. If there is
no closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be
the closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of any options made on the Underwriting Date,
the Fair Market Value shall be deemed to be equal to the price per share at
which the Common Stock is to be sold in an initial public offering pursuant
to the Underwriting Agreement.
(iv) For purposes of any options made prior to the Underwriting
Date, the Fair Market Value shall be determined by the Plan Administrator,
after taking into account such factors as it deems appropriate.
L. Hostile Take-Over shall mean:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a
<PAGE>
tender or exchange offer made directly to the Corporation's stockholders
which the Board does not recommend such stockholders to accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have been
Board members continuously since the beginning of such period or (B) have
been elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (A) who
were still in office at the time the Board approved such election or
nomination.
M. Incentive Option shall mean an option which satisfies the
requirements of Code Section 422.
N. Involuntary Termination shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation or Parent or Subsidiary
employing the individual which materially reduces his or her duties and
responsibilities or the level of management to which he or she reports, (B)
a reduction in his or her level of compensation (including base salary,
fringe benefits and target bonus under any performance based bonus or
incentive programs) by more than fifteen percent (15%) or (C) a relocation
of such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected by
the Corporation without the individual's consent.
O. Misconduct shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any intentional wrongdoing by such
person, whether by omission or commission, which adversely affects the business
or affairs of the Corporation (or any Parent or Subsidiary) in a material
manner. This shall not limit the grounds for the dismissal or discharge of any
person in the Service of the Corporation (or any Parent or Subsidiary).
P. 1934 Act shall mean the Securities Exchange Act of 1934, as
amended.
Q. Non-Statutory Option shall mean an option not intended to satisfy
the requirements of Code Section 422.
R. Option Surrender Value shall mean the Fair Market Value per share
of Common Stock on the date the option is surrendered to the Corporation or, in
the event of a Hostile Take-Over, effected through a tender offer, the highest
reported price per share of
<PAGE>
Common Stock paid by the tender offeror in effecting such Hostile Take-Over, if
greater. However, if the surrendered option is an Incentive Option, the Option
Surrender Value shall not exceed the Fair Market Value per share.
S. Optionee shall mean any person to whom an option is granted under
the Discretionary Option Grant or Automatic Option Grant Program.
T. Parent shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. Participant shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
V. Permanent Disability or Permanently Disabled shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
Program, Permanent Disability or Permanently Disabled shall mean the inability
of the non-employee Board member to perform his or her usual duties as a Board
member by reason of any medically determinable physical or mental impairment
expected to result in death or to be of continuous duration of twelve (12)
months or more.
W. Plan shall mean the Corporation's 1998 Stock Incentive Plan, as set
forth in this document.
X. Plan Administrator shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction. However, the Primary Committee shall have
the plenary authority to make all factual determinations and to construe and
interpret any and all ambiguities under the Plan to the extent such authority is
not otherwise expressly delegated to any other Plan Administrator.
Y. Plan Effective Date shall mean July 2, 1998, the date on which the
Plan was adopted by the Board.
Z. Predecessor Plan shall mean the Corporation's pre-existing 1997
Employee Incentive Stock Option Plan in effect immediately prior to the Plan
Effective Date hereunder.
AA. Primary Committee shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
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BB. Secondary Committee shall mean a committee of one (1) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
CC. Section 12 Registration Date shall mean the date on which the
Common Stock is first registered under Section 12(g) of the 1934 Act.
DD. Section 16 Insider shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
EE. Service shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
FF. Stock Exchange shall mean either the American Stock Exchange or
the New York Stock Exchange.
GG. Stock Issuance Program shall mean the stock issuance program in
effect under the Plan.
HH. Subsidiary shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
II. Taxes shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those options
or the vesting of those shares.
JJ. 10% Stockholder shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
KK. Underwriting Agreement shall mean the agreement between the
Corporation and the underwriter or underwriters managing an initial public
offering of the Common Stock.
LL. Underwriting Date shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
<PAGE>
Exhibit 10.3
EXECUTION COPY (A&R INVESTORS' RIGHTS AGREEMENT)
GENERAL INTERNET INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"Agreement") dated as of November 13, 1998, by and among GENERAL INTERNET INC.,
a New York corporation having a principal place of business at 220 East 42nd
Street, 24th Floor, New York, New York 10017 (the "Company"), and each of the
investors named on the attached Exhibit A and having a principal place of
business as set forth thereon (each an "Investor" and collectively the
"Investors"), as such Exhibit A may be amended from time to time to add such
other person(s) who may hereafter become a party to this Agreement as a result
of purchasing shares of the Company's Series C Convertible Preferred Stock,
$.001 par value per share, at the Closings (as hereinafter defined).
RECITALS
WHEREAS, on April 20, 1998 the Company and certain of the Investors
(collectively, the "Series A Investors") entered into that certain Series A
Convertible Preferred Stock Purchase Agreement (the "Series A Purchase
Agreement"), pursuant to which the Company issued and sold to the Series A
Investors an aggregate of 3,346,715 shares of the Company's Series A Convertible
Preferred Stock, $.001 par value per share (the "Series A Stock");
WHEREAS, on April 20, 1998 the Company and certain of the Investors
(collectively, the "Series B Investors" and, together with the Series A
Investors, the "Existing Investors") entered into that certain Series B
Convertible Preferred Stock Purchase Agreement (the "Series B Purchase
Agreement" and, together with the Series A Purchase Agreement, the "Prior
Purchase Agreements"), pursuant to which the Company issued and sold to the
Series B Investors an aggregate of 6,597,596 shares of the Company's Series B
Convertible Preferred Stock, $.001 par value per share (the "Series B Stock");
WHEREAS, concurrently with the execution and delivery of the Prior
Purchase Agreements, the Company and the Existing Investors entered into that
certain Investors' Rights Agreement dated as of April 20, 1998 (the "Investors'
Rights Agreement");
WHEREAS, on the date hereof the Company and certain of the Investors
(collectively, the "Series C Investors") are entering into that certain Series C
Convertible Preferred Stock Purchase Agreement (the "Series C Purchase
Agreement"), pursuant to which the Company is authorized to issue and sell to
the Series C Investors an aggregate of up to 8,717,949 shares of the Company's
Series C Convertible Preferred Stock, $.001 par value per share (the "Series C
Stock" and, together with the Series A Stock and the Series B Stock, the
"Preferred Stock"), at one or more closings to be held on or prior to thirty
(30) days from the date hereof (the "Closings");
WHEREAS, it is a condition to the closing of the transactions
contemplated by the Series C Purchase Agreement that the Company and the
Investors enter into this Agreement
<PAGE>
to, among other things, amend and restate the rights granted to the Existing
Investors pursuant to the Investors' Rights Agreement in order to provide the
Series C Investors with certain registration rights, information rights and
other rights in connection with the Investors' ownership of shares of the
Company's Preferred Stock (and the Conversion Shares (as hereinafter defined)
into which such shares of Preferred Stock are convertible);
WHEREAS, pursuant to Section 4.3 of the Investors' Rights Agreement,
the Investors' Rights Agreement may be amended, waived, discharged or terminated
by the written consent of the Company, holders of at least a majority of the
Series A Stock and the holders of at least a majority of the Series B Stock,
each voting as a separate series, and any such amendments, waivers, discharges
or terminations effected in accordance with Section 4.3 of the Investors' Rights
Agreement shall be binding upon all parties thereto, including those not signing
such amendment, waiver, discharge or termination; and
WHEREAS, by entering into this Agreement, the Company, and the Series
A Investors and Series B Investors whose signatures are set forth on the
signature pages hereto, which Series A Investors and Series B Investors
constitute the holders of at least a majority of the Series A Stock and the
holders of at least a majority of the Series B Stock, each voting as a separate
series, hereby consent to amending the Investors' Rights Agreement in the manner
set forth herein.
NOW, THEREFORE, in consideration of the promises and mutual agreements
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION I
DEFINITIONS; REGISTRATION RIGHTS
1.1 Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"C-Max" shall mean C-Max Capital Limited Partnership - I, a Florida
limited partnership and an Investor hereunder.
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.001 par value, of the
Company.
"Conversion Shares" shall mean shares of Common Stock issued or
issuable upon conversion of the Preferred Stock.
"Exchange Act" shall mean the Securities Exchange Act of 1934, 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.
2
<PAGE>
"Excluded Stock" shall mean (i) the Reserved Employee Shares, (ii)
securities issuable as a stock dividend or upon any subdivision of shares of
Common Stock, provided that the securities issued pursuant to such stock
dividend or subdivision are limited to additional shares of Common Stock, (iii)
securities issuable pursuant to a Qualified Public Offering, (iv) debt
securities without equity features or conversion privileges (provided, however,
that any debt security convertible into the Company's capital stock shall be
Excluded Stock if a majority of the Board of Directors approves its issuance),
(v) securities issued in connection with equipment or debt financing or leases
(including securities issued in consideration of guarantees of such financing or
leases) which are approved by the Series A Investor Director, the Series B
Investor Director and the Series C Investor Director, (vi) up to an aggregate of
200,000 shares of Common Stock (or options or warrants to purchase such shares
of Common Stock) issuable to consultants or vendors to the Company at prices or
exercise prices determined by the Board of Directors to be not less than fair
market value, (vii) the shares of Common Stock issued or issuable upon
conversion of the Preferred Stock, (viii) the shares of Common Stock issued or
issuable upon exercise of the options and warrants contemplated by the
capitalization table of the Company provided as a schedule to the Series C
Purchase Agreement (ix) the shares of stock issuable upon exercise of a warrant
issued, or to be issued, to Citicorp, N.A. to purchase 100,000 shares of Common
Stock, as described in a certain Letter Agreement by and between the Company and
Citicorp, N.A., dated June 20, 1997, and (x) if expressly approved by the
Company's Board of Directors, including a majority of the Series A Investor
Director, the Series B Investor Director and the Series C Investor Director,
securities issued (a) to vendors, customers or co-venturers or other persons in
similar commercial or corporate partnering situations, or (b) in connection with
an acquisition by the Company or an affiliate of the Company.
"Qualified Public Offering" shall mean a firm commitment underwritten
public offering of the Company's Common Stock underwritten by a nationally
recognized full-service investment bank pursuant to which (i) the aggregate
gross proceeds received by the Company are at least $15,000,000, and (ii) the
price per share is not less than $10.00 (following appropriate adjustment in the
event of any stock dividends, stock split, combination or other similar
recapitalization affecting such shares).
"Register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act (as hereinafter defined) and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Shares" shall mean the Series A Registrable Shares, the
Series B Registrable Shares and the Series C Registrable Shares.
"Reserved Employee Shares" shall mean shares of Common Stock (or
options to purchase such shares of Common Stock) issued or issuable at not less
than fair market value to officers, employees or directors of, or consultants
to, the Company pursuant to any stock purchase or option plan or other employee
stock bonus arrangement as provided by the Company's Board of Directors. The
number of Reserved Employee Shares shall not exceed 5,300,000 shares of Common
Stock (inclusive of shares subject to currently outstanding employee options)
prior to the one (1) year anniversary of the execution of this Agreement;
provided, however, that after the one (1) year anniversary, the number of shares
set aside for
3
<PAGE>
Reserved Employee Shares may be increased (or decreased) by the
vote of the Board of Directors.
"Securities 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.
"Series A Investor Director" shall have the meaning given to that term
in the Amended and Restated Shareholders Agreement entered into
contemporaneously herewith.
"Series B Investor Director" shall have the meaning given to that term
in the Amended and Restated Shareholders Agreement entered into
contemporaneously herewith.
"Series C Investor Director" shall have the meaning given to that term
in the Amended and Restated Shareholders Agreement entered into
contemporaneously herewith.
"Series A Registrable Shares" shall mean (i) the shares of Common
Stock issued or issuable upon conversion of the Series A Stock; (ii) an
aggregate of 864,557 shares of Common Stock issued or issuable by the Company to
certain Investors upon the exercise of certain warrants issued on March 27,
1997, April 14, 1997, July 10, 1997, July 24, 1997, August 7, 1997, August 27,
1997, September 22, 1997 and January 15, 1998 in connection with that certain
Note and Warrant Purchase Agreement dated March 27, 1997, as such warrants and
such Note and Warrant Purchase Agreement have been amended from time to time
(such warrants collectively referred to herein as the "Series A Outstanding
Warrants"); and (iii) shares issued or issuable upon an adjustment for (a) stock
splits, stock dividends and the like (including, without limitation, any such
adjustments with respect to the securities referred to in (i) and (ii) above),
and (b) in the Series A Outstanding Warrants as in effect on the date hereof.
Notwithstanding the foregoing, Series A Registrable Shares shall not include
shares of Common Stock issued or issuable pursuant to the foregoing which (i)
have been registered under the Securities Act pursuant to an effective
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them, (ii) are publicly sold pursuant to Rule
144 under the Securities Act or, as to any one holder, all of his or its shares
may be sold in a single transaction, or (iii) are eligible for sale under Rule
144(k) under the Securities Act.
"Series B Registrable Shares" shall mean (i) the shares of Common
Stock issued or issuable upon conversion of the Series B Stock; (ii) an
aggregate of 702,777 shares of Common Stock issued or issuable by the Company to
certain Investors upon the exercise of certain warrants issued on November 26,
1997, February 2, 1998, February 12, 1998 and February 26, 1998 in connection
with those certain Note and Warrant Purchase Agreements dated November 26, 1997,
February 2, 1998 and February 12, 1998, respectively, as such warrants and such
Note and Warrant Purchase Agreement have been amended from time to time (such
warrants collectively referred to herein as the "Series B Outstanding Warrants"
and, together with the Series A Outstanding Warrants, the "Outstanding
Warrants"); (iii) the shares of Common Stock issued or issuable by the Company
to certain of the Investors upon the exercise of certain warrants issued in
connection with the sale of the Series B Stock; (iv) the 60,000 shares of Common
Stock issued or issuable by the Company to Mr. Kevin Watson upon the exercise of
a warrant issued in connection with the execution of an advisory agreement with
the
4
<PAGE>
Company; and (v) shares issued or issuable upon an adjustment for stock splits,
stock dividends and the like (including, without limitation, any such
adjustments with respect to the securities referred to in (i) above).
Notwithstanding the foregoing, Series B Registrable Shares shall not include
shares of Common Stock issued or issuable pursuant to the foregoing which (i)
have been registered under the Securities Act pursuant to an effective
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them, (ii) are publicly sold pursuant to Rule
144 under the Securities Act or, as to any one holder, all of his or its shares
may be sold in a single transaction, or (iii) are eligible for sale under Rule
144(k) under the Securities Act.
"Series C Registrable Shares" shall mean the shares of Common Stock
issued or issuable upon conversion of the Series C Stock and shares issued or
issuable upon an adjustment for stock splits, stock dividends and the like
(including, without limitation, any such adjustments with respect to the
securities referred above). Notwithstanding the foregoing, Series C Registrable
Shares shall not include shares of Common Stock issued or issuable pursuant to
the foregoing which (i) have been registered under the Securities Act pursuant
to an effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them, (ii) are publicly sold
pursuant to Rule 144 under the Securities Act or, as to any one holder, all of
his or its shares may be sold in a single transaction, or (iii) are eligible for
sale under Rule 144(k) under the Securities Act.
1.2. Restrictive Legend. Each certificate representing Preferred Stock
or Conversion Shares shall, except as otherwise provided in Section 1.3, be
stamped or otherwise imprinted with a legend substantially in the following
form:
"TRANSFER RESTRICTED
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO RESTRICTIONS (I) UPON TRANSFER PURSUANT TO AN AMENDED AND
RESTATED SHAREHOLDERS AGREEMENT BY AND AMONG THE COMPANY AND
ITS SHAREHOLDERS, AND (II) PURSUANT TO AN AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT BY AND AMONG THE
COMPANY AND CERTAIN SHAREHOLDERS. A COPY OF THE AMENDED AND
RESTATED SHAREHOLDERS AGREEMENT AND A COPY OF THE AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT MAY BE OBTAINED
FROM THE COMPANY WITHOUT CHARGE UPON THE WRITTEN REQUEST OF
THE HOLDER HEREOF.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH
SHARES UNDER THAT ACT AND ANY APPLICABLE STATE SECURITIES
LAWS, UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY, AN EXEMPTION FROM REGISTRATION THEREUNDER IS
AVAILABLE."
5
<PAGE>
1.3. Required Registration.
(a) Following the earlier to occur of (a) the third anniversary of the
date of execution and delivery of this Agreement, and (b) the date which is six
(6) months following the date of a Qualified Public Offering, either (i) the
holders of Series A Registrable Shares constituting at least fifty percent (50%)
of the Series A Registrable Shares then owned beneficially or of record by
Investors and Investor Transferees (as hereinafter defined), (ii) (A) the
holders of Series B Registrable Shares constituting at least fifty percent (50%)
of the Series B Registrable Shares then owned beneficially or of record by
Investors and Investor Transferees or (B) C-Max, or (iii) the holders of Series
C Registrable Shares constituting at least fifty percent (50%) of the Series C
Registrable Shares then owned beneficially or of record by Investors and
Investor Transferees, may request that the Company use commercially reasonable
efforts to register under the Securities Act all or any portion of the
Registrable Shares held by such requesting holder or holders for sale in the
manner specified in such notice; provided, however, that the Company may, by
notice to the requesting holders, delay such requested registration if the
Company's Board of Directors determines that such registration at the time
requested would have a material adverse effect upon the Company; provided,
further, however, that the Company's ability to delay such registration shall be
limited to durations of no longer than ninety (90) days and the Company shall
not delay more than once during any twelve (12) month period.
(b) The Company shall not be obligated pursuant to this Section 1.3 to
effectuate more than: (i) one (1) registration before a Qualified Public
Offering for the benefit of the holders set forth in Section 1.3(a)(i) above;
(ii) one (1) registration before a Qualified Public Offering for the benefit of
the holders set forth in Section 1.3(a)(ii) above; (iii) one (1) registration
before a Qualified Public Offering for the benefit of the holders set forth in
Section 1.3(a)(iii) above; (iv) one (1) registration after a Qualified Public
Offering for the benefit of the holders set forth in Section 1.3(a)(i) above;
(v) one (1) registration after a Qualified Public Offering for the benefit of
the holders set forth in Section 1.3(a)(ii) above; or (vi) one (1) registration
after a Qualified Public Offering for the benefit of the holders set forth in
Section 1.3(a)(iii). In addition, the aggregate offering price of the
Registrable Shares to be sold pursuant to each such registration shall be at
least $5,000,000. Notwithstanding anything to the contrary contained herein, no
request may be made under this Section 1.3:
(i) within one hundred eighty (180) days after the effective date of a
registration statement filed by the Company covering a firm commitment
underwritten public offering of securities of the Company under the
Securities Act; or
(ii) 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 six (6)
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 and that the Company's estimate of the date of filing such
registration statement is made in good faith.
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<PAGE>
(c) Following receipt of any notice under Section 1.3(a), the Company
shall promptly notify all Investors and Investor Transferees from whom notice
has not been received and, as soon thereafter as practicable, shall use its
reasonable efforts to register under the Securities Act, for public sale in
accordance with the method of disposition specified in such notice from
requesting holders, the number of shares of Registrable Shares specified in such
notice (and in all notices received by the Company from other holders within
twenty (20) days after the giving of such notice by the Company). If such method
of disposition shall be an underwritten public offering, the Company shall
designate the managing underwriter of such offering, following consultation and
subject to the approval of the Investors and Investor Transferees from whom
notice has been received, which approval shall not be unreasonably withheld or
delayed. All sellers must participate in the underwriting. The Company's
registration obligation hereunder shall be deemed satisfied only when a
registration statement or statements covering shares of Registrable Shares
specified in notices received as aforesaid, for sale in accordance with the
method of disposition specified by the requesting holders, shall have become
effective and, if such method of disposition is a firm commitment underwritten
public offering, all such shares shall have been sold pursuant thereto.
(d) The Company shall be entitled to include in any registration
statement referred to in this Section 1.3, for sale in accordance with the
method of disposition specified by the requesting holders, shares of Common
Stock to be sold by the Company for its own account and for the account of other
selling shareholders, except as and to the extent that, in the reasonable
opinion of the managing underwriter (if such method of disposition shall be an
underwritten public offering), such inclusion would materially adversely affect
the marketing of the shares of Common Stock to be sold. Except for registration
statements on Form S-4, S-8 or any successor thereto, and subject to Section
1.3(b), the Company will not file with the Commission any other registration
statement with respect to its Common Stock, whether for its own account or that
of other shareholders, from the date of receipt of a notice from requesting
holders pursuant to this Section 1.3 until the completion of the lesser of the
period of distribution of the shares of Registrable Shares registered thereby
and 90 days from the effective date of the registration statement, unless the
Registrable Shares shall be entitled to be included therein in accordance with
Section 1.4 below.
(e) The Company will use commercially reasonable efforts to maintain
the effectiveness of any Form S-1 used to register the shares pursuant to this
Section 1.03 for up to ninety (90) days or such earlier time as all of the
Registrable Shares have been sold.
1.4. Incidental Registration.
(a) If, at any time, the Company determines to register any of its
securities under the Securities Act for sale to the public, whether for its own
account or for the account of other security holders or both (except with
respect to registration statements on Form S-8 or its then equivalent, or in
connection with a Rule 145 transaction or Form S-4 or its equivalent, or another
form not available for registering the Registrable Shares for sale to the
public), each such time it will give prompt written notice to all holders of
outstanding Registrable Shares, including each holder who has the right to
acquire Registrable Shares, of its intention so to do and of the proposed method
of distribution of such securities. Upon the written request of any such holder,
received by the Company within twenty (20) days after the giving of any such
notice by the
7
<PAGE>
Company, to include in the registration all or any part of the Registrable
Shares, the Company will use commercially reasonable efforts to cause the
Registrable Shares as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent and under the conditions such
registration is permitted under the Securities Act and this Section 1.4. In the
event that any registration pursuant to this Section 1.4 shall be, in whole or
in part, an underwritten public offering of Common Stock, the number of shares
of Registrable Shares to be included in such an underwriting may be reduced (pro
rata among the requesting holders based upon the number of shares of Registrable
Shares owned by such holders) if and to the extent that the managing underwriter
shall be of the opinion that the inclusion of some or all of the Registrable
Shares would adversely affect the marketing of the securities to be sold by the
Company therein. Any such limitation shall be imposed in such manner so as to
avoid any diminution in the number of shares the Company may register for sale
by giving first priority for the shares to be registered for issuance and sale
by the Company, by giving second priority for any Registrable Shares to be
registered pursuant to Section 1.3 hereof, and by giving third priority for the
Registrable Shares to be registered for sale by any other Investor pursuant to
the terms of this Section 1.4. Notwithstanding the foregoing provisions, the
Company may, in its sole discretion, terminate or withdraw any registration
statement referred to in this Section 1.4 without thereby incurring any
liability to the holders of Registrable Shares.
(b) The Company will use commercially reasonable efforts to maintain
the effectiveness of any form used to register the shares pursuant to this
Section 1.04 for up to ninety (90) days or such earlier time as all of the
Registrable Shares have been sold .
1.5. Registration on Form S-3. If at any time the holders of at least
twenty percent (20%) of the Registrable Shares then owned beneficially or of
record by Investors and Investor Transferees request that the Company file a
registration statement on Form S-3 or any successor thereto for a public
offering of all or any portion of the Registrable Shares held by such requesting
holder or holders, the reasonably anticipated aggregate price to the public (net
of underwriting discounts and commissions) of which would exceed $2,000,000, and
the Company is a registrant entitled to use Form S-3 or any successor thereto to
register such shares, then the Company shall use all commercially reasonable
efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of Registrable Shares specified in such notice.
Whenever the Company is required by this Section 1.5 to use all reasonable
efforts to effect the registration of Registrable Shares, each of the procedures
and requirements of Section 1.3 (including but not limited to the requirement
that the Company notify all holders of Registrable Shares from whom notice has
not been received and provide them with the opportunity to participate in the
offering) shall apply to such registration. The Company shall be obligated to
register Registrable Shares pursuant to this Section 1.5 on two occasions;
provided, however, that such obligation shall be deemed satisfied only when a
registration statement or statements covering all shares of Registrable Shares
specified in notices received as aforesaid, for sale in accordance with the
method of disposition specified by the requesting holders, shall have become
effective. The Company will use its commercially reasonable efforts to maintain
the effectiveness of any Form S-3 for a period of up to one hundred eighty (180)
days or such earlier time as all of the Registrable Shares have been sold.
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1.6. Limitation on Registration Request. Notwithstanding any other
provision of this Agreement, the right of a holder of Registrable Shares to
request registration of the same by the Company pursuant to Sections 1.3, 1.4
and 1.5 hereof shall not apply with respect to such holder upon the earliest to
occur of (a) all of such holder's Conversion Shares can be sold in compliance
with the volume and other restrictions set forth in Rule 144 of the Securities
Act, (b) all of such holder's Conversion Shares may be sold in compliance with
Rule 144(k) of the Securities Act, or (c) five (5) years from the date of the
consummation of the Qualified Public Offering.
1.7. Registration Procedures. If and whenever the Company is required
by the provisions of Sections 1.3, 1.4 or 1.5 to use its commercially reasonable
efforts to effect the registration of any Registrable Shares under the
Securities Act, the Company will, at its cost and expense (including without
limitation, payment of the costs and expenses described in Section 1.8), as
expeditiously as reasonably practicable:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section
1.3, shall be on Form S-1 or other form of general applicability
satisfactory to the managing underwriter selected as therein provided) with
respect to such securities and use all reasonable efforts to cause such
registration statement to become and remain effective for the period set
forth in Section 1.3, 1.4, or 1.5, as applicable;
(b) prepare and file as expeditiously as reasonably practicable and in
any event within ninety (90) days with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the period specified in Section 1.7(a) above and
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Shares covered by such registration
statement in accordance with the sellers' intended method of disposition
set forth in such registration statement for such period;
(c) furnish to each seller of Registrable Shares and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or
other disposition of the Registrable Shares covered by such registration
statement;
(d) use all reasonable efforts to register or qualify the Registrable
Shares covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as the sellers of Registrable Shares or, in
the case of an underwritten public offering, the managing underwriter
reasonably shall request, provided, however, that the Company shall not for
any such purpose be required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) use all reasonable efforts to list the Registrable Shares covered
by such registration statement with NASDAQ or any securities exchange on
which the Common Stock of the Company is then listed, or NASDAQ or such
securities exchange as shall be selected by the Company, or, if the Company
fails to make an application to so list within thirty (30) days of a
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request for the same by the Investors in connection with a Qualified Public
Offering, the Investors may determine the place of listing, subject to
qualification by the Company to list its shares thereon;
(f) immediately notify each seller of Registrable Shares and each
underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances then existing. The sellers of Registrable Shares agree
upon receipt of such notice forthwith to cease making offers and sales of
Registrable Shares pursuant to such registration statement or deliveries of
the prospectus contained therein for any purpose until the Company has
prepared and furnished such amendment or supplement to the prospectus as
may be necessary so that, as thereafter delivered to purchasers of such
Registrable Shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing;
(g) notify each seller of Registrable Shares under such registration
statement of (i) the effectiveness of such registration statement, (ii) the
filing of any post-effective amendments to such registration statement, or
(iii) the filing of a supplement to such registration statement;
(h) at the request of any seller of Registrable Shares, use all
reasonable efforts to furnish on the date that Registrable Shares is
delivered to the underwriters for sale pursuant to such registration: (i)
an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the sellers (with a copy
provided to the underwriters), and in customary form; and (ii) a letter
dated such date from the independent public accountants retained by the
Company, addressed to the sellers (with a copy provided to the
underwriters) and covering such matters with respect to such registration
as such underwriters reasonably may request; and
(i) make available for inspection upon reasonable notice during the
Company's regular business hours by each seller of Registrable Shares, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such
seller or underwriter, all material financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers and directors to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement.
For purposes of Section 1.7(a) and 1.7(b) and of Section 1.3(d), the
period of distribution of Registrable Shares in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it, and the period of
distribution of Registrable Shares in any other registration shall be deemed to
extend until the earlier of the sale of all Registrable Shares covered thereby
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and 90 days after the effective date of such registration statement, with
reasonable extensions to be granted for suspensions thereof.
In connection with and as a condition to each registration hereunder,
the sellers of Registrable Shares shall (a) provide such information and execute
such documents as may reasonably be required in connection with such
registration, (b) agree to sell Registrable Shares on the basis provided in any
underwriting arrangements, and (c) complete and execute all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required or requested under the terms of such underwriting
arrangements.
In connection with each registration pursuant to Sections 1.3, 1.4 or
1.5 covering an underwritten public offering, the Company and each seller agree
to enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
1.8. Expenses. All expenses incurred by the Company in complying with
Sections 1.3, 1.4 and 1.5, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, transfer taxes, fees of transfer agents and registrars, and the
reasonable fees and disbursements of one counsel for the sellers of Registrable
Shares (which fees and expenses do not exceed $15,000 in the aggregate), but
excluding any Selling Expenses, are called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Shares and the fees of more than one counsel are called "Selling
Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 1.3, 1.4 or 1.5. The Company shall not,
however, be required to pay for the Registration Expenses of any registration
proceeding begun pursuant to Section 1.3 or 1.5, the request for which is
subsequently withdrawn by the requesting holders of Registrable Shares, in which
event the Registration Expenses shall be borne by the requesting holders of the
Registrable Shares in proportion to the number of shares for which registration
was requested. All Selling Expenses in connection with each registration
statement under Sections 1.3, 1.4 or 1.5 shall be borne by the participating
sellers in proportion to the number of Registrable Shares sold by each, or by
such participating sellers other than the Company (except to the extent the
Company shall be a seller) as they may agree.
1.9. Information by Holder. The holder or holders of Registrable
Shares included in any registration shall furnish to the Company such
information regarding such holder or holders of Registrable Shares, the
Registrable Shares held by them and the distribution proposed by such holder or
holders of Registrable Shares as the Company may reasonably request in writing
and as shall be required in connection with any registration (including any
amendment to a registration statement or prospectus), qualification or
compliance referred to in this Section 1.9.
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1.10. Lock-Up Agreements. Each holder of Registrable Shares shall
agree to be bound by such lock-up agreements (not to exceed a period of 180 days
following the date of the prospectus relating to any such underwriting) as the
managing underwriter of any such registration shall specify as a requirement to
any such underwriting, provided that the entry of such holder of Registrable
Shares into such agreements shall be conditioned upon at least ninety percent
(90%) of the then current shareholders (including all shareholders, who,
together with their affiliates, hold at least one percent (1%) of the then
outstanding shares of the Company's capital stock) and all executive key
officers (including, at a minimum, Scott Kurnit) and directors of the Company
also agreeing to execute such lock-up agreement regardless of the number of
shares of the capital stock of the Company then owned by them.
1.11. Indemnification and Contribution.
(a) In the event of a registration of any of the Registrable Shares
under the Securities Act pursuant to Sections 1.3, 1.4 or 1.5, the Company will
indemnify and hold harmless each seller of such Registrable Shares thereunder,
each underwriter of such Registrable Shares thereunder and each other person, if
any, who controls such seller or underwriter within the meaning of Section 15 of
the Securities Act, from and against any losses, claims, damages or liabilities,
joint or several, to which such seller, underwriter or controlling person may
become subject under the Securities Act or under any other statute or at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Shares were registered under the
Securities Act pursuant to Sections 1.3, 1.4 or 1.5, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading or any violations of applicable law relating
to such registration, and will pay the reasonable legal fees and other expenses
of each such seller, each such underwriter and each such controlling person
incurred by them in connection with investigating or defending any action
whether or not resulting in any liability insofar as such loss, claim, damage,
liability or action results from the foregoing, provided, however, that the
Company will not be liable to a seller in any such case if and to the extent
that any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in reliance upon and in conformity with information furnished in writing by
any such seller, any such underwriter or any such controlling person
specifically for use in such registration statement or prospectus; and,
provided, further, however, that the Company will not be liable to a holder in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue or alleged untrue statement or
omission or an alleged omission made in any preliminary prospectus or final
prospectus if (1) such holder failed to send or deliver a copy of the final
prospectus or prospectus supplement with or prior to the delivery of written
confirmation of the sale of the Registrable Shares, and (2) the final prospectus
or prospectus supplement would have corrected such untrue statement or omission.
(b) In the event of a registration of any of the Registrable Shares
under the Securities Act pursuant to Sections 1.3, 1.4 or 1.5, each seller of
such Registrable Shares thereunder, severally and not jointly, will indemnify
and hold harmless the Company, each
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person, if any, who controls the Company within the meaning of the Securities
Act, each officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or such
officer, director, underwriter or controlling person may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Registrable Shares was registered
under the Securities Act pursuant to Sections 1.3, 1.4 or 1.5, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will pay the reasonable legal fees
and other expenses of the Company and each such officer, director, underwriter
and controlling person incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that such seller will be liable hereunder in any such case if and only to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information furnished in
writing to the Company by such seller specifically for use in such registration
statement or prospectus; and provided, further, however, that the liability of
each seller hereunder shall be limited to the amount of gross proceeds received
by such seller in connection with such registration.
(c) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability that it may have to
such indemnified party other than under this Section 1.11 and shall only relieve
it from any liability that it may have to such indemnified party under this
Section 1.11 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 1.11 for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof; provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded (based on the advice of counsel) that there may be reasonable defenses
available to it which are different from or additional to those available to the
indemnifying party or if the interests of the indemnified party reasonably may
be deemed to conflict with the interests of the indemnifying party, the
indemnified party shall have the right to select a separate counsel and to
assume such legal defenses and otherwise to participate in the defense of such
action, with the expenses and fees of such separate counsel and other expenses
related to such participation to be reimbursed by the indemnifying party as
incurred, it being understood, however, that the indemnifying party shall not,
in connection with any one such action or separate but substantially similar or
related actions
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in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (together with appropriate local counsel as required by the
local rules of such jurisdiction) at any time for all such indemnified parties.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 1.11 but it is judicially determined (by the entry of a final judgment
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 1.11
provides for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such selling holder or any
such controlling person in circumstances for which indemnification is provided
under this Section 1.11; then, and in each such case, the Company and each such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
as may be reasonable taking into account such matters as (i) their relative
fault as to the matters giving rise to such losses, claims, damages or
liabilities, (ii) their relative ability or opportunity to have avoided such
losses, claims, damages or liabilities, provided, however, that, in any such
case, no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 12(f) of the Securities Act) will be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation.
(e) No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
1.12. Changes in Common Stock or Preferred Stock. If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
1.13. Rule 144 Reporting and Rule 144A Information. With a view to
making available the benefits of certain rules and regulations of the Commission
that may at any time permit the resale of the Registrable Shares without
registration, the Company will:
(a) at all times after 90 days after the first registration statement
covering a public offering of securities of the Company under the
Securities Act shall have become effective or following registration under
Section 12 of the Exchange Act, use its commercially reasonable efforts to:
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(i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(ii) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and
the Exchange Act; and
(iii) furnish to each holder of Registrable Shares forthwith upon
request a written statement by the Company as to its compliance with
the reporting requirements of such Rule 144 and of the Securities Act
and the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed
by the Company as such holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing such
holder to sell any Registrable Shares without registration; and
(b) at any time, at the request of any holder of Preferred Stock or
Registrable Shares, make available to such holder and to any prospective
transferee of such Preferred Stock or Registrable Shares the information
concerning the Company described in Rule 144A(d)(4) under the Securities
Act.
1.14. Damages. The Company recognizes and agrees that the holders of
Registrable Shares will suffer irreparable harm and will not have an adequate
remedy at law if the Company fails to comply with any provision of Section 1,
and the Company expressly agrees that, in the event of such failure, the holders
of Registrable Shares or any other person entitled to the benefits of Section 1
shall be entitled to seek specific performance of any and all provisions of
Section 1 and may seek to enjoin the Company from continuing to commit any
further breach of this Section 1.
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SECTION 2
INFORMATION RIGHTS; INSPECTION RIGHTS; SMALL BUSINESS
ADMINISTRATION EXAMINER AUDITS
2.1 Information Rights. As long as any Investor or any Investor
Transferee owns any Preferred Stock (and, with respect to clauses (d) - (h)
below, as long as any Investor or any Investor Transferee owns at least three
percent (3%) of the Company's Common Stock on an as converted basis) each such
Investor, or any Investor Transferee, shall be entitled to receive, and the
Company shall mail to any such Investor or Investor Transferee, at the times
specified, the following reports:
(a) as soon as available, and in any event within thirty (30) days
after the end of each month, a balance sheet for the Company as of the end
of such month and the related statements of income, shareholder's equity
and cashflows for the year to date, prepared in accordance with generally
accepted accounting principles and certified by the Chief Financial Officer
of the Company as true, correct and complete;
(b) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Company, a balance sheet of the
Company as of the end of such fiscal year and the related statements of
income, shareholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with generally accepted accounting principles and
audited by a firm of independent public accountants of national recognition
selected by the Board of Directors of the Company and reasonably acceptable
to the Investors;
(c) no later than thirty (30) days prior to the start of each fiscal
year, the Company's annual operating plan, including, without limitation,
consolidated capital and operating expense budgets, cash flow projections
and income and loss projections for the Company and its subsidiaries in
respect of such fiscal year, all itemized in reasonable detail and prepared
on a monthly basis, and, promptly after preparation, any revisions to any
of the foregoing;
(d) promptly following receipt by the Company, each audit response
letter, accountant's management letter and other written report submitted
to the Company by its independent public accountants in connection with an
annual or interim audit of the books of the Company or any of its
subsidiaries;
(e) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries that are likely to
materially adversely affect the Company or any of its subsidiaries;
(f) promptly upon sending, making available or mailing the same, all
press releases, reports and financial statements that the Company sends or
makes available to its shareholders;
(g) promptly, from time to time, such other material information
regarding the business, prospects, financial condition, operations,
property or affairs of the Company and its Subsidiaries as such Investor
reasonably may request; and
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(h) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, schedule as to
the sources and application of funds for such fiscal quarter and an
unaudited balance sheet and a statement of stockholder's equity, as of the
end of such fiscal quarter and a statement showing the number of shares of
each class and series of capital stock and securities convertible into or
exercisable for shares of capital stock outstanding at the end of the
period, the number of common shares issuable upon conversion of exercise of
any outstanding securities convertible or exercisable for common shares and
the exchange ratio or exercise price applicable thereto, all in sufficient
detail as to permit the Investor to calculate its percentage equity
ownership in the Company.
The obligations of the Company to furnish financial information to the
Investors and the Investor Transferees pursuant to this Section 2.1 shall
terminate upon the earlier to occur of (i) the completion of a Qualified Public
Offering, or (ii) such time as the Company otherwise becomes subject to the
reporting requirements of the Exchange Act.
2.2 Inspection Rights. As long as any Investor or any Investor
Transferee owns any Preferred Stock, the Company shall permit each Investor and
such persons as it may designate, subject to the Company's reasonable approval
and the execution of a confidentiality agreement acceptable to the Company, at
such Investor's expense, upon not less than three (3) business days prior notice
to the Company to visit and inspect, during normal business hours and without
disruption to the Company's business, any of the properties of the Company and
its subsidiaries, examine their books (and take copies and extracts therefrom),
discuss the affairs, finances and accounts of the Company and its subsidiaries
with their officers and employees, and consult with and advise the management of
the Company and its subsidiaries as to their affairs, finances and accounts, all
at reasonable times and upon reasonable notice. The Investors and their approved
designees agree that he or it will keep confidential and will not disclose,
divulge or use (other than for purposes of monitoring its investment in the
Company) any confidential, proprietary or secret information which such Investor
may obtain from the Company pursuant to financial statements, reports and other
materials submitted by the Company to such Investor pursuant to this Agreement,
or pursuant to inspection rights granted hereunder, unless such information is
known to the public through no fault of any Investor or its designees or
representatives; provided, however, an Investor may disclose such information
(i) to its attorneys, accountants and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (ii) to any prospective permitted transferee of the Preferred Stock, so
long as the prospective transferee agrees to be bound by the provisions of this
Section 2.2, (iii) to any general partner or affiliate of such Investor, and
(iv) to any other Investor.
2.3 Small Business Administration Examiner Audits. So long as any of
the Investors which holds shares of the capital stock of the Company is a Small
Business Investment Company, and at any reasonable time and from time to time
during normal business hours and upon prior notice, the Company will provide
Small Business Administration examiners access to its books and records for
Small Business Administration audit purposes. In addition, upon request by the
Investors, the Company shall deliver or cause to be delivered copies of any and
all documents, costs, or other instruments which the Investors may request from
time to time (a) in
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response to a request for production of the same for the Small Business
Administration, or (b) in compliance with any instrument under the Small
Business Investment Act.
SECTION 3
RIGHT TO PURCHASE NEW SECURITIES
3.1 Participation Rights. The Company shall, at least ten (10) days
prior to any issuance by the Company of any of its securities other than
Excluded Stock to any party, give written notice of such issuance to each holder
of Registrable Shares (the "Offerees"). The Company's written notice to the
Offerees shall describe the securities proposed to be issued by the Company and
specify the number, price and payment terms. Each holder of the Registrable
Shares shall have the right, for a period of twenty (20) days from such notice,
to purchase, at the same price and on the same terms and conditions, that number
of additional securities of the Company as would be necessary to preserve such
holder's percentage interest in the equity of the Company on a fully diluted, as
converted basis, as of the time immediately prior to such issuance. Each Offeree
may accept the Company's offer as to the full number of securities offered to it
or any lesser number, by written notice thereof given by it to the Company prior
to the expiration of the aforesaid twenty (20) day period, in which event the
Company shall promptly sell and such Offeree shall buy, upon the terms
specified, the number of securities agreed to be purchased by such Offeree.
The Company shall be free at any time after the end of the aforesaid
twenty (20) day period and prior to ninety (90) days after the date of its
notice of offer to the Offerees, to offer and sell to any third party or parties
the number of such securities not agreed by the Offerees to be purchased by
them, at a price and on payment terms no less favorable to the Company than
those specified in such notice of offer to the Offerees. However, if such third
party sale or sales are not consummated within such ninety (90) day period, the
Company shall not sell such securities as shall not have been purchased within
such period without again complying with this Section 3.1. The obligations of
the Company under this Section 3.1 shall terminate upon the completion of a
Qualified Public Offering. Notwithstanding anything contained in this Agreement
to the contrary, the written notice of an offer to purchase newly issued shares
to which a participation right applies (as provided in the preceding paragraph)
need not be given prior to the purchase by the party intending to purchase the
newly issued shares, provided such offer is sent within five (5) days thereafter
and remains open for a twenty (20) day period from the receipt thereof, and
further provided that the Company has set aside a number of shares sufficient to
satisfy the obligations of the Company pursuant to this section.
SECTION 4
MISCELLANEOUS
4.1 Successors and Assigns. All covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
(including without limitation transferees of any Preferred Stock or Registrable
Shares), whether so expressed or not; provided, however,
18
<PAGE>
that the rights conferred in this Agreement on the Investors shall only inure to
the benefit of a transferee of Preferred Stock or Registrable Shares if: (a) (1)
there is transferred to such transferee at least 100,000 Registrable Shares (the
transferee in any such case being referred to as a "Investor Transferee"), or
(2) such transferee is an affiliate of the transferor; and (b) such transfer may
otherwise be effected in accordance with applicable securities laws; and (c)
notice of such transfer or assignment is given to the Company and such
Transferee has agreed in writing to be bound by the terms of this Agreement and
the Amended and Restated Shareholders Agreement.
4.2 Governing Law. This Agreement is executed and delivered in the
State of New York, and this Agreement shall be governed by and construed in
accordance with the laws of the State of New York for all purposes and in all
respects, without giving effect to the conflict of law provisions thereof.
4.3 Integration; Amendment. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof, and
supersede any previous agreement or understanding between or among the parties
with respect to such subjects, including, without limitation, the Investors'
Rights Agreement. No party shall be liable or bound to any other party in any
manner by any warranties, representations or covenants except as specifically
set forth herein or therein. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that with the written consent of the Company and the holders of at
least two-thirds of the Registrable Shares may waive, modify or amend, on behalf
of all parties hereto, any provisions of this Agreement and such waiver,
modification or amendment may be given or withheld for any reason or no reason
in the sole discretion of any party. Any amendments, waivers, discharges or
terminations of this Agreement effected in accordance herewith shall be binding
upon all parties hereto, including those not signing such amendment, waiver,
discharge or termination.
4.4 Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, on the date of transmittal of services via telecopy to the party to
whom notice is to be given (with a confirming copy being delivered within 24
hours thereafter), or on the third day after mailing if mailed to the party to
whom notice is to be given, by first class mail, registered or certified,
postage prepaid, or on the date of receipt if served via overnight courier
providing a receipt and properly addressed as set forth on Schedule I hereto.
Any party may change its address for purposes of this paragraph by giving notice
of the new address to each of the other parties in the manner set forth above.
4.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
4.6 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement
19
<PAGE>
shall continue in full force and effect without said provision; provided that no
such severability shall be effective if it materially changes the economic
benefit of this Agreement to any party.
4.7 Dispute Resolution. If the parties should have a material dispute
arising out of or relating to this Agreement or the parties' respective rights
and duties hereunder, then the parties will resolve such dispute in the
following manner: (i) any party may at any time deliver to the others a written
dispute notice setting forth a brief description of the issue for which such
notice initiates the dispute resolution mechanism contemplated by this Section
4.7; (ii) during the forty-five (45) day period following the delivery of the
notice described in Section 4.7 (i) above, appropriate representatives of the
various parties will meet and seek to resolve the disputed issue through
negotiation, (iii) if representatives of the parties are unable to resolve the
disputed issue through negotiation, then within thirty (30) days after the
period described in Section 4.7(ii) above, the parties will refer the issue (to
the exclusion of a court of law) to final and binding arbitration in New York,
New York in accordance with the then existing rules (the "Rules") of the
American Arbitration Association ("AAA"), and judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction thereof;
provided, however, that the law applicable to any controversy shall be the law
of the State of New York, regardless of principles of conflicts of laws. In any
arbitration pursuant to this Agreement, (i) discovery shall be allowed and
governed by the New York Code of Civil Procedure and (ii) the award or decision
shall be rendered by a majority of the members of a Board of Arbitration
consisting of three (3) members, one of whom shall be appointed by each of the
respective parties and the third of whom shall be the chairman of the panel and
be appointed by mutual agreement of said two party-appointed arbitrators. In the
event of failure of said two arbitrators to agree within sixty (60) days after
the commencement of the arbitration proceeding upon the appointment of the third
arbitrator, the third arbitrator shall be appointed by the AAA in accordance
with the Rules. In the event that either party shall fail to appoint an
arbitrator within thirty (30) days after the commencement of the arbitration
proceedings, such arbitrator and the third arbitrator shall be appointed by the
AAA in accordance with the Rules. Nothing set forth above shall be interpreted
to prevent the parties from agreeing in writing to submit any dispute to a
single arbitrator in lieu of a three (3) member Board of Arbitration. Upon the
completion of the selection of the Board of Arbitration (or if the parties agree
otherwise in writing, a single arbitrator), an award or decision shall be
rendered within no more than forty-five (45) days. Notwithstanding the
foregoing, the request by either party for preliminary or permanent injunctive
relief, whether prohibitive or mandatory, shall not be subject to arbitration
and may be adjudicated only by the courts of the State of New York or the U.S.
District Court in New York.
4.8 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
20
<PAGE>
IN WITNESS WHEREOF, the Company and the Investors have executed this
Agreement under seal as of the day and year first above written.
THE COMPANY:
GENERAL INTERNET INC.
By: /s/ Scott Kurnit
------------------------------------------
Scott Kurnit, President and CEO
THE INVESTORS:
BIG FLOWER CAPITAL CORPORATION
By: /s/ Mark A. Angelson
------------------------------------------
Name: Mark A. Angelson
Title: Deputy Chairman/General Counsel
BIG FLOWER DIGITAL SERVICES, INC.
By: /s/ Mark A. Angelson
------------------------------------------
Name: Mark A. Angelson
Title: Executive Vice President and Secretary
ZERO STAGE CAPITAL V LIMITED PARTNERSHIP
By: Zero Stage Capital Associates Limited
Partnership, General Partner
By: /s/ Stanley L. Fung
-------------------------------------
Stanley L. Fung, General Partner
21
<PAGE>
ZERO STAGE CAPITAL VI LIMITED PARTNERSHIP
By: Zero Stage Capital Associates VI, LLC,
General Partner
By: /s/ Stanley L. Fung
-------------------------------------
Stanley L. Fung, Managing Member
MR. STANLEY L. FUNG
/s/ Stanley L. Fung
---------------------------------------------
Mr. Stanley L. Fung
DOLL TECHNOLOGY INVESTMENT FUND,
a California limited partnership
By: Doll Technology Investment Management,
L.L.C., its General Partner
By: /s/ Dixon R. Doll
-------------------------------------
Dixon R. Doll, Managing Member
DOLL TECHNOLOGY AFFILIATES FUND, L.P.
By: Doll Technology Investment Management,
L.L.C., its General Partner
By: /s/ Dixon R. Doll
-------------------------------------
Dixon R. Doll, Managing Member
22
<PAGE>
DOLL TECHNOLOGY SIDE FUND, L.P.
By: Doll Technology Investment Management,
L.L.C., its General Partner
By: /s/ Dixon R. Doll
-------------------------------------
Dixon R. Doll, Managing Member
CRYSTAL INTERNET VENTURE FUND, L.P.
By: Crystal Venture Ltd.,
its General Partner
By: /s/ Daniel Kellogg
-------------------------------------
Daniel Kellogg, Vice President
C-MAX CAPITAL LIMITED PARTNERSHIP - I
By: C-Max Capital Corporation,
its General Partner
By: /s/ Kevin Watson
------------------------------------------
Name: Kevin Watson
Title: Director
PROSPECT STREET NYC DISCOVERY
FUND, L.P.
By: /s/ Edward Ryeon
------------------------------------------
Name: Edward Ryeon
Title: Vice President
23
<PAGE>
MR. SCOTT KURNIT
/s/ Scott Kurnit
---------------------------------------------
Mr. Scott Kurnit
24
<PAGE>
OPEN TEXT CORPORATION
By: /s/ Thomas Hearne
------------------------------------------
Thomas Hearne - Chief Financial Officer
INFOTECH VENTURES LTD.
By:
------------------------------------------
Lip-Bu Tan
MR. GARY LAUDER
/s/ Gary Lauder
---------------------------------------------
Mr. Gary Lauder
MR. PETER JADROSICH
---------------------------------------------
Mr. Peter Jadrosich
MR. WILLIAM DAY
---------------------------------------------
Mr. William Day
MR. ROBERT W. HARRIS
/s/ Robert W. Harris
---------------------------------------------
Mr. Robert W. Harris
25
<PAGE>
MS. DIANE KATZIN
---------------------------------------------
Ms. Diane Katzin
MR. SHEPARD KURNIT
---------------------------------------------
Mr. Shepard Kurnit
MR. PAUL KURNIT
---------------------------------------------
Mr. Paul Kurnit
MR. GORDON BATY
/s/ Gordon Baty
---------------------------------------------
Mr. Gordon Baty
26
<PAGE>
MR. PAUL KELLEY
/s/ Paul Kelly
---------------------------------------------
Mr. Paul Kelley
MR. BRIAN JOHNSON
/s/ Brian Johnson
---------------------------------------------
Mr. Brian Johnson
CAMELOT CAPITAL L.P.
By: Camelot Capital, its General Partner
---------------------------------------------
By: Scott Smith
Title:
CAMELOT OFFSHORE FUND LTD.
By: Camelot Capital, its General Partner
---------------------------------------------
By: Scott Smith
Title:
THE MARKS FAMILY LIMITED PARTNERSHIP
---------------------------------------------
By:
27
<PAGE>
AWAD & ASSOCIATES LIMITED PARTNERSHIP
---------------------------------------------
By: Mr. Dennison T. Veru, General Partner
MR. DENNISON T. VERU
---------------------------------------------
MR. RICHARD B. FELDER
---------------------------------------------
MR. WILLIAM PONTIKES
---------------------------------------------
DAHLM PARTNERS
---------------------------------------------
By:
28
<PAGE>
EXHIBIT A
Investors
Name and Address
- ----------------
C-Max Capital Limited Partnership - I
235 West 56th Street, Apt. 11N
New York, New York 10019
Attn: Mr. Kevin Watson
Facsimile: (212) 307-9654
with a copy to: Greenberg Traurig
1221 Brickell Avenue
Miami, Florida 33131
Attn: Bruce MacDonough, Esq.
Facsimile: (305) 579-0717
Zero Stage Capital V Limited Partnership
101 Main Street, 17th Floor
Cambridge, MA 02142-1519
Attn: Stanley L. Fung, General Partner
Facsimile: (617) 876-1248
Zero Stage Capital VI Limited Partnership
101 Main Street, 17th Floor
Cambridge, MA 02142-1519
Attn: Stanley L. Fung, General Partner
Facsimile: (617) 876-1248
Doll Technology Investment Fund
c/o Doll Capital Management
3000 Sand Hill Road, Bldg. 3, Suite 210
Menlo Park, CA 94025
Attn: Dixon R. Doll, Managing General Partner
Facsimile: (650) 854-9159
Doll Technology Affiliates Fund, L.P.
c/o Doll Capital Management
3000 Sand Hill Road, Bldg. 3, Suite 210
Menlo Park, CA 94025
Attn: Dixon Doll, Managing General Partner
Facsimile: (650) 854-9159
Doll Technology Side Fund, L.P.
c/o Doll Capital Management
3000 Sand Hill Road, Bldg. 3, Suite 210
29
<PAGE>
Menlo Park, CA 94025
Attn: Dixon Doll, Managing General Partner
Facsimile: (650) 854-9159
with a copy to
(for Zero/Doll): Gregory L. White, Esquire
Peabody & Arnold
50 Rowes Wharf
Boston, MA 02110
Facsimile: (617) 951-2125
Crystal Internet Venture Fund, L.P.
CIVF Management, Ltd.
1120 Chester Avenue, Suite 310
Cleveland, OH 44114
Attn: Daniel Kellogg, Managing Director
Facsimile: (216) 263-5518
with a copy to:
James B. Griswold, Esquire
Baker & Hostetler
1900 East 9th Street, Suite 3200
Cleveland, OH 44114-3485
Facsimile: (216) 696-0740
Open Text Corporation
185 Columbia Street West
Waterloo, Ontario, Canada N2L 5Z5
Attn: William N. Stirlen, Executive Vice President
Facsimile: (519) 888-0677
with a copy to:
Paul Stoyan, Esquire
Gardiner, Roberts
Scotia Plaza, Suite 3100
40 King Street West
Toronto, Ontario
Canada M5H 3Y2
Facsimile: (416) 865-6636
Mr. Gary Lauder
Lauder Partners
88 Mercedes Lane
Atherton, CA 94027
Facsimile: (650) 323-2171
30
<PAGE>
with a copy to: Gunderson, Dettmer, Stough,
Franklin & Hachigian
155 Constitution Drive
Menlo Park, CA 94025
Attn: Daniel O'Connor, Esq.
Facsimile: (650) 321-2800
Mr. Peter Jadrosich
70 Cobblestone Crossing
Norwood, NJ 07648
Facsimile: (212) 698-6522
Mr. William Day
186 Hardenburgh Avenue
Demarest, NJ 07627
Mr. Robert W. Harris
2 Tudor City Place
New York, NY 10017
Infotech Ventures Ltd.
750 Battery Street, Suite 700
San Francisco, California 94111
Attn: Mr. Lip-Bu Tan
Mr. Stanley Fung
c/o Zero Stage Capital
101 Main Street, 17th Floor
Cambridge, MA 02142
Big Flower Digital Services, Inc.
c/o Big Flower Press Holdings, Inc.
3 East 54th Street
New York, NY 10022
Attn: Secretary
Facsimile: (212) 521-1640
Prospect Street NYC Discovery Fund, L.P.
250 Park Avenue, 17th Floor
New York, NY 10177
Attn: Stephen G. Hall
Facsimile: (212) 490-1566
31
<PAGE>
Ms. Diane Katzin
110 Riverside Drive, 16th Floor
New York, NY 10024
Mr. Shepard Kurnit
#8010
300 SE Fifth Avenue
Boca Raton, FL 33432
Facsimile: (561) 391-5668
Mr. Paul Kurnit
15 Hitchingpost Lane
Chappaqua, NY 10514
Facsimile: (914) 241-3509
Mr. Gordon Baty
c/o Zero Stage Capital
101 Main Street, 17th Floor
Cambridge, MA 02142
Mr. Paul Kelley
c/o Zero Stage Capital
101 Main Street, 17th Floor
Cambridge, MA 02142
Mr. Brian Johnson
c/o Zero Stage Capital
101 Main Street, 17th Floor
Cambridge, MA 02142
Camelot Capital L.P.
Camelot Capital
10 Glenville Street
Greenwich, CT 06831
Attn: Scott Smith
Facsimile: (203)531-8932
Camelot Offshore Fund Ltd.
Camelot Capital
10 Glenville Street
Greenwich, CT 06831
Attn: Scott Smith
Facsimile: (203)531-8932
32
<PAGE>
The Marks Family Limited Partnership
c/o Benjamin Marks
31 Old Farm Road
Great Neck, NY 11020
Facsimile: (516) 829-6153
Awad & Associates Limited Partnership
250 Park Avenue, 2nd Floor
New York, NY 10177
Attn: Dennison T. Veru
Facsimile: (212)
Mr. Dennison T. Veru
1 East End Avenue
New York, NY 10021
Facsimile: (212)
Mr. Richard B. Felder
5969 Searle Terrace
Bethesda, MD 20816
Mr. William Pontikes
100 Hoffman Lane
Riverwoods, IL 60015
DAHLM Partners
KR Capital Advisors
450 Park Avenue
New York, NY 10022
Attn: Marty Kaplan
Facsimile: (212) 751-4542
[other new investors]
33
<PAGE>
SUBLEASE
THIS SUBLEASE (this "Sublease") is made effective as of November 1, 1996
(the "Effective Date") by Minet, Inc., a corporation organized under the laws of
the State of New Jersey ("Sublandlord"), landlord"), and General Inc., a
corporation organized under the laws of the State of New York ("Subtenant"), and
Scott Kurnit, who is the President of Subtenant.
WHEREAS, Two Twenty East Limited Partnership, as landlord ( such landlord
including its successors m interest is referred to herein collectively as the
"Landlord"), and Sublandlord, as tenant, catered into a Lease dated January 27,
1989, as amended by an Agreement Modifying Lease I dated November 26, 1990, an
Agreement Modifying Lease II dated June 18, 1991, a letter agreement for short
term space dated May 22, 1992 and a letter agreement for short term space dated
November 3, 1992, (such lease, as amended is referred to herein as the "Master
Lease", a true and correct copy of which is attached hereto as Exhibit A);
WHEREAS, the Master Lease relates to premises located at The News Building,
220 East 42nd Street, New York, NY (the "Building");
WHEREAS during the term of this Sublease, Sublandlord and Subtenant desire
that Sublandlord sublease to Subtenant all right, title and interest of the
Sublandlord in and to the premises referred to m the Master Lease as the
"Additional Space" located on the twenty fourth floor of the Building, as shown
on the floor plan attached to the Agreement Modifying Lease i dated November 26,
1990 (the "Sublet Premises"), a true and correct copy of which is attached
hereto as Exhibit A-l, on the terms and conditions described in this Sublease;
and
WHEREAS, during the term of this Sublease, Sublandlord and Subtenant desire
that Sublandlord sublicense to Subtenant all right, title and interest of the
Sublandlord under the Master Lease in and to the "License" held by the
Sublandlord in and to the "Electrical Equipment" and the "Licensed Areas", as
such terms are defined in the Agreement Modifying Lease II dated June 18, 8,
1991, (collectively the "Sublandlord's License Rights") on the terms and
conditions described in this Sublease;
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
1. The Sublet.
(a) Sublandlord hereby subleases the Sublet Premises to Subtenant, and
sublicenses the Sublandlord's License Rights to Subtenant, and Subtenant
hereby subleases the Sublet Premises from Sublandlord, and sublicenses the
Sublandlord's License Rights from Sublandlord, for a term commencing on the
Effective Date and ending upon September 29, 2000, unless such term is
terminated earlier in accordance with the teens hereof. In the event the
Master Lease is terminated pursuant to its terms, then in such event, this
Sublease shall automatically cease and terminate as of the date upon which
the Master Lease is so terminated. The date that the term of this Sublease
actually terminates is referred to herein as the "Termination Date".
<PAGE>
(b) During the term of this Sublease, Subtenant at its sole expense
agrees to perform all of the responsibility and obligations of the
Sublandlord under the Master Lease with respect to the Sublet Premises and
the Sublandlord's License Rights other than the obligations of the
Sublandlord under paragraphs 19, 38, 39, 42, 46(B), 52 and 57 of the Master
Lease Without limiting the foregoing, Subtenant agrees to obtain an
insurance policy or policies meeting the requirements of paragraph 57 of
the Master Lease which shall include the Sublandlord, Landlord and such
parties as Landlord may designate as additional insureds, with such limits
as may reasonably be requested by the Landlord, from time to time, but not
less than Three Million Dollars ($3,000,000) in respect to bodily injury or
death arising out of any one occurrence. Subtenant shall deliver to
Sublandlord a certificate of insurance evidencing the existence of such
insurance on the Effective Date which meets the requirements of paragraph
57 of the Master Lease.
(c) Subtenant agrees not to do, permit or suffer any act, or omit to
take any action, or permit any condition or thing to occur or exist which
would (i) violate or constitute a breach of or a default under the Master
Lease; (ii) result in the termination of the Master Lease or (ii) cause any
increase during the term of this Sublease in the Fixed Rent or the
Additional Rent payable by the Sublandlord to the Landlord with respect to
the Sublet Premises or the License including limitation any increase in the
Fixed Rent or the Additional Rent payable by the Sublandlord to the
Landlord with respect to the electric utility service provided by the
Landlord for use in connection with the Sublet or Sublandlord's License
Rights.
(d) Except as may be inconsistent with the terms of this Sublease, all
the terms and conditions of the Master Lease arc incorporated into this
Sublease as through Subtenant were the Sublandlord under the Master Lease
and Sublandlord were the Landlord under the Master Lease. Sublandlord will
not be obligated to provide any services to Subtenant. Subtenant agrees to
rely exclusively upon the Landlord for all services and the performance of
all obligations which Landlord is required to provide or perform under the
Master Lease In and for the benefit of the Sublet Premises and the
Sublandlord's License Rights. Sublandlord makes no representation or
warranty about the availability or adequacy of services required to be
provided by the Landlord Subtenant agrees that Sublandlord shall not have
any liability to the Subtenant of any kind whatsoever as a result of any
act, failure to act or breach of any of the terms of the Master Lease
committed by the Landlord with respect to the Sublet Premises or the
Sublandlord's License Rights. During the term of this Sublease, Sublandlord
agrees to use reasonable efforts to cooperate with Subtenant in requesting
from the Landlord the services required to be provided by the Landlord in
connection with the Sublet Premises and the Sublandlord Sublandlord's
License Rights under the Master Lease. Subtenant agrees to promptly
reimburse Sublandlord for any and all legal fees, disbursements and other
costs which may be incurred by c Sublandlord in connection with any
proceedings to enforce, or seer: damages based upon, the provisions of the
Master Lease with respect to the Sublet
2
<PAGE>
Premises or the Sublandlord's License Rights If as a consequence of a
failure by the Landlord to provide the services required to be provided by
the Landlord in connection with the Sublet Premises or the Sublandlord
License Rights under the Master Lease, the Landlord pays any award of
damages to the Sublandlord, or in Landlord agrees to refund or reduce any
sum, or portion thereof, paid or payable by the Sublandlord to the Landlord
under the Master Lease, Sublandlord agrees to share such damages, refund or
reduction with the Subtenant on an equitable basis mutually agreeable to
the Sublandlord and the Subtenant"
(e) This Sublease subject to the Master Lease. Subtenant has inspected
the Sublet Premises and the Sublandlord's License Rights and is fully
familiar and well acquainted with the layout and physical condition thereof
and hereby agrees to take the same broom clean in its present condition "AS
IS"; provided that Sublandlord agrees to remove the existing wall paper
from the bathrooms on the twenty fourth floor ant freshly paint those
bathrooms.
(f) Sublandlord agrees to transfer ownership to Subtenant of the
furniture owned by Sublandlord described on Exhibit B. which is physically
located at the Sublet Premises on the Effective Date (the "Sublandlord
Personal Property"). Subtenant agrees to take ownership and possession of
the Sublandlord Personal Property "AS IS". SUBLANDLORD HEREBY DISCLAIMS ANY
AND ALL WARRANTIES AS TO THE FITNESS, QUALITY AND/OR MERCHANTABILITY OF THE
SUBLANDLORD PERSONAL PROPERTY. Subtenant agrees to assume any and all
liabilities which may arise out of any use or disposal of the Sublandlord
Personal Property from and after the Effective Date.
(g) Subtenant agrees to use and occupy the Sublet Premises far
executive or administrative offices commensurate with the character and
dignity of the Building as a first class office building. Subject to the
written consent of the Landlord and the Sublandlord which shall be
requested in accordance with the procedures described in the Master Lease,
Subtenant agrees that Subtenant shall be permitted no more than one (1 )
further subletting of all or any part of the Sublet Premises. Subtenant
agrees that any part of the term of this Sublease, if any, which would
extend beyond a date one day prior to the expiration or earlier termination
of the term of the Master Lease shall be a nullify.
2. Base Rent. Subtenant will pay Sublandlord as base rent for the Sublet
Premises Nineteen Thousand and Eighty Seven Dollars and Eight Cents ($19,087.08)
per mouth during the period beginning upon the day which is sixty days after the
Effective Date and ending upon two year anniversary of the Effective Date.
Subtenant will pay Sublandlord as base rent for the Sublet Premises Twenty One
Thousand and Ninety Six Dollars and Twenty Five Cents ($21,096.25) per month
during the period upon two year anniversary of the Effective Date and upon
September, 29, 2000.
3. Electricity. Subtenant will pay Sublandlord Three Thousand and Thirteen
Dollars and Seventy Five Cents ($3013.75) per month, or any portion of a month,
during the
3
<PAGE>
period beginning upon she Effective Date and ending upon September 29, 2000 as
compensation for electric service provided to the Sublet Premises by the
Landlord under Paragraph 46 of the Master Lease (the "Electricity Charge"). In
the event that pursuant to the Master Lease elect electric current is no longer
supplied to the Sublet Premises on a "rent inclusion" basis, Subtenant shall no
longer be required to pay the Electricity Charge to the Sublandlord effective
from the date of such change, and Subtenant shall be responsible for pa paying e
for its own electricity.
4. Cost Escalation Charges. Subtenant will pay Sublandlord a cost
escalation charge of Three Hundred and One Dollars and Thirty Eight Cents
($301.38) per month during the period beginning upon the one year anniversary of
the Effective Date "d ending upon two year anniversary of the Effective Date.
Subtenant will pay Sublandlord a cost escalation charge of Six Hundred and Two
Dollars and Seventy Five Cents ($602.75) per month during the period beginning
upon the two year anniversary of the Effective Date and ending upon three year
anniversary of the Effective Date. Subtenant will pay Sublandlord a cost
escalation charge of Nine Hundred and Four Dollars and Thirteen Cents ($904.13)
per month during the period beginning upon the three year anniversary of the
Effective Date and ending upon September 29, 2000.
5. Payments to Sublandlord. Subtenant agrees to pay all sums owing to the
Sublandlord in advance, without notice, demand, of offset, or counterclaim, on
the first day of each month at Sublandlord's address. If this Sublease requires
the payment of any sum to the Sublandlord with respect to any period which
begins on any day other than the first day of a month or ends on any day other
than the last day of a month, all such sums owing to the Sublandlord will be
prorated and paid to the Sublandlord on a per diem basis.
6. Representations and Warranties by Subtenant. Subtenant represents and
warrants to Sublandlord as follows:
(a) Subtenant duly organized, validly existing and in good standing
under the laws of the State of New York and has all powers, licenses and
authority necessary No Third Party Beneficiaries. order to enter into and
perform this Sublease.
(b) The execution and delivery of this Sublease and the performance of
the obligations contemplated hereby, have been duly authorized by all
necessary action on the part of Subtenant
(c) No authorization or approval or other action by, or notice to or
filing with, any third party, governmental authority or regulatory body is
required for the execution, delivery or performance of this Sublease by
Subtenant
(d) Except as provided in paragraph 1(b) of this Sublease, as of the
Effective Date, Subtenant shall have obtained, and will maintain in full
force and effect, such policy(ies) of insurance as arc required to be
obtained by Sublandlord with respect to the Sublet Premises under the
Master Lease naming Landlord and Sublandlord as additional on al insureds.
4
<PAGE>
7. Indemnification and Security Deposits. Subtenant agrees to indemnify
Sublandlord against any and all loss, liability or expense (including but not
limited to reasonable attorneys' fees and other costs of litigation and
preparation for litigation and any amounts payable to the Landlord by the
Sublandlord under paragraph 63 of the Master Lease) (collectively "Losses")
which the Sublandlord may incur as a result of any of the following:
(a) Subtenant' use, occupancy or control of the Sublet Premises and/or
the Sublandlord's License Rights and any part thereof,
(b) Any negligence on the part of the Subtenant or any of its agents,
contractors, servants, employees, licensees or invitees;
(c) Any accident, injury, or damage to any person or property or to e
Sublet Premises or the "Electrical Equipment" or the "Licensed Areas", as
such terms are defined in the Agreement Modifying Lease II dated June 18,
1991, occurring In or about the Sublet Premises "d/or in connection with
Sublandlord's License Rights;
(d) Any breach or inaccuracy of any covenant, representation or
warranty made by Subtenant in this Sublease; and
(e) Any failure on the part of Subtenant to vacate the Sublet Premises
and/or the Sublandlord's License Rights and any part thereof upon the
expiration of the term hereof in accordance No Third Party Beneficiaries.
the terms of this Sublease.
Without limiting the foregoing, on the dates indicated below, Subtenant
agrees to pay to the Sublandlord the sums listed below by wire transfer of
immediately available funds as security against any Losses which the Sublandlord
may incur as a result of any of the matters described m clauses (a) through (e)
above.
(1) On the Effective Date, Subtenant agrees to pay to the Sublandlord
the sum of Fifty Seven Thousand Two Hundred and Sixty One Dollars ant
Twenty Four Cents ($57,261.24) as security against any Losses which the
Sublandlord may incur as a result of any of the matters described in
clauses (a) through (e) above;
(2) On the one year anniversary of the Effective Date, Subtenant
agrees to pay the Sublandlord the sum of Nineteen Thousand and Eighty Seven
Dollars and Eight Cents ($19,087.08) as additional security against any
Losses which the Sublandlord may incur as a result of any of the matters
described in clauses (a) through (e) above; and
(3) On the two year anniversary of the Effective Date, Subtenant
agrees to pay to the Sublandlord the sum of Twenty One Thousand and Ninety
Six Dollars ant Twenty Five Cents ($21,096.25) as additional security
against any Losses which the Sublandlord may incur as a result of any of
the matters described m clauses (a) through (c) above.
5
<PAGE>
The payments described al above are individually referred to herein as a
"Security Deposit" and such payment are collectively referred to herein as the
"Security Deposits." Sublandlord agrees to deposit the Security Deposits in a
separate interest bearing bank account and to draw funds from such account only
m accordance with the following. Subtenant agrees that Sublandlord may charge
against and retain the Security Deposits together with any interest earned
thereon, or a portion thereof, [v the extent required to reimburse Landlord for
an), "d all Losses which the Sublandlord may incur as a result of the matters
described in clauses (a) through (c) above. Sublandlord agrees to return the
remaining balance of the Security together with any interest earned thereon, to
the Subtenant after the deduction of any charges permitted by this paragraph, if
any, within thirty (30) days after the later of the l Termination Date or the
date that Tenant vacates and surrenders the Sublet Premises and the
Sublandlord's License Rights in accordance with the terms of this Sublease.
At any time after the Effective Date, Tenant may deliver to the Sublandlord
an irrevocable letter of credit (the "Letter of Credit") from a commercial bank
with a branch No Third Party Beneficiaries. the Borough of Manhattan in the City
of New York drawn to the Sublandlord in the amount of Ninety Seven Thousand Four
Hundred and Forty Four Dollars and Fifty Seven Cents ($97,444.57) (the "Letter
of Credit Amount") and Subtenant may request that Sublandlord return the
Security Deposits, together with any interest earned thereon and minus any
charges permitted by this Sublease, to the Subtenant in exchange for the
delivery of the Letter of Credit to the Sublandlord Subtenant agrees that the
Sublandlord shall not be required to accept the delivery of the Letter of Credit
or to return the Security Deposits to the Subtenant unless the Letter of Credit
is in all respects in form and substance satisfactory to the Sublandlord in its
sole discretion. Without limiting, the foregoing, the Sublandlord shall not be
required to accept the Letter of Credit or to return the Security Deposits
unless (i) the bank issuing the Letter of Credit shall have a rating of at least
"A" or better from Moody's or Standard & Poor's; (ii) the Letter of Credit
states that the bank issuing the Letter of Credit agrees to make al I payments
under the letter of credit with the bank's own fund and not with the funds of
the Subtenant (iii) the Letter of Credit states that it shall not expire before
the later of October 29, 2000 or the date that Tenant vacates and surrenders the
Sublet Premises and the Sublandlord's License Rights in accordance with the
terms of this Sublease; and (iv) the Letter of Credit states that the
Sublandlord may draw funds under the Letter of Credit, from time to time until
the later of October 29, 2000 or the date that Tenant vacates and surrenders the
Sublet Premises and the Sublandlord's License Rights in accordance with the
terms of this Sublease, to the extent required to reimburse Landlord for any and
all Losses which the Sublandlord may incur as a result of the matter described
in clauses (a) through (c) of paragraph 7 of this Sublease up to the Letter of
Credit Amount
8. Brokers. Sublandlord and Subtenant represent to each other that, in e
negotiation of this Sublease, they dealt with no brokers other than Edward S.
Gordon Company, Inc. and Jones Lang Wooton USA. Sublandlord agrees to pay to
Edward S. Gordon Company, Inc. and Jones Lang Wooton USA, respectively, all
commissions owning by Sublandlord to such parties. Sublandlord agrees to
indemnity and hold harmless Subtenant from and against any and all Losses which
the Subtenant may incur as a result of any breach of the representation made by
Sublandlord in this paragraph 8. Subtenant agrees to indemnify and hold harmless
Sublandlord from and against any and all Losses which the Sublandlord may incur
as a result of any breach of the representation made by Subtenant in this
paragraph .
6
<PAGE>
9. Entire Agreement. This Sublease contains the entire understanding of the
parties and supersedes and terminates all prior agreements and understanding
relating to the subject mallet hereof. This Sublease may not be charged or
terminated orally or in any manner other than by an agreement in writing
executed by the party against whom enforcement of the change or termination is
sought
10. WAIVER OF JURY TRIAL. EACH OF SUBLANDLORD AND SUBTENANT HEREBY
IRREVOCABLY WAIVES ANY RIGHTS THAT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED UPON, OR ARISING OUT OF, THIS SUBLEASE OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS OR ACTIONS OF ANY OF THEM RELATING
HERETO.
11. No Third Party Beneficiaries. Except as otherwise expressly provided
herein, nothing herein expressed or implied is intended or shall be construed to
confer "on or to entitle any person other than the Landlord, Subtenant and
Sublandlord, or their respective successors and assigns permitted hem by, to any
claim, cause of action, remedy or right of any kind or to give any person, firm
or corporation any rights or remedies under or by reason of this Sublease.
12. Construction. The language used in this Sublease will be deemed to be
the language chosen by the parties to express their mutual intent, and no rule
of strict construction will be applied against any party.
13. Headings. The heading contained in this Sublease are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Sublease.
14. Assignability. No party hereto assign this Sublease or any part hereof
without the prior written consent of the other party. Except as otherwise
provided herein, this Sublease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assign
15. Severability. Any term or provision of this Sublease which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to e extent of such invalidity or unenforceability without rendering
invalid or unenforceable the remaining terms and provisions of this Sublease in
any other jurisdiction. If any provision of this Sublease is so broad as to be
unenforceable, such provision shall be interpreted to be only so broad as is
enforceable.
16. Governing Law. This Sublease shall be governed by ant construed
accordance with the laws of the State of New York without regard to its rules of
conflicts of laws.
17. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, faxed, mailed by
registered or certified mail (return receipt requested) or deposited for
delivery with a reputable delivery service (such as Federal Express) to the
respective party at the address set forth below for each party (or to such other
individuals or addresses as a party may designate by notice given as provided
herein):
7
<PAGE>
If to Sublandlord:
Minet, Inc.
1114 Avenue of the Americas
New York, NY 10036
Attn: Francis Pionegro
Fax: (212) 782-6100
With a copy which shall not constitute notice to:
Ellen Perle, Esq.
General Counsel
Minet, Inc.
1114 14 Avenue of the Americas
New York, NY 10036
Fax: (212) 782-6100
If to Subtenant or Scott Kurnit:
General Internet Inc.
220 East 42nd Street
New York, NY 10017
Attn: Scott Kurnit and Robert Harris
Fax: c/o Frankfurt, Garbus Kelin & Selz at 212-593-9175
With a copy which shall not constitute notice to:
Frankfurt, Garbus Klein & Selz
488 Madison Avenue
New York, NY 10022
Attn: Robert G. Wise
Fax: 212-593-9175
18. Counterparts. This Sublease may be executed in counterparts which
together will constitute the same instrument This Sublease may be executed by
manual signature transmitted electronically and any such signature will be
deemed to be a manual execution.
19. Conditions to Obligations of the Sublandlord. Subtenant agrees that the
obligations of the Sublandlord hereunder are subject to the full and d complete
satisfaction of each of the following conditions precedent.
(a) On or prior to the Effective Date Subtenant shall have performed all of
the covenants required to be performed by Subtenant on or prior to the Effective
Date by this Sublease and the representations and warranties of Subtenant
contained in this Sublease shall be true and correct on and as of the Effective
Date. Without limiting the foregoing, on or prior to the Effective Date
Subtenant shall have paid to Sublandlord the Security Deposit payable on the
Effective Date in accordance with paragraph 7 of this Sublease.
8
<PAGE>
(b) On or prior to Effective Date, Sublandlord shall have received the
written consent of the Landlord, including any successor or successors in
interest of the Landlord, required to permit Sublandlord to sublease the Sublet
Premises to Subtenant and to sublicense the Sublandlord's License Rights to
Subtenant in accordance arc with the of Master Lease.
(c) No injunction or order of any court or administrative agency of
competent jurisdiction shall be in effect as of the Effective Date which
restrains, prohibits or challenges in any way the consummation of the
transactions contemplated hereby.
(d) All proceedings to be taken in connection with the consummation of the
transactions contemplated by this Sublease, and all documents incident thereto,
shall be satisfactory in form and substance to Sublandlord and its counsel.
In the event that any of the conditions stated above in this paragraph 19
are act fully and completely satisfied on or prior to the Effective Date,
Subtenant agrees that Sublandlord may immediately cancel this Sublease by
written notice to the Subtenant In the event that Sublandlord cancels this
Sublease in accordance with this paragraph 19, Sublandlord and Subtenant shall
be released from each "d every obligation and liability of any kind whatsoever
to the other party with respect to this Sublease and/or any costs or expenses
incurred by the other party in connection therewith and this Sublease shall be
null and void and of no further force and effect of any kind whatsoever,
provided that Sublandlord shall return the Security Deposit payable on the
Effective Date to the Subtenant, but only if, and to the extent, that such
Security Deposit was received by the Sublandlord.
20. Conditions of the Subtenant. Sublandlord agrees that the obligations of
the Subtenant hereunder are subject to the full and complete satisfaction of
each of the following conditions precedent:
(a) On or prior to the Effective Date, Sublandlord shall have received the
written consent of the Landlord, including any successor or successors in
interest of the Landlord, required to permit Sublandlord to sublease the Sublet
Premises to Subtenant and to sublicense the Sublandlord's License Rights to
Subtenant accordance with the tams of the Master Lease.
(b) No injunction or order of any court any administrative agency of
competent jurisdiction shall be in effect as of the Effective Date which
restrains, prohibits or challenges in any way the consummation of the
transactions contemplated hereby.
In the event that any of the conditions stated above in this paragraph 20
are not fully and completely satisfied on or prior to the Effective Date,
Subtenant may immediately cancel this Sublease by written notice to Sublandlord.
In the event that Subtenant cancels this Sublease in accordance with this
paragraph 20, Sublandlord and Subtenant shall be released from each and every
obligation and liability of any kind whatsoever to the other party with respect
to this Sublease and/or any costs or expenses incurred by the other party in
connection therewith and this Sublease shall be null and void ant of no further
force and effect of any kind whatsoever; provided the Sublandlord shall return
the Security Deposit payable on the Effective Date to the
9
<PAGE>
Subtenant, but only if, and to the extend, that such Security Deposit was
received by the Sublandlord.
21. "Good Guy" Provision: Scott Kurnit, who is the President of the
Subtenant, agrees to indemnify and hold harmless Sublandlord against any and all
loss, liability or expense (including but not limited to reasonable attorneys'
fees and other costs of litigation and preparation for litigation and any
amounts payable to the Landlord by the Sublandlord under paragraph 63 of the
Master Lease) which the Sublandlord may incur as a result of any failure on the
part of Subtenant to vacate the Sublet Premises and/or the Sublandlord's License
Rights during any period following the earlier of (a) the "c which is sixty (60)
days after the Termination Date or (b) the date which is sixty (60) days after
the "e upon which Sublandlord gives Subtenant and Scott Kurnit a written demand
that Subtenant vacate the Sublet Premises and surrender Subtenant's interest in
end to the Sublandlord's License Rights based upon a default by the Subtenant in
Subtenant's obligation to pay to Sublandlord the amounts payable under
paragraphs 2, 3 or 4 of this Sublease which default remains uncured for a period
of not less than sixty (60) says.
IN WITNESS WHEREOF, Sublandlord, Subtenant and Scott Kurnit have executed
this Sublease on the date first written above.
SUBLANDLORD SUBTENANT
Minet, Inc. General Internet Inc.
By: /s/ Robert G. Reidy By: /s/ Robert W. Harris
------------------------------------ --------------------
Name: Robert G. Reidy Name: Robert W. Harris
Title: Vice President & Assistant Title: CFO
Date: October 29, 1996 Date: October 25, 1996
/s/ Scott Kurnit 10/25/96
- ------------------------------------
Scott Kurnit
10
<PAGE>
Ellen Pearle, Esq.
October 21, 1996
Page 1
October 21, 1996
Ellen Pearle, Esq.
General Counsel
c/o Minet, Inc.
1114 Avenue of the Americas
New York, New York 10036
RE: Consent to sublease a portion of the 24th floor, 220 East 42nd Street,
New York, New York between Minet, Inc. as Sublessor and General
Internet Inc. as Sublessee.
Dear Ms. Pearle:
220 News LLC having an office at 220 East 42nd Street, New York, New York
("Landlord"), consents to the Sublease ("Sublease") dated as of November 1,
1996, between Minet, Inc. having an office at 1114 Avenue of the Americas, New
York, New York 10036 ("Tenant") and General Internet Inc. having an office at
220 East 42nd Street, New York, NY 10017 ("Sublessee"), a true copy of which has
been submitted to the Landlord, covering space ("Space") described in the
Sublease, being a portion of the 24th floor of the building known as 220 East
42nd Street, New York, New York, which is currently leased by Tenant by the
lease dated January 27, 1989 as previously or hereafter amended ("Lease"), such
consent being subject to and upon the following terms and conditions:
1. Nothing herein contained shall be construed to modify, waive, impair or
affect any of the provisions, covenants, agreements, terms or conditions of
the Lease, or to waive any breach thereof, or any rights of the Landlord
against any person, firm, association or corporation liable or responsible
for the performance thereof, or to enlarge or increase the Landlord's
obligations or Tenant's rights under the Lease, and all provisions,
covenants, agreements, terms and conditions of the Lease are hereby
mutually declared to be in full force and effect.
2. Tenant shall be and remain liable and responsible for the due keeping,
performance and observance of all the provisions, covenants, agreements,
terms and conditions set forth in the Lease on the part of Tenant to be
kept, performed and observed.
3. The Sublease (and all amendments, modifications, and extensions thereof)
shall be subject and subordinate at all times to the Lease, and to all of
the provisions, covenants, agreements, terms and conditions of the Lease.
4. Nothing herein contained shall be construed as a consent co, or approval or
ratification by Landlord of, any of the particular provisions of the
Sublease or as a representation or
<PAGE>
Ellen Pearle, Esq.
October 21, 1996
Page 2
warranty by Landlord. Landlord shall not be bound or estopped in any way by
the provisions of the Sublease.
5. This consent shall not be construed as a consent by Landlord to, or as
permitting, any other or further licensing or subletting by Tenant or any
amendment of the Sublease, except as specifically provided in the Lease.
Notwithstanding the foregoing, Landlord hereby consents to the sublicense
of the "Sublandlord's License Rights," as such term is defined in the
Sublease, from the Tenant to the Sublessee pursuant to the terms of the
Lease.
6. Tenant agrees that it shall pay any brokerage commissions payable in
connection with the Sublease and Landlord shall have no responsibility with
respect thereto. Tenant agrees to indemnify and hold harmless Landlord
against and from any claims for any such brokerage commissions and all
costs, expenses, liabilities in connection therewith, including, without
limitation, attorneys' fees and expenses. The provisions of this Article
shall survive the expiration or sooner termination of the Lease.
7. This consent shall not be construed as a consent by Landlord to any
alterations to the Space by the Tenant or Sublessee. Notwithstanding
anything to the contrary within the Sublease, all alterations to the Space
must be authorized by the prior written consent of Landlord and performed
in accordance with the terms of Article 3 of the Lease.
8. Notwithstanding anything to the contrary within the Sublease, in the event
the Lease shall terminate for any reason prior to the stated expiration
date, the Sublease shall also terminate on such date without any liability
whatsoever on the part of Landlord to Tenant or Sublessee, except as
provided in the Lease regarding Landlord defaults.
9. Tenant, pursuant to Article 53(E)(h) of the Lease, covenants to deliver to
Landlord contemporaneously with the delivery of this Agreement to Landlord,
a check or checks, subject to collection, made payable to the order of
Landlord, in a sum equal to all reasonable costs and legal fees incurred by
Landlord in connection with the granting of this consent.
<PAGE>
Ellen Pearle, Esq.
October 21, 1996
Page 3
Kindly indicate your acceptance of our consent on the foregoing terms and
conditions by signing a copy hereof and returning the same to the undersigned.
220 NEWS LLC, a New York limited liability company
By: Daily Planet LLC, a New York limited liability
company
By: News East LLC, a New York limited
liability company
By: /s/ Laurence Gluck
Laurence e Gluck
Managing Member
MINET, INC., a New Jersey
corporation
By: /s/ Robert G. Reidy
Name: Robert G. Reidy
Title: Assistant Secretary and
Vice President
<PAGE>
TWO TWENTY EAST LIMITED PARTNERSHIP
c/o LaSalle Partners
220 East 42nd Street
New York, Hew York 10017
November 3, 1992
Minet Inc.
220 East 42nd Street
New York, Hew York 10017
Re: Portion of the 22nd Floor
The News Building
Gentlemen:
Reference is made to that certain lease between the undersigned, as
landlord, and you (formerly known as Minet International Professional Indemnity
insurance Brokers, Inc.), as tenant, dated as of January 27, 1989 (the "Original
Lease"), as amended by an Agreement Modifying Lease I dated as of November 26,
1990 (the "First Amendment') an Agreement Modifying Lease II dated as Of June
18, 1991 (the "Second Amendment") and a letter agreement dated May 22, 1992 (the
`Letter Agreement ), covering the entire twenty-first (21st) and twenty-fourth
(24th) floors, as well as portions of the twenty-fifth (25th) and twenty-sixth
(26th) floors (the "Premises") in the building (the "Building") located at 220
East 42nd Street, New York, New York 10017 (the Original Lease, the First
Amendment, the Second Amendment and the better Agreement, collectively, the
"Lease.), as more particularly described in the Lease.
This is to confirm our agreement with respect to your leasing of additional
space in the Building on a short-term basis. Unless otherwise defined in this
letter agreement, capitalized terms used herein shall have the meanings ascribed
to them in the Lease.
Effective for the period commencing on November 15, 1992 and ending on Hay
14, 1993 (the "Short Term Space Term") the portion of the 22nd floor of the
Building, as shown on the floor plan annexed hereto as Exhibit A (the "Short
Term Space") shall be added to and included in the Premises (as defined in the
Lease). The leasing of the Short Term Space shall be subject to all of the terms
and conditions of the Lease, except as otherwise herein provided.
The Fixed Rent payable with respect so the Short Term Space (including any
portion thereof payable for electric current) shell be $8,166.67 per month
throughout the Short Term Space Term.
Throughout the Short Term Space Term only, as the same may be extended as
herein provided, the amount payable per annum se set forth in Article 46B of the
Original Lease, as modified by the First Amendment, the Second Amendment and the
Letter Agreement, shall increase by $10,500.00.
<PAGE>
You shell pay all items of Additional Rent provided for in the Lease with
respect to the Short Tens Space, except that the provisions of Article 42 of the
Original Lease shall not apply to the Short Term Space, except as provided
below.
Subject to our consent, which may be withheld in our absolute discretion,
you any elect to extend the Short Term Space Term on a month-to-month basis,
provided that we shall receive written notice of such election on or before
April 15, 1993. In the event that the term c! the Lease with respect to the
Short Term Space shell be so extended, it shall thereafter be terminable for any
reason whatsoever, at either your or our option, upon 30 days' prior written
notice to the other party hereto.
In the event that the Short Term Space Term shall extend beyond Key 14,
1993, then notwithstanding anything herein to the contrary, with respect to the
period from and after May 15, 19 93 through the date of termination of the Lease
with respect to the Short Term Space, you shall pay Tenant `c Tax Payment and
Tenant Tenant's Operating Payment as provided in Article 42 of the Original
Lease, as modified loaf by Section 2(d)(iii) through 2(d)(v) Of the First
Amendment c. well as the letter Agreement, with respect to the Short Term Space,
except that, for purposes of calculating Tenant's Tax Payment end Tenant's
Operating payment with respect to the Short Term Space only, (i) "Premises Area"
as sot forth in Section 42A(a) of the Original Lease shall be deemed to mean
3,500 square feet; and (ii) "Tenant's Proportionate Share" as set forth in
Section 42A(b) of the Original Lease shall be deemed to be .3205%.
We shell have no obligation to make any improvements to the Short Term
Space to prepare the same for your occupancy or otherwise other than to (i) 1 )
patch and repaint the Short Term Space and (ii) replace any missing coiling
tiles, light bulb and door knobs therein, using materials of Building standard
quality, color and design.
You hereby represent that you dealt with no broker or brokers other then
LaSalle Partners and Jones Lang Wootton USA in the negotiation of this letter
agreement and that you shall pay any commission earned by Jones Lang Wootton USA
in connection herewith. You hereby indemnity us and agree to hold us harmless
from sod against any loss, cost, damage, claim or liability arising cut of any
inaccuracy or alleged inaccuracy of the above representations, including without
limitation reasonable attorneys' fees. The provisions of this paragraph shall
survive the expiration or earlier termination of this letter agreement.
If we are unable to give possession of the Short Tem Space on the date set
forth herein for any reason, we shall not be subject to any liability for
failure to give possession on said date, and the validity of this agreement
shall not be impaired under such circumstances, nor shall the same be construed
in any way to extend the Short Term Space Term. If, for any reason, Section
223-a of the Real Property Law shell be deemed applicable hereto, the parties
agree that this paragraph is intended to be "an express provision to the
contrary. for purposes of that statute.
Except as herein modified, the Lease shall remain in full force and effect
end, as herein modified, is hereby ratified and confirmed in all respects.
2
<PAGE>
This letter agreement may not be orally changed or terminated nor any of
its provisions waived, unless by an agreement in writing signed by the party
against whom enforcement of any change, termination or waiver is sought.
This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto, their respective legal representative, successors and assigns,
Kindly acknowledge your agreement to the foregoing by signing this letter
in the space below.
Very truly yours,
TWO TWENTY EAST LIMITED PARTNERSHIP
By: LaSalle Partners, Agent
By: LaSalle Partners Incorporated, General
Partner
By: /s/ Barbara Winter
-------------------------------------
Name: Barbara Winter
Title: Vice President
ACKNOWLEDGED & AGREED TO:
MINET, INC.
By: /s/ Hubert F. Babinski
----------------------------------
Name: Hubert F. Babinski
Title: Executive Vice President
3
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
TWO TWENTY EAST LIMITED PARTNERSHIP
c/o LaSalle Partners
220 East 42nd Street
New York, Hew York 10017
May 22, 1992
Minet Inc.
220 East 42nd Street
New York, Hew York 10017
Re: Portion of the 22nd Floor
The News Building
Gentlemen:
Reference is made to that certain lease, dated se of January 27, 1989 (the
"Original Lease"), amended by an Agreement Modifying Lease dated as Of November
26, 1990 (the "First Amendment. ) and by an Agreement Modifying Lease II dated
as of June 18, 1991 (the "Second Amendment"), between us, as landlord, and you,
as tenant, covering the entire twenty-first (21st) end twenty-fourth (24th)
floors, as well as a portion of the twenty-fifth (25th) floor (the "Premises") )
in the building (the "Building") located at 220 East 42nd Street, New York Hew
York 10017 (the Original Lease, the First Amendment and the Second Amendment,
collectively, the "Lease"), ), as more particularly described in the Lease.
This is to confirm our agreement with respect to your leasing of additional
space in the Building on a short-term basis. Unless otherwise defined in this
letter agreement, capitalized terms used herein shall have the meanings ascribed
to them in the Lease.
Effective for the period commencing on May 15, 1992 and ending on November
14, 1992 (the "Short Term Space Term") the portion of the 26th floor of the
Building, as shown on the floor plan annexed hereto as Exhibit A (the "Short
Term space.) shell be added to and included in the Premises (as defined in the L
Lease). ) . She leasing of the Short Term Space shall be subject to all of the
terms and conditions of the Lease, except as otherwise he herein in provided.
The Fixed Rent payable with respect to the Short Term Space (including any
portion thereof payable for electric current) shall be $7,466.67 per month
throughout the Short Term Space Term.
Throughout the Short Term Space Term on only, as the same may be extended
as herein provided, the amount allocable per annum as set forth in Article 46B
of the original Lease as modified by the First Amendment and the Second .
Amendment, shall increase by $9,600.00 to $101,104.50.
<PAGE>
You shall pay all items of Additional Rent provided for in the Lease with
respect to the Short Term Space, except that the provisions of Article 42 of the
Original Lease shall not apply to the Short Term Space, except as provided
below.
Subject to our consent, which may be withheld in our absolute discretion,
you may elect to extend the Short Term Space Term on a month-to-month basis,
provided that we shall receive written notice of such election on or before
October 15, 1992. In the event that the term of the Lease with respect to the
Short Term Space shall be so extended, it shall thereafter be terminable for any
reason whatsoever, at either your or our option, upon 30 days' prior written
notice to the other party hereto.
In the event that the Short Term Space Term shall extend beyond December
31, 1992, then notwithstanding anything herein to the contrary, with respect to
the period from and after January 1, 1993 through the date of termination of the
Lease with respect to the Short Term Space, you shall pay Tenant's Tax Payment
and Tenant's Operating Payment as provided in Article 42 of the Original Lease,
as modified by Sections 2(d)(iii) through 2(d)(v) of the First Amendment, with
respect to the Short Term Space, except that, for purposes of calculating
Tenant's Tax Payment and Tenant Tenant's Operating Payment with respect to the
Short Term Space only, (i) "Premises Area" as set forth in Section 42A(a) of the
Original Lease shall be deemed to mean 3,200 square feet' and (ii) "Tenant's
Proportionate Share. as ret forth in Article 42A(b) of the Original Lease shall
be deemed to be .2930%.
We shall have no obligation to make any improvements to the Short Term
Space to prepare the same for your occupancy or otherwise other than to
construct a partition and two doors of Building-standard materials and design as
indicated on the plan attached hereto as Exhibit B.
You hereby represent that you dealt with no broker or brokers other than
LaSalle Partners and Jones Lang Wootton USA in the negotiation of this letter
agreement and that no brokerage commission will be earned by Jones Lang Wootton
use in connection herewith. You hereby indemnify us and agree to hold us
harmless from and against any loss, cost, damage, claim or liability arising out
of any inaccuracy or alleged inaccuracy of the above representations, including
without limitation reasonable attorneys' fees. The provisions of this paragraph
shall survive the expiration or earlier termination of this letter agreement.
If we are unable to give possession of the Short Term Space on the date set
forth herein for any reason, we shell not be subject to any liability for
failure to give possession on said date, and the validity of this agreement
shall not be impaired under such circumstances, nor shall the same be construed
in any way to extend the Short Term Space Term. If, for any reason, Section
223-a of the Real Property Law shall be deemed applicable hereto, the parties
agree that this paragraph is intended to be tan express provision to the
contrary for purposes of that statute.
Except as herein modified. the Lease shall remain in full force and effect
and, as herein modified, is hereby ratified and confirmed in all respects.
2
<PAGE>
This letter agreement may not be orally changed or terminated nor any of
its provisions waived, unless by an agreement in writing signed by the party
against whom enforcement of any change, termination or waiver is sought.
This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto, their respective legal representatives, successors and assigns.
Kindly acknowledge your agreement to the foregoing by signing this letter
in the space below.
Very truly yours,
TWO TWENTY EAST LIMITED PARTNERSHIP
By: LaSalle Partners, Agent
By: LaSalle Partners Incorporated, General
Partner
By: /s/ Barbara Winter
-----------------------------
Name: Barbara Winter
Title: Vice President
ACKNOWLEDGED & AGREED TO:
MINET, INC.
By: /s/ Hubert F. Babinski
-----------------------------------
Name: Hubert F. Babinski
Title: Executive Vice President
3
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
TWO TWENTY EAST LIMITED PARTNERSHIP
c/o LaSalle Partners
220 East 42nd Street
New York, Hew York 10017
May 22, 1992
Minet Inc.
220 East 42nd Street
New York, Hew York 10017
Re: Portion of the 22nd Floor
The News Building
Gentlemen:
Reference is made to that certain lease, dated se of January 27, 1989 (the
"Original Lease"), amended by an Agreement Modifying Lease dated as Of November
26, 1990 (the "First Amendment. ) and by an Agreement Modifying Lease II dated
as of June 18, 1991 (the "Second Amendment"), between us, as landlord, and you,
as tenant, covering the entire twenty-first (21st) end twenty-fourth (24th)
floors, as well as a portion of the twenty-fifth (25th) floor (the "Premises") )
in the building (the "Building") located at 220 East 42nd Street, New York Hew
York 10017 (the Original Lease, the First Amendment and the Second Amendment,
collectively, the "Lease"), ), as more particularly described in the Lease.
This is to confirm our agreement with respect to your leasing of additional
space in the Building on a short-term basis. Unless otherwise defined in this
letter agreement, capitalized terms used herein shall have the meanings ascribed
to them in the Lease.
Effective for the period commencing on May 15, 1992 and ending on November
14, 1992 (the "Short Term Space Term") the portion of the 26th floor of the
Building, as shown on the floor plan annexed hereto as Exhibit A (the "Short
Term space.) shell be added to and included in the Premises (as defined in the L
Lease). ) . She leasing of the Short Term Space shall be subject to all of the
terms and conditions of the Lease, except as otherwise he herein in provided.
The Fixed Rent payable with respect to the Short Term Space (including any
portion thereof payable for electric current) shall be $7,466.67 per month
throughout the Short Term Space Term.
Throughout the Short Term Space Term on only, as the same may be extended
as herein provided, the amount allocable per annum as set forth in Article 46B
of the original Lease as modified by the First Amendment and the Second .
Amendment, shall increase by $9,600.00 to $101,104.50.
<PAGE>
You shall pay all items of Additional Rent provided for in the Lease with
respect to the Short Term Space, except that the provisions of Article 42 of the
Original Lease shall not apply to the Short Term Space, except as provided
below.
Subject to our consent, which may be withheld in our absolute discretion,
you may elect to extend the Short Term Space Term on a month-to-month basis,
provided that we shall receive written notice of such election on or before
October 15, 1992. In the event that the term of the Lease with respect to the
Short Term Space shall be so extended, it shall thereafter be terminable for any
reason whatsoever, at either your or our option, upon 30 days' prior written
notice to the other party hereto.
In the event that the Short Term Space Term shall extend beyond December
31, 1992, then notwithstanding anything herein to the contrary, with respect to
the period from and after January 1, 1993 through the date of termination of the
Lease with respect to the Short Term Space, you shall pay Tenant's Tax Payment
and Tenant's Operating Payment as provided in Article 42 of the Original Lease,
as modified by Sections 2(d)(iii) through 2(d)(v) of the First Amendment, with
respect to the Short Term Space, except that, for purposes of calculating
Tenant's Tax Payment and Tenant Tenant's Operating Payment with respect to the
Short Term Space only, (i) "Premises Area" as set forth in Section 42A(a) of the
Original Lease shall be deemed to mean 3,200 square feet' and (ii) "Tenant's
Proportionate Share. as ret forth in Article 42A(b) of the Original Lease shall
be deemed to be .2930%.
We shall have no obligation to make any improvements to the Short Term
Space to prepare the same for your occupancy or otherwise other than to
construct a partition and two doors of Building-standard materials and design as
indicated on the plan attached hereto as Exhibit B.
You hereby represent that you dealt with no broker or brokers other than
LaSalle Partners and Jones Lang Wootton USA in the negotiation of this letter
agreement and that no brokerage commission will be earned by Jones Lang Wootton
use in connection herewith. You hereby indemnify us and agree to hold us
harmless from and against any loss, cost, damage, claim or liability arising out
of any inaccuracy or alleged inaccuracy of the above representations, including
without limitation reasonable attorneys' fees. The provisions of this paragraph
shall survive the expiration or earlier termination of this letter agreement.
If we are unable to give possession of the Short Term Space on the date set
forth herein for any reason, we shell not be subject to any liability for
failure to give possession on said date, and the validity of this agreement
shall not be impaired under such circumstances, nor shall the same be construed
in any way to extend the Short Term Space Term. If, for any reason, Section
223-a of the Real Property Law shall be deemed applicable hereto, the parties
agree that this paragraph is intended to be tan express provision to the
contrary for purposes of that statute.
Except as herein modified. the Lease shall remain in full force and effect
and, as herein modified, is hereby ratified and confirmed in all respects.
2
<PAGE>
This letter agreement may not be orally changed or terminated nor any of
its provisions waived, unless by an agreement in writing signed by the party
against whom enforcement of any change, termination or waiver is sought.
This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto, their respective legal representatives, successors and assigns.
Kindly acknowledge your agreement to the foregoing by signing this letter
in the space below.
Very truly yours,
TWO TWENTY EAST LIMITED PARTNERSHIP
By: LaSalle Partners, Agent
By: LaSalle Partners Incorporated, General
Partner
By: /s/ Barbara Winter
-----------------------------
Name: Barbara Winter
Title: Vice President
ACKNOWLEDGED & AGREED TO:
MINET, INC.
By: /s/ Hubert F. Babinski
-----------------------------------
Name: Hubert F. Babinski
Title: Executive Vice President
3
<PAGE>
FINAL
1/25/89
LEASE
BETWEEN
TWO TWENTY EAST LIMITED PARTNERSHIP
AND
MINET INTERNATIONAL PROFESSIONAL
INDEMNITY INSURANCE BROKERS, INC.
THE NEWS BUILDING
220 EAST 42ND STREET
NEW YORK, NEW YORK
<PAGE>
STANDARD FORM OF OFFICE LEASE The Real
Estate Board of New York, Inc.
AGREEMENT OF LEASE, made as of this 27th day of January 1989, between TWO
TWENTY EAST LIMITED PARTNERSHIP, an Illinois limited partnership having an
office c/o LaSalle Partners, 220 East 42nd Street, New York, 10017., party of
the first part, hereinafter referred to as OWNER or Landlord and MINET
INTERNATIONAL PROFESSIONAL INDEMNITY INSURANCE BROKERS, INC., a New Jersey
corporation, having an office at 220 East 42nd Street, New York, New York 10017.
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from
Owner the premises (hereinafter referred to as "premises", demised premises", or
"Premises") consisting of the entire 21st floor, as indicated on the floor plan
annexed hereto as Exhibit A in the building known as The News Building, located
at 220 East 42nd Street, New York, New York ("Building") in the Borough of
Manhattan, City of New York, for a term ("term" or "Term") to commence on
January , 1989 (the "Commencement Date") to end on June 30, 1999 (the
"Expiration Date") (or until such term shall sooner cease and expire as
hereinafter provided at an annual rental (hereinafter called "rent" or "Fixed
Rent") as described in Article 38, together with all other sums of money as
shall become due and payable by Tenant under this lease (hereinafter called
"additional rent" or "Additional Rent") which payments Tenant agrees to make
payable to LaSalle Partners, at Tenant's option, by check drawn on a bank which
is a member of the New York Clearing House Association or by wire transfer of
funds, which Tenant agrees to pay in lawful money of the United States which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment, in equal monthly installments in advance on the first day
of each month during said term, at the office of Owner or such other place as
Owner may designate, without any set off or deduction whatsoever, except that
Tenant shall pay the first monthly installment(s) on the execution hereof
(unless this lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner" predecessor in interest,
Owner may at Owner" option and without notice to Tenant add the amount of such
arrears to any monthly installment of rent payable hereunder and the same shall
be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
1. Rent: Tenant shall pay the rent as above and as hereinafter provided.
2. Occupancy: Tenant shall use and occupy demised premised for executive or
administrative offices of Tenant commensurate with the character and dignity of
the building as a first class office building and for no other purpose.
3. Tenant Alterations: Tenant shall make no changes in or to the demised
premises of any nature without Owner's prior written consent. Subject to the
prior written consent of Owner, and to the provisions of this article, Tenant at
Tenant's expense, may make alterations, installations, additions or improvements
which are non-structural and which do not
<PAGE>
affect utility services or plumbing and electrical lines, in or to the interior
of the demised premises by using contractors or mechanics first approved by
Owner. Tenant shall, before making any alterations, additions, installations or
improvements, at its expense, obtain all permits, approvals an certificates
required by any governmental or quasi-governmental bodies and (upon completion)
certificates of final approval thereof and shall deliver promptly duplicates of
all such permits, approvals and certificates to Owner and Tenant agrees to carry
and will cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a party, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty days thereafter,
at Tenant's expense, by filing the bond required by law. All fixtures and all
paneling, partitions, railings and like installations, installed in the premises
at any time, either by Tenant or by Owner in Tenant's behalf, shall, upon
installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises unless Owner, by notice to Tenant no later
than twenty days prior to the date fixed as the termination of this lease,
elects to relinquish Owner's right thereto and to have them removed by Tenant,
in which event the same shall be removed from the premises by Tenant prior to
the expiration of the lease at Tenant's expense. Nothing in this Article shall
be construed to give Owner title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be required by
Owner, Tenant shall immediately and at its expense repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the building due to such removal. All property
permitted or required to be removed, by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed from
the premises by Owner, at Tenant's expense.
4. Maintenance and Repairs: Tenant shall, throughout the term of this
lease, take good care of the demised premises and the fixtures and appurtenances
therein. Tenant shall be responsible for all damage or injury to the demised
premises or any other part of the building and the systems and equipment
thereof, whether requiring structural or nonstructural repairs caused by or
resulting from carelessness, omission, neglect or improper conduct of Tenant.
Tenant's subtenants, agents, employees, invitees or licensees, or which arise
out of any work, labor, service or equipment done for or supplied to Tenant or
any subtenant or arising out of the installation, use or operation of the
property or equipment of Tenant or any subtenant. Tenant shall also repair all
damage to the building and the demised premises caused by the moving of tenant"
fixtures, furniture and equipment. Tenant shall promptly make, at Tenant's
expense, all repairs in and to the demised premises for which Tenant is
responsible, using only the contractor for the trade or trades in question,
selected from a list of at least two contractors per trade submitted by Owner.
Any other repairs in or to the building or the facilities and systems thereof
for which Tenant is responsible shall be performed by Owner at the Tenant's
expense. Owner shall maintain in good working order and repair the exterior and
the structural portions of the building, including the structural portions of
its demised premises, and the public portions of the building interior and the
building plumbing, electrical, heating and ventilation systems (to the extent
such systems presently exist) serving the demised premises. Tenant agrees to
give prompt notice of any defective condition in the premises for which Owner
may be
<PAGE>
responsible hereunder. There shall be no allowance to Tenant for
diminution of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner or others
making repairs, alterations, additions or improvements in or to any portion of
the building or the demised premises or in and to the fixtures, appurtenances or
equipment thereof. It is specifically agreed that Tenant shall not be entitled
to any setoff or reduction of rent by reason of any failure of Owner to comply
with the covenants of this or any other article of this Lease. Tenant agrees
that Tenant's sole remedy at law in such instance will be by way of an action
for damages for breach of contract. The provisions of this Article 4 shall not
apply in the case of fire or other casualty which are dealt with in Article 9
hereof.
5. Window Cleaning: Tenant will not clean nor require, permit, suffer or
allow any window in the demised premises to be cleaned from the outside in
violation of Section 202 of the Labor Law or any other applicable law or of the
Rules of the Board of Standards and Appeals, or of any other Board or body
having or asserting jurisdiction.
6. Requirements of Law; Fire Insurance, Floor Loads: Prior to the
commencement of the lease term, Tenant is then in possession, and at all times
thereafter tenants, at Tenant's sole cost and expense, shall promptly comply
with all present and future laws, orders and regulations of all state, federal,
municipal and local governments, departments, commissions and boards and any
direction of any public officer pursuant to law, and all orders, rules and
regulations of the New York Board of Fire Underwriters, Insurance Services
Office or any similar body which shall impose any violation, order or duty upon
Owner or Tenant with respect to the demised premises, arising out of Tenant's
particular use or manner of use thereof, (including Tenant's permitted use) or,
with respect to the building if arising out of Tenant's particular use or manner
of use of the premises or the building (including the use permitted under the
lease). Nothing herein shall require Tenant to make structural repairs or
alterations unless Tenant has, by its manner of use of the demised premises or
method of operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto. Tenant may, after securing
Owner to Owner's satisfaction against all damages, interest, penalties and
expenses, including, but not limited to, reasonable attorney's fees, by cash
deposit or by surety bond in an amount and in a company satisfactory to Owner,
contest and appeal any such laws, ordinances, orders, rules regulations or
requirements provided same is done with all reasonable promptness and provided
such appeal shall not subject Owner to prosecution for a criminal offense or
constitute a default under any lease or mortgage under which Owner may be
obligated, or cause the demised premises or any party thereof to be condemned or
vacated. Tenant shall not do or permit any act or thing to be done in or to the
demised premises which is contrary to law, or which will invalidate or be in
conflict with public liability, fire or other policies of insurance at any time
carried by or for the benefit of Owner with respect to the demised premises or
the building of which the demised premises form a part, or which shall or might
subject Owner to any liability or responsibility to any person or for property
damage. Tenant shall not keep anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization or other authority having jurisdiction, and then
only in such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building, nor use the premises in a manner which
will increase the insurance rate for the building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy.
Tenant shall pay all costs, expenses, fines, penalties, or damages, which may be
imposed upon Owner by reason of Tenant's failure to
<PAGE>
comply with the provisions of this article and if by reason of such failure the
fire insurance rate shall, at the beginning of this lease or at any time
thereafter, be higher than it otherwise would be, then Tenant shall reimburse
Owner, as additional rent hereunder, for that portion of all fire insurance
premiums thereafter paid by Owner which shall have been charged because of such
failure by tenant. In any action or proceeding wherein Owner and Tenant are
parties, a schedule or "make-up" of rate for the building or demised premises
issued by the New York Fire Insurance Exchange, or other body making fire
insurance rates applicable to said premises shall be conclusive evidence of the
facts therein stated and of the several items and charges in the fire insurance
rates then applicable to said premises. Tenant shall not place a load upon any
floor of the demised premises exceeding the floor load per square foot areas
which it was designed to carry and which is allowed by law. Owner reserves the
right to prescribe the weight and position of all safes, business machines and
mechanical equipment. Such installations shall be placed and maintained by
Tenant, at Tenant's expense, in settings sufficient, in Owner's judgement, to
absorb and prevent vibration, noise and annoyance.
7. Subordination: INTENTIONALLY OMITTED.
8. Property - Loss, Damage, Reimbursement, Indemnity: Owner or its agents
shall not be liable for any damage to property of tenant or of others entrusted
to employees of the building, nor for loss of or damage to any property of
Tenant by theft or otherwise, nor for any injury or damage to persons or
property resulting from any cause of whatsoever nature, unless caused by or due
to the negligence of Owner, its agents, servants or employees. Owner or its
agents will not be liable for any such damage caused by other tenants or persons
in, upon or about said building or caused by operations in construction of any
private, public or quasi-public work. If at any time any windows of the demised
premises are temporarily closed, darkened or bricked up or permanently closed,
darkened or bricked up, if required by laws for any reason whatsoever including,
but not limited to Owner's own acts, Owner shall not be liable for any damage
Tenant may sustain thereby and Tenant shall not be entitled to any compensation
therefor nor abatement or diminution of rent nor shall the same release Tenant
from its obligations hereunder nor constitute an eviction. Tenant shall
indemnify and save harmless Owner against and from all liabilities, obligations,
damages, penalties, claims, costs and expenses for which Owner shall not be
reimbursed by insurance, including reasonable attorney fees, paid suffered or
incurred as a result of any breach by Tenant. Tenant's agents, contractors,
employees, invitees or licensees of any covenant of condition of this lease, or
the carelessness, negligence or improper conduct of the Tenant, Tenant's agents,
contractors employees, invitees or licensees Tenant's liability under this lease
extends to the acts and omissions of any sub-tenants and any agent, contractor,
employee, invitee or licensee of any sub-tenant and any agent, contractor,
employee, invitee or licensee of any sub-tenant. In case any action or
proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
to be unreasonably withheld.
9. Destruction, Fire and Other Casualty: (a) If the demised premises or any
part thereof shall be damaged by fire or other casualty, Tenant shall give
immediate notice thereof to Owner and this lease shall continue in full force
and effect except as hereinafter set forth. (b) If the demised premises are
partially damaged or rendered partially unusable by fire or other casualty, the
damages therein shall be repaired by and at the expense of Owner and the
<PAGE>
rent, until such repair shall be substantially completed shall be apportioned
from the day following the casualty according to the part of the premises which
is usable. (c) If the demised premises are totally damaged or rendered wholly
unusable by fire or other casualty, then the term shall be proportionate. If
paid up to the time of the casualty and thenceforth shall cease until the date
when the premises shall have been repaired and restored by Owner, subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90m days after such fire or casualty, specifying a date for the
expiration of the lease, which date shall not be more than 60 days after the
giving of such notice, and upon the date specified in such notice the term of
this lease shall expire as fully and completely as fi such date were the date
set forth above (or the termination of this lease and Tenant shall forthwith
quit, surrender and vacate the premises without prejudice however, to landlord's
rights and remedies against Tenant under the release provisions in effect prior
to such terminations, and any rent owing shall be paid up to such date and any
payments of rent made by Tenant which were on account of any period subsequent
to such date shall be returned to Tenant. Unless Owner shall serve a termination
notice as provided for herein, Owner shall make the repairs and restorations
under the conditions of (b) and (c) hereof, with all reasonable expedition,
subject to delays due to adjustment of insurance claims, labor troubles and
causes beyond Owners' control After any such casualty, Tenant shall cooperate
with Owner's restoration by removing from the premises as promptly as reasonably
possible, all of Tenant's salvageable inventory and movable equipment,
furniture, and other property. Tenant's liability for rent shall resume five (5)
days after written notice from Owner that the premises are substantially ready
for Tenant's occupancy. (e) Nothing contained hereinabove shall relieve Tenant
from liability that may exist as a result of damage from fire or other casualty.
Notwithstanding the foregoing, each party shall look first to any recovery for
loss or damage resulting from fire or other casualty, and to the extent that
such insurance is in force and collectible and to the extent permitted by law,
Owner and Tenant each hereby releases and waives all right of recovery against
the other or any once claiming through or under each of them by way of
subrogation or otherwise. The foregoing release and waiver shall be in force
only if both releasors' insurance policies contain a clause providing that such
a release or waiver shall not invalidate by the payment of additional premiums,
then the party benefiting from the waiver shall pay such premium within ten days
after written demand or shall be deemed to have agreed that the party obtaining
insurance with respect to waiver or subrogation. Tenant acknowledges that Owner
will not carry insurance on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Owner will not be obligated to repair any damage thereto ore replace
the same. (f) Tenant hereby waivers the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof.
10. Eminent Domain: If the whole or any part of the demised premises shall
be acquired or condemned by Eminent Domain for any public or quasi-public use or
purpose, then and in that event, the term of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease and assigns to
Owner , Tenant's entire interest in any such award.
<PAGE>
11. Assignment, Mortgage, Etc.: Tenant, for itself, its heirs,
distributees, executors, administrators, legal representatives, successors and
assigns, expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet or suffer or permit the demised premises or any party
thereof to be used by others, without the prior written consent of Owner in each
instance. Transfer of the majority of the stock of a corporate Tenant shall be
deemed an assignment. If this lease be assigned, of if the demised premises or
any party thereof be underlet or occupied by anybody other than Tenant, Owner
may, after default by Tenant, collect rent from the assignee, under-tenant or
occupant and apply the net amount collected to the rent herein reserved, but no
such assignment, underletting, occupancy or collection shall be deemed a waiver
of this covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
12. Electric Current: INTENTIONALLY OMITTED.
13. Access to Premises: Owner or Owner's agents shall have the right (but
shall not be obligated) to enter the demised premises in any emergency at any
time and at other reasonable times, to examine the same and to make such
repairs, replacements and improvements as Owner may deem necessary and
reasonably desirable to the demised premises or to any other portion of the
building or which Owner may elect to perform. Tenant shall permit Owner to use
and maintain and replace pipes and conduits therein provided they are contained
within the walls, floor, or ceiling. Owner may, during the progress of any work
in the demised premises, take all necessary materials and equipment into said
premises without the same constituting an eviction nor shall the Tenant be
entitled to any abatement of rent while such work is in progress nor to any
damages by reason of loss or interruption of business or otherwise. Throughout
the term hereof Owner shall have the right to enter the demised premises at
reasonable hours for the purpose of showing the same to prospective purchasers
or mortgagees of the building, and during the last six months of the term for
the purpose of showing the same to prospective tenants. Owner or Owner's agents
may enter the same whenever such entry may be necessary or permissible by master
key or forcibly and provided reasonable care is exercised to safeguard Tenant's
property, such entry shall not render Owner or its agents liable therefor, nor
in any event shall the obligations of Tenant hereunder be affected. If during
the last month of the term Tenant shall have removed all or substantially all of
Tenant's property therefrom. Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligations hereunder.
Whenever Landlord shall enter the demised premises to make such repairs,
replacements or improvements, Landlord shall endeavor to provide Tenant with
reasonable prior notice if, feasible (except in emergencies), shall take
reasonable steps to minimize the inconvenience to Tenant that may arise
therefrom and shall use reasonable efforts to minimize the amount of space in
the demised premises which may be lost as a result of such repairs, replacements
or improvements.
<PAGE>
14. Vault, Vault Space Area: No Vaults, vault space or areas, whether or
not enclosed or covered, not within the property line of the building is leased
hereunder, anything contained in or indicated on any sketch, blue print or plan
or anything contained elsewhere in this lease to the contrary notwithstanding.
Owner makes no representation as to the location of the property line of the
building. All vaults and vault space and all such areas not within the property
line of the building, which tenant may be permitted to use and/or occupy, is to
be used and/or occupied under a revocable license, and if any such license be
revoked, or if the amount of such space or area be diminished or required by any
federal, state or municipal authority or public utility, Owner shall not be
subject to any liability nor shall Tenant be entitled to any compensation or
diminution or abatement of rent, nor shall such revocation, diminution or
requisition be deemed constructive or actual eviction. Any tax, fee or charge of
municipal authorities for such vault or area shall be paid by Tenant.
15. Occupancy: Tenant will not at any time use or occupy the demised
premises in violation of the certificate of occupancy issued for the building of
which the demised premises are a part. Tenant has inspected the premises and
accepts them as is, subject to the riders annexed hereto with respect to Owner's
work, if any. In any event, Owner makes no representation as to the condition of
the premises and Tenant agrees to accept the same subject to violations, whether
or not of record.
16. Bankruptcy: (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be cancelled by Owner by the sending of a
written notice to Tenant within a reasonable time after the happening of any one
or more of the following events: (1) the commencement of a case in bankruptcy or
under the laws of any state naming Tenant as the debtor: or (2) the making by
Tenant of an assignment or any other arrangement for the benefit of creditors
under any state statute. Neither Tenant nor any person claiming through or under
Tenant, or by reason of any statute or order of court, shall thereafter be
entitled to possession of the premises demised but shall forthwith quit and
surrender the premises. If this lease shall be assigned in accordance with its
terms, the provisions of this Article 16 shall be applicable only to the party
then owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination
of this lease pursuant to (a) hereof Landlord shall forthwith, notwithstanding
any other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Landlord for the unexpired term of said lease, or
any part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which,
<PAGE>
such damages are to be proved, whether or not such amount be greater, equal to,
or less than the amount of the difference referred to above.
17. Default: (1) If Tenant defaults in fulfilling any of the covenants
of this lease other than the covenants for the payment of rent or additional
rent, or if the demised premises becomes vacant or deserted, or if any
execution or attachment shall be issued against Tenant or any of Tenant's
property whereupon the demised premises shall be taken or occupied by someone
other than Tenant, or if this lease be rejected under Section 235 of Title 11
of the U.S. Code (bankruptcy code), or if Tenant shall fail to move into or
take possession of the premises within fifteen (15) days after the
commencement of the term of this lease, then in any one or more of such
events, upon Owner serving a written ten (10) days notice upon Tenant
specifying the nature of said default and upon the expiration of said ten
(10) days, if Tenant shall have failed to comply with or remedy such default,
or if the said default or omission complained of shall be of a nature that
the same cannot be completely cured or remedied within said ten (10) day
period, and if Tenant shall not have diligently commenced during such default
within such ten (10) day period, and shall not thereafter with reasonable
diligence and in good faith, proceed to remedy or cure such default, then
Owner may serve a written three (3) days' notice of cancellation of this
lease upon Tenant, and upon the expiration of said three (3) days this lease
and the term thereunder shall end and expire as fully and completely as if
the expiration of such three (3) day period were the day herein definitely
fixed for the end and expiration of this lease and the term thereof and
Tenant shall then quit and surrender the demised premises to Owner but Tenant
shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given,
and the term shall expire as aforesaid or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required
and such default shall continue for ten (10) days; then and in any of such
events Owner may without notice, re-enter the demised premises either by force
or otherwise, and dispossess Tenant by summary proceedings or otherwise, and the
legal representative of Tenant or other occupant of demised premises and remove
their effects and hold the premises as if this lease had not been made, and
Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end. If Tenant shall make default hereunder
prior to the date fixed as the commencement of any renewal or extension of this
lease, Owner may cancel and terminate such renewal or extension agreement by
written notice.
18. Remedies of Owner and Waiver of Redemption: In case of any such
default, re-entry, expiration and/or dispossess by summary proceedings or
otherwise, (a) the rent shall become due thereupon and be paid up to the time of
such re-entry, dispossess and or expiration, (b) Owner may re-let the premises
or any part or parts thereof, either in the name of Owner or otherwise, for a
term or terms, which may be Owner's option be less than or exceed the period
which would otherwise have constituted the balance of the term of this lease and
may grant concessions or free rent or charge a higher rental than that in this
lease, and/or (c) Tenant or the legal representatives of Tenant shall also pay
Owner as liquidated damages for the failure of Tenant to observe and perform
said Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and/or covenanted to be paid and the net amount, if any, of the rents
collected on account of the lease or leases of the demised premises for each
month of the
<PAGE>
period which would otherwise have constituted the balance of the term of this
lease. The failure of Owner to re-let the premises or any part or parts thereof
shall not release or affect Tenant's liability for damages. In computing such
liquidated damages there shall be added to the said deficiency such expenses as
Owner may incur in connection with re-letting, such as legal expenses,
attorneys' fees, brokerage, advertising and for keeping the demised premises in
good order or for preparing the same for re-letting. Any such liquidated damages
shall be paid in monthly installments by Tenant on the rent day specified in
this lease and any suit brought to collect the amount of the deficiency for any
month shall not prejudice in any way the rights of Owner to collect the
deficiency for any month shall not prejudice in any way the rights of Owner to
collect the deficiency of any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and or decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting the demised
premises, and the making of such alterations, repairs, replacements, and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in this
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity. Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws in the event of Tenant
being evicted or dispossessed for any cause or in the event of Owner obtaining
possession of demised premises, by reason of the violation by Tenant of any of
the covenants and conditions of this lease, or otherwise.
19. Fees and Expenses: If Tenant shall default in the observance or
performance of any term or covenant on Tenant's part to be observed or performed
under or by virtue of any of the terms or provisions in any article of this
lease, then, unless otherwise provided elsewhere in this lease, Owner may
immediately or at any time thereafter and without notice perform the obligation
of Tenant thereunder. If Owner, in connection with the foregoing or in
connection with any default by Tenant in the covenant to pay rent hereunder,
makes any expenditures or incurs any obligations for the payment of money,
including but not limited to attorney's fees, in instituting, prosecuting or
defending any action or proceeding, then Tenant will reimburse Owner for such
sums to be paid or obligations incurred with interest and costs. The foregoing
expenses incurred by reason of Tenant's default shall be deemed to be additional
rent hereunder and shall be paid by Tenant to Owner within five (5) days of
rendition of any bill or statement to Tenant therefor. If Tenant's lease term
shall have expired at the time of making of such expenditures or incurring of
such obligations, such sums shall be recoverable by Owner as damages.
20. Building Alterations and Management: Owner shall have the right at any
time without the same constituting an eviction and without incurring liability
to Tenant therefor to change the arrangements and/or location of public
entrances, passageways, doors, doorways, corridors, elevators, stairs, towers or
other public parts of the building and to change
<PAGE>
the name, number or designation by which the building may be known. There shall
be no allowance to Tenant for diminution of rental value and no liability on the
part of Owner by reason of inconvenience, annoyance or injury to business
arising from Owner or other Tenants making any repairs in the building or any
such alterations, additions and improvements. Furthermore, Tenant shall not have
any claim against Owner by reason of Owner's imposition of such controls of the
manner of access to the building by Tenant's social or business visitors as the
Owner may deem necessary for the security of the building and its occupants.
21. No Representation by Owner: Neither Owner nor Owner's agents have made
any representations or promises with respect to the physical condition of the
building, the land upon which it is erected or the demised premises, the rents,
leases, expenses of operation or any other matter or thing affecting or related
to the premises except as herein expressly set forth and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth in the provisions of this lease. Tenant has inspected the building and
the demised premises and is thoroughly acquainted with their condition and
agrees to take the same "as is" and acknowledges that the taking of possession
of the demised premises by Tenant shall be conclusive evidence that the said
premises and the building of which the same herein a part were in good and
satisfactory condition at the time such possession was so taken and that the
Premises are substantially as shown on Exhibit A; unless, with respect to the
demised premises, Tenant shall notify Landlord to the contrary within ten (10)
days of Tenant's taking possession, in which event Landlord shall undertake to
correct defects reasonably specified by Tenant, it being understood that nothing
in this Article shall affect Tenant's obligation to pay Fixed Rent or Additional
Rent hereunder. All understandings and agreements heretofore made between the
parties hereto are merged in this contract, which alone fully and completely
expresses the agreement between Owner and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
22. End of Term: Upon the expiration or other termination of the term of
this lease, Tenant shall quit and surrender to Owner the demised premises, broom
clean, in good order and condition, ordinary wear and damages which Tenant is
not required to repair as provided elsewhere in this lease excepted, and Tenant
shall remove all its property. Tenant's obligation to observe or perform this
covenant shall survive the expiration or other termination of this lease. If the
last days of the term of this Lease or any renewal thereof, falls on Sunday,
this lease shall expire at noon on the preceding Saturday unless it be a legal
holiday in which case it shall expire at non on the preceding business day.
23. Quiet Enjoyment: Owner covenants and agrees with Tenant that upon
Tenant paying the rent and additional rent and observing and performing all the
terms, covenants and conditions, on Tenant's part to be observed and performed,
Tenant may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 10 hereof and in the ground leases, underlying leases and
mortgages hereinabove mentioned.
24. Failure to Give Possession: If Owner is unable to give possession of
the demised premises on the date of the commencement of the term hereof, because
of the holding-
<PAGE>
over or retention of possession of any tenant, undertenant or occupants or it
the demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or for any other reason, owner shall not be subject to any liability
for failure to give possession on said date and the validity of the lease shall
not be impaired under such circumstances, nor shall the same be construed in any
way to extend the term of this lease, but the rent payable hereunder shall be
abated (provided Tenant is not responsible for Owner's inability to obtain
possession until after Owner shall have given Tenant written notice that the
premises are substantially ready for Tenant's occupancy. If permission is given
to Tenant to enter into the demised premises prior to the date specified as the
commencement of the term of this lease, Tenant covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease, except as to the covenant to pay rent. The provisions
of this article are intended to constitute "an express provision to the
contrary" within the meaning of Section 223 a of the New York Real Property Law.
25. No Waiver: The failure of Owner to seek redress for violation of or to
insist upon the strict performance of any covenant or condition of this lease or
of any of the Rules or Regulations set forth or hereafter adopted by Owner,
shall not prevent a subsequent act which would have originally constituted a
violation from having all the force and effect of an original violation. The
receipt by Owner of rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach and no provision of this lease
shall be deemed to have been waived by Owner unless such waiver be in writing
signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or statement
of any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's agents during the term hereby demised shall be deemed an
acceptance of a surrender of said premises and no agreement to accept such
surrender shall be valid unless in writing signed by Owner. No employee of Owner
or Owner's agent shall have any power to accept the keys of said premises prior
to the termination of the lease and the delivery of keys to any such agent or
employee shall not operate as a termination of the lease or a surrender of the
premises.
26. Waiver of Trial by Jury: It is mutually agreed by and between Owner and
Tenant that the respective parties hereto shall and they hereby do waive trial
by jury in any action, proceeding, or counterclaims brought by either of the
parties hereto against the other (except for personal injury or property
damages) on any matters whatsoever arising out of or in any way connected with
this lease, the relationship of Owner and Tenant. Tenant's use of or occupancy
of said premises, and any emergency statutory or other statutory remedy. It is
further mutually agreed that in the event Owner commences any summary proceeding
for possession of the premises, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding including a counterclaim
under Article 4.
27. Inability to Perform: This Lease and the obligation of
Tenant to pay rent hereunder and perform all of the other covenants and
agreements hereunder on part of Tenant to be performed shall in no wise be
affected impaired or excused because Owner is unable to fulfill
<PAGE>
any of its obligations under this lease or to supply or is delayed in supplying
any service expressly or impliedly to be supplied or is unable to make, or is
delayed in making any repair, additions, alterations or decorations or is unable
to supply or is delayed in supplying any equipment or fixtures if Owner is
prevented or delayed from so doing by reason of strike or labor troubles or any
cause whatsoever including, but not limited to, government preemption in
connection with a National Emergency or by reason of any rule, order or
regulation of any department or subdivision thereof or any government agency or
by reason of the conditions of supply and demand which have been or are affected
by war or other emergency.
28. Bills and Notices: INTENTIONALLY OMITTED.
29. Services Provided by Owners: INTENTIONALLY OMITTED.
30. Captions: The Captions are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope of this lease
nor the intent of any provisions thereof.
31. Definitions: The term "office", or "offices", wherever used in this
lease, shall not be construed to mean premises used as a store or stores, for
the sale or display, at any time, of goods, wares or merchandise, of any kind,
or as a restaurant, shop, booth, bootblack or other stand, barber shop, or fore
other similar purposes or for manufacturing. The term "Owner" means a landlord
or lessor, and as used in this lease means only the owner, or the mortgagee in
possession, for the time being of the land and building (or as the owner of a
lease of the building or of the land and building) of which the demised premises
form a part of that in the event of any sale or sales of said land and building
or of said building, the said Owner shall be and hereby is entirely freed and
released of all covenants and obligations of Owner hereunder, and it shall be
deemed and construed without further agreement between the parties and the
purchaser at any such sale, or the said lessee of the building, or of the land
and building, that the purchaser of the lessee of the building has assumed and
agreed to carry out any and all covenants and obligations of Owner hereunder.
The words "re-enter" and "re-entry" as used in this lease are not restricted to
their technical legal meaning. The term "business day" as used in this lease
shall exclude Saturdays, Sundays and holidays observed by the State or Federal
Government as legal holidays and are designated as holidays by the applicable
building service union employees serviced contract or by the applicable
Operating Engineers contract with respect to HVAC service.
32. Adjacent Excavation -- Shoring: If an excavation shall be made upon
land adjacent to the demised premises, or shall be authorized to be made, Tenant
shall afford to the person causing or authorized to cause such excavation,
license to enter upon the demised premises for the purpose of doing such work as
said person shall deem necessary to preserve the wall or the building of which
demised premises forms a ____________ injury or damage and to support the same
by proper ___________ without any claim for damages or indemnity against Owner
or _______________ or abatement of rent.
33. Rules and Regulations: Tenant and Tenant's servants, employees, agents,
visitors and licensees shall observe faithfully, and comply ___________ with,
the Rules and Regulations and such other and further reasonable Rules and
Regulations as Owner or Owner's agent may from time to time adopt. Notice of any
additional rules or regulations shall be given in such manner as
<PAGE>
Owner may elect. In case Tenant disputes the reasonableness of any additional
Rule and Regulation hereafter made or adopted by Owner or Owner's agents, the
parties herein agree to submit the question of reasonableness of such Rule and
Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
herein. The right to dispute the reasonableness of any additional Rule and
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within ten (10) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against any
other tenant and Owner shall not be liable to Tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
34. Security: Tenant has deposited with Owner the sum of $39,326.83 as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this lease: it is agreed that in the event Tenant
defaults in respect of any of the terms , provisions and conditions of this
lease, including, but not limited to, the payment of rent and additional rent.
Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum ________________ as to which Tenant is in default or for any
sum which Owner may expend or may be required to expend by reason of Tenant's
default in respect of any of the terms, covenants and conditions of this lease,
including but not limited to, any damages or deficiency in there-letting of the
premises, whether such damages or deficiency accrued before or after summary
proceedings or other re-entry by Owner. In the event that Tenant shall fully and
faithfully comply with all the terms, provisions, covenants and conditions of
this lease, the security shall be returned to Tenant after date fixed as the end
of the Lease and after delivery of entire possession of the demised premises to
Owner. In the event of a sale of the land and building or leasing of the
building, of which the demised premises form a part, Owner shall thereupon be
released by Tenant from all liability for the return of such security: and
Tenant agrees to look in the new Owner solely for the return of said security,
and it is agreed that the provisions hereof shall apply to every transfer or
assignment made of the security to a new Owner. Tenant further covenants that it
will not assign or encumber or attempt to assign or encumber the monies
deposited herein as security and that neither Owner nor its successors or
assigns shall be bound by any such assignment, encumbrance, attempted assignment
or attempted encumbrance.
35. Estoppel Certificate: Tenant, at any time, and from time to time, upon
at least ten (10) days' prior notice by Owner, shall execute, acknowledge and
deliver to Owner, and/or to any other person, firm or corporation specified by
Owner, a statement certifying that this lease is unmodified and in full force
and effect for, if there have been modifications, that the same is in full force
and effect as modified and stating the modifications, stating the dates to which
the rent and additional rent have been paid, and stating whether or not there
exists any default by Owner under this Lease, and, if so, specifying each such
default.
36. Successors and Assignees: The covenants, conditions and agreements
contained in this lease shall bind and inure to the benefit of Owner and Tenant
and their respective heirs, _______, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns.
<PAGE>
IN WITNESS WHREOF, Owner and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
Witness for Owner: TWO TWENTY EAST LIMITED PARTNERSHIP, an Illinois
limited partnership
- ------------------------
By:LaSalle Street Fund Incorporated, General Partner
By:/s/ Barbara Winter
----------------------------------------
Vice President
Witness for Tenant: MINET INTERNATIONAL
PROFESSIONAL INDEMNITY INSURANCE
BROKERS, INC.
- ------------------------
By:/s/ Michael Dangelo
--------------------------------------
Vice President
<PAGE>
ACKNOWLEDGEMENTS
<TABLE>
<CAPTION>
CORPORATE OWNER CORPORATE TENANT
STATE OF NEW YORK ss: STATE OF NEW YORK ss:
County of County of New York
<S> <C>
On this ___ day of __________, 19___, before me On this 27th day of January, 1985, before me personally
personally came __________ to me known who being by me came Michael Dangelo to me known who being by me duly
duly sworn did depose and say that he resides in sworn did depose and say that he resides in __________
__________ that he is the ___________ of __________, the that he is the Vice President of Minet International
corporation described in and which executed the foregoing Professional Indemnity Insurance Brokers, Inc., the
instrument as OWNER that he knows the seal of said corporation described in and which executed the
corporation, that the seal affixed to and in engagement foregoing instrument as TENANT that he knows the seal
to such corporate seal that it was so affixed by order of of said corporation, that the seal affixed to and in
the Board of Directors of said corporation and that he engagement to such corporate seal that it was so
signed his name there by like orders. affixed by order of the Board of Directors of said
corporation and that he signed his name there by like
orders.
Wiliam Pyszcyamuka
Notary Public, State of New York
No. 4845658
Qualified in Suffolk County
Commission Expires Upon 10/3/89
INDIVIDUAL OWNER INDIVIDUAL LEASE
STATE OF NEW YORK ss: STATE OF NEW YORK ss:
County of County of
On this ___ day of __________, 19___, before me On this ___ day of __________, 19___, before me
personally came __________ to me known and known to me to personally came __________ to me known and known to me
be the individual __________ described in and who as to be the individual __________ described in and who as
OWNER executed the foregoing instrument and acknowledged TENANT executed the foregoing instrument and
to me that __________ he executed the same. acknowledged to me that __________ he executed the same.
</TABLE>
GUARANTY
FOR VALUE RECEIVED, and in consideration for, and as an inducement in Owner
making the within lease with Tenant, the undersigned guarantees to Owner,
Owner's successors and assigns, the full performance and observance of all the
covenants, conditions and agreements therein provided to be performed and
observed by Tenant including the "Rules and
<PAGE>
Regulations" as therein provided, without requiring any source of non-payment,
non-performance, or non-observance, or proof of notice or demand, whereby to
charge the undersigned therefor, all of which the undersigned hereby expressly
waives and expressly agrees that the validity of this agreement and the
obligations of the guarantor hereunder shall in no wise be terminated, affected
or impaired by reason of the assertion by Owner against Tenant of any of the
rights or remedies reserved to Owner pursuant to the provisions of the within
lease. The undersigned further covenants and agrees that this guaranty shall
remain and continue in full force and effect as to any renewal, modification or
extension of this lease and during any period when Tenant is occupying the
premises as a "statutory tenant". As a further inducement in Owner to make this
lease and in consideration thereof, Owner and the undersigned covenant and agree
that in any action or proceeding brought by either Owner or the undersigned
against the other on any matters whatsoever arising out of, under, or by virtue
of the terms of this lease or of this guaranty that Owner and the undersigned
shall and do hereby waive trail by jury.
Dated New York City __________, 19___.
WITNESS
STATE OF NEW YORK )
County of ) ss
On this ______ day of __________, 19___, before me personally
came __________ to me know and known to me to be the individual described in,
and who executed the foregoing Guaranty and acknowledged to me that he executed
the same.
Notary
-----------------------------
Residence
--------------------------
Business Address
-------------------
Firm Name
--------------------------
<PAGE>
RIDER ANNEXED TO AGREEMENT OF LEASE
BETWEEN TWO TWENTY EAST LIMITED PARTNERSHIP (LANDLORD)
AND MINET INTERNATIONAL PROFESSIONAL INDEMNITY INSURANCE
BROKERS, INC. (TENANT)
LANDLORD'S WORK:
37. Landlord shall have no obligation to perform any work in, or make any
alterations or improvements to, the Premises.
FIXED RENT AND PRORATION OF FIXED RENT:
38. A. Commencing on the earlier of (a) the date occurring two (2) months
after Tenant shall substantially complete the construction of all initial
alterations and improvements (the "Initial Improvements") to the Premises or (b)
July 1, 1989 (the earlier such date being the "Rent Commencement Date"), Tenant
shall pay to Landlord in accordance with the terms of this Lease and without
notice or demand, annual Fixed Rent (including any portion thereof payable for
electric current as provided in Article 46) in the amount of $471,922 for the
period from the Rent Commencement Date to June 30, 1994; and $484,381 for the
period from July 1, 1994 to the Expiration Date.
B. The Initial Improvements shall be deemed substantially complete
notwithstanding the fact that minor or insubstantial details of construction,
mechanical adjustment or decoration remain to be performed.
C. If the Rent Commencement Date shall not occur on the first day of a
calendar month, the Fixed Rent for such calendar month shall be prorated on a
per diem basis, and Landlord shall credit the excess amount paid on the
execution of this Lease toward the payment of Fixed Rent for the next succeeding
calendar month.
LATE PAYMENT CHARGE:
39. A. If Tenant shall fail to pay when due any installment or payment of
Fixed Rent or Additional Rent for a period of ten (10) days after the date on
which such installment or payment is due, Tenant shall pay interest thereon from
the date due until the date paid at a rate ("Interest Rate") equal to the annual
rate of two (2) percentage points above the rate then most recently announced by
Citibank, N.A., New York, New York, or its successor, as its corporate base
lending rate which rate may change from time to time during the term of this
Lease, and such interest shall be deemed to be Additional Rent.
B. If Tenant shall make any payments due hereunder by ordinary check,
add that check shall be returned for insufficient funds or uncollected funds, or
the account being closed, then Landlord shall not be obligated to accept any
payment from or on behalf of Tenant other than by certified check or official
bank check. If payment made by Tenant to Landlord shall be returned for any of
the above reasons, there shall be an additional charge to Tenant of ten ($10.00)
dollars.
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RENT RESTRICTIONS:
40. If the Fixed Rent or any Additional Rent shall be or become
uncollectible by virtue of any law, governmental order or regulation, or
direction of any public officer or body, Tenant shall enter into such agreement
or agreements and take such other action (without additional expense to Tenant)
as Landlord may request, as may be legally permissible, to permit Landlord to
collect the maximum Fixed Rent and Additional Rent which may, from time to time
during the continuance of such legal rent restriction be legally permissible,
but not in excess or the amounts of Fixed Rent or Additional Rent payable under
this Lease. Upon the termination of such legal rent restriction, (a) the Fixed
Rent and Additional Rent, after such termination, shall become payable under
this Lease in the amount of the Fixed Rent and Additional Rent set forth in this
Lease for the period following such termination, and (b) Tenant shall pay to
Landlord if legally permissible, an amount equal to (i) the Fixed Rent and
Additional Rent which would have been paid pursuant to this Lease, but for such
rent restriction, less (ii) the Fixed Rent and Additional Rent paid by Tenant to
Landlord during the period that such rent restriction was in effect.
ARTICLE 41 - INTENTIONALLY OMITTED
ESCALATIONS:
42. A. Definitions as used herein:
(a) The term "Premises Area" shall be deemed to mean 12,419 square
feet.
(b) The term "Tenant's Proportionate Share" shall mean 1.1373%.
(c) "Landlord's Statement" shall mean an instrument containing a
computation of Additional Rent due pursuant to the provisions of this Article
furnished by Landlord to Tenant.
(d) (i) The term "Base Tax Factor' shall mean the Taxes for the
1989/1990 Tax Year.
(ii) The term "Taxes" shall mean (a) all real estate taxes, assessments
(special or otherwise), sewer and water rents, rates and charges and any other
governmental levies which may be assessed or levied upon all or any part of the
Building and the land on which it is located and all appurtenances thereto
(collectively, "Real Property'), whether or not the same constitute one or more
tax lots, including any business improvement district fees or taxes imposed by
any governmental or private entity, and (b) any expenses (including attorneys'
fees and disbursements and experts and other witness' fees) incurred by Landlord
in contesting any of the foregoing or the assessed valuation of all or any part
of the Real Property; but "Taxes. shall not include any interest or penalties
incurred by Landlord as a result of Landlord's late payment of Taxes, except for
interest payable in connection with the installment payments of assessments
pursuant to the next sentence. If by law any assessment may be divided and paid
in annual installments, then for the purposes of this Article, (x) such
assessment shall be deemed to have been so divided and to be payable in the
maximum number of annual installments permitted by
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law and (y) there shall be deemed included in Taxes for each Tax Year the annual
installment of such assessment becoming payable during such Tax Year, together
with interest payable during such Tax Year on such annual installment and on all
installments thereof becoming due as provided by law, all as if such assessment
had been so divided. If at any time the methods of taxation prevailing on the
date hereof shall be altered so that in lieu of or as an addition to or as a
substitute for all or any part of the Taxes now assessed, levied or imposed upon
all or any part of the Real Property, there shall be assessed, levied or imposed
any other tax, assessment, levy, imposition, charge or license fee however
described or imposed, then all such taxes, assessments, levies, impositions,
charges or license fees or the part thereof so measured or based shall be deemed
to be Taxes; provided that any tax, assessment, levy, imposition or charge
imposed on income from the Real Property shall be calculated as if the Real
Property is the only asset of Landlord.
(e) The term `Tax Year' shall mean the twelve (12) month period
commencing July 1 of each year, or such other period of twelve (12) months as
may be duly adopted as the fiscal year for real estate tax purposes in The City
of New York.
(f) The term `Escalation Year' shall mean each calendar year which
shall include any part of the Term.
(g) The term `Landlord's Base year shall mean the calendar year 1989.
(h) The term "R.A.B." shall mean the Realty Advisory Board on Labor
Relations, Incorporated, or its successor.
(i) The term `Local 32B" shall mean Local 32B32J of the Building
Service Employees International Union, AFLCIO, or its successor.
(j) The term "Class A Office Buildings" shall mean the classification
of office buildings most nearly comparable to the classification "Class A
Buildings" in the current agreements between R.A.B. and Local 32B.
(k) The term "Labor Rates" with respect to any Escalation year shall
mean the regular average hourly wage rate required to be paid to Porters in
Class A Office Buildings pursuant to any agreement between R.A.B. and Local 32B
in effect during such Escalation Year, provided that if any such agreement shall
require Porters to be regularly employed on days or during hours when overtime
or other premium pay rates are in effect, then the term "regular average hourly
wage rate" shall mean the regular average hourly wage rate for the hours in a
calendar week which Porters are required to be regularly employed (whether or
not actually at work in the Building), e.g., if as of November 1, 1983, an
agreement between R.A.B. and Local 32B would require the regular employment of
Porters for 40 hours during a calendar week at a regular hourly wage of $4.00
for the first 30 hours and at an overtime hourly average wage of $5.00 for the
remaining 10 hours, then the regular average hourly wage rate under this
Subsection, as of November 1, 1983, would be the sum arrived at by dividing the
total weekly average wages of $170.00 by the total number of required hours of
employment which is 40 and resulting in a regular average hourly wage rate of
$4.25. The computation of the regular average hourly rate shall be on the same
basis whether based on an hourly or other pay scale but
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predicated on the number of hours in such respective work weeks, whether paid by
Landlord or any independent contractor. Such regular average hourly wage rate
shall also be inclusive of the monetary value or cost of all payments or
benefits of every nature and kind (including those required to be paid by the
employer directly to taxing authorities or others because of the employment)
including social security, unemployment and other similar taxes, and vacation
pay, absent fund, birthdays. jury duty, medical checkup, relief time and other
paid time-off, incentive pay, sick pay, accident, health and welfare insurance
programs, pension plans, public liability insurance, guaranteed payment plans,
and supplemental unemployment benefit programs of a similar or dissimilar
nature, irrespective of whether they may be required by any Legal Requirement or
otherwise. If there is no such agreement in effect from which such regular
average hourly wage rate is determinable as of the date of any estimate of
Tenant's Operating Payment pursuant to Section 42C or the date of any Landlord's
Statement, the computations shall be made on the basis of the regular average
hourly wage rate being paid by Landlord or by the contractor performing porter
or cleaning services for Landlord as of the date of such Landlord's Statement
and appropriate retroactive adjustments shall be made when the regular hourly
wage rate is finally determined. If Labor Rates are discontinued or cease to be
utilized as a method of calculating escalation payments in office leases in
midtown Manhattan, Landlord shall have the right to substitute for Labor Rates a
comparable escalation formula or index to compensate Landlord for Additional
Rent payments it would have received were Labor Rates then utilized and
continued as form of escalation.
(l) The term "Porters" shall mean that classification of employee
engaged in the general maintenance and operation of Class A Office Buildings
most nearly comparable to the classification now applicable to porters in the
current agreement between R.A.B. and Local 32B (which classification is
presently termed "others" in said agreement).
B. PAYMENTS TAX ESCALATIONS (a) If Taxes payable in any year falling
wholly or partially within the Term shall be in such amount as shall constitute
an increase above the Base Tax Factor, Tenant shall pay as Additional Rent for
such Tax Year a sum ("Tenant's Tax Payment") equal to Tenant's Proportionate
Share of such excess. Tenant s Tax Payment for each Tax Year shall be due and
payable in two semi-annual installments on the first day of July and January
during each Tax Year and shall be set forth; in the first instance, in a
Landlord's Statement given to Tenant. If a Landlord's Statement is furnished to
Tenant after the commencement of a Tax Year in respect of which such Landlord s
Statement is rendered, Tenant shall, within 15 days thereafter, pay to Landlord
an amount equal to the amount of any underpayment of Tenant's Tax Payment with
respect to such Tax Year and, in the event of any overpayment, Landlord shall
either pay to Tenant, or, at Landlord's election, credit against subsequent
payments under this Section, the amount of Tenant's overpayment. If there shall
be any increase in Taxes for any Tax Year, whether during or after such Tax
Year, or if there shall be any decrease in the Taxes for any Tax Year during
such Tax Year, Landlord may furnish a revised Landlord's Statement for such Tax
Year, and Tenant `s Tax Payment for such Tax Year shall be adjusted and paid or
credited or refunded, as the case may be, substantially in the same manner as
provided in the preceding sentence. If during the Term, Taxes are required to be
paid (either to the appropriate taxing authorities or as tax escrow payments to
the Superior Lessee or the Superior Mortgagee), in full or in monthly,
quarterly, or other installments on any other date or dates than as presently
required, then Tenant's Tax Payments shall be correspondingly accelerated or
revised so that said Tenant's Tax Payments are due at least thirty (30) days
prior
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to the date payments are due to the taxing authorities or the Superior
Lessee or the Superior Mortgagee. The benefit of any discount for any early
payment or prepayment of Taxes and of any tax exemption or abatement relating to
all or any part of the Real Property shall accrue to Landlord and Tenant and
shall be included in any computation of Taxes hereunder.
(b) If the real estate tax fiscal year of The City of New York shall
be changed at any time after the date hereof, any Taxes for such fiscal year, a
part of which is included within a particular Tax Year and a part of which is
not so included, shall be apportioned on the basis of the number of days in such
fiscal year included in the particular Tax Year for the purpose of making the
computations under this Section.
(c) If Landlord shall receive a refund of Taxes for any Tax Year,
Landlord shall either pay to Tenant, or, at Landlord s election, credit against
subsequent payments under this Section, Tenant s Proportionate Share of the
refund, but not to exceed Tenant s Payment paid for such Tax Year. Nothing
herein shall obligate Landlord to file any application or institute any
proceeding seeking a reduction in Taxes or assessed valuation. Tenant agrees to
cooperate fully with Landlord in prosecuting any such reduction, and Tenant
hereby irrevocably constitutes and appoints Landlord as Tenant's
attorney-in-fact, such appointment being coupled with an interest, in Tenant's
name, place and stead, and on Tenant's behalf, to initiate, pursue, withdraw,
settle or compromise any such application, proceedings or challenge that Tenant
has or may have the right to bring.
(d) Tenant's Tax Payment and any credits with respect thereto as
provided in this Section shall be made as provided in this Section regardless of
the fact that Tenant may be exempt, in whole or in part, from the payment of any
taxes by reasons of Tenant's diplomatic or other tax exempt status or for any
other reason whatsoever.
(e) Tenant shall pay to Landlord, as Additional Rent, upon notice
given by Landlord accompanied by copies of pertinent tax bills, any occupancy
tax or rent tax now in effect or hereafter enacted, if payable by Landlord in
the first instance or hereinafter required to be paid by Landlord.
(f) In the event of a termination of this Lease any Additional Rent
under this Section shall be paid or adjusted within 30 days after submission of
Landlord's Statement. In no event shall Fixed Rent ever be reduced by operation
of this Section, and the rights and obligations of Landlord and Tenant under the
provisions of this Section with respect to any Additional Rent shall survive the
termination of this Lease.
(g) Each Landlord's Statement furnished by Landlord with respect to
Tenant's Tax Payment shall be accompanied by a copy of the real estate tax bill
for the Tax Year referred to therein, but Landlord shall have no obligation to
deliver more than one such copy of the real estate tax bill in respect of any
Tax Year.
C. TENANT'S OPERATING PAYMENT. (a) Tenant shall pay as Additional Rent
for each Escalation Year an amount ("Tenant's Operating Payment") equal to the
sum obtained by multiplying the number of square feet of the Premises Area by
one times the
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number of cents (inclusive of any fractions of a cent) of any increase in Labor
Rates above those in effect as of January 1 of Landlord's Base Year.
(b) Landlord may furnish to Tenant, with respect to each Escalation
Year, a written statement setting forth Landlord's estimate of Tenant's
Operating Payment for such Escalation Year. Tenant shall pay to Landlord on the
first day of each month during such Escalation Year an amount equal to
one-twelfth of Landlord's estimate of Tenant's Operating Payment for such
Escalation Year. If, however, Landlord shall furnish any such estimate for an
Escalation Year subsequent to the commencement thereof, then (a) until the first
day of the month following the month in which such estimate is furnished to
Tenant, Tenant shall pay to Landlord on the first day of each month an amount
equal to the monthly sum payable by Tenant to Landlord under this Section in
respect of the last month of the preceding Escalation Year; (b) promptly after
such estimate is furnished to Tenant or together therewith, Landlord shall give
notice to Tenant stating whether the installments of Landlord's estimate of
Tenant's Operating Payment made for such Escalation Year were greater or less
than the installments of Landlord's estimate of Tenant's Operating Payment made
for such Escalation Year in accordance with such estimate, and (i) if there
shall be a deficiency, Tenant shall pay the amount thereof within ten (10) days
after demand therefor, or (ii) if there shall have been an overpayment, Landlord
shall either refund to Tenant the amount thereof or, at Landlord's election,
credit the amount thereof against subsequent payments under this Section; and
(c) on the first day of the month following the month in which such estimate is
furnished to Tenant, and monthly thereafter throughout the remainder of such
Escalation Year, Tenant shall pay to Landlord an amount equal to one-twelfth of
Tenant's Operating Payment shown on such estimate. Landlord may at any time or
from time to time (but not more than twice with respect to any Escalation Year)
furnish to Tenant a revised statement of Landlord's estimate of Tenant's
Operating Payment for such Escalation Year and in such case, Tenant's Operating
Payment for such Escalation Year shall be adjusted and paid or refunded, as the
case may be, substantially in the same manner as provided in the preceding
sentence.
(c) Promptly after the end of each Escalation Year, Landlord shall
furnish to Tenant a Landlord's Statement for such Escalation year. If the
Landlord's Statement shall show that the sums paid by Tenant under Section
42(C)(b) exceeded Tenant's Operating Payment required to be paid by Tenant for
such Escalation Year, Landlord shall refund to Tenant the amount of such excess,
or, at Landlord's election, with respect to any such surplus incurred and
reflected in a Landlord's Statement during the Term of this Lease, Landlord
shall credit the amount of such excess against subsequent payments of Fixed Rent
or Additional Rent due under this Lease; and if the Landlord's Statement for
such Escalation Year shall show that the sums so paid by Tenant were less than
Tenant's Operating Payment paid by Tenant for such Escalation Year, Tenant shall
pay the amount of such deficiency within ten (10) days after demand therefor.
D. If the Commencement Date or the Expiration Date shall occur on a
date other than January 1 or December 31, respectively, any Additional Rent
under this Section for the Escalation Year in which such Commencement Date or
Expiration Date shall occur shall be apportioned in that percentage which the
number of days in the period from the Commencement Date to December 31 or from
January 1 to the Expiration Date, as the case may be, both inclusive, shall bear
to the total number of days in the event of a termination of this Rent under
this Article shall be paid or adjusted within (30) days after submission of a
Landlord
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Statement. In no event shall Fixed Rent ever be reduced by operation of
this Section and the rights and obligations of Landlord and Tenant under the
provisions of this Article with respect to any Additional Rent shall survive the
termination of this Lease.
E. The computations of Additional Rent under this Article are intended
to constitute a formula for an agreed rental adjustment and may or may not
constitute an actual reimbursement to Landlord for costs and expenses paid by
Landlord with respect to the Building.
F. Landlord s failure to render Landlord's Statements for any Tax Year
or Escalation Year shall not prejudice Landlord's right to thereafter render a
Landlord's Statement with respect thereto or with respect to any subsequent Tax
Year or Escalation Year, nor shall the rendering of a Landlord's Statement
prejudice Landlord's right to thereafter render a corrected Landlord's Statement
for that Tax Year or Escalation Year, as the case may be. Nothing therein
Contained shall restrict Landlord from issuing a Landlord's Statement at any
time there is an increase in Taxes or Labor Rates during any Tax Year or
Escalation Year or any time thereafter.
G. Each Landlord's Statement shall be conclusive and binding upon
Tenant unless (a) within sixty (60) days after receipt of such Landlord's
Statement Tenant shall notify Landlord that it disputes the correctness of
Landlord's Statement specifying the particular respects in which Landlord's
Statement is claimed to be incorrect. Tenant shall pay Additional Rent in
accordance with the applicable Landlord's Statement, without prejudice to
Tenant's position, and (b) if such dispute shall not be resolved within one
hundred twenty (120) days after the giving of such Landlord's Statement, Tenant
shall submit the dispute to arbitration in accordance with the applicable rules
of the American Arbitration Association. If such dispute is ultimately
determined in Tenant's favor, Landlord shall promptly after such determination
pay to Tenant any amount as overpaid by Tenant.
ELEVATOR SERVICE:
43. Landlord, at Landlord's expense, shall furnish necessary passenger
elevator service on all days other than Saturdays, Sundays and days proclaimed
as legal holidays by the State of New York, the Federal Government, the Building
management, or unions involved in the operation of the Building ("Business
Days") from 9:00 A.M. to 6:00 P.M. and shall have an elevator subject to call at
all other times. Landlord shall not be required to furnish any operator service
or automatic elevators. In the event Tenant shall require the use of the
Building's service elevators for purposes not otherwise supplied by Landlord in
accordance with this Lease or at any time other than those set forth above,
Landlord shall provide a service elevator or passenger elevators, as the case
may be, for the use of Tenant, provided Tenant gives Landlord reasonable notice
of the time and use of such elevators to be made by Tenant and Tenant pays
Landlord's usual and reasonable charge for the use thereof. Landlord shall have
the right to change the operation or manner of operating any of the elevators in
the Building and shall have the right to discontinue, temporarily or
permanently, the use of any one or more cars in any of the banks of elevators
provided reasonable passenger and freight elevator service is provided to the
Premises.
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HVAC:
44. A. Landlord shall furnish and distribute to the Premises through
the Building heating, air conditioning and ventilation system, heated,
conditioned and outside air, at reasonable temperatures, pressures and degrees
of humidity and in reasonable volumes and velocities (collectively, "heating,
air conditioning and ventilation") on a year round basis, from 8,.00 A.M. to
6:00 P.M. on Business Days. Landlord and Tenant further agree to operate the
heating, air conditioning and ventilating equipment in accordance with their
design criteria unless a recognized energy conservation law, program, guideline,
regulation or recommendation promulgated by any Federal, State, City or other
governmental or quasi-governmental bureau, board, department, agency, office,
commission or other subdivision thereof shall provide for any reduction in
operations below said design criteria in which case such equipment shall be
operated so as to provide reduced service in accordance with such law, program,
guideline or regulation.
B. If Tenant shall require heating, air conditioning and ventilation
services other than during the hours provided for in Section A above (`after
hours'), Landlord shall furnish after hours heating, air conditioning and
ventilation service upon reasonable advance notice from Tenant, given prior to
2:00 P.M. and Tenant shall pay Landlord's then established charges therefor on
Landlord's demand, as Additional Rent. If any of the other tenants of the
Building shall request and receive after hours heating, air conditioning and
ventilation service, pursuant to Landlord's obligation to provide the same to
them, at the same time and utilizing the same system as Tenant, only that
equitably prorated portion of the charge made by Landlord for such service shall
be allocated to Tenant. Tenant shall not be charged for such after hours service
in the event that Tenant does not request it.
C. Notwithstanding the foregoing provisions of this Article 44,
Landlord shall maintain those portions of the Premises used for normal office
purposes at no more than 80(degree) FDB/50% RH when the outside ambient
temperature is 95(degree) FDB/75(degree) FWB and no less than 70(degree) FDB
when the outside ambient temperature is 0(degree)F. Landlord shall not be
responsible (a) if the normal operation of the Building heating, air
conditioning and ventilation system shall fail to provide heated and outside air
at temperatures, pressures or degrees of humidity, or in volumes or velocities
that accord with the standards provided for in Section 44A or this Section 44C,
(i) in any portion of the Premises which shall have an electrical load in excess
of 2.8 watts (9.5 BTU/HR-SF2) per square foot of rentable area in the Premises
for all purposes (including lighting and power)' or which shall have a human
occupancy factor in excess of one (1) person per one hundred twenty-five (125)
square feet of rentable area in the Premises (the average electrical load and
human occupancy factors for which the Building air conditioning system is
designed), or (ii) because of any rearrangement of partitioning or other
improvements made or performed by or on behalf of Tenant or any person claiming
through or under Tenant; or (b) for failure to meet such standards due to a
substantial change in the outside weather conditions, provided the duration of
such failure does not exceed the reasonable period required to adjust the
heating, air-conditioning and ventilation system. Whenever such heating, air
conditioning and ventilation system is in operation, Tenant agrees to cause all
windows of the Premises to be kept closed, and to draw the blinds or other
window coverings as may be necessary for the proper operation of such heating,
air conditioning and ventilation system. Tenant agrees to cause all the windows
of the Premises to be closed whenever the Premises are not occupied. Tenant
shall cooperate fully with Landlord at all times and abide by all regulations
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and requirements which Landlord may prescribe for the proper functioning and
protection of the heating, air conditioning and ventilation system. In addition
to any and all other rights and remedies which Landlord may invoke for a
violation or breach of any of the provisions of this Article 44, Landlord may
discontinue furnishing services under this Article 44 during the period of such
violation or breach, and such discontinuance shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
Lease, or impose any liability upon Landlord or Landlord's agents. Tenant
understands that any subsequent rearrangement of partitioning after initial
installation which interferes with normal operation of said systems or the use
of computer or data processing machines or other machines and equipment may
require changes in said systems or in the ducts through which the same operate,
and Tenant accordingly covenants and agrees that any changes so occasioned shall
be made only with Landlord's prior consent and in accordance with the provisions
of this Lease.
CLEANING:
45. A. Provided Tenant shall keep the Premises in good order,
Landlord, at Landlord's expense, shall cause the Premises, including the
exterior and the interior of the windows thereof (subject to Tenant maintaining
unrestricted access to such windows), but excluding any portions of the Premises
used for the storage, preparation, service or consumption of food or beverages,
to be cleaned, substantially in accordance with the standards set forth in
Exhibit C annexed hereto. Tenant shall pay to Landlord on demand Landlord's
charges for cleaning work in the Premises or the Building required because of
(i) misuse or neglect on the part of Tenant or its agents, employees,
contractors, subcontractors or visitors, (ii) use of portions of the Premises
for preparation, serving, or consumption of food or beverages, data processing
or computer operations, private lavatories or toilets, or other special purposes
requiring greater or more difficult cleaning work than office areas, (iii)
interior glass surfaces, (iv) non-building standard materials or finishes
installed by Tenant or at its request and (v) increases in frequency or scope in
any of the items set forth on Exhibit C as shall have been requested by Tenant.
Tenant shall also pay to Landlord on demand, Landlord's charges for removal from
the Premises and the Building of (i) so much of any refuse and rubbish of Tenant
as shall exceed that normally accumulated daily in the routine of ordinary
business office occupancy and (ii) all of the refuse and rubbish of Tenant s
machines and of any eating facilities requiring special handling. Landlord and
its cleaning contractor and their employees shall have access to the Premises at
all times except between 8:00 A.M. and 5:30 P.M. on Business Days and, to the
extent that it will not unreasonably interfere with the operation of Tenant's
business, during business hours, and the use of Tenant's light, power and water
in the Premises as may be reasonably required for the purpose of cleaning the
Premises.
B. If Tenant is permitted hereunder to and does have a separate area
for the storage, preparation, service or consumption of food or beverages in the
Premises, Landlord, at Tenant s expense, shall cause all portions of the
Premises so used to be cleaned daily in a manner satisfactory to Landlord, and
to be exterminated against infestation by vermin, roaches or rodents regularly
and, in addition, whenever there shall be evidence of any infestation.
C. The cleaning services required to be furnished by Landlord pursuant
to this Section may be furnished by a contractor or contractors employed by
Landlord,
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and Tenant agrees that Landlord shall not be deemed in default of any of its
obligations under this Article 45 unless such default shall continue for an
unreasonable period of time after notice from Tenant to Landlord setting forth
the specific nature of such default.
ELECTRICITY:
46. A. Landlord, at its expense, subject to the provisions of this
Article, shall furnish Tenant with all electrical energy reasonably required in
connection with the use and occupancy of the Premises. So long as the furnishing
of such electrical energy is included in the Fixed Rent on a so-called "rent
inclusion" basis in accordance with this Article 46, such in Landlord s services
which shall not levy a special electrical energy on a meter is in accordance
electrical energy shall be included are covered by Fixed Rent, and Landlord
charge on Tenant by measuring such electrical or otherwise.
B. The amount of Fixed Rent set forth above presently attributed to
the furnishing of electrical energy is the annual sum of $37,257.00.
C. Landlord will furnish electrical energy to Tenant in the Premises,
for Tenant's reasonable use of normal office equipment and such lighting,
electrical appliances and other machines and equipment as Landlord may
reasonably permit to be installed in the Premises. At Landlord's option from
time to time, an electrical engineer or utility consultant selected by Landlord
shall make a survey of the electric lighting and power load to determine the
average monthly electrical energy consumption in the Premises. Such
determinations shall take into account, among other things, any special
electrical requirements of Tenant and use by Tenant of electric energy at times
other than business hours on Business Days. The findings of the engineer or
consultant as to the proper Fixed Rent increase based on such average monthly
electric consumption shall be binding upon the parties subject to adjustment as
hereinafter provided. In no event shall the Fixed Rent or any portion of the
Fixed Rent attributable to the furnishing of electrical energy ever be reduced
by operation of this Section 46C. Any such increase resulting from a survey
shall be effective, and shall be at the Electric Rate effective, as of the date
the change of connected power load or electrical energy consumption occurred (as
determined by Landlord's electrical consultant). The initial unpaid amount of
such increase shall be paid within ten (10) days after Landlord furnishes Tenant
with a statement thereof. Thereafter, each such increase (adjusted to a monthly
basis) shall be added to the monthly installments of Fixed Rent.
D. If the Electric Rates after the date hereof shall be increased or
decreased, then the sum included in Fixed Rent by reason of this Article shall
be increased or decreased, as the case may be, by the same percentage as such
change in the Electric Rates, retroactive to the date of such increase or
decrease in such Electric Rates, and the amount payable from the effective date
of such increase to the last day of the month in which Tenant shall be billed
therefor shall be paid within 10 days after Landlord furnishes Tenant with a
statement thereof; provided that in no event shall Fixed Rent be reduced below
the amount payable in accordance with this Lease.
E. Tenant s use of electrical energy shall never exceed the capacity
of the then existing feeders to the Building or the then existing risers or
wiring installation. Any
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additional riser or risers to supply Tenant's electrical requirements and all
other equipment proper and necessary in connection therewith upon request of
Tenant will be installed by Landlord at Tenant's sole cost and expense, if in
Landlord s judgment the same will not cause or create a hazardous condition or
entail excessive or unreasonable alterations, repairs or expense or interfere
with or disturb other tenants. Rigid conduit only will be allowed. In order to
insure that such electrical capacity is not exceeded and to avert possible
adverse effect upon the Building s electrical system, Tenant shall not, without
the prior consent of Landlord, make or perform or permit any alteration to
wiring installations or other electrical facilities in or serving the Premises
or any additions to the electrical fixtures, business machines or office
equipment or appliances (other than typewriters, personal computers, facsimile
machines and similar low energy consuming office machines) in the Premises which
utilize electrical energy. Should Landlord grant such consent, all additional
risers or other equipment required therefor shall be provided by Landlord and
the cost thereof shall be paid by Tenant within ten (10) days after being billed
therefor. Landlord, its agents and engineers and consultants may survey the
electrical fixtures, appliances and equipment in the Premises and Tenant's use
of electrical energy therein from time to time to determine whether Tenant is
complying with its obligations under this Article 46. All such surveys shall be
made at the sole cost and expense of Landlord. Each increase in the Fixed Rent
under this Article 46 shall be effective on the date such additional electrical
energy is made available to Tenant.
F. In the event Tenant shall dispute any findings under this Article
of the engineer or consultant designated by Landlord, Tenant may, within 30 days
of receiving notice of such findings, designate by notice to Landlord an
independent engineer or utility consultant to make, at Tenant's sole cost and
expense, another determination of the increased average monthly electrical
consumption or the value to Tenant of the potential additional energy to be made
available to Tenant, as the case may be. If the electrical engineer or utility
consultant selected by Tenant shall determine that such increased consumption or
value, as the case may be, of such electrical energy is less than as determined
by Landlord's engineer or consultant and the two are unable to adjust such
difference within 20 days after the determination made by Tenant's engineer or
consultant is delivered to Landlord, the dispute shall be resolved by
arbitration in accordance with the rules of the American Arbitration
Association. Pending a final determination pursuant to such arbitration however,
Tenant shall pay to Landlord for such electrical energy based on the
determination of Landlord's engineer or consultants; and if it is determined
that Tenant has overpaid, Landlord shall reimburse Tenant for any overpayment at
the conclusion of such arbitration. In any such arbitration, the third
arbitrator to be appointed shall be an electrical engineer having at least five
years experience in similar matters in New York City. If Tenant shall not
dispute the findings as provided in this Section, the determination by
Landlord's engineer or consultants shall be deemed final and conclusive In no
event shall the Fixed Rent or any portion thereof attributable to the furnishing
of electrical energy ever be reduced by operation of this Section 46F.
G. Landlord shall have no liability to Tenant for any loss, damage or
expense which Tenant may sustain or incur by reason of any change, failure,
inadequacy or defect in the supply or character of the electrical energy
furnished to the Premises or if the quantity or character of the electrical
energy is no longer available or suitable for Tenant's requirements except for
any actual damage suffered by Tenant by reason of any such failure,
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inadequacy or defect caused by Landlord's negligence, and then only after actual
notice as provided in Article 61
H. The term "Electric Rates" shall be deemed to mean the rates at
which Landlord purchases electrical energy from the public utility supplying
electrical service to the Building, including any surcharges or charges incurred
or taxes payable by Landlord in connection therewith or increase or decrease
thereof by reason of fuel adjustment or any substitutions for such Electric
Rates or additions thereto.
I. Provided that Landlord shall have similarly terminated the
furnishing of electrical energy on a rent inclusion basis to substantially all
other tenants in the Building who are furnished electrical energy on a rent
inclusion basis, Landlord reserves the right to terminate the furnishing of
electrical energy at any time, upon sixty (60) days. prior notice to Tenant or
such shorter notice period as may be imposed by any Legal Requirement or
Insurance Requirement (in which event Landlord will give Tenant such notice as
is possible under the circumstances) If Landlord shall so discontinue the
furnishing of electrical energy, (a) Tenant shall arrange to obtain electrical
energy directly from the public utility company furnishing electrical energy to
the Building, (b) Landlord shall permit the existing feeders, risers, wiring and
other electrical facilities serving the Premises to be used by Tenant for such
purpose to the extent that they are available, suitable, legally permissible and
clean, (c) from and after the effective date of such discontinuance Landlord
shall not be obligated to furnish electrical energy to Tenant, and the Fixed
Rent payable under this Lease shall be reduced to the amount which would have
been then payable as Fixed Rent as of such date but for the amount included
therein pursuant to Section 46(B) attributable to the furnishing of electrical
energy (as such amount may have been adjusted), (d) this Lease shall otherwise
remain in full force and effect and such discontinuance shall be without
liability of Landlord to Tenant except that Tenant shall be entitled to the
abatement or diminution of rent expressly provided in this Section and (e) if
Landlord shall discontinue the furnishing of electrical energy as a result of
any Legal Requirement or Insurance Requirement Landlord shall, at Tenant s
expense, install at locations in the Building selected by Landlord and maintain
any necessary electrical meter equipment, panel boards, feeders, risers, wiring
and other conductors and equipment which may be required to obtain electrical
energy directly from the public utility supplying the same, otherwise Landlord
shall pay the cost of the same. Notwithstanding the foregoing, Landlord shall
endeavor to continue to provide Tenant with electrical energy on a rent
inclusion basis until such time as Tenant shall commence receiving direct
electrical service. Landlord, at its option, before commencing any work to be
paid by Tenant hereunder or at any time thereafter, may require Tenant to
furnish to Landlord such security, whether by surety bond issued by a
corporation satisfactory to Landlord in form and amount and licensed to do
business in New York State or otherwise as Landlord shall deem necessary to
assure the payment for such work by Tenant.
J. In the event Landlord elects to purchase capital equipment or make
other capital expenditures to reduce Landlord's cost of electricity, Landlord
shall receive the full benefit of such capital expenditure, and Tenant shall
continue to pay Fixed Rent for electricity, such Fixed Rent to be calculated as
hereinabove described, without regard to the fact that Landlord has reduced its
cost of electricity by virtue of such capital expenditure.
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WATER:
47. Landlord shall supply reasonably adequate quantities of hot and
cold water to a point or points on the floor on which the Premises are located
for ordinary lavatory and drinking purposes. If Tenant requires, uses or
consumes water for any purpose in addition to ordinary lavatory or drinking
purposes, Landlord may install a water meter and thereby measure Tenant's
consumption of water for all purposes. Tenant shall pay to Landlord the cost of
any such meter and its installation, and Tenant, at Tenant's sole cost and
expense, shall keep any such meter and any such equipment in good working order
and repair. Tenant agrees to pay for water consumed as shown on such meter, and
sewer charges thereon, as and when bills are rendered.
INTERRUPTION OF SERVICES;
HOURS OF BUILDING OPERATION:
48. Landlord reserves the right to stop the service of the elevator,
plumbing, electrical, HVAC, sanitary or mechanical or other service or utility
systems of the Building when necessary by reason of accident, emergency or
mechanical breakdown, requirements of law, or any cause beyond Landlord s
reasonable control, or for repairs, alterations, replacements or improvements,
which, in the judgment of Landlord, are desirable or necessary, until the reason
for such stoppage shall have been eliminated. Landlord shall have no
responsibility or liability to Tenant for failure to supply any such service or
system during such period, except that, if (i) any such failure shall involve an
interruption of such services to the Premises, (ii) Tenant shall have given
Landlord notice of such interruption, and (iii) such interruption shall continue
for ten (10) consecutive days after Tenant shall have given such notice, then,
commencing on the eleventh consecutive day of such interruption, the Fixed Rent
and Additional Rent due hereunder shall be equitably abated on a per diem basis
until such interruption shall be corrected.
ARTICLE 49 - INTENTIONALLY OMITTED
DESIGNATED SUPPLIERS:
50. A. Only Landlord or any one or more persons, firms or corporations
authorized in writing by Landlord shall be permitted to furnish laundry, linen,
towels, bootblacking, barbering, plant care, drinking water, ice and other
similar supplies and services to tenants and occupants of the Building. Landlord
may fix, in its absolute discretion, at any time and from time to time, the
hours during which and the regulations under which such supplies and services
are to be furnished. However, Tenant and its regular office employees may
personally bring food or beverages into the Building for consumption within the
Premises solely by Tenant, its regular office employees and invitees. In all
events, all food and beverages shall be carried in closed containers.
B. Only Landlord or any one or more persons, firms or corporations
authorized in writing by Landlord shall be permitted to act as maintenance
contractor for any waxing, polishing, lamp replacement, cleaning and maintenance
work in the Premises. Nothing herein contained shall prohibit Tenant from
performing such work for itself by use of its regular employees. Landlord may
fix, in its absolute discretion, at any time and from time to time, the
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hours during which and regulations under which such services are to be
furnished. Landlord expressly reserves the right to exclude from the Building
any person, firm or corporation attempting to furnish any of such services, but
not so authorized by Landlord.
C. Only Landlord or any one or more persons, firms or corporations,
authorized in writing by Landlord shall be permitted to act as contractor or
subcontractor for any work to be performed in accordance with Article 3 of this
Lease. Landlord expressly reserves the right to act as or to designate, at any
time and from time to time, an exclusive construction ` contractor, and Landlord
expressly reserves the right to exclude from the Building any person, firm or
corporation attempting to act as construction contractor in violation hereof. In
the event Tenant shall employ any contractor permitted by this Article 50, such
contractor and any subcontractor shall agree to employ only such materials and
such labor as will not result in labor disputes, strikes or jurisdictional
disputes with other contractors, mechanics, or laborers engaged by Tenant,
Landlord or others. Tenant, upon demand of Landlord, shall cause all materials,
contractors, mechanics or laborers causing such difficulty, strike or dispute to
leave or be removed from the Building immediately Landlord agrees that such
contractor or subcontractor shall have reasonable use of the Building
facilities. Tenant will inform Landlord in writing of the names of any
contractor or subcontractor Tenant proposes to use in the Premises at least ten
(10) days prior to the beginning of work by such contractor or subcontractor.
NO ADDITIONAL SERVICES:
51. Landlord shall not be required to furnish any other services except as
expressly provided in this Lease.
BROKERAGE:
52. Tenant and Landlord represent to each other that, in the negotiation of
this Lease, they dealt with no broker or brokers other than LaSalle Partners and
Coldwell Banker Commercial Real Estate Services. Each party hereby agrees to
indemnify and hold the other party harmless from and against any and all claims,
liabilities, suits, costs and expenses including reasonable attorneys' fees and
disbursements arising cut of any inaccuracy or alleged inaccuracy of the above
representation. Landlord shall have no liability for any brokerage commissions
arising out of a sublease or assignment by Tenant. The provisions of this
Article shall survive the expiration or sooner termination of this Lease.
SUBLETTING AND ASSIGNMENT:
53. A. Tenant may, without Landlord's consent:
(a) Assign this Lease to a corporation or other business entity then
having a net worth at least equal to that of Tenant prior to such merger,
consolidation or transfer (herein called a "successor corporation.) into or with
which, Tenant shall be merged or consolidated or to which substantially all of
Tenant's assets may be transferred, provided that such successor corporation
shall have effectively assumed all of Tenant's obligations and liabilities,
including those under this Lease, by operation of law, or appropriate instrument
of merger, consolidation or transfer;
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(b) Sublet any part(s) of the Premises to a corporation or other
business entity (herein called a `related corporation.) which shall control, be
controlled by, or be under common control with, Tenant, but only for so long as
said sublessee shall control, be controlled by, or be under the common control
with, Tenant;
(c) Permit any related corporation of Tenant to use the Premises, or
any part thereof, but only for so long as said occupant continues to be a
related corporation; and
(d) Assign this Lease to a related corporation of Tenant.
Tenant shall notify Landlord of each such assignment, sublease permit within ten
(10) days thereafter.
B. Concurrently with assigning this Lease to a successor corporation,
making a sublease to a related corporation, or permitting a related corporation
to occupy all or part of the Premises, or assigning this Lease to a related
corporation (all as set forth in (a), (b), (c) or (d) above, as the case may
be), Tenant shall be required to submit proof that the successor corporation
comes within the definition thereof, or that the sublessee, occupant or assignee
is a related corporation, all in form reasonably satisfactory to Landlord. As
used herein in defining related corporation, control must include over 50% of
the stock or other voting interest of the controlled corporation, or other
business entity. Similar proof that such sublessee, occupant or assignee
continues to be a related corporation shall be furnished by Tenant to Landlord
within fifteen (15) days after written request therefor.
C. Notwithstanding anything contained in Article 11, but subject to
the rights of Tenant under Section A above, in the event that, at any time or
from time to time prior to or during the Term, Tenant shall desire to sublet all
or part of the demised premises, Tenant shall submit to Landlord a written
request for Landlord's consent to such subletting, which request shall contain
or be accompanied by the following information: (1) the name and address of the
proposed subtenant; (ii) a description identifying the space to be sublet; (iii)
the terms and conditions of the proposed subletting; (iv) the nature and
character of the business of the proposed subtenant and of its proposed use of
the portion(s) of the demised premises proposed to be sublet; and (v) current
financial information and any other information as Landlord may reasonably
request with respect to the proposed subtenant. Landlord shall have the option,
to be exercised by notice given to Tenant within thirty (30) days after the
later of (a) receipt of Tenant `a request for consent or (b) receipt of such
further information as Landlord may reasonably request pursuant to clause (v)
above to obtain a sublet from Tenant of the portion(s) of the demised premises
proposed to be sublet, including Tenant's leasehold improvements therein, upon
the terms and conditions hereinafter set forth as of a date to be specified in
said notice (the "Leaseback Date') which shall be not earlier then one (1) day
before the effective date of the proposed subletting or later than forty-five
(45) days after said effective date, in which event Tenant shall deliver
possession of such portion(s) of the demised premises to Landlord on or before
the Leaseback Date.
D. (a) If Landlord shall exercise its option, pursuant to Section C
above to lease back the portion(s) of the demised premises to be sublet,
together with all leasehold improvements made by Tenant therein (herein
collectively called the Leaseback Area-
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), Tenant shall be deemed automatically to have subleased the Leaseback Area to
Landlord (herein sometimes called "Backleasing" or "Backlease") for the
remaining balance of the term (the "Backlease Term') for Fixed Rent at the same
annual rate applicable to such Leaseback Area, and with Additional Rent, all
prorated to the Leaseback Area, and otherwise on the same terms, covenants and
conditions, as are provided in this Lease, except such as by their nature or
purport are inapplicable or inappropriate to such Backleasing or are
inconsistent with the further provisions of the following Subsections of this
Article 53, which further provisions shall be deemed to be part of the terms,
covenants and conditions of such Backleasing.
(b) Landlord may underlet the Leaseback Area or parts thereof
separately or in combinations, as Landlord sees fit. The Backlease may be
assigned by Landlord to any person, including Tenant's proposed subtenant,
without Tenant's consent but such assignment shall not be effective unless the
transferee executes and delivers to Tenant a written agreement assuming all of
Landlord's obligations under the Backlease, and in such event Landlord shall
continue to be fully responsible jointly and severally with such assignee for
all of Landlord's obligations under the Backlease. Tenant shall not be
responsible for furnishing to the Leaseback Area or the occupants thereof any of
the services undertaken in this Lease to be furnished by Landlord or for the
making of any repairs or alterations, or the incurrence of any expense with
respect to the Leaseback Area during the Backlease Term, but shall only make
available that which it receives from Landlord. At the expiration or earlier
termination of the Backlease Term, Landlord shall have no obligation to restore
or alter or improve the Leaseback Area, and Tenant shall take possession of the
Leaseback Area in the condition that the same shall then be in, provided only
that all facilities necessary for the use and occupancy of the Leaseback Area,
or any subdivisions thereof as they then exist, such as ceilings, lighting
fixtures, electrical outlets, and heating, ventilating and air conditioning
systems, shall be in place and in good working order subject to reasonable wear
and tear, and the Leaseback Area shall be otherwise in good repair and
tenantable condition for general office use subject to reasonable wear and tear.
(c) Tenant shall furnish to Landlord or its assignee or subsubtenant
under the Backlease any consents or approvals requested under the Backlease so
long as (I) Landlord furnishes such consents or approvals to Tenant and (II)
Tenant incurs no expense by reason of any such consent or approval.
(d) At the request of either party, Landlord and Tenant shall mutually
execute, acknowledge and deliver an instrument or instruments of sublease to
confirm and separately set forth the demise, rent, terms, conditions and other
provisions of the Backleasing of any Leaseback Area as may be appropriate.
E. If Landlord shall not exercise any of its options under Section C
above, Landlord shall not unreasonably withhold or delay its consent to the
proposed subletting referred to in Tenant's notice given pursuant to Section C
above, provided that the following further conditions shall be fulfilled:
(a) there shall be no advertisement or public communication of any
kind whatever relating to the proposed subletting which mentions or refers to a
rental rate (but nothing herein contained shall be deemed to prohibit Tenant
from negotiating or consummating a sublease at a lesser rate of rent) or to any
other matter which directly or indirectly might
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adversely reflect on the dignity or prestige of the Building; without limiting
the foregoing restrictions, no such advertisement or other public communication
shall be released without Landlord's prior written approval, which shall not be
unreasonably withheld or delayed;
(b) no space shall be sublet to another tenant, or to a related
corporation of any other tenant or to any other occupant of the Building, if
Landlord shall then have available for rent comparable space in the Building;
(c) no subletting shall be to a person or entity which has a financial
standing, is of a character, is engaged in a business, or proposes to use the
sublet premises in a manner not in keeping with the standards in such respects
of the other tenancies in the Building;
(d) the subletting shall be expressly subject to all of the
obligations of Tenant under this Lease and, without limiting the generality of
the foregoing, the sublease shall impose at least the same restrictions and
conditions with respect to use as are contained in Article 2 and shall
specifically provide that the proposed subtenant shall be permitted no more than
one (1) further subletting of all or any part of the sublet premises;
(e) that part, if any, of the term of any such sublease or any renewal
or extension thereof which shall extend beyond a date one day prior to the
expiration or earlier termination of the term shall be a nullity;
(f) the subletting shall not have the effect, or give the utility
serving the Building with electricity cause to claim, that Landlord will not be
permitted to serve the demised premises or the portion thereof so sublet, or any
of the other leased portions of the Building, with electricity, on a "rent
inclusion' basis as provided for herein;
(g) any such subletting will result in shore being no more than four
(4) occupants on the floor on which the premises to be sublet are situated other
than Tenant;
(h) Tenant shall pay all costs that may be incurred by Landlord in
connection with said sublease, including the costs of making investigations as
to the acceptability of a proposed subtenant and the reasonable fees of Landlord
attorneys;
(i) the proposed subtenant shall not be a person who was in active
negotiations with Landlord for the rental of any space in the Building prior to
Tenant Tenant's advertisement of the space for sublet;
(j) Landlord shall be furnished with a duplicate original of the
sublease within ten (10) days after the date of its execution;
(k) Tenant shall pay to Landlord a sum equal to fifty (50%) percent of
(a) any Fixed Rent and Additional Rent or other consideration paid to Tenant by
any subtenant which is in excess of the Fixed Rent and Additional Rent then
being paid by Tenant to Landlord pursuant to the terms hereof, and (b) any other
profit or gain realized by Tenant from any such subletting All sums payable
hereunder by Tenant shall be paid to Landlord as additional rent immediately
upon receipt thereof by Tenant. If only a part of the demised premises is
sublet,
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then the rent paid therefor by Tenant to Landlord shall be deemed to be
that fraction thereof that the area of said sublet space bears to the entire
demised premises and
(l) there shall be no default by Tenant under any of the terms,
covenants and conditions of this Lease at the time that Landlord's consent to
any such subletting is requested or on the date of the commencement of the term
of any such proposed sublease.
F. No assignment of this Lease shall be binding upon Landlord unless
the assignee shall execute, acknowledge and deliver to Landlord (a) a duplicate
original instrument of assignment in form and substance satisfactory to
Landlord, duly executed by Tenant, and (b) an agreement, in form and substance
satisfactory to Landlord, duly executed by the assignee, whereby the assignee
shall unconditionally assume observance and performance of, and agree to be
bound by all of the terms, covenants and conditions of this Lease on Tenant s
part to be observed or performed, including, without limitation, the provisions
of this Article 53 with respect to all future assignment.; but the failure or
refusal of the assignee to execute or deliver such an agreement shall not
release the assignee from its liability for the obligations of Tenant hereunder
assumed by acceptance of the assignment of this Lease.
G. If this Lease be assigned, whether or not in violation of the terms
of this Lease, Landlord may collect rent from the assignee. If the demised
premises or any part thereof be sublet or be used or occupied by anybody other
than Tenant, whether or not in violation of this Lease, Landlord may, after
default by Tenant and expiration of Tenant's time to cure such default, if any,
collect rent from the subtenant or occupant. In either event, Landlord may apply
the net amount collected to the rent herein reserved, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of any of the
provisions of Article 11 or this Article, or the acceptance of the assignee,
subtenant or occupant as a tenant, or a release of Tenant from the further
performance by Tenant of Tenant.. obligations under this Lease. The consent by
Landlord to an assignment, transfer, encumbering or subletting pursuant to any
provision of this Lease shall not in any way be considered to relieve Tenant
from obtaining the express prior consent of Landlord to any other or further
assignment, transfer, encumbering or subletting. References in this Lease to use
or occupancy by anyone other than Tenant shall not be construed as limited to
subtenants and those claiming under or through subtenants but as including also
licensees and others claiming under Tenant, immediately or remotely. The listing
of any name other than that of Tenant on any door of the demised premises or on
any directory or in any elevator in the Building, or otherwise, shall not
operate to vest in the person so named any right or interest in this Lease or
the demised premises, or be deemed to constitute, or serve as a substitute for,
any consent of Landlord required under Article 11 or this Article, and it is
understood that any such listing shall constitute a privilege extended by
Landlord, revocable at Landlord's will by notice to Tenant. Tenant agrees to pay
to Landlord reasonable attorneys fees and disbursements incurred by Landlord in
connection with any proposed assignment of this Lease or any proposed subletting
of the demised premises or any part thereof. Neither any assignment of this
Lease nor any subletting, occupancy or use of the demised premises or any part
thereof by any person other than Tenant, nor any collection of rent by Landlord
from any person other than Tenant, nor any application of any such rent as
provided in this Article shall, under any circumstances except as set forth in
Section A above, relieve, impair, release or discharge Tenant of its obligations
fully to perform the terms of this Lease on Tenant's part to be performed.
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H. If Tenant or any assignee of Tenant is a corporation, the terms
"assign" and "assignment" shall, for purposes of this lease, be deemed to
include the transfer of a majority of the stock of Tenant or such assignee of
Tenant.
I. In the event Tenant desires to sublet the Premises or any portion
thereof or assign this Lease, it shall designate Landlord or the then managing
agent of the Building, at Landlord's option, as Tenant Tenant's exclusive agent
for a period of at least six (6) months to effect such sublease or assignment
and shall pay Landlord or such managing agent, as the case may be, a reasonable
brokerage commission computed in accordance with the usual rates charged by
Landlord or such managing agent.
ESTOPPEL CERTIFICATE:
54. A. Tenant shall at any time and from time to time upon not less than
ten (10) days' prior notice from Landlord, execute, acknowledge and deliver to
Landlord a statement in writing in substantially the form set forth in Exhibit E
attached hereto and made a part hereof which statement shall set forth the
Commencement Date, the Expiration Date and the Fixed Rent and certifying (i)
that this Lease is unmodified and in full force and effect (or if there has been
any modification, that the same is in full force and effect as modified and
stating the modification, (ii) the dates to which the Fixed Rent and Additional
Rent have been paid in advance, if any, (iii) whether or not to the knowledge of
Tenant, Landlord is in default in performance of any of its obligations under
this Lease and, if so, specifying each such default of which Tenant may have
knowledge, (iv) whether Tenant has accepted possession of the Premises, (v)
whether Tenant has made any claim against Landlord under this Lease and, if so,
the nature thereof and the dollar amount, if any, of such claim, (vi) whether
there exist any offsets or defenses against enforcement of any of the terms of
this Lease upon the part of Tenant to be performed, and, if so, specifying the
same, and (vii) such further information with respect to this Lease or the
Premises as Landlord may reasonably request, it being intended that any such
statement delivered pursuant hereto shall be binding upon Tenant and may be
relied upon by Landlord and by any prospective purchaser of the Real Property
and/or the Building or any part thereof or of the interest of Landlord in any
part thereof, by any mortgagee or prospective mortgagee thereof, by any lessor
or prospective lessor thereof, by any lessee or prospective lessee thereof, or
by any prospective assignee of any mortgage thereof. The failure to deliver such
statement within such time shall be conclusive upon the Tenant that this Lease
is in full force and effect, without modification except as may be represented
by Landlord, there are no uncured defaults by Landlord and that not more than
one (1) month's rental has been paid in advance, that the Tenant has accepted
the Premises in their current condition and the Tenant shall be estopped from
asserting any defaults against Landlord at that time.
B. Tenant will furnish to Landlord: (a) within one hundred twenty
(120) days after the end of each fiscal year of Tenant and each guarantor of
this Lease, respectively, annual consolidated financial statements (balance
sheets and profit and loss statements) of Tenant and each guarantor,
respectively, in comparative form, certified by an independent certified public
accountant of recognized standing (selected by Tenant or such guarantor, as the
case may be), if such certified statements are delivered to shareholders or any
other party, and otherwise certified by the chief financial officer of Tenant or
such guarantor, as the case may be; and (b) such other information regarding the
condition (financial or otherwise)
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of Tenant and each guarantor as Landlord may reasonably request. Each financial
statement of Tenant and each guarantor shall be accompanied by a certificate of
its chief financial officer that (a) he has reviewed this Lease and has obtained
no knowledge of any default hereunder or of any condition or event which, with
notice or lapse of time or both, would constitute a default hereunder (or, if
any such default, condition or event shall exist, the nature and period of
existence thereof and the action to be taken by Tenant or such guarantor with
respect thereto), and (b) no material adverse change in the business, condition
(financial or otherwise), operations or prospects of Tenant or its affiliates or
such guarantor or its affiliates has occurred during the period covered by such
statement.
SUBORDINATION AND ATTORNMENT:
55. A. This Lease and all rights of Tenant hereunder are and shall be
subject and subordinate to (a) all present and future ground leases, operating
leases, superior leases, overriding underlying leases and grants of term of the
land on which the Building stands ("Land") and the Building or any portion
thereof (collectively, including the applicable items set forth in Subdivision
(d) of this Article 55, (the "Superior Lease"), (b) all mortgages and building
loan agreements, including leasehold mortgages and spreader and consolidation
agreements, which may now or hereafter affect the Land, the Building or the
Superior Lease (collectively, including the applicable items set forth in
Subdivisions (c) and (d) of this Article, the "Superior Mortgage") whether or
not the Superior Mortgage shall also cover other lands or buildings or leases
except that a mortgage on the Land only shall not be a Superior Mortgage so long
as there is in effect a Superior Lease which is not subordinate to such
mortgage, (c) each advance made or to be made under the Superior Mortgage, and
(d) all amendments, modifications, supplements, renewals, substitutions,
refinancings and extensions of the Superior Lease and the Superior Mortgage and
all spreaders and consolidations of the Superior Mortgage. The provisions of
this Section shall be self-operative and no further instrument of subordination
shall be required. Tenant shall promptly execute and deliver, at its own
expense, any instrument, in recordable form if requested, that Landlord, the
Superior Lessor or the Superior Mortgagee may reasonably request to evidence
such subordination; and if Tenant fail. to execute, acknowledge or deliver any
such instrument within ten (10) days after request therefor, Tenant hereby
irrevocably constitutes and appoints Landlord as Tenant's attorney-in-fact,
coupled with an interest, to execute, acknowledge and deliver any such
instruments for and on behalf of Tenant. The Superior Mortgagee may elect that
this Lease shall have priority over its Superior Mortgage and, upon notification
by the Superior Mortgagee to Tenant, this Lease shall be deemed to have priority
over such Superior Mortgage, whether this Lease is dated prior to or subsequent
to the date of such Superior Mortgage. If, in connection with the obtaining,
continuing or renewing of financing for which the Building, Land or the interest
of the lessee under the Superior Lease represents collateral, in whole or in
part, the Superior Mortgagee shall request reasonable modifications of this
Lease as a condition of such financing, Tenant will not unreasonably withhold
its consent thereto, provided that such modifications do not materially and
adversely increase the obligations of Tenant hereunder, diminish the rights of
Tenant under this Lease, or cause a change in Tenant's financial obligations
hereunder.
B. Landlord hereby notifies Tenant that this Lease may not be
cancelled or surrendered, or modified or amended so as to reduce the rent,
shorten the Term or adversely affect in any other respect to any material extent
the rights of Landlord hereunder and
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that Landlord may not accept prepayments of any installments of rent except for
prepayments in the nature of security for the performance of Tenant's
obligations hereunder without the consent of any senior interest holder in each
instance, except that said consent shall not be required to the institution of
prosecution of any action or proceedings against Tenant by reason of a default
on the part of Tenant under the terms of this Lease.
C. If, at any time prior to the termination of this Lease, any senior
interest holder or any other person or the successors or assigns of the
foregoing (collectively referred to as "Successor Landlord") shall succeed to
the rights of Landlord under this Lease, Tenant agrees, at the election and upon
request of any such Successor Landlord, to fully and completely attorn to and
recognize any such Successor Landlord, as Tenant's landlord under this Lease
upon the then executory terms of this Lease; provided such Successor Landlord
shall agree in writing to accept Tenant s attornment. The foregoing provisions
of this Section shall inure to the benefit of any such Successor Landlord, shall
apply notwithstanding that, as a matter of law, this Lease may terminate upon
the termination of the Superior Lease, shall be self-operative upon any such
demand, and no further instrument shall be required to give effect to said
provisions. Upon the request of any such Successor Landlord, Tenant shall
execute and deliver, from time to time, instruments satisfactory to any such
Successor Landlord in recordable form if requested, to evidence and confirm the
foregoing provisions of this Section, acknowledging such attornment and setting
forth the terms and conditions of its tenancy. Tenant hereby constitutes and
appoints Landlord attorney-in-fact for Tenant to execute any such instrument,
for twenty (20) days after notice, for and on behalf of Tenant, such appointment
being coupled with an interest. Upon such attornment this Lease shall continue
in full force and effect as a direct lease between such Successor Landlord and
Tenant upon all of the then executory terms of this Lease except that such
"Successor Landlord shall not be (a) liable for any previous act or omission or
negligence of Landlord under this Lease; (b) subject to any counterclaim,
defense or offset, not expressly provided for in this Lease and asserted with
reasonable promptness, which theretofore shall have accrued to Tenant against
Landlord; or (c) bound by any previous modification or amendment of this Lease
made after the granting of such senior interest, or by any previous prepayment
of more than one month's rent, unless such modification or prepayment shall have
been approved in writing by any senior interest holder through or by reason of
which the Successor Landlord shall have succeeded to the rights of Landlord
under this Lease. Nothing contained in this Section shall be construed to impair
any right otherwise exercisable by any such owner, holder or lessee.
Notwithstanding the foregoing, Landlord shall use its best efforts (without
being obligated to incur any costs or expenses) to obtain a non-disturbance
agreement running to the benefit of Tenant from any current or future Superior
Lessor or Superior Mortgagee.
D. If any act or omission by Landlord would give Tenant the right,
immediately or after lapse of time, to cancel or terminate this Lease or to
claim a partial or total eviction, Tenant will not exercise any such right until
(a) it shall have given written notice of such act or omission to each Superior
Mortgagee and each Superior Lessor, whose name and address shall have previously
been furnished to Tenant, by delivering notice of such act or omission addressed
to each such party at its last address so furnished, (b) any period of time to
which Landlord would be entitled under this Lease to remedy such act or omission
shall have expired, (c) such Superior Lessor or Superior Mortgagee shall have
become entitled under such senior interest to remedy the same, and (d) an
additional period of sixty (60) days shall have
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elapsed (or' if such act or omission is not capable of being remedied in such 60
day period, any period of time necessary to remedy such act or omission shall
have elapsed).
NON-LIABILITY AND INDEMNIFICATION:
56. A. Neither Landlord nor Landlord's agents, officers, directors,
shareholders, partners or principals (disclosed or undisclosed) shall be liable
to Tenant or Tenant's agents, employees, contractors, invitees or licensees or
any other occupant of the Premises, and Tenant shall save Landlord, any
mortgagee of the Real Property and/or the Building and their respective agents,
employees, contractors, officers, directors, shareholders, partners and
principals (disclosed or undisclosed) harmless from any loss, cost, liability,
claim, damage, expense (including reasonable attorneys fees and disbursements),
penalty or fine incurred in connection with or arising from any injury to Tenant
or to any other person or for any damage to, or loss (by theft or otherwise) of,
any of Tenant s property or of the property of any other person, irrespective of
the cause of such injury, damage or loss (including the acts or negligence of
any tenant or of any owners or occupants of adjacent or neighboring property or
caused by operations in construction of any private public or quasi-public work)
unless due to the negligence of Landlord or Landlord's agents, it being
understood that no property, other than such as might normally be brought upon
or kept in the Premises as incidental to the reasonable use of the Premises for
the purposes herein permitted will be brought upon or be kept in the Premises;
provided, however, that even if due to any such negligence of Landlord or
Landlord's agents, Tenant waives, to the full extent permitted by law, any claim
for consequential damages in connection therewith and Landlord and Landlord s
agents shall not be liable, to the extent of Tenant's insurance coverage, for
any loss or damage to any person or property even if due to the negligence of
Landlord or Landlord's agents. Any building employee to whom any Property shall
be entrusted by or on behalf of Tenant shall be deemed to be acting as Tenant's
agent with respect to such property and neither Landlord nor Landlord's agents
shall be liable for any loss of or damage to any such property by theft or
otherwise.
B. Neither any (a) performance by Landlord, Tenant or others of any
repairs, alterations or improvements in or to the Real Property, Building or
Premises, (b) failure of Landlord or others to make any such repairs or
improvements, (c) damage to the Building, Premises or Tenant's property in the
Premises, (d) any injury to any persons, caused by other tenants or persons in
the Building, or by operations in the construction of any private, public or
quasi-public work, or by any other cause, (e) latent defect in the Building or
Premises, nor (f) inconvenience or annoyance to Tenant or injury to or
interruption of Tenant's business by reason of any of the events or occurrences
referred to in the foregoing subdivisions (a) through (f) shall impose any
liability on Landlord or Landlord's agents to Tenant, other than such liability
as may be required or imposed upon Landlord by law for Landlord's negligence or
the negligence of Landlord's agents in the operation or maintenance of the
Building or for the breach by Landlord of any express covenant of this Lease on
Landlord's part to be performed or observed.
C. Tenant hereby indemnifies and agrees to hold Landlord harmless from and
against any and all loss, cost, liability, claim, damage, fine, penalty and
expense including reasonable attorneys' fees and disbursements in connection
with or arising from (a) any default by Tenant in the performance or observance
of any of the terms of this Lease on Tenant's part to be performed or observed,
or (b) the use or occupancy of the Premises by Tenant
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or any person claiming under Tenant, or (c) any acts, omissions or negligence of
Tenant or any such person, or the contractors, agents, employees, invitees or
licensees of Tenant or any such person, in or about the Premises or the Real
Property either prior to, during or after the expiration of, the Term. If any
action or proceeding shall be brought against Landlord or Landlord's agents, or
any mortgagee of the Real Property and/or the Building based upon any such claim
and if Tenant, upon notice from Landlord, shall cause such action or' proceeding
to be defended at Tenant's expense by counsel reasonably satisfactory to
Landlord, without any disclaimer of liability by Tenant in connection with such
claim, Tenant shall not be required to indemnify Landlord, Landlord's agents or
mortgagee for attorneys fees and disbursements in connection with such action or
proceeding.
D. Tenant shall pay to Landlord as Additional Rent, within ten (10)
days following rendition by Landlord to Tenant of bills or statements therefor,
sums equal to all losses, costs, liabilities, claims, damages, fines, penalties
and expenses referred to in Section C above.
E. Notwithstanding anything to the contrary contained herein, Tenant
shall look only to Landlord's estate in the Premises (or the proceeds thereof)
for the satisfaction of Tenant's remedies for the collection of a judgment (or
other judicial process) requiring the payment of money by Landlord in the event
of any default by Landlord hereunder, and no other property or assets of
Landlord or its agents, directors, officers, shareholders, partners or
principals (disclosed or undisclosed) shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's remedies under or
with respect to this Lease, the relationship of Landlord and Tenant hereunder or
under law or Tenant Tenant's use or occupancy of the Premises or any other
liability of Landlord to Tenant.
F. The provisions of this Article 56 shall survive the expiration or
sooner termination of the term of this lease.
INSURANCE:
57. Tenant shall maintain personal injury and property damage insurance,
under a policy of general public liability insurance, with such limits as may
reasonably be requested by Landlord from time to time, but not less than
$5,000,000 in respect to bodily injury or death arising out of any one
occurrence, and the policy or policies evidencing such insurance shall include
Landlord and such parties as Landlord shall designate as an additional insured.
All policies required to be maintained pursuant to the provisions of this Lease
shall be issued by an insurance company or companies having a Best's rating of
at least A/XII and authorized to do business in the State of New York. All
policies required to be maintained pursuant to the provisions of this Lease
shall have a written undertaking from the insurer to notify all insureds
thereunder at least thirty (30) days prior to cancellation thereof. Upon
request, Tenant shall furnish Landlord with a certificate of insurance
evidencing any such policy or a certificate naming Landlord as an additional
insured. Such certificate or certificates of insurance shall specifically have
the indemnity clause referred to in Article 56(C) typed thereon evidencing that
said "hold harmless" clause has been insured. Tenant's failure to provide and
keep in force the aforementioned insurance shall be regarded as a material
default hereunder entitling Landlord to exercise any or all of the remedies
provided in this Lease in the event of Tenant's default.
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Tenant shall procure, maintain and place such insurance and pay all premiums and
charges therefor and upon failure to do so Landlord may, but shall not be
obligated to, procure, maintain and place such insurance or make such payments,
and in such event Tenant agrees to pay the amount thereof, plus interest at the
Interest Rate, to Landlord on demand and said sum shall be in each instance
collectible as Additional Rent on the first day of the month following the date
of payment by Landlord.
USE OF COMMON AREAS:
58. Tenant shall at no time leave any merchandise, supplies, materials or
refuse in the hallways or other common portions of the Building or in any other
area of the Building other than the demised premises. Tenant covenants that all
garbage and refuse shall be kept in proper containers, securely covered, until
removed from the Building so as to prevent the escape of objectionable fumes and
odors and the spread of vermin, and Tenant further covenants that no refuse
and/or garbage shall be permitted to remain on the sidewalks adjacent to the
Building
REPEATED DEFAULTS:
59. If Tenant shall default (i) in the timely payment of Fixed Rent or
Additional Rent, and any such default shall continue beyond any applicable grace
period and shall be repeated for three (3) consecutive months or for a total of
five (5) months in any period of twelve (12) months or (ii) more than three (3)
times in any period of six (6) months, in the performance of any other term of
this Lease to be performed by Tenant, then, notwithstanding that such defaults
shall be deemed to be deliberate and Landlord thereafter may serve the said
three (3) days' notice of termination referred to in Article 17 upon Tenant
without affording to Tenant an opportunity to cure such further default.
TRANSFER AFTER BANKRUPTCY:
60. A. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. SS 101 et seq. (the "Bankruptcy
Code"), any and all consideration payable or otherwise to be delivered in
connection with such assignment shall be paid or delivered to Landlord, shall be
and remain the exclusive property of Landlord and shall not constitute property
of Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code.
Any and all monies and other consideration constituting Landlord's property
under the preceding sentence not paid or delivered to Landlord shall be held in
trust for the benefit of Landlord and be promptly paid to or turned over to
Landlord.
B. If Tenant assumes this Lease and proposes to assign the same
pursuant to the provisions of the Bankruptcy Code to any person or entity who
shall have made a bona fide offer to accept an assignment of this Lease on terms
acceptable to Tenant then notice of such proposed assignment, setting forth (i)
the name and address of such person, (ii) all of the terms and conditions of
such offer, and (iii) the adequate assurance to be provided Landlord to assure
such person person's future performance under this Lease, including, without
limitation, the assurance referred to in Section 365(b)(3) of the Bankruptcy
Code, shall be given to Landlord by Tenant no later than twenty (20) days after
receipt by Tenant but in any event no later than ten
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(10) days prior to the date that Tenant shall make application to a court of
competent jurisdiction for authority and approval to enter into such assignment
and assumption, and Landlord shall thereupon have the prior right and option, to
be exercised by notice to Tenant given at any time prior to the effective date
of such proposed assignment, to accept an assignment of this Lease upon the same
terms and conditions and for the same consideration, if any, as the bona fide
offer made by such person, less any brokerage commissions which may be payable
out of the consideration to be paid by such person for the assignment of this
Lease.
NOTICES:
61. A. Notice shall be deemed to have been rendered or given on (a) the
date delivered, if delivered by hand, (b) one (l) Business Day after the date
mailed if mailed from outside the Borough of Manhattan by an overnight courier,
or (c) three (3) Business Days after the date mailed, if mailed as hereinafter
provided. Except as otherwise expressly provided in this Lease or by any legal
requirement, every notice, demand, consent. approval, request or other
communication (collectively "notices") which may be or is required to be given
under this Lease or by law shall be in writing and shall be sent and addressed
as follows:
(a) If to Tenant, then, at the option of Landlord,
(i) sent by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to Tenant's address
at the Building with a copy to Olwine, Connelly, Chase, O'Donnell
& Weyher, 299 Park Avenue, New York, New York 10171, Attn: Leonard
J. Connolly, Esq. or to such other address as Tenant may designate
for such purpose by like notice,
(ii) sent by an overnight delivery service (i.e., Federal
Express or DHL) to Tenant, at the Premises or at the address to
which a mailed notice would be sent pursuant to (i) above, or
(iii) delivered by hand to Tenant, at the Premises or at the
address to which a mailed notice would be sent pursuant to (i)
above,
(b) If to Landlord, sent by United States registered or certified
mail, return receipt requested, postage prepaid, addressed to Landlord's
address, to the attention of the Building Manager as set forth in this Lease
with a copy to Richards and O'Neil, 885 Third Avenue, New York, New York
10022-4802, attention: Andrew L. Herz, Esq. or to such other or further address
or addresses as Landlord may designate for such purpose by like notice; or
(c) If to any other person, sent by registered or certified mail,
return receipt requested and postage prepaid addressed to such person's last
known principal address or to such other address as such person may designate to
Landlord and Tenant as its address for such purpose by like notice.
(d) Notices given by counsel for either party shall be deemed valid
notices if addressed and sent in accordance with the provisions of this Article.
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B. Notices requesting after hours services pursuant to Article 44 may
be given by delivery to the Building superintendent or any other person in the
Building designated by Landlord to receive such notices.
C. If there occurs any interruption of certified and registered mail
service, lasting more than five (s) consecutive Business Days, notices may be
given by telegram or personal delivery, but shall not be effective until
personally received by an executive officer of a party which is a corporation,
or a partner of a party which is a partnership. or a principal of any other
entity.
RELOCATION OF PREMISES:
62. Landlord may, at its option, elect by notice to Tenant to substitute
for the Premises other office space in the Building (herein called the
"Substitute Premises") designated by Landlord, provided that the Substitute
Premises contains at least the same usable square foot area as the Premises,
i.e., either on a higher floor than the Premises or is not more than three
floors below the Premises and has a full floor identity similar to that of the
Premises. Landlord's notice shall be accompanied by a plan of the Substitute
Premises, and such notice or the plan shall set forth the usable square foot
area of the Substitute Premises. Tenant shall occupy the area of the Substitute
Premises promptly (and, in any event, not later than fifteen (15) days) after
Landlord has substantially completed the work to be performed by Landlord in the
Substitute Premises pursuant to this Lease. Tenant shall pay the same Fixed Rent
with respect to the Substitute Premises as was payable with respect to the
Premises, without regard to the usable square foot area of the Substitute
Premises but the figures set forth in Section 42(A) shall be increased to
reflect any increase in the square foot area of the Substitute Premises over the
square foot area of the Premises as presently set forth in Section 42(A). In any
such event, this Lease (i) shall no longer apply to the Premises, except with
respect to obligations which accrued on or prior to the date on which the
Premises were surrendered; and (ii) shall apply to the Substitute Premises as if
the Substitute Premises had been the space originally demised under this Lease.
Tenant shall proceed promptly to make any revisions to its Plans and
Specifications necessitated by reason of the substitution of the Substitute
Premises for the Premises. Landlord shall have no liability to Tenant in the
event of such substitution but Landlord shall reimburse Tenant for the lesser of
(i) any reasonable expenses incurred by Tenant for architects or engineers in
connection with the Substitute Premises, (ii) any reasonable expenses incurred
by Tenant for architects or engineers in connection with the revisions to
Tenant's Plans necessitated by reason of the substitution of the Substitute
Premises for the Premises, or (iii) any reasonable expenses incurred by Tenant
in connection with the preparation of the Substitute Premises for Tenant's
occupancy and Tenant's move from the Premises to the Substitute Premises.
MISCELLANEOUS PROVISIONS:
63. A. If any of the provisions of this Lease, or the application thereof
to any person or circumstance, shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
or provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby, and every
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
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B. With respect to each alteration, installation, addition or
improvement to the Premises ("Improvements".) Tenant shall pay to Landlord, as
Additional Rent, upon demand, 10% of the cost of such improvement for indirect
Job costs, supervision and coordination of the work performed in connection with
such Improvement. Tenant shall furnish Landlord with satisfactory evidence that
any insurance required by Landlord during the performance of the Improvements is
in effect at or before the commencement of the Improvements and, on request, at
reasonable intervals thereafter. No Improvements shall involve the removal of
any fixtures, equipment or other property in the Premises which are not Tenant's
Property without Landlord's prior consent and unless they shall be promptly
replaced, at Tenant's expense and free of superior title, liens, security
interests and claims, with fixtures equipment or other property, as the case may
be, of like utility and at least equal value, unless Landlord shall otherwise
consent.
C. Notwithstanding anything to the contrary contained in Article 9 of
this Lease, Landlord shall not be liable for any injury to the business of
Tenant resulting from any damage to the Premises or the Building by fire or
other casualty or the repair thereof, unless such damage shall be Caused by
Landlord's negligent act or omission.
D. Notwithstanding anything to the contrary contained in Article 22 or
elsewhere in this Lease, any wall-to-wall carpeting installed in the Premises
shall upon installation become the property of Landlord and shall remain in and
be surrendered with the Premises upon the expiration or earlier termination of
this Lease.
E. (a) Tenant hereby indemnifies and agrees to hold Landlord harmless
from and against any loss. cost, liability, claim, damage, fine, penalty and
expense (including reasonable attorneys' fees and disbursements) resulting from
delay by Tenant in surrendering the Premises upon the termination of this Lease
as provided in Article 22, including any claims made by any succeeding tenant or
prospective tenant founded upon such delay.
(b) In the event Tenant remains in possession of the Premises after
the termination of this Lease without the execution of a new lease, Tenant, at
the option of Landlord, and with Landlord's consent, shall be deemed to be
occupying the Premises as a tenant from month to month, at a monthly rental
equal to three times the Fixed Rent and Additional Rent payable during the last
month of the Term, subject to all of the other terms of this Lease insofar as
the same are applicable to a month-to-month tenancy. If Tenant remains in
possession of the Premises after the termination of this Lease without the
execution of a new lease, and without the Landlord's written consent to
continued possession as a month-to-month tenant, the Tenant shall be deemed a
holdover tenant, and shall have no right to continued possession of the Premises
beyond the term of the Lease, upon any ground whatsoever. Tenant shall be liable
to Landlord, during the period of the unlawful holding over, for use and
occupancy equal to three times the Fixed Rent and Additional Rent payable during
the last month of the Term, and shall remain subject to all of the other terms
of this Lease insofar as the same are applicable to an occupant continuing to
hold over in possession of the Premises.
F. The submission by Landlord to Tenant of this Lease in draft form
shall be deemed submitted solely for Tenant's consideration and not for
acceptance and execution. Such submission shall have no binding force and
effect, shall not constitute an option
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for the leasing of the Demised Premises, and shall not confer any rights or
impose any obligations upon either party. The submission by Landlord of this
Lease for execution and delivery thereof by Tenant to Landlord shall similarly
have no binding force and effect unless and until Landlord shall have executed
this Lease and a counterpart thereof shall have been delivered to Tenant. In
consideration of Landlord's administrative expense in considering this Lease and
the terms of Tenant's proposed tenancy hereunder and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Tenant's submission to Landlord of this Lease, duly executed by Tenant, shall
constitute Tenant's irrevocable offer for the leasing of the Demised Premises,
to continue for fifteen (15) days from and after receipt by Landlord or until
Landlord shall deliver to Tenant written notice of rejection of Tenant's offer,
whichever shall first occur.
G. Landlord shall have the right to erect any gate, chain or other
obstruction or to close off any portion of the Real Property to the public at
any time to the extent necessary to prevent a dedication thereof for public use.
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[GRAPHIC OMITTED]
<PAGE>
EXHIBIT B
INTENTIONALLY OMITTED
<PAGE>
GENERAL CLEANING
I. GENERAL OFFICE AREAS
A. NIGHTLY - BUSINESS DAYS
1. All hard surfaced flooring to be swept using an approved
chemically treated dust mop.
2. Carpet sweep all carpets four (4) nights per week, moving
only light furniture (desks, file cabinets, etc. not to be moved).
3. Hand dust and wipe clean with chemically treated cloth all
furniture, file cabinets, fixtures, window sills and convector enclosed tops.
4. Empty and wipe clean all ash trays and screen all sand
urns.
5. Dust all telephones.
6. Dust all chairs, rails and trims.
7. Empty all standard size office waste paper baskets.
8. Wipe clean all water fountains and dust all water coolers.
B. PERIODIC
1. Vacuum all carpeting and rugs once per week.
2. Hand dust all door louvers and other ventilating louvers
within reach once per week.
3. Wipe clean all interior metal fingermarks once per week.
4. Dust all baseboards once per month.
5. Dust, quarterly, all picture frames, charts and all similar
hangings not in reach of nightly cleaning.
6. Dust, quarterly, all vertical surfaces such as walls,
partitions, doors and other surfaces not reached in nightly cleaning.
7. Dust, quarterly, exterior of lighting fixtures.
8. Dust, quarterly, all venetian blinds.
9. Dust twice per year all ceiling, air conditioning louvers
and grilles not reached in nightly cleaning.
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. The sidewalks, driveways, entrances, passages, courts, lobbies,
esplanade areas, atrium, plazas, elevators, escalators, stairways, vestibules,
corridors, halls and other public portions of the Building ("Public Areas")
shall not be obstructed or encumbered by any tenant or used for any purpose
other than ingress and egress to and from the Premises, and no tenant shall
permit any of its employees, agents, licensees or invitees to congregate or
loiter in any of the Public Areas. No tenant shall invite to, or permit to
visit, its premises persons in such numbers or under such conditions as may
interfere with the use and enjoyment by others of the Public Areas. Fire exits
and stairways are for emergency use only, and they shall not be used for any
other purposes by any tenant, or the employees, agents, licensees or invitees of
any tenant. Landlord reserves the right to control and operate, and to restrict
and regulate the use of, the Public Areas and the public facilities, as well as
facilities furnished for the common use of the tenants, in such manner as it
deems best for the benefit of the tenants generally, including the right to
allocate certain elevators' delivery service, and the right to designate which
Building entrances shall be used by persons making deliveries in the Building.
No doormat of any kind whatsoever shall be placed or left in any public hall or
outside any entry door of the Premises.
2. No awnings or other projections shall be attached to the outside walls
of the Building. No curtains, blinds, shades or screens shall be attached to or
hung in, or used in connection with, any window or door of the Premises, without
the consent of Landlord. Such curtains, blinds, shades or screens must be of a
quality, type, design and color, and attached in the manner, approved by
Landlord. In order that the Building can and will maintain a uniform appearance
to those persons outside of the Building, each tenant occupying the perimeter
areas of the Building shall (a) use only building standard lighting in areas
where lighting is visible from the outside of the Building and (b) use only
building standard blinds in window areas which are visible from the outside of
the Building.
3. No sign, insignia, advertisement, lettering, notice or other object
shall be exhibited, inscribed, painted or affixed by any tenant on any part of
the outside or inside of the Premises or the Building or on corridor walls
without the prior consent of Landlord. Signs on each entrance door of the
Premises shall conform to building standard signs, samples of which are on
display in Landlord's rental office. Such signs shall, at the expense of Tenant,
be inscribed, painted or affixed by signmakers approved by Landlord. In the
event of the violation of the foregoing by any tenant, Landlord may remove the
same without any liability, and may charge the expense incurred in such removal
to the tenant or tenants violating this rule. Interior signs, elevator cab
designations, if any, and lettering on doors and the Building directory shall,
if and when approved by Landlord, be inscribed, painted or affixed for each
tenant by Landlord, at the expense of such tenant, and shall be of a size, color
and style acceptable to Landlord. Only Tenant named in the Lease shall be
entitled to appear on the directory tablet. Additional names may be added in
Landlord's sole discretion under such terms and conditions as the Landlord may
approve.
4. Neither the sashes, sash doors, skylights or windows that reflect or
admit light and air into the halls, passageways or other public places in the
Building nor the heating,
<PAGE>
ventilating and air conditioning vents and doors shall be covered or obstructed
by any tenant, nor shall any bottles parcels or other articles be placed on the
window sills or on the peripheral heating enclosures. Whenever the heating,
ventilating or air conditioning systems are in operation, Tenant agrees to draw
the shades, blinds or other window coverings, as reasonably required because of
the position of the sun. Tenant shall have no right to remove or change shades,
blinds or other window coverings within the Premises without Landlord Landlord's
consent. Tenant acknowledges that although the windows are not hermetically
sealed Tenant is not permitted to open such windows.
5. No showcases or other articles shall be put by Tenant in front of or
affixed to any part of the exterior of the Building, nor placed in the Public
Areas.
6. No acids, vapors or other harmful materials shall be discharged, or
permitted to be discharged, into the waste lines, vents or flues of the
Building. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were designed and
constructed, and no sweepings, rubbish, rags, acids or other foreign substances
shall be thrown or deposited therein. Nothing shall be swept or thrown into the
Public Areas or other areas of the Building, or into or upon any heating or
ventilating vents or registers or plumbing apparatus in the Building, or upon
adjoining buildings or land or the street. The cost of repairing any damage
resulting from any misuse of such fixtures, vents, registers and apparatus and
the cost of repairing any damage to the Building, or to any facilities of the
Building, or to any adjoining building or property, caused by any tenant, or the
employees, agents, licensees or invitees of such tenant, shall be paid by such
tenant. Any cuspidors or similar containers or receptacles shall be emptied,
cared for and cleaned by and at the expense of such tenant.
7. No tenant shall mark, paint, drill into, or in any way deface, any part
of the Premises of the Building. No boring, cutting or stringing of wires shall
be permitted, except with the prior written consent of, and as directed by,
Landlord. No telephone, telegraph or other wires or instruments shall be
introduced into the Building by any tenant except in a manner approved by
Landlord. No tenant shall lay linoleum, or other similar floor covering, so that
the same shall come in direct contact with the floor of its premises, and, if
linoleum or other similar floor covering is desired to be used, an interlining
of builder's deadening felt shall be first affixed to the floor, by a paste or
other material, soluble in water, the use of cement or other similar adhesive
material being expressly prohibited.
8. No bicycles, vehicles, animals (except seeing eye dogs), fish or birds
of any kind shall be brought into, or kept in or about, the Premises.
9. No noise, including, but not limited to music, the playing of musical
instruments, recordings, radio or television, which, in the judgment of
Landlord, might disturb other tenants in the Building, shall be made or
permitted by any tenant. Nothing shall be done or permitted by any tenant which
would impair or interfere with the use or enjoyment by any other tenant of any
other space in the Building.
10. Nothing shall be done or permitted in the Premises, and nothing shall
be brought into, or kept in or about the Premises, which would impair or
interfere with any of the
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Building Equipment or the services of the Building or the proper and economic
heating, ventilating, air conditioning, cleaning or other services of the
Building or the Premises, nor shall there be installed by any tenant any
ventilating, air conditioning, electrical or other equipment of any kind which,
in the judgment of Landlord, might cause any such impairment or interference. No
tenant, nor the employees, agents, licensees or invitees of any tenant, shall at
any time bring or keep upon its premises any inflammable, combustible or
explosive fluid, chemical or substance.
11. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in locks or
the mechanism thereof. Duplicate keys for the Premises and toilet rooms shall be
procured only from Landlord, and Landlord may make a reasonable charge therefor.
Each tenant shall, upon the expiration or sooner termination of the Lease of
which these Rules and Regulations are a part, turn over to Landlord all keys to
stores, offices and toilet rooms, either furnished to, or otherwise procured by,
such tenant, and in the event of the loss of any keys furnished by Landlord,
such tenant shall pay to Landlord the cost of replacement locks. Notwithstanding
the foregoing, Tenant may, with Landlord's prior consent, install a security
system in the Premises which uses master codes or cards instead of keys provided
that Tenant shall provide Landlord with the master code or card for such system.
12. All removals, or the carrying in or out of any safes, freight,
furniture, packages, boxes, crates or any other object or matter of any
description shall take place only during such hours and in such elevators as
Landlord may from time to time determine, which may involve overtime work for
Landlord's employees. Tenant shall reimburse Landlord for extra cost. incurred
by Landlord including but not limited to the cost of such overtime work.
Landlord reserves the right to inspect all objects and matter to be brought into
the Building and to exclude from the Building all objects and matter which
violate any of these Rules and Regulations or the Lease of which these Rules and
Regulations are a part. Landlord may require any person leaving the Building
with any package or other object or matter to submit a pass, listing such
package or object or matter, from the tenant from whose premises the package or
object or matter is being removed, but the establishment or enforcement of such
requirement shall not impose any responsibility on Landlord for the protection
of any tenant against the removal of property from the premises of such tenant.
Landlord shall in no way be liable to any tenant for damages or loss arising
from the admission, exclusion or rejection of any person to or from the Premises
or the Building under the provisions of Rule 12 or of Rule 15 hereof.
13. No tenant shall use or occupy, or permit any portion of its premises to
be used or occupied, as an office for a public stenographer or public typist, or
for the possession, storage, manufacture or sale of narcotics or dope or as a
barber, beauty or manicure shop, telephone or telegraph agency, telephone or
secretarial service, messenger service, travel or tourist agency, retail,
wholesale or discount shop for sale of merchandise, retail service shop, labor
union, classroom, company engaged in the business of renting office or desk
space, or for a public finance (personal loan) business, or as a hiring
employment agency, or as a stock brokerage board room. No tenant shall engage or
pay any employee in its premises, except those actually working for such tenant
on its premises, nor advertise for laborers giving an address at the Building.
No tenant shall use its premises or any part thereof, or permit the Premises or
any part thereof to be used, as a restaurant, shop, booth or other stand, or for
the conduct of any
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business or occupation which predominantly involves direct patronage of the
general public, or for manufacturing, or for the sale at retail or auction of
merchandise, goods or property of any kind.
14. Landlord shall have the right to prohibit any advertising or
identifying sign by any tenant which, in the judgment of Landlord, tends to
impair the appearance or reputation of the Building or the desirability of the
Building as a building for offices, and upon written notice from Landlord such
tenant shall refrain from and discontinue such advertising or identifying sign.
15. Landlord reserves the right to exclude from the Building all employees
of any tenant who do not present a pass to the Building signed by such tenant.
Landlord or its agent will furnish passes to persons for whom any tenant
requests same in writing Landlord reserves the right to require all other
persons entering the Building to sign a register, to be announced to the tenant
such person is visiting, and to be accepted as a visitor by such tenant or to be
otherwise properly identified (and, if not so accepted or identified, reserves
the right to exclude such persons from the Building) and to require persons
leaving the Building to sign a register or to surrender a pass given to such
person by the tenant visited. Each tenant shall be responsible for all persons
for whom it requests any such pass or any person whom such tenant so accepts,
and such tenant shall be liable to Landlord for all acts or omissions of such
persons. Any person whose presence in the Building at any time shall, in the
judgment of Landlord, be prejudicial to the safety, character, security,
reputation or interests of the Building or the tenants of the Building may be
denied access to the Building or may be ejected from the Building. In the event
of invasion riot, public excitement or other commotion, Landlord may prevent all
access to the Building during the continuance of the same by closing the doors
or otherwise, for the safety of tenants and the protection of property in the
Building.
16. Unless Landlord shall otherwise request each tenant, before closing and
leaving its premises at any time, shall see that all lights are turned out. All
entrance doors in the Premises shall be kept locked by each tenant when its
premises are not in use. Entrance doors shall not be left open at any time.
17. Each tenant shall, at the expense of such tenant, provide light, power
and water for the employees of Landlord, and the agents, contractors and
employees of Landlord, while doing janitor service or other cleaning in the
premises demised to such tenant and while making repairs or alterations in its
premises.
18. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
19. The requirements of tenants will be attended to only upon application
at the office of the Building. Employees of Landlord shall not perform any work
or do anything outside of their regular duties, unless under special
instructions from Landlord.
20. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant shall cooperate to prevent the same.
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21. The employees, agents, licensees and invitees of any tenant shall not
loiter around the Public Areas or the front, roof or any part of the Building
used in common by other occupants of the Building.
22. There shall not be used in any space, or in the Public Areas, either by
any tenant or by others, in the moving or delivery or receipt of safes, freight,
furniture, packages, boxes, crates, paper, office material or any other matter
or thing, any hand trucks except those equipped with rubber tires side guards
and such other safeguards as Landlord shall require. No hand trucks shall be
used in passenger elevators.
23. No tenant shall cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to emanate from its premises
which would annoy other tenants or create & public or private nuisance. No
cooking shall be done in the Premises except as is expressly permitted in the
Lease of which these Rules and Regulations are a part.
24. All paneling, doors, trim or other wood products not considered
furniture shall be of fire-retardant materials. Before installation of any such
materials, certification of the materials' fire-retardant characteristics shall
be submitted to and approved by Landlord, and installed in a manner approved by
Landlord.
25. Whenever any tenant shall submit to Landlord any plan, agreement or
other document for the consent or approval of Landlord, such tenant shall pay to
Landlord, on demand, a processing fee in the amount of the reasonable fees for
the review thereof, including the services of any architect, engineer or
attorney employed by Landlord to review such plan, agreement or document.
26. Landlord reserves the right to rescind, alter, waive or add, as to one
or more or all tenants, any rule or regulation at any time prescribed for the
Building when, in the judgment of Landlord, Landlord deems it necessary or
desirable for the reputation, safety, character, security, care, appearance or
interests of the Building, or the preservation of good order therein, or the
operation or maintenance of the Building, or the equipment thereof, or the
comfort of tenants or others in the Building. No rescission, alteration, waiver
or addition of any rule or regulation in respect of one tenant shall operate as
a rescission, alteration or waiver in respect of any other tenant.
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EXHIBIT E
TENANT ESTOPPEL CERTIFICATE AND AGREEMENT
(PREMISES, 220 EAST 42nd STREET, NEW YORK CITY)
THIS IS TO CERTIFY THAT:
1. The undersigned is the lessee (the "Tenant") under that certain lease
(the Lease ) dated as specified in 6(a) below, by and between Two Twenty East
Limited Partnership, as Lessor (the Landlord'), and the undersigned or the
person specified in 6(b) below, as Lessee, covering those certain premises
commonly known and designated as the floors or portions thereof specified in
6(c) below (the "Premises"), at No. 220 East 42nd Street, in the Borough of
Manhattan, City, County and State of New York.
2. The Lease (i) constitutes the entire agreement between the undersigned
and the Landlord with respect to the Premises, (ii) has not been modified,
changed, altered or amended in any respect (except as indicated in 6(g) below)
and (iii) is the only Lease between the undersigned and the Landlord affecting
the Premises.
3. The undersigned has accepted and now occupies the entire premises
covered by the Lease, and all improvements required by the terms of the Lease to
be made by the Landlord have been completed to the satisfaction of the
undersigned.
4. (i) No party to the Lease is in default, (ii) the Lease is in full force
and effect, (iii) full rental is accruing thereunder and (iv) as of the date
hereof the undersigned has no charge, lien or claim of off-set (and no claim for
any credit or deduction) under the Lease or otherwise, against rents or other
charges due or to become due thereunder or on account of any prepayment of rent
more than 30 days in advance of its due date.
5. Since the date of the Lease, to the best knowledge of the undersigned,
there has been no material adverse change in the financial condition of the
undersigned, and there are no actions, whether voluntary or otherwise, pending
against the undersigned under the bankruptcy, reorganization, arrangement,
moratorium or similar laws of the United States, any state thereof or any other
jurisdiction.
6. (a) The date of the Lease is __________, 19___.
(b) The original Lessee of the Lease, if different from the undersigned,
was __________.
(c) The premises covered by the Lease are __________.
(d) The term of the Lease began (or is scheduled to begin) on __________,
19___.
(e) The fixed rent for Premises has been paid to and including __________,
198___.
<PAGE>
(f) The fixed rent being paid pursuant to the Lease is at the annual rate
of $__________. Such fixed annual rent, together with additional rent payable
pursuant to the Lease for the current year, results in an aggregate annual rent
of $__________.
(g) The following are exceptions to the statements in 2(ii):
Dated:
------------------------------ ------------------------------------
By:
------------------------------------
(Title: )
-------------------------------
(Signed on __________, 198___)
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AGREEMENT MODIFYING LEASE I
AGREEMENT, made as of this 26th day of November, 1990 between TWO TWENTY
EAST LIMITED PARTNERSHIP, an Illinois limited partnership having an address c/o
LaSalle Partners, 220 East 42nd Street, New York, New York 10017 ("Landlord"),
and MINET INTERNATIONAL PROFESSIONAL INDEMNITY INSURANCE BROKERS, INC., a New
Jersey corporation, having an address at 220 East 42nd Street, New York, New
York 10017 ("Tenant").
W I T N E S S E T H
WHEREAS, Landlord and Tenant entered into a lease agreement dated as of
January 27, 1989 (the Lease ) covering the entire twenty-first (21st) floor (the
"Premises") in the building located at 220 East 42nd Street, New York, New York
10017 (the "Building"), as more particularly described in the Lease; and
WHEREAS, Tenant desires to hire and take additional space consisting of the
entire twenty-fourth (24th) floor of the Building, as shown on the floor plan
annexed hereto and made a part hereof as Exhibit A (the "Additional Space"), and
to extend the term of the Lease, and Landlord is agreeable thereto on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth below, Landlord and Tenant hereby agree as follows:
1. Unless otherwise defined herein, all capitalized terms used herein shall
have the meanings ascribed to them in the Lease
2. Effective as of the date (the "Effective Date") which shall occur ten
(10) days after the date on which Landlord gives notice to Tenant that the
Additional Space is "available for occupancy", as defined below, the Lease shall
be amended as follows:
(a) the Additional Space shall be added to and thereafter included in
the Premises;
(b) the Fixed Rent payable by Tenant for the Additional Space
(including any portion thereof payable for electric current) shall be
$446,035 for the period commencing on the day immediately following the
seventh monthly anniversary of the Effective Date (the "Additional Space
Rent Commencement Date") and ending on June 30, 1994; and shall be
$476,172.50 for the period beginning on July 1, 1994 and ending on the
Expiration Date;
(c) commencing on the Additional Space Rent Commencement Date, the
amount set forth in Section 46B of the Lease shall be increased to $73,422;
and
<PAGE>
(d) Tenant shall pay all items of Additional Rent provided for in the
Lease, including but not limited to Tenant Tenant's Tax Payment and
Tenant's Operating Payment, with respect to the Additional Space for the
period from the Additional Space Rent Commencement Date through the
Expiration Date. Tenant shall pay all such items as provided in the Lease,
except that, for purposes of computing the Additional Rent with respect to
the Additional Space on or after the Effective Date:
(i) "Premises Area" as set forth in Section 42A(a) of the Lease
shall be deemed to be 12,055 square feet;
(ii) "Tenant's Proportionate Share" as set forth in Section
42A(b) of the Lease shall be deemed to be 1.1039%;
(iii) "Base Tax Factor as set forth in Section 42A(d) shall mean
the Taxes for the 1990/1991 Tax Year;
(iv) "Landlord's Base Year. as set forth . Section 42A(g) shall
mean the fiscal year July 1, 1990 to June 30, 1991; and
(v) The third sentence of Section 42A(k) shall be deleted and
the following shall be substituted therefor:
"Such regular average hourly wage rate shall also be
inclusive of one-half of the monetary value or cost of
all payments or benefits of every nature and kind
(including those required to be paid by the employer
directly to taxing authorities or other because of the
employment), including social security, unemployment and
other similar taxes, and vacation pay, absent fund,
birthdays, jury duty, medical checkup, relief time and
other paid time-off, incentive pay, sick pay, accident,
health and welfare insurance programs, pension plans,
public liability insurance, guaranteed payment plans, and
supplemental unemployment benefit programs of a similar
or dissimilar nature, irrespective of whether they may be
required by any Legal Requirement or otherwise."
All other terms applicable to such items of Additional Rent shall be
deemed to and all shall remain as set in the Lease.
3. With respect to the Additional Space only, the amount of $25,000 set
forth in the first sentence of Section 63B of the Lease shall be decreased to
$3,000.
4. Except as otherwise set forth herein, from and after the Effective Date,
the term "Premises," "premises" or "demised premises" as used in the Lease shall
be deemed to include the Additional Space, and the Additional space shall be
added to and form a part of the Premises with the same force and effect as if
originally demised under the Lease.
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5. A. Landlord shall reimburse Tenant in accordance with this Section 5 for
Tenant hard construction costs, architect fees, general contractor/construction
manager fees and general conditions for initial Improvements to the Additional
Space up to an aggregate amount of $421,925 ("Landlord's Contribution.).
B. Provided Tenant is not then in default of any of its obligations under
the Lease, Landlord shall reimburse Tenant for Landlord's Contribution in the
following manner: (i) the reimbursement amount(s) requested by Tenant at any
time shall be divided by the total amount(s) of the hard construction costs,
architect fees and general contractor/construction manager fees and general
conditions for the initial Improvements as reelected in all bids accepted by
Tenant for the Premises plus such amounts as Landlord reasonably estimates will
be the cost of the initial Improvements for which bids have not been accepted,
then (ii) the aggregate amount for which Landlord is obligated reimburse Tenant
shall be multiplied by the amount computed in Section 5B(i), and the resulting
amount, up to the aggregate amount of Landlord's Contribution, shall be payable
to Tenant.
C. Landlord shall pay such reimbursement amounts to Tenant by check within
twenty (20) days after Tenant shall have given, and Landlord shall have
received, Tenant's request therefor accompanied by invoices marked paid or other
proof of payment satisfactory to Landlord, together with copies of fully
executed and acknowledged valid lien waivers from all involved contractors,
subcontractors and materialmen for all construction costs and expenses incurred
by Tenant, including amounts for which Tenant is requesting reimbursement.
6. Tenant shall be responsible for compliance with all applicable laws and
regulations (including without limitation Local Law 5 of The City of New York),
affecting the Additional Space and any Improvements, initial or otherwise, made
therein, and Tenant shall make such improvements as may be necessary to effect
such compliance at Tenant's sole cost and expense. Landlord represents that it
has no knowledge of any Local Law 5 requirements which must be satisfied with
respect to the Additional Space. Landlord also represents that, as of the date
hereof, the Building standpipes for the existing Building sprinkler systems are
presently located on the 24th floor of the Building and are in working order.
7. A. Prior to the Effective Date, Landlord shall. at its sole cost and
expense, perform the alterations and improvements set forth in Exhibit B
attached hereto and made a part hereof ("Landlord's Work") . Landlord shall not
be require I to incur additional costs or employ overtime labor in connection
therewith
B. For the purposes of Section 2 hereof, the Additional Space shall be
conclusively deemed "available for occupancy". as soon as Landlord's Work shall
be substantially completed. Landlord's Work shall be deemed substantially
completed notwithstanding the fact that (i) minor or insubstantial details of
construction, mechanical adjustment or decoration shall remain to be performed
or (ii) portions of Landlord's Work shall not have been completed because, under
good construction scheduling practice, such work should be done after still
incompleted finishing or other work to be done by or on behalf of Tenant is
completed.
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C. Tenant shall accept possession of the Additional Space in its "as is"
condition, subject only to the completion by Landlord of Landlord's Work.
Landlord shall be under no obligation to make any changes, improvements, or
alterations to the Additional Space other than Landlord's Work. The taking of
occupancy of the whole or part of the Additional Space by Tenant shall be
conclusive evidence as against Tenant that Tenant shall have accepted possession
of the Additional Space and that the Additional Space shall be in good and
satisfactory condition at the time such occupancy shall be so taken.
D. If, during the completion of Landlord's Work it is determined that
asbestos in the Additional Space must be removed or abated due to the nature of
Landlord's Work, then Landlord shall remove or abate such asbestos at Landlord's
sole cost and expense.
8. If Landlord shall be unable to give possession of the Additional Space
on the Effective Date for any reason whatsoever, Landlord shall not be subjected
to any liability for the failure to give possession on said date. No such
failure to give possession on such specific date shall affect the validity of
the Lease or this Agreement or the obligations of Tenant hereunder or be deemed
to extend the term of the Lease or this Agreement, but the rent reserved and
covenanted to be paid hereunder with respect to the Additional Space shall be
abated and shall not commence until possession of the Additional Space shall be
given or the Additional Space shall be available for occupancy by Tenant, except
that if such failure to give possession shall have been caused by any act or
omission on the part of Tenant, there shall be no abatement of rent. The parties
agree that this paragraph constitutes an express provision as to the time at
which Landlord shall deliver possession of the Additional Space to Tenant, and
Tenant hereby waives the rights to rescind this Agreement which Tenant might
otherwise have pursuant to Section 223-a of the Real Property Law of the State
of New York or any other law of like import now or hereinafter in force.
9. Tenant may request at any time prior to the fifth anniversary of the
date hereof that Landlord arrange to have one of the elevators which presently
services the 24th floor of the Building service the 21st floor of the Building.
In such case, Landlord shall obtain all necessary permits and approvals with
respect thereto, and, subject to Legal Requirements and to such other reasonable
requirements as Landlord may reasonably impose, Landlord shall perform any
construction and mechanical work that may be required to provide such elevator
service to the 21st floor; Landlord shall not be required, however, to perform
any finishing work in connection therewith. Tenant shall be responsible for, and
shall remit to Landlord promptly upon Landlord's request, one half of Landlord
Landlord's out-of-pocket expenses incurred in connection therewith.
10. Notwithstanding anything in the Lease to the contrary, Landlord shall
endeavor to have the present mortgagee of the Building provide a non-disturbance
agreement with respect to the Premises in favor of Tenant within sixty (60) days
after the date hereof, and Landlord shall endeavor to obtain such agreement from
any future mortgagee of the Building. Notwithstanding the foregoing, Landlord
shall not be obligated to incur any expense or liability in connection
therewith, other than those expenses which are reasonably related to the initial
preparation by Landlord of each such agreement.
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11. Notwithstanding anything in the Lease to the contrary, from and after
the Effective Date, Tenant shall be entitled to a reasonable number of listings
on the Building directory located in the lobby of the Building. In no event,
however, shall such number be less than Tenant's Proportionate Share of such
listings. Any deletions, additions or changes to such listings shall be made by
Landlord within a reasonable period of time after Tenant's request at Tenant's
sole cost and expense.
12. A. The term of the Lease is hereby extended upon and subject to the
same terms, covenants and conditions as in the Lease, except as otherwise set
forth herein, for a period (the "Extended Term") commencing on July 1, 1999 (the
"Extended Term Commencement Date") and ending on September 30, 2000 (the
"Extended Term Expiration Date"), unless the term of the Lease shall sooner
terminate pursuant to the provisions of the Lease or by law.
B. The Fixed Rent for the Premises together with the Additional Space
(including any portion thereof payable for electric current) shall be increased
to the rate of $966,723 per annum for the period from the Extended Term
Commencement Date through the Extended Term Expiration Date, and shall otherwise
be payable in accordance with the provisions of the Lease.
13. A. Provided that Tenant shall not then be in default of its obligations
under the Lease beyond any applicable grace periods, and subject to the rights
of tenants under existing leases to renew or extend the terms of existing leases
with respect to all or part of the 22nd floor of the Building, Landlord shall
notify Tenant if any portion of the 22nd floor becomes available for lease
during the term of the Lease by delivering to Tenant, at or prior to the date of
such availability, a notice (the "Availability Notice-) thereof.
B. If Tenant so elects to lease such space (the "Expansion Space") Tenant
shall give written notice ("Tenant's Notice") to Landlord of such election
within ten (10) days of receipt of the Availability Notice.
C. If Tenant shall elect to lease (the "Expansion Space"). the Fixed
Rent (excluding any payment for electricity) therefor shall be payable at the
rate at which Landlord is then offering comparable space to third parties in
the Building.
D. Tenant Tenant's failure to duly and timely exercise said option, for any
reason whatsoever, shall be deemed a waiver of all of Tenant's rights to lease
the Expansion Space pursuant this Section 13. Tenant shall thereafter have no
further right to lease such Expansion Space and Landlord shall have the right to
lease the same (alone or in conjunction with other space) to any other
prospective tenant or tenants for any length of time, and such space shall no
longer be subject to the provisions of this Section 13.
E. Time shall be of the essence with respect to the exercise by Tenant of
its option set forth in this Section 13.
F. If Tenant shall elect under this Section to lease any Expansion Space,
as set forth in this Section 13, then, provided that Tenant is not in default
under any of the terms of the Lease at the time of such exercise or on such date
as vacant possession thereof
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<PAGE>
becomes available (the `Expansion Space Commencement Date ), the Lease shall
be deemed amended, effective as of the Expansion Space Commencement Date, as
follows:
(a) the Expansion Space shall be added to and form a part of the
Premises with the same force and effect as if originally demised under the
Lease, and the term "Premises" as used in the Lease shall include the Expansion
Space;
(b) the Expansion Space shall be delivered to Tenant in its
condition "as is" but "broom clean. on the Expansion Space Commencement Date,
and Landlord shall not be obligated to perform any work therein to prepare the
same for occupancy;
(c) the term "Tenant's Proportionate Share" as such term is
defined in the Lease, shall be increased by a percentage which reflects the
rentable square footage of the Expansion Space;
(d) the electricity payments made by Tenant pursuant to the
Lease shall be increased by an amount which is the product of the number of
rentable square feet in the Expansion Space and the per-square-foot electricity
charge which Tenant is then obligated to pay under the Lease for the Premises;
and
(e) Additional Rent payable by Tenant under the Lease shall be
payable for the Expansion Space during the then remaining Term without any
change of the provisions of the Lease relating to Additional Rent, except as
specifically provided in this Section 13.
G. Landlord and Tenant shall, on or prior to the Expansion Space
Commencement Date, execute an agreement amending the Lease to include the
Expansion Space, which shall reflect the Fixed Rent payable therefor and the
terms of Section 13F.
H. (a) If Landlord is unable to give possession of the Expansion Space on
the Expansion Space Commencement Date because of the holding over or retention
of possession of any tenant, undertenant or occupant or by reason of any Legal
Requirement, Landlord shall have no liability to Tenant therefor and the
validity of the Lease shall not be impaired under such circumstances, nor shall
the same be construed in any way to extend the Term, but the rent payable for
the Expansion Space shall be abated (provided Tenant is not responsible for the
inability to obtain possession) until Landlord shall have given Tenant notice
that Landlord is able to deliver possession of the Expansion Space to Tenant.
The provisions of this subsection 13H are intended to constitute an express
provision to the contrary. within the meaning of Section 223-a of the New York
Real Property Law.
(b) It Tenant shall effectively exercise its right to lease the
Expansion Space as set forth in this Section 13, and permission is given to
Tenant to enter into possession of the Expansion Space prior to the Expansion
Space Commencement Date, Tenant covenants and agrees that such occupancy shall
be deemed to be under all of the terms of the Lease, including the obligation to
pay rent.
I. The termination, cancellation or surrender of the Lease shall terminate
any rights of Tenant pursuant to this Section 13.
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14. All of the provisions of the Lease as modified hereby shall be and
remain in full force and effect throughout the remainder of the Term.
15. Tenant represents that it dealt with no broker or brokers other than
LaSalle Partners in the negotiation of this Agreement. Tenant hereby indemnifies
Landlord and agrees to hold Landlord harmless from and against any loss, cost,
damage, expense, claim or liability arising out of any inaccuracy or alleged
inaccuracy of the above representation including court costs and attorney's
fees. The provisions of this Section shall survive the expiration or sooner
termination of this Agreement.
16. Except as expressly modified hereby, the parties hereto affirm that the
Lease is in full force and effect, and each party hereto represents to the other
that all obligations of such other party under the Lease as of this date have
been fully performed and complied with by such other party. By entering into
this Agreement, Landlord does not and shall not be deemed either (i) to waive or
forgive any default, rent arrears or other condition with respect to the Lease
or the use of the Premises, whether or not in existence or known to Landlord at
the date hereof, or (ii) to consent to any matter as to which Landlord
Landlord's consent is required under the terms of the Lease, except such as may
heretofore have been waived in writing or consented to in writing, by Landlord.
17. This Agreement may not be orally changed or terminated nor any of its
provisions waived, unless by an agreement in writing signed by the party against
whom enforcement of any change, termination or waiver is sought.
18. This Agreement shall he binding upon, and inure to the benefit of the
parties hereto, their respective legal representatives, successors and assigns.
19. Tenant represents and warrants that the execution of this Agreement by
Tenant is duly authorized and binding on Tenant. Landlord represents and
warrants that the execution of this Agreement by Landlord is duly authorized and
binding on Landlord.
20. Tenant acknowledges that this Agreement shall not be binding on
Landlord until Landlord shall have executed this Agreement and a counterpart
thereof shall have been delivered to Tenant.
21. In the event that, subsequent to the construction of the elevator
pursuant to Section 11 hereof, Landlord elects to substitute for the Premises
other office space in the Building pursuant to Article 62 of the Lease, Landlord
shall reimburse Tenant for Tenant's share of the cost to construct such
elevator.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
TWO TWENTY EAST LIMITED PARTNERSHIP
By: LaSalle Partners, Agent
By:LaSalle Partners Incorporated General
Partner
By: /s/ Barbara Winter
------------------------------
Name: Barbara Winter
Title: Vice President
MINET INTERNATIONAL PROFESSIONAL INDEMNITY INSURANCE
BROKERS, INC.
By: /s/ Hubert F. Babinski
------------------------------
Name: Hubert F. Babinski
Title: Director of Operations
Sworn to before me this
26th day of November 1990
/s/ Michael D. Dangelo
- ------------------------------
Michael D. Dangelo
Notary Public
8
<PAGE>
EXHIBIT A
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT B
Landlord's work
1. Remove existing alterations and improvements installed in the
Additional Space by prior tenants.
2. Remove existing internal staircase between 24th and 25th floors.
3. Seal up the opening previously created in the ceiling of the 24th
floor in connection with the construction of said staircase.
4. Repair damage to that portion of the 24th floor which is located
beneath said staircase and which is caused by the construction or
removal of said staircase.
<PAGE>
AGREEMENT MODIFYING LEASE II
AGREEMENT, made as of this 18th day of June, 1991, between TWO TWENTY EAST
LIMITED PARTNERSHIP, an Illinois limited partnership, having an address c/o
LaSalle Partners, 220 East 42nd Street, New York, New York 10017 ("Landlord"),
and MINET INTERNATIONAL PROFESSIONAL INDEMNITY INSURANCE BROKERS, INC., a New
Jersey corporation, having an address at 220 East 42nd Street, New York, New
York 10017 ("Tenant")..
W I T N E S S E T H:
WHEREAS, Landlord and Tenant entered into a lease agreement dated as of
January 27, 1989 (the "Lease"), is amended by an Agreement Modifying Lease I
dated as of November 26, 1990 (the First Amendment ), covering the entire
twenty-first (21st) and twenty-fourth (24th) floors (the Premises.) in the
building (the Building.) located at 220 East 42nd Street, New York, New York
10017 (the Original Lease and the First Amendment, collectively, the Lease ), as
more particularly described in the Lease; and
WHEREAS, Tenant desires to provide supplemental air conditioning to the
twenty-fourth floor portion of the Premises using the five (5) ton air
conditioning unit (the "A/C Unit") located in the fan room (the "Fan Room") on
the twenty-fifth floor of the Building;
WHEREAS, as the use of the A/C Unit will exceed the capacity of the
existing wiring installations to the Premises, Tenant desires to install
feeders, conduits, wires or similar facilities to be used in connection with the
A/C Unit (the "Electrical Equipment") in the Fan Room in an area to be
designated by Landlord (the Fan Room Licensed Area ) and in the switchboard room
(the "Switchboard Room") located on the twenty-fifth (25th) floor of the
Building in an area to be designated by Landlord (the Switchboard Room Licensed
Area ) (the Fan Room Licensed Area and the Switchboard Room Licensed Area,
collectively, defined as the "Licensed Areas"); and
WHEREAS, Landlord is agreeable to the foregoing on the terms, covenants and
conditions. hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth below, Landlord and Tenant hereby agree as follows:
1. Unless otherwise defined herein, all capitalized terms used herein shall
have tie meanings ascribed to them in the Lease.
2. From and after the date hereof (the Effective Date") to and including
the Expiration Date of the Lease, Landlord hereby grants to Tenant, and Tenant
accepts from Landlord, subject to and in accordance with all applicable terms of
the Lease, an exclusive license (the "License") to the use of the A/C Unit and
to install, secure, maintain, replace and operate, at Tenant's sole cost and
expense, the Electrical Equipment in the Licensed Areas in order to supply up to
one hundred (100) amperes of electrical current to be used in connection with
the A/C Unit, provided, however, that the locations of such Electrical Equipment
and the manner of their installation, maintenance and replacement will not
interfere with Landlord's use
<PAGE>
or operation of the Building, the common areas of the Building or premises
leased to, or available for lease to, other tenants.
3. Tenant shall accept the A/C Unit on the Effective Date in its then "as
is" condition. Landlord makes no representations with respect to its condition,
and Tenant acknowledges that the A/C Unit may require repairs and replacements,
including without limitation replacement of the blower presently installed
therein. Landlord shall, at Tenant's sole cost and expense, make all such
repairs and replacements, and thereafter shall maintain and operate the A/C Unit
throughout the remainder of the Term also at Tenant Tenant's sole cost and
expense, and Tenant shall be responsible for, and she request, all costs and
expenses incurred by connection therewith as Additional Rent.
4. Tenant shall install, maintain, replace, operate and use the Electrical
Equipment in the Licensed Areas at Tenant's sole risk, and Tenant acknowledges
that Landlord shall not be obligated to provide any security for the Licensed
Areas. Upon reasonable prior notice to Landlord, and then only if accompanied by
an employee or agent of Landlord, Tenant shall be permitted reasonable access,
at Tenant's sole cost, risk and liability, to the Licensed Areas to perform any
installation, maintenance, repair, replacement or service to the Electrical
Equipment. Whenever such access is permitted, Tenant shall reimburse Landlord
for any cost or expense incurred by Landlord in connection with permitting such
access. Such access, except in the case of an emergency, shall be permitted only
during the hours from 9:00 A.M. to 6:00 P.M. on Business Days. Whenever Tenant
is afforded access to the Licensed Areas, Tenant shall properly safeguard
persons and property therein. Tenant shall not store any materials whatsoever in
the Licensed Areas, and Tenant shall be responsible for cleaning and removing
any materials left in the Licensed Areas by Tenant or Tenant's invitees.
5. In consideration for the granting by Landlord of the License, Tenant
shall pay to Landlord upon the execution and delivery hereof the sum of $5,000
by check subject to collection, drawn on a bank which is a member of The New
York Clearing House Association.
6. Commencing on the Effective Date the amount payable per annum as set
forth in Section 46B of the Original Lease, as modified by the First Amendment,
shall be $91,504.50.
7. The A/C Unit and Electrical Equipment (collectively, the `Equipment-)
shall be used solely and exclusively for purposes internal to Tenant Tenant's
business conducted at the Premises and for no other purpose. The Equipment shall
not be used for the direct production of revenue by Tenant or by, or for the
benefit of, any other person or entity.
8. The location, method of installation, appearance, safety and operation
of the Equipment shall, at all times, (i) be subject to Licensor's approval,
(ii) conform with all present and future laws, orders, regulations and legal
requirements of all federal, state and municipal governments, and the New York
Board of Fire Underwriters or any similar body asserting Jurisdiction thereover
(collectively, "Legal Requirements"), (iii) conform with all insurance
requirements of the Lease, and (iv) conform with all other applicable provisions
of the Lease. Landlord's approval shall not mean or imply that the Equipment or
its location, method of installation, appearance, safety or operation complies
with any Legal Requirement, and,
<PAGE>
notwithstanding anything in this Agreement to the contrary, Landlord shall be
under no duty to permit the Equipment to be installed or operated if such
installation or operation is prohibited by any Legal Requirement or interferes
with the operation of the Building.
9. At Landlord's expense, Landlord shall have the right, at any time and
from time to time during the Term, upon ten (10) days' prior notice to Tenant
except in the event of emergency, to relocate the A/C Unit to another area on
the 25th floor of the Building and/or the Electrical Equipment to another area
in the Switchboard Room, provided that no such relocations will materially
interfere with the operation of the A/C Unit or the Electrical Equipment, as the
case may be, after such relocations shall be completed. Landlord shall use
reasonable efforts, without being required to employ overtime labor or to incur
any extraordinary costs, to minimize any interruption in the use of the A/C Unit
or the Electrical Equipment, as the case may be, during any period of
relocation, and Landlord shall not be liable for any such interruption.
10. Tenant shall not alter, move or locate the A/C Unit or the Electrical
Equipment or any other property whatsoever in the Fan Room or Switchboard Room
without Landlord's prior written approval.
13. Tenant shall not assign or transfer the License hereby granted, nor
shall Tenant permit or suffer any other person or entity to use the A/C Unit or
all or any part of the Licensed Areas.
14. Notwithstanding anything in the Lease to the contrary, in the event of
a default or breach by Landlord under this Agreement, Tenant's sole and
exclusive remedy shall be to terminate this Agreement.
15. If Landlord is unable to give possession of the Licensed Areas on the
date set forth herein for any reason, Landlord shall not be subject to any
liability for failure to give possession on said date, and the validity of this
Agreement shall not be impaired under such circumstances, nor shall the same be
construed in any way to extend the Term. If, for any reason, Section 223-a of
the Real Property Law shall be deemed applicable hereto, the parties agree that
this Article is intended to be "an express provision to the contrary". for
purposes of that statute.
16. All of the provisions of the Lease as modified hereby shall be and
remain in full force and effect throughout the remainder of the Term.
17. Tenant represents that it dealt with no broker or brokers other than
LaSalle Partners in the negotiation of this Agreement. Tenant hereby indemnifies
Landlord and agrees to hold Landlord harmless from and against any loss, cost,
damage, expense, claim or liability arising out of any inaccuracy or alleged
inaccuracy of the above representation including court costs and attorney's
fees. The provisions of this Section shall survive the expiration or sooner
termination of this Agreement.
18. Except as expressly modified hereby, the parties hereto affirm that the
Lease is in full force and effect, and each party hereto represents to the other
that all obligations of such other party under the Lease as of this date have
been fully performed and complied with by such other party. By entering into
this Agreement, Landlord does not and shall not be
<PAGE>
deemed either (i) to waive or forgive any default, rent arrears or other
condition with respect to the Lease or the use of the Premises, whether or not
in existence or known to Landlord at the date hereof, or (ii) to consent to any
matter as to which Landlord's consent is required under the terms of the Lease,
except such as may heretofore have been waived in writing or consented to in
writing, by Landlord.
19. This Agreement may not be orally changed or terminated, nor any of its
provisions waived, unless by an agreement in writing signed by the party against
whom enforcement of any change, termination or waiver is sought.
20. This Agreement shall be binding upon, and inure to the benefit of the
parties hereto, their respective legal representatives, successors and assigns.
21. Tenant represents and warrants that the execution of this Agreement by
Tenant is duly authorized and binding on' Tenant.
22. Tenant acknowledges that this Agreement shall not be binding on
Landlord until Landlord shall have executed this Agreement and a counterpart
thereof shall have been delivered to Tenant.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TWO TWENTY EAST LIMITED PARTNERSHIP
By: LaSalle Partners, Agent
By:LaSalle Partners Incorporated General
Partner
By: /s/ Barbara Winter
------------------------------
Name: Barbara Winter
Title: Vice President
MINET INTERNATIONAL PROFESSIONAL INDEMNITY INSURANCE
BROKERS, INC.
By: /s/ Maureen J. Dangelo
------------------------------------------
Name: Maureen J. Dangelo
Title: Director of Administration
<PAGE>
EXHIBIT A-1
[GRAPHIC OMITTED]
<PAGE>
[GRAPHIC OMITTED]
EHIXIBIT B
GENERAL INTERNET
INVENTORY OF EXISTING MINET FURNITURE
AT 220 EAST 42ND STREET
<TABLE>
<CAPTION>
QTY CODE DESCRIPTION
----- ----- ------------
<S> <C> <C>
COMPLETE WORK STATIONS:
10 OPEN PLAN WORK STATIONS INCLUDING PANELS, WORK SURFACES,
FILES AND PEDESTALS TO REMAIN AS IS (CHAIRS COUNTED
SEPARATELY)
CHAIRS:
28 DC DESK CHAIRS
15 VC VISITOR CHAIRS
22 CC CONFERENCE CHAIRS
3 LC LOUNGE CHAIRS
1 SO2 2 SEATER SOFA (LOVESEAT)
8 STC STACKING CHAIRS (LUNCHROOM)
DESKS, TABLE DESKS, RETURNS, ETC.
DPO DOUBLE PEDESTAL DESK:
2 80" X 30"
SPR SINGLE PEDESTAL DESK (RIGHT PED):
1 72" X 36"
- 46" X 30"
CZ CREDENZA:
3 90" X 30"
1 88" X 20"
1 68" X 21"
1 NO SIZE
TBL TABLE:
1 72" X 36"
20 72" X 30"
1 72" X 27" (FOLDING)
1 72" X 23"
8 60" X 30"
1 60" X 25"
7 48" X 25"
- 38" DIAM. ROUND
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
1 30" X 23"
5 JOIN 23" X 23" QUARTER ROUND JOINER (USED X/ 60X30 & 48X23
TBLS ABOVE)
ATN RETURN:
11 48" X 19" (UP TO 6" OR 8" OF THE 48" DIM. SLIDES UNDER TABLE)
48" X 30" (W/ ATT. PEDESTAL)
1 46" X 24"
1
14 PED MOBILE PEDESTAL NORMALLY BOX/BOX/FILE
WALL UNITS:
6 10' CONSISTING OF 2 80" X 30" WORK SURFARCES, 2 80"
BINDER BINS AND 2 TACK BOARDS ON
WALL STANDARDS
1 5 ` CONSISTING OF 2 30" BINDER BINS AND 2 TACK BOARDS
ON WALL STANDARDS
FILES:
13 2LF30 2 DWR LATERAL 30" W
1 2LF98 2 DWR LATERAL 38" W (HIGH SWRS FOR COPUTER PRINTOUTS)
1 2LF42 2 DWR LATERAL 42" W
9 3LF30 3 DWR LATERAL 30" W
3 3LF38 3 DWR LATERAL 36" W
1 4LF36 4 DWR LATERAL 38" W
11 5LF38 5 DWR LATERAL 36" W
1 5LF42 5 DWR LATERAL 42" W
14 UNITS OF ROLLING FILES (STOR/WAL) IN 2 LOCATIONS
MISCELLANEOUS:
TBL TABLE
1 120" X 42" CONFERENCE TABLE (RACETRACK)
1 96" X 42" CONFERENCE TABLE (RACETRACK)
1 32" X 24" SPIDER BASE
3 30" X 30" LUNCH ROOM STYLE
1 MAIL SORTER 82.8" X 18'" X 27.5"
4 PNLS DIVIDER PANLS - 2 42" W PANELS AND 2 12" W PANELS IN
THE CONFIGURATION OF 87" LONG
1 58CSE BOOKCASE 36" X 12" X 72"
</TABLE>
<PAGE>
Exhibit 10.5
The Mining Company THE MINING COMPANY GUIDE
220 East 42nd Street, 24th Floor AGREEMENT
New York, NY 10017
ContractNo.: ((Contract_Number))
((FirstName)) ((LastName)) Site Name: ((Exact_Site_Name))
((Address1)) Site Description:
((Address2))
((City)), ((State_Region)) ((Zip))
((Country))
SS#/Tax ID No.: ((Tax_ID_SSN))
Date: ((MP_Grad_Date))
The Agreement
Agreement between The Mining Company, a division of General Internet, Inc., a
New York corporation ("The Mining Company"), 220 East 42nd Street, 24th Floor,
New York, New York 10017, and the Guide (you) ((FIRSTNAME)) ((LASTNAME)) an
independent contractor, for compensation for services to The Mining Company.
Services to be Provided
You agree to build, maintain and enhance a site (Site) on the Internet about
((EXACT_SITE_ NAME)) (Topic) for The Mining Company. You agree to abide by the
Rules and Regulations (Rules) that will be periodically updated and made
available in the online "Guide Lounge." You agree to place a link on your
existing Web site, if you have one, to the Site.
Fees
The Mining Company will compensate you based on the schedule in Attachment A.
Termination
The term of this Agreement (Term) will begin on the date above and will end when
terminated by either party based on the following: (i) you give to The Mining
Company fifteen (15) days prior written notice, (ii) The Mining Company gives
you fifteen (15) days prior written notice, or (iii) either you or The Mining
Company terminates this Agreement immediately following a major breach of this
Agreement by either of us.
Intellectual Property
The Mining Company owns all rights to any and all Intellectual Property related
to the Site, including but not limited to the name and URL of the Site, any
trademarks related to the Site, and the graphical look and feel of the Site,
other than the Guide Content and the Personal Content (defined on Schedule I).
You shall own all rights in and to the Guide Content and the Personal Content.
License.
In consideration of the Fees payable to you under this Agreement, you grant to
The Mining Company an exclusive, perpetual, worldwide license to use the Guide
Content on the Site, the Internet and on any commercial on-line service or
similar service (On-Line Media). In addition,
<PAGE>
you grant to The Mining Company a non-exclusive, perpetual, worldwide license to
use the Guide Content in any media, whether now or hereafter known, other than
On-Line Media. If The Mining Company uses the Guide Content anywhere other than
the Site, The Mining Company agrees to pay you FIFTY percent (50%) of net
revenues directly resulting from such uses. You are permitted to use the Guide
Content (subject to written approval from The Mining Company, not to be
unreasonably withheld) in any media other than On-Line Media, and if you do, you
agree to pay The Mining Company FIFTY percent (50%) of revenues generated by
such uses.
Non-Compete
During the Term and for ninety (90) days following the termination of this
Agreement, you will not, without the written approval of The Mining Company,
directly or indirectly on behalf of yourself or for anyone else, own, operate,
work for or contribute significantly to any Web site or other topical area on
the Topic on the Internet, commercial online service or similar service. You
may continue to operate your existing Web site on the Internet if you have one,
so long as you (1) maintain the site independently and do not affiliate the site
with any on-line service, site syndicator, advertising rep firm, site network or
co-op or any other Internet aggregator or consolidator for the term of the
contract and for 90 days following the termination of this agreement and (2)
prominently link from your website back to your Mining Company Site. In
addition, for six (6) months following the termination of this Agreement, you
will not solicit or accept, directly or indirectly, any advertising or
advertising revenues from any advertiser who advertised on the Site during the
Term.
Other Provisions
By signing this Agreement, You agree to The Mining Company Standard Terms and
Conditions that follow.
<PAGE>
STANDARD TERMS AND CONDITION
1. Intellectual Property
Under this Agreement, Intellectual Property means any and all content and
materials, including but not limited to, software (including modifications,
upgrades or new versions), designs, icons, menus, trademarks, text, graphics,
photographs, illustrations, audio, video and data, and all rights to such
content and materials, including copyrights, patents and associated rights.
Any and all content and features developed or conceived by you or your
sub-hires, employees or helpers during the Term as well as the other results and
proceeds of services under this Agreement (collectively, the Work) will be
"works made for hire" and will be the exclusive property of The Mining Company.
You waive any claims to "moral rights" you might have in connection with the
Work. If any Work is determined to not be a "work made for hire", you, by
entering into this Agreement, assign to The Mining Company all right, title and
interest in such Work in perpetuity in all media currently in existence or
invented in the future. The Work does not include Guide Content or Personal
Content (defined on Schedule I).
2. Representations and Warranties
You represent and warrant to The Mining Company the following:
(i) The Work will be original and created by persons employed or supervised
by you. Neither the Work nor the Guide Content nor the Personal Content
will violate the copyright, patent, trademark rights, or any other
rights such as rights of privacy or publicity, of any person or entity.
Neither you nor anyone working for or with you has granted any rights to
the Work, the Guide Content or the Personal Content to any other person
or entity.
(ii) You have the right to enter into and fully perform all terms of this
Agreement. You are not and during the Term will not be in any way
prohibited or restricted from operating the Site.
(iii) You have read and complied with the Rules and agree to read and comply
with the Rules at all times throughout the Term since the Rules will be
updated periodically.
(iv) The Site, including but not limited to, Chat rooms, Bulletin Boards, and
Personal Web pages, does not and will not contain, publish or display
any libelous, defamatory, obscene or illegal content or material.
3. Confidentiality
You acknowledge that you will have access to proprietary information, materials
and data of The Mining Company. You agree not to use or disclose proprietary
information and to use your best efforts to ensure that all those to whom You
give access to proprietary information do not use or disclose any of this
information except to carry out your duties and responsibilities under this
Agreement.
4. Termination
If The Mining Company terminates this Agreement by giving you 15 days prior
written notice, The Mining Company will have the option to pay you compensation
for that fifteen day period equal to the fees payable to you for the immediately
preceding fifteen day period and, by making that payment terminate this
agreement immediately. Notice of termination may be communicated by e-mail to
the representative designated by each of the parties. Upon
<PAGE>
termination you will be required to: Return all hardware; return all software
tools; return miscellaneous materials and cease using any service provider or
other accounts provided by The Mining Company.
5. Independent Contractor
You are an Independent Contractor. All persons working for or with you in
performing your obligations to The Mining Company under this Agreement will not
be employees or contractors of The Mining Company or have any relationship with
The Mining Company. You will be solely responsible for all your sub-hires,
employees, helpers and for all obligations to them and will indemnify The Mining
Company against any and all claims or liabilities resulting from such
obligations and for all costs, omissions or conduct of such persons. You are
responsible for whatever payments will be due to your employees or contractors
and agree to comply with all governmental obligations applicable to the
performance of your obligation under this Agreement.
6. Name and Likeness
You agree that The Mining Company has the right to use your name and likeness on
and in connection with General Internet's and The Mining Company's service and
the Site, and advertising and publicity for the service and the Site.
7. Indemnification
You agree to indemnify and hold The Mining Company harmless from and against any
claims and damages (including reasonable attorneys' fees) resulting from a
breach or claimed breach by you of any of your representations, warranties or
agreements contained in this Agreement.
8. Work for Hire Agreement
You agree to have all persons employed or supervised by you providing services
to The Mining Company sign a copy of the attached Mining Company "standard work
for hire" agreement. Copies of all signed agreements must be forwarded to The
Mining Company.
9. No Assignment
You will not assign this Agreement or its rights or obligations under this
Agreement without prior written permission of The Mining Company. Any sale of a
controlling interest in you shall be deemed an assignment. Any assignment in
violation of this provision shall be null and void. The Mining Company retains
the right to assign this Agreement in its discretion as necessary in the normal
course and conduct of its business.
10. Entire Agreement
This Agreement constitutes the entire agreement between the parties with respect
to the subject matter of this Agreement and supersedes any and all prior
agreements or understandings among the parties with respect to its subject
matter, but the parties understand and agree that the Rules will also govern
your provision of services to The Mining Company.
11. No Waiver
The failure of The Mining Company to enforce any term or condition of this
Agreement will not be deemed a waiver of any terms or conditions of this
Agreement.
<PAGE>
12. Survival
The provisions of the paragraphs of this Agreement entitled License,
Non-Compete, Representations and Warranties, Confidentiality and Indemnification
shall survive any termination of this Agreement.
13. Governing Law
This Agreement will be governed by the laws of the State of New York. The
parties agree and consent to exclusive jurisdiction and venue in the State and
Federal courts located in the City and County of New York, New York for any
proceedings arising out of this Agreement.
14. The offer contained in this Agreement is made only on the terms and
conditions set forth in this Agreement. By signing this Agreement, you agree to
its terms and conditions as originally electronically transmitted to you, and no
modification of this Agreement by you which is not specifically agreed to in
writing by The Mining Company will be binding on The Mining Company or have any
force of effect.
Very Truly Yours,
THE MINING COMPANY, a division of General Internet Inc.
By:
--------------------------------
Date:
------------------------------
ACCEPTED AND AGREED:
- -----------------------------------
[signature]
- -----------------------------------
[print your name]
Date:
------------------------------
<PAGE>
SCHEDULE I
You shall own all rights to the following Intellectual Property related to the
Site:
(1) All content and materials created by you and used on the "M Current" and
"Newsletter" areas of the Site (Guide Content); and
(2) All content and materials created by you and used on your existing Web
site, if you have one (Personal Content).
<PAGE>
ATTACHMENT A - GUIDE COMPENSATION
1. Basic compensation: As compensation for your services to The Mining
Company, a division of General Internet Inc., you will be paid US$ (_100_) per
month through June, 1999, which shall be a guarantee against, and shall be
recoupable out of, any revenues payable to you.
2. Advertising Revenues: You will be eligible to share in an advertising
revenue pool equal to 30% of The Mining Company's advertising sales revenues.
Your share of the advertising revenue pool will be calculated based on the
number of page views recorded on the Site as compared with the number of page
views for all sites of The Mining Company.
3. Advertising Bonus Pool. You will be eligible to share in a bonus pool
equal to 10% of The Mining Company's advertising sales revenues. Your share of
this bonus pool will be determined by The Mining Company in its discretion.
All revenue amounts will be based on net advertising revenues of The Mining
Company from applicable advertising sources. Any advertising revenues payable
to you will be paid monthly within 30 days after the end of the month in which
the revenues were received by The Mining Company. Any portion of the bonus pool
payable to you will be paid semi-annually within 30 days after the end of the
six-month period in which the revenues were received by The Mining Company. You
will receive a monthly (or semi-annual, in the case of the bonus pool) statement
setting forth the amount then payable to you, as adjusted for returns and
changes in reserves. No statement will be issued for any month in which no
payment is due to you.
As used in this Attachment A, "net advertising revenues" means gross ad revenues
actually received by The Mining Company less (i) commissions to advertisers,
third party sales agents, and advertising agencies, (ii) fees paid for traffic
based on ad revenue, (iii) reasonable reserves for returns, make goods or other
adjustments, and (iv) other sales expenses based on a share of ad revenue.
4. Transaction Revenues: You will be eligible to share in a transaction
revenue pool equal to 30% of The Mining Company's net transaction sales
revenues. Your share of the transaction revenue pool will be calculated based
on the number of page views recorded on the Site as compared with the number of
page views for all sites of The Mining Company, or if possible, based on actual
transactions originating from your site.
5. Transaction Bonus Pool. You will be eligible to share in a bonus pool
equal to 10% of The Mining Company's transaction sales revenues. Your share of
this bonus pool will be determined by The Mining Company in its discretion.
All revenue amounts will be based on net transaction revenues of The Mining
Company from applicable transactions. Any share of transaction revenues payable
to you will be paid monthly within 30 days after the end of the month in which
the revenues were received by The Mining Company. Any portion of the bonus pool
payable to you will be paid semi-annually within 30 days after the end of the
six-month period in which the revenues were received by The Mining Company. You
will receive a monthly (or semiannual, in the case of the bonus pool) statement
<PAGE>
setting forth the amount then payable to you, as adjusted for returns and
changes in reserves. No statement will be issued for any month in which no
payment is due to you.
As used in this Attachment A, "net transaction revenues" means gross transaction
revenues actually received by The Mining Company less (i) commissions to third
party sales agents (ii) fees paid for traffic based on transaction revenue,
(iii) reasonable reserves for returns, make goods or other adjustments, (iv)
cost of goods sold if The Mining Company is fulfilling such sales, and (iv)
other sales expenses based on a share of transaction revenue.
An annual certified report detailing The Mining Company's revenues upon which
allocated revenue and bonus pool shares are based will be available on-line in
the ["guide lounge"]. In addition, upon reasonable prior written notice to the
Chief Financial Officer of The Mining Company, you, when accompanied by a
certified public accountant and after you and your accountant have signed an
appropriate confidentiality agreement, may examine the books and records
directly related to your compensation during regular business hours in February
or August of each year.
<PAGE>
Exhibit 10.6
GENERAL INTERNET, INC.
22 West 19th Street
New York, New York 10010
October 20, 1996
Mr. Scott Kurnit
236 East 47th Street
27th Floor
New York, New York 10017
Dear Scott:
This Letter Agreement sets forth the terms and provisions pursuant to which
General Internet continues to employ you as Chairman and CEO based upon the
terms and provisions set forth in an agreement dated June 14, 1996 between you
and Open Text Corporation (the "ORIGINAL AGREEMENT"). The parties acknowledge
that Original Agreement has been terminated pursuant to an agreement dated as of
October 11, 1996. The terms of your employment are as follows:
1. SALARY. $195,000 annually. General Internet acknowledges that
you have not received a salary through the date hereof and may continue to defer
your salary in your sole discretion, provided that General Internet acknowledges
that it will immediately upon demand pay to you all accrued salary in a lump
sum.
2. BONUS. Target bonus of $150,000 subject to standards to be
determined; provided that you shall be entitled to a minimum $100,000 annual
bonus (which shall be payable on or about December 31, of each year).
3. BENEFITS. You shall be entitled to General Internet's standard
benefit program. In addition, you shall be entitled to an automobile allowance
of $900 per month.
4. LOCATION. Your location shall be at the Company's headquarters
in the New York metropolitan area.
5. BOARD OF DIRECTORS. You shall be a member of the Board of
Directors of General Internet as long as you are employed by General Internet.
6. TERM.
(a) The initial term shall be three (3) years commencing as of
June 14, 1996 plus one (1) year of severance equal to salary and bonus (without
mitigation or offset). In the event of a termination by General Internet of
your employment without Cause (as hereinafter defined) including in connection
with a closing down of its business, you shall be entitled to your salary and
the minimum bonus for the of the remainder of the 3 year term and an additional
1 year of severance.
<PAGE>
(b) "Cause" shall mean an act of dishonesty affecting General
Internet, drug or alcohol abuse affecting performance or failure to comply with
a directive of the Board of Directors consistent with your position and this
Letter Agreement after written notice that such failure shall be deemed to be
Cause and a reasonable opportunity to perform. Upon a termination for Cause you
shall not be entitled to any additional compensation.
7. MISCELLANEOUS. This Letter Agreement represents the parties
entire agreement and understanding of the parties and may only be amended in
writing. This Letter Agreement shall be governed by the laws of the State of
New York.
Please sign below to acknowledge your understanding and agreement with the
terms and provisions of this agreement.
Sincerely yours,
GENERAL INTERNET, INC.
By: /s/ Scott Kurnit
---------------------------
Title: CEO 10/20/96
ACCEPTED AND AGREED TO:
/s/ Scott Kurnit 10/20/96
- -----------------------------
Scott Kurnit
<PAGE>
General Internet Inc.
220 E 42nd Street
24th Floor
New York, NY 10017
October 21, 1998
Mr. Scott Kurnit
236 E. 47th Street
Apt. 27E
New York, NY 10017
Dear Scott:
Reference is made to a letter agreement dated October 20, 1996 between General
Internet Inc. and you with respect to your employment (the "Employment Letter"
and collectively with this letter (the "Amendment Letter"), the "Agreement").
The parties hereto agree as follows:
1. Paragraph 8 is inserted as follows:
"8. DISPUTE RESOLUTION: If the parties should have a material dispute
arising out of or relating to this Agreement or the parties' respective
rights and duties hereunder, then the parties will resolve such dispute in
the following manner: (i) any party may at any time deliver to the other a
written dispute notice setting forth a brief description of the issue for
which such notice initiates the dispute resolution mechanism contemplated
by this Paragraph 8; (ii) during the forty-five (45) day period following
the delivery of the notice described in (i) above, appropriate
representatives of the various parties will meet and seek to resolve the
disputed issue through negotiation, (iii) if representatives of the parties
are unable to resolve the disputed issue through negotiation, then within
thirty (30) days after the period described in (ii) above, the parties will
refer the issue (to the exclusion of a court of law) to final and binding
arbitration in New York, New York in accordance with the then existing
rules (the "Rules") of the American Arbitration Association ("AAA"), and
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof; provided, however, that the law
applicable to any controversy shall be the law of the State of New York,
regardless of principles of conflicts of laws. In any arbitration pursuant
to this Agreement, (i) discovery shall be allowed and governed by the New
York Code of Civil Procedure and (ii) the award or decision shall be
rendered by a majority of the members of a Board of Arbitration consisting
of three (3) members, one of whom shall be appointed by each of the
respective parties and the third of whom shall be the chairman of the panel
and be appointed by mutual agreement of said two party-appointed
arbitrators. In the event of failure of said two arbitrators to agree
within sixty (60) days after the commencement of the arbitration proceeding
upon the appointment of the third arbitrator, the third arbitrator shall be
appointed by the AAA in accordance with the Rules. In the event that
either party shall fail to appoint an arbitrator within thirty (30) days
after the commencement of the arbitration proceedings, such arbitrator and
the third arbitrator shall be appointed by the AAA in accordance with the
Rules. Nothing set forth above shall be interpreted to
<PAGE>
prevent the parties from agreeing in writing to submit any dispute to a
single arbitrator in lieu of a three (3) member Board of Arbitration. Upon
the completion of the selection of the Board of Arbitration (or if the
parties agree otherwise in writing, a single arbitrator), an award or
decision shall be rendered within no more than forty-five (45) days.
Notwithstanding the foregoing, the request by either party for preliminary
or permanent injunctive relief, whether prohibitive or mandatory, shall not
be subject to arbitration and may be adjudicated only by the courts of the
State of New York or the U.S. District Court in New York.
2. Except as modified by this Amendment Letter, the Employment Letter shall
remain in full force and effect.
Please sign below to acknowledge your agreement with the terms hereof.
Sincerely,
/s/ Scott Kurnit
---------------------------
Scott Kurnit
CEO
Agreed and Accepted by
/s/ Scott Kurnit
- ------------------------------
Scott Kurnit
<PAGE>
GENERAL INTERNET
220 East 42nd Street
New York, New York 10017
March 17, 1997
Mr. Scott Kurnit
236 East 47th Street
27th Floor
New York, New York 10017
Dear Scott:
Reference is made to a letter agreement dated October 20, 1996 between
General Internet and you with respect to your employment (the "EMPLOYMENT
LETTER"). The parties hereto agree as follows:
8. Paragraph 6 of the Employment Letter is hereby terminated in its
entirety and replaced with the following:
"6. SEVERANCE.
(a) In the event of a termination by General Internet of
your employment without Cause (as hereinafter defined) you
shall be entitled to your salary for 12 months as severance
(without mitigation or offset).
(b) "Cause" shall mean an act of dishonesty affecting
General Internet, drug or alcohol abuse affecting
performance or failure to comply with a directive of the
Board of Directors consistent with your position and this
Letter Agreement after written notice that such failure
shall be deemed to be Cause and a reasonable opportunity to
perform. Upon a termination for Cause or in connection with
the closing down of the business, you shall not be entitled
to any additional compensation."
9. Except as modified by this Letter Agreement, the Employment
letter shall remain in full force and effect.
Please sign below to acknowledge your agreement with the terms hereof.
Sincerely yours,
GENERAL INTERNET, INC.
/s/ Scott Kurnit
---------------------------
Title: CEO 3/17/97
ACCEPTED AND AGREED TO:
/s/ Scott Kurnit 3/17/97
- -----------------------------
SCOTT KURNIT
<PAGE>
GENERAL INTERNET INC.
- --------------------------------------------------------------------------------
236 East 47th Street, New York, New York 10017
Voice: 212-333-9331 - Fax: 212-750-9115 - email: [email protected]
- --------------------------------------------------------------------------------
SCOTT KURNIT, CHAIRMAN AND CEO
July 28,1996
Mr. Alan Wragg
8 Findlay Avenue
Hartsdale, New York 10530
Dear Alan:
General Internet Inc. is pleased to offer you the position of President,
Advertising Division. You will have responsibility for all advertising secured
for the General Internet Network system of affiliates, General Internet owned
sites, and working with affiliates as they secure local or targeted advertisers
directly.
Start date shall be August 16, 1998.
1. Salary: $150,000 annually as President, Advertising.
2. Bonus: Target of 20% of base salary based on meeting quarterly objectives
with extra payments for extraordinary results.
Salary, bonus, and any new option grants shall be reviewed annually by the
compensation committee of the board of directors of General Internet.
Options: The initial number of shares in General Internet shall be
1,000,000 shares. Of these shares, 12,500 shares will be made available to
you as founders shares in the corporation. If more or less shares are
issued, then the percentage will be commensurate such that 1.25% (one and
one quarter percent) of the founding shares is made available to you. If
the total pool of stock for employees is 15% of the total outstanding stock
then you will receive an additional .25% (one quarter of one per cent) of
the overall equity for a total of 1.5% (one and one half per cent). The
option price of these shares will be determined based on the advice of
counsel and auditors as to the value of the founding assets.
The vesting of the these options shall be spread over four years, at the
anniversary of this agreement date. The vesting schedule will be as
follows: 25% after the first year, 25% at the end of second year, 25% at
the end of the third year and 25% after the fourth year. If General
Internet is purchased by a third party such that effective control of the
company is transferred then all shares will vest immediately.
<PAGE>
Contract with Alan Wragg, Page 2
- --------------------------------
4. Benefits: You shall be entitled to the standard Open Text benefit program.
In addition you shall be eligible for 3 weeks of paid vacation each year.
5. The company will provide a car allowance of $550 per month.
6. Location: Your location shall be New York City. If your location is
changed, the company shall assume all reasonable cost to relocate you to
the new city. Such costs to include moving, legal, and placing costs.
7. As a condition of employment your a required to execute a Confidentially /
Noncompetition/ Proprietary Rights Agreement which is enclosed.
8. Severance: If your employment is terminated by the company at any time for
any reason other than gross misconduct, you shall receive a severance
payment equal to one year of your then current salary. Standard company
benefits (e.g. medical insurance, disability insurance etc.) will be
extended for six months at the company's expense, as if you were an
employee.
9. General Internet Items: The following assets will be made available to
General Internet for use as management shall determine:
1. Open Text Index Search engine technology and customers as well as site
assets. This currently includes 300,000 daily page views.
2. The Open Text Index development group, the Open Text Index product and
marketing group.
3. $10 million in committed working capital for first year operations and
acquisitions.
This offer is valid until August 31, 1996.
Sincerely, Agreed and Accepted
/s/ Scott Kurnit 7/29/96 /s/ Alan Wragg 7/29/96
- ----------------------------- ----------------------------
Scott Kurnit, CEO, General Internet, Date Alan Wragg, Date
<PAGE>
General Internet Inc.
220 E. 42nd Street
24th Floor
New York, NY 10017
October 21, 1998
Mr. Alan Wragg
5 Hidden Valley Way
Bedford, NY 10506-2018
Dear Alan:
Reference is made to a letter agreement dated July 28, 1996 between General
Internet Inc. and you with respect to your employment (the "Employment Letter"
and collectively with this letter (the "Amendment Letter"), the "Agreement").
The parties hereto agree as follows:
1. SALARY: Paragraph 1 is amended so that your salary as of August 1, 198
will be $2,403.85 weekly ($125,000 on an annual basis).
2. BONUS: Paragraph 2 of your letter is replaced by the following:
"Bonus: You will be paid a commission bonus of 1% of annual gross
advertising sales revenue for sales by you and your staff. This will
include sales made by advertising sales rep firms (e.g. 24/7 Media).
Excluded are revenues resulting from barter advertising arrangements and
revenues related to Citibank's existing arrangement. Commissions are
contingent upon receipt of payment from advertisers. Payments of
commissions owed will be made no less than quarterly and no later than 30
days after the end of a quarter. There will be a maximum commission
annually of $125,000.
Options: Option grants and vesting rights are as described in separate
option plan and grant documents, as modified from time to time by changes
to the plan and new grants."
3. BENEFITS: The reference to "Open Text" is replaced by "General Internet
Inc."
4. Except as modified by this Amendment Letter, the Employment Letter shall
remain in full force and effect.
Please sign below to acknowledge your agreement with the terms hereof.
Sincerely,
/s/ Scott Kurnit
------------------------------
Scott Kurnit
CEO
Agreed and Accepted by
/s/ Alan Wragg
- -------------------------------
Alan Wragg
<PAGE>
Computation of net loss per common share EXHIBIT 11.1
<TABLE>
<CAPTION>
Period from
June 27, 1996
(inception) Nine Months Ended
through Year Ended September 30,
December 31, December 31, -----------------------------
1996 1997 1997 1998
-------------- ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Basic:
Net loss............................... ($2,438,100) ($8,640,400) ($6,911,900) ($9,109,300)
Accretion of convertible preferred
stock to liquidation value........... 0 0 0 (654,700)
------------ ------------ ------------ ------------
Net loss applicable to common
stockholders......................... ($2,438,100) ($8,640,400) ($6,911,900) ($9,764,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average shares of common
stock outstanding.................... 1,816,255 1,529,961 1,555,278 1,497,038
Add: Warrants issued for nominal
consideration 218,889 218,889 218,889 218,889
------------ ------------ ------------ ------------
Basic weighted average shares
outstanding.......................... 2,035,144 1,748,850 1,774,167 1,715,927
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic net loss per common share........ ($1.20) ($4.94) ($3.90) ($5.69)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted:
Net loss applicable to common
stockholders......................... ($2,438,100) ($8,640,400) ($6,911,900) ($9,764,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Basic weighted average shares
outstanding.......................... 2,035,144 1,748,850 1,774,167 1,715,927
Net effect of dilutive securities...... 0 0 0 0
------------ ------------ ------------ ------------
Diluted weighted average shares
outstanding.......................... 2,035,144 1,748,850 1,774,167 1,715,927
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Diluted net loss per common share...... ($1.20) ($4.94) ($3.90) ($5.69)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<PAGE>
EXHIBIT 23.1
The Board of Directors and Stockholders
MiningCo.com, Inc.:
When the reverse stock split referred to in Note 13 of the Notes to
Financial Statements has been consummated, we will be in a position to render
the following consent.
KPMG PEAT MARWICK LLP
/s/ KPMG PEAT MARWICK LLP
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
MiningCo.com, Inc.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
New York, New York
December 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 DEC-31-1997
<CASH> 1,241,300 303,200
<SECURITIES> 0 0
<RECEIVABLES> 765,100 124,300
<ALLOWANCES> 96,000 6,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,985,800 421,500
<PP&E> 1,618,800 991,200
<DEPRECIATION> 568,400 242,800
<TOTAL-ASSETS> 3,140,500 1,357,100
<CURRENT-LIABILITIES> 3,690,200 3,519,100
<BONDS> 2,631,300 3,599,800
17,296,800 0
0 0
<COMMON> 1,500 1,500
<OTHER-SE> (20,530,400) (10,945,800)
<TOTAL-LIABILITY-AND-EQUITY> 3,140,500 1,357,100
<SALES> 0 0
<TOTAL-REVENUES> 0 390,600
<CGS> 0 0
<TOTAL-COSTS> 10,242,200 8,731,800
<OTHER-EXPENSES> (444,800) (299,200)
<LOSS-PROVISION> 96,000 6,000
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (9,109,300) (8,640,400)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (9,109,300) (8,640,400)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (9,764,000) (8,640,400)
<EPS-PRIMARY> (5.69) (4.94)
<EPS-DILUTED> (5.69) (4.94)
</TABLE>
