<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 21, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
KOZMO.COM, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5961 13-3956223
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization Classification Code Number)
</TABLE>
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80 BROAD STREET, 18(TH) FLOOR
NEW YORK, NEW YORK 10004
(212) 797-1330
(Address and telephone number of Registrant's principal executive offices)
------------------------------
GERARDO BURDO
CHIEF FINANCIAL OFFICER
KOZMO.COM, INC.
80 BROAD STREET, 18(TH) FLOOR
NEW YORK, NEW YORK 10004
(212) 797-1330
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD B. VILSOET, ESQ. STEPHEN H. COOPER, ESQ.
SPENCER D. KLEIN, ESQ. WEIL, GOTSHAL & MANAGES LLP
SHEARMAN & STERLING 767 FIFTH AVENUE
599 LEXINGTON AVENUE NEW YORK, NEW YORK 10153
NEW YORK, NEW YORK 10022 (212) 310-8000
(212) 848-4000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) FEE
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share.............. $ $150,000,000 $39,600
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
------------------------------
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 SECURITIES AND EXCHANGE 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. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This preliminary prospectus is
not an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 21, 2000
Shares
[Logo]
Common Stock
-----------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between $
and $ per share. We expect to list our common stock on The Nasdaq
Stock Market's National Market under the symbol "KZMO".
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 6.
<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to
Price to Public Commissions Kozmo
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
Total................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about ,
2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Salomon Smith Barney
U.S. Bancorp Piper Jaffray
The date of this prospectus is , 2000.
<PAGE>
[A color image of the Kozmo.com home page with explanatory text
describing the various features of the home page, indicating how
the site is organized and highlighting features such as the "buy"
and "rent" buttons.]
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 6
FORWARD-LOOKING STATEMENTS............ 16
USE OF PROCEEDS....................... 17
DIVIDEND POLICY....................... 17
CAPITALIZATION........................ 18
DILUTION.............................. 20
SELECTED FINANCIAL DATA............... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 23
BUSINESS.............................. 29
MANAGEMENT............................ 40
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PRINCIPAL STOCKHOLDERS................ 49
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................ 52
DESCRIPTION OF CAPITAL STOCK.......... 55
SHARES ELIGIBLE FOR FUTURE SALE....... 57
UNDERWRITING.......................... 59
NOTICE TO CANADIAN RESIDENTS.......... 62
LEGAL MATTERS......................... 63
EXPERTS............................... 63
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 63
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION THAT IS DESCRIBED IN MORE
DETAIL IN THIS PROSPECTUS AND DOES NOT CONTAIN ALL OF THE INFORMATION THAT MAY
BE IMPORTANT TO YOU. TO UNDERSTAND THE RISKS INVOLVED IN YOUR INVESTMENT
DECISION, YOU SHOULD READ CAREFULLY THIS ENTIRE PROSPECTUS, INCLUDING THE RISK
FACTORS AND OUR FINANCIAL STATEMENTS, AND THE DOCUMENTS TO WHICH WE REFER YOU.
IN THIS PROSPECTUS, "KOZMO," "WE," "US" AND "OUR" REFER TO KOZMO.COM, INC.
KOZMO.COM, INC.
We enable consumers to order a variety of entertainment, food and
convenience products over the Internet for free delivery in under one hour. Our
promise of under one hour delivery is designed to satisfy a consumer's desire
for immediate gratification. We focus on selling frequently purchased, high
margin items with well-known brand names. Additionally, we recently initiated a
business-to-business service to enable select retailers to provide their
customers with an expedited delivery option on a fee-for-service basis through
our distribution networks.
We believe that our first mover advantage and the quality of our service
have allowed and will continue to allow us to increase our customer base and
build our brand name as we enter new geographic markets. We currently offer our
service in the New York City, Seattle, San Francisco, Boston, Washington, D.C.
and Los Angeles markets. By the end of 2000, we intend to enter at least ten
additional markets. In 1999, the number of customers registered on our web site
grew at a compounded monthly rate of approximately 30%.
We serve each of our markets from one or more distribution centers. Our
distribution centers are approximately 10,000 square feet in size and are
located primarily in low-rent areas with access to key thoroughfares. The size
of our typical distribution center provides capacity to expand our product
offerings in our existing markets. Our business model enables us to quickly
establish operations in a new market with a moderate capital expenditure and is
designed to eliminate the high lease expense, build-out cost and inventory
requirements normally associated with having multiple retail locations in a
single market.
Traditionally, consumers have relied on storefront and catalog retailers to
satisfy many of their purchasing needs and only recently have been turning to
the Internet in increasing numbers. In-store shopping, although offering the
opportunity for immediate receipt of a purchased item, can be frustrating and
time consuming and may require consumers to travel to a variety of stores for
different products with no assurance that an item will be in stock. Although
catalog shopping is more convenient than in-store shopping and typically
provides a greater product selection, the delay in the receipt of a purchased
item is frustrating to many consumers.
Our solution combines the convenience, time savings, product information and
personalization of catalog and Internet shopping with the immediate
gratification of in-store shopping. Our distribution network within each of our
markets also allows select retailers to offer their customers an expedited
delivery option. The key components of our solution include:
- CONVENIENCE. Our under one hour free delivery capability provides
consumers with prompt receipt of a broad selection of goods without the
inconvenience of in-store shopping or the delivery delay associated with
catalog shopping and most Internet shopping.
- USER-FRIENDLY WEB SITE. Our web site is easy to navigate and provides
consumers with useful product information and helpful third party reviews
and the opportunity to personalize product offerings.
- LARGE SELECTION OF HIGH QUALITY PRODUCTS. We offer a broad range of
entertainment, food and convenience products, which consist primarily of
well-known national and local brands.
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- QUALITY CUSTOMER SERVICE. We provide superior customer service through our
delivery staff, online help desk and toll-free customer service number.
- EFFICIENT LOGISTICS PROCESSES. Our advanced logistics management system
simplifies product and order handling and enables us to efficiently
organize and execute deliveries.
- LOW COST DISTRIBUTION MODEL. The start-up and operating costs of our
distribution centers are significantly lower than those that would be
incurred by other retailers to service the same geographic market. As we
add new product lines, we believe that our average order size will
increase and that we will generate additional orders within each area,
thereby increasing delivery density.
GROWTH STRATEGY
Our growth strategy has two objectives: to be the leading online provider of
entertainment, food and convenience products with free delivery in under one
hour, and to further enhance the usage of our distribution infrastructure by
providing select retailers an expedited delivery option. To accomplish these
objectives, we intend to:
- EXPAND INTO NEW GEOGRAPHIC MARKETS;
- EXPLOIT OUR RAPID DELIVERY INFRASTRUCTURE FOR BUSINESS-TO-BUSINESS
TRANSACTIONS;
- BUILD THE KOZMO BRAND;
- BUILD A LOYAL CUSTOMER BASE; AND
- ESTABLISH STRATEGIC RELATIONSHIPS WITH KEY VENDORS AND OTHER RETAILERS AND
SERVICE PROVIDERS.
We were incorporated in New York in April 1997 and reincorporated in
Delaware in August 1999. Our principal executive offices are located at 80 Broad
Street, New York, New York 10004, and our telephone number is (212) 797-1330.
Our web site address is http://www.kozmo.com. Information on our web site does
not constitute part of this prospectus.
We have applied for federal trademark registration of Kozmo.com-TM-,
Kozmo-TM-, the Kozmo.com logo and our slogans "We'll Be Right Over-TM-," "From
the Internet to Your Door in Under One Hour-TM-," "From the Internet to Your
Desk in Under One Hour-TM-" and "From the Internet to Your Dorm in Under One
Hour-TM-." This prospectus also contains other trademarks, service marks and
trade names that are the property of their respective owners.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock to be outstanding after this
offering................................... shares
Use of proceeds.............................. General corporate purposes, including capital
expenditures and working capital.
Proposed Nasdaq National Market symbol....... KZMO
</TABLE>
The number of shares of common stock to be outstanding after this offering
includes 66,760,203 shares of common stock issuable upon the automatic
conversion of our outstanding convertible preferred stock upon the completion of
this offering, including 22,644,167 shares issuable upon conversion of our
Series E and F convertible preferred stock issued after December 31, 1999.
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of December 31, 1999 and
excludes:
- 19,577,433 shares of common stock reserved for issuance upon the
conversion of our convertible preferred stock issuable pursuant to
warrants, at a weighted average exercise price of $5.54 per share, and the
automatic conversion of such preferred stock, on a one-for-one basis, into
shares of common stock, including 11,371,821 shares of common stock
issuable pursuant to warrants issued after December 31, 1999;
- 63,240 shares of common stock issuable upon the exercise of warrants, at a
weighted average exercise price of $1.58 per share, including
13,240 shares issuable pursuant to warrants issued after December 31,
1999; and
- 13,738,329 shares of common stock reserved for issuance under our stock
option plans.
Except as otherwise indicated, all information in this prospectus assumes
the underwriters have not exercised their over-allotment option.
3
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 17, 1997
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1997 1998 1999
-------------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $ -- $ 155 $ 3,509
Costs of revenues................................. -- 35 1,997
----------- ----------- -----------
Gross profit...................................... -- 120 1,512
Loss from operations.............................. (118) (813) (26,529)
Net loss.......................................... (118) (813) (26,370)
Net loss attributable to common stockholders...... (123) (868) (28,959)
Basic and diluted net loss per common share....... $ (0.01) $ (0.08) $ (2.79)
=========== =========== ===========
Weighted-average shares used in computing basic
and diluted net loss per common share........... 10,182,000 10,350,000 10,362,192
=========== =========== ===========
Pro forma basic and diluted net loss per common
share........................................... $ (1.29)
===========
Weighted-average shares used in computing pro
forma basic and diluted net loss per common
share........................................... 22,430,968
===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $88,867 $202,475
Working capital........................................... 78,378 201,986
Total assets.............................................. 102,998 286,082
Stockholders' equity...................................... 88,540 271,624
</TABLE>
The pro forma balance sheet data summarized above gives effect to:
- the issuance in January 2000 of 7,338,986 shares of Series E
convertible preferred stock for net cash proceeds of $32.0 million and
$382,000 of credits against future advertising costs;
- the issuance in March 2000 of 11,333,250 shares of Series F convertible
preferred stock for net cash proceeds of $81.6 million;
- the issuance in March 2000 of 1,323,977 shares of Series F convertible
preferred stock, valued at $10.0 million, in connection with the
execution of a letter agreement with Columbia TriStar Home Video, Inc;
- the issuance in March 2000 of 1,323,977 shares of Series F convertible
preferred stock, valued at $10.0 million, in connection with the
execution of a license agreement with Warner Home Video;
- the issuance in March 2000 of 1,323,977 shares of Series F convertible
preferred stock in exchange for $10.0 million of common stock of a
publicly traded company;
- the issuance in March 2000 of a warrant to purchase 8,650,000 shares of
Series E convertible preferred stock, valued at $35.7 million, in
connection with the execution of a supply and delivery agreement with
Amazon.com LLC;
- the issuance in March 2000 of a warrant to purchase 2,699,145 shares of
Series F convertible preferred stock, valued at $3.8 million, in
connection with the execution of a
4
<PAGE>
service licensing and distribution agreement with Ticketmaster
Online--CitySearch, Inc.; and
- the automatic conversion of our outstanding convertible preferred stock
(including 44,116,036 shares of preferred stock outstanding as of
December 31, 1999 and 22,644,167 shares issued subsequent to
December 31, 1999), on a one-for-one basis, into an aggregate of
66,760,203 shares of common stock upon the completion of this offering.
The pro forma as adjusted balance sheet data summarized above gives effect
to the issuance and sale of shares of our common stock in this offering at
an assumed initial public offering price of $ per share, and our receipt of
the estimated net proceeds of that sale, after deducting the underwriting
discounts and commissions and our estimated offering expenses.
See the notes to our financial statements for the computation of the shares
used in computing pro forma basic and diluted net loss per common share.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE DECIDING TO INVEST IN SHARES
OF OUR COMMON STOCK. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO
ANY OF THESE RISKS, IN WHICH CASE YOU COULD LOSE PART OR ALL OF YOUR INVESTMENT.
IN ADDRESSING THESE RISKS, YOU SHOULD ALSO REFER TO THE OTHER INFORMATION IN
THIS PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES.
RISKS RELATED TO OUR BUSINESS
WE HAVE INCURRED SUBSTANTIAL LOSSES AND ANTICIPATE CONTINUED LOSSES AND NEGATIVE
CASH FLOW
We have incurred substantial net losses and have had negative cash flow
since our inception. As of December 31, 1999, we had an accumulated deficit of
$27.3 million. We incurred net losses of approximately $813,000 in 1998 and
$26.4 million in 1999. We will continue to incur operating and net losses and to
have negative cash flow for the foreseeable future. We expect that the rate at
which we will incur those losses and have negative cash flow will increase
significantly from current levels as we:
- enter new markets and expand our operations in existing markets;
- build-out and equip new distribution centers;
- increase the number of personnel employed at existing and future
distribution centers;
- continue to develop our web site, distribution networks and delivery
infrastructure; and
- pursue brand development, marketing and other promotional activities.
WE HAVE A LIMITED HISTORY OF OPERATIONS AND OPERATE IN A NEW AND RAPIDLY
EVOLVING MARKET, WHICH MAKES OUR BUSINESS AND PROSPECTS DIFFICULT TO EVALUATE
We were founded in April 1997 and began operations in March 1998. Our
limited operating history makes an evaluation of our business and prospects very
difficult. With such a limited operating history, our past results do not
provide a meaningful basis for evaluating an investment in our common stock, and
you should not rely on them as indicators of our future performance. You should
consider our business and prospects in light of the risks, expenses and
difficulties that we have encountered and will continue to encounter as an early
stage Internet company, including:
- our need to continue to develop and adjust our business model;
- our need to expand our customer base and average order size;
- the difficulty of predicting the success of our new product offerings;
- our need to achieve greater brand recognition;
- the lack of widespread acceptance of the Internet as a means of purchasing
products and services; and
- competing services that have been and may be established on a local or
national basis.
We cannot be certain that our business strategy will be successful or that
we will successfully address these risks.
OUR BUSINESS MODEL MAY NOT BE READILY REPLICABLE IN ADDITIONAL GEOGRAPHIC
MARKETS
A critical part of our strategy is to expand our business by establishing
operations, including distribution centers, in additional markets to achieve
economies of scale and maximize returns from our significant and ongoing capital
investment in our distribution system. Our expansion is dependent upon our
ability to replicate our distribution network and delivery model in a timely
manner in markets that have different geographic, demographic and population
density characteristics.
6
<PAGE>
Our ability to operate successfully in new markets will depend upon a number
of factors, including:
- our ability to adapt our original business model, which was first
implemented in New York City, to geographic areas requiring distribution
primarily by vans and cars;
- our ability to hire and train qualified employees in each of our new
markets;
- our ability to establish the necessary supply channels in each new market;
- consumer acceptance of our product and service offerings in each new
market; and
- existing and future competition in each new market.
The timing of our expansion into new markets also depends on these factors
and is subject to considerable uncertainty. If our efforts to replicate our
business model in one or more new markets should fail, we would incur
substantial costs without generating offsetting revenues and could be forced to
delay our entrance into other markets. Our business plan contemplates rapid,
widespread expansion of our service in markets throughout the United States. We
believe that this rapid introduction of our service to a large number of markets
will be crucial to our success. If we are unable to expand our business and
achieve acceptable order volume levels in accordance with our aggressive
schedule, we could be forced to revise our business plan, which would require us
to incur substantial unanticipated costs.
THE SUCCESS OF OUR BUSINESS DEPENDS ON ATTRACTING AND RETAINING A LARGE NUMBER
OF CUSTOMERS. IF WE ARE UNABLE TO DO SO, WE WILL NOT BE ABLE TO ACHIEVE
PROFITABILITY
To succeed, we must attract a large number of consumers who have
traditionally relied on retail stores and catalogs and persuade them to shop
online through our web site. We may be required to incur significantly higher
advertising and promotional expenditures than we currently anticipate to attract
shoppers to our web site and to convert those shoppers to purchasing customers.
Our success also depends on ensuring that these customers remain loyal long-term
customers of Kozmo. Even if a substantial market develops for online sales of
products for immediate delivery, we cannot be certain that consumers will accept
our online solution over those offered by our competitors. If we do not achieve
widespread customer acceptance of our online solution, our revenues will suffer
and we may not be able to achieve profitability when we expect, or at all.
WE WILL NEED SUBSTANTIAL ADDITIONAL FUNDING FOR OUR PLANNED EXPENDITURES, AND WE
CANNOT BE CERTAIN THAT ADDITIONAL FINANCING WILL BE AVAILABLE
We will require substantial capital to fund our operations and expand our
business. The net proceeds of this offering, together with our available funds
and cash from operations, is expected to be sufficient to meet our near-term
capital requirements. However, we anticipate that in the future we will seek
additional funds through debt or equity financing. Our ability to obtain
financing will depend, upon other things, on our development efforts, business
plans, operating performance and general conditions in capital markets at the
time the financing is sought. If we are unable to obtain required financing on
terms favorable to us, or at all, we may be forced to abandon or delay our
expansion plans. In addition we may be unable to take advantage of acquisition
opportunities, enhance our products or services or otherwise respond to
competitive pressures. Even if we are able to raise additional funds through the
issuance of equity or debt securities, those securities may have rights,
preferences or privileges senior to your rights.
WE MAY BE UNABLE TO EFFECTIVELY HANDLE INCREASED VOLUMES OF WEB SITE TRAFFIC OR
CUSTOMER ORDERS, AND WE MAY NOT BE ABLE TO EFFECTIVELY UPGRADE AND EXPAND OUR
TECHNOLOGY OR TRANSACTION SYSTEMS
A key element of our business strategy is to generate a high volume of
traffic on, and use of, our web site. To the extent we are unable to adequately
handle any increases in the volume of traffic on
7
<PAGE>
our web site, we would likely disappoint or lose those potential or existing
customers whom we are unable to serve satisfactorily or at all, which would
reduce our revenues. Refinements or modifications to our business systems and
technologies may be necessary to address an increase in the volume of traffic on
our web site or in the number of orders placed by our customers. We may be
unable to accurately project the rate or timing of these increases, or to
adequately expand and upgrade our systems and infrastructure to accommodate such
increases.
SYSTEM FAILURES OR UNFORESEEN DISRUPTIONS TO OUR TECHNICAL AND OPERATIONAL
SYSTEMS COULD HARM OUR BUSINESS
Our ability to successfully receive, process and fulfill customers' orders
depends largely on the efficient and uninterrupted operation of our computer and
communications hardware systems. Any disruptions or failures in connection with
these systems could significantly diminish the quality of the service we offer
and force us to incur unanticipated costs. Our systems and operations are
vulnerable to damage and interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquakes and similar events that are
beyond our control. Although we have a redundant system in place for our data
base server, web server and e-mail system, if our systems are unable to address
disruptions to our computer and communications hardware systems, our business
will suffer.
PROBLEMS IN OUR DELIVERY OPERATIONS COULD HARM OUR BUSINESS
We use our own staff to deliver products from our distribution centers to
our customers. Therefore, we are subject to the risks of employee strikes.
Additionally, our ability to deliver products in under one hour is subject to
inclement weather and disruptions in the transportation infrastructure in one or
more of our markets. Our failure to deliver products to our customers in a
timely manner or to meet our targeted delivery times could harm our reputation
and brand, which would harm our business and sales.
INADEQUATE INVENTORY CONTROLS COULD INCREASE OUR COSTS OF REVENUES
Our failure to implement adequate controls over our inventory as we expand
our distribution centers may result in unacceptable levels of inventory
shrinkage from theft, non-return of rental products and damaged goods resulting
in an increase in our costs of revenues.
IF WE ARE UNABLE TO OBTAIN SUFFICIENT QUANTITIES OF PRODUCTS AT COMPETITIVE
PRICES FROM OUR KEY VENDORS, WE MAY BE UNABLE TO ACHIEVE PROFITABILITY
We obtain products from manufacturers, wholesalers and distributors. We
currently rely on national and regional distributors for a substantial portion
of our products, as well as premium specialty suppliers or local sources for
gourmet foods and other food products. These suppliers are not contractually
bound to continue to supply us products on the terms under which they are
currently supplied, or at all. From time to time, we may experience difficulty
in obtaining sufficient product allocations from key vendors. In addition, our
key vendors may establish their own online retailing efforts, which may impair
our ability to obtain sufficient product allocations from these vendors. Many of
our key vendors also supply products to our storefront and online retail
competitors. If we are unable to obtain sufficient quantities of products from
our key vendors to meet consumer demand, our net sales and results of operations
may suffer. Our suppliers may also change their pricing structures, which could
reduce our margins. Our inability to offset price increases from our suppliers
with a corresponding price increase to our customers will reduce our margins and
could disrupt our ability to achieve our targeted expansion.
8
<PAGE>
WE COULD FACE LIABILITY FOR THE ACTIONS OF OUR DELIVERY STAFF OR FOR
CONTAMINATION OF OUR FOOD PRODUCTS
We may face potential liability for the negligent or illegal acts of members
of our delivery staff. The insurance we carry for claims based on these acts may
not be adequate. If negligent, illegal or unprofessional conduct of our delivery
staff were to occur, it would harm our reputation and our business even if it
did not give rise to liability.
The products that we deliver may contain contaminants. Food products
occasionally contain contaminants due to inherent defects in those products or
improper storage or handling. If any of the food products that we sell causes
harm to any of our customers, we could be subject to product liability claims.
We currently do not carry insurance that would cover these claims. If we are
required to defend ourselves against a product liability claim, whether or not
we are found liable under such a claim, we could incur substantial costs, our
reputation could suffer and our customers might substantially reduce their
orders or stop ordering from us.
Our delivery staff is required to verify the age of purchasers of our
tobacco products. If our delivery staff fails to request the proper
identification or if false identification cards are presented by the purchaser,
we could face substantial penalties and legal liability for sales of tobacco
products to underage persons. Any inquiry or investigation from a regulatory
authority could have a negative impact on our reputation and if we are required
to defend ourselves against any liability claim, whether or not we are found
liable under such claim, could cause us to incur substantial costs.
WE FACE INTENSE COMPETITION FROM OTHER RETAILERS INCLUDING STOREFRONT, ONLINE
AND CATALOG RETAILERS, WHICH MAY ADVERSELY AFFECT OUR BUSINESS. IF WE ARE UNABLE
TO EFFECTIVELY COMPETE, OUR BUSINESS COULD SUFFER
The retail market for many of our products is extremely competitive. We
compete against local, regional, and national convenience, video, music, book,
magazine and food stores and online and catalog retailers. We must continue to
offer popular, high margin products, anticipate trends in storefront, online and
catalog retailing, and develop a loyal customer base in order to successfully
compete and expand our market share. Many of our existing and potential
competitors are larger and have substantially greater resources and more
established brand names than we have. We expect that this competition will
intensify as more storefront, online and catalog retailers offer competitive
delivery options to their customers. For example, Blockbuster recently announced
its intention to offer home delivery of videos through Food.com. If existing or
new competitors adopt elements of our business practices or if storefront
retailers of the products and services which we offer expand their businesses
online, then we will face pricing and other competitive pressures. In addition,
some of our competitors have developed or may develop delivery systems that are
less automated and capital-intensive than ours, enabling them to commence
operations in a particular geographic market before we are able to do so, which
could harm our competitive position.
ALTERNATIVE SOURCES OF HOME VIDEO AND PRE-RECORDED MUSIC MAY ADVERSELY AFFECT
OUR BUSINESS
The video rental component of our business may experience competition from
other forms of entertainment delivery, including video-on-demand delivered over
cable, satellite and the Internet and additional programming offerings on
satellite and digital cable systems. Video-on-demand is currently available in
some test markets. If video-on-demand were offered profitably at a reasonable
price and newly released movies were made available at the same time, or before,
they are made available to us or if direct broadcast satellite and digital cable
were to become widely available and accepted, public demand for our products
could fall.
Our sales of pre-recorded music may experience competition from digital
delivery of music over the Internet. MP3 and other forms of downloadable digital
music are currently available for sale on several web sites and free on some web
sites. Wide consumer acceptance of digitally downloadable music could harm our
business.
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THE VIDEO RENTAL PORTION OF OUR BUSINESS COULD LOSE A SIGNIFICANT COMPETITIVE
ADVANTAGE IF MOVIE STUDIOS CHANGE THEIR CURRENT DISTRIBUTION PRACTICES
A significant competitive advantage that the video rental industry currently
enjoys over most other non-theater movie distribution channels is a "window" of
exclusivity as compared to other forms of non-theater distribution, including
pay-per-view, basic and premium cable television, and network and syndicated
television. The length of the exclusivity period for movie rentals varies,
typically from 30 to 90 days in the United States and from 120 to 180 days in
foreign markets. Thereafter, movies are made sequentially available to other
distribution channels.
Our competitive advantage over other forms of non-theater distribution
channels would suffer if:
- video rental were no longer the first release following the initial
theatrical release;
- the length of the exclusive period for video rentals were shortened; or
- video rentals no longer enjoyed an exclusive distribution window as they
do now.
If any of these events were to occur, consumers would no longer need to wait
until after the video rental distribution window had closed before being able to
view a newly released movie through another non-theater distribution channel.
Although we believe that movie studios have a significant interest in
maintaining a viable home video rental industry, we cannot predict the impact,
if any, of any future decisions by movie studios.
OUR EFFORTS TO BUILD STRONG CUSTOMER LOYALTY AND BRAND IDENTITY MAY NOT BE
SUCCESSFUL
In e-commerce, customer attrition rates, or the rates at which customers
cancel a service, are generally high. Although we do not charge on a
subscription basis for our service, we depend upon customers once they have
ordered from us. If our offerings fail to meet our customers' expectations for
any reason, we may be unable to develop long-term customer loyalty and may
experience significant decreases in repeat customer orders as a percentage of
orders delivered.
We believe that establishing and maintaining brand identity and brand
loyalty is critical to attracting customers and vendors. If our advertising,
marketing and partnering strategies fail to make the Kozmo brand attractive to
the demographic groups we target, we may be unable to expand our business at the
rate we have planned and we may be forced to incur additional costs. Promotion
and enhancement of the Kozmo brand also will depend on our ability to
consistently provide high-quality service and product offerings to our
customers. If consumers and vendors do not perceive our service or product
offerings to be of high quality, or if we introduce new products that are not
favorably received by our customers, the value of the Kozmo brand name could
suffer, and our customer base will not grow at the rate we need to be
profitable, or at all.
WE MAY NOT BE ABLE TO OBTAIN REQUIRED LICENSES OR PERMITS FOR THE SALE OF
TOBACCO OR ALCOHOL PRODUCTS
As we expand our operations into new markets and enhance our product
selection, some of our new and existing product offerings may be subject to
state licensing or permiting requirements. We may be unable to obtain any
required permits or licenses in a timely manner, or at all. Changes to existing
laws or our inability to obtain required permits or licenses could prevent us
from selling alcohol or tobacco products in one or more of our geographic
markets. Any of these events could harm our net sales, gross profit and our
ability to attract and retain customers.
IF THE PROTECTION OF OUR TRADEMARKS AND PROPRIETARY RIGHTS IS INADEQUATE, OUR
BUSINESS MAY SUFFER
We rely on patent, trademark and copyright laws, trade secret protection and
confidentiality or license agreements with our employees, customers, partners,
and others to protect our proprietary rights. However, the steps we take to
protect our proprietary rights may be inadequate. Currently, we have no
registered patents or trademarks, but we have filed a provisional patent
application for our
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<PAGE>
dispatching system and trademark applications for Kozmo.com-TM-, Kozmo-TM-, the
Kozmo.com logo, and our slogans "We'll Be Right Over"-TM-, "From the Internet to
Your Door in Under One Hour"-TM-, "From the Internet to Your Desk in Under One
Hour"-TM-, and "From the Internet to Your Dorm in Under One Hour"-TM-, in the
United States, and from time to time we expect to file other patent and
trademark applications. We cannot ensure that any of these applications will be
approved, that any issued patents will adequately protect our intellectual
property or that any issued patents will not be challenged by third parties. In
addition, other parties may independently develop similar or competing
technology or design around any patents that may be issued to us. Because our
applications for registration of our tradenames, logo and slogans have not yet
been granted, we cannot ensure that third parties will not use them in a manner
that could damage our brand identity and our reputation.
WE MAY NOT BE ABLE TO PROTECT OUR DOMAIN NAMES AGAINST ALL INFRINGERS, WHICH
COULD DECREASE THE VALUE OF OUR BRAND NAME AND PROPRIETARY RIGHTS
We currently own the Internet domain name "Kozmo.com." Domain names
generally are regulated by Internet regulatory bodies. The regulation of domain
names in the United States and in foreign countries is subject to change.
Regulatory bodies could establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names. The relationship between regulations governing domain names and laws
protecting trademarks and similar proprietary rights is unclear. Therefore, we
may be unable to prevent third parties from acquiring domain names that infringe
upon or otherwise decrease the value of our brand name, trademarks and other
proprietary rights.
RISKS RELATED TO OUR MANAGEMENT
WE HAVE VERY LIMITED EXPERIENCE IN MANAGING GEOGRAPHICALLY DIVERSE OPERATIONS
Although we have established our operations in six markets and plan to
further expand to additional markets, we do not have long-term experience
operating in diverse geographical locations. Our inability to successfully
manage our operations in numerous and widespread markets, particularly at the
pace of our planned expansion, could harm our business. The success of our
planned expansion will depend upon our ability to, among other things:
- integrate the operations of new distribution centers into our existing
operations;
- coordinate and manage distribution operations in multiple, geographically
dispersed locations;
- successfully replicate our business model in other markets;
- control our costs; and
- establish and maintain adequate management and personnel, information
systems and financial controls.
Our failure to successfully address these factors could require us to revise
our business plan and incur substantial additional expenses.
THE LOSS OF THE SERVICES OF OUR KEY PERSONNEL, OR OUR FAILURE TO ATTRACT AND
RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE FUTURE, COULD HARM OUR BUSINESS
Our success depends to a significant extent on our founders, Joseph Park and
Yong Kang and their ability to operate effectively, both independently and
together. The loss of Messrs. Park or Kang or any other members of senior
management could delay or prevent the implementation of our business plan. Our
business depends also on our ability to attract and retain additional qualified
personnel. We may be unable to continue hiring additional personnel as our
business grows because competition for personnel, particularly for employees
with technical expertise, is intense and the costs of hiring and retaining such
personnel are high. If one or more of our existing or future employees resigns
to join a
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<PAGE>
competitor or to form a competing company, any resulting loss of existing or
potential customers or other unauthorized disclosure or use of our proprietary
information, technical knowledge, practices, procedures or customer lists could
harm the expansion of our business and customer base, and force us to incur
unanticipated costs.
SEVERAL KEY MEMBERS OF OUR MANAGEMENT TEAM HAVE ONLY RECENTLY JOINED US AND, IF
THEY ARE NOT SUCCESSFULLY INTEGRATED INTO OUR BUSINESS OR IF THEY FAIL TO WORK
TOGETHER AS A MANAGEMENT TEAM, OUR BUSINESS WILL SUFFER
Several key members of our management team have recently joined us,
including Gerardo Burdo, our chief financial officer, Kenneth Trevathan, our
chief operating officer, Christopher Shimojima, our chief marketing officer and
William Herald, our chief technology officer. We expect to hire additional key
management personnel. If we do not effectively integrate these persons into our
business, or if they do not work together as a management team to implement our
business strategy, our business will suffer.
RISKS RELATED TO THE INTERNET AND E-COMMERCE
WE DEPEND ON CONTINUED GROWTH IN USE OF THE INTERNET AND E-COMMERCE
Our future revenues and any future profits depend significantly upon the
widespread acceptance and use of the Internet and other online services as an
effective medium of commerce by consumers. The Internet may not be accepted as a
viable commercial marketplace for a number of reasons, including inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. To the extent that the
Internet continues to experience significant growth in the number of users, the
frequency of use or bandwidth requirements the infrastructure for the Internet
may not be able to support such demands. The Internet has experienced a variety
of outages due to damage to portions of its infrastructure. If outages or delays
frequently occur in the future, Internet usage (including usage of our web site)
could grow slowly, stagnate or decline. In particular, these delays and outages
could result in slower response times and adversely affect usage of our web
site. Even if the necessary infrastructure or technologies develop, we may incur
significant costs to adapt our systems. Our success also depends upon acceptance
and use of e-commerce, which is a recent phenomenon.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR SERVICES COULD BECOME
OBSOLETE AND WE COULD LOSE CUSTOMERS
To be competitive, we must continue to enhance and improve the functionality
and features of our online business system. The Internet and the online commerce
industry are rapidly changing. If competitors introduce new products and
services featuring new technologies, or if new industry standards and practices
emerge, our existing web site and proprietary systems may become obsolete. We
may use new technologies ineffectively, or we may be unable to license or
otherwise obtain new technologies from third parties. We may also experience
difficulties in adapting our web site or the systems that we use to receive,
process and fulfill customers' orders to changing customer demands, new
technologies or emerging industry standards.
WE MAY BE SUED DUE TO SECURITY CONCERNS AND CREDIT CARD FRAUD
Consumer concerns over the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
e-commerce. To transmit confidential information securely, we rely on encryption
and authentication technology licensed to us by third parties. Events or
developments may result in a compromise or breach of the algorithms that we use
to protect customer transaction data. Any penetration of our network security or
misappropriation of our customers'
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<PAGE>
personal or credit card information could subject us to liability. We may also
be liable for claims based on unauthorized purchases with credit card
information, impersonation or other similar fraud claims.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL BURDENS TO
DOING BUSINESS ON THE INTERNET
Laws and regulations applicable to Internet communications, commerce and
advertising are becoming more prevalent. E-commerce is new and rapidly changing,
and federal and state regulations relating to the Internet and e-commerce are
evolving. Currently, there are few laws or regulations directly applicable to
access to the Internet or e-commerce. Due to the increasing popularity of the
Internet, it is possible that laws and regulations may be enacted to address
issues such as user privacy, pricing, content, copyrights, distribution,
antitrust matters and the quality of products and services. The adoption of
these laws or regulations could reduce the rate of growth of the Internet, which
could potentially decrease the usage of our web site and could otherwise harm
our business.
The applicability to the Internet of existing laws governing issues such as
property ownership, copyrights and other intellectual property issues, libel,
obscenity and personal privacy is uncertain. Most of these laws were adopted
prior to the advent of the Internet and do not contemplate or address the unique
issues of the Internet. New laws applicable to the Internet may impose
substantial burdens on companies conducting business over the Internet. In
addition, the growth and development of e-commerce may prompt calls for more
stringent consumer protection laws in the United States and abroad. We also may
be subject to regulation not specifically related to the Internet, such as laws
affecting catalog sellers.
The Federal Trade Commission has proposed regulations regarding the
collection and use of personal identifying information obtained from individuals
when accessing web sites, with particular emphasis on access by minors. These
regulations may include requirements that we establish procedures to disclose
and notify users of privacy and security policies, obtain consent from users for
collection and use of information and provide users with the ability to access,
correct and delete personal information stored by us. These regulations may also
include enforcement and remedial provisions. Even in the absence of those
regulations, the Federal Trade Commission has begun investigations into the
privacy practices of other companies that collect information on the Internet.
One investigation resulted in a consent decree under which an Internet company
agreed to establish programs to implement the principles noted above. We may
become a party to a similar investigation or enforcement proceeding, or the
Federal Trade Commission's regulatory and enforcement efforts may harm our
ability to collect demographic and personal information from users, which could
be costly or adversely affect our marketing efforts.
WE MAY BE LIABLE FOR INFORMATION DISPLAYED ON AND COMMUNICATED THROUGH OUR WEB
SITE
We may be subjected to claims for defamation, negligence, copyright or
trademark infringement or other theories relating to the information that we
publish on our web site. These claims have been brought against online companies
as well as print publications in the past. Based on hyperlinks that we provide
to other web sites, we may also be subjected to claims based upon online content
that we do not control but that is accessible from our web site.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE WILL FLUCTUATE AFTER THIS OFFERING, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INVESTORS
Although the initial public offering price will be determined based on
several factors, the market price for our common stock will vary from the
initial offering price after trading commences. This could result in substantial
losses for investors. The market price of our common stock may fluctuate
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<PAGE>
significantly in response to a number of factors, some of which are beyond our
control. These factors include:
- quarterly variations in operating results;
- changes in financial estimates by securities analysts;
- announcements by us or our competitors, of new product and service
offerings, significant contracts, acquisitions or strategic relationships;
- publicity about our company, our products and services, our competitors,
or e-commerce in general;
- additions or departures of key personnel;
- any future sales of our common stock or other securities; and
- stock market price and volume fluctuations of publicly traded companies in
general and Internet-related companies.
The trading prices of Internet-related companies and e-commerce companies
have been especially volatile and many are at or near historical highs.
Investors may be unable to resell their shares of our common stock at or above
the offering price. In the past, securities class action litigation has often
been brought against a company following periods of volatility in the market
price of its securities. We may be the target of similar litigation in the
future. Securities litigation could result in substantial costs and divert
management's attention and resources, which could seriously harm our business
prospects, financial condition and operating results.
WE DO NOT INTEND TO PAY CASH DIVIDENDS
We have not paid cash dividends since our inception, and we do not intend to
pay cash dividends in the foreseeable future.
WE HAVE DISCRETION AS TO THE USE OF PROCEEDS, AND YOU MAY NOT AGREE WITH OUR USE
Our management can spend the proceeds from this offering in ways with which
the stockholders may not agree. We cannot predict that the proceeds will be
spent in ways that yield a favorable return.
OUR OFFICERS AND DIRECTORS AND SOME EXISTING STOCKHOLDERS WILL EXERCISE
SIGNIFICANT CONTROL OVER OUR COMPANY AND COULD PREVENT OR DELAY BENEFICIAL
CORPORATE ACTIONS
After this offering, our executive officers and directors and existing
stockholders will own or control approximately % of our outstanding common
stock. As a result, these stockholders will be able to exercise significant
control over all matters requiring stockholder approval, including the election
of directors and most of our other corporate actions. This control could delay,
defer or prevent others from initiating a potential merger, takeover or other
change in control, even if these actions would benefit our stockholders and us.
This control would limit the effective voting power of our other stockholders
and could depress the market price of our common stock. See "Principal
Stockholders."
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could decline. Upon completion of this offering, we expect to have shares
of common stock outstanding, of which shares sold in this offering will be
freely tradable, without restriction, in the public market. Our directors,
officers and certain other stockholders have entered into customary lock-up
agreements in connection with this offering, generally providing that they will
not sell, otherwise dispose of or transfer any of the economic consequences of
ownership of our common stock or other securities without the prior written
consent
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<PAGE>
of Credit Suisse First Boston. These lock-up restrictions will expire 180 days
after the date of this prospectus. As a result, a substantial number of shares
of our common stock will be eligible for sale in the public market after the
expiration of the 180 day period.
In addition, 16,068,808 shares under options and warrants outstanding as of
December 31, 1999 and 5,925,133 additional shares available for future option
grants under our stock option plans will become eligible for sale in the public
market once permitted by provisions of various vesting agreements, lock-up
agreements and Rules 144 and 701 under the Securities Act, as applicable. See
"Shares Eligible for Future Sale."
PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND MAY REDUCE THE MARKET PRICE OF OUR COMMON
STOCK
Provisions of our amended and restated certificate of incorporation and
bylaws may discourage, delay or prevent a merger or acquisition that a
stockholder may consider favorable. These provisions include:
- authorizing our board of directors to issue preferred stock without
stockholder approval;
- limiting the ability of stockholders to call special meetings;
- prohibiting stockholder actions by written consent; and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Certain provisions of Delaware law also may discourage, delay or prevent
someone from acquiring or merging with us, which may cause the market price of
our common stock to decline.
PURCHASERS OF SHARES IN THIS OFFERING WILL INCUR IMMEDIATE SUBSTANTIAL DILUTION
OF APPROXIMATELY $
PER SHARE
The initial public offering price of our common stock is expected to be
substantially higher than the book value per share of our outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate substantial dilution of approximately $ per share. In
addition, we have issued options and warrants to acquire common stock at prices
significantly below the initial offering price. Assuming that outstanding
options and warrants are exercised in full, there would be further dilution of
$ per share to investors in this offering. See "Dilution" for a more
detailed description of how new stockholders will incur dilution.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among
other things: development of services; expansion strategy; use of proceeds;
projected capital expenditures; liquidity; development of additional revenue
sources; development and expansion of marketing relationships; market acceptance
of e-commerce; technological advancement; and ability to develop "brand"
awareness. These statements may be found in the sections of this prospectus
entitled "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business". They are identified by the use of the terms "believe," "do not
believe," "expect," "plan," "intend," "estimate," "anticipate" and similar
expressions. These statements reflect our current views with respect to future
events, are based on assumptions and are subject to uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including all the risks discussed in
"Risk Factors" and elsewhere in this prospectus.
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<PAGE>
USE OF PROCEEDS
We will receive net proceeds from this offering of approximately
$ million, assuming an initial public offering price of $ per share
and after deducting estimated underwriting discounts and commissions and our
estimated offering expenses. If the underwriters exercise their over-allotment
option in full, our net proceeds will be approximately $ million.
The principal purposes of this offering are to obtain additional capital, to
create a public market for our common stock and to facilitate future access to
public capital markets. We expect to use the proceeds of the offering for
general corporate purposes, including working capital and capital expenditures,
but we have no specific plans for allocation of the proceeds. We may also use a
portion of the proceeds to acquire or invest in complementary businesses,
products or technologies. We have no current agreements or understandings for,
and are not engaged in negotiations with respect to, any acquisition or
investment. Our management has broad discretion as to the use of the net
proceeds.
Pending their use, we will invest the net proceeds in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
intend to retain all available funds and any future earnings for use in the
operation of our business and we do not anticipate paying any cash dividends in
the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
- on an actual basis;
- on a pro forma basis giving effect to:
- the issuance in January 2000 of 7,338,986 shares of Series E
convertible preferred stock for net cash proceeds of $32.0 million and
$382,000 of credits against future advertising costs;
- the issuance in March 2000 of 11,333,250 shares of Series F convertible
preferred stock for net cash proceeds of $81.6 million;
- the issuance in March 2000 of 2,647,954 shares of Series F convertible
preferred stock, valued at $20.0 million, in connection with the
execution of agreements with the recipients of those shares;
- the issuance in March 2000 of 1,323,977 shares of Series F convertible
preferred stock in exchange for $10.0 million of common stock of a
publicly traded company;
- the issuance in March 2000 of a warrant to purchase 8,650,000 shares of
Series E convertible preferred stock, valued at $35.7 million, in
connection with the execution of a supply and delivery agreement with
Amazon.com LLC;
- the issuance in March 2000 of a warrant to purchase 2,699,145 shares of
Series F convertible preferred stock, valued at $3.8 million, in
connection with the execution of a service licensing and distribution
agreement with Tickmaster--Online CitySearch, Inc.; and
- the automatic conversion of our outstanding convertible preferred stock
(including 44,116,036 shares of convertible preferred stock outstanding
as of December 31, 1999 and 22,644,167 shares issued subsequent to
December 31, 1999), on a one-for-one basis, into an aggregate of
66,760,203 shares of common stock upon the completion of this offering.
- on a pro forma as adjusted basis to give effect to the issuance and sale
of shares of our common stock in this offering at an assumed initial
public offering price of $ per share, and our receipt of the
estimated net proceeds of that sale, after deducting the underwriting
discounts and commissions and our estimated offering expenses.
The number of shares of common stock outstanding excludes:
- 19,577,433 shares of common stock reserved for issuance upon the
conversion of our convertible preferred stock issuable pursuant to
warrants, at a weighted average exercise price of $5.54, and the
automatic conversion of such preferred stock, on a one-for-one basis,
into shares of common stock, including 11,371,821 shares of common
stock issuable pursuant to warrants issued after December 31, 1999;
- 63,240 shares of common stock issuable upon the exercise of warrants,
at a weighted average exercise price of $1.58 per share, including
13,240 shares issuable pursuant to warrants issued after December 31,
1999; and
- 13,738,329 shares of common stock reserved for issuance under our stock
plans.
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This information should be read in conjunction with our financial statements
and the related notes to those statements included in the prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 88,867 $202,475
======== ========
Stockholders' equity:
Series A convertible preferred stock, $.01 par value;
1,133,332 shares authorized, issued and outstanding
actual; and no shares issued and outstanding pro forma
and pro forma as adjusted............................... $ 11 $ --
Series B convertible preferred stock, $.01 par value;
4,998,517 shares authorized, issued and outstanding
actual; and no shares issued and outstanding pro forma
and pro forma as adjusted............................... 50 --
Series C convertible preferred stock, $.01 par value;
2,508,500 shares authorized, issued and outstanding
actual; and no shares issued and outstanding pro forma
and pro forma as adjusted............................... 25 --
Series D convertible preferred stock, $.01 par value;
15,616,119 shares authorized, issued and outstanding,
actual; and no shares issued and outstanding pro forma
and pro forma as adjusted............................... 156 --
Series E convertible preferred stock, $.01 par value;
45,500,000 shares authorized; 19,859,568 shares issued
and outstanding actual; no shares issued and outstanding
pro forma and pro forma as adjusted..................... 199 --
Series F convertible preferred stock, $.01 par value;
20,000,000 shares authorized; no shares issued and
outstanding actual, pro forma and pro forma as
adjusted................................................ -- --
Common stock $.001 par value; 90,918,897 shares
authorized, 10,400,000 shares issued and outstanding
actual; 77,160,203 issued and outstanding pro forma; and
shares issued and outstanding pro forma as
adjusted................................................ 10 77
Additional paid-in-capital................................ 118,150 301,990
Contribution receivable................................... (158) (540)
Deferred compensation..................................... (2,602) (2,602)
Accumulated deficit....................................... (27,301) (27,301)
-------- --------
Total stockholders' equity and capitalization......... $ 88,540 $271,624
======== ========
</TABLE>
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<PAGE>
DILUTION
If you purchase our common stock in this offering, your interest will be
diluted to the extent of the difference between the public offering price per
share of our common stock and the pro forma net tangible book value per share of
our common stock after this offering. The pro forma net tangible book value of
our common stock as of December 31, 1999 was $212.1 million, or $2.75 per share.
This per share amount represents the amount of our total tangible assets reduced
by the amount of our total liabilities and divided by the total number of shares
of our common stock outstanding after giving pro forma effect to the following:
- the issuance in January 2000 of 7,338,986 shares of Series E
convertible preferred stock for net cash proceeds of $32.0 million and
$382,000 of credits against future advertising costs;
- the issuance in March 2000 of 11,333,250 shares of Series F convertible
preferred stock for net cash proceeds of $81.6 million;
- the issuance in March 2000 of 2,647,954 shares of Series F convertible
preferred stock, valued at $20.0 million, in connection with the
execution of agreements with the recipients of those shares;
- the issuance in March 2000 of 1,323,977 shares of Series F convertible
preferred stock in exchange for $10.0 million of common stock of a
publicly traded company;
- the issuance in March 2000 of a warrant to purchase 8,650,000 shares of
Series E convertible preferred stock, valued at $35.7 million, in
connection with the execution of a supply and delivery agreement with
Amazon.com LLC;
- the issuance in March 2000 of a warrant to purchase 2,699,145 shares of
Series F convertible preferred stock, valued at $3.8 million, in
connection with the execution of a service licensing and distribution
agreement with Ticketmaster Online--CitySearch, Inc., and
- the automatic conversion of our outstanding convertible preferred stock
(including 44,116,036 shares of convertible preferred stock outstanding
as of December 31, 1999 and 22,644,167 shares issued subsequent to
December 31, 1999), on a one-for-one basis, into an aggregate of
66,760,203 shares of common stock upon the completion of this offering.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after the completion of this offering.
After giving effect to the issuance and sale of shares of our common
stock in this offering at an assumed initial public offering price of $
per share, and our receipt of the estimated net proceeds of that sale after
deducting the underwriting discounts and commissions and our estimated offering
expenses, the pro forma as adjusted net tangible book value of our common stock
at December 31, 1999 would have been approximately $ million or $ per
share. This represents an immediate increase in net tangible book value of
$ per share to our existing stockholders and an immediate dilution of
$ per share to purchasers of common stock in this offering. The following
table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
December 31, 1999..................................... $
Increase per share attributable to this offering........
--------
Pro forma as adjusted net tangible book value per share
after the offering........................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
20
<PAGE>
The following table shows, on a pro forma as adjusted basis as of
December 31, 1999, the differences between the amounts of the total
consideration and the average price per share paid by our existing stockholders
and the amounts paid by purchasers in this offering before deducting the
underwriting discounts and commissions and our estimated offering expenses,
based on an assumed initial offering price of $ per share. The table
also gives effect, on a pro forma as adjusted basis, to the conversion of all of
our outstanding convertible preferred stock into common stock upon the
completion of this offering and the total number of shares of common stock sold
by us in this offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ % $ % $
New investors................................ $
-------- --- -------- ---
Totals....................................... 100% $ 100%
=== ===
</TABLE>
The foregoing discussion and table assume no exercise of any outstanding
stock options or warrants to purchase shares of our common stock or convertible
preferred stock, including:
- 19,577,433 shares of common stock reserved for issuance upon the
conversion of our convertible preferred stock issuable pursuant to
warrants to, at a weighted average exercise price of $5.54, and the
automatic conversion of such preferred stock, on a one-for-one basis, into
shares of common stock, including 11,371,821 shares of common stock
issuable pursuant to warrants issued after December 31, 1999;
- 63,240 shares of common stock issuable upon the exercise of warrants at a
weighted average exercise price of $1.58 per share, including 13,240
shares issuable pursuant to warrants issued after December 31, 1999; and
- 13,738,329 shares of common stock reserved for issuance under our stock
plans.
Assuming the exercise in full of all outstanding options, warrants to
purchase common stock and warrants to purchase convertible preferred stock and
the conversion of such preferred stock into common stock, our pro forma as
adjusted net tangible book value at December 31, 1999 would be $ per
share, representing an immediate increase in net tangible book value of
$ per share to our existing stockholders and an immediate decrease in the
net tangible book value per share of $ to the new investors.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected balance sheet data as of December 31, 1998 and 1999 and the
selected statement of operations data for the period from April 17, 1997
(inception) to December 31, 1997 and the years ended December 31, 1998 and 1999
have been derived from our audited financial statements included elsewhere in
this prospectus. The selected balance sheet data as of December 31, 1997 has
been derived from our audited financial statements not included in this
prospectus. Our historical results are not indicative of the results to be
expected in the future. You should read these selected financial data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our financial statements and the related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED
APRIL 17, 1997 DECEMBER 31,
(INCEPTION) TO ---------------------------
DECEMBER 31, 1997 1998 1999
----------------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental.................................................... $ -- $ 108 $ 1,706
Product sales............................................. -- 47 1,803
---------- ---------- ----------
Total revenues.......................................... -- 155 3,509
---------- ---------- ----------
Costs of revenues:
Cost of rental............................................ -- 14 671
Cost of product sales..................................... -- 21 1,326
---------- ---------- ----------
Total costs of revenues................................. -- 35 1,997
---------- ---------- ----------
Gross profit............................................ -- 120 1,512
Operating expenses:
Marketing and sales....................................... -- 117 10,252
Product development....................................... -- 49 1,964
General and administrative................................ 118 674 11,551
Delivery.................................................. -- 66 3,265
Depreciation and amortization............................. -- 24 801
Non-cash compensation..................................... -- 3 208
---------- ---------- ----------
Total operating expenses................................ 118 933 28,041
---------- ---------- ----------
Loss from operations........................................ (118) (813) (26,529)
Interest income, net........................................ -- -- 159
---------- ---------- ----------
Net loss.................................................... (118) (813) (26,370)
Dividends and accretion of redemption value on mandatorily
redeemable convertible preferred stock.................... (5) (55) (2,589)
---------- ---------- ----------
Net loss attributable to common stockholders................ $ (123) $ (868) $ (28,959)
========== ========== ==========
Basic and diluted net loss per common share................. $ (0.01) $ (0.08) $ (2.79)
========== ========== ==========
Weighted-average shares outstanding used in computing basic
and diluted net loss per common share..................... 10,182,000 10,350,000 10,362,192
========== ========== ==========
Pro forma basic and diluted net loss per common share....... $ (1.29)
==========
Weighted-average shares outstanding used in computing pro
forma basic and diluted net loss per common share......... 22,430,968
==========
<CAPTION>
DECEMBER 31,
-----------------------------------------------
1997 1998 1999
----------------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 36 $ 82 $ 88,867
Working capital (deficit)................................... 84 (186) 78,378
Total assets................................................ 153 558 102,998
Stockholders' equity (deficit).............................. (23) (909) 88,540
</TABLE>
See the notes to our financial statements for the computation of the shares
used in computing pro forma basic and diluted net loss per common share.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND THE RELATED NOTES
INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS INCLUDING THE RISKS DISCUSSED IN "RISK FACTORS" AND ELSEWHERE
IN THIS PROSPECTUS.
OVERVIEW
We enable consumers to order a variety of entertainment, food and
convenience products over the Internet for free delivery in under one hour.
Additionally, we recently initiated a business-to-business service to enable
select retailers to provide their customers with an expedited delivery option
through our distribution networks. We launched our products and services in New
York City in March 1998 and expanded our operations to Seattle in June 1999, San
Francisco and Boston in September 1999, Washington, D.C. in November 1999 and
Los Angeles in February 2000. We intend to enter at least ten additional markets
by the end of 2000. In 1999, the number of customers registered on our web site
grew at a compounded monthly rate of approximately 30%.
We use an innovative, proprietary business system that combines our web
site, distribution center and delivery network. We serve each of our markets
from one or more distribution centers. Our typical distribution center is
approximately 10,000 square feet in size and is located in low-rent area with
access to key thoroughfares. Deliveries to customers are made via van, car,
scooter or bicycle depending on the population and traffic density and
geographical breadth of the particular market.
From our inception in April 1997 through March 1998, our operations
consisted primarily of start-up activities, including raising capital,
recruiting personnel, developing our marketing and administrative organizations
and purchasing operating assets. We began recognizing revenues in March 1998
when we opened our first distribution center in New York City.
We have incurred significant losses since our inception. As of December 31,
1999, we had an accumulated deficit of $27.3 million. We expect that we will
continue to incur substantial losses for the foreseeable future and that the
rate at which we incur those losses will increase as we enter new markets and
expand our operations in existing markets. We also expect to incur significant
marketing, product development, selling, general and administrative, and
delivery expenses. As a result, we will need to generate significant revenues to
achieve profitability and may never achieve profitability.
REVENUES. Our revenues are derived from the sale of products such as books,
convenience items, DVDs, food, music, video cassettes, and video games and from
the rental of DVDs, video cassettes and video games. We recognize revenues, net
of discounts and returns, when products are delivered to customers. Discounts
and returns have been insignificant to date. We expect that our rental revenues,
as a percent of total revenues, will decline as the number of products that we
offer for sale increases.
COSTS OF REVENUES. Costs of revenues include costs of carrying our
inventory, including amortization of our inventory of rental products and the
costs of products sold.
MARKETING AND SALES. Marketing and sales expenses include the cost of
advertising through various media channels, such as television, radio, print,
direct mailing and outdoor marketing, and the cost of public relations.
PRODUCT DEVELOPMENT. Product development expenses consist primarily of
consultants' fees and payroll and related expenses for the personnel responsible
for web site maintenance, systems infrastructure and web site content.
23
<PAGE>
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and payroll related costs, rent and related costs,
utilities, travel and entertainment costs, professional fees and costs of office
and distribution center supplies.
DELIVERY. Delivery expenses consist primarily of payroll and payroll
related costs for our delivery staff.
DEPRECIATION AND AMORTIZATION. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets,
which range from three to seven years. Equipment acquired under capital leases
and leasehold improvements are amortized using the straight-line method over the
shorter of the lease terms or their estimated useful lives. Amortization of our
inventory of rental products (principally videocassettes) is included in costs
of revenues.
DIVIDENDS AND ACCRETION OF REDEMPTION VALUE ON MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK. We have presented the effects of the cumulative
undeclared dividends and the accretion charges to redemption value on the
mandatorily redeemable convertible preferred stock on the net loss attributable
to common stockholders. These dividends and accretion charges are presented
through December 23, 1999, at which time, in connection with the issuance of our
Series E convertible preferred stock, the redemption rights were cancelled.
NON-CASH COMPENSATION. During the year ended December 31, 1998, we recorded
$3,000 of compensation expense in connection with the issuance of options to
purchase 20,000 shares of common stock to consultants for services performed.
During the year ended December 31, 1999, we recorded $137,000 of compensation
expense in connection with the issuance of warrants to purchase 100,000 shares
of common stock to consultants for services performed. The value of each of
these options and warrants was determined using the Black-Scholes pricing model.
During March 2000, we issued a five-year warrant to purchase 8,650,000
shares of Series E convertible preferred stock to Amazon.com LLC, in connection
with its execution of a three-year strategic agreement with us. In addition,
during March 2000, we issued a one-year warrant to purchase 2,699,145 shares of
Series F convertible preferred stock to Ticketmaster Online--City Search in
connection with its execution of a three-year strategic agreement with us. We
ascribed a total value of $39.5 million in the aggregate to these warrants using
the Black-Scholes pricing model. In addition, in March 2000, we issued an
aggregate of 2,647,954 shares of Series F convertible preferred stock, valued at
$20.0 million, in connection with the execution of two, three year strategic
agreements. The aggregate value of $59.5 million ascribed to the warrants and
shares will be treated as deferred expense in our balance sheet and will be
ratably amortized over the terms of the strategic agreements.
During 1999, we recorded $2.7 million of deferred compensation in connection
with the issuance of stock options having an exercise price less than the deemed
fair value of our common stock at the date of the options were granted. The
deferred compensation will be amortized as a charge to operations over the
vesting period of the options. Total amortization of deferred compensation for
the year ended December 31, 1999 was $71,000. We expect to amortize the
following amounts of deferred compensation in each subsequent year as follows:
2000-$669,000; 2001-$669,000; 2002-$669,000; 2003-$595,000.
For the period from January 1, 2000 through February 29, 2000, we granted
options to purchase an aggregate of 5,239,125 shares of common stock to
employees at a weighted average exercise price of $4.35. The deemed fair value
of our common stock during that period ranged from $3.51 to $6.17 per share. We
recorded deferred compensation of $5.6 million in connection with the grant of
the portion of those of the options having an exercise price less than the
deemed fair value of our common stock at the date of grant. This amount will be
amortized as a charge to operations over the vesting period of the options. We
expect to amortize the following amounts of this deferred compensation in each
year as follows: 2000-$1.3 million; 2001-$1.4 million; 2002-$1.4 million;
2003-$1.4 million; 2003-$100,000.
24
<PAGE>
YEARS ENDED DECEMBER 31, 1998 AND 1999
REVENUES. Revenues increased to $3.5 million for 1999 from $155,000 for
1998, primarily due to an increase in the size of our customer base and volume
of our orders as a result of our opening of new distribution centers in New
York, Seattle, San Francisco, Boston and Washington D.C. Our customer base also
increased as a result of our implementation of various marketing initiatives,
including new cable television advertisements and online and print advertising,
as well as word-of-mouth sign-ups.
COSTS OF REVENUES. Costs of revenues increased to $2.0 million for 1999
from $35,000 for 1998. This was due to an increase in amortization of our rental
inventory, which was attributable in part to the substantial increase in our
inventory during the year as we opened new distribution centers, and to an
increase in our cost of products sold, which reflected the substantial increase
in the sales of products.
MARKETING AND SALES. Marketing and sales expenses increased to
$10.3 million for 1999 from $117,000 for 1998. The increase was due primarily to
increased use of cable television advertising, online, print and direct mail
advertising, in addition to promotional efforts associated with our opening of
new distributions centers throughout 1999.
PRODUCT DEVELOPMENT. Product development expenses increased to
$2.0 million in 1999 from $49,000 in 1998. The increase was primarily due to an
increase in the number of personnel responsible for web site maintenance,
systems infrastructure and web site content.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $11.6 million for 1999 from $674,000 for 1998. The increase was due primarily
to increased rents and utility charges connected with the opening of our new
distribution centers as well as higher payroll, travel and entertainment,
professional fees, and office and distribution center supplies.
DELIVERY. Delivery expenses increased to $3.3 million for 1999 from $66,000
for 1998. The increase was due primarily to the hiring of delivery personnel,
both in New York City where the volume of orders increased, as well as in other
markets where we opened new distribution centers during the year.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$801,000 for 1999 from $24,000 for 1998. The increase was due primarily to
purchases of computer hardware and software in addition to furniture and
fixtures for our new distribution centers and our corporate office.
INTEREST INCOME (EXPENSE), NET. Interest income consists of interest earned
on cash and cash equivalents. We expect interest income to increase as a result
of the investment of the proceeds from the sale of our Series E and F preferred
stock in January and March 2000, respectively, and the net proceeds from our
sale of shares of common stock in this offering.
INCEPTION (APRIL 17, 1997) THROUGH DECEMBER 31, 1997
We did not generate any revenues or incur any costs of revenues, marketing
and sales, product development, delivery, depreciation and amortization or
non-cash compensation expenses prior to 1998 because we were in a development
stage. We began recognizing revenues in March 1998 when we launched our first
distribution center in New York City. General and administrative expenses of
$118,000 during the period from inception through December 31, 1997 were
primarily related to professional fees and costs incurred in connection with
recruiting personnel and developing our marketing and administrative
capabilities.
25
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly results of operations
for each of the four calendar quarters of 1999. We have prepared this table on a
basis consistent with our audited financial statements contained in this
prospectus and have included all necessary adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation or our results of
operations for these quarterly periods. You should read the quarterly financial
data together with our audited financial statements and the notes to those
statements contained in this prospectus. The operating results shown in the
following table are not necessarily indicative of the results of operations for
any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
--------- -------- --------- --------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental............................................. $ 166 $ 256 $ 517 $ 767
Product sales...................................... 84 106 263 1,350
-------- -------- -------- --------
Total revenues................................... 250 362 780 2,117
-------- -------- -------- --------
Costs of revenues:
Cost of rental..................................... 65 115 194 297
Cost of product sales.............................. 52 85 207 982
-------- -------- -------- --------
Total costs of revenues.......................... 117 200 401 1,279
-------- -------- -------- --------
Gross profit..................................... 133 162 379 838
Operating expenses:
Marketing and sales................................ 116 315 2,598 7,223
Product development................................ 114 149 489 1,212
General and administrative......................... 75 731 2,437 8,308
Delivery........................................... 112 210 662 2,281
Depreciation and amortization...................... 11 122 196 472
Non-cash compensation.............................. -- 3 141 64
-------- -------- -------- --------
Total operating expenses......................... 428 1,530 6,523 19,560
-------- -------- -------- --------
Loss from operations................................. (295) (1,368) (6,144) (18,722)
Interest income (expense), net....................... -- 2 (33) 190
-------- -------- -------- --------
Net loss............................................. $ (295) $ (1,366) $ (6,177) $(18,532)
======== ======== ======== ========
</TABLE>
Increases in revenues over the course of 1999 were primarily due to
increases in our customer base and the number of total orders. Our customer base
grew from 3,700 at December 31, 1998, to 8,800, 16,119, 28,085 and 101,234 at
March 31, June 30, September 30 and December 31, 1999, respectively. This growth
was primarily the result of new marketing initiatives, including new cable
television advertisements, online, print and direct mail advertising, and to a
significant increase in word-of-mouth sign-ups, as well as our opening of
additional distribution centers throughout the year. Growth in our customer base
and increased order frequency resulted in a total order volume of 29,231,
44,275, 78,118 and 177,581 during the three-month periods ended March 31,
June 30, September 30 and December 31, 1999, respectively.
Increases in costs of revenues and operating expenses, including marketing
and sales expenses, general and administrative expenses and delivery expenses,
during 1999 were primarily the result of opening new distribution centers
throughout 1999.
26
<PAGE>
In addition, product development expense increased over the course of 1999
primarily due to increased costs for consultants and an increase in payroll and
related expenses associated with an increase in the number of personnel
responsible for web site maintenance, systems infrastructure and web site
content.
We have experienced, and expect to continue to experience, higher revenues
as a result of a higher volume of orders during the fourth quarter holiday
season.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception we have financed our operations primarily through
private placements of various series of our preferred stock, which has resulted
in our receipt of approximately $232.3 million of cash, including $113.6
million subsequent to December 31, 1999, net of issuance costs, plus
$10.0 million of marketable securities.
Net cash used in operating activities was $21.6 million in 1999. This
resulted primarily from the funding of our net loss for the year, as adjusted
for non-cash expenses, and an increase in operating assets, including product
inventory, security deposits and accounts receivable, partially offset by
increases in operating liabilities, including accounts payable and accrued
expenses. Net cash used in operating activities was $444,000 in 1998, also due
primarily to the funding of our net loss for the year, adjusted for non-cash
expenses, and increases in operating liabilities, including accounts payable and
accrued expenses. Net cash used in operating activities was $140,000 for the
period from April 17, 1997 (inception) through December 31, 1997, primarily due
to the net loss for the period.
Net cash used in investing activities was $7.6 million in 1999, $171,000 in
1998 and $94,000 for the period from April 17, 1997 (inception) through
December 31, 1997. Net cash used in investing activities was primarily for the
purchase of property, equipment and the inventory of rental products required
for our new distribution centers.
Net cash provided by financing activities was $118.0 million in 1999,
primarily from the sale of shares of our Series B through Series E preferred
stock. Net cash provided by financing activities was $661,000 in 1998, primarily
from the sale of our Series A and Series B preferred stock, in addition to loans
from our founders. Net cash provided by financing activities was $270,000 for
the period from April 17, 1997 (inception) through December 31, 1997, resulting
primarily from the sale of shares of our Series A preferred stock and common
stock, in addition to loans from our founders.
Although we have no material commitments for capital expenditures, we have
experienced a substantial increase in capital expenditures since our inception,
consistent with the growth in our operations and staffing. We anticipate that
this will continue for the foreseeable future. We intend to continue to expand
our marketing and sales programs and conduct aggressive brand promotions.
Pursuant to our agreement with Starbucks executed in March 2000, we are
committed to making the following cash payments to Starbucks of $15.0 million in
2000, $25.0 million in 2001, $35.0 million in 2002, $35.0 million in 2003 and
$40.0 million in 2004.
As of December 31, 1999, we have commitments under non-cancelable operating
leases amounting to $16.6 million, of which $2.0 million will be due on or
before December 31, 2000.
We expect to devote substantial resources to continue development of our
brand and web site, expand our sales, support, marketing and establish
additional facilities and build the systems necessary to support our growth.
Although we believe that the proceeds of this offering, together with our
current cash and cash equivalents will be sufficient to fund our activities for
at least the next 12 months, there can be no assurance that we will not require
additional financing within this time frame or that additional funding, if
needed, will be available on terms acceptable to us or at all. In addition,
although there are no present understandings, commitments or agreements with
respect to
27
<PAGE>
any acquisition of other businesses, products or technologies, we may, from time
to time, evaluate acquisitions of other businesses, products and technologies.
In order to consummate potential acquisitions, if any, we may need additional
equity or debt financing.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. Subsequently, the FASB issued SFAS No. 137 which
deferred the effective date of SFAS No. 133. SFAS No. 137 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. We have has not
yet determined the impact of this pronouncement on our financial position or
results of operations.
MARKET RISK
The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk of loss. Some of the securities in which
we may invest may be subject to market risk. This means that a change in
prevailing interest rates may cause the market value of the investment to
fluctuate. For example, if we hold a security that was issued with a fixed
interest rate at the then-prevailing rate and the prevailing interest rate later
rises, the market value of our investment will probably decline. To minimize
this risk in the future, we intend to maintain our portfolio of cash equivalents
and short-term investments in a variety of securities, including commercial
paper, money market funds, government and non-government debt securities. We
maintained our portfolio of cash equivalents in money market funds as of
December 31, 1999. In general, the fair value of money market funds is not
subject to market risk because the interest paid on such funds fluctuates with
prevailing market rates.
28
<PAGE>
BUSINESS
OVERVIEW
We enable consumers to order a variety of entertainment, food and
convenience products over the Internet for free delivery in under one hour. Our
promise of under one hour delivery is designed to satisfy a consumer's desire
for immediate gratification. We focus on selling frequently purchased, high
margin items with well-known brand names. Additionally, we recently initiated a
business-to-business service to enable select retailers to provide their
customers with an expedited delivery option through our distribution network.
Our innovative, proprietary business system integrates our web site,
distribution centers and delivery infrastructure. We believe that our first
mover advantage and the quality of our service have allowed and will continue to
allow us to increase our customer base and build our brand name as we enter new
geographic markets. We launched our service in New York City in March 1998 and
have since expanded our operations to the Seattle, San Francisco, Boston,
Washington, D.C. and Los Angeles markets. We intend to enter at least ten
additional markets by the end of 2000. In 1999, the number of customers
registered on our web site grew at a compounded monthly rate of approximately
30%.
We serve each of our markets from one or more distribution centers. Our
distribution centers are approximately 10,000 square feet in size and are
located primarily in low-rent areas with access to key thoroughfares. The size
of our typical distribution center provides capacity to expand our product
offerings in our existing markets. Our business model enables us to quickly
establish operations in a new market with a moderate capital expenditure and is
designed to eliminate the high lease expense, build-out cost and inventory
requirements normally associated with having multiple retail locations in a
single market.
INDUSTRY BACKGROUND
LIMITATIONS OF STOREFRONT AND CATALOG RETAILING
Traditionally, consumers have relied on storefront and catalog retailers to
satisfy many of their purchasing needs and only recently have begun turning to
the Internet in increasing numbers. In-store shopping, although offering the
opportunity for immediate receipt of a purchased item, can be frustrating and
time consuming, particularly during peak shopping times. The consumer must
identify a store that is open and likely to carry the desired item. The consumer
then must travel to the store, search for the item with no guarantee that the
item will be in stock, and then wait in line for service. A consumer who desires
a variety of items may be required to visit a number of stores. In addition,
most retail stores do not provide consumers with ready access to detailed
product information and useful reviews.
Catalog retailers typically provide greater product selection and shopping
convenience than storefront retailers and are more convenient for consumers than
in-store shopping. However, because they deliver their products by mail or via
package delivery companies, such as UPS and Federal Express, catalog retailers
are generally unable to provide under one hour or even same day delivery.
Typically, consumers purchasing products from catalog retailers must wait
anywhere from three to five days for standard mail delivery and at least one
full day for express package delivery. This delay in the receipt of a purchased
item is frustrating to many consumers. In addition, shipping and handling
charges can be significant relative to the total value of goods purchased,
particularly if the customer elects premium one or two day shipping services.
29
<PAGE>
LIMITATIONS OF ONLINE RETAILING
Online retailers address some of the limitations inherent in storefront and
catalog retailing. They enable consumers to select from and quickly purchase a
wide variety of goods, obtain comprehensive product information and informative
reviews, and customize their shopping experience through personalization
features. However, most online retailers do not provide under one hour or even
same day delivery.
THE KOZMO SOLUTION
We combine the convenience, time savings, product information and
personalization of catalog and online shopping with the prompt receipt of
purchased items normally possible only with in-store shopping. Through our web
site, we sell a wide variety of frequently purchased, high margin items with
well-known brand names, and we deliver them to our customers in under one hour.
We also offer select retailers the opportunity, on a fee-for-service basis, to
provide their customers with the benefits of our distribution networks. We
believe these business-to-business relationships will enhance our revenues,
operating margins and brand awareness.
The principal components of our solution include:
CONVENIENCE. Our under one hour delivery model provides our customers with
extraordinary convenience not available from most other retailers and is
designed to appeal to their desire for immediate gratification. Consumers can
choose from a wide variety of branded goods and avoid the inconveniences of
in-store shopping, such as the commute and the wait in line. Moreover, our
solution enables our customers to avoid the delivery delays typically associated
with catalog or online shopping. We believe our product selection and the speed
and convenience of our delivery service make us an invaluable resource to
time-starved consumers and will engender customer loyalty.
USER-FRIENDLY WEB SITE. Our web site is convenient, easy-to-use and
designed to save consumers time and avoid frustration. Customers may shop for
products by browsing clearly organized product categories or by using keyword
searches. Our web site also assists customer decision-making by providing useful
product information and helpful third-party reviews, as well as interesting
related content. Our customers can establish mobile profiles so that they can
use our service outside their home areas. They also can establish wish lists for
popular items, which enable us to automatically inform them of the availability
of desired products, such as recently published books and new video releases,
thereby enhancing the buying experience.
LARGE SELECTION OF HIGH QUALITY PRODUCTS. We provide consumers with
one-stop shopping for a broad range of products. We offer many products that are
complementary to each other, which we believe increases our average order size
and our attractiveness to consumers. Our products include well-known national
brands, such as COCA-COLA, NABISCO, GILLETTE, KODAK and CREST. Additionally, in
local markets, we may offer well-known local brands, such as COSI sandwiches and
KRISPY KREME donuts in New York, EXTREME PIZZA and BRIAZZ sandwiches and salads
in San Francisco, and COUGAR MOUNTAIN cookies in Seattle. Our products are
priced at levels that are competitive with those generally found in retail
stores.
QUALITY CUSTOMER SERVICE. We provide superior customer service through our
online help desk, a toll-free customer service number and two convenient options
to return rental products, dropoff boxes at Starbucks or other select retail
locations and, for a fee, home pick up. We have an opportunity to personally
interact with our customers each time an order is delivered, thereby allowing us
to continually reinforce our brand. Our delivery staff, known as
"Kozmonauts-TM-," are the backbone of our operations and are incentivized with
competitive compensation. In addition, all salaried employees, including many
Kozmonauts-TM-, are eligible to receive stock options. Kozmonauts-TM- are
trained to ensure a consistently high level of courtesy when dealing with
customers.
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EFFICIENT LOGISTICS PROCESSES. Our Kozmo Intelligent Dispatch System, or
KIDS-TM-, is an advanced logistics management system that simplifies product and
order handling and enables us to efficiently organize and execute deliveries by
taking advantage of available geographical data and advanced routing and
scheduling algorithms. It also allows us to more effectively deploy and redeploy
our delivery staff when they are in the field. We package each customer order in
a separate container at our distribution center and deliver groups of orders to
a common destination area via the most efficient route by van, car, scooter or
bicycle in under one hour.
LOW COST DISTRIBUTION MODEL. We believe that the start-up and operating
costs of our distribution centers are significantly lower than the comparable
costs that would be incurred by other retailers to service the same geographic
market. Our distribution centers are approximately 10,000 square feet in size
and can accommodate up to 50,000 SKUs, providing capacity for future product
growth. We believe that expanding our product offerings will enable us to
achieve greater operating efficiencies by including a greater number of items in
each delivery. We intend to increase the number of customers we serve in a
particular market by establishing additional distribution centers in that market
as needed. This will enable us to spread our marketing and operational expenses
over a wider service base.
GROWTH STRATEGY
Our growth strategy has two objectives: to be the leading online provider of
entertainment, food and convenience products with free delivery in under one
hour and to further enhance the usage of our distribution infrastructure by
providing select retailers with an expedited delivery option on a fee-for-
service basis. Focusing on these objectives will allow us to increase our
average order size and generate additional orders, thereby increasing delivery
density, revenues and our margins. The key elements of our strategy are to:
EXPAND INTO NEW GEOGRAPHIC MARKETS. Based on our experience in the six
markets in which we currently operate, we believe that a significant opportunity
exists to extend our operations into additional markets. Our distribution model
has been designed for smooth and rapid deployment in new markets. We currently
intend to enter at least ten additional markets by the end of 2000 while
expanding our operations in our existing markets by opening additional
distribution centers as needed.
EXPLOIT OUR RAPID DELIVERY INFRASTRUCTURE FOR BUSINESS-TO-BUSINESS
TRANSACTIONS. We intend to increase the volume of products delivered through our
distribution networks by offering select retailers an expedited delivery option
for their customers on a fee-for-service basis. This delivery option will allow
these retailers to serve those customers whose desire for immediate
gratification would cause them to otherwise turn to a storefront retailer. We
expect these arrangements to improve the efficiency of our distribution networks
by increasing the volume and density of our deliveries, our average order size
and our brand awareness. For example, we recently entered into an agreement with
Amazon.com to provide its customers with a one hour delivery option for books,
music, toys and other products in markets we serve.
BUILD THE KOZMO BRAND. We intend to establish Kozmo as the leading brand
for under one hour delivery of online purchases. We will seek to build and
reinforce consumer recognition of our brand through public relations programs,
advertising campaigns, promotional activities and joint marketing efforts. We
also intend to enter into strategic relationships that provide us with
co-branding opportunities and the opportunity to offer new products and
services. For example, we recently entered into a strategic relationship with
Starbucks that will provide us with a significant in-store marketing presence.
BUILD A LOYAL CUSTOMER BASE. We intend to build an ever expanding base of
loyal customers in each of our markets. We believe that the high quality and
reliability of our delivery service will cause our existing customers to
increase their use of our service and recommend us to other consumers. We
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strive to enhance our customers' shopping experience by actively seeking their
feedback, expanding our product selection to cater to changing consumer
preferences and continuing to improve our web site. We expect to increase the
efficiency of our distribution networks and create a competitive advantage over
storefront, catalog and online competitors as our customer base increases in
each market.
ESTABLISH STRATEGIC RELATIONSHIPS WITH KEY VENDORS AND OTHER RETAILERS AND
SERVICE PROVIDERS. We intend to enter into strategic relationships that will
allow us to offer our customers an enhanced shopping experience and a more
comprehensive selection of products and services. We believe these relationships
will allow us to increase our access to new customers, increase our order size,
increase the volume of traffic on our web site and improve the efficiencies of
our operations. For example, we have a relationship with Ticketmaster
Online--CitySearch that is designed to attract traffic to our web site. We will
be the only online retailer advertised on CitySearch's web site that offers
delivery in under one hour.
PRODUCT OFFERINGS
We offer consumers a broad selection of quality products at competitive
prices. We focus on selling frequently purchased, high margin items with
nationally-recognized brand names. We also seek to offer products that are
complementary to each other in order to encourage customers to order additional
items. In certain markets, we also offer products that are particularly
well-known in those markets.
Our product offerings are currently concentrated in the following
categories:
- BOOKS. We sell approximately 300 of the best selling book titles in
hardcover and paperback across a wide range of categories. Forrester
Research estimates that online book spending will grow from $1.7 billion
in 1999 to $3.2 billion in 2004.
- FOOD. We sell beverages, candy, snack foods, ice cream, and pre-made and
pre-packaged pizzas, salads and sandwiches prepared by our suppliers. Some
of the major brands we offer include BEN & JERRY'S, NABISCO and HERSHEY.
Forrester Research estimates that online food and beverage spending will
grow from $1.1 billion in 2000 to $16.0 billion by 2004.
- HOME VIDEOS. We offer approximately 12,000 movie titles in VHS
videocassette format and approximately 2,000 movie titles in DVD format
for rent or for sale. Our selection includes the most popular new releases
as well as classic, foreign and independent films. We also sell DVD and
VHS players. Veronis Suhler estimates the total market for the home video
market will grow from $18.1 billion in 1999 to $20.2 billion by 2003.
- MAGAZINES. We sell approximately 200 popular magazines across a number of
categories including news, sports, business, entertainment and leisure.
Veronis Suhler estimates the total market size for magazines will grow
from $7.7 billion in 1998 to $9.1 billion by 2003.
- MINI-MART. We sell over-the-counter drugs, batteries, film and disposable
cameras, bath and personal care products, baby care products and tobacco
products. Some of the brands we offer include TYLENOL, DURACELL, KODAK,
JOHNSON & JOHNSON and HUGGIES. The National Association of Convenience
Stores estimates that the total in-store convenience store market was
$164.0 billion in 1998.
- PRE-RECORDED MUSIC. We sell approximately 2,000 CD titles including the
top current music releases and other popular titles in a variety of music
categories such as alternative, R&B, classical, rock and roll, country and
jazz. We also sell portable CD players. Forrester Research estimates that
online music spending will grow from $1.3 billion in 1999 to $4.2 billion
in 2004.
- VIDEO GAMES. We offer approximately 400 video games for rent as well as
for sale. We feature popular new releases and a selection of classic
games. We also sell gaming consoles by major brands such as Sega, Nintendo
and Sony. Veronis Suhler estimates that the total market for video game
software will grow from $3.0 billion in 1998 to $5.1 billion by 2003.
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In addition to our customary product offerings, we periodically offer
seasonal products, such as toys for the holiday season and cards and candy for
Valentine's Day.
THE KOZMO WEB SITE
Our web site is our first point of contact with our customers and the
gateway to the Kozmo shopping experience. Our web site is easy to use,
convenient and time-saving for our customers. The key features of our web site
include:
LOCALIZED OFFERING. Customers enter their zip codes upon entry to our home
page and are then routed automatically to a localized web site that includes not
only major nationally branded products but also prominent local brands. We
believe that our ability to tailor our product offerings to consumer preferences
by region is a competitive advantage and increases customer loyalty.
HIGHLY INTUITIVE LAYOUT.
[A black and white image of the Kozmo.com home page.
This image will show a web browser displaying our home
page.]
Our web site design enables consumers to browse intuitively among our
products by category or through convenient key word searches. Popular and new
DVDs, videocassette and game rental offerings are prominently displayed,
enabling consumers to quickly locate those items that are most likely to
interest them.
PERSONALIZATION. MY KOZMO-TM- is a personalization tool that enables a
user to customize the shopping experience. Users can create a "wish list" of
desired movies identified by title or featured performer and are automatically
notified when the movie becomes available. We are currently enhancing MY
KOZMO-TM- to items that are complementary to each other and suggest related
products that a customer might want to add to an order.
DELIVERY OPTIONS. Our web site enables our customers to choose the time at
which an order is delivered, opting for delivery either in under one hour after
placing the order or within any other specified one-hour time period during the
rest of the day. Our customers can also provide us with special instructions to
ensure accurate and timely delivery.
INFORMATION. We provide consumers with useful product information and
helpful third party reviews, allowing them to buy or rent with confidence. We
have also developed, and are currently implementing, a system for receiving and
publishing our customer reviews. Information on our hours of operation, drop box
locations and customer assistance is also easily accessible.
DISTRIBUTION CENTERS
We currently operate thirteen distribution centers. In three of our six
existing markets, we have more than one distribution center. Our distribution
centers are approximately 10,000 square feet in size and are located primarily
in low-rent areas with access to key thoroughfares. The size of our typical
distribution center provides capacity to expand our product offerings. Our
business model enables us to quickly establish operations in a new market with a
moderate capital expenditure. We now have over two years of experience in
operating our distribution centers and have adapted their design to maximize the
speed and accuracy of our distribution. We employ a flexible layout of
standardized equipment that enables us to easily adjust to evolving product and
customer requirements. We are adding automation features to our new distribution
centers to improve the efficiency of our operations.
Each of our distribution centers is linked to our web site through a central
web server. The web server routes orders to the distribution center nearest to
the customer's zip code. Our proprietary systems manage virtually all
operational processes within the center, including product gathering and
packaging, inventory management, customer service and delivery route planning.
These processes are
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fully integrated, simplifying distribution and inventory management. For
example, we begin gathering items as soon as they are selected by the customer
while simultaneously adjusting our inventory database and web site information
display to reflect the removal of these items from available stock even before
the customer has completed the checkout process. We are currently implementing
several key initiatives to enhance our operational efficiency, including using
wireless communications, to monitor order fulfillment.
DELIVERY OPERATIONS
Our proprietary KIDS-TM- system optimizes delivery sequences and routes,
minimizing travel distances and maximizing productivity. The system uses
operations research models and integrates environmental factors, such as time of
day, weather conditions, mode of transportation and product characteristics. Our
delivery methods vary depending upon local population density, travel times and
order size, and include vans, cars, scooters and bicycles. Future plans call for
use of integrated Global Positioning Systems to allow real-time tracking of our
delivery personnel, thereby improving the accuracy and efficiency of deliveries.
MARKET EXPANSION
We currently operate in the following markets:
<TABLE>
<CAPTION>
DATE OPERATIONS
KOZMO MARKET COMMENCED
- ------------ ---------------
<S> <C>
New York City.............................................. March 1998
Seattle.................................................... June 1999
San Francisco.............................................. September 1999
Boston..................................................... September 1999
Washington, D.C............................................ November 1999
Los Angeles................................................ February 2000
</TABLE>
We intend to enter at least ten additional markets by the end of 2000. We
select markets and prioritize our expansion schedule by evaluating factors such
as the size of the market opportunity, market readiness, competitive activity,
and start-up and operational costs. The number of required distribution centers
in any particular market will vary depending on the geographic size of the
market, its population density, Internet usage, and expected size and frequency
of customer order volume. We have conducted in-depth research on potential
target markets which have included local visits to 25 cities to gather
first-hand market intelligence.
We have developed a comprehensive plan for opening distribution centers and
expanding into new markets. The plan is designed to facilitate a quick launch of
our services in a new market once it has been selected. A team of experts work
together to set up and prepare each distribution center, including build-out,
inventory procurement and systems implementation. The training of managers and
staff is provided locally in each market and at our corporate headquarters in
New York.
As demand within a market grows, we may launch additional distribution
centers in that market. The implementation time and resources necessary for
these expansions are significantly less than for new market entry because we are
able to take advantage of existing resources and expertise. These additional
distribution centers allow us to increase our coverage area and create economies
of scale in operations and marketing.
RELATIONSHIP WITH AMAZON.COM
We have a strategic relationship with Amazon.com LLC, an affiliate of
Amazon.com, Inc., that we believe will increase the use of our delivery
infrastructure and allow us to attract other business-to-business partners. In
March 2000, we entered into a supply and delivery agreement with Amazon.com LLC
to deliver books, music and toy products offered on the Amazon.com web site to
its customers in
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our markets in under one hour. The agreement is subject to establishing mutually
acceptable customer service standards and acceptable pricing for the delivery
service. In addition, the agreement provides that Amazon.com LLC will engage in
selected promotional activities to introduce the Kozmo delivery service to
Amazon.com's customer base.
Amazon.com Inc. is our largest stockholder, and has invested a total of
$60 million to-date in Kozmo. See "Principal Stockholders" and "Certain
Relationships and Related Transactions" for a further discussion of our
relationship with Amazon.com.
RELATIONSHIP WITH STARBUCKS
We have an exclusive relationship with Starbucks Corporation that we believe
will provide additional convenience for our customers, increase our brand
awareness and expand our product selection. In February 2000, we entered into a
five year strategic agreement with Starbucks to place a drop box in each
Starbucks store located in our current and future markets to collect items
returned by our customers. The agreement also provides for exclusive joint
marketing and promotional activities, such as the placement of the Kozmo brand
on Starbucks napkins, cups and posters, free product samples for Starbucks
customers that join Kozmo and links to our web site from the Starbucks web site.
In addition, we will offer Starbucks products such, as coffee by the pound,
teas, ice cream and bottled beverages, for delivery in under one hour. We intend
to explore other opportunities with Starbucks, including delivery of hot
beverages. Starbucks has invested a total of $25 million in our company.
OTHER STRATEGIC RELATIONSHIPS
We pursue strategic relationships in order to gain access to additional
consumers, build brand recognition, add complementary items to our product
offerings and increase the selection of products of other retailers delivered
through our distribution networks. In addition to our relationship with
Amazon.com and Starbucks, we have established the following relationships:
COLUMBIA TRISTAR HOME VIDEO. We recently entered into a letter agreement
under which Columbia TriStar Home Video, Inc. will provide us with a greater
number of movie titles, and more copies of each title than we currently obtain,
on VHS cassettes and DVDs, at a substantially lower initial cost than we would
otherwise pay, in exchange for a percentage of the rental revenues generated by
those titles. We believe this agreement will reduce our initial cash
requirements for our rental inventories of VHS cassettes and DVDs and increase
the number of titles we carry. Columbia TriStar Home Video will also directly
provide us with VHS cassettes and DVDs at a lower cost than we would otherwise
pay, for purposes of resale to consumers.
TICKETMASTER ONLINE--CITYSEARCH. We recently entered into a service
licensing and distribution agreement with Ticketmaster Online--CitySearch, Inc.,
expiring in 2001 pursuant to which we are the exclusive online one-hour delivery
service advertised on CitySearch web sites in all cities where both Kozmo and
CitySearch operate. We believe that our relationship with CitySearch will
increase traffic on our web site and build brand awareness. CitySearch provides
web sites for over fifty cities worldwide with detailed information on
restaurants, nightlife, movies and the arts. According to Media Metrix,
CitySearch web sites were visited by 6.1 million unique users in January 2000.
CitySearch will also provide a direct link to a separate web page where users
can enter their zip code to access our web site.
WARNER HOME VIDEO. We recently entered into a licensing agreement with
Warner Home Video under which Warner Home Video will provide us with a greater
number of movie titles, and more copies of each title than we currently obtain,
on VHS cassettes and DVDs, including New Line and HBO titles, at a substantially
lower initial cost than we would otherwise pay, in exchange for a percentage of
the rental revenues generated by those movie titles. We believe this agreement
will reduce our initial cash requirements for our rental inventories of VHS
cassettes and DVDs and
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increase the number of titles we carry. Warner Home Video will also directly
provide us with VHS cassettes and DVDs at a lower cost than we would otherwise
pay, for purposes of resale to consumers. Under the agreement we issued
1,323,977 shares of Series F convertible preferred stock to Warner Home Video
valued at $10 million.
MARKETING AND PROMOTION
We have implemented a marketing and promotion campaign to increase awareness
and acceptance of the Kozmo brand. Our marketing efforts focus on:
- informing customers of the benefits of our unique service;
- promoting a consistent, quality brand image;
- establishing long-lasting relationships with customers;
- increasing consumer traffic to our web site;
- increasing order frequency and average order size; and
- building customer loyalty.
Our marketing and promotional efforts focus on consumers who value
convenience and time-savings. We tailor our advertising to appeal to local
tastes in each of our markets. We gather feedback from our customers to enhance
our customer service, which we believe will lead to an increase in order
frequency. We seek to reinforce the Kozmo name and brand through advertising,
promotions, packaging and delivery. We design our public relations strategy to
achieve coverage of our business across a wide array of media, including
television, radio, billboards, magazines and the Internet.
CUSTOMER SERVICE
We believe that our ability to establish and maintain long-term
relationships with our customers is dependent upon the quality of the experience
we provide. We aim to provide premium customer service through three points of
contact: our web site, our delivery staff and our customer service
representatives.
Our web site contains extensive information for customers and offers a
number of help and feedback options. Our online help desk offers information
such as hours of operation, product availability, order tracking, order
modification or cancellation and drop box locations. We strive to answer each
customer's e-mail within four hours.
Our delivery staff is a significant part of our focus on customer service.
Each Kozmonaut-TM- is a valued employee and is incentivized with competitive
compensation. In addition, all salaried employees, including many
Kozmonauts-TM-, are eligible to receive stock options. We adhere to rigorous
hiring standards to evaluate and select delivery personnel that are courteous
and professional in their dealings with our customers. Every new delivery
employee is required to complete a two-day training program that communicates
and reinforces our commitment to customer service. We conduct follow-up training
on an ongoing basis and have implemented a review process to ensure compliance
with our standards of customer service.
Our highly trained customer service representatives are available through
our toll-free telephone number seven days a week during operating hours. Calls
are prioritized to allow inquiries related to current orders to receive top
priority. We have engaged the services of a third party specializing in
e-commerce customer support to handle our voice and Internet-based customer
inquiries.
As part of our privacy policy, we do not disclose customer information to
third parties.
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TECHNOLOGY
Our web site architecture is based upon IBM's Net.Commerce software. This
architecture is designed to handle the anticipated growth in our visitor
traffic. By combining this architecture with hardware and software from leading
providers, such as Oracle, Sun Microsystems and Cisco, we believe that our
systems can be expanded as required to serve our technological needs.
To assist us with power, network and fire-suppression systems in our central
server environment, we are co-locating our servers with Global Crossing Global
Center, Inc. Future plans contemplate additional co-location arrangements as our
geographic expansion continues.
Our back-office uses the Oracle Enterprise Resource Planning System, which
is integrated into our e-commerce systems to provide us with automated
accounting and purchasing functionality. Future plans contemplate full
auto-replenishment of inventory and a data storage and data mining system for
enhanced information processing.
COMPETITION
We operate in a highly competitive and rapidly evolving market. Our current
and future competitors include:
- ONLINE RETAILERS. These retailers include companies such as Amazon.com,
CDNow, Buy.com, Urbanfetch, Webvan, Food.com and HomeGrocer.com as well as
a number of smaller privately held companies.
- STOREFRONT RETAILERS. These retailers include national video stores such
as Blockbuster and Hollywood Entertainment, mass merchant retailers such
as Wal-Mart and Target, convenience stores such as 7-Eleven and Circle K
and grocery stores such as Safeway and Kroger.
- FULFILLMENT SERVICE PROVIDERS. These service providers include Federal
Express, UPS and DHL. These competitors do not currently sell products to
consumers or provide same day delivery for retailers but may attempt to
enter these markets or provide these services in the future.
The principal competitive factors that affect our business are shopping
convenience, product availability and quality, shopping environment, price and
customer service and loyalty. We believe that we compare favorably to the
competition with respect to each of these factors, although many of our
competitors are able to provide nationwide service which we do not offer. In
addition, many of our current and potential storefront and online competitors
have longer operating histories than we do, larger customer bases, greater brand
recognition and significantly greater financial, marketing, technical,
management and other resources. If we fail to compete effectively in any of
these areas, we may lose existing and potential customers, which would harm our
financial performance.
GOVERNMENT REGULATION
The law relating to Internet business is evolving. A number of legislative
and regulatory proposals under consideration by federal, state, local and
foreign governmental organizations may lead to new laws and regulations covering
issues such as user privacy, freedom of expression, pricing, content and quality
of products and services, taxation, advertising, intellectual property rights
and information security. Furthermore, the growth of e-commerce may prompt calls
for more stringent consumer protection laws regarding the collection and use of
personal identifying information obtained from individuals when accessing web
sites, with particular emphasis on access by minors. Several states have
proposed legislation to limit the uses of personal user information gathered
online or require online services to establish privacy policies. The Federal
Trade Commission has also initiated actions against at least three online
service companies regarding the manner in which personal information is
collected from users and provided to third parties. We do not currently provide
personal information regarding
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our users to third parties nor do we collect information on consumers through
the use of "cookies" placed permanently on customers' hard drives. However, the
adoption of such consumer protection laws could create uncertainty in web usage
and reduce the demand for our products and services. Additionally, we may be
required to incur additional costs in order to comply with new laws or
regulations or the laws governing markets in which we may operate in the future.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of these laws were adopted prior
to the wide use of the Internet and do not contemplate or address the unique
aspects of the Internet and related technologies. Changes in laws intended to
address these issues could create uncertainty in the Internet industry. This
uncertainty could reduce demand for our services or increase the cost of doing
business as a result of litigation costs or increased service delivery costs.
We are subject to a variety of regulations concerning the handling, sale and
delivery of food and tobacco products. It is uncertain whether the handling of
certain food items in our distribution facility will subject us to regulation by
the United States Department of Agriculture. In addition, we are subject to
state and local regulations applicable to food and tobacco products. We are
required to obtain state licenses and permits for the sale of tobacco products
in each location in which we open a distribution center. We cannot assure you
that we will be able to obtain any required permits or licenses in a timely
manner, or at all. Any applicable federal, state or local regulations or
required permits or licenses may cause us to incur substantial compliance costs
or delay or prohibit the availability of certain items at one or more of our
distribution centers. In addition, any inquiry or investigation from a food
regulatory authority could have a negative impact on our reputation.
We are currently evaluating whether to offer alcoholic beverages in certain
markets. To do so, we would be required to obtain state, and in some cases
county and municipal, licenses and permits for the sale of alcohol in each
location in which we deliver such products. We cannot assure you that we would
be able to obtain any required permits or licenses in a timely manner, or at
all. In addition, the U.S. Congress is considering enacting legislation that
would restrict the interstate sale of alcoholic beverages over the Internet.
Changes to existing laws or our inability to obtain required permits or licenses
could prevent us from selling alcoholic beverages in one or more of our
geographic markets or a portion of those markets where a market extends over two
or more licensing jurisdictions.
As we expand our services, we may become subject to additional laws or
regulations, compliance with which could limit the products or services that we
provide or otherwise adversely affect our results of operations.
INTELLECTUAL PROPERTY
We rely on a combination of patent, trademark, copyright and trade secret
laws and contractual restrictions to establish and protect our proprietary
information, and we regard them as important to our success. We have entered
into confidentiality and invention assignment agreements with our employees,
consultants and others to limit access to and disclosure of our proprietary
information; however, our attempts to protect our proprietary information may
prove inadequate.
We have filed applications for the registration of Kozmo.com-TM-, Kozmo-TM-,
the Kozmo.com logo and our slogans "We'll Be Right Over-TM-," "From the Internet
to Your Door in Under One Hour-TM-," "From the Internet to Your Desk in Under
One Hour-TM-," and "From the Internet to Your Dorm in Under One Hour-TM-" in the
United States, although we have not secured registration of any of our marks to
date. In August 1999, we filed a provisional patent application with the United
States Patent and Trademark Office with respect to our dispatching system. From
time to time, we may file additional patent applications covering aspects of our
proprietary technology. We currently have no patents protecting our technology.
We cannot assure you that any of our pending patent applications
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will be approved, that any issued patents will protect our intellectual property
or that any issued patents or trademark registrations will not be challenged by
third parties.
EMPLOYEES
As of March 10, 2000, we had 445 salaried employees and 2,220 hourly
employees. Our employees are not parties to any collective bargaining
agreements. We have not experienced any work stoppages, and we consider our
employee relations to be good.
FACILITIES
Our headquarters are located in New York City where we lease approximately
56,000 square feet of office space. In New York City, we currently lease three
distribution centers. In Seattle, we currently lease two distribution centers.
In Los Angeles, we currently lease five distribution centers. In each of Boston,
Washington, D.C., Chicago and San Francisco, we currently lease one distribution
center. Generally, we enter into an operating lease for a new distribution
center one to three months prior to the opening of that distribution center. We
believe that our facilities are adequate for our current needs and that
additional suitable space will be available on acceptable terms as required. We
do not own any real estate at present, and we expect, wherever possible, to
lease rather than own our distribution centers in the additional markets we
enter.
LEGAL PROCEEDINGS
From time to time, we may be involved in legal proceedings relating to
claims arising out of our ordinary course of business. We believe that there is
no litigation pending that could have a material adverse effect on our business,
financial condition, results of operations or cash flows.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
Our directors, executive officers and senior management as of the date of
this offering and their ages as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Joseph Park............................ 28 Chief Executive Officer and Chairman of the Board of
Directors
Yong Kang.............................. 27 President and Director
Gerardo Burdo.......................... 34 Senior Vice President and Chief Financial Officer
Kenneth Trevathan...................... 53 Senior Vice President and Chief Operating Officer
Christopher Shimojima.................. 44 Senior Vice President and Chief Marketing Officer
William Herald......................... 49 Senior Vice President and Chief Technology Officer
Larry Johnson.......................... 48 Senior Vice President of International
Scott Evans............................ 32 Vice President of Logistics
James Alt.............................. 33 Vice President of Supply Chain Management
Andrew Resnick......................... 42 Vice President of Corporate Development
Jack Chen (2).......................... 33 Director
Hugh Evans (1)......................... 31 Director
Gerald Gallagher (2)................... 58 Director
Seth Goldstein (1)..................... 29 Director
Robert Greene (1)(2)................... 39 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
JOSEPH PARK co-founded Kozmo with Mr. Kang and has served as our chief
executive officer and chairman of the board of directors since July 1997. From
July 1996 to July 1997, Mr. Park served as an analyst in the corporate finance
division of Goldman, Sachs & Co., where he was involved in public equity, hybrid
and investment grade debt offerings, mergers and acquisitions, and financial
advisory work. From June 1994 to June 1996, Mr. Park served as an analyst in the
investment research department at Goldman, Sachs & Co., covering the consumer
durable goods and packaging industries.
YONG KANG co-founded Kozmo with Mr. Park and has served as our president and
a director since July 1997. From July 1996 to July 1997, Mr. Kang was an
assistant vice president at Societe Generale in the media and communications
group, specializing in senior bank financing, high yield debt and private equity
transactions for companies in the broadcasting, cable and entertainment
industries. From July 1994 to July 1996, Mr. Kang was a senior analyst in the
mergers and acquisitions group of the Toronto-Dominion Bank, specializing in
acquisition advisory, private equity and high yield debt transactions for cable,
cellular/PCS, paging and broadcasting companies.
GERARDO BURDO has served as our senior vice president and chief financial
officer since November 1999. From 1991 to 1999, Mr. Burdo held various positions
at Ethan Allen Inc., most recently as principal financial officer, vice
president and treasurer and as a director of Ethan Allen Canada. From 1987 to
1991, Mr. Burdo held various positions at KPMG LLP.
KENNETH TREVATHAN has served as our senior vice president and chief
operating officer since November 1999. From 1984 to 1999, Mr. Trevathan held
executive positions in various divisions at Federal Express, most recently as
managing director of the logistics and electronic commerce operations of its
North American operations. Mr. Trevathan currently serves as a member of the
board of directors of Dormnow.com.
40
<PAGE>
CHRISTOPHER SHIMOJIMA has served as our senior vice president and chief
marketing officer since December 1999. From 1994 to 1999, Mr. Shimojima held
various positions at AT&T, including vice president and general manager of the
10-10-345 Lucky Dog business and vice president of national retention marketing.
From 1992 to 1994, Mr. Shimojima was the director of brand strategy at PepsiCo.
WILLIAM HERALD has served as our senior vice president and chief technology
officer since February 2000. From 1996 to 2000, Mr. Herald served as a vice
president and chief information officer of the Coca-Cola Company. From 1988 to
1996, he was a partner at Ernst & Young and became the national director for the
firm's Center for Technology Enablement.
LARRY JOHNSON has served as our senior vice president of international since
February 2000. From 1993 to 2000, Mr. Johnson was the vice president of
franchising in the international division of Toys 'R' Us. From 1991 to 1993, he
was a director of merchandise planning and allocation at Limited Corporation.
From 1987 to 1991, Mr. Johnson was a division vice president in various
merchandising capacities at Carter Hawley Hale.
SCOTT EVANS has served as our vice president of logistics since August 1999.
From 1990 to 1999, Mr. Evans held various positions at United Parcel Service
including industrial engineering manager, financial services manager, corporate
strategic operations manager and operations supervisor.
JAMES ALT has served as our vice president of supply chain management since
October 1999. From 1998 to 1999, Mr. Alt was a management consultant at Ernst &
Young. From 1989 to 1996, he held various corporate positions at Target.
Mr. Alt currently serves as a member of the board of directors of Autoprof.com.
ANDREW RESNICK has served as our vice president of corporate development
since October 1999. From 1994 to 1999, Mr. Resnick served as executive vice
president of operations and marketing for Timothy's World Coffee. From 1990 to
1994, he was a regional director of operations for Blockbuster Video.
JACK CHEN was elected a director of our company in October 1999. Mr. Chen is
a founder of StarMedia Network, a Latin American Internet portal company, and
has been its president and one of its directors since March 1996. From 1995 to
March 1996, Mr. Chen was a vice president at S.L. Chen & Associates. Prior to
that, Mr. Chen held various positions at CS First Boston Investment Management.
HUGH EVANS was elected a director of our company in December 1998.
Mr. Evans has been a principal with Stonington Partners, a private equity firm,
since 1994. Mr. Evans was an analyst at Merrill Lynch Capital Partners, the
predecessor to Stonington Partners, from 1992 to 1994. Mr. Evans is also a
director of Explore, Inc., Lincoln Technical Institute, Inc., FoodTrader.com,
and Younology.com.
GERALD GALLAGHER was elected a director of our company in October 1999.
Since 1987, Mr. Gallagher has been a general partner in Oak Investment Partners.
From 1977 to 1987, Mr. Gallagher was vice chairman of Dayton Hudson Corporation,
where he served in both operating and staff positions. Mr. Gallagher also is a
director of Garden.com, Zany Brainy, and PF Chang's China Bistro.
SETH GOLDSTEIN was elected a director of our company in October 1999. Since
January 1999, Mr. Goldstein has been an investment principal at Flatiron
Partners. In 1998, Mr. Goldstein created a new digital convenience service for
mobile professionals called root.net. From June 1997 to May 1998, Mr. Goldstein
served as senior vice president of the CKS Group. From 1995 to June 1997,
Mr. Goldstein served as the chief executive officer of SiteSpecific, which he
founded, until it was acquired by the CKS Group. Mr. Goldstein is also a
director of Valassis Communications, Planetfeedback.com, Quixi, the Internet
Appliance Network, Scout Electromedia and Sonata.com.
41
<PAGE>
ROBERT GREENE was elected a director of our company in October 1999. Since
June 1999, Mr. Greene has been a managing partner at Flatiron Partners. From
August 1994 to May 1999, Mr. Greene served as a general partner and principal at
Chase Capital Partners and helped build the firm's technology and Internet
business. Mr. Greene also is a director of each of Multex.com, Kinkos.com and
Resonate.com.
BOARD OF DIRECTORS
We currently have eight directors. Currently each director is elected for a
term of one year. There are no family relationships among any of our directors
or executive officers.
Upon completion of the offering our board of directors will be divided into
three classes, each with staggered three-year terms. As a result, only one class
of directors will be elected at each annual meeting of our stockholders, with
the other classes continuing for the remainder of their respective three-year
terms.
BOARD COMMITTEES
Our board of directors established an audit committee and a compensation
committee. The audit committee makes recommendations to the board of directors
regarding the selection of independent accountants, reviews our internal
accounting procedures and the scope and results of audit and other services by
our independent accountants and reviews the accounting principals to be used in
the preparation of our financial statements. The audit committee currently
consists of Hugh Evans, Robert Greene and Seth Goldstein, each of whom is an
independent director under the rules of the National Association of Securities
Dealers, Inc. The compensation committee reviews and makes recommendations to
the board of directors regarding our stock plans and compensation of our
officers. The compensation committee also establishes and reviews general
policies relating to compensation and benefits of our employees. The
compensation committee currently consists of Robert Greene, Gerald Gallagher and
Jack Chen.
DIRECTOR COMPENSATION
We reimburse our directors for their out-of-pocket expenses incurred in the
performance of their duties as directors but do not pay to any of our directors
cash compensation for these services. We have in the past granted and will
continue to grant stock options to our directors. Directors are also eligible to
participate in our 1997 Stock Option Plan, 1999 Stock Option Plan and 1999
Incentive Stock Plan. On August 16, 1999, we granted Mr. Evans an option to
purchase 50,000 shares of common stock at an exercise price of $1.11 per share
under our 1999 Stock Option Plan, and on February 15, 2000, we granted
Mr. Evans an option to purchase 50,000 shares of common stock at an exercise
price of $4.41 per share under our 1999 Incentive Stock Option Plan. Under the
1999 Incentive Stock Plan we granted Mr. Chen options to purchase 100,000 shares
of common stock at an exercise price of $1.80 per share and 100,000 shares of
common stock at an exercise price of $4.41 per share. For additional
information, see "Stock Plans."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serve as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors. No member of our compensation
committee has at any time been an officer or employee of our company. However,
we have issued in private placement transactions shares of preferred stock to
Flatiron Partners, Oak Investment Partners and entities affiliated with them.
Mr. Greene is a managing partner of Flatiron Partners and Mr. Gallagher is a
general partner of Oak Investment Partners. See
42
<PAGE>
"Certain Relationships and Related Transactions" for a description of the
transactions between us, Flatiron Partners, Oak Investment Partners and entities
associated with them.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid by us
during the year ended December 31, 1999 to our chief executive officer and our
four other mostly highly compensated executive officers (collectively, the
"named executive officers") for services rendered in all capacities to Kozmo.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------------
1999 COMPENSATION SECURITIES
------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
- --------------------------- -------- -------- -------------------
<S> <C> <C> <C>
Joseph Park.......................................... $127,885 $ -- 650,000
Chief Executive Officer
Yong Kang............................................ 73,077 -- 650,000
President
Gerardo Burdo(1)..................................... 38,462 -- 582,026
Chief Financial Officer
Kenneth Trevathan(2)................................. 48,077 15,000 994,920
Chief Operating Officer
Christopher Shimojima(3)............................. -- -- 800,000
Chief Marketing Officer
</TABLE>
- ------------------------
1. Mr. Burdo was hired as chief financial officer in November 1999. On an
annualized basis, Mr. Burdo's salary would have been $200,000.
2. Mr. Trevathan was hired as chief operating officer in November 1999. On an
annualized basis, Mr. Trevathan's salary would have been $250,000.
3. Mr. Shimojima was hired as chief marketing officer in December 1999. On an
annualized basis, Mr. Shimojima's salary would have been $200,000.
OPTION GRANTS
The following table sets forth information regarding stock options granted
to each of the named executive officers during the year ended December 31, 1999.
The options were granted under our 1999 Incentive Stock Option Plan and are
subject to the terms of that plan. These options were granted at an exercise
price equal to the fair market value of our common stock as determined by our
board of directors on the date of grant. Except as the compensation committee
may otherwise determine, 25% of the options granted under the plan will become
exercisable twelve months following the date of grant, and 1/48(th) of the
options will vest each month thereafter, on the last day of the month, until all
the options are vested. As described below under "Employment Contracts and
Change in Control Arrangements", the options granted to each of our named
executive officers are subject to accelerated vesting in certain specified
circumstances. Stock price appreciation of 5% and 10% is assumed pursuant
43
<PAGE>
to rules promulgated by the Securities and Exchange Commission and does not
represent our prediction of our stock performance.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------- VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION FOR
SECURITIES GRANTED TO OPTION TERM
UNDERLYING EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---- --------------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph Park........... 650,000 10.0% $1.80 10/04/09 377,000 1,293,500
Yong Kang............. 650,000 10.0 1.80 10/04/09 377,000 1,293,500
Gerardo Burdo......... 582,026 9.0 1.80 11/01/09 925,421 2,089,473
Kenneth Trevathan..... 994,920 15.3 1.80 11/27/09 2,556,944 5,123,838
Christopher
Shimojima........... 800,000 12.3 1.80 12/06/09 2,328,000 4,560,000
</TABLE>
STOCK PLANS
All three of our stock option plans provide for the grant of options to
purchase our common stock to directors, officers, full-time employees, advisors
and others affiliated with us. As of December 31, 1999, we had awarded options
relating to an aggregate of 2,225,500 shares under the 1999 Stock Option Plan
and the 1997 Stock Option Plan. The apportionment is as follows: 220,000 options
were awarded to our directors and advisers (200,000 at an exercise price of
$1.11 per share for directors and 20,000 at an exercise price of $0.21 per share
for advisers), and 2,005,500 options were awarded to employees (180,000 options
at an exercise price of $0.20 per share, 1,182,500 options at an exercise price
of $0.21 per share, 92,500 options at an exercise price of $0.29 per share and
550,500 options at an exercise price of $1.11 per share).
As of December 31, 1999, we had awarded options relating to an aggregate of
5,587,696 shares under the 1999 Incentive Stock Option Plan. The apportionment
is as follows: 100,000 options were awarded to our directors at an exercise
price of $1.80 per share, 3,676,946 options were awarded to our executive
officers at an exercise price of $1.80 per share, and 1,810,750 options were
awarded to other employees at varying exercise prices.
1999 INCENTIVE STOCK OPTION PLAN
We are authorized to issue options to purchase up to an aggregate of
11,613,546 shares of our common stock under the 1999 Incentive Stock Option
Plan. The Incentive Plan became effective on October 4, 1999, and was amended
and restated as of March 16, 2000. The Incentive Plan is administered by the
compensation committee of our board of directors. The compensation committee
determines persons eligible to receive options, the number of shares for which
options are granted, the option price, whether options will be non-qualified
stock options or incentive stock options, the time when the options may be
granted and exercised, the vesting schedule for the options, and the terms and
provisions of the agreements by which the options will be evidenced.
The option price per share of common stock underlying each non-qualified
stock option granted under the Incentive Plan generally will be the book value
of our common stock on the date of grant as determined in accordance with
generally accepted accounting principles. The maximum term of options granted
under the Incentive Plan is ten years. However, incentive stock options granted
to holders of more than 10% of our common stock must have option prices of not
less than 110% of the fair market value of our common stock on the date of grant
and maximum terms of five years. Except as the compensation committee may
otherwise determine, 25% of the options granted under the plan will become
exercisable after twelve months following the date of grant, and thereafter
1/48(th) of the options
44
<PAGE>
will vest following each subsequent month period, on the last day of the month,
until all the options are vested.
If an optionee's affiliation with us terminates for any reason other than
death, any fully vested options held by that optionee will remain exercisable
until the earlier of 90 days from the date of termination and the expiration
date of the option. If we terminate an optionee's affiliation for cause, the
optionee immediately forfeits the right to exercise any option granted under
this plan. If an optionee's affiliation terminates as a result of a disability,
all options held by that optionee will remain exercisable until the earlier of
one year after the date of cessation of services and the expiration date of the
option. In the event of the death of an optionee, the options will be
exercisable by the person to whom such optionee's rights pass by will or by the
laws of descent and distribution within the earlier of six months after the date
of such death or the expiration date of the options.
Upon a change in control, all outstanding options under the Incentive Plan
will be fully vested and nonforfeitable. Upon changes in stock due to changes in
corporate structure and distributions to stockholders, the Incentive Plan
provides for adjustments as to the classes and maximum number of shares subject
to the Incentive Plan and the classes and number of shares and price per share
subject to then outstanding options. If we are involved in a dissolution,
liquidation, merger, or a combination in which we are not the surviving
corporation, then each outstanding option granted will terminate 30 days after
the effective date of the dissolution, liquidation, merger, or consolidation.
Within this 30 day period, the optionee may exercise his option to the extent it
will not have previously been exercised.
1999 STOCK OPTION PLAN
The 1999 Stock Plan became effective on May 1, 1999 and is administered by
the compensation committee of our board of directors. We are authorized to issue
options to purchase up to an aggregate of 2,000,000 shares of common stock under
the plan. Except as the committee may otherwise determine, 25% of the options
granted under the plan will become exercisable twelve months following the date
of grant and 1/48(th) of the options will vest each month thereafter, on the
last day of the month, until all the options are vested. Upon a change in
control or a sale of our common stock pursuant to an initial public offering,
all outstanding options under the 1999 Stock Plan will be fully vested and
exercisable.
1997 STOCK OPTION PLAN
The 1997 Stock Plan was approved in a meeting of the board of directors and
stockholders on June 30, 1997. We are authorized to issue options to purchase up
to an aggregate of 1,500,000 shares of common stock under the plan. Except as
the board of directors or committee may otherwise determine, 25% of the options
granted under the plan will become exercisable twelve months following the date
of grant and 1/48(th) of the options will vest each month thereafter, on the
last day of the month, until all the options are vested. Upon a change in
control or a sale of our common stock pursuant to an initial public offering,
all outstanding options under the 1997 Stock Plan will be fully vested and
exercisable.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
We have entered into the following employment and change of control
arrangements with our current officers. For a description of arrangements with
our officers, directors, and substantial stockholders, see "Certain
Relationships and Related Transactions."
45
<PAGE>
EMPLOYMENT AGREEMENTS WITH JOSEPH PARK AND YONG KANG
On October 4, 1999, we entered into an employment agreement with each of
Joseph Park and Yong Kang. Mr. Park serves as our chief executive officer and
Mr. Kang serves as our president. The agreements with Messrs. Park and Kang
expire in September 2001 and October 2001, respectively, but each agreement will
be extended automatically for successive one-year terms, unless a party to
either agreement gives notice declining to renew.
Messrs. Park and Kang receive annual salaries of $150,000 and $100,000,
respectively. They may participate in all long-term incentive plans and
programs, including annual incentive bonus programs approved by our board of
directors. Under our 1999 Incentive Stock Option Plan, Messrs. Park and Kang
have each been granted options to purchase 650,000 shares of our common stock at
an exercise price of $1.80 per share. Mr. Park has been granted additional
options to purchase 1,000,000 shares of our common stock at an exercise price of
$4.41 per share, and Mr. Kang has been granted additional options to purchase
500,000 shares of our common stock at an exercise price of $4.41 per share. We
may terminate employment of Mr. Park or Mr. Kang for cause at any time by
written notice. If we terminate the employment of either Mr. Park or Mr. Kang
other than for cause, or if either resigns for good reason, that officer will be
entitled to receive severance payment in a lump sum equal to one year of his
then base salary, and all of his unvested stock options will become fully
vested. Under the employment agreements, good reason includes the occurrence of
a change in control.
Each of Mr. Park and Mr. Kang is subject to post-termination non-competition
and non-solicitation covenants of one year periods, or two years in the case of
termination of employment for cause or resignation without good reason, and to
confidentiality covenants of unlimited duration.
LETTER AGREEMENT WITH GERARDO BURDO
We entered into a letter agreement with Gerardo Burdo, effective
November 1, 1999, under which Mr. Burdo serves as a senior vice president and
our chief financial officer. Mr. Burdo receives an annual base salary of
$200,000 and is entitled to our standard benefits covering employees, as may be
in effect from time to time.
Mr. Burdo has been granted options to purchase 582,026 shares of our common
stock at an exercise price of $1.80 per share and 20,000 shares of our common
stock at an exercise price of $4.41 per share under our 1999 Incentive Stock
Option Plan. These options generally will vest over four years, with 25% of the
options vesting upon the one-year anniversary of the date of grant and the
remainder of the options vesting on a prorated monthly basis thereafter, subject
to the provisions of the plan and Mr. Burdo's continued employment with us. A
percentage of these options, based on Mr.Burdo's tenure with us, will vest
automatically upon the completion of this offering, with the remaining options
following the normal vesting schedule.
LETTER AGREEMENT WITH KENNETH TREVATHAN
We entered into a letter agreement with Kenneth Trevathan, effective
November 15, 1999, under which Mr. Trevathan serves as a senior vice president
and our chief operating officer. Mr. Trevathan received a $15,000 bonus upon the
signing of the letter agreement and receives an annual base salary of $250,000,
as well as a targeted bi-annual bonus of 20% of his annual base salary.
Mr. Trevathan is also entitled to life and personal liability insurance
policies. If we terminate Mr. Trevathan's employment for reasons other than
cause, he will be entitled to salary continuation for up to three months.
Mr. Trevathan has been granted options to purchase 994,920 shares of our
common stock at an exercise price of $1.80 per share and 10,000 shares of our
common stock at an exercise price of $4.41 per share under our 1999 Incentive
Stock Option Plan. The options will vest over four years, with 25%
46
<PAGE>
of the options vesting upon the one-year anniversary of the date of grant and
the remainder of the options vesting on a prorated monthly basis thereafter,
subject to the provisions of the plan and Mr. Trevathan's continued employment
with us. All accrued options will vest immediately upon the completion of this
offering or a change in control.
LETTER AGREEMENT WITH CHRISTOPHER SHIMOJIMA
We entered into a letter agreement with Christopher Shimojima, effective
December 20, 1999, under which Mr. Shimojima serves as a senior vice president
and our chief marketing officer. Mr. Shimojima receives an annual base salary of
$200,000 and unspecified bi-annual bonuses. Mr. Shimojima is entitled to
standard benefits covering our employees and we will reimburse him for certain
insurance-related payments made by him.
Mr. Shimojima has been granted options to purchase 800,000 shares of our
common stock at an exercise price of $1.80 per share under our 1999 Incentive
Stock Option Plan. The options will vest over four years, with 25% of the
options vesting upon the one-year anniversary of the date of grant and the
remainder of the options vesting on a prorated monthly basis thereafter, subject
to the provisions of our incentive plan and Mr. Shimojima's continued employment
with us.
LETTER AGREEMENT WITH WILLIAM HERALD
We entered into a letter agreement with William Herald, effective
February 14, 2000, under which Mr. Herald serves as a senior vice president and
our chief technology officer. Mr. Herald receives an annual base salary of
$300,000 and an unspecified annual bonus. Mr. Herald will be entitled, during
the term of his employment, to standard benefits covering our employees.
Mr. Herald has been granted options to purchase 1,000,000 shares of our
common stock at an exercise price of $4.41 per share under our 1999 Incentive
Stock Option Plan. The options will vest over four years, with 25% of the
options vesting upon the one-year anniversary of the date of grant and the
remainder of the options vesting on a prorated monthly basis thereafter, subject
to the provisions of our incentive plan and Mr. Herald's continued employment
with us. Upon the completion of this offering, 100,000 of Mr. Herald's options
will vest automatically, with the remaining 900,000 options continuing to be
subject to the normal four-year vesting schedule. In the event of a change in
control, all of Mr. Herald's unvested options will vest immediately.
We may terminate Mr. Herald's employment for cause at any time. If we
terminate Mr. Herald's employment without cause or if Mr. Herald resigns with
good reason, including in connection with a change in control, Mr. Herald is
entitled to a severance payment in a lump sum equal to one-half times the sum
of: (i) his annual salary as in effect on the date of termination, or, if
greater, the date immediately before the event giving rise to good reason, and
(ii) his annual bonus for the last completed fiscal year (or his target annual
bonus for 2000, if termination occurs in 2000). We also will pay accrued
compensation and vested benefits if we terminate Mr. Herald's employment without
cause or if Mr. Herald resigns with good reason. If Mr. Herald resigns in
connection with a change in control, we will "gross up" Mr. Herald for any
excise taxes that may be imposed on him under Internal Revenue Code
Section 280G.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated certificate of incorporation limits the personal
liability of our directors to the fullest extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors,
except for liability for the following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
47
<PAGE>
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemption; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liability arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief and recission.
Our amended and restated certificate of incorporation provides that we are
required to indemnify any individual made a party to a proceeding because that
individual is or was a director, officer, employee or agent of Kozmo.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 17, 2000, and as adjusted to reflect
the sale of the common stock offered by us under this prospectus by:
- each person known by us to own beneficially more than 5% of our common
stock;
- each of our directors and named executive officers; and
- all directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o Kozmo.com, Inc., 80 Broad Street, New York, New York 10004. Except as
otherwise indicated in the footnotes to the table, each of the stockholders has
sole voting and investment power with respect to the shares beneficially owned
by such stockholders, subject to community property laws where applicable. In
computing the number of shares beneficially owned by a person and the percentage
of ownership of that person, shares of common stock that a person has the right
to acquire within 60 days of March 17, 2000 are deemed outstanding. Those
shares, however, are not deemed outstanding for the purposes of computing the
percentage ownership of any other person. The percent of beneficial ownership
for each stockholder is based on 77,272,703 shares of common stock outstanding
as of March 17, 2000, which assumes that all of our convertible preferred stock
outstanding on that date is converted, on a one-for-one basis, into common stock
and shares of common stock outstanding after this offering.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
BENEFICIALLY ---------------------
OWNED BEFORE AFTER
NAME SHARES OFFERING OFFERING
- ---- ------------ --------- ---------
<S> <C> <C> <C>
Amazon.com, Inc.(1)......................................... 29,659,275 31.8%
1200 12th Avenue South
Suite 1200
Seattle, Washington 98144
Chase Venture Capital Associates, L.P....................... 7,441,686 9.6
c/o Chase Capital Partners
380 Madison Avenue
New York, New York 10017
Oak Investment Partners(2).................................. 7,138,159 9.2
90 South 7th Street
Suite. 4550
Minneapolis, Minnesota 55402
SOFTBANK(3)................................................. 6,894,990 8.9
10 Langley Road
Suite 403
Newton Center, Massachusetts 02459
Gerald Gallagher(4)......................................... 7,138,159 9.2
Joseph Park................................................. 6,000,000 7.8
Yong Kang................................................... 4,000,000 5.2
Hugh Evans(5)............................................... 2,755,460 3.6
Robert Greene(6)............................................ 2,425,501 3.1
Seth Goldstein(7)........................................... 2,425,501 3.1
Jack Chen(8)................................................ 672,833 *
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
BENEFICIALLY ---------------------
OWNED BEFORE AFTER
NAME SHARES OFFERING OFFERING
- ---- ------------ --------- ---------
<S> <C> <C> <C>
Gerardo Burdo(9)............................................ 126,393 *
Kenneth Trevathan(10)....................................... 86,423 *
Christopher Shimojima....................................... 14,733 *
William Herald(11).......................................... 100,000 *
All executive officers and directors as a group (11
persons)(12).............................................. 25,745,003 33.1
</TABLE>
- ------------------------
* Less than 1%
(1) Includes 16,060,000 shares of convertible preferred stock issuable pursuant
to warrants exercisable within 60 days of March 17, 2000.
(2) Includes 7,002,534 shares of convertible preferred stock owned by Oak
Investment Partners VIII Limited Partnership and 135,625 shares of
convertible preferred stock owned by Oak VIII Affiliates Fund Limited
Partnership.
(3) Includes 98,598 shares of convertible preferred stock owned by SOFTBANK
Capital Advisors Fund LP and 6,796,392 shares of convertible preferred stock
owned by SOFTBANK Capital Partners LP.
(4) Includes 7,002,534 shares of convertible preferred stock owned by Oak
Investment Partners VIII Limited Partnership and 135,625 shares owned by Oak
VIII Affiliates Fund Limited Partnership. Mr. Gallagher is a general partner
of Oak Investment Partners, which is the general partner of Oak Investment
Partners VIII Limited Partnership and Oak VIII Affiliates Fund Limited
Partnership, and disclaims beneficial ownership of such shares.
(5) Includes 100,000 shares issuable upon exercise of options exercisable within
60 days of March 17, 2000, 2,189,827 shares owned by Merion Partners and
132,398 shares owned by eTrillium, LLC. Mr. Evans is a limited partner of
Merion Partners and a member of eTrillium, LLC and disclaims beneficial
ownership of such shares.
(6) Includes 2,425,501 shares of convertible preferred stock owned by Flatiron
Partners. Mr. Greene is a managing partner of Flatiron Partners and
disclaims beneficial ownership of such shares.
(7) Includes 2,425,501 shares of convertible preferred stock owned by Flatiron
Partners. Mr. Goldstein is a principal of Flatiron Partners and disclaims
beneficial ownership of such shares.
(8) Includes 200,000 shares issuable upon exercise of options exercisable within
60 days of March 17, 2000 and 100,622 shares owned by EQUUSFUND LLC. Mr.
Chen is a member of EQUUSFUND LLC and disclaims beneficial ownership of such
shares.
(9) Includes 58,397 shares issuable upon exercise of options exercisable within
60 days of March 17, 2000 and 31,505 shares of Series E convertible
preferred stock held by PaineWebber as IRA custodian for Mr. Burdo.
(10) Includes 86,423 shares issuable upon exercise of options exercisable within
60 days of March 17, 2000.
(11) Includes 100,000 shares issuable upon exercise of options exercisable
within 60 days of March 17, 2000.
(12) Includes an aggregate of 544,820 shares issuable upon the exercise of
options, 2,425,501 shares owned by Flatiron Partners, 2,189,827 shares
beneficially owned by Merion Partners, 132,398 shares beneficially owned by
eTrillium, LLC, 7,002,534 shares beneficially owned by Oak Investment
50
<PAGE>
Partners, and 108,622 shares beneficially owned by EQUUSFUND LLC.
Messrs. Greene and Goldstein, managing partner and principal, respectively,
of Flatiron Partners, disclaim beneficial ownership of such shares.
Mr. Evans, limited partner of Merion Partners and member of eTrillium, LLC,
disclaims beneficial ownership of such shares. Mr. Gallagher, general
partner of Oak Investment Partners, disclaims beneficial ownership of such
shares. Mr. Chen, member of EQUUSFUND LLC, disclaims beneficial ownership of
such shares.
51
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since our inception, we have issued and sold shares of our capital stock and
warrants to acquire shares of our capital stock as follows:
- 10,512,500 shares of common stock at a weighted average price of $.01 per
share;
- 1,133,332 shares of Series A convertible preferred stock at a price of
$.21 per share in November 1997;
- an aggregate of 4,998,517 shares of Series B convertible preferred stock
at a weighted average price of $.21 per share, consisting of 3,206,707
shares in December 1998 and 1,791,810 shares in January 1999;
- 2,508,500 shares of Series C convertible preferred stock at a price of
$1.11 per share in April 1999;
- 15,616,119 shares of Series D convertible preferred stock at a price of
$1.80 per share in October 1999;
- an aggregate of 27,198,554 shares of Series E convertible preferred stock
at a price of $4.41 per share, consisting of 19,859,568 shares in
December 1999 and 7,338,986 shares in January 2000;
- 15,305,181 shares of Series F convertible preferred stock at a price of
$7.55 per share in March 2000;
- warrants to purchase an aggregate of 50,000 shares of common stock at a
price of $.001 per share issued in September 1999;
- warrants to purchase 4,513,472 shares of Series E convertible preferred
stock at a price of $4.41 per share and 3,692,140 shares of Series E
convertible preferred stock at a price of $5.52 per share, in each case in
December 1999;
- warrants to purchase an aggregate of 8,672,676 shares of Series E
convertible preferred stock, 22,676 issued in January 2000 at a price of
$4.41 per share and 8,650,000 issued in March 2000 at a price of $5.52;
- warrants to purchase 2,699,145 shares of Series F convertible preferred
stock at a price of $7.55 per share issued in March 2000; and
- warrants to purchase 13,240 shares of common stock at a price of $7.55 per
share issued in March 2000.
STOCK ISSUANCES TO OUR DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS
The following describes the shares of capital stock purchased by our
executive officers, directors and 5% stockholders and person and entities
associated with them in the private placement transactions described above.
Shares held by affiliated persons and entities have been added together for the
purposes of this chart.
<TABLE>
<CAPTION>
SERIES B SERIES C SERIES D SERIES E SERIES F OPTIONS
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE TO PURCHASE
COMMON PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED COMMON
INVESTOR STOCK STOCK STOCK STOCK STOCK STOCK STOCK
- -------- --------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Amazon.com, Inc.......... -- -- -- -- 13,599,275 -- --
SOFTBANK(1).............. -- -- -- -- 6,233,001 661,989 --
Chase Venture Capital
Associates L.P......... -- -- -- 5,226,667 1,741,432 473,587 --
Oak Investment
Partners(2)............ -- -- -- 4,333,333 2,142,837 661,989 --
Joseph Park(3)........... 6,160,000 -- -- -- -- -- 1,650,000
Yong Kang(4)............. 4,190,000 -- -- -- -- -- 1,150,000
Gerardo Burdo............ -- -- -- -- 67,996 -- 602,026
Kenneth Trevathan........ -- -- -- -- -- -- 1,004,920
Christopher Shimojima.... -- -- -- -- 14,733 -- 800,000
Hugh Evans(5)............ -- 2,523,062 -- -- -- 132,398 100,000
Robert Greene(6)......... -- -- -- 1,440,000 797,099 188,402 --
Seth Goldstein(7)........ -- -- -- 1,440,000 797,099 188,402 --
Gerald Gallagher(8)...... -- -- -- 4,333,333 2,142,837 661,989 --
Jack Chen(9)............. -- -- 90,000 55,556 226,655 100,622 200,000
Warren Jenson(10)........ -- -- -- -- 13,599,275 -- --
<CAPTION>
OUTSTANDING
WARRANTS
TO PURCHASE
SERIES E
CONVERTIBLE
PREFERRED
INVESTOR STOCK
- -------- -----------
<S> <C>
Amazon.com, Inc.......... 16,060,000
SOFTBANK(1).............. --
Chase Venture Capital
Associates L.P......... --
Oak Investment
Partners(2)............ --
Joseph Park(3)........... --
Yong Kang(4)............. --
Gerardo Burdo............ --
Kenneth Trevathan........ --
Christopher Shimojima.... --
Hugh Evans(5)............ --
Robert Greene(6)......... --
Seth Goldstein(7)........ --
Gerald Gallagher(8)...... --
Jack Chen(9)............. --
Warren Jenson(10)........ 16,060,000
</TABLE>
52
<PAGE>
- ------------------------
(1) Inclues 89,132 and 6,143,869 shares of Series E convertible preferred stock
held and 9,466 and 652,523 shares of Series F convertible preferred stock by
SOFTBANK Capital Advisors Fund LP and SOFTBANK Capital Partners LP,
respectively.
(2) Includes 4,251,000 and 82,333 shares of Series D convertible preferred
stock, 2,102,123 and 40,714 shares of Series E convertible preferred stock
and 649,411 and 12,578 shares of Series F convertible preferred stock held
by Oak Investments Partners VIII, Limited Partnership and Oak VIII
Affiliates Fund Limited Partnership, respectively.
(3) Includes 160,000 shares held by James Park. Mr. Park is the father of Joseph
Park.
(4) Includes 190,000 shares held by Charlie Kang. Mr. Kang is the father of Yong
Kang.
(5) Includes 2,189,827 shares of Series B convertible preferred stock held by
Merion Partners and 132,398 shares of Series F convertible preferred stock
held by eTrillium, LLC. Mr. Evans is a limited partner of Merion Partners
and a member of eTrillium, LLC.
(6) Includes 133,333 and 1,306,667 shares of Series D convertible preferred
stock held by Flatiron Associates, LLC and The Flatiron Fund 1998/99, LLC,
respectively and 50,771 and 746,328 shares of Series E convertible preferred
stock and 13,240 and 175,162 shares of Series F convertible preferred stock
held by Flatiron Associates, LLC and The Flatiron Fund, 2000, respectively.
Mr. Greene is a managing member of Flatiron Associate, LLC, The Flatiron
Fund 1998/99 LLC and The Flatiron Fund 2000 LLC.
(7) Includes 133,333 and 1,306,667 shares of Series D convertible preferred
stock held by Flatiron Associates, LLC and The Flatiron Fund 1998/99, LLC,
respectively and 50,771 and 746,328 shares of Series E convertible preferred
stock and 13,240 and 175,162 shares of Series F convertible preferred stock
held by Flatiron Associates, LLC and The Flatiron Fund, 2000, respectively.
(8) Includes 4,251,000 and 82,333 shares of Series D convertible preferred
stock, 2,102,123 and 40,714 shares of Series E convertible preferred stock
and 649,411 and 12,578 shares of Series F convertible preferred stock held
by Oak Investment Partners VIII Limited Partnership and Oak VIII Affiliates
Fund Limited Partnership, respectively. Mr. Gallagher is a managing member
of the general partners to Oak Investment Partners VIII Limited Partnership
and Oak VIII Affiliates Fund Limited Parnership.
(9) Includes 100,622 shares of Series E convertible preferred stock held by
EQUUSFUND LLC.
(10) Includes 13,599,275 shares of Series E convertible preferred stock and
warrants to purchase 16,060,000 shares of Series E convertible preferred
stock held by Amazon.com, Inc.
TRANSACTIONS WITH AMAZON.COM
In March 2000, we entered into a supply and delivery agreement with
Amazon.com LLC, an affiliate of Amazon.com, Inc., one of our 5% stockholders, to
provide Amazon.com customers with the option of having books, music and toy
products delivered under one hour. For more information regarding the agreement
with Amazon.com see "Business--Relationship with Amazon.com."
In March 2000, we granted a fully vested warrant to purchase 8,650,000
shares of Series E convertible preferred stock to Amazon.com, Inc. at an
exercise price of $5.52 per share. This warrant expires upon the earlier of an
initial public offering of our common stock in which certain criteria are met or
March 2005.
In December 1999, we granted fully vested warrants to purchase 3,717,860 and
3,692,140 shares of Series E preferred stock to Amazon.com, Inc. at exercise
prices of $4.41 and $5.52 per share, respectively. These warrants expire upon
the earlier of an initial public offering of our common stock, in which certain
criteria are met, or December 2004.
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<PAGE>
In December 1999, we issued 13,599,275 shares of Series E convertible
preferred stock to Amazon.com, Inc. at $4.41 per share for an aggregate purchase
price of $60.0 million.
OTHER TRANSACTIONS
The following members of our board of directors are affiliated with
investors that participated in the transactions listed above: Robert Greene and
Seth Goldstein (Flatiron Partners and entities affiliated with Flatiron
Partners), Hugh Evan (Merion Partners) and Jerry Gallagher (Oak Investment
Partners).
In September 1999, we entered into consulting agreements with Monkey Rock
Ventures and various other consultants pursuant to which we granted warrants to
purchase 50,000 shares of common stock, at an exercise price of $.001 per share,
for advisory services provided to Kozmo. Gideon J. Stein, one of the consultants
to whom a warrant was granted, is the son of Robert Stein, a former director of
ours.
REGISTRATION RIGHTS AGREEMENTS
We have entered into a registration rights agreement with Joseph Park, Yong
Kang and the holders of Series B, C, D, E and F convertible preferred stock that
gives those stockholders demand, piggyback and shelf registration rights. Any
time after we complete this offering, the holders of 33% of the registrable
securities are entitled to demand that we register their registrable securities
under the Securities Act. Additionally, the holders of the registrable
securities are entitled to require us to include their registrable securities in
future registration statements that we may file.
For a more detailed description of these registration rights agreements, see
"Description of Capital Stock--Registration Rights."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of the offering, our authorized capital stock will consist
of 150,000,000 shares of common stock, $.001 par value per share, and 10,000,000
shares of undesignated preferred stock, $.01 per share.
COMMON STOCK
As of December 31, 1999, there were 10,512,500 shares of our common stock
outstanding that were held of record by twelve stockholders. After giving effect
to this offering and the conversion of all of our convertible preferred stock
outstanding as of December 31, 1999 and our Series E and Series F convertible
preferred stock issued in January and March 2000 into 66,760,203 shares of
common stock upon the closing of this offering, there will be shares of
common stock outstanding, assuming no exercise of the underwriters'
over-allotment option.
The holders of our common stock are entitled to one vote for each share held
of record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any outstanding preferred stock, holders
of our common stock are entitled to receive ratably such dividends as may be
declared by the board of directors out of funds legally available for that
purpose. In the event of the liquidation, dissolution or winding up of Kozmo,
the holders of our common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to the prior distribution rights
of any outstanding preferred stock. The common stock has no preemptive or
conversion rights or other subscription rights.
PREFERRED STOCK
Upon the closing of the offering, the board of directors will have the
authority, without further action by the stockholders, to issue up to
10,000,000 shares of preferred stock. The board of directors will also have the
authority to designate the rights, preferences, privileges and restrictions of
each series of preferred stock, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series.
The issuance of preferred stock may have the effect of delaying, deferring
or preventing a change of control of Kozmo without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may also adversely affect the voting power of the holders of common stock. In
some circumstances, an issuance of preferred stock could have the effect of
decreasing the market price of our common stock. As of the closing of this
offering, no shares of preferred stock will be outstanding and we currently have
no plans to issue any shares of preferred stock.
WARRANTS
As of December 31, 1999, there were outstanding warrants to purchase an
aggregate of 50,000 shares of our common stock, at an exercise price of $.001
per share. These warrants expire, if not exercised, in September 2009. Warrants
to purchase 13,240 shares of common, at an exercise price of $7.55 per share,
were issued in March 2000 and expire upon the earlier of an initial public
offering of our common stock or March 2002.
Warrants to purchase 16,878,288 shares of our Series E convertible preferred
stock are outstanding, including warrants to purchase 8,672,676 shares of
Series E convertible preferred stock issued subsequent to December 31, 1999.
Warrants to purchase 16,878,288 shares of our Series E convertible preferred
stock will expire upon the earlier of an initial public offering of our common
stock in which certain criteria are met or at dates between December 2004 and
March 2005.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND OUR CHARTER DOCUMENTS
Provisions of Delaware law and our charter documents could make the
acquisition of Kozmo and the removal of incumbent officers and directors more
difficult. These provisions, summarized below, are expected to discourage
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of our company to negotiate with us first. We
believe that the benefits of increased protection of our potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to acquire
or restructure Kozmo outweigh the disadvantages of
55
<PAGE>
discouraging such proposals because, among other things, negotiation of such
proposals could result in an improvement of their terms.
DELAWARE LAW. We are subject to the provisions of Section 203 of the
Delaware law. In general, the statute prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless, subject to exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years prior, did own, 15% or more of the corporation's voting
stock. These provisions may have the effect of delaying, deferring or preventing
a change of control of our company without further action by the stockholders.
CHARTER DOCUMENTS. Upon the closing of this offering, our amended and
restated certificate of incorporation will provide that stockholder action can
be taken only at an annual or special meeting of stockholders and may not be
taken by written consent. Our bylaws will provide that special meetings of
stockholders can be called only by our board of directors, the chairman of the
board, our president and holders of at least 50% of the votes entitled to be
cast at a meeting. The business permitted to be conducted at any special meeting
of stockholders will be limited to the business brought before the meeting by
our board of directors, the chairman of the board, our president or any 50%
holder. Our bylaws will set forth an advance notice procedure with regard to the
nomination, other than by or at the direction of the board of directors, of
candidates for election as directors and with regard to business to be brought
before a meeting of stockholders.
REGISTRATION RIGHTS
Under a registration rights agreement, the holders of 75,626,871 shares of
common stock (assuming the conversion of all of our outstanding preferred stock
upon completion of this offering) or their transferees are entitled to rights
with respect to the registration of these shares under the Securities Act. These
rights expire in December 2006. Subject to limitations in the agreement, the
holders of at least 33% of the then outstanding registrable shares may require,
on two occasions beginning three months after the completion of this offering,
that we use our best efforts to register at least 20% of the registrable shares
held by them for public resale. If we register any of our common stock either
for our own account or for the account of other stockholders, all holders of
registrable shares are entitled to include their shares of our common stock in
that registration, subject to the ability of the underwriters to limit the
number of shares included in the offering. Subject to limitations in the
agreement, the holders of at least 33% of the then outstanding registrable
shares may also require that we register at least 20% of the registrable shares
held by them in a registration statement of Form S-3 when the use of that form
becomes available to us. In each registration under the agreement, we will be
responsible for paying all registration expenses, and the holders selling their
shares will be responsible for paying all underwriting discounts and selling
commissions. Holders of all of these shares are restricted from exercising these
rights until 180 days after the date of this prospectus.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
NASDAQ STOCK MARKET LISTING
We intend to apply for listing for quotation on the Nasdaq National Market
under the trading symbol "KZMO."
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock in the public market could
adversely affect the market price of our common stock.
Upon completion of this offering, we will have shares of common
stock outstanding, assuming conversion of all of our outstanding convertible
preferred stock into 66,760,203 shares of common stock. The shares being
sold in this offering, plus any shares issued upon the exercise of the
underwriter's over-allotment option will be freely tradable in the public market
without restrictions or further registration under the Securities Act, unless
the shares are purchased by "affiliates," as that term is defined in
Rule 144(a) under the Securities Act. Shares purchased by affiliates will be
subject to the resale limitations of Rule 144. The remaining shares
outstanding will be "restricted securities" under the Securities Act and may not
be sold in the absence of registration under the Securities Act or an exemption
therefrom, including pursuant to Rule 144. In addition, at December 31, 1999,
(i) 7,813,196 shares were reserved for issuance upon exercise of outstanding
stock options pursuant to our stock option plans at prices ranging from $.20 to
$4.41 per share, and (ii) 5,925,133 shares were reserved for future issuance
under our various stock option plans.
Each of our directors, officers and certain shareholders have entered into
lock-up agreements in connection with this offering generally providing that
they will not offer, sell, contract to sell or grant any option to purchase or
otherwise dispose of common stock or any securities exercisable for or
convertible into our common stock owned by them for a period of 180 days after
the date of this prospectus without the prior written consent of Credit Suisse
First Boston. Notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, shares subject to lock-up agreements
will not become eligible for resale until these agreements expire or are waived
by Credit Suisse First Boston. Taking into account the lock-up agreements, and
assuming Credit Suisse First Boston does not release shareholders from these
agreements, the following shares will be eligible for sale in the public market
at the following times:
- beginning on the effective date of this prospectus, shares,
including those sold in the offering, will be immediately available for
sale in the public market;
- beginning 90 days after the effective date, approximately 112,500 shares
will be eligible for sale under Rule 701; and
- beginning 180 days after the effective date, approximately
45,862,285 shares will be eligible for sale under Rule 144 at various
times;
In general, under Rule 144 as currently in effect, after the expiration of
the lock-up agreements, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares then outstanding, which will equal
approximately shares immediately after the offering; or
- the average weekly trading volume of the shares during the four calendar
weeks preceding the sale.
Sales under Rule 144 are also subject to requirements with respect to manner
of sale, notice, and the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been our affiliate at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell these
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
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<PAGE>
Rule 701, as currently in effect, permits our employees, officers, directors
or consultants who purchased shares under a written compensatory plan or
contract to resell these shares in reliance upon Rule 144 but without compliance
with specific restrictions. Rule 701 provides that affiliates may sell their
Rule 701 shares under Rule 144 without complying with the holding period, public
information, volume limitation or notice provisions of Rule 144.
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act within 180 days following the date of this prospectus to
register shares subject to outstanding stock options or reserved for issuance
under our stock option plans. This registration statement will permit the resale
of these shares by nonaffiliates in the public market without restriction under
the Securities Act, upon completion of the lock-up period described above.
However, such shares held by affiliates will still be subject to the volume
limitation, manner of sale, notice and public information requirements of
Rule 144 unless otherwise resalable under Rule 701. As of December 31, 1999,
options to purchase approximately 7,813,196 shares of common stock were
outstanding, of which options to purchase approximately 461,511 shares were
vested and exercisable.
58
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Salomon Smith
Barney Inc. and U.S. Bancorp Piper Jaffray Inc. are acting as representatives,
the following respective numbers of Shares of our Common Stock:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
Credit Suisse First Boston Corporation......................
Salomon Smith Barney Inc. ..................................
U.S. Bancorp Piper Jaffray Inc. ............................
-------
Total.................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of our common stock at the initial
public offering price less the underwriting discounts and commissions. The
option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to the
selling group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts and Commissions
paid by us............................ $ $ $ $
Expenses payable by us.................. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any such offer, sale, pledge, disposition or
filing, without the prior written consent of Credit
59
<PAGE>
Suisse First Boston Corporation for a period of 180 days after the date of this
prospectus, except issuances pursuant to the exercise of employee stock options
outstanding on the date hereof.
Our officers, directors and certain stockholders have agreed that they will
not offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction which would have the same effect, or enter into any swap, hedge or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock, whether any such aforementioned
transaction is to be settled by delivery of our common stock or such other
securities, in cash or otherwise, or publicly disclose the intention to make any
such offer, sale, pledge or disposition, or to enter into any such transaction,
swap, hedge or other arrangement, without, in each case, the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price up to shares of our common stock for employees, directors and
several other persons associated with us who have expressed an interest in
purchasing common stock in this offering. The number of shares available for
sale to the general public in this offering will be reduced to the extent these
persons purchase the reserved shares. Any reserved shares not so purchased will
be offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
We intend to apply to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "KZMO."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price will be determined by negotiation
between our management and representatives of the underwriters. The principal
factors that will be considered in determining the public offering price
include:
- the information set forth in this prospectus and otherwise available to
the underwriters;
- the history and the prospects for the industry in which we compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of this offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
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<PAGE>
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
61
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of our common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under Canadian securities laws; (ii) where
required by law, that the purchaser is purchasing as principal and not as agent;
and (iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION FOR ONTARIO PURCHASERS
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named in
this prospectus may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada upon
the issuer or those persons. All or a substantial portion of the assets of the
issuer and those persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or those persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser pursuant to this offering. The report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR # 95/17, a copy of which may be obtained from us. Only one report must
be filed in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in our common
stock in their particular circumstances and with respect to the eligibility of
our common stock for investment by the purchaser under relevant Canadian
legislation.
62
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for us
by Shearman & Sterling, New York, New York. Shearman & Sterling beneficially
owns shares of our Series D Preferred Stock and Series E Preferred Stock which
upon consummation of this offering will convert into an aggregate of 85,558
shares of our common stock. Certain legal matters in connection with the
offering will be passed upon for the underwriters by Weil, Gotshal & Manges LLP,
New York, New York.
EXPERTS
The financial statements of Kozmo.com, Inc. as of December 31, 1998 and 1999
and for the period from April 17, 1997 (inception) to December 31, 1997 and for
the years ended December 31, 1998 and 1999 have been included in this prospectus
and elsewhere in the registration statement in reliance on the report of KPMG
LLP, independent accountants, appearing elsewhere herein and upon the authority
of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
This prospectus is a part of a registration statement on Form S-1 that we
have filed with the Securities and Exchange Commission under the Securities Act,
with respect to the common stock offered in this prospectus. This prospectus
does not contain all the information which is in the registration statement.
Certain parts of the registration statement are omitted as allowed by the rules
and regulations of the SEC. We refer you to the registration statement for
further information about our company and the securities offered in this
prospectus. Statements contained in this prospectus concerning the provisions of
documents filed as exhibits are not necessarily complete, and reference is made
to the copy so filed, each such statement being qualified in all respects by
such reference. You can inspect and copy the registration statement and the
reports and other information we file with the SEC at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. The same information will be available for inspection and
copying at the regional offices of the SEC located at 7 World Trade Center, 13th
Floor, New York, N.Y. 10048 and at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You can also obtain copies of this material
from the public reference room of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The SEC also maintains a web site which
provides online access to reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC at the
address HTTP://WWW.SEC.GOV.
Upon the effectiveness of the registration statement, we will become subject
to the information requirements of the Exchange Act. We will then file reports,
proxy statements and other information under the Exchange Act with the SEC. You
can inspect and copy these reports and other information of our company at the
locations set forth above or download these reports from the SEC's web site.
63
<PAGE>
KOZMO.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1998 and 1999............. F-3
Statements of Operations for the period from April 17, 1997
(inception)
to December 31, 1997 and for the years ended December 31,
1998 and 1999............................................. F-4
Statements of Stockholders' Equity (Deficit) for the period
from April 17, 1997 (inception)
to December 31, 1997 and for the years ended December 31,
1998 and 1999............................................. F-5
Statements of Cash Flows for the period from April 17, 1997
(inception)
to December 31, 1997 and for the years ended December 31,
1998 and 1999............................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Kozmo.com, Inc.
We have audited the accompanying balance sheets of Kozmo.com, Inc. (the
"Company") as of December 31, 1998 and 1999, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the period from
April 17, 1997 (inception) to December 31, 1997 and for the years ended
December 31, 1998 and 1999. 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 the Company as of
December 31, 1998 and 1999, and the results of its operations and its cash flows
for the period from April 17, 1997 (inception) to December 31, 1997 and for the
years ended December 31, 1998 and 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
New York, New York
March 14, 2000
F-2
<PAGE>
KOZMO.COM, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 82 $ 88,867
Accounts receivable, net of allowance for doubtful
accounts of $4 and $86, respectively.................... 30 550
Product inventory......................................... 8 2,741
Preferred stock subscription receivable................... 149 --
Prepaid expenses and other assets......................... 6 505
-------- --------
Total current assets.................................. 275 92,663
Rental product inventory, net of accumulated amortization of
$14 and $309, respectively................................ 144 2,269
Property and equipment, net................................. 109 7,019
Security deposits and other assets.......................... 30 1,047
-------- --------
Total assets.......................................... $ 558 $102,998
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 215 $ 7,314
Accrued expenses.......................................... 121 6,763
Short-term borrowings--related party...................... 103 --
Other liabilities......................................... 22 208
-------- --------
Total current liabilities............................. 461 14,285
Other liabilities........................................... 38 173
Commitments and contingencies
Mandatorily redeemable convertible preferred stock:
Series A, $.01 par value; 1,133,332 shares authorized,
issued and outstanding; with an aggregate liquidation
preference of $285...................................... 285 --
Series B, $.01 par value; 4,998,517 shares authorized,
issued and outstanding; with an aggregate liquidation
preference of $683...................................... 683 --
Stockholders' equity (deficit):
Series A convertible preferred stock, $.01 par value;
1,133,332 shares authorized, issued and outstanding;
with an aggregate liquidation preference of $333........ -- 11
Series B convertible preferred stock, $.01 par value;
4,998,517 shares authorized, issued and outstanding;
with an aggregate liquidation preference of $1,275...... -- 50
Series C convertible preferred stock, $.01 par value;
2,508,500 shares authorized, issued and outstanding;
with an aggregate liquidation preference of $3,196...... -- 25
Series D convertible preferred stock, $.01 par value;
15,616,119 shares authorized, issued and outstanding;
with an aggregate liquidation preference of $57,186..... -- 156
Series E convertible preferred stock, $.01 par value;
45,500,000 shares authorized; 19,859,568 shares issued
and outstanding; with an aggregate liquidation
preference of $87,500................................... -- 199
Common stock $.001 par value; 90,918,897 shares
authorized; 10,350,000 shares issued and outstanding at
December 31, 1998 and 10,400,000 shares issued and
outstanding at December 31, 1999........................ 10 10
Additional paid-in capital................................ 12 118,150
Contribution receivable................................... -- (158)
Deferred compensation..................................... -- (2,602)
Accumulated deficit....................................... (931) (27,301)
-------- --------
Total stockholders' equity (deficit).................. (909) 88,540
-------- --------
Total liabilities and stockholders' equity
(deficit)............................................ $ 558 $102,998
======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
KOZMO.COM, INC
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 17, 1997
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------
1997 1998 1999
-------------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental.............................................. $ -- $ 108 $ 1,706
Product sales....................................... -- 47 1,803
----------- ----------- -----------
Total revenues.................................... -- 155 3,509
----------- ----------- -----------
Costs of revenues:
Cost of rental...................................... -- 14 671
Cost of product sales............................... -- 21 1,326
----------- ----------- -----------
Total costs of revenues........................... -- 35 1,997
----------- ----------- -----------
Gross profit.................................... -- 120 1,512
Operating expenses:
Marketing and sales................................. -- 117 10,252
Product development................................. -- 49 1,964
General and administrative.......................... 118 674 11,551
Delivery............................................ -- 66 3,265
Depreciation and amortization....................... -- 24 801
Non-cash compensation............................... -- 3 208
----------- ----------- -----------
Total operating expenses.......................... 118 933 28,041
----------- ----------- -----------
Loss from operations.................................. (118) (813) (26,529)
Interest income, net of $46 of interest expense....... -- -- 159
----------- ----------- -----------
Net loss.............................................. (118) (813) (26,370)
Dividends and accretion of redemption value on
mandatorily redeemable convertible preferred
stock............................................... (5) (55) (2,589)
----------- ----------- -----------
Net loss attributable to common stockholders.......... $ (123) $ (868) $ (28,959)
=========== =========== ===========
Basic and diluted net loss per common share........... $ (.01) $ (.08) $ (2.79)
=========== =========== ===========
Weighted-average shares outstanding used in computing
basic and diluted net loss per common share......... 10,182,000 10,350,000 10,362,192
=========== =========== ===========
Pro forma basic and diluted net loss per common
share............................................... $ (1.29)
===========
Weighted-average shares outstanding used in computing
pro forma basic and diluted net loss per common
share............................................... 22,430,968
===========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
KOZMO.COM, INC
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
--------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 17, 1997 (INCEPTION).................. -- $ -- -- $ -- -- $--
Issuance of common stock........................... -- -- -- -- -- --
Accretion of Series A mandatorily redeemable
convertible preferred stock...................... -- -- -- -- -- --
Net loss for the period from April 17, 1997
(inception) to December 31, 1997................. -- -- -- -- -- --
---------- ------- --------- ------ --------- ---
BALANCE AT DECEMBER 31, 1997........................... -- -- -- -- -- --
Issuance of stock options to non-employees for
services......................................... -- -- -- -- -- --
Issuance costs in connection with Series B
mandatorily redeemable convertible preferred
stock............................................ -- -- -- -- -- --
Accretion of Series A and Series B mandatorily
redeemable convertible preferred stock........... -- -- -- -- -- --
Net loss........................................... -- -- -- -- -- --
---------- ------- --------- ------ --------- ---
BALANCE AT DECEMBER 31, 1998........................... -- -- -- -- -- --
Issuance of warrants to non-employees for
services......................................... -- -- -- -- -- --
Issuance costs in connection with Series B, Series
C and Series D mandatorily redeemable convertible
preferred stock.................................. -- -- -- -- -- --
Exercise of common stock warrant................... -- -- -- -- -- --
Contribution of capital through forgiveness of
loans from founders.............................. -- -- -- -- -- --
Unutilized portion of advertising credits issued
for Series D mandatorily redeemable convertible
preferred stock.................................. -- -- -- -- -- --
Accretion of Series A, Series B, Series C and
Series D mandatorily redeemable convertible
preferred stock.................................. -- -- -- -- -- --
Conversion of Series A, Series B, Series C and
Series D mandatorily redeemable convertible
preferred stock to convertible preferred stock... 1,133,332 11 4,998,517 50 2,508,500 25
Issuance of Series E convertible preferred stock,
net of issuance costs of $3,667.................. -- -- -- -- -- --
Deferred compensation.............................. -- -- -- -- -- --
Amortization of deferred compensation.............. -- -- -- -- -- --
Net loss........................................... -- -- -- -- -- --
---------- ------- --------- ------ --------- ---
BALANCE AT DECEMBER 31, 1999........................... 1,133,332 $ 11 4,998,517 $ 50 2,508,500 $25
========== ======= ========= ====== ========= ===
<CAPTION>
SERIES D SERIES E
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 17, 1997 (INCEPTION).................. -- $ -- -- $ -- -- $--
Issuance of common stock........................... -- -- -- -- 10,350,000 10
Accretion of Series A mandatorily redeemable
convertible preferred stock...................... -- -- -- -- -- --
Net loss for the period from April 17, 1997
(inception) to December 31, 1997................. -- -- -- -- -- --
---------- ---- ---------- ------ ---------- ---
BALANCE AT DECEMBER 31, 1997........................... -- -- -- -- 10,350,000 10
Issuance of stock options to non-employees for
services......................................... -- -- -- -- -- --
Issuance costs in connection with Series B
mandatorily redeemable convertible preferred
stock............................................ -- -- -- -- -- --
Accretion of Series A and Series B mandatorily
redeemable convertible preferred stock........... -- -- -- -- -- --
Net loss........................................... -- -- -- -- -- --
---------- ---- ---------- ------ ---------- ---
BALANCE AT DECEMBER 31, 1998........................... -- -- -- -- 10,350,000 10
Issuance of warrants to non-employees for
services......................................... -- -- -- -- -- --
Issuance costs in connection with Series B, Series
C and Series D mandatorily redeemable convertible
preferred stock.................................. -- -- -- -- -- --
Exercise of common stock warrant................... -- -- -- -- 50,000 --
Contribution of capital through forgiveness of
loans from founders.............................. -- -- -- -- -- --
Unutilized portion of advertising credits issued
for Series D mandatorily redeemable convertible
preferred stock.................................. -- -- -- -- -- --
Accretion of Series A, Series B, Series C and
Series D mandatorily redeemable convertible
preferred stock.................................. -- -- -- -- -- --
Conversion of Series A, Series B, Series C and
Series D mandatorily redeemable convertible
preferred stock to convertible preferred stock... 15,616,119 156 -- -- -- --
Issuance of Series E convertible preferred stock,
net of issuance costs of $3,667.................. -- -- 19,859,568 199 -- --
Deferred compensation.............................. -- -- -- -- -- --
Amortization of deferred compensation.............. -- -- -- -- -- --
Net loss........................................... -- -- -- -- -- --
---------- ---- ---------- ------ ---------- ---
BALANCE AT DECEMBER 31, 1999........................... 15,616,119 $156 19,859,568 $ 199 10,400,000 $10
========== ==== ========== ====== ========== ===
<CAPTION>
ADDITIONAL TOTAL
PAID-IN CONTRIBUTION DEFERRED ACCUMULATED STOCKHOLDERS'
CAPITAL RECEIVABLE COMPENSATION DEFICIT EQUITY (DEFICIT)
---------- ------------ ------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
BALANCE AT APRIL 17, 1997 (INCEPTION).................. $ -- $ $ -- $ $ --
Issuance of common stock........................... 90 -- -- -- 100
Accretion of Series A mandatorily redeemable
convertible preferred stock...................... (5) -- -- -- (5)
Net loss for the period from April 17, 1997
(inception) to December 31, 1997................. -- -- -- (118) (118)
-------- ------- ------- -------- --------
BALANCE AT DECEMBER 31, 1997........................... 85 -- -- (118) (23)
Issuance of stock options to non-employees for
services......................................... 3 -- -- -- 3
Issuance costs in connection with Series B
mandatorily redeemable convertible preferred
stock............................................ (25) -- -- -- (25)
Accretion of Series A and Series B mandatorily
redeemable convertible preferred stock........... (51) -- -- -- (51)
Net loss........................................... -- -- -- (813) (813)
-------- ------- ------- -------- --------
BALANCE AT DECEMBER 31, 1998........................... 12 -- -- (931) (909)
Issuance of warrants to non-employees for
services......................................... 137 -- -- -- 137
Issuance costs in connection with Series B, Series
C and Series D mandatorily redeemable convertible
preferred stock.................................. (274) -- -- -- (274)
Exercise of common stock warrant................... -- -- -- -- --
Contribution of capital through forgiveness of
loans from founders.............................. 83 -- -- -- 83
Unutilized portion of advertising credits issued
for Series D mandatorily redeemable convertible
preferred stock.................................. -- (158) -- -- (158)
Accretion of Series A, Series B, Series C and
Series D mandatorily redeemable convertible
preferred stock.................................. (1,863) -- -- -- (1,863)
Conversion of Series A, Series B, Series C and
Series D mandatorily redeemable convertible
preferred stock to convertible preferred stock... 33,748 -- -- -- 33,990
Issuance of Series E convertible preferred stock,
net of issuance costs of $3,667.................. 83,634 -- -- -- 83,833
Deferred compensation.............................. 2,673 -- (2,673) -- --
Amortization of deferred compensation.............. -- -- 71 -- 71
Net loss........................................... -- -- -- (26,370) (26,370)
-------- ------- ------- -------- --------
BALANCE AT DECEMBER 31, 1999........................... $118,150 $ (158) $(2,602) $(27,301) $ 88,540
======== ======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
KOZMO.COM, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 17, 1997 YEAR ENDED
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, -------------------
1997 1998 1999
----------------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(118) $ (813) $(26,370)
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization of inventory of rental products.......... -- 14 295
Depreciation and amortization......................... -- 24 801
Non-cash compensation................................. -- 3 208
Non-cash advertising.................................. -- -- 342
Provision for doubtful accounts....................... -- 4 165
Deferred rent......................................... -- 31 134
Changes in operating assets and liabilities:
Accounts receivable................................... -- (34) (602)
Product inventory..................................... -- (8) (2,481)
Prepaid expenses and other assets..................... -- (6) (499)
Security deposits and other assets.................... (22) (8) (1,017)
Accounts payable...................................... -- 215 3,532
Accrued expenses...................................... -- 121 3,693
Other liabilities..................................... -- 13 189
----- ------ --------
Net cash used in operating activities....................... (140) (444) (21,610)
----- ------ --------
Cash flows from investing activites:
Purchases of property and equipment....................... (45) (62) (5,207)
Purchases of rental product inventory..................... (49) (109) (2,392)
----- ------ --------
Net cash used in investing activities....................... (94) (171) (7,599)
----- ------ --------
Cash flows from financing activities:
Payments on capital lease obligations..................... -- (10) (15)
Net proceeds from short-term borrowings-related party..... 35 68 (20)
Net proceeds from issuance of common stock................ 100 -- --
Net proceeds from issuance of Series A convertible
preferred stock......................................... 135 103 --
Net proceeds from issuance of Series B convertible
preferred stock......................................... -- 500 500
Net proceeds from issuance of Series C convertible
preferred stock......................................... -- -- 2,770
Net proceeds from issuance of Series D convertible
preferred stock......................................... -- -- 27,279
Net proceeds from issuance of Series E convertible
preferred stock......................................... -- -- 87,480
----- ------ --------
Net cash provided by financing activities................... 270 661 117,994
----- ------ --------
Net increase in cash and cash equivalents................... 36 46 88,785
Cash and cash equivalents, beginning of year................ -- 36 82
----- ------ --------
Cash and cash equivalents, end of year...................... $ 36 $ 82 $ 88,867
===== ====== ========
Supplemental cash flow information:
Cash paid for interest...................................... $ -- $ -- $ 46
Supplemental noncash investing and financing activities:
Issuance of Series A convertible preferred stock
subscription receivable................................... $ 103 $ -- $ --
Issuance of Series B convertible preferred stock
subscription receivable................................... -- 149 --
Accrual for addition of property and equipment.............. -- -- 2,490
Equipment acquired under capital leases..................... -- 26 14
Accrual for addition of inventory........................... -- -- 459
Decrease in paid-in-capital due to stock issuance costs
included in accounts payable.............................. -- -- 3,567
Contribution of capital through forgiveness of short-term
borrowings from founders.................................. -- -- 83
Conversion of mandatorily redeemable convertible preferred
stock to convertible preferred stock...................... -- -- 34,720
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF OPERATIONS
Kozmo.com, Inc. (the "Company") enables consumers to order a variety of
entertainment, food and convenience products over the Internet for delivery in
under one hour. The Company offers free delivery for rental or purchase of high
turnover products. The Company focuses on selling frequently purchased, high
margin items with well known brand names.
The Company was originally incorporated in New York in April 1997 and
subsequently re-incorporated in Delaware in August 1999. The Company began
offering its products and services in New York City in March 1998 and launched
in the Seattle market in June 1999, the San Francisco and Boston markets in
September 1999 and in the Washington D.C. market in November 1999.
USE OF ESTIMATES
The preparation of financial statements in accordance 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid securities, with original maturities
of three months or less when acquired, to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist of cash and cash equivalents and accounts
receivable. At December 31, 1998 and 1999, the fair value of these instruments
approximated their financial statement carrying amounts because of the
short-term maturity of these instruments. Substantially all of the Company's
cash equivalents were invested in money market accounts managed by high-credit
quality financial institutions. No single customer exceeded 10% of either
revenue or accounts receivable for any period presented. Accounts receivable are
from credit card companies. The Company believes it is not exposed to any
significant credit risk related to cash and cash equivalents or accounts
receivable.
The Company relies on a limited number of product manufacturers and
third-party distributors to fulfill customer demand for products offered. While
management believes that alternate suppliers could provide products at
comparable terms, the loss of any one manufacturer or distributor could delay
shipments and have an adverse effect on the Company's business, financial
position or results of operations.
F-7
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
The Company maintains two types of inventory, products and rental products.
Product inventory consists of products sold through the web site, such as
books, music, food, convenience items, video cassettes, DVDs and video games,
and is stated at the lower of cost or market. Product inventory cost is
determined using the first-in, first-out basis.
Rental product inventory consists of entertainment products rented through
the web site such as video cassettes, DVDs and video games. Rental product
inventory is stated at cost. Rental product inventory does not deplete itself
through sales as with product inventory, nor does it wear in the sense of
typical fixed assets over a period of time. Rather, the Company's revenue stream
related to each title decreases over time due to satisfaction of customer
demands. When a new title is released, demand for that title is immediate.
Within a short period of time, the demand substantially decreases.
Rental product inventory such as video cassettes and DVDs considered to be
base stock ("catalog stock") are amortized over thirty-six months on a
straight-line basis to a $4 salvage value. New-release video cassettes and DVDs
are amortized as follows: (i) copies one to three of each title per location are
amortized as catalog stock; (ii) the fourth and any succeeding copies of each
title per location are amortized on a straight-line basis over the first six
months to a net book value of $4, which is then fully amortized on a
straight-line basis over the next thirty months or until the video cassettes or
DVD is sold, at which time the unamortized book value is charged to cost of
sales; and (iii) video games are amortized on a straight-line basis to a $10
salvage value over eighteen months.
Accumulated amortization of rental product inventory totaled $14 and $309 at
December 31, 1998 and 1999, respectively, and is included in costs of revenues
in the Company's statements of operations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over the
estimated useful lives of the related assets, which range from three to seven
years. Equipment under capital leases are stated at the present value of future
minimum lease payments. Equipment acquired under capital leases and leasehold
improvements are amortized using the straight-line method over the shorter of
the lease terms or their estimated useful lives.
CAPITALIZED SOFTWARE
In the first quarter of 1999, the Company adopted the American Institute of
Certified Public Accountants ("AICPA") Statement of Position No. 98-1,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL
USE ("SOP No. 98-1"). SOP No. 98-1 requires all costs related to the development
of internal use software other than those incurred during the application
development stage to be expensed as incurred. It also provides guidance on the
capitalization of costs incurred during the application development stage for
computer software developed or obtained for internal use. The Company has
capitalized $2,060 of computer software costs as of December 31, 1999.
F-8
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value of such assets may not be
recoverable. Impairment is measured by comparing the carrying value of
long-lived assets to the estimated undiscounted pre-tax cash flows expected to
result from the use of such assets and their ultimate disposition. In
circumstances where impairment is determined to exist, the Company will write
down the asset to its fair value based on the present value of estimated future
cash flows. To date, no such impairment has been identified.
SHORT-TERM BORROWINGS-RELATED PARTY
As of December 31, 1998, short-term borrowings represented amounts due to
the Company's founders. During 1999, the Company repaid $20 of such amounts and
the remaining $83 was forgiven and treated as a contribution of capital.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, ACCOUNTING FOR INCOME TAXES, the Company uses the asset and liability
method in accounting for income taxes. 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 the tax change occurs. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the
amount expected to be realized.
REVENUE RECOGNITION
The Company recognizes revenues from rentals and product sales, net of
discounts and returns, when products are delivered to customers. Discounts and
returns have been insignificant to date. Sales of previously rented video
cassettes, DVDs and video games are included in product sales.
MARKETING AND SALES
Marketing and sales expenses primarily includes the costs of advertising
through various media channels such as television, radio, print, direct mailing,
outdoor marketing and public relations. The Company expenses the costs of
advertising as incurred. No advertising costs were incurred during 1997.
Advertising costs totaled approximately $60 and $7,421 for the years ended
December 31, 1998 and 1999, respectively.
Included in marketing and sales expense for the year ended December 31, 1999
is $342 of advertising credits the Company received from an investor in
connection with the issuance of its Series D preferred stock.
F-9
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRODUCT DEVELOPMENT
Product development expense primarily consists of costs for consultants and
payroll and related expenses for personnel responsible for web site maintenance,
systems infrastructure and web site content. Costs related to product
development are expensed as incurred.
DELIVERY
Delivery expenses primarily consist of payroll and related expenses for
delivery personnel.
DEFERRED COMPENSATION
The Company has adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION. As permitted by SFAS No. 123, the Company has elected to follow
Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES ("APB No. 25"), and related interpretations, in accounting for
employee stock options. As opposed to SFAS No. 123, which is a fair value based
method, APB No. 25 provides that compensation expense related to the Company's
employee stock options be measured based on the intrinsic value of the stock
option. SFAS No. 123 requires companies that elect to follow APB No. 25 to
provide pro forma disclosure of the impact of applying the fair value method of
SFAS No. 123.
BASIC AND DILUTED NET LOSS PER SHARE
Loss per share is presented in accordance with the provisions of SFAS
No. 128, EARNINGS PER SHARE, and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Under SFAS No. 128, basic EPS is computed by
dividing income or loss available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock and resulted in the
issuance of common stock. As a result of the Company's recurring net losses,
diluted net loss per share was the same as basic net loss per share for all
periods presented since the effect of any potentially dilutive securities would
be anti-dilutive.
Diluted net loss per common share for the period from April 17, 1997
(inception) to December 31, 1997 and for the years ended December 31, 1998 and
1999, does not include the effects of (i) options to purchase 263,750,
1,360,000, and 7,813,196 shares of common stock, respectively, (ii) warrants to
purchase 0, 0, and 8,255,612 shares of convertible preferred and common stock,
respectively, and (iii) the issuance of 1,133,332, 4,998,517, 2,508,500,
15,616,119 and 19,859,568 shares of common stock issuable upon the conversion of
Series A, B, C, D and E preferred stock on an "as if" converted basis,
respectively, as the effect of their inclusion is anti-dilutive for each period.
Pro forma net loss per common share for the year ended December 31, 1999 is
computed by dividing the net loss by the sum of the weighted average number of
shares of common stock outstanding and the shares issuable upon the automatic
conversion of all of the Company's convertible preferred stock as if such
conversion occurred at the date of their original issuance. The number of pro
F-10
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
forma weighted average shares used in computing basic and diluted net loss per
common share is as follows:
<TABLE>
<S> <C>
Actual weighted average common shares outstanding........... 10,362,192
Series A convertible preferred stock...................... 1,133,332
Series B convertible preferred stock...................... 4,924,881
Series C convertible preferred stock...................... 1,786,877
Series D convertible preferred stock...................... 3,788,408
Series E convertible preferred stock...................... 435,278
----------
Weighted average shares outstanding used in computing pro
forma basic and diluted net loss per common share......... 22,430,968
==========
</TABLE>
COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with the provisions
of SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes
standards for reporting comprehensive income and its components in the body of
the financial statements. Comprehensive income includes net income (loss) as
currently reported under generally accepted accounting principles, 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. There
were no differences between the Company's comprehensive loss and its net loss as
reported for all periods presented.
SEGMENT REPORTING
The Company adopted SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION. SFAS No. 131 establishes standards for the way that
public enterprises report information about operating segments. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Under the definitions of SFAS No. 131, the
Company does not have any separately reportable segments.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1999, the Company adopted the AICPA Statement of Position No. 98-5,
REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP No. 98-5"). SOP No. 98-5
requires all costs of start-up activities and organization costs be expensed as
incurred. The adoption of the provisions of SOP No. 98-5 did not have a material
impact on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. Subsequently, the FASB issued SFAS No. 137 which
deferred the effective date of SFAS No. 133. SFAS No. 137 is effective for all
fiscal quarters of fiscal years beginning
F-11
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
after June 15, 2000. The Company has not yet determined the impact of this
pronouncement on its financial position or results of operations.
2. BALANCE SHEET COMPONENTS
Property and equipment, stated at cost, consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Computer software and equipment............................. $ 87 $6,470
Furniture and fixtures...................................... 16 804
Leasehold improvements...................................... -- 495
Equipment under capital leases.............................. 27 40
Delivery vehicles........................................... 3 35
---- ------
133 7,844
Less accumulated depreciation and amortization, including $9
and $21 related to capital leases, respectively........... (24) (825)
---- ------
Total................................................... $109 $7,019
==== ======
</TABLE>
Accrued expenses consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Purchases of property and equipment......................... $ -- $2,490
Salaries and wages.......................................... 7 1,282
Marketing costs............................................. -- 1,249
Administrative and other expenses........................... -- 1,045
Purchases of inventory...................................... -- 459
Professional fees........................................... 95 188
Sales tax................................................... 19 50
---- ------
Total................................................... $121 $6,763
==== ======
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases facilities and certain equipment under agreements
accounted for as operating leases. These leases generally require the Company to
pay all executory costs such as maintenance and insurance. Rental expense for
operating leases for the period from April 17, 1997 (inception) to December 31,
1997 and for the years ended December 31, 1998 and 1999 were approximately $22,
$112 and $677, respectively.
F-12
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under capital and non-cancelable operating
leases (with initial or remaining lease terms in excess of one year) as of
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------ -------- ---------
<S> <C> <C>
2000........................................................ $ 8 $ 1,971
2001........................................................ 3 2,076
2002........................................................ 3 2,151
2003........................................................ 2 2,240
2004........................................................ 1 2,175
Thereafter.................................................. -- 5,956
---- -------
Total minimum lease payments................................ 17 $16,569
=======
Less amount representing interest at a weighted-average
interest rate of approximately 7.29%...................... (2)
----
Present value of net minimum lease payments................. 15
Less current portion of obligations under capital leases.... (7)
----
Obligations under capital leases, excluding current
portion................................................... $ 8
====
</TABLE>
LEGAL PROCEEDINGS
The Company is involved in claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material effect on the Company's financial
position, results of operation or liquidity.
4. CAPITAL STOCK
COMMON STOCK
In April 1997, the Company issued 10,000,000 shares of common stock at $.003
per share to its founders in exchange for $30. In August 1997, the Company
issued 350,000 shares of common stock at $.20 per share to friends and family of
the founders for an aggregate purchase price of $70. In September 1999, the
Company issued 50,000 shares of common stock at $.001 per share to an advisor of
the Company in connection with the exercise of a common stock warrant.
Holders of common stock are entitled to one vote for each share of common
stock held and have the right to receive dividends, if declared by the board of
directors.
PREFERRED STOCK
In November 1997, the Company issued 1,133,332 shares of Series A
mandatorily redeemable convertible preferred stock ("Series A") at $.21 per
share for an aggregate purchase price of $238 of which $103 was received in
January 1998. There were no issuance costs incurred in connection with this
offering.
F-13
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. CAPITAL STOCK (CONTINUED)
In December 1998 and January 1999, the Company issued 3,206,707 shares and
1,791,810 shares of Series B mandatorily redeemable convertible preferred stock
("Series B") at $.21 per share, respectively, for an aggregate purchase price of
$674 and $376, respectively. The Company incurred $50 of issuance costs, of
which $25 was applied against the amounts received in each of 1998 and 1999. The
Company received $149 of the first issuance of the Series B preferred stock in
1999. Such amount is recorded as a preferred stock subscription receivable in
the accompanying December 31, 1998 balance sheet.
In April 1999, the Company issued 2,508,500 shares of Series C mandatorily
redeemable convertible preferred stock ("Series C") at $1.11 per share for an
aggregate purchase price of $2,787. The Company incurred $17 of issuance costs
in connection with this offering.
In October 1999, the Company issued 15,616,119 shares of Series D
mandatorily redeemable convertible preferred stock ("Series D") at $1.80 per
share for an aggregate purchase price of $28,000. The Company incurred $341 of
issuance costs in connection with this offering including 60,556 shares of
Series D shares issued in consideration for legal fees of $109. Of the total
Series D shares, 277,778 were issued in exchange for $500 of credits against
future advertising costs. The advertising credits have been recorded as a
contribution receivable and are recorded as marketing and sales expense in the
Company's statement of operations as credits are utilized. The Company has
utilized $342 of such credits as of December 31, 1999.
In December 1999, the Company issued 19,859,568 shares of Series E
convertible preferred stock ("Series E") at $4.41 per share for an aggregate
purchase price of $87,500. The Company incurred $3,667 of issuance costs in
connection with this offering comprised of an underwriting fee of 4% or $3,567
and other professional fees of $100. Of the total Series E shares, 27,292 were
issued in consideration of legal fees of $120.
In January 2000, the Company issued an additional 7,338,986 shares of
Series E preferred stock at $4.41 per share for an aggregate purchase price of
$32,350. Of the total shares issued, 6,775 shares were issued in consideration
of legal fees of $30 and 86,509 shares were issued in exchange for $382 of
advertising credits.
In March 2000, the Company issued 15,305,181 shares of Series F convertible
preferred stock ("Series F") at $7.55 per share. Of the total Series F shares
issued, 11,333,250 shares were issued for cash proceeds of $81,640, net of
$3,960 of issuance costs, and 2,647,954 shares were issued in connection with
strategic agreements entered into by the Company with Warner Home Video
("Warner") and Columbia Tri-Star Home Video ("Columbia") valued at $20,000. In
addition, 1,323,977 shares, valued at $10,000, were issued in exchange for
$10,000 worth of common stock of a publicly traded company.
All preferred stockholders are entitled to one vote for each share held as
well as the right to convert such shares, in whole or in part, at any time into
common stock at a conversion ratio of one-to-one. The conversion ratio is
subject to adjustment to reflect certain changes in the common stock, such as
stock splits, stock dividends, reclassifications and sales of additional capital
stock below certain threshold amounts. All preferred stock will automatically
convert into common stock at the then applicable conversion ratio upon the
closing of an initial public offering ("IPO"), provided the offering price is at
least $12 per share and the gross offering proceeds are at least $30,000.
F-14
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. CAPITAL STOCK (CONTINUED)
Holders of Series B, C, D and E preferred stock are entitled to receive cash
dividends payable semi-annually in arrears, if declared by the board of
directors, in the amount of 8% per year of the price per share that such shares
were purchased from the Company and 8% per year on any declared but unpaid
dividends on such shares. Holders of Series A preferred stock are not entitled
to dividends. Cumulative undeclared dividends in arrears were $4 and $915 as of
December 31, 1998 and 1999, respectively.
Prior to the sale by the founders of their shares of common stock to any
third parties, the holders of Series D and Series E preferred stock, the Company
and the holders of Series B preferred stock, in such order of priority, shall
have a pro rata right of first refusal enabling them to purchase such shares. In
addition, holders of Series D and Series E preferred stock have preemptive
rights to participate in subsequent equity offerings of the Company to maintain
their pro rata ownership of the Company.
Upon a liquidation of the Company, the holders of Series D preferred stock
are entitled to a liquidation preference amount equal to 200% of the aggregate
price originally paid for such shares, plus any declared but unpaid dividends on
such shares. Subsequent liquidation preference payments will be made to the
holders of Series E, C, B and A preferred stock, in such order of priority, in
an amount equal to the price originally paid, plus any declared but unpaid
dividends on such shares. Upon a liquidation of the Company, after the holders
of the Series D preferred stock have been paid their liquidation preference, if
the remaining net assets are insufficient for payment in full to the holders of
the remaining preferred stock, then the remaining net assets shall be
distributed ratably to the remaining holders of preferred stock.
As of December 31, 1998 and up through December 23, 1999 (the date on which
the Series E preferred stock was issued), the holders of Series A, B, C and D
preferred stock had certain rights of redemption. Pursuant to these rights, at
the election of a majority of any such preferred stockholders, the Company was
required to redeem the shares of such preferred stock outstanding on October 4,
2004 at a redemption price equal to 300% of the price originally paid for such
shares plus any declared but unpaid dividends.
As of December 31, 1998, the Company has presented the Series A and B
preferred stock as temporary equity at their accreted values which were $285 and
$683, respectively. On December 23, 1999, in connection with the issuance of the
Series E preferred stock, the redemption rights on Series A, B, C and D
preferred stock were cancelled. Consequently, the Series A, B, C and D preferred
stock have been presented as a contribution to stockholders' equity in 1999 at
their respective accreted values as of December 23, 1999, which were $333,
$1,275, $3,196 and $29,186, respectively.
5. WARRANTS AND STOCK OPTIONS
WARRANTS
In August 1999, the Company granted a 10-year fully vested warrant to
purchase an aggregate of 50,000 shares of common stock, at an exercise price of
$.001 per share to a consultant. The Company recorded $65 of compensation
expense in 1999 using the Black-Scholes pricing model. In September 1999, this
warrant was exercised.
F-15
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. WARRANTS AND STOCK OPTIONS (CONTINUED)
In September 1999, the Company granted a 10-year fully vested warrant to
purchase an aggregate of 50,000 shares of common stock, at an exercise price of
$.001 per share to a consultant. The Company recorded $72 of compensation
expense in 1999 using the Black-Scholes pricing model.
In December 1999, in connection with the Series E preferred stock offering,
the Company granted fully vested warrants to purchase 3,717,860 and 3,692,140
shares of Series E preferred stock to an investor at exercise prices of $4.41
and $5.52 per share, respectively. These warrants expire upon the earlier of the
closing of an IPO at an offering price of at least $12 per share and gross
proceeds of at least $30,000 or December 23, 2004.
In December 1999, in connection with the Series E preferred stock offering,
the Company granted a fully vested warrant to purchase 795,612 shares of
Series E preferred stock to the placement agent at an exercise price of $4.41
per share. This warrant expires upon the earlier of the closing of an IPO or
December 23, 2004.
In January 2000, the Company granted a fully vested warrant to purchase
22,676 shares of Series E preferred stock to the lessor of its corporate office
at an exercise price per share of $4.41 in exchange for rental space. The
Company valued the warrant at $28 using the Black-Scholes pricing model. This
amount will be expensed over the lease term. This warrant expires upon the
earlier of the closing of an IPO at an offering price of at least $12 per share
and gross proceeds of at least $30,000 or January 18, 2005.
In March 2000, the Company issued a one-year fully vested warrant to
purchase 2,699,145 shares of Series F preferred stock to Ticketmaster
Online--CitySearch Inc. ("CitySearch") at an exercise price of $7.55 per share.
The Company ascribed a value to this warrant of $3,752 using the Black-Scholes
pricing model. The value of the warrant will be recorded as a deferred expense
and will be ratably amortized over the term of the three-year strategic
agreement.
In March 2000, the Company granted a fully vested warrant to purchase
8,650,000 shares of Series E preferred stock to Amazon.com LLC ("Amazon") at an
exercise price of $5.52 per share. This warrant expires upon the earlier of the
closing of an IPO at an offering price of at least $12 per share and gross
proceeds of at least $30,000 or March 13, 2005. The Company ascribed a value to
this warrant of $35,725 using the Black-Scholes pricing model. The value of the
warrant will be recorded as a deferred expense and will be amortized evenly over
the three-year term of the strategic agreement.
In March 2000, in connection with the Series F preferred stock offering, the
Company granted a fully vested warrant to purchase 13,240 shares of common stock
to an investor at an exercise price of $7.55 per share. This warrant expires on
the earlier of the closing of an IPO or March 14, 2002. In addition, the Company
agreed to grant a second fully vested warrant to purchase 13,240 shares of
common stock to the same investor at an exercise price of $7.55 per share if the
investor assists the Company in establishing alliances in Japan. This second
warrant, if granted, will expire thirty days from the date of grant.
F-16
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. WARRANTS AND STOCK OPTIONS (CONTINUED)
STOCK OPTIONS
On June 30, 1997, the Company established the 1997 Stock Option Plan (the
"1997 Plan"). The vesting schedule of the options issued under the 1997 Plan is
as follows: 25% of the options will become exercisable after twelve months
following the date of grant and, thereafter, 1/48th of the options will vest in
each subsequent month. The options also vest upon a change of control of the
Company. The 1997 Plan's definition of change in control provides, among other
things, that the sale of the Company's common stock in an IPO constitutes a
change in control.
In February 1998, the Company granted stock options to purchase 20,000
shares of common stock, at an exercise price of $.21 per share, to consultants.
The Company recorded $3 of compensation expense in 1998 using the Black-Scholes
pricing model.
On May 1, 1999, the Company established the 1999 Stock Option Plan (the
"1999 Plan"). The 1999 Plan's vesting terms and definition of a change in
control are substantially the same as in the 1997 Plan.
On October 4, 1999, the Company established the 1999 Incentive Stock Option
Plan (the "1999 Incentive Plan"), which was amended in March 2000. The maximum
aggregate number of shares of common stock that may be issued under the 1999
Incentive Plan is 11,613,546.
In October 1999, the Company's board of directors voted to cease issuing
stock options under the 1997 Plan and 1999 Plan. Consequently, the stock options
issued and outstanding as of December 31, 1999 of 1,440,300 and 805,200 under
the 1997 Plan and 1999 Plan, respectively, represent the total stock options
authorized and issuable under such plans. Subsequent to December 31, 1999, 8,217
stock options under the 1997 Plan were forfeited and 112,500 stock options were
exercised.
The vesting terms of the 1999 Incentive Plan are identical to the 1997 and
1999 Plans; however, a difference exists in the definition of change in control.
The 1999 Incentive Plan provides that a change in control is generally deemed to
have occurred when the beneficial ownership of securities representing more than
50% of the Company's authorized common stock is acquired by a third party or the
Company's stockholders approve a definitive agreement to merge or consolidate
the Company with another company other than one that the Company controls or to
sell all or substantially all of the Company's assets to another company.
Under APB No. 25, no compensation expense is recognized when the exercise
price of the Company's employee stock options equals or exceeds the fair value
of the underlying stock on the date of grant. Deferred compensation is recorded
for those situations where the exercise price of an option is lower than the
deemed fair value for financial reporting purposes of the underlying common
stock.
The Company recorded $2,673 of deferred compensation during the year ended
December 31, 1999 in connection with the issuance of stock options that were
granted with an exercise price less than the deemed fair value of the common
stock at the date of grant. The amortization of deferred compensation is charged
to operations over the vesting period of the options. Total amortization of
deferred compensation recognized was $71 for the year ended December 31, 1999.
The Company expects to amortize the following amounts of deferred compensation
as of December 31, 1999 in each
F-17
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. WARRANTS AND STOCK OPTIONS (CONTINUED)
year as follows: 2000--$669; 2001--$669; 2002--$669; 2003--$595. As of
December 31, 1999, $139 of deferred compensation is attributable to options
issued under the 1997 and 1999 stock option plans.
Upon the closing of an IPO, as a result of an automatic vesting acceleration
clause, 2,498,081 options issued under the 1997 Plan, 1999 Plan and 1999
Incentive Plan will vest immediately which will not result in any additional
charge of deferred compensation.
The Company applies APB No. 25 and related interpretations, in accounting
for its stock option issuances to employees. Accordingly, except as mentioned
above, no compensation expense has been recognized relating to these stock
option grants. Had compensation expense for the Company's stock options issued
at the fair value of the Company's common stock been determined based on the
fair value of the stock options at the grant date for awards in 1997, 1998 and
1999 consistent with the provisions of SFAS No. 123, the Company's net loss
attributable to common stockholders and net loss per common share would have
increased to the following pro forma amounts:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 17, 1997
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------- -------------------
1997 1998 1999
--------------- -------- --------
<S> <C> <C> <C>
Net loss attributable to common stockholders:
As reported.................................. $(123) $(868) $(28,959)
===== ===== ========
Pro forma.................................... $(123) $(868) $(33,387)
===== ===== ========
Basic and diluted net loss per common share:
As reported.................................. $(.01) $(.08) $ (2.79)
===== ===== ========
Pro forma.................................... $(.01) $(.08) $ (3.22)
===== ===== ========
</TABLE>
The resulting effect on the pro forma net loss per common share for the
period from April 17, 1997 (inception) to December 31, 1997 and for the years
ended December 31, 1998 and 1999 is not likely to be representative of the
effects on the net loss on a pro forma basis in future years, because the pro
forma results include the impact of only one, two and three years, respectively,
of grants and related vesting, while subsequent years will include additional
grants and vesting.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes pricing model with the following weighted average assumptions
used for grants in the period from April 17, 1997 (inception) to December 31,
1997 and for the years ended December 31, 1998 and 1999: dividend yield of zero
percent (0%), risk-free interest rates ranging from 5.0% to 6.0% and expected
life of 5 years. As permitted under the provisions of SFAS No. 123 and based on
the historical lack of a public market for the Company's stock, no factor for
volatility has been reflected in the option pricing calculation.
F-18
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. WARRANTS AND STOCK OPTIONS (CONTINUED)
The following summarizes the Company's stock option activity and related
information:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE
SHARES EXERCISE PRICE FAIR VALUE
--------- -------------- ------------
<S> <C> <C> <C>
Outstanding at April 17, 1997 (inception)............ -- $ --
Granted............................................ 263,750 .20 $ .15
--------- -----
Outstanding at December 31, 1997..................... 263,750 .20
Granted............................................ 1,145,833 .21 $ .15
Forfeited.......................................... (49,583) .20
--------- -----
Outstanding at December 31, 1998..................... 1,360,000 .21
Granted............................................ 6,491,296 1.71 $1.95
Forfeited.......................................... (38,100) 1.44
--------- -----
Outstanding at December 31, 1999..................... 7,813,196 $1.45
========= =====
</TABLE>
The following summarizes information concerning outstanding stock options at
December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
- --------------------------------------------------------- --------------------------
WEIGHTED-AVERAGE
REMAINING
CONTRACTUAL LIFE WEIGHTED-
NUMBER OF OF OPTIONS IN NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE YEARS OPTIONS EXERCISE PRICE
- --------------------- -------------- ---------------- --------- --------------
<S> <C> <C> <C> <C>
180,000 $ .20 7.9 94,844 $ .20
1,202,500 .21 8.8 366,667 .21
92,500 .29 9.3 -- --
750,500 1.11 9.5 -- --
5,521,096 1.80 9.8 -- --
66,600 4.41 10.0 -- --
--------- ---- ------- ------
7,813,196 9.6 461,511 $ .21
========= ==== ======= ======
</TABLE>
F-19
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
6. INCOME TAXES
There is no provision for federal, state or local income taxes for all
periods presented, since the Company has incurred losses since inception.
The effects of temporary differences and tax loss carryforwards that give
rise to significant portions of federal deferred tax assets and deferred tax
liabilities at December 31, 1998 and 1999 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 296 $ 10,801
Non-cash compensation.................................... 1 59
Deferred rent............................................ 12 66
Start-up costs........................................... 39 30
Deferred revenue......................................... 5 72
Allowance for bad debt................................... 2 34
Depreciation and amortization............................ 1 16
----- --------
Deferred tax assets........................................ 356 11,078
----- --------
Deferred tax liabilities:
Prepaid expenses......................................... (2) (167)
----- --------
Deferred tax liabilities................................... (2) (167)
----- --------
Net deferred tax assets.................................... 354 10,911
Less valuation allowance................................... (354) (10,911)
----- --------
Net deferred tax assets.................................. $ -- $ --
===== ========
</TABLE>
At December 31, 1999, the Company had $27,003 of federal net operating loss
carryforwards available to offset future taxable income. Such carryforwards
expire through 2019. The Company has recorded a full valuation allowance against
its net deferred tax assets since management believes that, after considering
all the available objective evidence, it is not more likely than not that these
assets will be realized. The tax effect of temporary differences that give rise
to significant portions of federal deferred tax assets principally consists of
the Company's net operating loss carryforward.
The difference between the Company's U.S. federal statutory rate of 35%, as
well as its state and local rates, net of federal tax benefit, when compared to
the effective rate is principally comprised of the valuation allowance.
Under Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code"), the utilization of net operating loss carryforwards may be limited
under the change in stock ownership rules of the Code. The Company has not yet
determined whether an ownership change has occurred.
F-20
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING ADDITIONS BALANCE
OF CHARGED TO DEDUCTIONS/ AT END OF
PERIOD EXPENSES WRITE-OFFS PERIOD
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Allowance for doubtful accounts..................... $ -- $ -- $ -- $ --
==== ==== ==== ====
For the year ended December 31, 1998:
Allowance for doubtful accounts..................... $ -- $ 4 $ -- $ 4
==== ==== ==== ====
For the year ended December 31, 1999:
Allowance for doubtful accounts..................... $ 4 $165 $(83) $ 86
==== ==== ==== ====
</TABLE>
8. SUBSEQUENT EVENTS--UNAUDITED
STRATEGIC AGREEMENTS
In January 2000, the Company entered into an agreement with CitySearch which
expires in December 2001. The Company will be the exclusive online one-hour
delivery service advertised on CitySearch web sites in all cities where both the
Company and CitySearch operate. The Company issued a warrant to purchase
2,699,145 shares of Series F preferred stock at an exercise price of $7.55 per
share to CitySearch in connection with this agreement.
In February 2000, the Company entered into a five-year strategic agreement
with Starbucks Corporation ("Starbucks") to place a drop box in each Starbucks
store located in the Company's current and future markets to collect items
returned by the Company's customers. The agreement also provides for exclusive
joint marketing and promotional activities, such as the placement of the Company
brand on Starbucks napkins, cups and posters, free product samples for Starbucks
customers that register on the Company's website and links to the Company's web
site from the Starbucks web site. In addition, the Company will offer Starbucks
products such as coffee by the pound, teas, ice cream and bottled beverages for
delivery in under one hour. The Company is committed to making the following
cash payments to Starbucks: 2000--$15,000; 2001--$25,000; 2002--$35,000;
2003--$35,000; and 2004--$40,000 in connection with this agreement.
In March 2000, the Company entered into a supply and delivery agreement with
Amazon to deliver books, music and toy products offered on the Amazon.com web
site to Amazon customers in our markets in under one hour. The agreement is
subject to establishing mutually acceptable customer service standards and
acceptable pricing for the delivery service. In addition, Amazon will engage in
selected promotional activities to introduce the Company's delivery service to
its customer base. The Company issued a warrant to purchase 8,650,000 shares of
Series E preferred stock at an exercise price of $5.52 per share to Amazon in
connection with this agreement.
In March 2000, the Company entered into a revenue sharing agreement under
which Columbia will provide the Company with a greater number of movie titles,
and more of each title than the Company currently obtains, on VHS cassettes and
DVDs, at a substantially lower initial cost than the Company would otherwise
pay, in exchange for a percentage of the rental revenues generated by those
F-21
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
8. SUBSEQUENT EVENTS--UNAUDITED (CONTINUED)
movie titles. The Company issued 1,323,977 shares of Series F preferred stock at
$7.55 per share to Columbia in connection with this agreement.
In March 2000, the Company entered into a revenue sharing agreement with
Warner under which Warner will provide the Company with a greater number of
movie titles, and more copies of each title than we currently obtain, on VHS
cassettes and DVDs, at a substantially lower initial cost than the Company would
otherwise pay, in exchange for a percentage of the rental revenues generated by
those movie titles. The Company issued 1,323,977 shares of Series F preferred
stock at $7.55 per share to Warner in connection with this agreement.
STOCK OPTIONS
For the period from January 1, 2000 through February 29, 2000, the Company
granted stock options to purchase 5,239,125 shares of common stock,
respectively, to employees at a weighted-average exercise price of $4.35. The
deemed fair value of the Company's common stock ranged from $3.51 to $6.17 per
share during such period. For the period from January 1, 2000 through
February 29, 2000, the Company recorded deferred compensation of approximately
$5,623, in connection with the grant of these options to employees, representing
the difference between the deemed fair value of its common stock as of the grant
dates and the exercise price of the related options. This amount will be
presented as deferred compensation in the financial statements and will be
amortized over the four year vesting period. During the period from January 1,
2000 through February 29, 2000, 112,500 options were exercised at a weighted
average exercise price of $.21 per share.
9. INITIAL PUBLIC OFFERING AND PRO FORMA BALANCE SHEET--UNAUDITED
In March 2000, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission that would
permit the Company to sell shares of its common stock in connection with a
proposed 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, on a
one-for-one basis, into an aggregate of 66,760,203 shares of common stock.
The following pro forma balance sheet as of December 31, 1999 gives effect
to the following transactions as if such transactions occurred on December 31,
1999:
- the issuance of 7,338,986 shares of Series E preferred stock at $4.41 per
share in January 2000 for net proceeds of $32,350, including $382 of
credits against future advertising costs;
- the issuance of 11,333,250 shares of Series F preferred stock at $7.55 per
share during March 2000 for net cash proceeds of $81,640;
- the issuance of an aggregate of 2,647,954 shares of Series F preferred
stock at $7.55 per share during March 2000 in connection with the
execution of strategic agreements. The $20,000 value ascribed to the
shares will be recorded as a deferred expense;
F-22
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. INITIAL PUBLIC OFFERING AND PRO FORMA BALANCE SHEET--UNAUDITED (CONTINUED)
- the issuance of 1,323,977 shares of Series F preferred stock at $7.55 per
share during March 2000 in connection with the Series F financing in
exchange for $10,000 of common stock of a publicly traded company;
- the issuance of a warrant to purchase 8,650,000 shares of Series E
preferred stock at an exercise price of $5.52 per share in March 2000 in
connection with the execution of a supply and delivery agreement with
Amazon.com LLC. The $35,725 value ascribed to the warrant will be recorded
as a deferred expense;
- the issuance of a warrant to purchase 2,699,145 shares of Series F
preferred stock, at an exercise price of $7.55 per share in January 2000
in connection with the execution of a strategic agreement. The $3,752
value ascribed to the warrant will be recorded as a deferred expense;
- the automatic conversion on a one-for-one basis of 1,133,332, 4,998,517,
2,508,500, 15,616,119, 27,198,554 and 15,305,181 shares of Series A,
Series B, Series C, Series D, Series E and Series F preferred stock,
respectively, representing all outstanding shares of convertible preferred
stock, into an aggregate of 66,760,203 shares of common stock upon the
closing of the proposed IPO.
F-23
<PAGE>
KOZMO.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(ALL INFORMATION SUBSEQUENT TO DECEMBER 31, 1999 IS UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
9. INITIAL PUBLIC OFFERING AND PRO FORMA BALANCE SHEET--UNAUDITED (CONTINUED)
PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
DECEMBER 31, DECEMBER 31,
1999 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 88,867 $202,475
Accounts receivable....................................... 550 550
Product inventory......................................... 2,741 2,741
Marketable securities..................................... -- 10,000
Prepaid expenses and other assets......................... 505 505
-------- --------
Total current assets.................................. 92,663 216,271
Deferred expense............................................ -- 59,476
Rental product inventory.................................... 2,269 2,269
Property and equipment, net................................. 7,019 7,019
Security deposits and other assets.......................... 1,047 1,047
-------- --------
Total assets.......................................... $102,998 $286,082
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,314 $ 7,314
Accrued expenses.......................................... 6,763 6,763
Other liabilities......................................... 208 208
-------- --------
Total current liabilities............................. 14,285 14,285
Other liabilities........................................... 173 173
Stockholders' equity:
Series A convertible preferred stock...................... 11 --
Series B convertible preferred stock...................... 50 --
Series C convertible preferred stock...................... 25 --
Series D convertible preferred stock...................... 156 --
Series E convertible preferred stock...................... 199 --
Common stock $.001 par value; 90,918,897 shares
authorized; 10,400,000 shares issued and outstanding
historical; 77,160,203 issued and outstanding pro
forma................................................... 10 77
Additional paid-in capital................................ 118,150 301,990
Contribution receivable................................... (158) (540)
Deferred compensation..................................... (2,602) (2,602)
Accumulated deficit....................................... (27,301) (27,301)
-------- --------
Total stockholders' equity............................ 88,540 271,624
-------- --------
Total liabilities and stockholders' equity............ $102,998 $286,082
======== ========
</TABLE>
F-24
<PAGE>
[SEVERAL PHOTOS OF KOZMO'S WEBSITE AND OPERATIONS, INCLUDING OUR SPLASH
PAGE, SEARCH RESULTS, PRODUCT CATEGORIES AND ONE OF OUR WAREHOUSES.]
<PAGE>
[KOZMO LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table indicates the expenses to be incurred in connection with
the offering described in this Registration Statement, other than underwriting
discounts and commissions, all of which will be paid by the Company. All amounts
are estimates, other than the registration fee and the NASD fee.
<TABLE>
<S> <C>
Registration fee............................................ $39,600
NASD fee.................................................... 15,500
Nasdaq National Market application and listing fee.......... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Printing and engraving...................................... *
Transfer Agent fees and expenses............................ *
Blue sky fees and expenses.................................. *
Miscellaneous expenses...................................... *
-------
Total..................................................... $ *
=======
</TABLE>
- ------------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102 of the Delaware General Corporation Law, as amended ("DGCL")
amended allows a corporation to eliminate the personal liability of directors of
a corporation to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, except where the director breached his
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or knowingly violated a law, authorized the payment of a dividend or approved a
stock repurchase in violation of Delaware corporate law or obtained an improper
personal benefit.
Section 145 of the DGCL provides, among other things, that we may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of Kozmo) by reason of the fact that the person is or
was a director, officer, agent or employee of the Kozmo or is or was serving at
our request as a director, officer, agent, or employee of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including attorneys' fees, judgment, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding. The power to indemnify applies (a) if such person is
successful on the merits or otherwise in defense of any action, suit or
proceeding, or (b) if such person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of Kozmo, and with respect to any criminal action or proceeding had no
reasonable cause to believe his conduct was unlawful. The power to indemnify
applies to actions brought by or in the right of Kozmo as well but only to the
extent of defense expenses (including attorneys' fees but excluding amounts paid
in settlement) actually and reasonably incurred and not to any satisfaction of
judgment or settlement of the claim itself, and with the further limitation that
in such actions no indemnification shall be made in the event of any
adjudication of negligence or misconduct in the performance of his duties to
Kozmo, unless the court believes that in light of all the circumstances
indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption may be held liable for such actions. A
director who was either absent when the unlawful actions were approved
II-1
<PAGE>
or dissented at the time may avoid liability by causing his or her dissent to
such actions to be entered in the books containing the minutes of the meetings
of the board of directors at the time such action occurred or immediately after
such absent director receives notice of the unlawful acts.
At the time of the closing of the offering, our Amended and Restated
Certificate of Incorporation will include a provision that eliminates the
personal liability of its directors for monetary damages for breach of fiduciary
duty as a director, except for liability:
- for any breach of the director's duty of loyalty to Kozmo or its
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under section 174 of the DGCL regarding unlawful dividends and stock
purchases; or
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law.
Our Amended and Restated Bylaws provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
- we may indemnify our other employees and agents to the same extent that we
indemnified our officers and directors, unless otherwise determined by our
Board of Directors; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law.
The indemnification provisions contained in our Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws will not be
exclusive of any other rights to which a person may be entitled by law,
agreement, vote of stockholders or disinterested directors or otherwise. In
addition, we maintain insurance on behalf of its directors and executive
officers insuring them against any liability asserted against them in their
capacities as directors or officers or arising out of such status.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception, Kozmo has issued and sold the following securities:
In November 1997, we issued 1,133,332 shares of Series A mandatorily
redeemable convertible preferred stock at a price of $0.21 per share to a group
of accredited investors for an aggregate purchase price of $238,000.
In December 1998 and January 1999, the Company issued 3,206,707 shares and
1,791,810 shares of Series B mandatorily redeemable convertible preferred stock
at $.21 per share for an aggregate purchase price of $1,050,000, to a group of
accredited investors.
In April 1999, we issued 2,508,500 shares of Series C mandatorily redeemable
convertible preferred stock at a price of $1.11 per share to a group of
accredited investors for an aggregate purchase price of $2,787,000.
In October 1999, we issued 15,616,119 shares of Series D mandatorily
redeemable convertible preferred stock at a price of $1.80 per share to a group
of accredited investors. 15,277,785 shares were sold for $27,500,000 in cash,
277,778 shares of Series D shares were issued in exchange for $500 of credits
against future advertising and 60,556 shares were issued in consideration of
legal services performed in conjunction with the private placement.
II-2
<PAGE>
In December 1999 and January 2000, we issued an aggregate of 27,198,554
shares of Series E convertible preferred stock at a price of $4.41 per share to
a group of accredited investors for an aggregate purchase price of $120,000,000.
Of the total Series E shares 34,067 shares were issued in consideration of legal
fees of $150,000 and 86,509 shares were issued in exchange for $381,678 of
credits against future advertising. In connection with this issuance, we paid
$3,567,000 as a placement fee to Thomas Weisel Partners LLP.
In March 2000, we issued 15,305,181 shares of Series F convertible preferred
stock at a price of $7.55 per share to a group of accredited investors for an
aggregate purchase price of $81,640. In connection with this issuance we paid
$3,960,000 as a placement fee to Thomas Weisel Partners LLP.
In August 1999, we granted a 10-year fully vested warrant to purchase an
aggregate of 50,000 shares of common stock, at an exercise price of $.001 per
share, to a consultant. On September 23, 1999, this warrant was exercised.
In September 1999, we granted a 10-year fully vested warrant to purchase an
aggregate of 50,000 shares of common stock, at an exercise price of $.001 per
share, to a consultant.
In December 1999, in connection with the Series E convertible preferred
stock offering, we granted fully vested warrants to purchase 3,717,860 and
3,692,140 shares of Series E convertible preferred stock to Amazon.com at
exercise prices of $4.41 and $5.52 per share, respectively.
In December 1999, in connection with the Series E convertible preferred
stock offering, we granted a fully vested warrant to purchase 795,612 shares of
Series E convertible preferred stock to the placement agent at an exercise price
of $4.41 per share.
In January 2000, we granted a fully vested warrant to purchase 22,676 shares
of Series E convertible preferred stock to the lessor of our corporate office at
an exercise price per share of $4.41 in exchange for rental space.
In March 2000, we granted a fully vested warrant to purchase 2,699,145
shares of Series F convertible preferred stock, in connection with a service,
licensing and distribution agreement with Ticketmaster Online-CitySearch, Inc.,
at an exercise price per share of $7.55.
In March 2000, we granted a 10-year fully vested warrant to purchase
8,650,000 shares of Series E convertible preferred stock to Amazon.com at an
exercise price of $5.52 per share.
In March 2000, we granted a fully vested warrant to purchase 13,240 shares
of common stock to an accredited investor at an exercise price of $7.55 per
share.
As of February 29, 2000, an aggregate of 112,500 shares of common stock had
been issued upon the exercise of stock options and an aggregate of 13,052,321
shares of common stock were issuable upon exercise of outstanding options under
our stock plans.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances described in Item 8 above were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 under the
Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to, or for sale in connection with, any distribution thereof and
appropriate legends were affixed to the share certificates and warrants issued
in such transactions.
II-3
<PAGE>
ITEM 16. EXHIBITS.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of
Kozmo.com, Inc.
3.2 A&R By-Laws
4.1 Registration Rights Agreement
4.2* Form of Common Stock Certificate
5.1* Opinion of Shearman & Sterling, including consent
10.1* Strategic Agreement between Starbucks Corporation and
Kozmo.com, Inc. dated February 12, 2000
10.2* Supply and Delivery Agreement between Amazon.com LLC and
Kozmo.com, Inc. dated March 13, 2000
10.3* Right of use agreement between Warner Home Video and
Kozmo.com, Inc. dated February 28, 2000
10.4* Letter agreement between Columbia TriStar Home Video, Inc.
and Kozmo.com, Inc. dated March 10, 2000
10.5 Employment Agreement with Joseph Park dated October 4, 1999
10.6 Employment Agreement with Yong Kang dated October 4, 1999
10.7 Letter Agreement with Gerardo Burdo effective November 1,
1999
10.8 Letter Agreement with Kenneth Trevathan effective
November 15, 1999
10.9 Letter Agreement with Christopher Shimojima effective
December 20, 1999
10.10 Letter Agreement with William Herald effective February 14,
2000
10.11 Kozmo.com, Inc. 1999 Incentive Stock Option Plan
10.12 Kozmo.com, Inc. 1999 Stock Option Plan
10.13 Kozmo.com, Inc. 1997 Stock Option Plan
23.1 Consent of Independent Auditors
23.2* Consent of Counsel (Included in Exhibits 5.1)
24.1 Power of Attorney (see page II-6)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* to be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULE
None
II-4
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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 Item 15 of this registration statement, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, on the 21st day
of March, 2000.
<TABLE>
<S> <C> <C>
KOZMO.COM, INC.
By: /s/ JOSEPH PARK
-----------------------------------------
Name: Joseph Park
Title: Chairman of the Board and Chief
Executive Officer
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints, jointly and severally, Yong Kang and Gerardo
Burdo his or her true and lawful attorneys-in-fact and agents, each of whom may
act alone, with full powers of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1939, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto, and in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, and hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or his or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSEPH PARK
- ------------------------------------------- Chairman of the Board and March 21, 2000
Name: Joseph Park Chief Executive Officer
/s/ YONG KANG
- ------------------------------------------- President and Director March 21, 2000
Name: Yong Kang
/s/ GERARDO BURDO
- ------------------------------------------- Chief Financial Officer March 21, 2000
Name: Gerardo Burdo
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HUGH EVANS
- ------------------------------------------- Director March 21, 2000
Name: Hugh Evans
/s/ ROBERT GREENE
- ------------------------------------------- Director March 21, 2000
Name: Robert Greene
/s/ SETH GOLDSTEIN
- ------------------------------------------- Director March 21, 2000
Name: Seth Goldstein
/s/ JERRY GALLAGHER
- ------------------------------------------- Director March 21, 2000
Name: Jerry Gallagher
/s/ JACK CHEN
- ------------------------------------------- Director March 21, 2000
Name: Jack Chen
</TABLE>
II-7
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation of
Kozmo.com, Inc.
3.2 A&R By-Laws
4.1 Registration Rights Agreement
4.2* Form of Common Stock Certificate
5.1* Opinion of Shearman & Sterling, including consent
10.1* Strategic Agreement between Starbucks Corporation and
Kozmo.com, Inc. dated February 12, 2000
10.2* Supply and Delivery Agreement between Amazon.com LLC and
Kozmo.com, Inc. dated March 13, 2000
10.3* Right of use agreement between Warner Home Video and
Kozmo.com, Inc. dated February 28, 2000
10.4* Letter agreement between Columbia TriStar Home Video, Inc.
and Kozmo.com, Inc. dated March 10, 2000
10.5 Employment Agreement with Joseph Park dated October 4, 1999
10.6 Employment Agreement with Yong Kang dated October 4, 1999
10.7 Letter Agreement with Gerardo Burdo effective November 1,
1999
10.8 Letter Agreement with Kenneth "Skip" Trevathan effective
November 15, 1999
10.9 Letter Agreement with Christopher Shimojima effective
December 20, 1999
10.10 Letter Agreement with William Herald effective February 14,
2000
10.11 Kozmo.com, Inc. 1999 Incentive Stock Option Plan
10.12 Kozmo.com, Inc. 1999 Stock Option Plan
10.13 Kozmo.com, Inc. 1997 Stock Option Plan
23.1 Consent of Independent Auditors
23.2* Consent of Counsel (Included in Exhibits 5.1)
24.1 Power of Attorney (see page II-6)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* to be filed by amendment.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
KOZMO.COM, INC.
(originally incorporated August 20, 1999)
The undersigned natural persons of at least 18 years of age,
Joseph C. Park and Yong Kang, being the Chief Executive Officer and Secretary,
respectively, of Kozmo.com, Inc., a corporation organized and existing under the
laws of the State of Delaware, on behalf of said corporation, hereby certify as
follows:
FIRST: The name of the corporation (hereinafter the
"CORPORATION") is Kozmo.com, Inc.
SECOND: The Amended and Restated Certificate of Incorporation
of the Corporation as in effect on the date hereof is hereby further amended to
read in its entirety as set forth on EXHIBIT A hereto.
THIRD: Said Amended and Restated Certificate of Incorporation
was duly adopted in accordance with the provisions of Sections 228, 242 and 245
of Title 8 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, we have executed this Amended and Restated
Certificate of Incorporation this 16th day of March, 2000.
/s/ Joseph Park
------------------------------------
Chief Executive Officer
/s/ Yong Kang
- ----------------------------------
Secretary
<PAGE>
EXHIBIT A
ARTICLE I
Name
The name of the corporation is Kozmo.com, Inc. (the "CORPORATION").
ARTICLE II
Corporate Purpose
The purpose for which the Corporation is organized is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
ARTICLE III
Capital Stock
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 203,840,245, shares, consisting of
(a) 114,083,777 shares of Common Stock, par value $.001 per share, (the "COMMON
STOCK") and (b) 89,756,468 shares of Preferred Stock, par value $.01 per share
(the "PREFERRED Stock"), of which (i) 1,133,332 shares are designated Series A
Preferred Stock (the "SERIES A PREFERRED STOCK"), (ii) 4,998,517 shares are
designated 8% Series B Convertible Preferred Stock (the "SERIES B PREFERRED
STOCK"), (iii) 2,508,500 shares are designated 8% Series C Convertible Preferred
Stock (the "SERIES C PREFERRED STOCK"), (iv) 15,616,119 shares are designated 8%
Series D Convertible Preferred Stock (the "SERIES D PREFERRED STOCK"), (v)
45,500,000 shares are designated 8% Series E Convertible Preferred Stock (the
"SERIES E PREFERRED STOCK") and (vi) 20,000,000 shares are designated 8% Series
F Convertible Preferred Stock (the "SERIES F PREFERRED STOCK") .
The designations, powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof in respect of the Preferred Stock and the
Common Stock are as follows:
PREFERRED STOCK
1. DIVIDENDS.
(a) The holders of shares of Series F Preferred Stock, Series E
Preferred Stock, Series D Preferred Stock, Series C Preferred Stock and Series B
Preferred Stock shall be entitled to receive cash dividends out of funds legally
available for payment of dividends. Such dividends shall be payable in cash at
the rate of 8% per annum (compounded semi-annually) of the price
<PAGE>
per share for which such shares were purchased from the Corporation and 8% per
annum (compounded semi-annually) on any accrued dividends on such shares,
whether or not declared, that remain unpaid beyond the next succeeding Dividend
Payment Date (as hereinafter defined).
(b) Dividends on shares of Series F Preferred Stock, Series E
Preferred Stock, Series D Preferred Stock, Series C Preferred Stock and Series B
Preferred Stock shall accrue and be cumulative from and after the date of
issuance of such shares. Dividends shall be payable semi-annually in arrears,
when, as and if declared by the Board of Directors of the Corporation, on June
30 and December 31 of each year (each, a "DIVIDEND PAYMENT DATE"), commencing on
June 30, 1999. If any Dividend Payment Date occurs on a day other than a
Business Day, any dividends otherwise payable on such Dividend Payment Date
shall be paid on the next Business Day. Dividends shall be paid to the holders
of record of the Series F Preferred Stock, Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock and Series B Preferred Stock as their
names shall appear on the share register of the Corporation on the record date
for such dividend. Dividends payable in any Dividend Period (as hereinafter
defined) that is less than a full Dividend Period in length shall be computed on
the basis of a 180 day-period and actual days lapsed in such Dividend Period.
Dividends in arrears for any past Dividend Periods may be declared and paid at
any time to holders of record on the record date for such payment. "DIVIDEND
PERIOD" shall mean any period from and including the first issuance date of
shares of Series F Preferred Stock, Series E Preferred Stock, Series D Preferred
Stock, Series C Preferred Stock and Series B Preferred Stock, respectively,
until but not including the first Dividend Payment Date and thereafter, each
semi-annual period from and including each Dividend Payment Date to but not
including the next Dividend Payment Date.
(c) So long as any shares of Series F Preferred Stock shall remain
outstanding, the Corporation shall not (i) declare, pay or set apart for payment
on any other class or series of capital stock of the Corporation any dividends
whatsoever, whether in cash, property or otherwise, (ii) make any distribution
on any other class or series of capital stock of the Corporation, (iii)
purchase, redeem or otherwise acquire any other class or series of capital stock
of the Corporation or (iv) pay or make any monies available for a sinking fund
for the purchase or redemption of any other class or series of capital stock of
the Corporation, in each case unless all dividends to which the holders of
shares of Series F Preferred shall have been entitled for all previous Dividend
Periods shall have been paid in full. Upon conversion of the Series F Preferred
Stock, any declared but unpaid dividends shall be paid in accordance with the
terms of Section 4.
(d) So long as any shares of Series E Preferred Stock, Series D
Preferred Stock, Series C Preferred Stock or Series B Preferred Stock shall
remain outstanding, the Corporation shall not (i) declare, pay or set apart for
payment on Junior Stock any dividends whatsoever, whether in cash, property or
otherwise, (ii) make any distribution on any Junior Stock, (iii) purchase,
redeem or otherwise acquire any Junior Stock or (iv) pay or make available any
monies for a sinking fund for the purchase or redemption of any Junior Stock, in
each case unless all dividends to which the holders of shares of Series E
Preferred Stock,
<PAGE>
Series D Preferred Stock, Series C Preferred Stock and Series B Preferred Stock
shall have been entitled for all previous Dividend Periods shall have been paid
in full. Upon conversion of the Series E Preferred Stock, Series D Preferred
Stock, Series C Preferred Stock, and Series B Preferred Stock, any declared but
unpaid dividends shall be paid in accordance with the terms of Section 4.
2. LIQUIDATION.
(a) Upon any Liquidation of the Corporation, the holders of the shares
of Series D Preferred Stock shall first be entitled, before any distribution or
payment is made upon any common, preferred or any other capital stock of the
Corporation (including, without limitation, all other series of Preferred
Stock), an amount equal to the price originally paid to the Corporation for such
shares of Series D Preferred Stock (as adjusted to reflect stock splits, stock
dividends, stock combinations, recapitalizations and like occurrences), plus, in
the case of each such share, any dividends declared but unpaid thereon (the
"ORIGINAL COST") computed to the date payment thereof is made available (such
amount payable with respect to one share of Series D Preferred Stock being
sometimes referred to as the "LIQUIDATION PREFERENCE PAYMENT" and with respect
to all shares of Series D Preferred Stock being sometimes referred to as the
"LIQUIDATION PREFERENCE PAYMENTS"); PROVIDED, HOWEVER, that in no event shall
the Liquidation Preference Payment for each share of Series D Preferred Stock be
less than 200% of the Original Cost for such share.
(b) Upon any Liquidation of the Corporation, subsequent to payment by
the Corporation of the Liquidation Preference Payments to the holders of the
Series D Preferred Stock, the holders of the Series F Preferred Stock, Series E
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A
Preferred Stock shall be entitled to, in such order of priority, receive an
amount equal to the amount per share for which such shares were originally
purchased from the Corporation plus any dividends accrued but unpaid thereon
computed to the date payment is made available (the "JUNIOR PREFERRED
LIQUIDATION PAYMENTS").
(c) If upon a Liquidation of the Corporation, the assets to be
distributed among the holders of Series D Preferred Stock shall be insufficient
to permit payment in full to the holders of Series D Preferred Stock of the
Liquidation Preference Payments, then the entire assets of the Corporation to be
so distributed to stockholders shall be distributed ratably among the holders of
Series D Preferred Stock. Upon a Liquidation of the Corporation, immediately
after the holders of Series D Preferred Stock shall have been paid in full the
Liquidation Preference Payments, the remaining net assets of the Corporation
available for distribution to stockholders shall be used to pay the Junior
Preferred Liquidation Payments in accordance with the priority set forth in
clause (b) above. If the remaining net assets shall be insufficient to permit
payment in full to the holders of any of the Series F Preferred Stock, Series E
Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and Series A
Preferred Stock of the Junior Preferred Liquidation Payments, then the remaining
net assets of the Corporation available for distribution to stockholders shall
be distributed ratably among the holders of the series of Preferred Stock who
were not paid in full their Junior Preferred Liquidation Payments, but not to
the holders of any other series of Preferred Stock ranked below the order of
priority set forth in clause (b) above. After the Liquidation Preference
Payments and the Junior Preferred Liquidation Payments shall have been made in
full, the remaining net assets of the Corporation available for distribution to
stockholders shall be distributed ratably among the holders of the Common Stock.
<PAGE>
3. VOTING RIGHTS.
(a) In addition to the rights provided herein, by law or in the
Corporation's By-Laws, each share of Preferred Stock shall entitle the holder
thereof to such number of votes as shall equal the number of shares of Common
Stock into which such share of Preferred Stock is then convertible pursuant to
Section 4 at the record date for the determination of stockholders entitled to
vote or, if no record date is established, at the date such vote is taken. The
holders of Preferred Stock shall be entitled to vote on all matters as to which
holders of Common Stock shall be entitled to vote, in the same manner and with
the same effect as such holders of Common Stock, voting together with the
holders of Common Stock as one class.
(b) The Corporation shall not, without the affirmative consent or
approval of the Series F Majority in Interest, voting separately as a class:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital stock (including any shares of treasury
stock) or rights, options, warrants or other securities convertible
into or exercisable or exchangeable for capital stock or any debt
security which by its terms is convertible into or exchangeable for any
equity security or any contractual right (including, but not limited
to, phantom stock or stock appreciation rights) which provide the
holder thereof with the right to receive consideration as if such
holder held an equity security or any security that is a combination of
debt and equity, which, in each case, has preferences senior to or on
parity with those of the holders of the Series F Preferred Stock or
which in any manner adversely affects the holders of the Series F
Preferred Stock;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series F Preferred Stock;
(iii) reclassify the shares of any class or series of capital
stock into shares of any class or series of capital stock (A) ranking,
either as to payment of dividends, distributions of assets or
redemptions, including, without limitation, distributions to be made
upon a Liquidation, senior to or on a parity with the Series F
Preferred Stock, or (B) which in any manner adversely affects the
rights of the holders of the Series F Preferred Stock;
(iv) take any action to cause any amendment, alteration or
repeal of any of the provisions of (A) this Amended and Restated
Certificate of Incorporation or (B) the By-Laws of the Corporation, if
such amendment, alteration or repeal would materially and adversely
affect the Series F Preferred Stock; or
(v) take any action that would result in taxation of the
holders of the Series F Preferred Stock under Section 305 of the
Internal Revenue Code.
(c) The Corporation shall not, without the affirmative consent or
approval of the Series E Majority in Interest, voting separately as a class:
<PAGE>
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital stock (including any shares of treasury
stock) or rights, options, warrants or other securities convertible
into or exercisable or exchangeable for capital stock or any debt
security which by its terms is convertible into or exchangeable for any
equity security or any contractual right (including, but not limited
to, phantom stock or stock appreciation rights) which provide the
holder thereof with the right to receive consideration as if such
holder held an equity security or any security that is a combination of
debt and equity, which, in each case, has preferences senior to or on
parity with those of the holders of the Series E Preferred Stock or
which in any manner adversely affects the holders of the Series E
Preferred Stock;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series E Preferred Stock;
(iii) reclassify the shares of any class or series of capital
stock into shares of any class or series of capital stock (A) ranking,
either as to payment of dividends, distributions of assets or
redemptions, including, without limitation, distributions to be made
upon a Liquidation, senior to or on a parity with the Series E
Preferred Stock, or (B) which in any manner adversely affects the
rights of the holders of the Series E Preferred Stock;
(iv) take any action to cause any amendment, alteration or
repeal of any of the provisions of (A) this Amended and Restated
Certificate of Incorporation or (B) the By-Laws of the Corporation, if
such amendment, alteration or repeal would materially and adversely
affect the Series E Preferred Stock;
(v) take any action that would result in taxation of the
holders of the Series E Preferred Stock under Section 305 of the
Internal Revenue Code; or
(vi) take any action to increase the size of the Board.
(d) The Corporation shall not, without the affirmative consent or
approval of the Series D Majority in Interest, voting separately as a class:
(i) in any manner authorize, create, designate, issue or sell
any class or series of capital stock (including any shares of treasury
stock) or rights, options, warrants or other securities convertible
into or exercisable or exchangeable for capital stock or any debt
security which by its terms is convertible into or exchangeable for any
equity security or any contractual right (including, but not limited
to, phantom stock or stock appreciation rights) which provide the
holder thereof with the right to receive consideration as if such
holder held an equity security or any security that is a combination of
debt and equity, which, in each case, has preferences senior to or on
parity with those of the holders of the Series D Preferred Stock or
which in any manner adversely affects the holders of the Series D
Preferred Stock;
<PAGE>
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other
special rights, or the qualifications, limitations or restrictions, of
the Series D Preferred Stock;
(iii) reclassify the shares of any class or series of capital
stock into shares of any class or series of capital stock (A) ranking,
either as to payment of dividends, distributions of assets or
redemptions, including, without limitation, distributions to be made
upon a Liquidation, senior to or on a parity with the Series D
Preferred Stock, or (B) which in any manner adversely affects the
rights of the holders of the Series D Preferred Stock;
(iv) take any action to cause any amendment, alteration or
repeal of any of the provisions of (A) this Amended and Restated
Certificate of Incorporation or (B) the By-Laws of the Corporation, if
such amendment, alteration or repeal would materially and adversely
affect the Series D Preferred Stock; or
(v) take any action to increase the size of the Board.
(e) The Corporation shall not, without the affirmative consent or
approval of the Series F Majority in Interest, the Series E Majority in Interest
and the Series D Majority in Interest, each voting separately as a class:
(i) approve or authorize any Liquidation of the Corporation;
(ii) approve or authorize the redemption of any shares of
capital stock, other than, with respect to the Common Stock, the
Excluded Stock, or as otherwise provided in Section 7 of the
Stockholders' Agreement;
(iii) approve or authorize the payment of any dividend or
other distribution upon shares of capital stock, other than a dividend
payable solely in shares of Common Stock;
(iv) take any action that increases the number of shares of
Common Stock issuable upon exercise of stock options granted to
directors, officers, consultants and employees of the Corporation; or
(v) take any action to increase the number of authorized
shares of any class or series of capital stock.
4. CONVERSION.
(a) OPTIONAL. Upon the terms set forth in this Section 4, each holder
of shares of Preferred Stock shall have the right, at such holder's option, at
any time and from time to time, to convert each such share of Preferred Stock
into that number of fully paid and nonassessable shares of Common Stock equal to
the quotient obtained by dividing (A) the price originally paid for such share
of Preferred Stock by (B) the Conversion Price (as defined below) then in
effect.
<PAGE>
The "CONVERSION PRICE" shall be the price per share originally paid with respect
to each series of Preferred Stock, as adjusted pursuant to paragraph (e) below.
The holder of any of such shares of Preferred Stock may exercise the conversion
right pursuant to this paragraph (a) by delivering to the Corporation the
certificate for the shares to be converted, duly endorsed or assigned in blank
or to the Corporation (if required by it), accompanied by written notice stating
that the holder elects to convert such shares. Conversion shall be deemed to
have been effected on the date when such delivery is made or upon the closing of
a Qualified Public Offering as provided below, if applicable (the "CONVERSION
DATE").
(b) MANDATORY. Upon the closing of a Qualified Public Offering, each
share of Preferred Stock shall automatically be converted into that number of
fully paid and nonassessable shares of Common Stock equal to the quotient
obtained by dividing (A) the price originally paid for such share by (B) the
Conversion Price then in effect.
(c) As promptly as practicable after the conversion of any shares of
Preferred Stock into Common Stock under paragraph (a) or (b) above, the
Corporation shall issue and deliver to or upon the written order of such holder,
to the place designated by such holder, a certificate or certificates for the
number of full shares of Common Stock to which such holder is entitled, and a
cash amount in respect of any fractional interest in a share of Common Stock as
provided in paragraph (d) below. The holder in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record of Common Stock on the applicable Conversion Date unless
the transfer books of the Corporation are closed on that date, in which event
such person shall be deemed to have become a stockholder of record of Common
Stock on the next succeeding date on which the transfer books are open, but the
Conversion Price shall be that in effect on the Conversion Date, and the rights
of the holder of the shares of Preferred Stock so converted shall cease on such
Conversion Date. Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Preferred Stock surrendered for
conversion, in addition to the issuance of certificates for the appropriate
number of shares of Common Stock pursuant to the preceding sentence, the
Corporation shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense of the
Corporation (other than any transfer taxes imposed on the holders of such shares
of Preferred Stock under applicable law), a new certificate covering the number
of shares of Preferred Stock representing the unconverted portion of the
certificate so surrendered, and all declared and unpaid dividends on the shares
of Preferred Stock so converted shall be paid in cash.
(d) No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Preferred Stock. The number of full shares of Common
Stock issuable upon conversion of Preferred Stock shall be computed on the basis
of the aggregate number of shares of such Preferred Stock to be converted.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any such shares, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to the
product of (A) the fair market value of one share of Common Stock (as determined
by the Board, in good faith, upon the vote of at least a majority of the members
thereof) and (B) such fractional interest.
<PAGE>
The holders of fractional interests shall not be entitled to any rights as
stockholders of the Corporation in respect of such fractional interests.
(e) CONVERSION PRICE ADJUSTMENTS. The Conversion Price shall be subject
to adjustment from time to time as follows:
(i) If the Corporation shall, at any time or from time to
time after the Original Issuance Date, issue any shares of Common Stock
other than Excluded Stock without consideration or for a consideration
per share less than (x) the Conversion Price in effect immediately
prior to the issuance of such Common Stock or (y) the fair market value
(as determined by the Board, in good faith, upon the vote of at least a
majority of the members thereof) of the Common Stock at the date of
issuance, then such Conversion Price, as in effect immediately prior to
each such issuance, shall forthwith be lowered to a price equal to the
quotient obtained by dividing:
(A) an amount equal to the sum of (x) the total
number of shares of Common Stock outstanding on a
fully-diluted basis immediately prior to such issuance,
multiplied by the Conversion Price in effect immediately prior
to such issuance, and (y) the consideration received by the
Corporation upon such issuance; by
(B) the total number of shares of Common Stock
outstanding on a fully-diluted basis immediately after the
issuance of such Common Stock.
(ii) For the purposes of any adjustment of a Conversion Price
pursuant to clause (i) above, the following provisions shall be
applicable:
(A) In the case of the issuance of Common Stock for
cash in a public offering or private placement, the
consideration received by the Corporation for such issuance
shall be deemed to be the net amount of cash paid therefor
after deducting therefrom any and all discounts, commissions
and expenses payable by the Corporation to any underwriter or
placement agent in connection with the issuance and sale
thereof.
(B) In the case of the issuance of Common Stock for
a consideration in whole or in part other than cash, the
non-cash consideration received by the Corporation for such
issuance shall be deemed to be the fair market value thereof
(as determined by the Board, in good faith, upon the vote of
at least a majority of the members thereof).
(C) In the case of the issuance of options to
purchase or rights to subscribe for Common Stock, securities
by their terms convertible into or exchangeable for Common
Stock, or options to purchase or rights to subscribe for such
convertible or exchangeable securities except for options to
acquire or rights to subscribe for securities which are
Excluded Stock:
<PAGE>
(1) the aggregate maximum number of shares
of Common Stock deliverable upon exercise of such
options to purchase or rights to subscribe for Common
Stock shall be deemed to have been issued at the time
such options or rights were issued and for a
consideration equal to the consideration (determined
in the manner provided in subdivisions (A) and (B)
above), if any, received by the Corporation upon the
issuance of such options or rights plus the minimum
purchase price provided in such options or rights for
the Common Stock covered thereby;
(2) the aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
securities or upon the exercise of options to
purchase or rights to subscribe for such convertible
or exchangeable securities and subsequent conversion
or exchange thereof shall be deemed to have been
issued at the time such securities, options, or
rights were issued and for a consideration equal to
the consideration received by the Corporation for any
such securities and related options or rights, plus
the additional consideration, if any, to be received
by the Corporation upon the conversion or exchange of
such securities or the exercise of any related
options or rights (the consideration in each case to
be determined in the manner provided in subdivisions
(A) and (B) above);
(3) on any change in the number of shares
or exercise price of Common Stock deliverable upon
exercise of any such options or rights or conversions
of or exchanges for such securities, other than a
change resulting from the antidilution provisions
thereof, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have
been obtained had the adjustment made upon the
issuance of such options, rights or securities (to
the extent not converted prior to such change), or
options or rights related to such securities (to the
extent not converted prior to such change), been made
upon the basis of such change;
(4) on the expiration of any such options
or rights, the termination of any such rights to
convert or exchange or the expiration of any options
or rights related to such convertible or exchangeable
securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have
been obtained had the adjustment made upon the
issuance of such options, rights, securities or
options or rights related to such securities been
made upon the basis of the issuance of only the
number of shares of Common Stock actually issued upon
the exercise of such options or rights, upon the
conversion or exchange of such securities, or upon
the exercise of the options or rights related to such
securities and subsequent conversion or exchange
thereof which in each case had not expired or
terminated; and
<PAGE>
(5) No further adjustment of the Conversion
Price adjusted upon the issuance of any such options,
rights, convertible securities or exchangeable
securities shall be made as a result of the actual
issuance of Common Stock on the exercise of any such
rights or options or any conversion or exchange of
any such securities.
(iii) If, at any time after the Original Issuance Date, the
number of shares of Common Stock outstanding is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or
split-up of shares of Common Stock, then, following the record date for
the determination of holders of Common Stock entitled to receive such
stock dividend, subdivision or split-up, the Conversion Price shall be
appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of Preferred Stock shall be
increased to the number of shares of Common Stock the holder of each
such share of Preferred Stock would have held after such dividend
payment, subdivision or split-up, if such holder had converted each
such share of Preferred Stock immediately prior thereto, in accordance
with the provisions hereof.
(iv) If, at any time after the Original Issuance Date, the
number of shares of Common Stock outstanding is decreased by a
redemption, repurchase or a combination of the outstanding shares of
Common Stock, then, following the record date for such combination, the
Conversion Price shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of each share of
Preferred Stock shall be decreased to the number of shares of Common
Stock the holder of each such share of Preferred Stock would have held
after such redemption, repurchase or combination, if such holder had
converted each such share of Preferred Stock immediately prior thereto,
in accordance with the provisions hereof.
(v) In the event of any other capital reorganization of the
Corporation, any reclassification of the stock of the Corporation
(other than a change in par value or from par value to no par value or
from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or any consolidation
or merger of the Corporation, each share of Preferred Stock shall after
such reorganization, reclassification, consolidation, or merger be
convertible into the kind and number of shares of stock or other
securities or property of the Corporation or of the corporation
resulting from such consolidation or surviving such merger to which the
holder of the number of shares of Common Stock deliverable (immediately
prior to the time of such reorganization, reclassification,
consolidation or merger) upon conversion of such share of Preferred
Stock would have been entitled upon such reorganization,
reclassification, consolidation or merger if such holder had converted
each such share of Preferred Stock immediately prior thereto, in
accordance with the provisions hereof. The provisions of this clause
shall similarly apply to successive reorganizations, reclassifications,
consolidations or mergers.
<PAGE>
(vi) No adjustment in any Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least .1% in such Conversion Price; PROVIDED, that any adjustments not
required to be made by virtue of this sentence shall be carried forward
and taken into account in any subsequent adjustment. All calculations
under paragraphs (i) through (v) above shall be made to the nearest
cent or the nearest one tenth (1/10) of a share, as the case may be.
(vii) In any case in which the provisions of this paragraph
(e) shall require that an adjustment shall become effective immediately
after a record date of an event, the Corporation may defer until the
occurrence of such event (1) issuing to the holder of any share of
Preferred Stock converted after such record date and before the
occurrence of such event the shares of capital stock issuable upon such
conversion by reason of the adjustment required by such event in
addition to the shares of capital stock issuable upon such conversion
before giving effect to such adjustments, and (2) paying to such holder
any amount in cash in lieu of a fractional share of capital stock
pursuant to paragraph (d) above; PROVIDED, HOWEVER, that the
Corporation shall deliver to such holder an appropriate instrument
evidencing such holder's right to receive such additional shares and
such cash.
(viii) Whenever a Conversion Price shall be adjusted as
provided in paragraph (iv), the Corporation shall make available for
inspection during regular business hours, at its principal executive
offices or at such other place as may be designated by the Corporation,
a statement, signed by its chief executive officer or other duly
authorized executive officer of the Corporation, showing in reasonable
detail the facts requiring such adjustment and the Conversion Price
that shall be in effect after such adjustment. The Corporation shall
also cause a copy of such statement to be sent by first class certified
mail, return receipt requested and postage prepaid, to each holder of
Preferred Stock at such holder's address appearing on the Corporation's
records. Where appropriate, such copy may be given in advance and may
be included as part of any notice required to be mailed under the
provisions of paragraph (ix) below.
(ix) If the Corporation shall propose to take any action of
the types described in clauses (iii), (iv) or (v) of this paragraph
(e), the Corporation shall give notice to each holder of shares of
Preferred Stock, in the manner set forth in paragraph (viii) above,
which notice shall specify the record date, if any, with respect to any
such action and the date on which such action is to take place. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the
Conversion Price and the number, kind or class of shares or other
securities or property which shall be deliverable or purchasable upon
the occurrence of such action or deliverable upon conversion of shares
of Preferred Stock. Such notice shall be given at least 10 days prior
to the taking of such proposed action. Failure to give such notice, or
any defect therein, shall not affect the legality or validity of any
such action.
(x) The Corporation shall at all times keep reserved, free
from preemptive rights, out of its authorized but unissued shares of
Common Stock, solely for the purpose
<PAGE>
of effecting the conversion of the Preferred Stock, sufficient shares
of Common Stock to provide for the conversion of all outstanding shares
of Preferred Stock and for the exercise of all options, rights and
warrants for the purchase of Common Stock.
(xi) Without duplication of any other adjustment provided for
in this Section 4, at any time the Corporation makes or fixes a record
date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, provision shall be made
so that each holder of Preferred Stock shall receive upon conversion
thereof, in addition to the shares of Common Stock receivable
thereupon, the number of securities of the Corporation which it would
have received had its shares of Preferred Stock been converted into
shares of Common Stock on the date of such event and had such holder
thereafter, during the period from the date of such event to and
including the date of conversion, retained such securities receivable
by it pursuant to this paragraph during such period, subject to the sum
of all other adjustments called for during such period under this
Section 4 with respect to the rights of such holder of Preferred Stock.
5. DEFINITIONS.
As used herein, the following terms shall have the following meanings:
(a) "AFFILIATE" means, with respect to any Person, any (a) director,
officer or stockholder holding 5% or more of the capital stock (on a fully
diluted basis) of such Person, (b) spouse, parent, sibling or descendant of such
Person (or a spouse, parent, sibling or descendant of a director, officer, or
partner of such Person) and (c) other Person that, directly or indirectly,
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such Person. The term "CONTROL" includes, without
limitation, the possession, directly or indirectly, of the power to direct the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
(b) "BOARD" shall mean the Board of Directors of the Corporation.
(c) "BUSINESS DAY" means each day except for Saturday, Sunday, federal
holidays and any other state-recognized holidays in the State of New York.
(d) "EXCLUDED STOCK" means (1) up to 13,814,809 shares (as adjusted
equitably for stock dividends, stock splits, combinations, etc.) of Common Stock
issuable upon exercise of stock options or warrants (the issuance of which was
duly approved by the Board) granted to directors, officers, consultants and
employees of the Corporation or its subsidiaries, (2) shares of Common Stock
issued upon conversion of shares of any series of Preferred Stock, and (3)
shares of Common Stock issued pursuant to any Board-approved acquisition by the
Corporation of another Person.
(e) "INDEPENDENT THIRD PARTY" means, immediately prior to the
contemplated transaction, any person or entity which (i) does not own in excess
of five percent (5%) of the
<PAGE>
Corporation's capital stock deemed outstanding at such time (on a fully-diluted
basis) and (ii) is not an Affiliate of any such owner.
(f) "JUNIOR STOCK" means Common Stock or any class or series of capital
stock of the corporation other than Series F Preferred Stock, Series E Preferred
Stock, Series D Preferred Stock, Series C Preferred Stock or Series B Preferred
Stock.
(g) "LIQUIDATION" means any Sale of the Corporation or voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, other than any dissolution, liquidation or winding up in connection
with any reincorporation of the Corporation in another jurisdiction.
(h) "ORIGINAL ISSUANCE DATE" means, with respect to any series of
Preferred Stock, the date of original issuance of the first share of such series
of Preferred Stock.
(i) "QUALIFIED PUBLIC OFFERING" shall mean a firm commitment public
offering of the securities of the Corporation underwritten by a major bracket or
nationally known underwriter of the Corporation yielding gross proceeds to the
Corporation of not less than $30,000,000 and at an offering price of not less
than $12.00 per share.
(j) "SALE OF THE CORPORATION" means the sale of the Corporation to one
or more Independent Third Parties, pursuant to (i) which such party or parties
acquire all or substantially all of the Corporation's assets determined on a
consolidated basis (ii) which such party or parties acquire capital stock or
other securities of the Corporation possessing the voting power to elect a
majority of the Corporation's Board (whether by merger, consolidation or
issuances, sale or transfer of the Corporation's capital stock) or (iii) a
merger or consolidation of the Corporation with or into such party or parties
resulting in the holders of a majority of the voting power of the Corporation
immediately prior to such merger or consolidation owning less than a majority in
voting power of the surviving or resulting corporation.
(k) "SERIES D MAJORITY IN INTEREST" means at any point in time on an
as-converted basis, holders of Series D Preferred Stock representing in the
aggregate at least two-thirds of the Common Stock issuable upon the conversion
of the Series D Preferred Stock.
(l) "SERIES E MAJORITY IN INTEREST" means at any point in time on an
as-converted basis, holders of Series E Preferred Stock representing in the
aggregate at least a majority of the Common Stock issuable upon the conversion
of the Series E Preferred Stock (including, for purposes of this definition,
those shares of Common Stock issuable upon conversion of those shares of Series
E Preferred Stock issuable upon exercise of any warrants to acquire Series E
Preferred Stock granted by the Corporation).
(m) "SERIES F MAJORITY IN INTEREST" means at any point in time on an
as-converted basis, holders of Series F Preferred Stock representing in the
aggregate at least a majority of the Common Stock issuable upon the conversion
of the Series F Preferred Stock.
<PAGE>
(n) "STOCKHOLDERS' AGREEMENT" means the Second Amended and Restated
Stockholders' Agreement dated as of March 14, 2000, among the Corporation and
the other parties thereto.
COMMON STOCK
Each holder of shares of Common Stock shall be entitled to one
vote for each share of Common Stock held on all matters as to which holders of
Common Stock shall be entitled to vote. Except for and subject to those rights
expressly granted to the holders of the Preferred Stock, or except as may be
provided by the laws of the State of Delaware, the holders of Common Stock shall
have exclusively all other rights of stockholders including, but not by way of
limitation, (i) the right to receive dividends, when and as declared by the
Board out of assets legally available therefor and (ii) in the event of any
distribution of assets upon a Liquidation or otherwise, the right to receive
ratably and equally all the assets and funds of the Corporation remaining after
the payment to the holders of shares of the Preferred Stock of the specific
amounts which they are entitled to receive, respectively, upon such Liquidation
as herein provided.
<PAGE>
ARTICLE IV
Directors
(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board, and the directors need not be
elected by ballot unless required by the By-Laws of the Corporation.
(2) A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith and which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is amended 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 Delaware
General Corporation Law, as so amended. Any repeal or modification of this
provision shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE V
Indemnification of Directors, Officers and Others
(1) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of NOLO CONTENDERE or its equivalent,
shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(2) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and
<PAGE>
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(3) To the extent that a present or former director or officer
of the Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections (1) and (2) of this
Article V, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(4) Any indemnification under Sections (1) and (2) of this
Article V (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
present or former director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
such Sections (1) and (2). Such determination shall be made, with respect to a
person who is a director of officer at the time of such determination, (a) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (b) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (c) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (c) by the stockholders of
the Corporation.
(5) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may 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 or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized in this Article V. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the Corporation deems appropriate.
(6) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other sections of this Article V shall not be
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(7) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another
<PAGE>
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of Section
145 of the Delaware General Corporation Law.
(8) For purposes of this Article V, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article V with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(9) For purposes of this Article V, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves service by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article V.
(10) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VI
Existence
The Corporation is to have perpetual existence.
ARTICLE VII
Corporate Books
The books of the Corporation may be kept at such place within
or without the State of Delaware as the By-Laws of the Corporation may provide
or as may be designated from time to time by the Board.
<PAGE>
ARTICLE VIII
Registered Office and Registered Agent
The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, and the name of the registered agent of the Corporation in the State of
Delaware at such address is the Corporation Trust Company.
ARTICLE IX
Reorganization
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such matter as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE X
By-Laws
Subject to Section 3 of Article III, the directors of the
Corporation shall have the power to adopt, amend or repeal By-Laws.
ARTICLE XI
Amendment
Subject to Section 3 of Article III, this Amended and Restated
Certificate may not be amended without the affirmative consent or approval of
the holders of a majority of the shares of capital stock of the Corporation.
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
KOZMO.COM, INC.
EFFECTIVE AS OF MARCH 16, 2000
ARTICLE I
OFFICES
SECTION 1.01. REGISTERED OFFICE. The registered office of
Kozmo.com, Inc. (the "CORPORATION") in the State of Delaware shall be at the
principal office of The Corporation Trust Company in the City of Wilmington,
County of New Castle, and the registered agent in charge thereof shall be The
Corporation Trust Company.
SECTION 1.02. OTHER OFFICES. The Corporation may also have an
office or offices at any other place or places within or without the State of
Delaware as the Board of Directors of the Corporation (the "Board") may from
time to time determine or the business of the Corporation may from time to time
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. ANNUAL MEETINGS. Meetings of stockholders of the
Corporation for the election of directors of the Corporation ("DIRECTORS"), and
for the transaction of such other business as may properly come before such
meeting, shall be held annually at such place, date and time as shall be fixed
by the Board and designated in the notice or waiver of notice of such annual
meeting; PROVIDED, HOWEVER, that no annual meeting of stockholders need be held
if all actions, including the election of Directors, required by the General
Corporation Law of the State of Delaware (the "GENERAL CORPORATION LAW") to be
taken at such annual meeting are taken by written consent in lieu of meeting
pursuant to Section 2.09 hereof.
SECTION 2.02. SPECIAL MEETINGS. Special meetings of
stockholders for any purpose or purposes may be called by the Board or the
Chairman of the Board of the Corporation (the "CHAIRMAN"), the President of the
Corporation (the "PRESIDENT") or the Secretary of the Corporation (the
"SECRETARY") or by the recordholders of at least a majority of the shares of
stock
<PAGE>
of the Corporation issued and outstanding ("SHARES") and entitled to vote
thereat, to be held at such place, date and time as shall be designated in the
notice or waiver of notice thereof.
SECTION 2.03. NOTICE OF MEETINGS. (a) Except as otherwise
provided by law, written notice of each annual or special meeting of
stockholders stating the place, date and time of such meeting and, in the case
of a special meeting, the purpose or purposes for which such meeting is to be
held, shall be given personally or by first-class mail (airmail in the case of
international communications) to each recordholder of Shares (a "STOCKHOLDER")
entitled to vote thereat, not less than 10 nor more than 60 days before the date
of such meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, directed to the
Stockholder at such Stockholder's address as it appears on the records of the
Corporation. If, prior to the time of mailing, the Secretary shall have received
from any Stockholder a written request that notices intended for such
Stockholder are to be mailed to some address other than the address that appears
on the records of the Corporation, notices intended for such Stockholder shall
be mailed to the address designated in such request.
(b) Notice of a special meeting of Stockholders may be given
by the person or persons calling the meeting, or, upon the written request of
such person or persons, such notice shall be given by the Secretary on behalf of
such person or persons. If the person or persons calling a special meeting of
Stockholders give notice thereof, such person or persons shall deliver a copy of
such notice to the Secretary. Each request to the Secretary for the giving of
notice of a special meeting of Stockholders shall state the purpose or purposes
of such meeting.
SECTION 2.04. WAIVER OF NOTICE. Notice of any annual or
special meeting of Stockholders need not be given to any Stockholder who files a
written waiver of notice with the Secretary, signed by the person entitled to
notice, whether before or after such meeting. Neither the business to be
transacted at, nor the purpose of, any meeting of Stockholders need be specified
in any written waiver of notice thereof. Attendance of a Stockholder at a
meeting, in person or by proxy, shall constitute a waiver of notice of such
meeting, except when such Stockholder attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business on the grounds that the notice of such meeting was inadequate or
improperly given.
SECTION 2.05. ADJOURNMENTS. Whenever a meeting of
Stockholders, annual or special, is adjourned to another date, time or place,
notice need not be given of the adjourned meeting if the date, time and place
thereof are announced at the meeting at which the adjournment is taken. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each Stockholder entitled to vote thereat. At the adjourned meeting,
any business may be transacted which might have been transacted at the original
meeting.
SECTION 2.06. QUORUM. Except as otherwise provided by law or
the Amended and Restated Certificate of Incorporation of the Corporation (the
"CERTIFICATE OF INCORPORATION"), the recordholders of a majority of the Shares
entitled to vote thereat, present in person or by proxy, shall constitute a
quorum for the transaction of business at all meetings of Stockholders,
<PAGE>
whether annual or special. If, however, such quorum shall not be present in
person or by proxy at any meeting of Stockholders, the Stockholders entitled to
vote thereat may adjourn the meeting from time to time in accordance with
Section 2.05 hereof until a quorum shall be present in person or by proxy.
SECTION 2.07. VOTING. Each holder of common stock of the
Corporation (the "COMMON STOCK") shall be entitled to one vote for each share of
Common Stock held of record by such Stockholder. Each holder of preferred stock
of the Corporation (the "PREFERRED STOCK") shall be entitled to one vote for
each share of Common Stock into which each such share of Preferred Stock held of
record by such Stockholder is convertible. Except as otherwise provided by law,
these By-laws, the Certificate of Incorporation or the Second Amended and
Restated Stockholders' Agreement dated as of March 16, 2000, among the
Corporation and the Stockholders (the "STOCKHOLDERS' AGREEMENT"), when a quorum
is present at any meeting of Stockholders, the vote of the recordholders of a
majority of the Shares constituting such quorum shall decide any question
brought before such meeting.
SECTION 2.08. PROXIES. Each Stockholder entitled to vote at a
meeting of Stockholders or to express, in writing, consent to or dissent from
any action of Stockholders without a meeting may authorize another person or
persons to act for such Stockholder by proxy. Such proxy shall be filed with the
Secretary before such meeting of Stockholders or such action of Stockholders
without a meeting, at such time as the Board may require. No proxy shall be
voted or acted upon more than three years from its date, unless the proxy
provides for a longer period.
SECTION 2.09. STOCKHOLDERS' CONSENT IN LIEU OF MEETING. Any
action required by the General Corporation Law to be taken at any annual or
special meeting of Stockholders, and any action which may be taken at any annual
or special meeting of Stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the recordholders of Shares having not less
than the minimum number of votes necessary to authorize or take such action at a
meeting at which the recordholders of all Shares entitled to vote thereon were
present and voted.
SECTION 2.10. CLASS VOTING. (a) SERIES F PREFERRED STOCK.
Where the holders of the Series F Preferred Stock of the Corporation (the
"SERIES F PREFERRED STOCK") are given the right, under these By-laws, the
Certificate of Incorporation or the Stockholders' Agreement, to vote separately
as a class, the following shall apply:
(i) Each holder of Series F Preferred Stock shall be
entitled to one vote for each share of Series F Preferred Stock held of
record by such Stockholder.
(ii) Holders of the Series F Preferred Stock may
exercise their class voting rights at any annual or special meeting of
the Stockholders held pursuant to Sections 2.01 and 2.02, respectively,
of these By-laws. Special meetings of the holders of the Series F
Preferred Stock may be called by the Secretary upon the written request
of any holder or holders of Series F Preferred Stock holding more than
10% of the shares of
<PAGE>
Series F Preferred Stock, such special meeting to be held at such
place, date and time as shall be designated in the notice or waiver of
notice thereof. If a special meeting of the holders of the Series F
Preferred Stock is not called by the Secretary within 10 days after
personal service of a written request to call such special meeting,
then any holder or holders of Series F Preferred Stock holding more
than 10% of the shares of Series F Preferred Stock may designate in
writing one other holder of Series F Preferred Stock to call such
special meeting at the expense of the Corporation. Any holder of Series
F Preferred Stock so designated shall have reasonable access to the
stock books of the Corporation relating to the Series F Preferred Stock
for the sole purpose of calling a meeting of the holders of the Series
F Preferred Stock as provided herein.
(iii) Written notice of each meeting of the holders
of Series F Preferred Stock shall be provided as required under Section
2.03 hereof.
(iv) The presence, in person or by proxy, of the
recordholders of a majority of the Series F Preferred shares entitled
to vote at a meeting called pursuant to this Section 2.10(a) shall
constitute a quorum for the transaction of business at any such
meeting.
(v) Actions required to be taken at any meeting of
the holders of Series F Preferred Stock may be taken without a meeting,
without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by recordholders of
Series F Preferred Stock representing at least a majority of the
outstanding shares of Series F Preferred Stock.
(b) SERIES E PREFERRED STOCK. Where the holders of the Series
E Preferred Stock of the Corporation (the "SERIES E PREFERRED STOCK") are given
the right, under these By-laws, the Certificate of Incorporation or the
Stockholders' Agreement, to vote separately as a class, the following shall
apply:
(i) Each holder of Series E Preferred Stock shall be
entitled to one vote for each share of Series E Preferred Stock held of
record by such Stockholder.
(ii) Holders of the Series E Preferred Stock may
exercise their class voting rights at any annual or special meeting of
the Stockholders held pursuant to Sections 2.01 and 2.02, respectively,
of these By-laws. Special meetings of the holders of the Series E
Preferred Stock may be called by the Secretary upon the written request
of any holder or holders of Series E Preferred Stock holding more than
10% of the shares of Series E Preferred Stock, such special meeting to
be held at such place, date and time as shall be designated in the
notice or waiver of notice thereof. If a special meeting of the holders
of the Series E Preferred Stock is not called by the Secretary within
10 days after personal service of a written request to call such
special meeting, then any holder or holders of Series E Preferred Stock
holding more than 10% of the shares of Series E Preferred Stock may
designate in writing one other holder of Series E Preferred Stock to
call such special meeting at the expense of the Corporation. Any holder
of Series E
<PAGE>
Preferred Stock so designated shall have reasonable access to the stock
books of the Corporation relating to the Series E Preferred Stock for
the sole purpose of calling a meeting of the holders of the Series E
Preferred Stock as provided herein.
(iii) Written notice of each meeting of the holders
of Series E Preferred Stock shall be provided as required under Section
2.03 hereof.
(iv) The presence, in person or by proxy, of the
recordholders of a majority of the Series E Preferred shares entitled
to vote at a meeting called pursuant to this Section 2.10(a) shall
constitute a quorum for the transaction of business at any such
meeting.
(v) Actions required to be taken at any meeting of
the holders of Series E Preferred Stock may be taken without a meeting,
without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by recordholders of
Series E Preferred Stock representing at least a majority of the
outstanding shares of Series E Preferred Stock.
(c) SERIES D PREFERRED STOCK. Where the holders of the Series
D Preferred Stock of the Corporation (the "SERIES D PREFERRED STOCK") are given
the right, under these By-laws, the Certificate of Incorporation or the
Stockholders' Agreement, to vote separately as a class, the following shall
apply:
(i) Each holder of Series D Preferred Stock shall be
entitled to one vote for each share of Series D Preferred Stock held of
record by such Stockholder.
(ii) Holders of the Series D Preferred Stock may
exercise their class voting rights at any annual or special meeting of
the Stockholders held pursuant to Sections 2.01 and 2.02, respectively,
of these By-laws. Special meetings of the holders of the Series D
Preferred Stock may be called by the Secretary upon the written request
of any holder or holders of Series D Preferred Stock holding more than
10% of the shares of Series D Preferred Stock, such special meeting to
be held at such place, date and time as shall be designated in the
notice or waiver of notice thereof. If a special meeting of the holders
of the Series D Preferred Stock is not called by the Secretary within
10 days after personal service of a written request to call such
special meeting, then any holder or holders of Series D Preferred Stock
holding more than 10% of the shares of Series D Preferred Stock may
designate in writing one other holder of Series D Preferred Stock to
call such special meeting at the expense of the Corporation. Any holder
of Series D Preferred Stock so designated shall have reasonable access
to the stock books of the Corporation relating to the Series D
Preferred Stock for the sole purpose of calling a meeting of the
holders of the Series D Preferred Stock as provided herein.
(iii) Written notice of each meeting of the holders
of Series D Preferred Stock shall be provided as required under Section
2.03 hereof
<PAGE>
(iv) The presence, in person or by proxy, of the
recordholders of a majority of the Series D Preferred shares entitled
to vote at a meeting called pursuant to this Section 2.10(a) shall
constitute a quorum for the transaction of business at any such
meeting.
(v) Actions required to be taken at any meeting of
the holders of Series D Preferred Stock may be taken without a meeting,
without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by recordholders of
Series D Preferred Stock representing at least two-thirds of the
outstanding shares of Series D Preferred Stock.
(d) COMMON STOCK. Where the holders of Common Stock are given
the right, under these By-laws, the Certificate of Incorporation or the
Stockholders' Agreement, to vote separately as a class, the following shall
apply:
(i) Each holder of Common Stock shall be entitled to
one vote for each share of Common Stock held of record by such
Stockholder.
(ii) Holders of the Common Stock may exercise their
class voting rights at any annual or special meeting of the
Stockholders held pursuant to Sections 2.01 and 2.02, respectively, of
these By-laws. Special meetings of the holders of the Common Stock may
be called by the Secretary upon the written request of any holder or
holders of Common Stock holding more than 10%of the shares of Common
Stock, such special meeting to be held at such place, date and time as
shall be designated in the notice or waiver of notice thereof. If a
special meeting of the holders of the Common Stock is not called by the
Secretary within 10 days after personal service of a written request to
call such special meeting, then any holder or holders of Common Stock
holding more than 10% of the shares of Common Stock may designate in
writing one other holder of Common Stock to call such special meeting
at the expense of the Corporation. Any holder of Common Stock so
designated shall have reasonable access to the stock books of the
Corporation relating to the Common Stock for the sole purpose of
calling a meeting of the holders of the Common Stock as provided
herein.
(iii) Written notice of each meeting of the holders
of Common Stock shall be provided as required under Section 2.03
hereof.
(iv) The presence, in person or by proxy, of the
recordholders of a majority of the Common Stock entitled to vote at a
meeting called pursuant to this Section 2.10(b) shall constitute a
quorum for the transaction of business at any such meeting.
(v) Actions required to be taken at any meeting of
the holders of Common Stock may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by recordholders
<PAGE>
of Common Stock representing at least a majority of the outstanding
shares of Common Stock.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-laws directed or required to be
exercised or done by Stockholders.
SECTION 3.02. NUMBER AND TERM OF OFFICE. From the period
beginning on the effective date of these By-laws and ending on October 4, 2000,
the number of Directors shall be nine. Thereafter, the number of Directors shall
be eight or such other number as shall be fixed from time to time by the Board
with the consent of the holders of at least a majority of the Series E Preferred
Stock and the holders of at least two-thirds of the Series D Preferred Stock.
Directors need not be Stockholders. Directors shall be elected at the annual
meeting of Stockholders or, if, in accordance with Section 2.01 hereof, no such
annual meeting is held, by written consent in lieu of meeting pursuant to
Section 2.09 hereof, and each Director shall hold office until his successor is
elected and qualified, or until his earlier death or resignation or removal in
the manner hereinafter provided.
SECTION 3.03. DESIGNATION; ELECTION. (a) The Directors shall
be designated as follows:
(i) two Directors shall be designated by the holders
of at least a majority of the then outstanding Common Stock (voting
separately as a class without the holders of Preferred Stock);
(ii) three Directors shall be designated by the
holders of at least two-thirds of the then outstanding Series D
Preferred Stock;
(iii) one Director shall be designated by mutual
agreement of (A) the holders of at least a majority of the then
outstanding Common Stock (voting separately as a class without the
holders of Preferred Stock), on the one hand, and (B) at least
two-thirds of the then outstanding Series D Preferred Stock on the
other hand;
(iv) one independent Director shall be designated by
at least a majority of the Board and approved by at least a majority of
the then outstanding Shares;
(v) one Director shall be designated by Amazon.com,
Inc. ("AMAZON"); provided that Amazon holds at least 6,500,542 Shares
on an as-converted
<PAGE>
basis, and provided further that such Share ownership represents at
least 5% of the Shares then outstanding on an as-converted,
fully-diluted basis; and
(vi) one Director shall be designated by the holders
of at least a majority of the then outstanding Series B Preferred Stock
of the Corporation, which Director shall serve until October 4, 2000,
on which date such Director shall resign from the Board.
(b) The Stockholders shall vote to elect the persons
designated according to Section 3.03(a), either at a meeting held for the
election of Directors or, if no such meeting is held, by written consent
pursuant to Section 2.09 hereof.
SECTION 3.04. RESIGNATION. Any Director may resign at any time
by giving written notice to the Board, the Chairman or the Secretary. Such
resignation shall take effect at the time specified in such notice or, if the
time be not specified, upon receipt thereof by the Board, the Chairman or the
Secretary, as the case may be. Unless otherwise specified therein, acceptance of
such resignation shall not be necessary to make it effective.
SECTION 3.05. REMOVAL. (a) Each group of Stockholders entitled
to designate Directors pursuant to Section 3.03(a) may at any time, by the same
vote required under Section 3.03(a), vote to remove any Director designated by
such group, with or without cause.
(b) The Stockholders shall vote to remove any Director with
respect to whom removal has been voted pursuant to Section 3.05(a), either at a
meeting held for such purpose or, if no such meeting is held, by written consent
pursuant to Section 2.09 hereof.
SECTION 3.06. VACANCIES. (a) Each group of Stockholders
entitled to designate Directors pursuant to Section 3.03(a) hereof may, by at
least the vote required by Section 3.03(a), designate a director to fill a
vacancy occurring for any reason with respect to the seat of a Director
designated by such group. Such action may be taken at any annual or special
meeting of the Stockholders or at a special meeting called by the group, in each
case in accordance with the class voting provisions contained in Section 2.10 of
these By-laws.
(b) The Stockholders shall vote to fill any vacancy occurring
on the Board with the person designated pursuant to Section 3.06(a), either at a
meeting held for such purpose or, if no such meeting is held, by written consent
pursuant to Section 2.09 hereof.
(c) Vacancies occurring on the Board shall be filled within 10
days of the date such vacancy is created or immediately before the first action
to be taken by the Board after the date such vacancy is created. Unless earlier
removed pursuant to Section 3.05 hereof or as otherwise provided in the
Stockholders' Agreement, each Director chosen in accordance with this Section
3.06 shall hold office until the next annual election of Directors by the
Stockholders and until his successor shall be elected and qualified.
<PAGE>
SECTION 3.07. MEETINGS. (a) ANNUAL MEETINGS. As soon as
practicable after each annual election of Directors by the Stockholders, the
Board shall meet for the purpose of organization and the transaction of other
business, unless it shall have transacted all such business by written consent
pursuant to Section 3.08 hereof.
(b) QUARTERLY MEETINGS. Quarterly meetings of the Board shall
be held on such dates as the Chairman, the President, the Secretary or a
majority of the Board shall determine.
(c) NOTICE OF MEETINGS. The Secretary shall give written
notice to each Director of each meeting of the Board, which notice shall state
the place, date, time and purpose of such meeting. Notice of each such meeting
shall be given to each Director, if by mail, addressed to him at his residence
or usual place of business, at least two days before the day on which such
meeting is to be held, or shall be sent to him at such place by telecopy,
telegraph, cable, or other form of recorded communication, or be delivered
personally or by telephone not later than the day before the day on which such
meeting is to be held. A written waiver of notice, signed by the Director
entitled to notice, whether before or after the time of the meeting referred to
in such waiver, shall be deemed equivalent to notice. Neither the business to be
transacted at, nor the purpose of any meeting of the Board need be specified in
any written waiver of notice thereof. Attendance of a Director at a meeting of
the Board shall constitute a waiver of notice of such meeting, except as
provided by law.
(d) PLACE OF MEETINGS. The Board may hold its meetings at such
place or places within or without the State of Delaware as the Board or the
Chairman may from time to time determine, or as shall be designated in the
respective notices or waivers of notice of such meetings.
(e) QUORUM AND MANNER OF ACTING. One-third of the total number
of Directors then in office (but in no event less than two if the total number
of directorships, including vacancies, is greater than one and in no event a
number less than one-third of the total number of directorships, including
vacancies) shall be present in person at any meeting of the Board in order to
constitute a quorum for the transaction of business at such meeting, and the
vote of a majority of those Directors present at any such meeting at which a
quorum is present shall be necessary for the passage of any resolution or act of
the Board, except as otherwise expressly required by law, these By-laws, the
Certificate of Incorporation or the Stockholders' Agreement. In the absence of a
quorum for any such meeting, a majority of the Directors present thereat may
adjourn such meeting from time to time until a quorum shall be present.
(f) ORGANIZATION. At each meeting of the Board, one of the
following shall act as chairman of the meeting and preside, in the following
order of precedence:
(i) the Chairman;
(ii) the President;
<PAGE>
(iii) any Director chosen by a majority of the
Directors present.
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary is present) whom the chairman of
the meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 3.08. COMMITTEES OF THE BOARD. (a) The Board may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more Directors. 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 such committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another Director
to act at the meeting in the place of any such absent or disqualified member.
Any committee of the Board, to the extent provided in the resolution of the
Board designating such committee, shall have and may exercise all the powers and
authority of the Board 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; PROVIDED, HOWEVER, that no such committee shall
have such power or authority in reference to amending the Certificate of
Incorporation (except that such a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board as provided in Section 151(a) of the General Corporation Law, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of the
shares of any series), adopting an agreement of merger or consolidation under
Section 251 or 252 of the General Corporation Law, recommending to the
Stockholders the sale, lease or exchange of all or substantially all the
Corporation's property and assets, recommending to the Stockholders a
dissolution of the Corporation or the revocation of a dissolution, or amending
these By-laws; PROVIDED FURTHER, HOWEVER, that, unless expressly so provided in
the resolution of the Board designating such committee, no such committee shall
have the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law. Each committee of the Board shall keep regular
minutes of its proceedings and report the same to the Board when so requested by
the Board.
(b) COMPENSATION COMMITTEE. The Board shall designate up to
three non-management Directors to serve on the Compensation Committee of the
Board. Two such Directors shall be Directors designated pursuant to Sections
3.03(a)(ii) and 3.03(a)(iii).
(c) AUDIT COMMITTEE. The Board shall designate up to three
non-management Directors to serve on the Audit Committee of the Board. Two such
Directors shall be Directors designated pursuant to Section 3.03(a)(ii).
<PAGE>
SECTION 3.09. DIRECTORS' CONSENT IN LIEU OF MEETING. Any
action required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by all the members of the Board or such committee and such
consent is filed with the minutes of the proceedings of the Board or such
committee.
SECTION 3.10. ACTION BY MEANS OF TELEPHONE OR SIMILAR
COMMUNICATIONS EQUIPMENT. Any one or more members of the Board, or of any
committee thereof, may participate in a meeting of the Board 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 in a meeting by such means shall constitute presence in person at
such meeting.
SECTION 3.11. COMPENSATION. Unless otherwise restricted by the
Certificate of Incorporation, the Board may determine the compensation of
Directors. In addition, as determined by the Board, Directors may be reimbursed
by the Corporation for their expenses, if any, in the performance of their
duties as Directors. No such compensation or reimbursement shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
OFFICERS
SECTION 4.01. OFFICERS. The officers of the Corporation shall
be the Chief Executive Officer, President, Chief Financial Officer, Chief
Operating Officer, Chief Technology Officer and Secretary and may include a
Chairman, a Treasurer, one or more Vice Presidents, one or more Assistant
Secretaries and one or more Assistant Treasurers, as such other officers or the
Chief Executive Officer may designate. Any two or more offices may be held by
the same person.
SECTION 4.02. AUTHORITY AND DUTIES. All officers shall have
such authority and perform such duties in the management of the Corporation as
may be provided in these By-laws or, to the extent not so provided, by
resolution of the Board.
SECTION 4.03. TERM OF OFFICE, RESIGNATION AND REMOVAL. (a)
Each officer shall be appointed by the Board and shall hold office for such term
as may be determined by the Board. Each officer shall hold office until his
successor has been appointed and qualified or his earlier death or resignation
or removal in the manner hereinafter provided. The Board may require any officer
to give security for the faithful performance of his duties.
(b) Any officer may resign at any time by giving written
notice to the Board, the Chairman, the President or the Secretary. Such
resignation shall take effect at the time specified in such notice or, if the
time be not specified, upon receipt thereof by the Board, the
<PAGE>
Chairman, the President or the Secretary, as the case may be. Unless otherwise
specified therein, acceptance of such resignation shall not be necessary to make
it effective.
(c) All officers and agents appointed by the Board shall be
subject to removal, with or without cause, at any time by the Board or by the
action of the recordholders of a majority of the Shares entitled to vote
thereon.
SECTION 4.04. VACANCIES. Any vacancy occurring in any office
of the Corporation, for any reason, shall be filled by action of the Board.
Unless earlier removed pursuant to Section 4.03 hereof, any officer appointed by
the Board to fill any such vacancy shall serve only until such time as the
unexpired term of his predecessor expires unless reappointed by the Board.
SECTION 4.05. THE CHIEF EXECUTIVE OFFICER. Subject to the
direction of the Board, the Chief Executive Officer shall exercise general
direction and supervision of the business and affairs of the Corporation and
shall perform such other duties as from time to time may be assigned to him by
the Board of Directors. Subject to the direction of the Board, the Chief
Executive Officer shall have general authority to sign all certificates,
contracts, obligations and other instruments of the Corporation; to execute
bonds, deeds, mortgages and contracts in the name and on behalf of the
Corporation; to sign stock certificates; to cause the employment or appointment
of such employees and agents of the Corporation (other than officers) as the
conduct of the business of the Corporation may require; to remove or suspend any
employee or agent who shall not have been appointed by the Board; to suspend for
cause, pending final action by the authority which shall have elected or
appointed him, any officer or any employee or agent who shall have been elected
or appointed by the Board; and, in general, shall perform all duties incident to
the office of Chief Executive Officer. In the absence of the Chairman, he shall
preside at all meetings of the Board of Directors and the Stockholders.
SECTION 4.06. THE PRESIDENT. The President shall have general
and active management and control of the business and affairs of the
Corporation, subject to the direction of the Chief Executive Officer and the
Board, and shall see that all orders and resolutions of the Board are carried
into effect. Subject to the direction of the Chief Executive Officer and the
Board, the President shall have general authority to sign all certificates,
contracts, obligations and other instruments of the Corporation; to execute
bonds, deeds, mortgages and contracts in the name and on behalf of the
Corporation; to sign stock certificates; to cause the employment or appointment
of such employees and agents of the Corporation (other than officers) as the
conduct of the business of the Corporation may require; to remove or suspend any
employee or agent who shall not have been appointed by the Board; to suspend for
cause, pending final action by the authority which shall have elected or
appointed him, any officer or any employee or agent who shall have been elected
or appointed by the Board. The President shall perform all duties incident to
the office of President and all such other duties as may from time to time be
assigned to him by the Chief Executive Officer or the Board.
SECTION 4.07. THE CHIEF OPERATING OFFICER. Subject to the
direction of the Chief Executive Officer, the President and the Board, the Chief
Operating Officer shall direct
<PAGE>
and supervise the operations of the Corporation and perform such other duties as
may be assigned to him from time to time by the Chief Executive Officer, the
President or the Board. Subject to the direction of the Chief Executive Officer,
the President and the Board, the Chief Operating Officer shall have general
authority to execute bonds, deeds, mortgages and contracts in the name and on
behalf of the Corporation; to sign stock certificates; to cause the employment
or appointment of such employees and agents of the Corporation (other than
officers) as the conduct of the business of the Corporation may require; to
remove or suspend any employee or agent who shall not have been appointed by the
Board; to suspend for cause, pending final action by the authority which shall
have elected or appointed him, any officer or any employee or agent who shall
have been elected or appointed by the Board; and, in general, shall perform all
duties incident to the office of Chief Operating Officer.
SECTION 4.08. THE CHIEF FINANCIAL OFFICER. Subject to the
direction of the Chief Executive Officer, the President and the Board, the Chief
Financial Officer shall keep or cause to be kept all books of account and
accounting records of the Corporation and shall keep and maintain, or cause to
be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation. Subject to the direction of the Chief
Executive Officer, the President and the Board, the Chief Financial Officer
shall prepare or cause to be prepared appropriate financial statements for the
Corporation, shall perform such other duties as may be assigned to him or her by
the Chief Executive Officer, the President or the Board and, in general, shall
perform all duties incident to the office of Chief Financial Officer.
SECTION 4.09. THE CHIEF TECHNOLOGY OFFICER. Subject to the
direction of the Chief Executive Officer, the President and the Board, the Chief
Technology Officer shall have general and active management and control of the
information technology and systems of the Corporation. Subject to the direction
of the Chief Executive Officer, the President and the Board, the Chief
Technology Officer shall perform all duties incident to the office of Chief
Technology Officer and all such other duties as may from time to time be
assigned to him by the Chief Executive Officer, the President or the Board.
SECTION 4.10. THE SECRETARY. The Secretary shall, to the
extent practicable, attend all meetings of the Board and all meetings of
Stockholders and shall record all votes and the minutes of all proceedings in a
book to be kept for that purpose, and shall perform the same duties for any
committee of the Board when so requested by such committee. The Secretary shall
give or cause to be given notice of all meetings of Stockholders and of the
Board, shall perform such other duties as may be prescribed by the Chief
Executive Officer or the Board and shall act under the supervision of the Chief
Executive Officer. The Secretary shall keep in safe custody the seal of the
Corporation and affix the same to any instrument that requires that the seal be
affixed to it and which shall have been duly authorized for signature in the
name of the Corporation and, when so affixed, the seal shall be attested by the
Secretary's signature or by the signature of the Treasurer of the Corporation or
an Assistant Secretary or Assistant Treasurer of the Corporation. The Secretary
shall keep in safe custody the certificate books and stockholder records and
such other books and records of the Corporation as the Chief Executive Officer
or the Board may direct and shall perform all other duties incident to the
office of Secretary and
<PAGE>
such other duties as from time to time may be assigned to him or her by the
Chief Executive Officer or the Board.
SECTION 4.11. THE CHAIRMAN. The Chairman shall have the power
to call special meetings of Stockholders, to call special meetings of the Board
and, if present, to preside at all meetings of Stockholders and all meetings of
the Board. The Chairman shall perform all duties incident to the office of
Chairman of the Board and all such other duties as may from time to time be
assigned to the Chairman by the Board or these By-laws.
SECTION 4.12. VICE PRESIDENTS. Vice Presidents, if any, in
order of their seniority or in any other order determined by the Board, shall
generally assist the Chief Executive Officer and the President and perform such
other duties as the Chief Executive Officer, the President or the Board shall
prescribe, and in the absence or disability of the President, shall perform the
duties and exercise the powers of the President.
SECTION 4.13. ASSISTANT SECRETARIES. Assistant Secretaries of
the Corporation ("ASSISTANT SECRETARIES"), if any, in order of their seniority
or in any other order determined by the Board, shall generally assist the
Secretary and perform such other duties as the Board or the Secretary shall
prescribe, and, in the absence or disability of the Secretary, shall perform the
duties and exercise the powers of the Secretary.
SECTION 4.14. THE TREASURER. The Treasurer shall have the care
and custody of all the funds of the Corporation and shall deposit such funds in
such banks or other depositories as the Board, or any officer or officers, or
any officer and agent jointly, duly authorized by the Board, shall, from time to
time, direct or approve. The Treasurer shall disburse the funds of the
Corporation under the direction of the Chief Executive Officer, the President
and the Board. The Treasurer shall keep a full and accurate account of all
moneys received and paid on account of the Corporation and shall render a
statement of his accounts whenever the Chief Executive Officer, the President or
the Board shall so request. The Treasurer shall perform all other necessary
actions and duties in connection with the administration of the financial
affairs of the Corporation and shall generally perform all the duties usually
appertaining to the office of treasurer of a corporation. When required by the
Board, the Treasurer shall give bonds for the faithful discharge of his duties
in such sums and with such sureties as the Board shall approve.
SECTION 4.15. ASSISTANT TREASURERS. Assistant Treasurers of
the Corporation ("ASSISTANT TREASURERS"), if any, in order of their seniority or
in any other order determined by the Board, shall generally assist the Treasurer
and perform such other duties as the Board or the Treasurer shall prescribe,
and, in the absence or disability of the Treasurer, shall perform the duties and
exercise the powers of the Treasurer.
<PAGE>
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
SECTION 5.01. CHECKS, DRAFTS AND NOTES. All checks, drafts and
other orders for the payment of money, notes and other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall be
determined, from time to time, by resolution of the Board.
SECTION 5.02. EXECUTION OF PROXIES. The Chairman or the
President, or, in the absence or disability of both of them, any Vice President,
may authorize, from time to time, the execution and issuance of proxies to vote
shares of stock or other securities of other corporations held of record by the
Corporation and the execution of consents to action taken or to be taken by any
such corporation. All such proxies and consents, unless otherwise authorized by
the Board, shall be signed in the name of the Corporation by the Chairman, the
President or any Vice President.
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
SECTION 6.01. CERTIFICATES EVIDENCING SHARES. Shares shall be
evidenced by certificates in such form or forms as shall be approved by the
Board. Certificates shall be issued in consecutive order and shall be numbered
in the order of their issue, and shall be signed by the Chairman, the President
or any Vice President and by the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer. If such a certificate is manually signed
by one such officer, any other signature on the certificate may be a facsimile.
In the event any such officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to hold such office or to be
employed by the Corporation before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if such officer had
held such office on the date of issue.
SECTION 6.02. STOCK LEDGER. A stock ledger in one or more
counterparts shall be kept by the Secretary, in which shall be recorded the name
and address of each person, firm or corporation owning the Shares evidenced by
each certificate evidencing Shares issued by the Corporation, the number of
Shares evidenced by each such certificate, the date of issuance thereof and, in
the case of cancellation, the date of cancellation. Except as otherwise
expressly required by law, the person in whose name Shares stand on the stock
ledger of the Corporation shall be deemed the owner and recordholder thereof for
all purposes.
SECTION 6.03. TRANSFERS OF SHARES. Registration of transfers
of Shares shall be made only in the stock ledger of the Corporation upon request
of the registered holder of such shares, or of his attorney thereunto authorized
by power of attorney duly executed and filed with
<PAGE>
the Secretary, and upon the surrender of the certificate or certificates
evidencing such Shares properly endorsed or accompanied by a stock power duly
executed, together with such proof of the authenticity of signatures as the
Corporation may reasonably require.
SECTION 6.04. ADDRESSES OF STOCKHOLDERS. Each Stockholder
shall designate to the Secretary an address at which notices of meetings and all
other corporate notices may be served or mailed to such Stockholder, and, if any
Stockholder shall fail to so designate such an address, corporate notices may be
served upon such Stockholder by mail directed to the mailing address, if any, as
the same appears in the stock ledger of the Corporation or at the last known
mailing address of such Stockholder.
SECTION 6.05. LOST, DESTROYED AND MUTILATED CERTIFICATES. Each
recordholder of Shares shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing any
Share or Shares of which he is the recordholder. The Board may, in its
discretion, cause the Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
stolen or destroyed, upon the surrender of the mutilated certificate or, in the
case of loss, theft or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction, and the Board may, in its discretion,
require the recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 6.06. REGULATIONS. The Board may make such other rules
and regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates evidencing
Shares.
SECTION 6.07. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. In order that the Corporation may determine the Stockholders entitled to
notice of or to vote at any meeting of Stockholders or any adjournment thereof,
or to express consent to, or to dissent from, corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board may fix, in advance, a record date, which
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 such action. A determination of the
Stockholders entitled to notice of or to vote at a meeting of Stockholders shall
apply to any adjournment of such meeting; PROVIDED, HOWEVER, that the Board may
fix a new record date for the adjourned meeting.
<PAGE>
ARTICLE VII
SEAL
SECTION 7.01. SEAL. The Board may approve and adopt a
corporate seal, which shall be in the form of a circle and shall bear the full
name of the Corporation, the year of its incorporation and the words "Corporate
Seal Delaware".
ARTICLE VIII
FISCAL YEAR
SECTION 8.01. FISCAL YEAR. The fiscal year of the Corporation
shall end on the thirty-first day of December of each year unless changed by
resolution of the Board.
ARTICLE IX
AMENDMENTS
SECTION 9.01. AMENDMENTS. Subject to the rights of the holders
of the Series F Preferred Stock, Series E Preferred Stock and Series D Preferred
Stock set forth in Section 3 of Article III of the Certificate of Incorporation,
any By-law (including these By-laws) may be adopted, amended or repealed by the
vote of the recordholders of a majority of the Shares then entitled to vote at
an election of Directors or by written consent of Stockholders pursuant to
Section 2.09 hereof, or by vote of the Board or by a written consent of
Directors pursuant to Section 3.09 hereof.
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
KOZMO.COM, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
ARTICLE I
OFFICES
<S> <C>
1.01. Registered Office ................................................ 1
1.02. Other Offices .................................................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.01. Annual Meetings .................................................. 1
2.02. Special Meetings ................................................. 1
2.03. Notice of Meetings ............................................... 2
2.04. Waiver of Notice ................................................. 2
2.05. Adjournments ..................................................... 2
2.06. Quorum ........................................................... 3
2.07. Voting ........................................................... 3
2.08. Proxies .......................................................... 3
2.09. Stockholders' Consent in Lieu of Meeting ......................... 3
2.10. Class Voting ..................................................... 3
ARTICLE III
BOARD OF DIRECTORS
3.01. General Powers ................................................... 6
3.02. Number and Term of Office ........................................ 6
3.03. Designation; Election ............................................ 7
3.04. Resignation ...................................................... 7
3.05. Removal .......................................................... 8
3.06. Vacancies ........................................................ 8
3.07. Meetings ......................................................... 8
3.08. Committees of the Board .......................................... 9
3.09. Directors' Consent in Lieu of Meeting ............................ 10
<PAGE>
SECTION PAGE
3.10. Action by Means of Telephone or Similar Communications Equipment.. 10
3.11. Compensation ..................................................... 11
ARTICLE IV
OFFICERS
4.01. Officers ......................................................... 11
4.02. Authority and Duties ............................................. 11
4.03. Term of Office, Resignation and Removal .......................... 11
4.04. Vacancies ........................................................ 12
4.05. The Chief Executive Officer ...................................... 12
4.06. The President .................................................... 12
4.07. The Chief Operating Officer ...................................... 12
4.08. The Chief Financial Officer ..................................... 13
4.09 The Chief Technology Officer .................................... 13
4.10. The Secretary .................................................... 13
4.11. The Chairman .................................................... 14
4.12. Vice Presidents ................................................. 14
4.13. Assistant Secretaries ............................................ 14
4.14. The Treasurer .................................................... 14
4.15. Assistant Treasurers ............................................. 14
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
5.01. Checks, Drafts and Notes ......................................... 15
5.02. Execution of Proxies ............................................. 15
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
6.01. Certificates Evidencing Shares ................................... 15
6.02. Stock Ledger ..................................................... 15
6.03. Transfers of Shares .............................................. 16
6.04. Addresses of Stockholders ........................................ 16
6.05. Lost, Destroyed and Mutilated Certificates ....................... 16
6.06. Regulations ...................................................... 16
6.07. Fixing Date for Determination of Stockholders of Record .......... 16
<PAGE>
SECTION PAGE
ARTICLE VII
SEAL
7.01. Seal ............................................................. 17
ARTICLE VIII
FISCAL YEAR
8.01. Fiscal Year ...................................................... 17
ARTICLE IX
AMENDMENTS
9.01. Amendments ........................................................ 17
</TABLE>
<PAGE>
Exhibit 4.1
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT,
dated as of March 16, 2000 (this "AGREEMENT"), among Kozmo.com, Inc., a Delaware
corporation (the "CORPORATION"), and the stockholders of the Corporation
identified on Annex I (each a "STOCKHOLDER" and, collectively, the
"STOCKHOLDERS").
R E C I T A L S
WHEREAS, the Corporation and the Stockholders except the New
Investors (as defined herein) entered into a First Amended and Restated
Registration Rights Agreement dated as of December 23, 1999 (the "EXISTING
AGREEMENT");
WHEREAS, pursuant to a securities purchase agreement dated as
of the date hereof (the "SECURITIES PURCHASE AGREEMENT"), the New Investors have
agreed to purchase 11,353,107 newly issued shares of 8% Series F Convertible
Preferred Stock, par value $.01 per share (the "SERIES F PREFERRED STOCK"), from
the Corporation, and certain other Stockholders have agreed to purchase, in the
aggregate, 3,918,974 newly issued shares of Series F Preferred Stock from the
Corporation;
WHEREAS, the parties wish to amend and restate the Existing
Agreement by adding the New Investors as parties thereto and modifying certain
other provisions thereof;
NOW, THEREFORE, the parties hereby agree that the Existing
Agreement is amended and restated in its entirety as follows:
SECTION 1. DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
"COMMISSION" means the U.S. Securities and Exchange Commission
or any successor agency.
"COMMON STOCK" means the common stock, par value $.001 per
share, of the Corporation.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect from time to time.
"FOUNDERS" means Joseph Park and Yong Kang.
<PAGE>
"FOUNDERS' REGISTRABLE SHARES" means the shares of the Common
Stock held by the Founders.
"NEW INVESTORS" means, collectively, Starbucks Asset
Management Corporation, Hikari Tsushin, Inc., Techvantage Partners, L.P.,
Techvantage Overseas Fund Inc., Techvantage Qualified Partners, L.P., Semper
Ventures, LLC, Amerindo Technology Growth Fund II, Inc., Sands Brothers/Amerindo
Technology Associates LLC, Sands Brothers/Amerindo Technology Associates
Institution LLC, Sands Brothers/Amerindo Technology Offshore Associates LLC,
Litton Master Trust, James Stableford, Joaquin Garcia-Larrieu, Marc Weiss,
Axalon (Offshore) I, L.P, Hyosung Corporation, NeoCarta Ventures, L.P., NeoCarta
Scout Fund, L.L.C., S. Taylor Glover, Sands Brothers Venture Capital LLC, SB
e-Order Associates LLC, PCG Ventures, eTrillium, L.L.C., Gramercy Trust III, The
Roosevelt Group, Time Warner Entertainment Company, L.P., Columbia TriStar Home
Video and Liberty Digital, Inc.
"OTHER SHARES" means at any time those shares of Common Stock
which do not constitute Primary Shares or Registrable Shares.
"PRIMARY SHARES" means at any time the authorized but unissued
shares of Common Stock and shares of Common Stock held by the Corporation in its
treasury.
"REGISTRATION DATE" means the date upon which a registration
statement pursuant to which the Corporation shall have initially registered
shares of Common Stock under the Securities Act for sale to the public shall
have been declared effective.
"REGISTRABLE SHARES" means, collectively, the Series F
Registrable Shares, the Series E Registrable Shares, the Series D Registrable
Shares, the Series C Registrable Shares, the Series B Registrable Shares and the
Founder's Registrable Shares. For purposes of this Agreement, any Registrable
Shares shall cease to be Registrable Shares (i) when they have been registered
under the Securities Act (the registration statement in connection therewith has
been declared effective) and disposed of pursuant to such effective registration
statement, (ii) when they are sold by a person in a transaction in which the
rights under the provisions of this Agreement are not assigned, (iii) when they
have been sold or distributed pursuant to Rule 144 (including, without
limitation, Rule 144(k)) or (iv) on the last day of any three-month period
within which they may be sold or distributed without registration pursuant to
Rule 144.
"RULE 144" means Rule 144 promulgated under the Securities Act
or any successor rule thereto or any complementary rule thereto (such as Rule
144A).
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder, all as
the same shall be in effect from time to time.
"SERIES B PREFERRED STOCK" means the 8% Series B Convertible
Preferred Stock, par value $.01 per share, of the Corporation.
<PAGE>
"SERIES B PREFERRED STOCKHOLDERS" means the holders of the
Series B Preferred Stock, and shall include any successor to, or assignee or
transferee of, any of the Series B Preferred Stockholders who shall agree in
writing to be treated as a Series B Preferred Stockholder and to be bound by the
terms and to comply with the provisions of this Agreement.
"SERIES B REGISTRABLE SHARES" means shares of Common Stock
issuable upon the conversion of shares of the Series B Preferred Stock.
"SERIES C PREFERRED STOCK" means the 8% Series C Convertible
Preferred Stock, par value $.01 per share, of the Corporation.
"SERIES C PREFERRED STOCKHOLDERS" means the holders of the
Series C Preferred Stock, and shall include any successor to, or assignee or
transferee of, any of the Series C Preferred Stockholders who shall agree in
writing to be treated as a Series C Preferred Stockholder and to be bound by the
terms and to comply with the provisions of this Agreement.
"SERIES C REGISTRABLE SHARES" means shares of Common Stock
issuable upon the conversion of the Series C Preferred Stock.
"SERIES D MAJORITY IN INTEREST" means, at any point in time on
an as-converted basis, holders of Series D Preferred Stock representing in the
aggregate at least two-thirds of the Common Stock issuable upon the conversion
of the Series D Preferred Stock.
"SERIES D PREFERRED STOCK" means the 8% Series D Convertible
Preferred Stock, par value $.01 per share, of the Corporation.
"SERIES D PREFERRED STOCKHOLDERS" means the holders of the
Series D Preferred Stock, and shall include any successor to, or assignee or
transferee of, any of the Series D Preferred Stockholders who shall agree in
writing to be treated as a Series D Preferred Stockholder and to be bound by the
terms and to comply with the provisions of this Agreement.
"SERIES D REGISTRABLE SHARES" means shares of Common Stock
issuable upon the conversion of shares of the Series D Preferred Stock.
"SERIES E MAJORITY IN INTEREST" means, at any point in time on
an as-converted basis, holders of Series E Preferred Stock representing in the
aggregate at least a majority of the Common Stock issuable upon the conversion
of the Series E Preferred Stock (including, for purposes of this Agreement,
those shares of Common Stock issuable upon conversion of those shares of Series
E Preferred Stock issuable upon exercise of any warrants to acquire Series E
Preferred Stock granted by the Corporation).
"SERIES E PREFERRED STOCK" means the 8% Series E Convertible
Preferred Stock, par value $.01 per share, of the Corporation.
<PAGE>
"SERIES E PREFERRED STOCKHOLDERS" means the holders of the
Series E Preferred Stock, and shall include any successor to, or assignee or
transferee of, any of the Series E Preferred Stockholders who shall agree in
writing to be treated as a Series E Preferred Stockholder and to be bound by the
terms and to comply with the provisions of this Agreement.
"SERIES E REGISTRABLE SHARES" means shares of Common Stock
issuable upon the conversion of shares of the Series E Preferred Stock,
including shares of Common Stock issuable upon conversion of shares of Series E
Preferred Stock issuable upon exercise of any warrants granted by the
Corporation to Amazon.
"SERIES F MAJORITY IN INTEREST" means, at any point in time on
an as-converted basis, holders of Series F Preferred Stock representing in the
aggregate at least a majority of the Common Stock issuable upon the conversion
of the Series F Preferred Stock.
"SERIES F PREFERRED STOCK" shall have the meaning set forth in
the recitals.
"SERIES F PREFERRED STOCKHOLDERS" means the holders of the
Series F Preferred Stock, and shall include any successor to, or assignee or
transferee of, any of the Series F Preferred Stockholders who shall agree in
writing to be treated as a Series F Preferred Stockholder and to be bound by the
terms and to comply with the provisions of this Agreement.
"SERIES F REGISTRABLE SHARES" means shares of Common Stock
issuable upon the conversion of shares of the Series F Preferred Stock.
"STOCKHOLDERS' AGREEMENT" means the Second Amended and
Restated Stockholders' Agreement dated as of the date hereof among the
Corporation and the other parties thereto.
SECTION 2. REQUIRED REGISTRATION.
(a) On any date after the Registration Date, if holders of not
less than 33% of the Registrable Shares then outstanding shall in writing state
that such holders desire to sell at least 20% of the Registrable Shares held by
them in the public securities markets and request the Corporation to effect the
registration under the Securities Act of such Registrable Shares, the
Corporation shall promptly use its best efforts to effect the registration under
the Securities Act of such Registrable Shares which the Corporation has been so
requested to register. If the Corporation determines to have the Registrable
Shares distributed by means of an underwritten offering, the Corporation and the
requesting holders shall enter into an underwriting agreement with a major
bracket or nationally known underwriter.
(b) Anything contained in Section 2(a) to the contrary
notwithstanding, the Corporation shall not be obligated to effect any
registration under the Securities Act pursuant to Section 2(a) except in
accordance with the following provisions:
<PAGE>
(i) The Corporation shall not be obligated to use its best
efforts to file and cause to become effective (A) more than two
registration statements initiated pursuant to this Section 2, or (B)
any registration statement during any period in which any other
registration statement (other than on Form S-4 or Form S-8 promulgated
under the Securities Act or any successor forms thereto) pursuant to
which Primary Shares, Other Shares or Registrable Shares included
pursuant to Section 3 are to be or were sold has been filed and not
withdrawn or has been declared effective within the prior 90 days.
(ii) The Corporation may delay or suspend the filing or
effectiveness of any registration statement for a period of up to 90
days after the date of a request for registration pursuant to this
Section 2 if at the time of such request (i) the Corporation is
engaged, or has fixed plans to engage within 90 days of the time of
such request, in a firm commitment underwritten public offering of
Primary Shares in which the holders of Registrable Shares may include
Registrable Shares pursuant to Section 3 or (ii) the Corporation
reasonably determines that such registration and offering would
interfere with any material transaction involving the Corporation, as
approved by the Board of Directors, or if there exists at the time,
material non-public information relating to the Corporation, which in
the opinion of the Corporation, should not be disclosed or if the sale
of shares thereunder would, in the opinion of the Corporation, be
reasonably likely to cause a violation of the Securities Act or the
Exchange Act and result in potential liability to the Corporation;
PROVIDED, HOWEVER, that the Corporation may only delay or suspend the
filing or effectiveness of a registration statement pursuant to this
Section 2(b)(ii) for a total of 180 days after the date of a request
for registration pursuant to this Section 2.
(iii) With respect to any registration pursuant to this
Section 2, the Corporation shall give notice of such registration to
the holders of Registrable Shares who do not request registration
hereunder. The Corporation shall include in such registration any
Registrable Shares requested, within 10 days after the Corporation has
given such notice, to be included by such holders and may include in
such registration any Primary Shares or Other Shares; PROVIDED,
HOWEVER, that if the managing underwriter advises the Corporation that
the inclusion of all Registrable Shares, Primary Shares and/or Other
Shares proposed to be included in such registration would interfere
with the successful marketing (including pricing) of the Registrable
Shares proposed to be included in such registration, then the number of
Registrable Shares, Primary Shares and/or Other Shares proposed to be
included in such registration shall be included in the following order:
(A) first, the Registrable Shares requested to be
included in such registration which are Series F Registrable
Shares, Series E Registrable Shares and Series D Registrable
Shares (or, if necessary, such Registrable Shares PRO RATA
among the holders thereof based upon the number of Registrable
Shares requested to be registered by each such holder);
(B) second, the Registrable Shares requested to be
included in such registration which are Founders' Registrable
Shares (or, if necessary, such
<PAGE>
Registrable Shares PRO RATA among the holders thereof based
upon the number of Registrable Shares requested to be
registered by each such holder);
(C) third, the Registrable Shares requested to be
included which are Series C Registrable Shares and Series B
Registrable Shares and the Primary Shares (or, if necessary,
such Registrable Shares and Primary Shares PRO RATA among the
holders thereof and the Corporation based upon the number of
Registrable Shares and Primary Shares requested to be
registered by each such holder and the Corporation); and
(D) fourth, the Other Shares.
(iv) Notwithstanding anything to the contrary contained in
Section 2(b)(iii), with respect to any registration pursuant to this
Section 2, the Corporation shall include no less than 15% of the
Registrable Shares requested to be included in such registration.
SECTION 3. PIGGYBACK REGISTRATION.
(a) On any date after the Registration Date, if the
Corporation proposes for any reason to register shares of Common Stock under the
Securities Act (other than on Form S-4 or Form S-8 promulgated under the
Securities Act or any successor forms thereto), it shall give written notice to
the holders of Registrable Shares of its intention to so register such shares of
Common Stock at least 30 days before the initial filing of such registration
statement. Upon the written request of the holders of Registrable Shares to
include Registrable Shares in such registration (which request (i) must be
delivered to the Corporation within 20 days after delivery by the Corporation of
any notice pursuant to this Section 3(a), (ii) shall specify the number of
Registrable Shares proposed to be included in such registration and (iii) shall
state that such holders of Registrable Shares desire to sell such Registrable
Shares in the public securities markets), the Corporation shall use its best
efforts to cause all such Registrable Shares to be included in such registration
on the same terms and conditions as the securities otherwise being sold in such
registration; PROVIDED, HOWEVER, that if the managing underwriter advises the
Corporation that the inclusion of all Registrable Shares proposed to be included
in such registration would interfere with the successful marketing (including
pricing) of the Primary Shares or Other Shares proposed to be registered by the
Corporation, then the number of Primary Shares, Registrable Shares and/or Other
Shares proposed to be included in such registration shall be included in the
following order:
(i) first, the Primary Shares;
(ii) second, the Registrable Shares requested to be included
in such registration which are Series F Registrable Shares, Series E
Registrable Shares and Series D Registrable Shares (or, if necessary,
such Registrable Shares PRO RATA among the holders thereof based upon
the number of Registrable Shares requested to be registered by each
such holder);
<PAGE>
(iii) third, the Registrable Shares requested to be included
in such registration which are Founders Registrable Shares (or, if
necessary, such Registrable Shares PRO RATA among the holders thereof
based upon the number of Registrable Shares requested to be registered
by each such holder);
(iv) fourth, the Registrable Shares requested to be included
in such registration which are Series C Registrable Shares and Series B
Registrable Shares (or, if necessary, such Registrable Shares PRO RATA
among the holders thereof based upon the number of Registrable Shares
requested to be registered by each such holder); and
(v) fifth, the Other Shares.
(b) Notwithstanding anything to the contrary contained in
Section 3(a), with respect to any registration pursuant to this Section 3, the
Corporation shall include no less than 15% of the Registrable Shares requested
to be included in such registration.
(c) The number of requests permitted by the holders of
Registrable Shares pursuant to this Section 3 shall be unlimited.
SECTION 4. REGISTRATIONS ON FORM S-3.
(a) Anything contained in Section 2 to the contrary
notwithstanding, at such time as the Corporation shall have qualified for the
use of Form S-3 promulgated under the Securities Act or any successor form
thereto, the holders of the Registrable Shares then outstanding shall have the
right to request in writing that the Corporation effect the registration of
Registrable Shares on Form S-3 or such successor form, which request or requests
shall (i) specify the number of Registrable Shares intended to be sold or
disposed of and the holders thereof and (ii) state the intended method of
disposition of such Registrable Shares. A requested registration on Form S-3 or
any such successor form in compliance with this Section 4 shall not count as a
registration statement initiated pursuant to Section 2 but shall otherwise be
treated as a registration initiated pursuant to, and shall, except as otherwise
expressly provided in this Section 4, be subject to, Section 2, including,
without limitation, Section 2(a).
(b) The number of requests permitted by the holders of
Registrable Shares pursuant to this Section 4 shall be unlimited.
SECTION 5. HOLDBACK AGREEMENT.
(a) If the Corporation at any time shall register shares of
Common Stock under the Securities Act (including any registration pursuant to
Sections 2, 3 or 4 hereof) for sale to the public, the Stockholders shall not
sell publicly or privately, make any short sale of, grant any option for the
purchase of, or otherwise dispose publicly of, any Registrable Shares (other
than those shares of Common Stock included in such registration pursuant to
Sections 2, 3 or 4 hereof) without the prior written consent of the Corporation,
for a period as shall be determined by the relevant managing underwriters, which
period shall begin not more than 10 days prior to
<PAGE>
the initial filing of the registration statement pursuant to which such public
offering shall be made and shall not last more than 180 days after the effective
date of such registration statement; PROVIDED, HOWEVER, that the officers and
directors of the Corporation who own capital stock of the Corporation and all
other holders of 5% or more of the capital stock of the Corporation shall each
be subject to similar restrictions. The Corporation shall obtain the agreement
of any Person permitted to sell shares of stock in such registration to be bound
by and to comply with this Section 5 as if such Person were a Stockholder
hereunder.
(b) If the Corporation shall at any time pursuant to Sections
2, 3 or 4 of this Agreement register under the Securities Act Registrable Shares
for sale to the public pursuant to an underwritten offering, the Corporation
shall not effect any public sale or distribution of securities similar to those
being registered (excluding any registration statement on Form S-4 or S-8), or
any securities convertible into or exercisable or exchangeable for such
securities, for such period as shall be determined by the managing underwriters
which period shall not extend more than 90 days after the effective date of such
registration statement.
SECTION 6. PREPARATION AND FILING.
(a) If and whenever the Corporation is under an obligation
pursuant to the provisions of this Agreement to use its best efforts to effect
the registration of any Registrable Shares, the Corporation shall, as
expeditiously as practicable:
(i) use its best efforts to cause a registration statement
that registers such Registrable Shares to become and remain effective
for a period of 150 days or until all of such Registrable Shares have
been disposed of (if earlier);
(ii) furnish, at least five business days before filing a
registration statement, to counsel designated by the Series F Preferred
Stockholders, Series E Preferred Stockholders and Series D Preferred
Stockholders ("INVESTORS' COUNSEL"), a copy of the registration
statement proposed to be filed and the prospectus relating thereto or
any amendments or supplements relating to such a registration statement
or prospectus (it being understood that such five-business-day period
need not apply to successive drafts of the same document proposed to be
filed so long as such successive drafts are supplied to the Investors'
Counsel in advance of the proposed filing by a period of time that is
reasonable under the circumstances);
(iii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus relating
thereto as may be necessary to keep such registration statement
effective for at least a period of 150 days or until all of such
Registrable Shares have been disposed of (if earlier) and to comply
with the provisions of the Securities Act with respect to the sale or
other disposition of such Registrable Shares;
(iv) provide written notice to Investors' Counsel concerning
(i) the receipt by the Corporation of any comments of the Commission
with respect to such registration
<PAGE>
statement or prospectus or any amendment or supplement thereto or any
request by the Commission for the amending or supplementing thereof or
for additional information with respect thereto, (ii) the receipt by
the Corporation of any notification with respect to the issuance by the
Commission of any stop order suspending the effectiveness of such
registration statement or prospectus or any amendment or supplement
thereto or the initiation or threatening of any proceeding for that
purpose and (iii) the receipt by the Corporation of any notification
with respect to the suspension of the qualification of such Registrable
Shares for sale in any jurisdiction or the initiation or threatening of
any proceeding for such purposes;
(v) use its best efforts to register or qualify such
Registrable Shares under such other securities or blue sky laws of such
jurisdictions as the holders of the Registrable Shares reasonably
request and do any and all other acts and things which may be
reasonably necessary or advisable to enable such holders to consummate
the disposition in such jurisdictions of such holders' Registrable
Shares; PROVIDED, HOWEVER, that the Corporation will not be required
(i) to qualify generally to do business, subject itself to general
taxation or consent to general service of process in any jurisdiction
where it would not otherwise be required to do so but for this
paragraph (v), (ii) to provide any material undertaking or make any
changes in its by-laws or certificate of incorporation which the Board
of Directors determines to be contrary to the best interests of the
Corporation or (iii) to modify any of its contractual relationships
then existing;
(vi) furnish to the holders of such Registrable Shares such
number of copies of a summary prospectus, if any, or other prospectus,
including a preliminary prospectus, in conformity with the requirements
of the Securities Act, and such other documents as such holders may
reasonably request in order to facilitate the public sale or other
disposition of such Registrable Shares;
(vii) without limiting subsection (v) above, use its best
efforts to cause such Registrable Shares to be registered with or
approved by such other governmental agencies or authorities as may be
necessary (by virtue of the business and operations of the Corporation)
to enable the holders of such Registrable Shares to consummate the
disposition of such Registrable Shares;
(viii) notify the holders of such Registrable Shares on a
timely basis of the happening of any event as a result of which a
prospectus included in the registration statement relating to such
Registrable Shares, 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 and, at the request of such
holders, prepare and furnish to such holders a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary to cause such prospectus, as so supplemented or amended, not
to 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 light of the circumstances then
existing;
<PAGE>
(ix) subject to the execution of confidentiality agreements in
form and substance satisfactory to the Corporation and upon reasonable
notice and during normal business hours, make available for inspection
by the holders of such Registrable Shares, any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by the
Series F Preferred Stockholders, Series E Preferred Stockholders,
Series D Preferred Stockholders or underwriter (collectively, the
"INSPECTORS"), all pertinent financial and other records, pertinent
corporate documents and properties of the Corporation (collectively,
the "RECORDS"), as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the
Corporation's officers, directors and employees to supply all
information (together with the Records, the "INFORMATION") reasonably
requested by any such Inspector in connection with such registration
statement. Notwithstanding the foregoing, any of the Information which
the Corporation determines in good faith to be confidential, and of
which determination the Inspectors are so notified, shall not be
disclosed to or by the Inspectors unless (i) the disclosure of such
Information is necessary to avoid or correct a misstatement or omission
in the registration statement, (ii) the release of such Information is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) such Information is generally available to the
public other than as a result of disclosure by the Inspectors; the
holders of such Registrable Shares agree that they will, upon learning
that disclosure of such Information is sought in a court of competent
jurisdiction, give notice to the Corporation and allow the Corporation,
at the Corporation's expense, to undertake appropriate action to
prevent disclosure of the Information deemed confidential; and the
Inspectors shall use best efforts to maintain the confidentiality of
all information disclosed pursuant to this Section 6(a)(ix);
(x) use its best efforts to obtain from its independent
certified public accountants "cold comfort" letters in customary form,
at customary times and covering matters of the type customarily covered
by cold comfort letters;
(xi) obtain from its counsel an opinion or opinions in
customary form;
(xii) provide a transfer agent and registrar (which may be the
same entity and which may be the Corporation) for such Registrable
Shares;
(xiii) issue to any underwriter to which the holders of such
Registrable Shares may sell shares in such offering certificates
evidencing such Registrable Shares;
(xiv) list such Registrable Shares on any national securities
exchange on which any shares of the Common Stock are listed or, if the
Common Stock is not listed on a national securities exchange, use its
best efforts to qualify such Registrable Shares for listing on the
Nasdaq National Market, or such other national securities exchange as
the holders of a majority of such Registrable Shares shall reasonably
request;
<PAGE>
(xv) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission and make available
to its security holders, as soon as reasonably practicable, earnings
statements (which need not be audited) covering a period of 12 months
beginning within three months after the effective date of the
registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act; and
(xvi) subject to all the other provisions of this Agreement,
use its best efforts to take all other steps necessary to effect such
registration of such Registrable Shares contemplated hereby (including,
without limitation, if the method of distribution is by means of an
underwriting agreement in customary form).
(b) Each holder of the Registrable Shares, upon receipt of any
notice from the Corporation of any event of the kind described in Section
6(a)(viii) hereof, shall forthwith discontinue disposition of the Registrable
Shares pursuant to the registration statement covering such Registrable Shares
until such holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 6(a)(viii) hereof, and, if so directed by the
Corporation, such holder shall deliver to the Corporation all copies, other than
permanent file copies then in such holder's possession, of the prospectus
covering such Registrable Shares at the time of receipt of such notice.
SECTION 7. EXPENSES
All expenses (other than underwriting discounts and
commissions relating to the Registrable Shares, as provided in the last sentence
of this Section 7) incurred by the Corporation in complying with Section 6,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the National Association of Securities Dealers,
Inc.), fees and expenses of complying with securities and blue sky laws,
printing expenses, fees and expenses of the Corporation's counsel and
accountants and reasonable fees and expenses of the Investors' Counsel, shall be
paid by the Corporation; PROVIDED, HOWEVER, that all underwriting discounts and
selling commissions applicable to the Registrable Shares and Other Shares shall
be borne by the holders selling such Registrable Shares and Other Shares, in
proportion to the number of Registrable Shares and Other Shares sold by each
such holder.
SECTION 8. INDEMNIFICATION
(a) In connection with any registration of any Registrable
Shares under the Securities Act pursuant to this Agreement, the Corporation
shall indemnify and hold harmless the holders of Registrable Shares, each
underwriter, broker or any other Person acting directly on behalf of the holders
of Registrable Shares in connection with the distribution thereof and each other
Person, if any, who controls any of the foregoing Persons within the meaning of
the Securities Act against any losses, claims, damages or liabilities, joint or
several (or actions in respect thereof), to which any of the foregoing Persons
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 an untrue statement or allegedly untrue statement of a
<PAGE>
material fact contained in the registration statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein or otherwise filed with the
Commission, any amendment or supplement thereto or any document incident to
registration or qualification of any Registrable Shares, 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, with respect to any prospectus, necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
or any violation by the Corporation of the Securities Act or state securities or
blue sky laws applicable to the Corporation and relating to action or inaction
required of the Corporation in connection with such registration or
qualification under such state securities or blue sky laws; and shall reimburse
the holders of Registrable Shares, such underwriter, such broker or such other
Person acting on behalf of the holders of Registrable Shares and each such
controlling Person for any legal or other expenses reasonably incurred by any of
them in connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Corporation shall not be liable
in any such case to the extent that any such loss, claim, damage, liability or
action (including any legal or other expenses incurred) arises out of or is
based upon an untrue statement or allegedly untrue statement or omission or
alleged omission made in said registration statement, preliminary prospectus,
final prospectus, amendment, supplement or document incident to registration or
qualification of any Registrable Shares in reliance upon and in conformity with
written information furnished to the Corporation through an instrument duly
executed by the holders of Registrable Shares or their counsel or underwriter
specifically for use in the preparation thereof; PROVIDED FURTHER, HOWEVER, that
the foregoing indemnity agreement is subject to the condition that, insofar as
it relates to any untrue statement, allegedly untrue statement, omission or
alleged omission made in any preliminary prospectus but eliminated or remedied
in the final prospectus (filed pursuant to Rule 424 of the Securities Act), such
indemnity agreement shall not inure to the benefit of any holder of Registrable
Shares, underwriter, broker or other Person acting on behalf of holders of
Registrable Shares from whom the Person asserting any loss, claim, damage,
liability or expense purchased the Registrable Shares which are the subject
thereof, if a copy of such final prospectus had been made available to such
holder of Registrable Shares, underwriter, broker or other Person acting on
behalf of holders of the Registrable Shares and such final prospectus was not
delivered to such Person with or prior to the written confirmation of the sale
of such Registrable Shares to such Person, and the legal effect of delivery of
such final prospectus would have been to eliminate the liability otherwise
suffered or incurred by the Person asserting such loss, claim, damage, liability
or expense.
(b) In connection with any registration of Registrable Shares
under the Securities Act pursuant to this Agreement, each holder of Registrable
Shares shall severally and not jointly indemnify and hold harmless the
Corporation, each director of the Corporation, each officer of the Corporation
who shall sign such registration statement, each underwriter, broker or other
Person acting on behalf of the holders of Registrable Shares and each Person who
controls any of the foregoing Persons within the meaning of the Securities Act
against any losses, claims, damages or liabilities, joint or several (or actions
in respect thereof), to which any of the foregoing Persons 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
<PAGE>
an untrue statement or allegedly untrue statement of a material fact contained
in the registration statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the Commission, any
amendment or supplement thereto or any document incident to registration or
qualification of any Registrable Shares, 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,
with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made not misleading, if such
untrue statement or allegedly untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Corporation or such underwriter by or on behalf of such holder of
Registrable Shares specifically for use in connection with the preparation of
such registration statement, preliminary prospectus, final prospectus,
amendment, supplement or document; PROVIDED, HOWEVER, that the maximum amount of
liability in respect of such indemnification shall be limited, in the case of
each seller of Registrable Shares, to an amount equal to the net proceeds
actually received by such seller from the sale of Registrable Shares effected
pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice
of the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 8, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. The failure of any indemnified party to
notify an indemnifying party of any such action shall not (unless such failure
shall have a material adverse effect on the indemnifying party) relieve the
indemnifying party from any liability in respect of such action that it may have
to such indemnified party on account of this Section 8. In case any such action
is brought against an indemnified party, the indemnifying party will be entitled
to participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; PROVIDED, HOWEVER, that if any indemnified
party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are additional to
or conflict with those available to the indemnifying party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 8, the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party (but shall have the right to participate therein with counsel
of its choice) and such indemnifying party shall reimburse such indemnified
party for that portion of the reasonable fees and expenses of any counsel
retained by the indemnified party which is reasonably related to the matters
covered by the indemnity agreement provided in this Section 8. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim or series of claims of all indemnified parties, it will not be obligated
to pay the fees and expenses of more than one counsel with respect to all
indemnified parties as to any claim or series of related claims. The
indemnifying party may not settle any such claim without the consent of the
indemnified party.
<PAGE>
(d) If the indemnification provided for in this Section 8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, claim, damage, liability or action referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amounts paid or payable by such
indemnified party as a result of such loss, claim, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties agree that it would not be just
and equitable if contribution pursuant hereto were determined by PRO RATA
allocation or by any other method or allocation which does not take account of
the equitable considerations referred to herein. No Person guilty of fraudulent
misrepresentation shall be entitled to contribution from any Person.
SECTION 9. UNDERWRITING AGREEMENT
Notwithstanding the provisions of Sections 5, 6, 7 and 8, to
the extent that the holders of Registrable Shares shall enter into an
underwriting or similar agreement, which agreement contains provisions covering
one or more issues addressed in such Sections, the provisions contained in such
agreement addressing such issue or issues shall control; PROVIDED, HOWEVER, that
any such agreement to which the Corporation is not a party shall not be binding
upon the Corporation. No holder may participate in any underwritten registration
hereunder unless such holder (a) agrees to sell such holders' securities on the
basis provided in any underwriting arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably and customarily required under the terms of such
underwriting arrangements.
SECTION 10. INFORMATION BY HOLDERS OF REGISTRABLE SHARES
Each holder of Registrable Shares shall furnish to the
Corporation such written information regarding such Person and the distribution
proposed by such Person as the Corporation may reasonably request in writing and
as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
SECTION 11. EXCHANGE ACT COMPLIANCE
From the Registration Date or such earlier date as a
registration statement filed by the Corporation pursuant to the Exchange Act
relating to any class of the Corporation's securities shall have become
effective, the Corporation shall comply with all of the reporting
<PAGE>
requirements of the Exchange Act applicable to it and shall comply with all
other public information reporting requirements of the Commission which are
conditions to the availability of Rule 144 for the sale of the Common Stock. The
Corporation shall cooperate with each holder of Registrable Shares in supplying
such information as may be necessary for such holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of Rule 144.
SECTION 12. NO CONFLICT OF RIGHTS
The Corporation shall not, after the date hereof, grant any
registration rights unless such registration rights are substantially similar to
and no more favorable than those registration rights granted hereby and do not
conflict with or otherwise impair any registration rights contained herein.
SECTION 13. TERMINATION
This Agreement shall terminate and be of no further force or
effect on December 23, 2006.
SECTION 14. SUCCESSORS AND ASSIGNS
This Agreement shall bind and inure to the benefit of the
Corporation and the Stockholders and, subject to Section 15, their respective
successors and assigns.
SECTION 15. ASSIGNMENT
Each holder of Registrable Shares may assign its rights
hereunder to any purchaser or transferee of such Registrable Shares; PROVIDED,
HOWEVER, that such purchaser or transferee shall, as a condition to the
effectiveness of such assignment, be required to execute a counterpart to this
Agreement agreeing to be treated as a holder of Series F Registrable Shares,
Series E Registrable Shares, Series D Registrable Shares, Series C Registrable
Shares, Series B Registrable Shares or Founders Registrable Shares, as
applicable, whereupon such purchaser or transferee shall have the benefits of,
and shall be subject to the restrictions contained in, this Agreement as if such
purchaser or transferee had originally been a party hereto; and PROVIDED,
FURTHER, that such purchaser or transferee shall not be a competitor of the
Corporation (as determined by the Board).
SECTION 16. ENTIRE AGREEMENT
This Agreement, the Securities Purchase Agreement, the
Stockholders' Agreement and the other writings referred to herein and therein or
delivered pursuant hereto or thereto, contain the entire agreement among the
Stockholders, the Corporation and any other parties to each of the foregoing
with respect to the subject matter hereof and supersede all prior and
contemporaneous arrangements or understandings with respect thereto.
SECTION 17. NOTICES
<PAGE>
(a) All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by telecopy,
nationally-recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to the Corporation or the Founders, to:
Kozmo.com, Inc.
80 Broad Street
18th Floor
New York, NY 10004
Telephone: (212) 797-1330
Telecopy: (212) 797-1400
Attention: Joseph Park
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York, 10022
Telephone: (212) 848-8000
Telecopy: (212) 848-7179
Attention: Spencer D. Klein, Esq.;
(ii) if to the Series F Preferred Stockholders, to their
respective addresses set forth on ANNEX I hereto, with a copy to:
Davis Wright Tremaine LLP
1300 S.W. Fifth Avenue
Suite 2300
Portland, Oregon 97201
Telephone: 503-241-2300
Telecopy: 503-778-5299
Attention: Benjamin G. Wolff, Esq.
(iii) if to the Series E Preferred Stockholders, to their
respective addresses set forth on ANNEX I hereto, with a copy to:
Perkins Coie LLP
1201 Third Avenue
Seattle, Washington 98101
Telephone: (206) 583-8888
Telecopy: (206) 583-8500
<PAGE>
Attention: Scott L. Gelband, Esq.;
(iii) if to the Series D Preferred Stockholders, to their
respective addresses set forth on ANNEX I hereto, with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Telephone: (212) 408-2400
Telecopy: (212) 408-2420
Attention: Michael J. O'Brien, Esq.; and
(iv) if to the Series B Preferred Stockholders and Series C
Preferred Stockholders, to their respective addresses set forth on ANNEX I
hereto.
(b) All such notices, requests, consents and other
communications shall be deemed to have been delivered (a) in the case of
personal delivery or delivery by telecopy, on the date of such delivery, (b) in
the case of dispatch by nationally-recognized overnight courier, on the next
business day following such dispatch and (c) in the case of mailing, on the
third business day after the posting thereof.
SECTION 18. MODIFICATIONS; AMENDMENTS; WAIVERS
The terms and provisions of this Agreement may not be modified
or amended, nor may any provision be waived, except pursuant to a writing signed
by the Corporation, the Series F Majority in Interest, the Series E Majority in
Interest and the Series D Majority in Interest.
SECTION 19. COUNTERPARTS; FACSIMILE SIGNATURES
This Agreement may be executed in any number of counterparts
(including by telecopy), and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall constitute but
one agreement.
<PAGE>
SECTION 20. HEADINGS
The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
SECTION 21. SEVERABILITY; GOVERNING LAW
It is the desire and intent of the parties that the provisions
of this Agreement be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable
for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed wholly therein.
SECTION 22. AMENDMENT AND RESTATEMENT OF EXISTING
AGREEMENTS
(a) The form, terms and provisions of (i) the Stockholders'
Agreement, dated as of December 7, 1998, among the Corporation and the holders
of the Series B Preferred Stock listed on the signature pages thereof, and (ii)
the Stockholders' Agreement, dated as of April 15, 1999, among the Corporation
and the holders of Series C Preferred Stock listed in the signature pages
thereof, were deemed amended and restated in their entirety by the Registration
Rights Agreement and the Stockholders' Agreement, each dated as of October 4,
1999, among the Corporation and the other parties thereto.
(b) The form, terms and provisions of the Registration Rights
Agreement, dated as of October 4, 1999, among the Corporation and the other
parties thereto, were deemed amended and restated in their entirety by the
Existing Agreement, and the form, terms and provisions of the Stockholders'
Agreement, dated as of October 4, 1999, among the Corporation and the other
parties thereto, were deemed amended and restated in their entirety by the First
Amended and Restated Stockholders' Agreement, dated as of December 23, 1999,
among the Corporation and the other parties thereto.
(c) The form, terms and provisions of the Existing Agreement
and the First Amended and Restated Stockholders' Agreement, dated as of December
23, 1999, between the Corporation and the other parties thereto, are deemed
amended and restated in their entirety by this Agreement and the Stockholders'
Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
KOZMO.COM, INC.
By:
-----------------------------------
Name: Joseph Park
Title: Chief Executive Officer
<PAGE>
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: CHASE CAPITAL PARTNERS, Its
General Partner
By:
-----------------------------------
Name:
Title:
<PAGE>
THE FLATIRON FUND 1998/99, LLC
By:
-----------------------------------
Name: I. Robert Greene
Title: Managing Member
THE FLATIRON FUND 2000, LLC
By:
-----------------------------------
Name: I. Robert Greene
Title: Managing Member
FLATIRON ASSOCIATES, LLC
By:
-----------------------------------
Name: I. Robert Greene
Title: Managing Member
<PAGE>
OAK INVESTMENT PARTNERS VIII
LIMITED PARTNERSHIP
By: OAK ASSOCIATES VIII, LLC, Its General
Partner
By:
-----------------------------------
Name: Gerald R. Gallagher
Title: Managing Member
OAK VIII AFFILIATES FUND
LIMITED PARTNERSHIP
By: OAK VIII AFFILIATES LLC, Its General
Partner
By:
-----------------------------------
Name: Gerald R. Gallagher
Title: Managing Member
<PAGE>
AMAZON.COM, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
STARBUCKS ASSET MANAGEMENT CORPORATION
By:
-----------------------------------
Name:
Title:
<PAGE>
HIKARI TSUSHIN, INC.
By:
-----------------------------------
Name: Masahide Saito
Title: Managing Director, Corporate
Strategy and Investment
Headquarters
<PAGE>
TECHVANTAGE PARTNERS, L.P.
By:
-----------------------------------
Name:
Title:
TECHVANTAGE OVERSEAS FUND INC.
By:
-----------------------------------
Name:
Title:
TECHVANTAGE QUALIFIED PARTNERS, L.P.
By:
-----------------------------------
Name:
Title:
<PAGE>
SEMPER VENTURES, LLC
By:
-----------------------------------
Name:
Title:
<PAGE>
AMERINDO TECHNOLOGY GROWTH FUND II, INC.
By:
-----------------------------------
Name:
Title:
SANDS BROTHERS/AMERINDO TECHNOLOGY
ASSOCIATES LLC
By:
-----------------------------------
Name:
Title:
SANDS BROTHERS/AMERINDO TECHNOLOGY
ASSOCIATES INSTITUTION LLC
By:
-----------------------------------
Name:
Title:
SANDS BROTHERS/AMERINDO TECHNOLOGY
OFFSHORE ASSOCIATES LLC
By:
-----------------------------------
Name:
Title:
<PAGE>
LITTON MASTER TRUST
By:
-----------------------------------
Name:
Title:
---------------------------------------
James Stableford
---------------------------------------
Joaquin Garcia-Larrieu
---------------------------------------
Marc Weiss
<PAGE>
AXALON (OFFSHORE) I, L.P.
By: AXALON VENTURES, LLC, its General
Partner
By:
-----------------------------------
Name: Edward J. Ryeom
Title: Member
<PAGE>
HYOSUNG CORPORATION
By:
-----------------------------------
Name:
Title:
---------------------------------------
Joon Cho
<PAGE>
NEOCARTA VENTURES, L.P.
By:
-----------------------------------
Name:
Title:
NEOCARTA SCOUT FUND, L.L.C.
By:
-----------------------------------
Name:
Title:
---------------------------------------
S. Taylor Glover
<PAGE>
SANDS BROTHERS VENTURE CAPITAL LLC
By: SB VENTURE CAPITAL MANAGEMENT
ASSOCIATES LLC, its
Manager
By:
-----------------------------------
Name:
Title:
SB E-ORDER ASSOCIATES LLC
By:
-----------------------------------
Name:
Title:
<PAGE>
PCG VENTURES
By:
-----------------------------------
Name:
Title:
PCG VENTURES
By:
-----------------------------------
Name:
Title:
<PAGE>
ETRILLIUM, L.L.C.
By:
-----------------------------------
Name:
Title:
<PAGE>
GRAMERCY TRUST III
By:
-----------------------------------
Name:
Title:
THE ROOSEVELT GROUP
By:
-----------------------------------
Name:
Title:
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
By:
-----------------------------------
Name:
Title:
<PAGE>
COLUMBIA TRISTAR HOME VIDEO
By:
-----------------------------------
Name:
Title:
<PAGE>
LIBERTY DIGITAL, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
ANNEX I
STOCKHOLDERS
I. SERIES F PREFERRED STOCKHOLDERS
Amerindo Technology Growth Fund II, Inc.
c/o Amerindo Investment Advisors
399 Park Avenue, 22nd Floor
New York, NY 10022
Attn: Jessica Caruso
Argossy Limited
Bermuda Commercial Bank Building
44 Church Street
Hamilton HM 12
Bermuda
Attn: Antionette Drinkwater
Axalon (Offshore) I, L.P.
c/o Axalon Ventures
575 8th Avenue
17th Floor
New York, NY 10018
Attn: Steve Hall
Chase Venture Capital Associates, L.P.
c/o Chase Capital Partners
380 Madison Avenue
New York, NY 10017
Attn: I. Robert Greene
Jack Chen
15 East Putnam Avenue
# 3250
Greenwich, CT 06830
<PAGE>
Joon Cho
c/o Harry Sung Yoon Nam
Hyosung Building, 12th Floor
450 Kongduk-Dong, Mapo-Ku
Seoul, Korea 121-020
Columbia TriStar Home Video
10202 W. Washington Boulevard
SPP 8402
Culver City, CA 90232
Attn: Robin Russell
Critical Mass Ventures LLC
c/o Russ Pillar
Virgin Entertainment Group, Inc.
4751 Wilshire Boulevard
3rd Floor
Los Angeles, CA 90010
Eric Dobkin
Goldman Sachs
One New York Plaza
50th Floor
New York, NY 10004
Flatiron Associates, LLC
c/o Flatiron Partners
257 Park Avenue South
New York, NY 10010
Attn: Jerry Colonna
The Flatiron Fund 2000, LLC
c/o Flatiron Partners
257 Park Avenue South
New York, NY 10010
Attn: Jerry Colonna
Joaquin Garcia-Larrieu
c/o Amerindo Investment Advisors
399 Park Avenue, 22nd Floor
New York, NY 10022
Attn: Jessica Caruso
<PAGE>
Gramercy Trust III
c/o Sam Pai
27 Maple Street
Roslyn Heights, NY 11577
S. Taylor Glover
468 Blackland Road
Atlanta, GA 30342
Hikari Tsushin, Inc.
1285 Avenue of the Americas
35th Floor
New York, NY 10019
Attn: Steve Lammers
Hyosung Corporation
c/o Harry Sung Yoon Nam
Hyosung Building, 12th Floor
450 Kongduk-Dong, Mapo-Ku
Seoul, Korea 121-020
Liberty Digital, Inc.
12312 Olympic Boulevard
Los Angeles, CA 90064
Attn: Director of Business Development and Strategy
Litton Master Trust
c/o Amerindo Investment Advisors
399 Park Avenue, 22nd Floor
New York, NY 10022
Attn: Jessica Caruso
Moriah Fund
1 Farragut Square South
1634 I Street, NW
Ste. 1000
Washington, DC 20006
Attention: Mary Ann Stein
NeoCarta Scout Fund, L.L.C.
Two Embarcadero Center
Ste. 460
San Francisco, CA 94111
NeoCarta Ventures, L.P.
Two Embarcadero Center
Ste. 460
San Francisco, CA 94111
<PAGE>
Oak VIII Affiliates Fund, Limited Partnership
c/o Oak Investment Partners
90 South 7th Street
Ste. 4550
Minneapolis, MN 55402
Attn: Gerald R. Gallagher
Oak Investment Partners VIII, Limited Partnership
c/o Oak Investment Partners
90 South 7th Street
Ste. 4550
Minneapolis, MN 55402
Attn: Gerald R. Gallagher
Odyssey Venture Partners L.P.
Bermuda Commercial Bank Building
44 Church Street
Hamilton HM 12
Bermuda
Attn: Antionette Drinkwater
PGC Ventures
360 N. Crescent Drive
Beverly Hills, CA 90210
Attn: Chad Brownstein
The Roosevelt Group
c/o Ted Malloch
615 Blackbeard Road
Queens Town, MD 21658
Sands Brothers/Amerindo Technology Associates LLC
c/o Amerindo Investment Advisors
399 Park Avenue, 22nd Floor
New York, NY 10022
Attn: Jessica Caruso
<PAGE>
Sands Brothers/Amerindo Technology Associates Institution LLC
c/o Amerindo Investment Advisors
399 Park Avenue, 22nd Floor
New York, NY 10022
Attn: Jessica Caruso
Sands Brothers/Amerindo Technology Offshore Associates LLC
c/o Amerindo Investment Advisors
399 Park Avenue, 22nd Floor
New York, NY 10022
Attn: Jessica Caruso
Sands Brothers Venture Capital LLC
90 Park Avenue
39th Floor
New York, NY 10016
Attn: Alan Bluestine
SB e-Order Associates LLC
90 Park Avenue
39th Floor
New York, NY 10016
Attn: Alan Bluestine
Seligman Investment Opportunities (Master) Fund - NTV Portfolio
100 Park Avenue
New York, NY 10017
Attn: James Curtis
Seligman New Technologies Fund, Inc.
100 Park Avenue
New York, NY 10017
Attn: James Curtis
Semper Ventures, LLC
325 M. Sharon Park Drive
Ste. 220
Menlo Park, CA 94025
Attn: Victor Lee
SOFTBANK Capital Advisors Fund LP
10 Langely Road
Suite 403
Newton Center, MA 02459
Attn: Steve Murray
<PAGE>
SOFTBANK Capital Partners LP
10 Langely Road
Suite 403
Newton Center, MA 02459
Attn: Steve Murray
James Stableford
c/o Amerindo Investment Advisors
43 Upper Grosvenor Street
London, England W1X 9PG
Starbucks Asset Management Corporation
c/o Starbucks Corporation
2401 Utah Ave. South
Seattle, WA 98134-1431
Attn: General Counsel
Dorothy Stein
666 Greenwich Street
Apt. 934
New York, NY 10014
Gideon Stein
666 Greenwich Street
Apt. 828
New York, NY 10014
Mary Ann Stein
1 Farragut Square South
1634 I Street, NW
Ste. 1000
Washington, DC 20006
Noah Stein
441 West 22nd Street
Apt. 202
New York, NY 10011
Lawson & Judith Stiff
132 Marion Street
Denver, CO 80218
<PAGE>
Ravi Swamy
2300 Walnut Street
Apt. 302
Philadelphia, PA 19103
TechVantage Overseas Fund Inc.
c/o Westway Capital
16 Bridge Square
Westport, CT 06880
Attn: Steven Suss
TechVantage Partners, L.P.
c/o Westway Capital
16 Bridge Square
Westport, CT 06880
Attn: Steven Suss
TechVantage Qualified Partners, L.P.
c/o Westway Capital
16 Bridge Square
Westport, CT 06880
Attn: Steven Suss
Cornelius Thornton
Goldman Sachs
One New York Plaza
46th Floor
New York, NY 10004
Time Warner Entertainment Company, L.P.
Building 166
Room 203
4000 Warner Boulevard
Burbank, CA 91522
Attn: Clarissa Weirwick
eTrillium, L.L.C.
c/o Hugh Evans
Stonington Partners
767 Fifth Avenue, 48th Floor
New York, NY 10153
<PAGE>
TWB Investment Partnership
c/o Robert Giles
Perkins Coie LLP
1201 Third Avenue
40th Floor
Seattle, WA 98101
Marc Weiss
c/o Amerindo Investment Advisors
399 Park Avenue, 22nd Floor
New York, NY 10022
Attn: Jessica Caruso
<PAGE>
II. SERIES E PREFERRED STOCKHOLDERS
Patricia Abramson
3005 O Street NW
Washington, DC 20007
Access Technology Partners, L.P.
One Bush Street
San Francisco, CA 94104
Attn: Isaac Ruiz
Access Technology Partners Brokers Fund, L.P.
One Bush Street
San Francisco, CA 94104
Attn: Isaac Ruiz
Amazon.com, Inc.
1200 12th Avenue South
Suite 1200
Seattle, Washington 98144
Attention: General Counsel
Argossy Limited
Bermuda Commercial Bank Building
44 Church Street
Hamilton HM 12
Bermuda
Attn: Antionette Drinkwater
Aurora Investment II LLC
c/o Henry Kravis
Kravis Partners/KKR
9 West 57th Street
42nd Floor
New York, NY 10019
Attn: James Goldrick
<PAGE>
Larry Benn
Goldman Sachs
One New York Plaza
45th Floor
New York, NY 10004
Gerry Burdo
80 Broad Street
18th Floor
New York, NY 10004
Bob Burkett
Gilman Strategic Development Inc.
111 West 50th Street
New York, NY 10020
Lawrence Calcano
10 Lauder Way
Greenwich, CT 06830
Chase Venture Capital Associates, L.P.
c/o Chase Capital Partners
380 Madison Avenue
New York, NY 10017
Attn: I. Robert Greene
Jack Chen
18 Montgomery Lane
Greenwich, CT 06830
Joon Cho
c/o Harry Sung Yoon Nam
Hyosung Building, 12th Floor
450 Kongduk-Dong, Mapo-Ku
Seoul, Korea 121-020
Critical Mass Ventures LLC
c/o Russ Pillar
Virgin Entertainment Group, Inc.
4751 Wilshire Boulevard
3rd Floor
Los Angeles, CA 90010
<PAGE>
Domenic Davi
163 Third Avenue
DMB 140
New York, NY 10013
Eric Dobkin
Goldman Sachs
One New York Plaza
50th Floor
New York, NY 10004
Kevin Eilian
2025 Broadway
Suite 30H
New York, NY 10023
Flatiron Associates, LLC
c/o Flatiron Partners
257 Park Avenue South
New York, NY 10010
Attn: Jerry Colonna
The Flatiron Fund 2000, LLC
c/o Flatiron Partners
257 Park Avenue South
New York, NY 10010
Attn: Jerry Colonna
Elisabeth Fontenelli
420 East 80th Street
New York, NY 10021
Yaccov Gorsd
CIBOX
Zl du bois de l'Epine
11 Ave. Joliot Curie
91130 Ris Orangis
Gracie Partners LLC
610 Fifth Avenue
7th Floor
New York, NY 10020
<PAGE>
Gramercy Trust II
c/o Sam Pai
27 Maple Street
Roslyn Heights, NY 11577
H&Q Employee Venture Fund 2000, L.P.
c/o Access Technology Partners, L.P.
One Bush Street
San Francisco, CA 94104
Attn: Isaac Ruiz
H&Q Kozmo.com Investors, LLC
c/o Access Technology Partners, L.P.
One Bush Street
San Francisco, CA 94104
Attn: Isaac Ruiz
Hambrecht & Quist California
c/o Access Technology Partners, L.P.
One Bush Street
San Francisco, CA 94104
Attn: Isaac Ruiz
Ingram Capital Inc.
Two Ingram Boulevard
LaVergne, TN 37089
Attn: Donnie Daniel
ISM Consulting
c/o Sam Pai
27 Maple Street
Roslyn Heights, NY 11577
Bernhard S. Kluger
314 East 6th Street
Apt. 1
New York, NY 10003
Daniella Koren
571 Wayne Drive
River Vale, NJ 07675
<PAGE>
Levy Group Investment Fund, LLC
1321 1/2 Wisconsin Avenue, NW
Washington, DC 20007
Attention: Richard Levy
Jean-Pierre Millet
The Carlyle Group
112 Ave. Kleber
75016 Paris
France
Moriah Fund
1 Farragut Square South
1634 I Street, NW
Ste. 1000
Washington, DC 20006
Attention: Mary Ann Stein
New York City Investment Fund, LLC
1 Battery Park Plaza
5th Floor
New York, NY 10004
Attn: Janice Roberts
George Nicolau
125 East 10th Street
New York, NY 10003
Siobhan Nicolau
36 East 22nd Street
9th Floor
New York, NY 10010
Oak VIII Affiliates Fund Limited Partnership
c/o Oak Investment Partners
90 South 7th Street
Ste. 4550
Minneapolis, MN 55402
Attn: Gerald R. Gallagher
<PAGE>
Oak Investment Partners VIII Limited Partnership
c/o Oak Investment Partners
90 South 7th Street
Ste. 4550
Minneapolis, MN 55402
Attn: Gerald R. Gallagher
Odyssey Venture Partners L.P.
Bermuda Commercial Bank Building
44 Church Street
Hamilton HM 12
Bermuda
Attn: Antionette Drinkwater
Megan Oppenheimer
c/o George Nicolau
125 East 10th Street
New York, NY 10003
RF Ventures LLC
c/o Joseph Rosenberg
1085 Park Avenue
Apt. 7B
New York, NY 10128
Alexander Rabb
61 Antrim Street
Cambridge, MA 02139
Katherine Rabb
1625 S Street, NW
Apt. 5
Washington, DC 20009
Lawrence Robins
239 Park Avenue South
Apt. 2C
New York, NY 10003
<PAGE>
David Rockefeller
30 Rockefeller Plaza
Room 5600
New York, NY 10112
Attn: Richard Cataldo
David Rubinstein
The Carlyle Group
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, DC 20004-2505
Peter Sabesan
Hunter Realty
61 Broadway
Room 2215
New York, NY 10006
Seligman Investment Opportunities (Master) Fund - NTV Portfolio
100 Park Avenue
New York, NY 10017
Attn: James Curtis
Seligman New Technologies Fund, Inc.
100 Park Avenue
New York, NY 10017
Attn: James Curtis
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Attn: Managing Partner
Chris Shimojima
80 Broad Street
18th Floor
New York, NY 10004
Christopher Siragusa
80 Broad Street
18th Floor
New York, NY 10004
<PAGE>
Katarina Sjoblom
1105 First Avenue
Apt. 15
New York, NY 10021
SOFTBANK Capital Partners LP
10 Langely Road
Suite 403
Newton Center, MA 02459
Attention: Steve Murray
SOFTBANK Capital Advisors Fund LP
10 Langely Road
Suite 403
Newton Center, MA 02459
Attention: Steve Murray
Dorothy Stein
666 Greenwich Street
Apt. 934
New York, NY 10014
Gideon Stein
666 Greenwich Street
Apt. 828
New York, NY 10014
Mary Ann Stein
1 Farragut Square South
1634 I Street, NW
Ste. 1000
Washington, DC 20006
Noah Stein
441 West 22nd Street
Apt. 202
New York, NY 10011
Robert Stein
3016 43rd Street, NW
Washington, DC 20016
<PAGE>
Todd Steinberg (1996) Long Term Trust
166 Duane Street
Apt. 3B
New York, NY 10013
Lawson & Judith Stiff
132 Marion Street
Denver, CO 80218
Beatriz Tacla
245 East 50th Street
Apt. 3A
New York, NY 10022
Tailwind Capital Partners, L.P.
1 Montgomery Street
37th Floor
San Francisco, CA 91404
Attn: Mark Lieberman
Jean-Bernard Tellio
57 Berkeley Square
London W1X 5DH
Cornelius Thornton
Goldman Sachs
One New York Plaza
46th Floor
New York, NY 10004
Trimtab Ventures, LLC
c/o David Pensky
1054 31st Street, NW
Ste. 110
Washington, DC 20007
Triad Media Ventures
177 Broad Street
Stamford, CT 06901
<PAGE>
TWB Investment Partners
c/o Perkins Coie LLP
1201 Third Avenue
40th Floor
Seattle, WA 98101
Attn: Robert Giles
<PAGE>
II. SERIES D PREFERRED STOCKHOLDERS
The 2003 Fund, Inc.
c/o Gramercy Trust
100 Wall Street; 2nd Floor
New York, NY 10005
Attn: Philip S. Kampe
Patty Abramson
3005 O Street NW
Washington, DC 20007
Access Technology Partners, L.P.
One Bush Street
San Francisco, CA 94104
Attn: Isaac Ruiz
Access Technology Partners Brokers Fund, L.P.
One Bush Street
San Francisco, CA 94104
Attn: Isaac Ruiz
Argossy Limited
Bermuda Commercial Bank Building
44 Church Street
Hamilton HM 12
Bermuda
Attn: Antionette Drinkwater
David Bowen
323 Sterling Place
Brooklyn, NY 11238
Bob Burkett
Gilman Strategic Development Inc.
111 West 50th Street
New York, NY 10020
Chase Venture Capital Associates, L.P.
c/o Chase Capital Partners
380 Madison Avenue
New York, NY 10017
Attn: I. Robert Greene
<PAGE>
Jack Chen
18 Montgomery Lane
Greenwich, CT 06830
Charles Crockett
One Astor Place, Apt. 2C
New York, NY 10003
Steven Einhorn
115 Central Park West Apt 10D
New York, NY 10023
Flatiron Associates, LLC
c/o Flatiron Partners
257 Park Avenue South
New York, NY 10010
Attn: Jerry Colonna
The Flatiron Fund 1998/99, LLC
c/o Flatiron Partners
257 Park Avenue South
New York, NY 10010
Attn: Jerry Colonna
Jeffrey Gossett
77 West 15th Street
Apt. 3E
New York, NY 10011
Gracie Partners LLC
c/o Richard E. Salomon
610 Fifth Avenue
7th Floor
New York, NY 10020
H&Q Kozmo.com Investors, LLC
c/o Access Technology Partners, L.P.
One Bush Street
San Francisco, CA 94104
Attn: Isaac Ruiz
Hambrecht & Quist California
c/o Access Technology Partners, L.P.
One Bush Street
San Francisco, CA 94104
Attn: Isaac Ruiz
Hambrecht & Quist Employee Venture Fund, L.P. II
c/o Access Technology Partners, L.P.
One Bush Street
San Francisco, CA 94104
Attn: Isaac Ruiz
<PAGE>
Leon Henderson, Jr.
18 Old Quarry Road
Englewood, NJ 07631
ISM Consulting, Inc.
c/o Gramercy Trust
100 Wall Street; 2nd Floor
New York, NY 10005
Attn: Sam Pai
Henry Kravis
Kravis Partners/KKR
9 West 57th Street
42nd Floor
New York, NY 10019
Attn: James Goldrick
Levy Group Investment Fund, LLC
c/o Richard Levy
1321 1/2 Wisconsin Avenue, NW
Washington, DC 20007
Roszell Mack III
155 West 70th Street Apt 7G
New York, NY 10023
Georgianna McGuire
c/o Gideon Stein
666 Greenwich Street #828
New York, NY 10014
Elaine McKay Revocable Trust
c/o Rob McKay
303 Sacramento Street
San Francisco, CA 94103
<PAGE>
Moriah Fund
c/o Mary Ann Stein
1 Farragut Square South
1634 I Street, NW
Ste. 1000
Washington, DC 20006
Adele M. Morrissette
70 East 88th Street, Suite 2E
New York, NY 10128
Eric Mullins
3350 Parkwood Drive
Houston, TX 77021
New York City Investment Fund
1 Battery Park Plaza
5th Floor
New York, NY 10004
Attn: Janice Roberts
Anthony Nicolau
c/o George Nicolau
125 East 10th Street
New York, NY 10003
Brien Nicolau
c/o George Nicolau
125 East 10th Street
New York, NY 10003
George Nicolau
125 East 10th Street
New York, NY 10003
Siobhan Nicolau
36 East 22nd Street; 9th Floor
New York, NY 10010
Oak VIII Affiliates Fund Limited Partnership
c/o Oak Investment Partners
90 South 7th Street
Ste. 4550
Minneapolis, MN 55402
Attn: Gerald R. Gallagher
<PAGE>
Oak Investment Partners VIII Limited Partnership
c/o Oak Investment Partners
90 South 7th Street
Ste. 4550
Minneapolis, MN 55402
Attn: Gerald R. Gallagher
Odyssey Venture Partners L.P.
Bermuda Commercial Bank Building
44 Church Street
Hamilton HM 12
Bermuda
Attn: Antionette Drinkwater
Megan Oppenheimer
c/o George Nicolau
125 East 10th Street
New York, NY 10003
R. Scot Perlin and Martha Perlin, Tenants in Common
40 East 94th Street #11A
New York, NY 10128
Alexander Rabb
61 Antrim Street
Cambridge, MA 02139
Katherine Rabb
1625 S Street, NW
Apt. 5
Washington, DC 20009
E. John Rice, Jr.
2332 Massachusetts Avenue NW
Washington, DC 20008
<PAGE>
David Rockefeller
30 Rockefeller Plaza
Room 5600
New York, NY 10112
Attn: Richard Cataldo
David Schlessinger
125 Lincoln Avenue #400
Santa Fe, NM 87501
Seligman Investment Opportunities (Master) Fund - NTV Portfolio
100 Park Avenue
New York, NY 10017
Attn: James Curtis
Seligman New Technologies Fund, Inc.
100 Park Avenue
New York, NY 10017
Attn: James Curtis
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Dorothy Stein
1001 Gardenview Drive Apt 807
Atlanta, GA 30319
Gideon Stein
666 Greenwich Street #828
New York, NY 10014
Mary Ann Stein
1 Farragut Square South
1634 I Street, NW
Ste. 1000
Washington, DC 20006
Noah Stein
441 West 22nd Street
Apt. 202
New York, NY 10011
<PAGE>
Robert Stein
3016 43rd Street, NW
Washington, DC 20016
Todd Steinberg and Lisa Barry, Tenants in Common
166 Duane Street #3B
New York, NY 10013
Todd Steinberg (1996) Long Term Trust
166 Duane Street #3B
New York, NY 10013
Tailwind Capital Partners, L.P.
1 Montgomery Street
37th Floor
San Francisco, CA 91404
Attn: Mark Lieberman
Cornelius Thornton
One New York Plaza
Goldman Sachs
46th Floor
New York, NY 10004
Triad Media Ventures
177 Broad Street
Stamford, CT 06901
Trimtab Ventures, LLC
c/o David Pensky
1054 31st Street, NW
Ste. 110
Washington, DC 20007
Harold Vogel
4525 Henry Hudson Parkway
Bronx, NY 10471
Darryl Wash
61 West 62nd Street #9D
New York, NY 10023
<PAGE>
III. SERIES C PREFERRED STOCKHOLDERS
Patty Abramson
3005 O Street NW
Washington, DC 20007
Argossy Limited
Bermuda Commercial Bank Building
44 Church Street
Hamilton HM 12
Bermuda
Attn: Antionette Drinkwater
David Bolotsky
500A Grand Street #5A
New York, NY 10002
David Bowen
323 Sterling Place
Brooklyn, NY 11238
Walter Boyles
34 Parkview Road
Cranbury, NJ 08512
A. Donald & Katherine Bramante
6343 31st Street NW
Washington, DC 20015
Derek Brown
215 West 109th Street
New York, NY 10025
Jack Chen
18 Montgomery Lane
Greenwich, CT 06830
Jonathan Cohen
33 West 93rd Street #5-B
New York, NY 10025
<PAGE>
Colrain Associates
c/o Bruce Rabb
919 Third Avenue; 40th Floor
New York, NY 10022
Charles Crockett
One Astor Place, Apt. 2C
New York, NY 10003
Frank Davi
163 Third Avenue Suite 814
New York, NY 10003
Richard Davies
119 Corbett Avenue
San Fransisco, CA 94114
Matthew DeGanon
375 South End Avenue #27M
New York, NY 10280
Wendell Doke, Jr.
c/o Wendell Doke
5201 S. Cornell #20C
Chicago, IL 60615
Marc Edelman and Debora S. Munczek
116 Pinehurst Avenue
Apt. F61
New York, NY 10033-1755
John Egan, Jr.
80 Harmon Road
Mickleton, NJ 08056
Steven Einhorn
115 Central Park West Apt 10D
New York, NY 10023
Elisabeth Fontenelli
420 East 80th Street
New York, NY 10021
<PAGE>
Gramercy Trust
100 Wall Street; 2nd Floor
New York, NY 10005
Attn: Sam Pai
John Green
52 Haller Drive
Cedar Grove, NJ 07009
Leon Henderson, Jr.
18 Old Quarry Road
Englewood, NJ 07631
Gary Hoffman
20747 Scenic Vista Drive
San Jose, CA 95120
Levy Group Investment Fund, LLC
c/o Richard Levy
1321 1/2 Wisconsin Avenue, NW
Washington, DC 20007
Mark Lieberman
Thomas Weisel Partners
One Montgomery Street
Suite 3700
San Francisco, CA 94104
Roszell Mack III
155 West 70th Street Apt 7G
New York, NY 10023
Elaine McKay Revocable Trust
c/o Rob McKay
303 Sacramento Street
San Francisco, CA 94103
Elizabeth O'Kane McLaury
4263 Navajo Street
Toluka Lakes, CA 91602
Reed R. Menefee
12101 Glen Mill Road
Potomac, MD 20854
Sara R. Menefee;
12101 Glen Mill Road
Potomac, MD 20854
<PAGE>
Christopher Miller
13-17 Laight Street
New York, NY 10013
Robert G. Miller
0305 S.W. Montgomery #F508
Portland, OR 97201
Adele M. Morrissette
170 East 88th Street, Suite 2E
New York, NY 10128
Michael Mrkulic
40 Oaktree Lane
Bloomfield, NJ 07003
Eric Mullins
3350 Parkwood Drive
Houston, TX 77021
Herman Munczek
1205 Schwarz Road
Lawrence, KS 66049
Oasis Direct Venture #3
9424 Mountain Ridge Drive
Boulder, CO 80302
Attn: Marwan Al-Baward
Odyssey Venture Partners L.P.
Bermuda Commercial Bank Building
44 Church Street
Hamilton HM 12
Bermuda
Attn: Antionette Drinkwater
R. Scot Perlin and Martha Perlin, Tenants in Common
40 East 94th Street #11A
New York, NY 10128
R. Scot Perlin Cust. Ross Adam Perlin UGMA
40 East 94th Street #11A
New York, NY 10128
<PAGE>
Harriet Rabb
580 West End Avenue
New York, NY 10024
Maxwell Rabb
480 Park Avenue
Apartment 4G
New York, NY 10022
E. John Rice, Jr.
2332 Massachusetts Avenue NW
Washington, DC 20008
David Schlessinger
125 Lincoln Avenue #400
Santa Fe, NM 87501
Mario Shiloloski
144 Sullivan Street #2
New York, NY 10012
James Snider
1405 McCrae Trail
Southlake, TX 76092
Dorothy Stein
1001 Gardenview Drive Apt 807
Atlanta, GA 30319
Gideon Stein
666 Greenwich Street #828
New York, NY 10014
Mary Ann Stein
1 Farragut Square South
1634 I Street, NW
Ste. 1000
Washington, DC 20006
<PAGE>
Noah Stein
441 West 22nd Street
Apt. 202
New York, NY 10011
Robert Stein
3016 43rd Street, NW
Washington, DC 20016
Todd Steinberg and Lisa Barry, Tenants in Common
166 Duane Street #3B
New York, NY 10013
Ravi Swamy
2300 Walnut Street
Apt. 302
Philadelphia, PA 19103
Cornelius Thornton
One New York Plaza
Goldman Sachs
46th Floor
New York, NY 10004
Trimtab Ventures, LLC
c/o David Pensky
1054 31st Street, NW
Ste. 110
Washington, DC 20007
Harold Vogel
4525 Henry Hudson Parkway
Bronx, NY 10471
Darryl Wash
61 West 62nd Street #9D
New York, NY 10023
Zoey T. Zebedee
c/o Gideon Stein
666 Greenwich Street #828
New York, NY 10014
<PAGE>
IV. SERIES B PREFERRED STOCKHOLDERS
John Bartholdson
Stonington Partners
767 Fifth Avenue, 48th Floor
New York, NY 10153
Rob Cihra
ING Baring Furnan Selz LLC
230 Park Avenue
New York, NY 10169
Colrain Associates
c/o Bruce Rabb
919 Third Avenue; 40th Fl
New York, NY 10022
Hugh Evans
Stonington Partners
767 Fifth Avenue, 48th Floor
New York, NY 10153
John Fitzgibbons
KMOC
152 West 57th Street, 29th Floor
New York, NY 10019
Levy Group Investment Fund, LLC
c/o Richard Levy
1321 1/2 Wisconsin Avenue, NW
Washington, DC 20007
Merion Partners
c/o Arena Capital Partners
540 Madison Avenue
25th Floor
New York, NY 10022
Attn: Jackie Bajart
Monkey Rock Ventures, LLC
41 East 11th Street, Suite 1100
New York, NY 10003
Attn: Gideon Stein
Bob Mylod
Priceline.com
5 High Ridge Road
Stamford, CT 06905
<PAGE>
George Nicolau
125 East 10th Street
New York, NY 10003
Siobhan Nicolau
36 East 22nd Street; 9th Floor
New York, NY 10010
Harriet Rabb
580 West End Avenue
New York, 10024
Maxwell Rabb
480 Park Avenue #4-G
New York, NY 10022
Scott Shaw
Stonington Partners
767 Fifth Avenue, 48th Floor
New York, NY 10153
Dorothy Stein
1001 Gardenview Drive Apt 807
Atlanta, GA 30319
Gideon Stein
666 Greenwich Street #828
New York, NY 10014
Noah Stein
441 West 22nd Street
Apt. 202
New York, NY 10011
Robert Stein
3016 43rd Street, NW
Washington, DC 20016
Trimtab Ventures, LLC
c/o David Pensky
1054 31st Street, NW
Ste. 110
Washington, DC 20007
<PAGE>
-------------------------------
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
-------------------------------
Among
KOZMO.COM, INC.
and the
STOCKHOLDERS IDENTIFIED HEREIN
Dated as of March 14, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. Definitions ................................................... 1
SECTION 2. Required Registration ......................................... 4
SECTION 3. Piggyback Registration ........................................ 6
SECTION 4. Registrations on Form S-3 ..................................... 7
SECTION 5. Holdback Agreement ............................................ 7
SECTION 6. Preparation and Filing ........................................ 8
SECTION 7. Expenses ...................................................... 11
SECTION 8. Indemnification ............................................... 11
SECTION 9. Underwriting Agreement ........................................ 14
SECTION 10. Information by Holders of Registrable Shares .................. 14
SECTION 11. Exchange Act Compliance ....................................... 15
SECTION 12. No Conflict of Rights ......................................... 15
SECTION 13. Termination ................................................... 15
SECTION 14. Successors and Assigns ........................................ 15
SECTION 15. Assignment .................................................... 15
SECTION 16. Entire Agreement .............................................. 16
SECTION 17. Notices ....................................................... 16
SECTION 18. Modifications; Amendments; Waivers ............................ 17
SECTION 19. Counterparts; Facsimile Signatures ............................ 17
SECTION 20. Headings ...................................................... 18
SECTION 21. Severability; Governing Law ................................... 18
SECTION 22. Amendment and Restatement of Existing Agreements .............. 18
</TABLE>
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of this 4th day of October, 1999, by
and between Kozmo.com, Inc., a Delaware corporation (the "COMPANY"), whose
principal executive offices are located at 111 East 12th Street, New York, New
York, and Joseph C. Park, an individual whose mailing address is 99 John Street,
Apartment 401, New York, New York 10038 (the "EXECUTIVE").
W I T N E S S E T H:
WHEREAS, the Company seeks to continue employment of the
Executive and the Executive seeks continued employment by the Company; and
WHEREAS, both parties desire that the terms and conditions of
the Executive's employment with the Company be governed by the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and the
mutual covenants herein contained, the parties hereto hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) GENERAL. The Company hereby employs the Executive,
effective as of the date first above written (the "EFFECTIVE DATE"), and the
Executive agrees upon the terms and conditions herein set forth to serve,
effective as of the Effective Date, as the Chief Executive Officer of the
Company. In such capacity, the Executive shall report directly and only to the
Board of Directors of the Company (the "BOARD"). The Executive's principal place
of business shall be at the Company's headquarters in New York, New York.
(b) SERVICES AND DUTIES. For so long as the Executive is
employed by the Company, the Executive shall devote his full business time to
the performance of his duties hereunder; shall faithfully serve the Company;
shall in all respects conform to and comply with the lawful and good faith
directions and instructions given to him by the Board as the same are consistent
with his status and the terms hereof; and shall use his best efforts to promote
and serve the interests of the Company. Specifically, the Executive shall be
responsible for the financial performance of the Company, developing strategic
alliances and partnerships and maximizing their commercial benefits,
communications to both internal and external audiences and external
relationships with business, industry and academic communities and strategic
leadership.
(c) NO OTHER EMPLOYMENT. Except as provided below, for so long
as the Executive is employed by the Company, he shall not, directly or
indirectly, render services to any other person or organization for which he
receives compensation without the prior written
<PAGE>
approval of the Board. No such approval will be required if the Executive seeks
to perform inconsequential services without direct compensation therefor in
connection with the management of personal investments or in connection with the
performance of charitable and civic activities, provided that such activities do
not contravene the provisions of Section 6 hereof.
(d) BOARD MEMBERSHIP. The Executive shall be a member of the
Board. In addition, the Executive shall be entitled to attend the meetings of
all other committees of the Board, such as the Audit Committee and the
Compensation Committee, and shall be a member of any strategy committee of the
Board. After his initial term as director, the Company shall nominate the
Executive for reelection to the Board and shall use all reasonable efforts to
cause the Executive to be elected to such term.
2. TERM OF EMPLOYMENT. The term of the Executive's employment
under this Agreement (the "TERM") shall commence on the Effective Date and
continue until the second anniversary of the Effective Date, unless terminated
earlier as provided in Section 4 below. Unless written notice of either party's
desire to terminate the Agreement has been given to the other party at least six
months prior to the expiration of the Term (or any renewal thereof as
contemplated by this sentence), the Term shall automatically be renewed for
successive one year periods.
3. COMPENSATION AND OTHER BENEFITS. Subject to the provisions
of this Agreement, the Company shall pay and provide the following compensation
and other benefits to the Executive during the Term as compensation for all
services rendered hereunder:
(a) SALARY. As soon as practicable following the Effective
Date, the Company shall make an initial payment of salary earned since March
1,1999 but not yet paid to the Executive in the amount of $87,500. Hereforth,
the Company shall pay to the Executive an annual salary (the "SALARY") at the
initial rate of $150,000, payable to the Executive in accordance with the normal
payroll practices of the Company for its executive officers as are in effect
from time to time. The amount of the Executive's Salary shall be reviewed by the
Board in each year during the Term and may be increased, but not decreased below
such amount, on the basis of such review and then-current market practices.
(b) ANNUAL BONUS. During the Term, the Executive shall be
eligible for each calendar year within the Term to participate in any annual
incentive bonus program established by the Company in accordance with the
policies of the Company, its subsidiaries and affiliates (hereinafter,
collectively the "GROUP") and subject to such terms and conditions as may be
approved annually by the Board.
(c) PENSION AND LIFE INSURANCE. During the Term, the Executive
shall participate in such pension and life insurance plans as may be adopted by
the Company from time to time.
<PAGE>
(d) OTHER SPECIFIC BENEFITS. The Company shall install and pay
the rental and unit charges attributable to a dedicated business telephone
and/or ISDN line at his home. During the Term, the Company shall also pay for
the Executive's purchase, line charges, rental and unit charges for his mobile
phones. The Company shall provide the Executive with a fax machine and computer
modem to be installed at the Executive's home and a suitable desktop and laptop
computer, as well as all ancillary equipment and maintenance therefor. In
addition, the Company will pay for the cost of the Executive's membership in or
subscriptions to the internet service provider of his choice, and such
professional memberships and journals as are appropriate to his duties under
this Agreement.
(e) EXPENSES. The Company shall pay or reimburse the Executive
for all reasonable out-of-pocket expenses incurred by the Executive in
connection with his employment hereunder and expressly agrees that it will
reimburse the Executive for his business class airfare on international flights
which are over five hours in duration taken in connection with Company business.
Such expenses shall be paid upon the periodic submission of invoices and shall
be paid reasonably promptly after the date of such invoice. The reimbursement of
expenses under this Section 3(e) shall be subject to the Executive's providing
the Company with such documentation of the expenses as the Company may from time
to time reasonably request.
(f) WELFARE AND FRINGE BENEFITS. During the Term, the
Executive shall be eligible to participate in the Company's medical and
disability plans applicable to senior officers of the Company in accordance with
the terms of such plans as in effect from time to time.
(g) LONG-TERM INCENTIVE PROGRAM; STOCK OPTION GRANT. During
the Term, the Executive shall participate in all long-term incentive plans and
programs of the Company that are applicable to its senior officers in accordance
with their terms and in a manner consistent with his position with the Company.
Without limiting the foregoing, effective as of the date hereof, the Company
hereby grants the Executive pursuant to the Company's 1999 Incentive Stock
Option Plan stock options to purchase 650,000 shares of the Company's common
stock at an exercise price of $1.80 per share. Such options are intended to
qualify as incentive stock options to the greatest extent possible.
(h) HOLIDAYS. In addition to the usual public and bank
holidays, the Executive shall be entitled to four weeks paid vacation annually,
which shall be taken at such times as are approved by the Board.
4. TERMINATION OF EMPLOYMENT. Subject to the notice and other
provisions of this Section 4, the Company shall have the right to terminate the
Executive's employment hereunder, and he shall have the right to resign, at any
time for any reason or for no stated reason.
(a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON.
(i) If, prior to the expiration of the Term, the Executive's employment is
terminated by the Company for Cause or if the Executive resigns from his
employment hereunder other than for Good Reason,
<PAGE>
he shall be entitled to payment of the pro rata portion of his Salary through
and including the date of termination or resignation as well as reimbursement
for any unreimbursed expenses. Except to the extent required by the terms of any
applicable compensation or benefit plan or program or as otherwise required by
applicable law, the Executive shall have no rights under this Agreement or
otherwise to receive any other compensation or to participate in any other plan,
program or arrangement after such termination or resignation of employment with
respect to the year of such termination or resignation and later years. In
addition, in the event of a termination or resignation described in this Section
4(a)(i), (A) all unvested stock options held by the Executive shall be forfeited
and (B) all shares of common stock of the Company held by the Executive shall be
subject to the repurchase rights set forth in Section 7 of the Stockholders'
Agreement, dated as of the date hereof, among the Company and the stockholders
identified therein.
(ii) Termination for "CAUSE" shall mean termination of the
Executive's employment with the Company because of (A) the Executive's willful,
repeated material failure or refusal to perform his duties to the Company or to
observe the material policies of the Company (other than by reason of the
incapacity of the Executive due to physical or mental illness) after notice by
the Board of such failure or refusal and the Executive's continued willful,
material failure or refusal to perform or observe after such notice, as the case
may be, (B) gross negligence by the Executive in the performance of his duties
and responsibilities, (C) any willful misconduct by the Executive that brings
the reputation of the Group into serious disrepute or causes the Executive to
cease to be able to perform his duties, (D) the commission by the Executive of
any material act of fraud, theft or financial dishonesty by the Executive with
respect to the Company, or any felony (including, without limitation violation
of the Foreign Corrupt Practices Act of 1977) or a criminal act involving
turpitude, (E) the continued use of drugs or alcohol by the Executive to an
extent that, in the good faith determination of the Board, such use materially
interferes with the performance by the Executive of his duties and
responsibilities, (F) the material breach by the Executive of this Agreement,
including, without limitation, any material breach by the Executive of the
provisions of Section 6, or any other agreement or contract with the Company, or
(G) the material breach of the Executive Non-Disclosure and Inventions
Assignment Agreement, or material breach of any confidentiality agreement
resulting in misappropriation of the Company's property. For purposes of this
Section 4(a)(ii), no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive (x) not in
good faith or (y) without belief by the Executive that his act or omission was
in the best interests of the Company.
(iii) Termination of the Executive's employment for Cause
shall be communicated by delivery to the Executive of a written notice from the
Company stating that the Executive has been terminated for Cause, specifying the
particulars thereof and the effective date of such termination. The date of a
resignation by the Executive without Good Reason shall be the date specified in
a written notice of resignation from the Executive to the Company. The Executive
shall provide at least 90 days' advance written notice of resignation without
Good Reason.
<PAGE>
(b) INVOLUNTARY TERMINATION. (i) If, prior to the expiration
of the Term, (w) the Company terminates the Executive's employment without
Cause, (x) the Executive's employment is terminated as a result of disability
(as defined in the Company's long-term disability plan), (y) the Executive dies
or (z) the Executive resigns from his employment hereunder for Good Reason
(collectively hereinafter referred to as an "INVOLUNTARY TERMINATION"), the
Company shall pay to the Executive his Salary accrued up to and including the
date of such Involuntary Termination, a pro rata bonus for the year of
termination based on the target bonus established for such year or, if no such
target bonus was established, the highest bonus paid to the Executive by the
Company for any prior year, and reimbursement of any unreimbursed expenses. In
addition, the Company shall pay to the Executive (or his estate, as the case may
be) as severance within 30 days after the date of termination a lump sum payment
in an amount equal to his Salary, at the rate in effect immediately prior to
such Involuntary Termination. Further, all unvested stock options held by the
Executive shall (A) become fully vested in the event of a termination without
Cause and (B) be forfeited in all other circumstances described in this Section
4(b).
(ii) In the event of the Executive's Involuntary Termination
(other than by reason of death), the Executive and his eligible dependants shall
continue to participate on the same terms and conditions as are in effect
immediately prior to such termination or resignation in the Company's health and
medical plans provided to the Executive pursuant to Section 3(f) above at the
time of such Involuntary Termination for a period equal to one year following
the Involuntary Termination (the "CONTINUATION PERIOD"). Anything herein to the
contrary notwithstanding, the Company shall have no obligation to continue to
maintain during the Continuation Period any plan or program solely as a result
of the provisions of this Agreement but this obligation shall apply in respect
of any substitute or replacement plan.
(iii) Resignation for "GOOD REASON" shall mean resignation by
the Executive following (A) an adverse and material change in the Executive's
duties, titles or reporting responsibilities, (B) a material breach by the
Company of any term of the Agreement, (C) a material reduction in the
Executive's Salary or the failure of the Company to pay the Executive any
material amount of compensation when due, (D) failure by the Company to nominate
the Executive for reelection to the Board during the Term unless the Executive
declines to stand for election, (E) the failure of the Executive to be reelected
to the Board during the Term, (F) a relocation of the Executive's principal
place of business by more than 40 miles without his prior written consent, (G)
any delivery by the Company to the Executive of a notice of non-renewal of the
Term pursuant to Section 2, or (H) a Change in Control. For purposes of the
foregoing, a "CHANGE IN CONTROL" shall be deemed to have occurred when:
(A) Any Person is or becomes the "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act, whether or not the Company
is then subject to the terms of the Exchange Act), directly or
indirectly, of securities of the Company representing fifty (50%)
percent or more of the combined voting power of the Company's
then-outstanding securities; or
<PAGE>
(B) The individuals who were directors on the Effective Date,
or any director whose appointment or election by the Board or
nomination for election by the Company's shareholders was approved or
recommended by a vote of at least two-thirds (2/3) of the directors
then in office, who either were directors as of the Effective Date or
whose appointment, election or nomination for election was previously
so approved or recommended (other than a director whose initial
assumption of office is in connection with an actual or threatened
election contest, including, but not limited to, a consent
solicitation, relating to the election of directors of the Company)
cease for any reason to constitute a majority of the directors then
serving on the Company's board of directors; or
(C) There is consummated a merger or consolidation of the
Company, other than (x) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary, at least sixty
percent (60%) of the combined voting power of the securities of the
Company or such surviving entity, or any parent thereof, outstanding
immediately after such merger or consolidation, or (y) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the
beneficial owner, directly or indirectly, of the Company's securities
(excluding any securities acquired directly from the Company or its
affiliates other than in connection with the acquisition by the Company
or its affiliates of a business) representing twenty percent (20%) or
more of the combined voting power of the Company's then outstanding
securities; or
(D) The shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least sixty percent (60%) of the combined
voting power of the voting securities of which are owned by
shareholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
For purposes of the above, "PERSON" shall mean any person,
entity or "group" within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Exchange Act, except that such term shall not include
(i) the Company or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv)
a corporation owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of
stock of the Company.
<PAGE>
(iv) The date of termination of employment without Cause shall
be the date specified in a written notice of termination to the Executive. The
date of resignation for Good Reason shall be the date specified in a written
notice of resignation from the Executive to the Company.
5. SECTION 280G LIMITATION
Notwithstanding anything in this Agreement to the contrary, in
the event that the provisions of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), relating to "excess parachute payments" shall be
applicable to any payment to be made under this Agreement (including the vesting
of any options pursuant to the provisions of any option agreement), which
determination shall be made by taking into account all payments to the Executive
which are parachute payments under Section 280G of the Code, then the total
amount of payments which would otherwise be made shall be reduced to the largest
amount such that Section 280G of the Code relating to "excess parachute
payments" shall no longer be applicable (or shall be applicable to the reduced
amount of "excess parachute payments" still remaining after the reduction
provided for in this sentence); PROVIDED, HOWEVER, that if (i) the Company is
eligible to exempt such payments from treatment as "parachute payments" by
securing shareholder approval under Section 280G (b)(5)(A)(ii) of the Code, and
(ii) such shareholder approval is obtained, then there shall be no reduction in
such payments. In the event of a disagreement between the Company and the
Executive as to whether Section 280G of the Code is applicable or whether any
other payment or benefit constitutes a "parachute payment," such determination
shall be made by an accounting or law firm mutually acceptable to the Company
and the Executive. All costs relating to such determination shall be borne
equally by the Company and the Executive. Pending such determination, the
payments that are not in dispute shall be paid in the manner otherwise provided
for without reduction under this Section 5.
6. PROTECTION OF THE COMPANY'S INTERESTS.
(a) NO COMPETING EMPLOYMENT. For so long as the Executive is
employed by the Company, and for an additional one year following a termination
of employment without Cause or a resignation for Good Reason, or two years
following a termination of employment for Cause or resignation without Good
Reason, (such applicable period being referred to hereinafter as the "RESTRICTED
PERIOD"), the Executive shall not, whether alone or as a partner, officer,
director, consultant, agent, employee, stockholder or otherwise, directly or
indirectly, own an interest in, manage, operate, join, control, lend money or
render financial or other assistance to or participate in or be connected with,
as an officer, employee, partner, stockholder, consultant or otherwise, any
individual, partnership, firm, corporation or other business organization or
entity or otherwise engage in any business activity that competes with any
business (i) presently conducted by the Group or (ii) planned by the Group
(whether by providing any goods or services provided or under development by the
Group or otherwise); PROVIDED, HOWEVER, that this Section 6(a) shall not
proscribe the Executive's ownership, either directly or indirectly, of either
less than one percent of any class of securities which are listed on a national
securities exchange or quoted on the automated quotation system of the National
<PAGE>
Association of Securities Dealers, Inc. or any limited partnership investment
over which the Executive has no control.
(b) NO INTERFERENCE. During the Restricted Period, the
Executive shall not, directly or indirectly, whether for his own account or for
the account of any other individual, partnership, firm, corporation or other
business organization (other than the Group) that is in competition with the
Group, (A) solicit, recruit, hire, engage in any activity that would cause any
employee to violate any agreement with the Group, endeavor to entice away from
the Group, or otherwise interfere with the relationship of the Group with, any
person or team who is employed by or otherwise engaged to perform services for
the Group or (B) during the Restricted Period, solicit, entice or induce any
person or team or entity who is, or was a Customer, client or Supplier of the
Group to (i) become a Customer or Supplier of any other person or entity engaged
in any business activity that competes with any business conducted by the Group,
or any business planned by the Group, (ii) cease doing business with the Group
or (iii) otherwise interfere with the relationship of the Group with any such
person, team, Customer or Supplier. For purposes of this paragraph, a "Customer"
of the Group means any person, corporation, partnership, trust division,
business unit, department or agency which, during the Restricted Period shall be
or shall have been a customer, distributor or agent of the Group or shall be or
shall have been contacted by the Group for the purpose of soliciting it to
become a customer, distributor or agent of the Group; and a "Supplier" of the
Group means any person, corporation, partnership, trust, division, business
unit, department or agency which, during the Restricted shall be or shall have
been a supplier, vendor, manufacturer or developer for any product or service or
significant component used in any product or service of the Group.
(c) SECRECY. The Executive recognizes that the services to be
performed by him hereunder are special, unique and extraordinary in that, by
reason of his employment hereunder, he may acquire confidential information and
trade secrets concerning the operation of the Group, the use or disclosure of
which could cause the Group substantial losses and damages which could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, the Executive covenants and agrees with the Company that he will
not at any time, whether during or after the termination of the Executive's
employment, reveal to any person or entity any of the trade secrets or
proprietary or confidential information of the Group or any third party which
the Group is under an obligation to keep confidential (including, but not
limited to, Intellectual Property Rights (as hereinafter defined), ideas
(whether or not protectable under trade secret laws), trade secrets or
proprietary or confidential information respecting inventions, products, product
plans, designs, drawings, sketches, marketing and other plans, methods,
know-how, techniques, technology, systems, characters, processes, strategies,
software programs, works of authorship, customer lists, user lists, vendor
lists, content provider lists, supplier lists, pricing information, projects,
notes, memoranda, reports, lists, records, specifications, data, documentation,
budgets, plans, projections, forecasts, financial information (including
revenues, costs or profits associated with any of the Group's products),
opportunities and proposals in whatever form, tangible or intangible or other
materials of any nature relating to any matter within the scope of the business
of the Group or concerning any of the dealings or affairs of the Group
(collectively,
<PAGE>
"Proprietary Information")), except as may be required in the ordinary course of
performing his duties hereunder as an Executive of the Group or with the prior
written consent of the Board and he shall keep secret all matters entrusted to
him and shall not use or attempt to use any such information in any manner. For
purposes of this paragraph, the term "Intellectual Property Rights" shall mean
all industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyrights, copyright
applications or registrations, databases, algorithms, computer programs and
other software, know-how, trade secrets, proprietary processes and formulae,
inventions, trade dress, logos, design and all documentation and media
constituting, describing or relating to the above.
(d) EXCLUSIVE PROPERTY. The Executive confirms that all
confidential information is and shall remain the exclusive property of the
Group. All business records, papers and documents kept or made by the Executive
relating to the business of the Group shall be and remain the property of the
Group. Upon the termination of his employment with the Company or upon the
request of the Company at any time, the Executive shall promptly (but no later
than five (5) days after the earlier of the Executive's termination of
employment with the Group or the Company's request) destroy or deliver to the
Company, at the Company's option, (a) all materials furnished to the Executive
by the Group, (b) all tangible media of expression which are in the Executive's
possession and which incorporate any Proprietary Information or otherwise relate
to the business of the Group (including, without limitation, the material
described in the Executive Non-Disclosure), and (c) written certification of the
Executive's compliance with his obligations under this sentence, and shall not
without the consent of the Board retain copies of, any written materials not
previously made available to the public, or records and documents made by the
Executive or coming into his possession concerning the business or affairs of
the Group; PROVIDED, HOWEVER, that subsequent to any such termination, the
Company shall provide the Executive with copies (the cost of which shall be
borne by the Executive) of any documents which are requested by the Executive
and which the Executive has determined in good faith are (i) required to
establish a defense to a claim that the Executive has not complied with his
duties hereunder or (ii) necessary to the Executive in order to comply with
applicable law.
(e) NON-DISCLOSURE, NON-COMPETITION AND ASSIGNMENT OF
INVENTIONS. The Executive will execute an Executive Non-Disclosure and
Inventions Assignment Agreement substantially in the form set forth as Exhibit A
hereto (the "Executive Non-Disclosure and Inventions Assignment Agreement").
(f) INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the Company, the Executive acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material irreparable injury
to the Group for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of such a breach or threat thereof, the Company shall be entitled to obtain a
temporary restraining order and/or a preliminary or permanent injunction
restraining the Executive from engaging in activities prohibited by this Section
6 or such other relief as may be required to specifically enforce any of the
covenants in this Section 6.
<PAGE>
Without intending to limit the remedies available to the Executive, the
Executive shall be entitled to seek specific performance of the Company's
obligations under this Agreement.
7. GENERAL PROVISIONS.
(a) SOURCE OF PAYMENTS. All payments provided under this
Agreement, other than payments made pursuant to a plan which provides otherwise,
shall be paid in cash from the general funds of the Company, and no special or
separate fund shall be established, and no other segregation of assets made, to
assure payment. The Executive shall have no right, title or interest whatever in
or to any investments which the Company may make to aid the Company in meeting
its obligations hereunder. To the extent that any person acquires a right to
receive payments from the Company hereunder, such right shall be no greater than
the right of an unsecured creditor of the Company; PROVIDED, HOWEVER, that this
provision shall not be
<PAGE>
deemed to waive or abrogate any preferential or other rights to payment accruing
to the Executive under applicable bankruptcy laws by virtue of the Executive's
status as an employee of the Company.
(b) NO OTHER SEVERANCE BENEFITS. Except as specifically set
forth in this Agreement, the Executive covenants and agrees that he shall not be
entitled to any other form of severance benefits from the Company, including,
without limitation, benefits otherwise payable under any of the Company's
regular severance policies, in the event his employment hereunder ends for any
reason and, except with respect to obligations of the Company expressly provided
for herein, the Executive unconditionally releases the Company and its
subsidiaries and affiliates, and their respective directors, officers, employees
and stockholders, or any of them, from any and all claims, liabilities or
obligations under this Agreement or under any severance or termination
arrangements of the Company or any of its subsidiaries or affiliates for
compensation or benefits in connection with his employment or the termination
thereof.
(c) TAX WITHHOLDING. Payments to the Executive of all
compensation contemplated under this Agreement shall be subject to all
applicable tax withholding.
(d) NOTICES. Any notice hereunder by either party to the other
shall be given in writing by personal delivery, or certified mail, return
receipt requested, or (if to the Company) by telex or facsimile, in any case
delivered to the applicable address set forth below:
(i) To the Company: Kozmo.com, Inc.
111 East 12th Street
New York, New York 10003
Telephone: (212) 253-5751
Telecopy: (212) 253-5758
Attention: Secretary
With copies to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telephone: (212) 848-4000
Telecopy: (212) 848-7179
Attention.: John J. Cannon III, Esq.
(ii) To the Executive: Joseph C. Park
99 John Street, Apartment 401
New York, New York 10038
or to such other persons or other addresses as either party may specify to the
other in writing.
<PAGE>
(e) REPRESENTATION BY THE EXECUTIVE. The Executive represents
and warrants that his entering into this Agreement does not, and that his
performance under this Agreement and consummation of the transactions
contemplated hereby will not, violate the provisions of any agreement or
instrument to which the Executive is a party, or any decree, judgment or order
to which the Executive is subject, and that this Agreement constitutes a valid
and binding obligation of the Executive in accordance with its terms. Breach of
this representation will render all of the Company's obligations under this
Agreement void AB INITIO.
(f) LIMITED WAIVER. The waiver by the Company or the Executive
of a violation of any of the provisions of this Agreement, whether express or
implied, shall not operate or be construed as a waiver of any subsequent
violation of any such provision.
(g) ASSIGNMENT; ASSUMPTION OF AGREEMENT. No right, benefit or
interest hereunder shall be subject to assignment, encumbrance, charge, pledge,
hypothecation or setoff by the Executive in respect of any claim, debt,
obligation or similar process. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to assume expressly
and to agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place.
(h) AMENDMENT; ACTIONS BY THE COMPANY. This Agreement may not
be amended, modified or canceled except by written agreement of the Executive
and the Company. Any and all determinations, judgments, reviews, verifications,
adjustments, approvals, consents, waivers or other actions of the Company
required or permitted under this Agreement shall be effective only if undertaken
by the Company pursuant to authority granted by a resolution duly adopted by the
Board; PROVIDED, HOWEVER, that by resolution duly adopted in accordance with
this Section 7(h), the Board may delegate its responsibilities hereunder to one
or more of its members other than the Executive.
(i) SEVERABILITY. If any term or provision hereof is
determined to be invalid or unenforceable in a final court or arbitration
proceeding, (i) the remaining terms and provisions hereof shall be unimpaired
and (ii) the invalid or unenforceable term or provision shall be deemed replaced
by a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
(j) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (determined
without regard to the choice of law provisions thereof).
(k) ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
covered hereby and supersedes all prior agreements and understandings of the
parties with respect to the subject matter hereof.
<PAGE>
(l) HEADINGS. The headings and captions of the sections of
this Agreement are included solely for convenience of reference and shall not
control the meaning or interpretation of any provisions of this Agreement.
(m) COUNTERPARTS. This Agreement may be executed by the
parties hereto in counterparts, each of which shall be deemed an original, but
both such counterparts shall together constitute one and the same document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the day and year first written above.
KOZMO.COM, INC
By: /s/ Yong Kang
Name: Yong Kang
Title: Secretary
EXECUTIVE
/s/ Joseph C. Park
-----------------------------------
Joseph C. Park
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of this 4th day of October, 1999, by
and between Kozmo.com, Inc., a Delaware corporation (the "COMPANY"), whose
principal executive offices are located at 111 East 12th Street, New York, New
York, and Yong Kang, an individual whose mailing address is 344 Third Avenue,
Apartment 8J, New York, New York 10010 (the "EXECUTIVE").
W I T N E S S E T H:
WHEREAS, the Company seeks to continue employment of the
Executive and the Executive seeks continued employment by the Company; and
WHEREAS, both parties desire that the terms and conditions of
the Executive's employment with the Company be governed by the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the promises and the
mutual covenants herein contained, the parties hereto hereby agree as follows:
1. EMPLOYMENT AND DUTIES.
(a) GENERAL. The Company hereby employs the Executive,
effective as of the date first above written (the "EFFECTIVE DATE"), and the
Executive agrees upon the terms and conditions herein set forth to serve,
effective as of the Effective Date, as the President and Secretary of the
Company. In such capacity, the Executive shall report directly and only to the
Board of Directors of the Company (the "BOARD"). The Executive's principal place
of business shall be at the Company's headquarters in New York, New York.
(b) SERVICES AND DUTIES. For so long as the Executive is
employed by the Company, the Executive shall devote his full business time to
the performance of his duties hereunder; shall faithfully serve the Company;
shall in all respects conform to and comply with the lawful and good faith
directions and instructions given to him by the Board as the same are consistent
with his status and the terms hereof; and shall use his best efforts to promote
and serve the interests of the Company. Specifically, the Executive shall be
responsible for the financial performance of the Company, developing strategic
alliances and partnerships and maximizing their commercial benefits,
communications to both internal and external audiences and external
relationships with business, industry and academic communities and strategic
leadership.
(c) NO OTHER EMPLOYMENT. Except as provided below, for so long
as the Executive is employed by the Company, he shall not, directly or
indirectly, render services to any other person or organization for which he
receives compensation without the prior written
<PAGE>
approval of the Board. No such approval will be required if the Executive seeks
to perform inconsequential services without direct compensation therefor in
connection with the management of personal investments or in connection with the
performance of charitable and civic activities, provided that such activities do
not contravene the provisions of Section 6 hereof.
(d) BOARD MEMBERSHIP. The Executive shall be a member of the
Board. In addition, the Executive shall be entitled to attend the meetings of
all other committees of the Board, such as the Audit Committee and the
Compensation Committee, and shall be a member of any strategy committee of the
Board. After his initial term as director, the Company shall nominate the
Executive for reelection to the Board and shall use all reasonable efforts to
cause the Executive to be elected to such term.
2. TERM OF EMPLOYMENT. The term of the Executive's employment
under this Agreement (the "TERM") shall commence on the Effective Date and
continue until the second anniversary of the Effective Date, unless terminated
earlier as provided in Section 4 below. Unless written notice of either party's
desire to terminate the Agreement has been given to the other party at least six
months prior to the expiration of the Term (or any renewal thereof as
contemplated by this sentence), the Term shall automatically be renewed for
successive one year periods.
3. COMPENSATION AND OTHER BENEFITS. Subject to the provisions
of this Agreement, the Company shall pay and provide the following compensation
and other benefits to the Executive during the Term as compensation for all
services rendered hereunder:
(a) SALARY. As soon as practicable following the Effective
Date, the Company shall make an initial payment of salary earned since May
1,1999 but not yet paid to the Executive in the amount of $41,667. Hereforth,
the Company shall pay to the Executive an annual salary (the "SALARY") at the
initial rate of $100,000, payable to the Executive in accordance with the normal
payroll practices of the Company for its executive officers as are in effect
from time to time. The amount of the Executive's Salary shall be reviewed by the
Board in each year during the Term and may be increased, but not decreased below
such amount, on the basis of such review and then-current market practices.
(b) ANNUAL BONUS. During the Term, the Executive shall be
eligible for each calendar year within the Term to participate in any annual
incentive bonus program established by the Company in accordance with the
policies of the Company, its subsidiaries and affiliates (hereinafter,
collectively the "GROUP") and subject to such terms and conditions as may be
approved annually by the Board.
(c) PENSION AND LIFE INSURANCE. During the Term, the Executive
shall participate in such pension and life insurance plans as may be adopted by
the Company from time to time.
<PAGE>
(d) OTHER SPECIFIC BENEFITS. The Company shall install and pay
the rental and unit charges attributable to a dedicated business telephone
and/or ISDN line at his home. During the Term, the Company shall also pay for
the Executive's purchase, line charges, rental and unit charges for his mobile
phones. The Company shall provide the Executive with a fax machine and computer
modem to be installed at the Executive's home and a suitable desktop and laptop
computer, as well as all ancillary equipment and maintenance therefor. In
addition, the Company will pay for the cost of the Executive's membership in or
subscriptions to the internet service provider of his choice, and such
professional memberships and journals as are appropriate to his duties under
this Agreement.
(e) EXPENSES. The Company shall pay or reimburse the Executive
for all reasonable out-of-pocket expenses incurred by the Executive in
connection with his employment hereunder and expressly agrees that it will
reimburse the Executive for his business class airfare on international flights
which are over five hours in duration taken in connection with Company business.
Such expenses shall be paid upon the periodic submission of invoices and shall
be paid reasonably promptly after the date of such invoice. The reimbursement of
expenses under this Section 3(e) shall be subject to the Executive's providing
the Company with such documentation of the expenses as the Company may from time
to time reasonably request.
(f) WELFARE AND FRINGE BENEFITS. During the Term, the
Executive shall be eligible to participate in the Company's medical and
disability plans applicable to senior officers of the Company in accordance with
the terms of such plans as in effect from time to time.
(g) LONG-TERM INCENTIVE PROGRAM; STOCK OPTION GRANT. During
the Term, the Executive shall participate in all long-term incentive plans and
programs of the Company that are applicable to its senior officers in accordance
with their terms and in a manner consistent with his position with the Company.
Without limiting the foregoing, effective as of the date hereof, the Company
hereby grants the Executive pursuant to the Company's 1999 Incentive Stock
Option Plan stock options to purchase 650,000 shares of the Company's common
stock at an exercise price of $1.80 per share. Such options are intended to
qualify as incentive stock options to the greatest extent possible.
(h) HOLIDAYS. In addition to the usual public and bank
holidays, the Executive shall be entitled to four weeks paid vacation annually,
which shall be taken at such times as are approved by the Board.
4. TERMINATION OF EMPLOYMENT. Subject to the notice and other
provisions of this Section 4, the Company shall have the right to terminate the
Executive's employment hereunder, and he shall have the right to resign, at any
time for any reason or for no stated reason.
(a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON.
(i) If, prior to the expiration of the Term, the Executive's employment is
terminated by the Company for Cause or if the Executive resigns from his
employment hereunder other than for Good Reason,
<PAGE>
he shall be entitled to payment of the pro rata portion of his Salary through
and including the date of termination or resignation as well as reimbursement
for any unreimbursed expenses. Except to the extent required by the terms of any
applicable compensation or benefit plan or program or as otherwise required by
applicable law, the Executive shall have no rights under this Agreement or
otherwise to receive any other compensation or to participate in any other plan,
program or arrangement after such termination or resignation of employment with
respect to the year of such termination or resignation and later years. In
addition, in the event of a termination or resignation described in this Section
4(a)(i), (A) all unvested stock options held by the Executive shall be forfeited
and (B) all shares of common stock of the Company held by the Executive shall be
subject to the repurchase rights set forth in Section 7 of the Stockholders'
Agreement, dated as of the date hereof, among the Company and the stockholders
identified therein.
(ii) Termination for "CAUSE" shall mean termination of the
Executive's employment with the Company because of (A) the Executive's willful,
repeated material failure or refusal to perform his duties to the Company or to
observe the material policies of the Company (other than by reason of the
incapacity of the Executive due to physical or mental illness) after notice by
the Board of such failure or refusal and the Executive's continued willful,
material failure or refusal to perform or observe after such notice, as the case
may be, (B) gross negligence by the Executive in the performance of his duties
and responsibilities, (C) any willful misconduct by the Executive that brings
the reputation of the Group into serious disrepute or causes the Executive to
cease to be able to perform his duties, (D) the commission by the Executive of
any material act of fraud, theft or financial dishonesty by the Executive with
respect to the Company, or any felony (including, without limitation violation
of the Foreign Corrupt Practices Act of 1977) or a criminal act involving
turpitude, (E) the continued use of drugs or alcohol by the Executive to an
extent that, in the good faith determination of the Board, such use materially
interferes with the performance by the Executive of his duties and
responsibilities, (F) the material breach by the Executive of this Agreement,
including, without limitation, any material breach by the Executive of the
provisions of Section 6, or any other agreement or contract with the Company, or
(G) the material breach of the Executive Non-Disclosure and Inventions
Assignment Agreement, or material breach of any confidentiality agreement
resulting in misappropriation of the Company's property. For purposes of this
Section 4(a)(ii), no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive (x) not in
good faith or (y) without belief by the Executive that his act or omission was
in the best interests of the Company.
(iii) Termination of the Executive's employment for Cause
shall be communicated by delivery to the Executive of a written notice from the
Company stating that the Executive has been terminated for Cause, specifying the
particulars thereof and the effective date of such termination. The date of a
resignation by the Executive without Good Reason shall be the date specified in
a written notice of resignation from the Executive to the Company. The Executive
shall provide at least 90 days' advance written notice of resignation without
Good Reason.
<PAGE>
(b) INVOLUNTARY TERMINATION. (i) If, prior to the expiration
of the Term, (w) the Company terminates the Executive's employment without
Cause, (x) the Executive's employment is terminated as a result of disability
(as defined in the Company's long-term disability plan), (y) the Executive dies
or (z) the Executive resigns from his employment hereunder for Good Reason
(collectively hereinafter referred to as an "INVOLUNTARY TERMINATION"), the
Company shall pay to the Executive his Salary accrued up to and including the
date of such Involuntary Termination, a pro rata bonus for the year of
termination based on the target bonus established for such year or, if no such
target bonus was established, the highest bonus paid to the Executive by the
Company for any prior year, and reimbursement of any unreimbursed expenses. In
addition, the Company shall pay to the Executive (or his estate, as the case may
be) as severance within 30 days after the date of termination a lump sum payment
in an amount equal to his Salary, at the rate in effect immediately prior to
such Involuntary Termination. Further, all unvested stock options held by the
Executive shall (A) become fully vested in the event of a termination without
Cause and (B) be forfeited in all other circumstances described in this Section
4(b).
(ii) In the event of the Executive's Involuntary Termination
(other than by reason of death), the Executive and his eligible dependants shall
continue to participate on the same terms and conditions as are in effect
immediately prior to such termination or resignation in the Company's health and
medical plans provided to the Executive pursuant to Section 3(f) above at the
time of such Involuntary Termination for a period equal to one year following
the Involuntary Termination (the "CONTINUATION PERIOD"). Anything herein to the
contrary notwithstanding, the Company shall have no obligation to continue to
maintain during the Continuation Period any plan or program solely as a result
of the provisions of this Agreement but this obligation shall apply in respect
of any substitute or replacement plan.
(iii) Resignation for "GOOD REASON" shall mean resignation by
the Executive following (A) an adverse and material change in the Executive's
duties, titles or reporting responsibilities, (B) a material breach by the
Company of any term of the Agreement, (C) a material reduction in the
Executive's Salary or the failure of the Company to pay the Executive any
material amount of compensation when due, (D) failure by the Company to nominate
the Executive for reelection to the Board during the Term unless the Executive
declines to stand for election, (E) the failure of the Executive to be reelected
to the Board during the Term, (F) a relocation of the Executive's principal
place of business by more than 40 miles without his prior written consent, (G)
any delivery by the Company to the Executive of a notice of non-renewal of the
Term pursuant to Section 2, or (H) a Change in Control. For purposes of the
foregoing, a "CHANGE IN CONTROL" shall be deemed to have occurred when:
(A) Any Person is or becomes the "beneficial owner" (as
defined in Rule 13d-3 of the Exchange Act, whether or not the Company
is then subject to the terms of the Exchange Act), directly or
indirectly, of securities of the Company representing fifty (50%)
percent or more of the combined voting power of the Company's
then-outstanding securities; or
<PAGE>
(B) The individuals who were directors on the Effective Date,
or any director whose appointment or election by the Board or
nomination for election by the Company's shareholders was approved or
recommended by a vote of at least two-thirds (2/3) of the directors
then in office, who either were directors as of the Effective Date or
whose appointment, election or nomination for election was previously
so approved or recommended (other than a director whose initial
assumption of office is in connection with an actual or threatened
election contest, including, but not limited to, a consent
solicitation, relating to the election of directors of the Company)
cease for any reason to constitute a majority of the directors then
serving on the Company's board of directors; or
(C) There is consummated a merger or consolidation of the
Company, other than (x) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary, at least sixty
percent (60%) of the combined voting power of the securities of the
Company or such surviving entity, or any parent thereof, outstanding
immediately after such merger or consolidation, or (y) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the
beneficial owner, directly or indirectly, of the Company's securities
(excluding any securities acquired directly from the Company or its
affiliates other than in connection with the acquisition by the Company
or its affiliates of a business) representing twenty percent (20%) or
more of the combined voting power of the Company's then outstanding
securities; or
(D) The shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least sixty percent (60%) of the combined
voting power of the voting securities of which are owned by
shareholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
For purposes of the above, "PERSON" shall mean any person,
entity or "group" within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Exchange Act, except that such term shall not include
(i) the Company or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv)
a corporation owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of
stock of the Company.
<PAGE>
(iv) The date of termination of employment without Cause shall
be the date specified in a written notice of termination to the Executive. The
date of resignation for Good Reason shall be the date specified in a written
notice of resignation from the Executive to the Company.
5. SECTION 280G LIMITATION
Notwithstanding anything in this Agreement to the contrary, in
the event that the provisions of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), relating to "excess parachute payments" shall be
applicable to any payment to be made under this Agreement (including the vesting
of any options pursuant to the provisions of any option agreement), which
determination shall be made by taking into account all payments to the Executive
which are parachute payments under Section 280G of the Code, then the total
amount of payments which would otherwise be made shall be reduced to the largest
amount such that Section 280G of the Code relating to "excess parachute
payments" shall no longer be applicable (or shall be applicable to the reduced
amount of "excess parachute payments" still remaining after the reduction
provided for in this sentence); PROVIDED, HOWEVER, that if (i) the Company is
eligible to exempt such payments from treatment as "parachute payments" by
securing shareholder approval under Section 280G (b)(5)(A)(ii) of the Code, and
(ii) such shareholder approval is obtained, then there shall be no reduction in
such payments. In the event of a disagreement between the Company and the
Executive as to whether Section 280G of the Code is applicable or whether any
other payment or benefit constitutes a "parachute payment," such determination
shall be made by an accounting or law firm mutually acceptable to the Company
and the Executive. All costs relating to such determination shall be borne
equally by the Company and the Executive. Pending such determination, the
payments that are not in dispute shall be paid in the manner otherwise provided
for without reduction under this Section 5.
6. PROTECTION OF THE COMPANY'S INTERESTS.
(a) NO COMPETING EMPLOYMENT. For so long as the Executive is
employed by the Company, and for an additional one year following a termination
of employment without Cause or a resignation for Good Reason, or two years
following a termination of employment for Cause or resignation without Good
Reason, (such applicable period being referred to hereinafter as the "RESTRICTED
PERIOD"), the Executive shall not, whether alone or as a partner, officer,
director, consultant, agent, employee, stockholder or otherwise, directly or
indirectly, own an interest in, manage, operate, join, control, lend money or
render financial or other assistance to or participate in or be connected with,
as an officer, employee, partner, stockholder, consultant or otherwise, any
individual, partnership, firm, corporation or other business organization or
entity or otherwise engage in any business activity that competes with any
business (i) presently conducted by the Group or (ii) planned by the Group
(whether by providing any goods or services provided or under development by the
Group or otherwise); PROVIDED, HOWEVER, that this Section 6(a) shall not
proscribe the Executive's ownership, either directly or indirectly, of either
less than one percent of any class of securities which are listed on a national
securities exchange or quoted on the automated quotation system of the National
<PAGE>
Association of Securities Dealers, Inc. or any limited partnership investment
over which the Executive has no control.
(b) NO INTERFERENCE. During the Restricted Period, the
Executive shall not, directly or indirectly, whether for his own account or for
the account of any other individual, partnership, firm, corporation or other
business organization (other than the Group) that is in competition with the
Group, (A) solicit, recruit, hire, engage in any activity that would cause any
employee to violate any agreement with the Group, endeavor to entice away from
the Group, or otherwise interfere with the relationship of the Group with, any
person or team who is employed by or otherwise engaged to perform services for
the Group or (B) during the Restricted Period, solicit, entice or induce any
person or team or entity who is, or was a Customer, client or Supplier of the
Group to (i) become a Customer or Supplier of any other person or entity engaged
in any business activity that competes with any business conducted by the Group,
or any business planned by the Group, (ii) cease doing business with the Group
or (iii) otherwise interfere with the relationship of the Group with any such
person, team, Customer or Supplier. For purposes of this paragraph, a "Customer"
of the Group means any person, corporation, partnership, trust division,
business unit, department or agency which, during the Restricted Period shall be
or shall have been a customer, distributor or agent of the Group or shall be or
shall have been contacted by the Group for the purpose of soliciting it to
become a customer, distributor or agent of the Group; and a "Supplier" of the
Group means any person, corporation, partnership, trust, division, business
unit, department or agency which, during the Restricted shall be or shall have
been a supplier, vendor, manufacturer or developer for any product or service or
significant component used in any product or service of the Group.
(c) SECRECY. The Executive recognizes that the services to be
performed by him hereunder are special, unique and extraordinary in that, by
reason of his employment hereunder, he may acquire confidential information and
trade secrets concerning the operation of the Group, the use or disclosure of
which could cause the Group substantial losses and damages which could not be
readily calculated and for which no remedy at law would be adequate.
Accordingly, the Executive covenants and agrees with the Company that he will
not at any time, whether during or after the termination of the Executive's
employment, reveal to any person or entity any of the trade secrets or
proprietary or confidential information of the Group or any third party which
the Group is under an obligation to keep confidential (including, but not
limited to, Intellectual Property Rights (as hereinafter defined), ideas
(whether or not protectable under trade secret laws), trade secrets or
proprietary or confidential information respecting inventions, products, product
plans, designs, drawings, sketches, marketing and other plans, methods,
know-how, techniques, technology, systems, characters, processes, strategies,
software programs, works of authorship, customer lists, user lists, vendor
lists, content provider lists, supplier lists, pricing information, projects,
notes, memoranda, reports, lists, records, specifications, data, documentation,
budgets, plans, projections, forecasts, financial information (including
revenues, costs or profits associated with any of the Group's products),
opportunities and proposals in whatever form, tangible or intangible or other
materials of any nature relating to any matter within the scope of the business
of the Group or concerning any of the dealings or affairs of the Group
(collectively,
<PAGE>
"Proprietary Information")), except as may be required in the ordinary course of
performing his duties hereunder as an Executive of the Group or with the prior
written consent of the Board and he shall keep secret all matters entrusted to
him and shall not use or attempt to use any such information in any manner. For
purposes of this paragraph, the term "Intellectual Property Rights" shall mean
all industrial and intellectual property rights, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyrights, copyright
applications or registrations, databases, algorithms, computer programs and
other software, know-how, trade secrets, proprietary processes and formulae,
inventions, trade dress, logos, design and all documentation and media
constituting, describing or relating to the above.
(d) EXCLUSIVE PROPERTY. The Executive confirms that all
confidential information is and shall remain the exclusive property of the
Group. All business records, papers and documents kept or made by the Executive
relating to the business of the Group shall be and remain the property of the
Group. Upon the termination of his employment with the Company or upon the
request of the Company at any time, the Executive shall promptly (but no later
than five (5) days after the earlier of the Executive's termination of
employment with the Group or the Company's request) destroy or deliver to the
Company, at the Company's option, (a) all materials furnished to the Executive
by the Group, (b) all tangible media of expression which are in the Executive's
possession and which incorporate any Proprietary Information or otherwise relate
to the business of the Group (including, without limitation, the material
described in the Executive Non-Disclosure), and (c) written certification of the
Executive's compliance with his obligations under this sentence, and shall not
without the consent of the Board retain copies of, any written materials not
previously made available to the public, or records and documents made by the
Executive or coming into his possession concerning the business or affairs of
the Group; PROVIDED, HOWEVER, that subsequent to any such termination, the
Company shall provide the Executive with copies (the cost of which shall be
borne by the Executive) of any documents which are requested by the Executive
and which the Executive has determined in good faith are (i) required to
establish a defense to a claim that the Executive has not complied with his
duties hereunder or (ii) necessary to the Executive in order to comply with
applicable law.
(e) NON-DISCLOSURE, NON-COMPETITION AND ASSIGNMENT OF
INVENTIONS. The Executive will execute an Executive Non-Disclosure and
Inventions Assignment Agreement substantially in the form set forth as Exhibit A
hereto (the "Executive Non-Disclosure and Inventions Assignment Agreement").
(f) INJUNCTIVE RELIEF. Without intending to limit the remedies
available to the Company, the Executive acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material irreparable injury
to the Group for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of such a breach or threat thereof, the Company shall be entitled to obtain a
temporary restraining order and/or a preliminary or permanent injunction
restraining the Executive from engaging in activities prohibited by this Section
6 or such other relief as may be required to specifically enforce any of the
covenants in this Section 6.
<PAGE>
Without intending to limit the remedies available to the Executive, the
Executive shall be entitled to seek specific performance of the Company's
obligations under this Agreement.
7. GENERAL PROVISIONS.
(a) SOURCE OF PAYMENTS. All payments provided under this
Agreement, other than payments made pursuant to a plan which provides otherwise,
shall be paid in cash from the general funds of the Company, and no special or
separate fund shall be established, and no other segregation of assets made, to
assure payment. The Executive shall have no right, title or interest whatever in
or to any investments which the Company may make to aid the Company in meeting
its obligations hereunder. To the extent that any person acquires a right to
receive payments from the Company hereunder, such right shall be no greater than
the right of an unsecured creditor of the Company; PROVIDED, HOWEVER, that this
provision shall not be
<PAGE>
deemed to waive or abrogate any preferential or other rights to payment accruing
to the Executive under applicable bankruptcy laws by virtue of the Executive's
status as an employee of the Company.
(b) NO OTHER SEVERANCE BENEFITS. Except as specifically set
forth in this Agreement, the Executive covenants and agrees that he shall not be
entitled to any other form of severance benefits from the Company, including,
without limitation, benefits otherwise payable under any of the Company's
regular severance policies, in the event his employment hereunder ends for any
reason and, except with respect to obligations of the Company expressly provided
for herein, the Executive unconditionally releases the Company and its
subsidiaries and affiliates, and their respective directors, officers, employees
and stockholders, or any of them, from any and all claims, liabilities or
obligations under this Agreement or under any severance or termination
arrangements of the Company or any of its subsidiaries or affiliates for
compensation or benefits in connection with his employment or the termination
thereof.
(c) TAX WITHHOLDING. Payments to the Executive of all
compensation contemplated under this Agreement shall be subject to all
applicable tax withholding.
(d) NOTICES. Any notice hereunder by either party to the other
shall be given in writing by personal delivery, or certified mail, return
receipt requested, or (if to the Company) by telex or facsimile, in any case
delivered to the applicable address set forth below:
(i) To the Company: Kozmo.com, Inc.
111 East 12th Street
New York, New York 10003
Telephone: (212) 253-5751
Telecopy: (212) 253-5758
Attention: Chief Executive Officer
With copies to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telephone: (212) 848-4000
Telecopy: (212) 848-7179
Attention.: John J. Cannon III, Esq.
(ii) To the Executive: Yong Kang
344 Third Avenue, Apartment 8J
New York, New York 10010
or to such other persons or other addresses as either party may specify to the
other in writing.
<PAGE>
(e) REPRESENTATION BY THE EXECUTIVE. The Executive represents
and warrants that his entering into this Agreement does not, and that his
performance under this Agreement and consummation of the transactions
contemplated hereby will not, violate the provisions of any agreement or
instrument to which the Executive is a party, or any decree, judgment or order
to which the Executive is subject, and that this Agreement constitutes a valid
and binding obligation of the Executive in accordance with its terms. Breach of
this representation will render all of the Company's obligations under this
Agreement void AB INITIO.
(f) LIMITED WAIVER. The waiver by the Company or the Executive
of a violation of any of the provisions of this Agreement, whether express or
implied, shall not operate or be construed as a waiver of any subsequent
violation of any such provision.
(g) ASSIGNMENT; ASSUMPTION OF AGREEMENT. No right, benefit or
interest hereunder shall be subject to assignment, encumbrance, charge, pledge,
hypothecation or setoff by the Executive in respect of any claim, debt,
obligation or similar process. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to assume expressly
and to agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place.
(h) AMENDMENT; ACTIONS BY THE COMPANY. This Agreement may not
be amended, modified or canceled except by written agreement of the Executive
and the Company. Any and all determinations, judgments, reviews, verifications,
adjustments, approvals, consents, waivers or other actions of the Company
required or permitted under this Agreement shall be effective only if undertaken
by the Company pursuant to authority granted by a resolution duly adopted by the
Board; PROVIDED, HOWEVER, that by resolution duly adopted in accordance with
this Section 7(h), the Board may delegate its responsibilities hereunder to one
or more of its members other than the Executive.
(i) SEVERABILITY. If any term or provision hereof is
determined to be invalid or unenforceable in a final court or arbitration
proceeding, (i) the remaining terms and provisions hereof shall be unimpaired
and (ii) the invalid or unenforceable term or provision shall be deemed replaced
by a term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
(j) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (determined
without regard to the choice of law provisions thereof).
(k) ENTIRE AGREEMENT. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the matters
covered hereby and supersedes all prior agreements and understandings of the
parties with respect to the subject matter hereof.
<PAGE>
(l) HEADINGS. The headings and captions of the sections of
this Agreement are included solely for convenience of reference and shall not
control the meaning or interpretation of any provisions of this Agreement.
(m) COUNTERPARTS. This Agreement may be executed by the
parties hereto in counterparts, each of which shall be deemed an original, but
both such counterparts shall together constitute one and the same document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the day and year first written above.
KOZMO.COM, INC
By: /s/ Joseph Park
Name: Joseph Park
Title: Chief Executive Officer
EXECUTIVE
/s/ Yong Kang
-----------------------------------
Yong Kang
<PAGE>
Exhibit 10.7
KOZMO.COM, INC.
80 Broad Street, 18th Floor
New York, NY 10004
October 14, 1999
Gerry Burdo
254 Verna Hill Rd.
Fairfield, CT. 06430
Dear Gerry:
On behalf of Kozmo.com, Inc. (the "Company"), I am pleased to invite
you to join the Company as Senior Vice President and Chief Financial Officer. In
this position, you will be expected to devote your full business time, attention
and energies to the performance of your duties with the Company. All
responsibilities and duties to previous business ventures must cease to exist at
the effective start date of employment. The effective date of your employment
will be November 1, 1999.
The terms of this offer of employment are as follows:
1. Compensation. The Company will pay you an annual salary of $200,000 for the
first full year you are employed by the Company. You will receive payment on a
bi-weekly basis in accordance with the Company's standard payroll policies. Your
salary will begin as of the effective date of employment. The first and last
payment by the Company to you will be adjusted, if necessary, to reflect a
commencement or termination date other than the first or last working day of a
pay period.
2. Reporting Relationship and Job Responsibilities. This position reports
directly to the Chief Executive Officer of the Company (Joseph Park). The job
responsibilities include financial operations, finance, controls, treasury,
inventory management, and administration.
3. Benefits. You will be entitled during the term of your employment to the
Company's standard benefits covering employees, as such may be in effect from
time to time.
4. Stock Option. The Company will grant to you options to purchase 582,026
shares (1.5% of total capitalization) of the Company's Common Stock pursuant to
the Company's 1999 Stock Option Plan (the "Plan") which has been approved by the
Board. The exercise price of your options will be $1.80. The options will vest
over four years with 145,507.5 options vesting upon the one-year anniversary of
the effective date of your employment and 12,125.54 options vesting at the end
of each full month thereafter until all options are vested, subject to the
provisions of the Plan and your continued employment with the Company. In the
event of an Initial Public Offering (IP0), a percentage of your options, based
on your tenure at the company (i.e. 25% if the company goes public at your one
year anniversary), will vest automatically with the remaining options following
the normal vesting schedule.
<PAGE>
5. Employee Confidential Information and Ownership Agreement. As a condition of
this offer of employment, you will be required to complete, sign and return the
Employee Confidential Information and Ownership Agreement which is being
provided to you herewith.
6. Immigration Laws. For purposes of federal immigration laws, you will be
required to provide to the Company documentary evidence of your identity and
eligibility for employment in the United States.
7. General. This offer letter, the Employee Confidential Information and
Ownership Agreement and the agreement(s) representing stock options granted to
you under the Plan, when signed by you, set forth the terms of your employment
with the Company and supersede any and all prior representations and agreements,
whether written or oral. This agreement can only be amended in a writing signed
by you and an officer of the Company. Any waiver of a right under this agreement
must be in writing. This agreement and its enforcement will be governed by the
laws of the State of New York.
We look forward to your joining the Company. If the foregoing terms
are agreeable, please indicate your acceptance by signing the enclosed copy of
this letter in the space provided below and returning it to me, along with your
completed and signed Employee Confidential Information and Ownership Agreement.
Sincerely,
KOZMO.COM, INC.
By: /s/ Yong Kang
-------------------------------------
Name: Yong Kang
Title: President
ACCEPTED:
/s/ G. Burdo
- -----------------------------------
Gerry Burdo
2
<PAGE>
Exhibit 10.8
October 14, 1999
Mr. Kenneth "Skip" Trevathan
1836 Johnson Road
Germantown, TN 38139
Dear Skip:
On behalf of Kozmo.com and its team members, I am pleased to offer you a
position with our company. We are excited about our business and look forward to
having you on the team. The offer is as follows:
Position: Chief Operating Officer
Reports to: Joe Park, CEO
Salary: $250K base - Annual salary review
Sign On: $15K
Equity: 2.5% of shares outstanding (equivalent to 994,920 shares)
Vesting Information:
There is a 4 year vesting period for all shares. 25% will vest after
the first year of employment. The remaining shares will vest on a
pro-rated monthly basis. All options that have accrued between date
of employment and date of IPO will vest immediately upon Kozmo.com's
IPO. If the company is sold or acquired, all outstanding shares will
vest immediately.
Bonus: Bonus will be paid every 6 months during the fiscal year
(February/August) and will be a combination of cash and equity.
Targeted annual bonus will be 20% of base salary.
401K: Will commence as soon as it is put into place. (Projected January
2000)
Life Insurance/Disability:
Kozmo.com will pay for your $1M life insurance and disability
program to be determined.
Severance: If you are terminated for reasons other than cause, you will be
guaranteed salary continuation for up to three months.
Housing/Travel:
Fully paid corporate apartment in New York City. The housing will be
with your and your spouse's approval. All travel expenses for you
and your spouse at your discretion.
Benefits: Full medical/dental coverage and a $5M personal liability insurance
to cover you and your dependents.
Vacation: Your present vacation policy stands at 4 weeks, 2 personal, 2
floating holidays, 6 company holidays.
Location: New York, NY -- Headquarters
<PAGE>
Germantown, TN -- Home office/Residence
Start Date: November 15, 1999
Miscellaneous:
All hardware and software will be provided.
This is an exciting time to help Kozmo.com. Your contribution will help the firm
realize its potential in the marketplace and bring personal satisfaction in
playing a role in its success. We look forward to having you join our team.
Yours truly,
/s/ Yong Kang
Yong Kang
Executive Director
Accepted:
/s/ Kenneth "Skip" Trevathan 10-16-99
- -------------------------------- --------------
Kenneth "Skip" Trevathan Date
<PAGE>
Exhibit 10.9
KOZMO.COM, INC.
80 Broad Street, 18th Floor
New York, NY 10004
November 22, 1999
Chris Shimojima
New York, NY
Dear Chris:
On behalf of Kozmo.com, Inc. (the "Company"), I am pleased to invite
you to join the Company as Chief Marketing Officer. In this position, you will
be expected to devote your full business time, attention and energies to the
performance of your duties with the Company. All responsibilities and duties to
previous business ventures must cease to exist at the effective start date of
employment. The effective date of your employment will be January 14, 2000
The terms of this offer of employment are as follows:
1. Reports to: Joe Park, CEO
2. Compensation. The Company will pay you an annual salary of $200,000 for
the first full year you are employed by the Company. You will receive
payment on a bi-weekly basis in accordance with the Company's standard
payroll policies. Your salary will begin as of the effective date of
employment. The first and last payment by the Company to you will be
adjusted, if necessary, to reflect a commencement or termination date
other than the first or last working day of a pay period.
3. Bonus. Annual bonus, based upon individual and company performance payable
every 6 months during the fiscal year (February/August). Bonuses will be
performance related, annual with no cap.
4. Benefits. You will be entitled during the term of your employment to the
Company's standard benefits covering employees, as such may be in effect
from time to time. In addition, the Company will reimburse you for the
following: a) your portion of COBRA payments for AT&T's standard indemnity
health insurance plan, b) your AT&T's Executive Life insurance program
premiums, and c) your Long Term Disability insurance premiums.
5. Stock Option. The Company will grant to you options to purchase 800,000
shares of the Company's Common Stock pursuant to the Company's 1999 Stock
Option Plan (the "Plan") which has been approved by the Board. The
exercise price of your options will be $1.80. The options will vest over
four years with 200,000 options vesting upon the one-year anniversary of
the effective date of your employment and 16,666.67 options vesting at the
<PAGE>
end of each full month thereafter until all options are vested, subject to
the provisions of the Plan and your continued employment with the Company.
6. Employee Confidential Information and Ownership Agreement. As a condition
of this offer of employment, you will be required to complete, sign and
return the Employee Confidential Information and Ownership Agreement which
is being provided to you herewith.
7. Immigration Laws. For purposes of federal immigration laws, you will be
required to provide to the Company documentary evidence of your identity
and eligibility for employment in the United States.
8. General. This offer letter, the Employee Confidential Information and
Ownership Agreement and the agreement(s) representing stock options
granted to you under the Plan, when signed by you, set forth the terms of
your employment with the Company and supersede any and all prior
representations and agreements, whether written or oral. This agreement
can only be amended in writing signed by you and an officer of the
Company. Any waiver of a right under this agreement must be in writing.
This agreement and its enforcement will be governed by the laws of the
State of New York.
We look forward to your joining the Company. If the foregoing terms
are agreeable, please indicate your acceptance by signing the enclosed copy of
this letter in the space provided below and returning it to me, along with your
completed and signed Employee Confidential Information and Ownership Agreement.
Sincerely,
KOZMO.COM, INC
By: /s/ Joseph Park
----------------------------
Name: Joseph Park, CEO
---------------------------
Title:
--------------------------
ACCEPTED:
/s/ Chris Shimojima
- ----------------------
Chris Shimojima
2
<PAGE>
Exhibit 10.10
KOZMO.COM, INC.
80 Broad Street, 18th Floor
New York, NY 10004
February 2, 1999
William S. Herald
1320 West Wesley Road
Atlanta, GA 30327
Dear William:
On behalf of Kozmo.com, Inc. (the "Company"), I am pleased to invite
you to join the Company as SVP and Chief Technology Officer ("CTO"). In this
position, you will be expected to devote your full business time, attention and
energies to the performance of your duties with the Company; but you may devote
reasonable time to charitable and community activities and manage personal
business interests and investments, so long as such activities do not
materially interfere with the performance of your responsibilities to the
Company. The effective date of your employment will be February 14, 2000.
The terms of this offer of employment are as follows:
1. Compensation. The Company will pay you an annual salary of $300,000 for the
first full year you are employed by the Company. The Board of Directors of the
Company will review your salary annually and may, in its discretion, increase
your salary from year to year. You will receive payment on a bi-weekly basis in
accordance with the Company's standard payroll policies. Your salary will begin
as of the effective date of employment. The first and last payment by the
Company to you will be adjusted, if necessary, to reflect a commencement or
termination date other than the first or last working day of a pay period.
Bonuses in the form of cash, pay raises and options will be awarded every
February.
2. Benefits. You will be entitled during the term of your employment to the
Company's standard benefits covering employees, as such may be in effect from
time to time. Benefits include family heath and dental insurance, 401K plan and
standard annual 4-week vacations. The company will reimburse you for other
reasonable insurance premiums, including life and disability, requested from
time to time.
3. Stock Option. The Company will grant to you ten-year options to purchase
1,000,000 shares of the Company's Common Stock pursuant to the Company's 2000
Stock Option Plan (the "Plan") which has been approved by the Board. The
exercise price of your options will be $4.41 per share. The options will vest
over five years with 20% of the options vesting upon the one-year anniversary of
the effective date of your employment, 20% after the 2nd anniversary and
16,666.67 options vesting at the end of each full month thereafter until all
options are vested, subject to the provisions of the Plan and your continued
employment with the Company. In the event of an initial public offering, 100,000
of your options will automatically vest with the remaining 900,000 options
following the normal 5-year vesting schedule. In the event of a Change in
Control (as defined in the Plan), your Options will automatically vest 100%, not
withstanding Section 18 of the Plan.
4. Travel/Moving. The Company will provide corporate housing for you in
Manhattan paying for all rental fees as well as necessary furniture costs. All
reasonable travel expenses
<PAGE>
from Manhattan to Atlanta for you and your family will also be reimbursed by the
Company. (reasonable includes weekend commutes) If you wish to relocate your
family closer to Manhattan, the Company will also reimburse you for all travel
and moving expenses.
5. Termination.
(a) The Company will terminate your employment at anytime with or without
Cause. "Cause" means (i) your willful neglect of your duties hereunder, or
(ii) your malfeasance in respect of the Company, its properties, assets,
business or employees; provided that you have been given notice in writing
of such alleged action or inaction constituting Cause and shall have
failed to cure the same to the reasonable satisfaction of the Board within
30 days of your receipt of such notice.
(b) You may terminate your employment at anytime with or without Good Reason.
"Good Reason" means any of the following actions by the Company without
your consent: (i) a material diminution in your position, authority,
duties or responsibilities, (ii) a reduction in your salary or benefits,
or (iii) a breach of this agreement by the Company; provided that you
shall have given the Company notice in writing of such alleged action or
inaction constituting Good Reason and the Company shall have failed to
cure the same to your reasonable satisfaction within 30 days of its
receipt of such notice.
(c) Your employment will terminate automatically upon your death or
Disability. "Disability" means your inability, as determined by the Board,
to substantially perform the essential functions of your regular duties
and responsibilities, with or without reasonable accommodation, due to a
medically determinable physical or mental illness which has lasted (or can
reasonably expected to last) for a period of six consecutive months. At
your request or the request of your personal representative, the Board's
determination of your Disability will be certified by a physician mutually
agreed upon by you, or your personal representative, and the Company.
Failing such certification, if so requested, your termination will be
deemed to be termination without Cause.
6. Termination Benefits.
(a) In the event of your termination by the Company without Cause or
termination by you for Good Reason, you will be entitled to receive your
salary through the date of termination ("Accrued Obligations"), any
benefits that you are entitled to receive under any Company plan, policy,
practice or agreement ("Vested Benefits"), plus a lump sum severance
payment equal to one-half times the sum of (i) your annual salary as in
effect on the date of termination or, if greater, the date immediately
before the event giving rise to Good Reason, plus (ii) your annual bonus
for the last completed fiscal year (or, if termination occurs in 2000,
your target annual bonus for 2000.)
(b) Notwithstanding the above, in the event of your termination for any reason
resulting from or in connection with a Change in Control (as defined in
the Company's 2000 Incentive Stock Plan), you will be entitled to receive
your Accrued Obligations and Vested Benefits, plus a lump sum severance
payment equal to one times the sum of (i) your annual salary as in effect
on the date immediately before the Change of Control, plus (ii) your
annual bonus for last completed fiscal year (or, if the Change in Control
occurs in 2000, your target annual bonus for 2000).
(c) In the event of your death or permanent disability, you will be entitled
to your Accrued Obligations and Vested Benefits, including any such Vested
Benefits relating to death or disability.
7. Excise Tax Gross-Up. If it is determined that any payment or distribution by
the Company to or for your benefit, whether pursuant to this agreement or
otherwise (a "Payment")
2
<PAGE>
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code or any interest or penalties are incurred by you with respect to
such excise tax (collectively, the "Excise Tax"), then you will be entitled to
receive an additional payment from the Company (a "Gross-Up Payment") in the
amount such that after your payment of all taxes, interest and penalties,
including any income taxes, interest and penalties and Excise Tax imposed upon
the Gross-Up Payment, you will retain an amount of the Gross-Up Payment equal to
the Excise Tax imposed by the Payments.
8. Cost of Enforcement. You will be entitled to be paid any and all reasonable
costs and expenses incurred by you in any action taken in good faith relating to
the enforcement of this agreement.
9. Employee Confidential Information and Ownership Agreement. As a condition of
this offer of employment, you will be required to complete, sign and return the
Employee Confidential Information and Ownership Agreement which will be provided
to you at a later date.
10. Immigration Laws. For purposes of federal immigration laws, you will be
required to provide to the Company documentary evidence of your identity and
eligibility for employment in the United States.
11. General. This offer letter, the Employee Confidential Information and
Ownership Agreement and the agreement(s) representing stock options granted to
you under the Plan, when signed by you, set forth the terms of your employment
with the Company and supersede any and all prior representations and agreements,
whether written or oral. This agreement can only be amended in a writing signed
by you and an officer of the Company. Any waiver of a right under this agreement
must be in writing. This agreement and its enforcement will be governed by the
laws of the State of New York.
We are extremely excited and look forward to your joining the
Company. If the foregoing terms are agreeable, please indicate your acceptance
by signing the enclosed copy of this letter in the space provided below and
returning it to me. If you have any questions or comments about the offer terms,
feel free to call me anytime at (646) 458-5055.
Sincerely,
KOZMO.COM, INC.
By: /s/ Yong Kang
-------------------------
Name: Yong Kang
Title: President
ACCEPTED:
/s/ William S. Herald
- -----------------------------
William S. Herald
3
<PAGE>
Exhibit 10.11
================================================================================
KOZMO.COM, INC.
1999 INCENTIVE STOCK OPTION PLAN
(AS AMENDED AND RESTATED AS OF MARCH 16, 2000)
================================================================================
<PAGE>
KOZMO.COM, INC. 1999 INCENTIVE STOCK OPTION PLAN
------------------------------------------------
(as amended and restated as of March 6, 2000)
1. ESTABLISHMENT AND PURPOSE OF THE PLAN.
(a) ESTABLISHMENT. Kozmo.com, Inc. (the "Company"), a Delaware
corporation, hereby establishes a stock option plan to be named the Kozmo.com,
Inc. 1999 Incentive Stock Option Plan (the "Plan"). The Plan is separate from,
and does not replace, the Kozmo.com, Inc. 1999 Stock Option Plan. All options
granted pursuant to this Plan on or after the effective date of this Plan shall
be governed by the terms and conditions of this Plan.
(b) PURPOSE. The purpose of this Plan is to authorize the
grant to directors, officers, key employees, advisors and others affiliated with
the Company of options ("options") to purchase shares of common stock of the
Company, par value $.001 (the "Common Stock"), and thus benefit the Company by
giving such persons a greater personal interest in the success of the enterprise
and an added incentive to continue and advance in their service to the Company.
(c) GRANT OF OPTIONS. The date of grant of an option under the
Plan will be the date on which the option is awarded by the Board or the
Committee, unless a later date is specified by Board or the Committee at the
time of the award; PROVIDED, HOWEVER, that in the case of an incentive stock
option, the date of grant shall be no earlier than the date as of which the
optionee becomes an employee of the Company or one of its subsidiaries. Options
which may be granted under this Plan include options intended to qualify as
"incentive stock options" under Sections 422 of the Internal Revenue Code of
1986, as amended, and non-qualified stock options.
(d) NO EVIDENCE OF EMPLOYMENT OR SERVICE. Nothing contained in
the Plan or in any option agreement shall confer upon any optionee any right
with respect to the continuation of his or her employment by or service with the
Company or any of its subsidiaries or interfere in any way with the right of the
Company or any such subsidiary (subject to the terms of any separate agreement
to the contrary) at any time to terminate such employment or service or to
increase or decrease the compensation of the optionee from the rate in existence
at the time of the grant of an option.
2. ADMINISTRATION.
(a) SELECTION OF PARTICIPANTS AND AMOUNT OF AWARDS; POWERS OF
THE COMMITTEE. The Plan shall be administered by the Board of Directors or by a
compensation committee (the "Committee") to be appointed from time to time by
the Board of Directors of the Company (the "Board"); PROVIDED, HOWEVER, that, so
long as it shall be required to comply with Rule 16b-3 ("Rule 16b-3")
promulgated by the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934 (the "1934 Act") in order to permit officers and
directors of the Company to be exempt from the provisions of Section 16(b) of
the 1934 Act with respect to transactions pursuant to
<PAGE>
the Plan, each of such persons, at the effective date of his or her appointment
to the Committee, shall be a "disinterested person" within the meaning of Rule
16b-3. Members of the Committee, or if the Plan is administered by the Board, a
majority of the Board, shall not be eligible to receive stock options granted
under the Plan. The Committee shall select one of its members as its chairman
and shall hold its meetings at such times and places as it deems appropriate. A
majority of its members shall constitute a quorum and all determinations of the
Committee shall be made by a majority of its members. Any decision or
determination that is reduced to writing and signed by a majority of the members
shall be fully as effective as if made by a majority vote at a meeting duly
called and held. The Board or Committee shall have authority, subject to the
terms of the Plan, to determine: (i) the persons eligible to receive options
hereunder, (ii) the number of shares for which options are granted, (iii) the
option price, (iv) whether an option shall be a non-qualified option or an
incentive stock option, (v) the time when the options may be granted and
exercised, (vi) the vesting schedule for the options, and (vii) the terms and
provisions of the agreements by which options shall be evidenced. The Committee
shall have full power and authority to construe, interpret and administer the
Plan and may from time to time adopt such rules and regulations for carrying out
this Plan as it may deem proper and in the best interests of the Company. The
interpretation of any provisions of this Plan by the Committee shall be final,
conclusive, and binding upon all persons and the Board of Directors shall place
into effect the determinations of the Committee.
(b) LIABILITY; INDEMNIFICATION. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to administration of this Plan. Each member of the Board and the
Committee shall be indemnified by the Company, pursuant to the Company's bylaws,
for any expenses, judgments or other costs incurred as a result of any claim or
action brought involving such member claiming any rights or remedies arising out
of such member's participation in administration of this Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) GENERAL. Subject to adjustments made pursuant to Section
11 (relating to adjustments upon changes in capital structure and other
corporate transactions), the aggregate number of shares of the Company's Common
Stock for which options may be awarded under the Plan shall be 11,613,546 shares
of Common Stock. The shares of Common Stock pursuant to which options are
granted under this Plan may be shares of Common Stock previously issued and
acquired or reacquired, as the case may be, by the Company (or, if applicable at
any future time, any of its subsidiaries or other entities in common control
with the Company at any time), or authorized but unissued shares of Common Stock
maintained in the Company's treasury, as the Board or Committee from time to
time may determine.
(b) EFFECT OF EXPIRED OPTIONS. In the event that any options
granted hereunder expire or terminate for any reason, such a corresponding
number of shares of Common Stock shall again be available for options under the
Plan. The Company shall not, upon the exercise of any option,
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be required to issue or deliver any shares of Common Stock prior to the
completion of such registration or other qualification of such shares under any
state or federal law, rule or regulation as the Company shall determine to be
necessary or advisable.
4. ELIGIBILITY.
(a) Any key employee of the Company, and any non-employee
providing services to the Company (as a director, agent, consultant, advisor,
professional or otherwise), in the discretion of the Board of Directors, shall
be eligible to be granted options hereunder (any such employees granted options
pursuant to this Plan as well as any such non-employees are referred to herein
as "optionee" or "Plan Participants"). The Committee may determine (in its sole
discretion) that any person who would otherwise be eligible to be granted
options hereunder shall, nonetheless, be ineligible to receive any option under
this Plan, for any reason or for no reason.
(b) Unless otherwise determined by the Board or the Committee,
non-qualified stock options shall be granted only to directors, advisors,
officers and key employees of the Company and incentive stock options shall be
granted only to key employees. Employees of the Company shall be eligible to
receive options under the Plan only upon the completion of one continuous year
of employment with the Company, unless otherwise determined to be eligible by
the Board. Directors and officers of the Company shall be eligible to receive
options under the Plan only after serving on the Board or as officers for one
continuous year, unless otherwise determined to be eligible by the Board or
Committee.
5. OPTION PRICE. Unless otherwise determined by the Board or
the Committee, the purchase price per share of Common Stock under each
non-qualified option will be the book value of such Common Stock on the date of
grant as determined in accordance with generally accepted accounting principles.
Qualified incentive stock options may be granted at an option price per share
not less than 100% of the fair market value of a share on the date of grant. No
option may have a term greater than 10 years. Qualified incentive stock options
granted to persons who own more than 10 percent of the Company's stock have
option prices not less than 110% of the fair market value of the stock on the
date of grant and may have terms no longer than 5 years. In no event shall the
purchase price per share of Common Stock under any option be less than the par
value of a share of Common Stock.
6. PERIOD OF OPTION AND RIGHTS TO EXERCISE. Subject to the
provisions of this Section and Sections 9 and 10 hereof, an option shall be
exercisable as follows:
(a) Unless otherwise determined by the Board or the Committee,
25% of an option shall become exercisable upon and after twelve (12) months
following the date of grant. Thereafter, 1/36 of the remaining 75% of such
option shall vest following each subsequent month period, on the last day of the
month, until the entire option is vested.
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(b) The right to exercise an option shall expire on the
expiration date specified in the agreement evidencing the option, which in no
event shall be later than ten years from the date the option was granted.
(c) No shares shall be delivered pursuant to any exercise of
an option until the requirements of such laws and regulations as may be deemed
by the Board or Committee to be applicable are satisfied and until payment of
the option price is received by the Company. Such payment shall be made as
specified in the agreement evidencing the option, which may provide for payment
in cash or other manner approved by the Board or the Committee. Except as
provided in Sections 9 and 10 hereof, no option may be exercised unless the
optionee is then in the service of the Company and shall have continuously been
in the service of the Company since the grant of the option.
7. RESTRICTIONS UPON SALE OF STOCK. If an optionee purchases
Common Stock of the Corporation pursuant to the exercise of an option granted
under this Plan, such optionee shall not sell, transfer or otherwise dispose of
such Common Stock without the prior written consent of the Company prior to the
date upon which the Company first offers its Common Stock for sale in a public
offering registered under the Securities Act of 1933, as amended.
8. TRANSFERABILITY OF OPTIONS. An option granted under the
Plan may not be transferred except by will or the laws of descent or
distribution, and such option shall be exercisable, during the lifetime of the
optionee, only by the optionee.
9. TERMINATION OF SERVICES. Except as specifically provided in
an award agreement or employment agreement applicable to an optionee:
(a) In the event that employment of an optionee by, or
affiliation with, the Company is terminated for any reason other than death, a
fully-vested option granted hereunder shall be exercisable by the optionee at
any time prior to the expiration date of the option or within ninety days after
the date of such termination, whichever is earlier, but only to the extent the
optionee had the right to exercise such option at the date of such termination;
PROVIDED, HOWEVER, that any optionee who is terminated for cause (which, except
as otherwise defined in an applicable award or employment agreement, shall mean
willful neglect of duties or malfeasance in respect of the Company, its
properties, assets, business or employees) shall lose the right to exercise any
option granted under this Plan as of the date of notice of such termination.
Notwithstanding the foregoing, if in the judgment of the Board or Committee an
optionee shall cease to perform services for the Company as a result of a
disability, the optionee may exercise an option within one year after the date
of cessation of services, but in no event after the expiration date specified in
the agreement evidencing the option, if and to the extent that the optionee was
entitled to exercise the option at the time of cessation of services.
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(b) If an optionee does not exercise any outstanding option
which was exercisable upon the date of cessation of services to the Company
within the foregoing ninety-day or one-year periods following such cessation,
the option shall thereupon expire.
10. DEATH OF OPTIONEE. In the event of the death of an
optionee while in the employ or affiliated with the Company or within the period
of sixty (60) days next succeeding the optionee's cessation of services, the
option will be exercisable by the person or persons to whom such optionee's
rights pass by will or by the laws of descent and distribution at any time prior
to the expiration date of the option or within six months after the date of such
death, whichever is earlier, but only to the extent the optionee had the right
to exercise such option on the date of death.
11. ADJUSTMENT IN SHARES SUBJECT TO PLAN. In the event that
the outstanding shares of Common Stock are subject to a stock split or changed
into or exchanged for a different number or kind of shares or other securities
of the Company or other corporation by reason of a merger, consolidation,
reorganization, recapitalization, reclassification, combination of shares or a
dividend payable in capital stock, or a similar corporate structural change,
then (i) the total number of shares of Common Stock subject to this Plan shall
be appropriately adjusted, (ii) the rights of Plan Participants shall be
appropriately adjusted as to the number of shares of Common Stock subject to the
option and/or as to the option price, and (iii) if the Company is involved in a
dissolution, liquidation, merger, or combination in which it is not the
surviving entity and the options outstanding hereunder are not assumed by the
surviving corporation or a parent thereof, then each outstanding option granted
hereunder shall terminate thirty (30) days after the effective date of such
dissolution, liquidation, merger or consolidation. Within said thirty (30) day
period, the optionee may exercise his option in whole or in part, to the extent
it shall not have previously been exercised. The granting of an option pursuant
to this Plan shall not affect in any way the right or power of the Company to
make adjustments, reorganizations, reclassifications, or changes of its capital
or business structure or to merge, consolidate, dissolve, liquidate, or sell or
transfer all or any part of its business or assets.
12. ACCELERATION UPON CHANGE IN CONTROL. In the event of a
Change in Control (as defined below), notwithstanding anything to the contrary
herein all options granted under the Plan shall be considered 100% vested and
nonforfeitable. For purposes of the foregoing, a "Change in Control" shall be
deemed to have occurred when:
(A) Any Person is or becomes the "beneficial owner" (as
defined in Rule 13d-3 of the Securities Exchange Act of 1934 (the
"Exchange Act"), whether or not the Company is then subject to the
terms of the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the combined
voting power of the Company's then-outstanding securities; or
(B) The individuals who were directors on the Effective Date,
or any director whose appointment or election by the Board or
nomination for election by the Company's
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shareholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then in office, who either were
directors as of the Effective Date or whose appointment, election or
nomination for election was previously so approved or recommended
(other than a director whose initial assumption of office is in
connection with an actual or threatened election contest, including,
but not limited to, a consent solicitation, relating to the election of
directors of the Company) cease for any reason to constitute a majority
of the directors then serving on the Company's board of directors; or
(C) There is consummated a merger or consolidation of the
Company, other than (x) a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior to
such merger or consolidation continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any subsidiary, at least sixty
percent (60%) of the combined voting power of the securities of the
Company or such surviving entity, or any parent thereof, outstanding
immediately after such merger or consolidation, or (y) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the
beneficial owner, directly or indirectly, of the Company's securities
(excluding any securities acquired directly from the Company or its
affiliates other than in connection with the acquisition by the Company
or its affiliates of a business) representing twenty percent (20%) or
more of the combined voting power of the Company's then-outstanding
securities; or
(D) The shareholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the Company's
assets to an entity, at least sixty percent (60%) of the combined
voting power of the voting securities of which are owned by
shareholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
For purposes of the above, "Person" shall mean any person,
entity or "group" within the meaning of Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act, except that such term shall not include (i) the Company or any
of its subsidiaries, (ii) a trustee or other fiduciary holding securities under
an employee benefit plan of the Company or any of its subsidiaries, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of stock of the Company.
13. SUBSTITUTION OR ASSUMPTION OF OPTIONS. Notwithstanding any
provision of the Plan to the contrary (but subject to the provisions of Section
3 hereof), by action of the Board, the
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Company may as an incident to or by reason of any corporate merger,
consolidation, acquisition of property or stock, separation, reorganization or
liquidation, substitute new options on Common Stock of the Company for options
granted by another employer to its employee on stock of such employer or may
assume options granted by another employer to its employees, at such purchase
prices and under such conditions, in the case of non-qualified options, as the
Board may approve and, in the case of incentive stock options, as may be
permitted by Section 425(a) of the Internal Revenue Code, as amended, and the
Committee is hereby expressly authorized to take such action as may be required
to effectuate any such issuance or assumption. Shares of Common Stock of the
Company subject to any option so issued or assumed shall be charged against the
total number of shares available for grant of options under the Plan.
14. WITHHOLDING AND REPORTING. The Company's obligation to
deliver shares of Common Stock or make payment upon the exercise of any option
or with respect to its purchase of any option shall be subject to applicable
federal, state and local tax withholding and reporting requirements.
15. PERIOD, EXPIRATION AND TERMINATION OF THE PLAN. Options
may be granted under the Plan at any time prior to the tenth anniversary of the
effective date of the Plan, on which anniversary the Plan will expire except as
to options then outstanding thereunder, which options shall remain in effect
until they have been exercised or have expired or otherwise terminated pursuant
to the terms of the Plan (including any award or employment agreement entered
into with an optionee with respect to options granted hereunder). The Plan may
be abandoned or terminated at any time by the Board except with respect to any
options then outstanding under the Plan.
16. AMENDMENT OF THE PLAN. The Board of Directors or Committee
may at any time or from time to time make such amendments hereto as it shall
deem advisable and in the best interests of the Company, without action on the
part of the stockholders of the Company; PROVIDED, HOWEVER, that no such
termination or amendment shall (i) without the consent of the individual to whom
any awards shall theretofore have been granted, affect or impair the rights of
such individual under the Plan, (ii) increase the maximum number of shares that
may be issued under the Plan, (iii) change the minimum purchase price under the
Plan, (iv) extend the period during which any option may be granted or exercised
or (v) change the provisions of the Plan relating to eligibility.
17. SUBJECT TO STOCKHOLDERS' AGREEMENT. The shares of Common
Stock deliverable upon the exercise of options under this Plan shall be governed
by all of the terms, conditions, restrictions and limitations contained in the
First Amended and Restated Stockholders' Agreement, dated as of December 23,
1999, among the Company and the stockholders identified therein (the
"Stockholders' Agreement"). By exercising an option pursuant to this Plan, each
Plan participant shall thereby agree to any and all such terms, conditions,
restrictions and limitations, and shall execute a copy of the Stockholders'
Agreement. In addition, any shares of Common Stock issued pursuant to this Plan
shall be subject to such restrictions on transfer and limitations as shall, in
the
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opinion of the Administrator or the Company's corporate counsel, be necessary or
advisable to assure compliance with the laws, rules and regulations of the
United States government or any state or jurisdiction thereof.
18. EFFECTIVENESS. This Plan as amended and restated shall be
effective as of March 16, 2000; PROVIDED, HOWEVER, that Section 12 of the Plan
shall only become effective upon the Company obtaining the approval of the
Company's shareholders necessary to satisfy the requirements for the exemption
contained in Section 280G(b)(5)(B) of the Internal Revenue Code of 1986, as
amended. The Company will use reasonable best efforts to cause the Plan to
continue to satisfy the exemption referred to above.
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Exhibit 10.12
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KOZMO.COM, INC.
1999 STOCK OPTION PLAN
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<PAGE>
KOZMO.COM, INC. 1999 STOCK OPTION PLAN
1. ESTABLISHMENT AND PURPOSE AND OF PLAN.
(a) ESTABLISHMENT. Kozmo.com, Inc. (the "Company"), a New York
corporation, hereby establishes a Stock Option Plan to be named the Kozmo.com,
Inc. 1999 Stock Option Plan (the "Plan"). All options granted pursuant to this
Plan on or after the effective date of this Plan shall be governed by the terms
and conditions of this Plan.
(b) PURPOSE. The purpose of this Plan is to authorize the grant to
directors, officers, key employees, advisors and others affiliated with the
Company of options ("options") to purchase shares of common stock of the
Company, par value $.001 (the "Common Stock"), and thus benefit the Company by
giving such persons a greater personal interest in the success of the enterprise
and an added incentive to continue and advance in their service to the Company.
(c) GRANT OF OPTIONS. The date of grant of an option under the Plan
will be the date on which the option is awarded by the Board, unless a later
date is specified by Board or the Committee at the time of the award. Options
which may be granted under this Plan include options intended to qualify as
"incentive stock options" under Sections 422A of the Internal Revenue Code of
1986, as amended, and non-qualified stock options.
2. ADMINISTRATION.
(a) SELECTION OF PARTICIPANTS AND AMOUNT OF AWARDS; POWERS OF THE
COMMITTEE. The Plan shall be administered by the Board of Directors or by a
compensation committee (the "Committee") to be appointed from time to time by
the Board of Directors of the Company (the "Board"). Members of the Committee,
or if the Plan is administered by the Board, a majority of the Board, shall not
be eligible to receive stock options granted under the Plan. The Committee shall
select one of its members as its chairman and shall hold its meetings at such
times and places as it deems appropriate. A majority of its members shall
constitute a quorum and all determinations of the Committee shall be made by a
majority of its members. Any decision or determination that is reduced to
writing and signed by a majority of the members shall be fully as effective as
if made by a majority vote at a meeting duly called and held. The Board or
Committee shall have authority, subject to the terms of the Plan, to determine:
(i) the persons eligible to receive options hereunder, (ii) the number of shares
for which options are granted, (iii) the option price, (iv) whether an option
shall be a non-qualified option or an incentive stock option, (v) the time when
the options may be granted and exercised, (vi) the vesting schedule for the
options, and (vii) the terms and provisions of the agreements by which options
shall be evidenced. The Committee shall have full power and authority to
construe, interpret and administer the Plan and may from time to time adopt such
rules and regulations for carrying out this Plan as it may deem proper and in
the best interests of the Company. The interpretation of any provisions of this
Plan by the Committee shall be final, conclusive, and
<PAGE>
binding upon all persons and the Board of Directors shall place into effect the
determinations of the Committee.
(b) LIABILITY; INDEMNIFICATION. No member of the Board or the Committee
shall be liable for any action or determination made in good faith with respect
to administration of this Plan. Each member of the Board and the Committee shall
be indemnified by the Company, pursuant to the Company's bylaws, for any
expenses, judgments or other costs incurred as a result of any claim or action
brought involving such member claiming any rights or remedies arising out of
such member's participation in administration of this Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) GENERAL. Subject to adjustments made pursuant to Section 11, the
aggregate number of shares of the Company's Common Stock for which options may
be awarded under the Plan shall be two million (2,000,000) shares of Common
Stock. The shares of Common Stock pursuant to which options are granted under
this Plan may be shares of Common Stock previously issued and acquired or
reacquired, as the case may be, by the Company (or, if applicable at any future
time, any of its subsidiaries or other entities in common control with the
Company at any time), or authorized but unissued shares of Common Stock
maintained in the Company's treasury, as the Board or Committee from time to
time may determine.
(b) EFFECT OF EXPIRED OPTIONS. In the event that any options granted
hereunder expire or terminate for any reason, such a corresponding number of
shares of Common Stock shall again be available for options under the Plan. The
Company shall not, upon the exercise of any option, be required to issue or
deliver any shares of Common Stock prior to the completion of such registration
or other qualification of such shares under any state or federal law, rule or
regulation as the Company shall determine to be necessary or advisable.
4. ELIGIBILITY.
(a) Any key employee of the Company, and any non-employee providing
services to the Company (as a director, agent, consultant, advisor, professional
or otherwise), in the discretion of the Board of Directors, shall be eligible to
be granted options hereunder (any such employees granted options pursuant to
this Plan as well as any such non-employees are referred to herein as "optionee"
or "Plan Participants"). The Committee may determine (in its sole discretion)
that any person who would otherwise be eligible to be granted options hereunder
shall, nonetheless, be ineligible to receive any option under this Plan, for any
reason or for no reason.
(b) Unless otherwise determined by the Board or the Committee,
non-qualified stock options shall be granted only to directors, advisors,
officers and key employees of the Company and incentive stock options shall be
granted only to key employees. Employees of the Company shall be eligible to
receive options under the Plan only upon the completion of one continuous year
of employment with the Company, unless otherwise determined to be eligible by
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the Board. Directors and officers of the Company shall be eligible to receive
options under the Plan only after serving on the Board or as officers for one
continuous year, unless otherwise determined to be eligible by the Board or
Committee.
5. OPTION PRICE. Unless otherwise determined by the Board or the
Committee, the purchase price per share of Common Stock under each non-qualified
option will be the book value of such Common Stock on the date of grant as
determined in accordance with generally accepted accounting principles.
Qualified incentive stock options may be granted at an option price per share
not less than 100% of the fair market value of a share on the date of grant. No
option may have a term greater than 10 years. Qualified incentive stock options
granted to persons who own more than 10 percent of the Company's stock have
option prices not less than 110% of the fair market value of the stock on the
date of grant and may have terms no longer than 5 years. In no event shall the
purchase price per share of Common Stock under any option be less than the par
value of a share of Common Stock.
6. PERIOD OF OPTION AND RIGHTS TO EXERCISE. Subject to the provisions
of this Section and Sections 9 and 10 hereof, an option shall be exercisable as
follows:
(a) Unless otherwise determined by the Board or the Committee, 25% of
an option shall become exercisable upon and after twelve (12) months following
the date of grant. Thereafter, 1/48 of an option shall vest following each
subsequent month period, on the last day of the month, until the entire option
is vested.
(b) The right to exercise an option shall expire on the expiration date
specified in the agreement evidencing the option, which in no event shall be
later than ten years from the date the option was granted.
(c) No shares shall be delivered pursuant to any exercise of an option
until the requirements of such laws and regulations as may be deemed by the
Board or Committee to be applicable are satisfied and until payment of the
option price is received by the Company. Such payment shall be made as specified
in the agreement evidencing the option, which may provide for payment in cash or
other manner. Except as provided in Sections 9 and 10 hereof, no option may be
exercised unless the optionee is then in the service of the Company and shall
have continuously been in the service of the Company since the grant of the
option.
7. RESTRICTIONS UPON SALE OF STOCK. If an optionee purchases Common
Stock of the Corporation pursuant to the exercise of an option granted under
this Plan, such optionee shall not sell, transfer or otherwise dispose of such
Common Stock without the prior written consent of the Company prior to the date
upon which the Company first offers its Common Stock for sale in a public
offering registered under the Securities Act of 1933, as amended.
8. TRANSFERABILITY OF OPTIONS. An option granted under the Plan may not
be transferred except by will or the laws of descent or distribution, and such
option shall be exercisable, during the lifetime of the optionee, only by the
optionee.
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9. TERMINATION OF SERVICES.
(a) In the event that employment of an optionee by, or affiliation
with, the Company is terminated for any reason other than death, a fully-vested
option granted hereunder shall be exercisable by the optionee at any time prior
to the expiration date of the option or within ninety days after the date of
such termination, whichever is earlier, but only to the extent the optionee had
the right to exercise such option at the date of such termination; provided that
any optionee who is terminated for cause (defined as willful neglect of duties
or malfeasance in respect of the Company, its properties, assets, business or
employees) shall lose the right to exercise any option granted under this Plan
as of the date of notice of such termination. Notwithstanding the foregoing, if
in the judgment of the Board or Committee an optionee shall cease to perform
services for the Company as a result of a disability, the optionee may exercise
an option within one year after the date of cessation of services, but in no
event after the expiration date specified in the agreement evidencing the
option, if and to the extent that the optionee was entitled to exercise the
option at the time of cessation of services.
(b) If an optionee does not exercise any outstanding option which was
exercisable upon the date of cessation of services to the Company within the
foregoing ninety-day or one-year periods following such cessation, the option
shall thereupon expire.
10. DEATH OF OPTIONEE. In the event of the death of an optionee while
in the employ or affiliated with the Company or within the period of sixty (60)
days next succeeding the optionee's cessation of services, the option will be
exercisable by the person or persons to whom such optionee's rights pass by will
or by the laws of descent and distribution at any time prior to the expiration
date of the option or within six months after the date of such death, whichever
is earlier, but only to the extent the optionee had the right to exercise such
option on the date of death.
11. ADJUSTMENT IN SHARES SUBJECT TO PLAN. In the event that the
outstanding shares of Common Stock are subject to a stock split or changed into
or exchanged for a different number or kind of shares or other securities of the
Company or other corporation by reason of a merger, consolidation,
reorganization, recapitalization, reclassification, combination of shares or a
dividend payable in capital stock, or a similar corporate structural change,
then (i) the total number of shares of Common Stock subject to this Plan shall
be appropriately adjusted, (ii) the rights of Plan Participants shall be
appropriately adjusted as to the number of shares of Common Stock subject to the
option and/or as to the option price, and (iii) if the Company is involved in a
dissolution, liquidation, merger, or combination in which it is not the
surviving entity, then each outstanding option granted hereunder shall terminate
thirty (30) days after the effective date of such dissolution, liquidation,
merger or consolidation. Within said thirty (30) day period, the optionee may
exercise his option in whole or in part, to the extent it shall not have
previously been exercised. The granting of an option pursuant to this Plan shall
not affect in any way the right or power of the Company to make adjustments,
reorganizations, reclassifications, or
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changes of its capital or business structure or to merge, consolidate, dissolve,
liquidate, or sell or transfer all or any part of its business or assets.
12. ACCELERATION UPON CHANGE IN CONTROL. If (i) the beneficial
ownership of securities representing more than 50% of the authorized common
stock of the Company is acquired by a person other than the Company or an
affiliate of the Company, or (ii) the stockholders of the Company approve a
definitive agreement to merge or consolidate the Company with another company
other than one controlled by the Company or an affiliate of the Company, or to
sell or otherwise dispose of all or substantially all of its assets to a company
or entity other than the Company or an affiliate of the Company, then
notwithstanding anything to the contrary herein all options granted under the
Plan shall be considered 100% vested and nonforfeitable.
13. SUBSTITUTION OR ASSUMPTION OF OPTIONS. Notwithstanding any
provision of the Plan to the contrary (but subject to the provisions of
Paragraph 3 hereof), by action of the Board, the Company may as an incident to
or by reason of any corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, substitute new options on
Common Stock of the Company for options granted by another employer to its
employee on stock of such employer or may assume options granted by another
employer to its employees, at such purchase prices and under such conditions, in
the case of non-qualified options, as the Board may approve and, in the case of
incentive stock options, as may be permitted by Section 425(a) of the Internal
Revenue Code, as amended, and the Committee is hereby expressly authorized to
take such action as may be required to effectuate any such issuance or
assumption. Shares of Common Stock of the Company subject to any option so
issued or assumed shall be charged against the total number of shares available
for grant of options under the Plan.
14. WITHHOLDING AND REPORTING. The Company's obligation to deliver
shares of Common Stock or make payment upon the exercise of any option or with
respect to its purchase of any option shall be subject to applicable federal,
state and local tax withholding and reporting requirements.
15. PERIOD, EXPIRATION AND TERMINATION OF THE PLAN. Options may be
granted under the Plan at any time prior to the tenth anniversary of the
effective date of the Plan, on which anniversary the Plan will expire except as
to options then outstanding thereunder, which options shall remain in effect
until they have been exercised or have expired or otherwise terminated pursuant
to the terms of the Plan. The Plan may be abandoned or terminated at any time by
the Board except with respect to any options then outstanding under the Plan.
16. AMENDMENT OF THE PLAN. The Board of Directors or Committee may at
any time or from time to time make such amendments hereto as it shall deem
advisable and in the best interests of the Company, without action on the part
of the stockholders of the Company; PROVIDED, HOWEVER, that no such termination
or amendment shall (i) without the consent of the individual to whom any awards
shall theretofore have been granted, affect or impair the rights of such
individual under the Plan, (ii) increase the maximum number of shares that may
be issued
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<PAGE>
under the Plan, (iii) change the minimum purchase price under the Plan, (iv)
extend the period during which any option may be granted or exercised or (v)
change the provisions of the Plan relating to eligibility.
17. SUBJECT TO STOCKHOLDER AGREEMENT. The shares of Common Stock
deliverable upon the exercise of options under this Plan shall be governed by
all of the terms, conditions, restrictions and limitations contained in the
Kozmo.com, Inc. Stockholders' Agreement (the "Stockholders' Agreement"). By
exercising an option pursuant to this Plan, each Plan participant shall thereby
agree to any and all such terms, conditions, restrictions and limitations, and
shall execute a copy of the Stockholders' Agreement. Such understanding shall be
expressly set forth in the Grant Agreement, which shall be executed and
delivered by the Plan participant prior to the effectiveness of any grant of
Restricted Shares hereunder. In addition, any shares of Common Stock issued
pursuant to this Plan shall be subject to such restrictions on transfer and
limitations as shall, in the opinion of the Administrator or the Company's
corporate counsel, be necessary or advisable to assure compliance with the laws,
rules and regulations of the United States government or any state or
jurisdiction thereof.
18. EFFECTIVENESS. This Plan shall be effective as of May 1, 1999.
6
<PAGE>
Exhibit 10.13
KOZMO.COM, INC. 1997 STOCK OPTION PLAN
1. Establishment and Purpose and of Plan.
(a) Establishment. Kozmo.com, Inc. (the "Company"), a New York
corporation, hereby establishes a Stock Option Plan to be named the Kozmo.com,
Inc. 1997 Stock Option Plan (the "Plan"). All options granted pursuant to this
Plan on or after the effective date of this Plan shall be governed by the terms
and conditions of this Plan.
(b) Purpose. The purpose of this Plan is to authorize the grant to
directors, officers, key employees, advisors and others affiliated with the
Company of options ("options") to purchase shares of common stock of the
Company, par value $.001 (the "Common Stock"), and thus benefit the Company by
giving such persons a greater personal interest in the success of the enterprise
and an added incentive to continue and advance in their service to the Company.
(c) Grant of Options. The date of grant of an option under the Plan
will be the date on which the option is awarded by the Board, unless a later
date is specified by Board or the Committee at the time of the award. Options
which may be granted under this Plan include options intended to qualify as
"incentive stock options" under Sections 422A of the Internal Revenue Code of
1986, as amended, and non-qualified stock options.
2. Administration.
(a) Selection of Participants and Amount of Awards; Powers of the
Committee. The Plan shall be administered by the Board of Directors or by a
compensation committee (the "Committee") to be appointed from time to time by
the Board of Directors of the Company (the "Board"). Members of the Committee,
or if the Plan is administered by the Board, a majority of the Board, shall not
be eligible to receive stock options granted under the Plan. The Committee shall
select one of its members as its chairman and shall hold its meetings at such
times and places as it deems appropriate. A majority of its members shall
constitute a quorum and all determinations of the Committee shall be made by a
majority of its members. Any decision or determination that is reduced to
writing and signed by a majority of the members shall be fully as effective as
if made by a majority vote at a meeting duly called and held. The Board or
Committee shall have authority, subject to the terms of the Plan, to determine:
(i) the persons eligible to receive options hereunder, (ii) the number of shares
for which options are granted, (iii) the option price, (iv) whether an option
shall be a non-qualified option or an incentive stock option, (v) the time when
the options may be granted and exercised, (vi) the vesting schedule for the
options, and (vii) the terms and provisions of the agreements by which options
shall be evidenced. The Committee shall have full power and authority to
construe, interpret and administer the Plan and may from time to time adopt such
rules and regulations for carrying out
2
<PAGE>
this Plan as it may deem proper and in the best interests of the Company. The
interpretation of any provisions of this Plan by the Committee shall be final,
conclusive, and binding upon all persons and the Board of Directors shall place
into effect the determinations of the Committee.
(b) Liability; Indemnification. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to administration of this Plan. Each member of the Board and the
Committee shall be indemnified by the Company, pursuant to the Company's bylaws,
for any expenses, judgments or other costs incurred as a result of any claim or
action brought involving such member claiming any rights or remedies arising out
of such member's participation in administration of this Plan.
3. Shares Subject to the Plan.
(a) General. Subject to adjustments made pursuant to Section 11, the
aggregate number of shares of the Company's Common Stock for which options may
be awarded under the Plan shall be one million five hundred thousand (1,500,000)
shares of Common Stock. The shares of Common Stock pursuant to which options are
granted under this Plan may be shares of Common Stock previously issued and
acquired or reacquired, as the case may be, by the Company (or, if applicable at
any future time, any of its subsidiaries or other entities in common control
with the Company at any time), or authorized but unissued shares of Common Stock
maintained in the Company's treasury, as the Board or Committee from time to
time may determine.
(b) Effect of Expired Options. In the event that any options granted
hereunder expire or terminate for any reason, such a corresponding number of
shares of Common Stock shall again be available for options under the Plan. The
Company shall not, upon the exercise of any option, be required to issue or
deliver any shares of Common Stock prior to the completion of such registration
or other qualification of such shares under any state or federal law, rule or
regulation as the Company shall determine to be necessary or advisable.
4. Eligibility.
(a) Any key employee of the Company, and any non-employee providing
services to the Company (as a director, agent, consultant, advisor, professional
or otherwise), in the discretion of the Board of Directors, shall be eligible to
be granted options hereunder (any such employees granted options pursuant to
this Plan as well as any such non-employees are referred to herein as "optionee"
or "Plan Participants"). The Committee may determine (in its sole discretion)
that any person who would otherwise be eligible to be granted options hereunder
shall, nonetheless, be ineligible to receive any option under this Plan, for any
reason or for no reason.
(b) Unless otherwise determined by the Board or the Committee,
non-qualified stock options shall be granted only to directors, advisors,
officers and key employees of
3
<PAGE>
the Company and incentive stock options shall be granted only to key employees.
Employees of the Company shall be eligible to receive options under the Plan
only upon the completion of one continuous year of employment with the Company,
unless otherwise determined to be eligible by the Board. Directors and officers
of the Company shall be eligible to receive options under the Plan only after
serving on the Board or as officers for one continuous year, unless otherwise
determined to be eligible by the Board or Committee.
5. Option Price. Unless otherwise determined by the Board or the
Committee, the purchase price per share of Common Stock under each non-qualified
option will be the book value of such Common Stock on the date of grant as
determined in accordance with generally accepted accounting principles.
Qualified incentive stock options may be granted at an option price per share
not less than 100% of the fair market value of a share on the date of grant. No
option may have a term greater than 10 years. Qualified incentive stock options
granted to persons who own more than 10 percent of the Company's stock have
option prices not less than 110% of the fair market value of the stock on the
date of grant and may have terms no longer than 5 years. In no event shall the
purchase price per share of Common Stock under any option be less than the par
value of a share of Common Stock.
6. Period of Option and Rights to Exercise. Subject to the
provisions of this Section and Sections 9 and 10 hereof, an option shall be
exercisable as follows:
(a) Unless otherwise determined by the Board or the Committee, 25%
of an option shall become exercisable upon and after twelve (12) months
following the date of grant. Thereafter, 1/48 of an option shall vest following
each subsequent month period, on the last day of the month, until the entire
option is vested.
(b) The right to exercise an option shall expire on the expiration
date specified in the agreement evidencing the option, which in no event shall
be later than ten years from the date the option was granted.
(c) No shares shall be delivered pursuant to any exercise of an
option until the requirements of such laws and regulations as may be deemed by
the Board or Committee to be applicable are satisfied and until payment of the
option price is received by the Company. Such payment shall be made as specified
in the agreement evidencing the option, which may provide for payment in cash or
other manner. Except as provided in Sections 9 and 10 hereof, no option may be
exercised unless the optionee is then in the service of the Company and shall
have continuously been in the service of the Company since the grant of the
option.
7. Restrictions Upon Sale of Stock. If an optionee purchases Common
Stock of the Corporation pursuant to the exercise of an option granted under
this Plan, such optionee shall not sell, transfer or otherwise dispose of such
Common Stock without the prior written consent of the Company prior to the date
upon which the Company first offers its Common Stock for sale in a public
offering registered under the Securities Act of 1933, as
4
<PAGE>
amended.
8. Transferability of Options. An option granted under the Plan may
not be transferred except by will or the laws of descent or distribution, and
such option shall be exercisable, during the lifetime of the optionee, only by
the optionee.
9. Termination of Services.
(a) In the event that employment of an optionee by, or affiliation
with, the Company is terminated for any reason other than death, a fully-vested
option granted hereunder shall be exercisable by the optionee at any time prior
to the expiration date of the option or within ninety days after the date of
such termination, whichever is earlier, but only to the extent the optionee had
the right to exercise such option at the date of such termination; provided that
any optionee who is terminated for cause (defined as willful neglect of duties
or malfeasance in respect of the Company, its properties, assets, business or
employees) shall lose the right to exercise any option granted under this Plan
as of the date of notice of such termination. Notwithstanding the foregoing, if
in the judgment of the Board or Committee an optionee shall cease to perform
services for the Company as a result of a disability, the optionee may exercise
an option within one year after the date of cessation of services, but in no
event after the expiration date specified in the agreement evidencing the
option, if and to the extent that the optionee was entitled to exercise the
option at the time of cessation of services.
(b) If an optionee does not exercise any outstanding option which
was exercisable upon the date of cessation of services to the Company within the
foregoing ninety-day or one-year periods following such cessation, the option
shall thereupon expire.
10. Death of Optionee. In the event of the death of an optionee
while in the employ or affiliated with the Company or within the period of sixty
(60) days next succeeding the optionee's cessation of services, the option will
be exercisable by the person or persons to whom such optionee's rights pass by
will or by the laws of descent and distribution at any time prior to the
expiration date of the option or within six months after the date of such death,
whichever is earlier, but only to the extent the optionee had the right to
exercise such option on the date of death.
11. Adjustment in Shares Subject to Plan. In the event that the
outstanding shares of Common Stock are subject to a stock split or changed into
or exchanged for a different number or kind of shares or other securities of the
Company or other corporation by reason of a merger, consolidation,
reorganization, recapitalization, reclassification, combination of shares or a
dividend payable in capital stock, or a similar corporate structural change,
then (i) the total number of shares of Common Stock subject to this Plan shall
be appropriately adjusted, (ii) the rights of Plan Participants shall be
appropriately adjusted as to the number of shares of Common Stock subject to the
option and/or as to the option price, and (iii) if the Company is involved in a
dissolution, liquidation, merger, or combination in which it is not
5
<PAGE>
the surviving entity, then each outstanding option granted hereunder shall
terminate thirty (30) days after the effective date of such dissolution,
liquidation, merger or consolidation. Within said thirty (30) day period, the
optionee may exercise his option in whole or in part, to the extent it shall not
have previously been exercised. The granting of an option pursuant to this Plan
shall not affect in any way the right or power of the Company to make
adjustments, reorganizations, reclassifications, or changes of its capital or
business structure or to merge, consolidate, dissolve, liquidate, or sell or
transfer all or any part of its business or assets.
12.Acceleration Upon Change in Control or Initial Public Offering.
If (i) the beneficial ownership of securities representing more than 50% of the
authorized common stock of the Company is acquired by a person other than the
Company or an affiliate of the Company, (ii) the stockholders of the Company
approve a definitive agreement to merge or consolidate the Company with another
company other than one controlled by the Company or an affiliate of the Company,
or to sell or otherwise dispose of all or substantially all of its assets to a
company or entity other than the Company or an affiliate of the Company, or
(iii) the Company's Common Stock is subject to a public offering, then
notwithstanding anything to the contrary herein all options granted under the
Plan shall be considered 100% vested and nonforfeitable.
13. Substitution or Assumption of Options. Notwithstanding any
provision of the Plan to the contrary (but subject to the provisions of
Paragraph 3 hereof), by action of the Board, the Company may as an incident to
or by reason of any corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, substitute new options on
Common Stock of the Company for options granted by another employer to its
employee on stock of such employer or may assume options granted by another
employer to its employees, at such purchase prices and under such conditions, in
the case of non-qualified options, as the Board may approve and, in the case of
incentive stock options, as may be permitted by Section 425 (a) of the Internal
Revenue Code, as amended, and the Committee is hereby expressly authorized to
take such action as may be required to effectuate any such issuance or
assumption. Shares of Common Stock of the Company subject to any option so
issued or assumed shall be charged against the total number of shares available
for grant of options under the Plan.
14. Withholding and Reporting. The Company's obligation to deliver
shares of Common Stock or make payment upon the exercise of any option or with
respect to its purchase of any option shall be subject to applicable federal,
state and local tax withholding and reporting requirements.
15. Period. Expiration and Termination of the Plan. Options may be
granted under the Plan at any time prior to the tenth anniversary of the
effective date of the Plan, on which anniversary the Plan will expire except as
to options then outstanding thereunder, which options shall remain in effect
until they have been exercised or have expired or otherwise terminated pursuant
to the terms of the Plan. The Plan may be abandoned or terminated at any time by
the Board except with respect to any options then outstanding under the Plan.
6
<PAGE>
16. Amendment of the Plan. The Board of Directors or Committee may
at any time or from time to time make such amendments hereto as it shall deem
advisable and in the best interests of the Company, without action on the part
of the stockholders of the Company; provided, however, that no such termination
or amendment shall (i) without the consent of the individual to whom any awards
shall theretofore have been granted, affect or impair the rights of such
individual wider the Plan, (ii) increase the maximum number of shares that may
be issued under the Plan, (iii) change the minimum purchase price under the
Plan, (iv) extend the period during which any option may be granted or exercised
or (v) change the provisions of the Plan relating to eligibility.
17. Subject to Shareholder Agreement. The shares of Common Stock
deliverable upon the exercise of options under this Plan shall be governed by
all of the terms, conditions, restrictions and limitations contained in the
Kozmo.com, Inc. Shareholders' Agreement (the "Shareholders' Agreement"). By
exercising an option pursuant to this Plan, each Plan participant shall thereby
agree to any and all such terms, conditions, restrictions and limitations, and
shall execute a copy of the Shareholders' Agreement. Such understanding shall be
expressly set forth in the Grant Agreement, which shall be executed and
delivered by the Plan participant prior to the effectiveness of any grant of
Restricted Shares hereunder. In addition, any shares of Common Stock issued
pursuant to this Plan shall be subject to such restrictions on transfer and
limitations as shall, in the opinion of the Administrator or the Company's
corporate counsel, be necessary or advisable to assure compliance with the laws,
rules and regulations of the United States government or any state or
jurisdiction thereof.
18. Effectiveness. This Plan shall become effective upon adoption by
the Board of Directors and upon the fixation of an effective date therefor.
IN WITNESS WHEREOF, pursuant to the approval of this Plan by the
Board of Directors, this Plan is executed and adopted this ___ day of September,
1997.
By: Joseph Park
Title: President
7
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Kozmo.com, Inc.:
We consent to the use of our report included herein and to the reference
to our firm under the heading "Experts" in the Prospectus.
KPMG LLP
New York, New York
March 20, 2000
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