<PAGE>
As filed with the Securities and Exchange Commission on August 13, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MotherNature.com, Inc.
(Exact name of registrant as specified in its charter)
----------------
Delaware 5499 23-2832064
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction Classification Code Number) Identification Number)
of incorporation or ----------------
organization) MotherNature.com, Inc.
One Concord Farms
490 Virginia Road
Concord, Massachusetts 01742
(978) 929-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Michael I. Barach, President and Chief Executive Officer
MotherNature.com, Inc.
One Concord Farms
490 Virginia Road
Concord, Massachusetts 01742
(978) 929-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Howard S. Rosenblum, Esq. David T. Brewster, Esq.
Testa, Hurwitz & Thibeault, LLP Skadden, Arps, Slate, Meagher & Flom
125 High Street LLP
Boston, Massachusetts 02110 One Beacon Street
(617) 248-7000 Boston, Massachusetts 02108
---------------- (617) 573-4800
Approximate date of commencement of proposed sale to public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of each class of Proposed maximum aggregate Amount of registration
securities to be registered offering price (1) fee(2)
- -------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par
value...................... $57,500,000 $15,985
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes shares of common stock which the underwriters have the option
to purchase from MotherNature.com to cover over-allotments, if any.
----------------
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 said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED AUGUST 13, 1999
Shares
[MOTHERNATURE.COM, INC. LOGO]
MotherNature.com, Inc.
Common Stock
-----------
This is an initial public offering of shares of common stock of
MotherNature.com, Inc. MotherNature.com is selling all of the shares of common
stock offered under this prospectus. We anticipate that the initial public
offering price will be between $ and $ per share.
There is currently no public market for the shares. We have applied to have our
common stock approved for listing on the Nasdaq National Market under the
symbol "MTHR."
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 5 to read about risks you should consider carefully
before buying shares of our common stock.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price............................................... $ $
Underwriting discounts and commissions.............................. $ $
Proceeds, before expenses, to us.................................... $ $
</TABLE>
-----------
We have granted the underwriters a 30-day option to purchase up to an
additional shares of common stock from us at the initial public offering
price less the underwriting discount. The underwriters expect to deliver the
shares on , 1999.
-----------
Bear, Stearns & Co. Inc.
Hambrecht & Quist
Wit Capital Corporation
The date of this prospectus is , 1999
<PAGE>
[Photograph of a family in front of a computer with the MotherNature.com home
page on the screen.]
[Photograph of a middle-aged person viewing the product page for a popular
arthritis remedy.]
[Photograph of several MotherNature.com products in a home setting.]
[Photographs of our target customers actively participating in sports or other
outdoor activities.]
[Photograph of a customer opening a MotherNature.com mailing carton.]
[Photographs of miscellaneous pages on the MotherNature.com Web site.]
<PAGE>
PROSPECTUS SUMMARY
This summary highlights certain information found in greater detail elsewhere
in this prospectus. In addition to this summary, we urge you to read the entire
prospectus carefully, especially the risks of investing in our common stock
discussed under "Risk Factors," before you decide to buy our common stock.
MotherNature.com, Inc.
Our Business
We are a leading online retail store and information source for natural and
healthy living products. We offer approximately 13,000 vitamins, supplements
and minerals, or VSM, and other natural and healthy living products on our
site. We also provide educational and authoritative information on VSM and
other natural and healthy living products from recognized sources in an easily
accessible manner that allows our customers to make informed product
selections. Through our innovative combination of content and commerce and an
aggressive mass media advertising program, we intend to establish
MotherNature.com as the destination of choice and trusted advisor for consumers
interested in VSM and other natural and healthy living products.
Since we launched our redesigned Web site in late 1998, our revenues have
grown from $105,000 in the fourth quarter of 1998, to $251,000 in the first
quarter of 1999, to $704,000 in the second quarter of 1999. As of July 31,
1999, there were approximately 77,000 registered members in the
MotherNature.com community.
The key components of our site include the following:
Educational and Authoritative Information. We provide consumers with access
to over 1,300 articles, news clips and encyclopedia entries from the
Encyclopedia of Natural Health, as well as narratives from prominent sources
and journals, on a variety of natural and healthy living topics, such as health
concerns, natural remedies and recent studies. The Encyclopedia of Natural
Health incorporates information gathered from over 500 authoritative scientific
and medical journals. We also have established a Medical Advisory Board whose
members contribute content and guide our editorial staff in developing and
reviewing content.
Integration of Content and Commerce. We integrate our content with our
products in a manner that allows our customers to make informed product
selections. Consumers can search our site for specific products and easily
access relevant information on those products, or they can research specific
health concerns, lifestyles or special interests and find complementary
products or our "solution baskets" to address particular health concerns.
Convenient and Private Shopping. Consumers can browse or shop on our site 24
hours a day, seven days a week in the privacy of their homes or offices. At
MotherNature.com, consumers can research and purchase products for personal
health concerns without facing retail store personnel. Consumers also can use
our personal shopper service or reorder previous selections with one click.
Broad, Expandable Product Assortment. Our product selection is substantially
larger than that offered by store-based retailers. We offer approximately
13,000 VSM and other natural and healthy living products, or SKUs, on our site,
and we can special order additional products through our supplier
relationships. Our online store is easily expandable to include additional
natural and healthy living products and related services.
Customer Information and Ongoing Communication. We use e-mail to provide
order status and shipping confirmation and to keep our members aware of
selected healthy living news relating to their past purchases. Because we
obtain demographic information on our members through the registration process,
we are able to refine our site and customize our product offerings.
1
<PAGE>
Our Market Opportunity
The VSM market is projected to grow as the "baby boomer" population becomes
increasingly concerned with aging and disease, preventative health care and
natural products. Sales of VSM totaled approximately $8.9 billion in 1998 and
are forecasted to grow at a compound annual rate of 13.3% to $16.6 billion in
2003, according to Packaged Facts, a consumer products market research firm. As
research studies have indicated the health benefits of VSM, the percentage of
U.S. adults who take vitamins has increased from 43% in 1993 to 56% in 1998,
according to Packaged Facts. We believe there is also a large market
opportunity for us in other natural product categories beyond VSM, including
personal care products, household products, non-perishable foods, organic
coffees and teas, sports nutrition, cosmetics, baby care products and pet care
products.
Our Strategy
The key elements of our growth strategy are as follows:
. promote the memorable MotherNature.com brand name through an aggressive
advertising campaign, including a national television campaign expected
to commence in the Fall of 1999;
. establish MotherNature.com as the trusted authority for VSM and other
natural and healthy living products through our marketing efforts and
our informative and authoritative site content;
. capitalize on the inherent need to replenish VSM products by promoting
repeat and complementary product purchases;
. enlist and provide financial incentives for other businesses in the
healthy living industry, such as health care providers and health clubs,
to refer their customers to our site;
. provide quality customer service and rapid product delivery through our
in-house fulfillment facility, which we are expanding in order to
increase inventory levels of popular products; and
. expand our international presence in order to establish MotherNature.com
as a global brand.
Our Offices
Our executive offices are located at One Concord Farms, 490 Virginia Road,
Concord, Massachusetts 01742, and our telephone number is (978) 929-2000. Our
Web site address is www.MotherNature.com. The information on our Web site is
not incorporated by reference into this prospectus and should not be considered
as part of this prospectus.
2
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered.......................... shares
Common stock outstanding after this offering.. shares
Use of proceeds............................... We intend to use the net
proceeds of this offering for
advertising and marketing
expenditures, to fund operating
losses and for general
corporate purposes, including
expanding our product and
service offerings, enhancing
our infrastructure and working
capital. We may also use a
portion of the proceeds to
expand our business through
strategic alliances and
acquisitions.
Proposed Nasdaq National Market symbol........ MTHR
</TABLE>
- --------
The number of shares of common stock outstanding after this offering is based
on shares of our common stock outstanding as of June 30, 1999. This
calculation:
. includes 66,201,914 shares of common stock to be issued upon the
conversion of all of our convertible preferred stock outstanding as of
June 30, 1999;
. excludes 7,628,247 shares of common stock issuable upon exercise of all
options outstanding under our 1998 Stock Plan as of June 30, 1999 with a
weighted average exercise price of $0.35 per share (819,850 of which
were exercisable on June 30, 1999); and
. excludes 1,207,317 shares of common stock issuable upon exercise of all
of our warrants outstanding as of June 30, 1999.
Conventions Which Apply to this Prospectus
Unless we indicate otherwise, all information in this prospectus reflects the
following:
. no exercise by the underwriters of their over-allotment option to
purchase up to additional shares of common stock;
. the conversion of all of our convertible preferred stock outstanding as
of June 30, 1999 into 66,201,914 shares of our common stock upon the
closing of this offering; and
. a 1 for reverse stock split to be effected immediately prior to
consummation of this offering.
References in this prospectus to "MotherNature.com," "we," "our" and "us"
refer to MotherNature.com, Inc., a Delaware corporation. References to the
"offering" refer to the initial public offering of our common stock being made
by this prospectus. We were incorporated in Pennsylvania in December 1995 and
we reincorporated in Delaware in June 1998. We have applied for federal
registration for, among others, the marks "MotherNature.com" combined with the
MotherNature.com logo, the MotherNature.com logo, "Go Ask Mother@" and "Your
Healthy Living Headquarters." All other trademarks, trade names and service
marks appearing in this prospectus are the property of their respective owners.
3
<PAGE>
Summary Financial Data
The following tables set forth summary financial data for our company. You
should read this information together with the financial statements and the
notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
--------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- --------- ----------- --------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $ 21,489 $ 193,064 $ 476,549 $ 254,239 $ 954,650
Cost of sales........... 10,681 71,484 417,998 148,905 844,330
--------- --------- ----------- --------- ------------
Gross profit............ 10,808 121,580 58,551 105,334 110,320
Operating expenses...... 91,489 272,862 6,733,716 769,862 15,417,331
--------- --------- ----------- --------- ------------
Operating loss.......... (80,681) (151,282) (6,675,165) (664,528) (15,307,011)
Net loss................ $ (80,681) $(159,532) $(6,610,684) $(661,391) $(15,000,492)
========= ========= =========== ========= ============
Basic and diluted net
loss per common share.. $(0.05) $(0.03) $(1.32) $(0.13) $(2.69)
========= ========= =========== ========= ============
Pro forma basic and
diluted net loss per
common share(1)(2)..... $(0.05) $(0.03) $(0.36) $(0.09) $(0.26)
========= ========= =========== ========= ============
Shares used to compute
basic and diluted net
loss per common
share(1)............... 1,469,593 4,855,479 5,017,613 5,000,000 5,566,430
Shares used to compute
pro forma basic and
diluted net loss per
common share(1)(2)..... 1,469,593 4,855,479 18,507,968 7,370,344 57,280,112
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
--------------------------
Pro Forma
Actual As Adjusted(3)
----------- --------------
(unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $39,683,712
Working capital...................................... 37,863,146
Total assets......................................... 41,605,003
Total long-term debt, net of current portion......... 17,691
Total convertible preferred stock.................... 647,450
Total shareholders' equity........................... 38,940,779
</TABLE>
- --------
(1) Please see the financial statements and the notes to those statements
appearing elsewhere in this prospectus for the determination of shares used
in computing basic and diluted net loss per common share and pro forma
basic and diluted net loss per common share.
(2) The pro forma data give effect to the conversion of all of our convertible
preferred stock outstanding as of June 30, 1999 into 66,201,914 shares of
our common stock upon the closing of this offering.
(3) The pro forma as adjusted data give effect to the conversion of all of our
convertible preferred stock outstanding as of June 30, 1999 into 66,201,914
shares of our common stock upon the closing of this offering and reflect
the sale of shares of common stock by us in this offering at an assumed
initial public offering price of $ per share after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
4
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You should
carefully consider the following information about these risks, together with
the other information contained in this prospectus, before you decide whether
to buy our common stock. If any of the following risks actually occur, our
business, results of operations and financial condition would likely suffer. In
any such case, the market price of our common stock could decline, and you may
lose all or part of the money you paid to buy our common stock.
The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties, including those not presently known to us
or that we currently deem immaterial, may also impair our business.
Risks Related to Our Business
Our business is difficult to evaluate because we have a limited operating
history under our current business model.
We have a limited operating history upon which you can evaluate our business.
Although we were organized in December 1995, our current management team joined
us after June 1998 and our current, redesigned Web site was launched in late
1998. Accordingly, an investor in our common stock must consider the
challenges, risks and uncertainties frequently encountered by early-stage
companies using new and unproven business models in new and rapidly evolving
markets. These challenges include our ability to:
. execute on our business model;
. increase brand recognition;
. manage growth in our operations;
. expand our customer base cost-effectively;
. retain customers;
. manage inventory levels effectively;
. upgrade and enhance our Web site, transaction-processing systems, order
fulfillment infrastructure and inventory management systems;
. access additional capital when required;
. develop and renew strategic relationships with companies in the VSM and
natural products industry, such as suppliers and content providers; and
. attract and retain key personnel.
We cannot be certain that our business model will be successful or that we will
successfully address these and other challenges, risks and uncertainties.
5
<PAGE>
Consumers of VSM and other natural products may not purchase products from our
site, which would reduce our revenues and prevent us from becoming profitable.
If we do not attract and retain a high volume of online customers at a
reasonable cost, we will not be able to increase our revenues or achieve
profitability. We may not be able to convert a large number of customers from
traditional shopping methods to online shopping for VSM and other natural
products. Even if we are successful at attracting online customers, we expect
it will take several years to build a critical mass of these customers.
Specific factors that could prevent widespread customer acceptance of our store
include:
. lack of consumer awareness of our online store;
. customer concern about the security of online transactions and the
privacy of personal health information;
. shipping charges, which are not incurred when shopping at traditional
stores;
. delivery time associated with Internet orders, as compared to the
immediate receipt of products at traditional stores;
. pricing that does not meet customer expectations;
. incorrectly filled orders or damaged products;
. delayed response to customer service requests; and
. difficulty in returning or exchanging orders.
We have a history of losses and anticipate future losses.
As of June 30, 1999, we had an accumulated deficit of approximately $21.9
million, and we have not achieved profitability. We incurred net losses of
approximately $15.0 million for the six months ended June 30, 1999 and
approximately $6.6 million for the fiscal year ended December 31, 1998. We
launched our current Web site in late 1998 and began our current advertising
campaign in March 1999. We believe that we will continue to incur operating
losses for the foreseeable future and that the rate at which we will incur such
losses will increase significantly from current levels. We intend to
substantially increase our costs and operating expenses related to:
. intensifying our brand development efforts through advertising and other
marketing activities;
. expanding our product offerings and Web site content;
. providing promotional benefits to our customers, such as product
discounts and free shipping on large orders;
. upgrading our Web site, transaction-processing systems, order
fulfillment infrastructure and inventory management systems;
. expanding our distribution and warehousing facilities;
. developing and renewing strategic relationships with companies in the
VSM and natural products industry, such as content providers and
vendors; and
. employing additional personnel as our business expands.
Because we will spend these amounts before we receive any incremental
revenues from these efforts, our losses will be greater than the losses we
would incur if we developed our business more slowly. In addition, we may find
that these efforts are more expensive than we currently anticipate, which would
further increase our losses.
6
<PAGE>
Disappointing quarterly revenue or operating results could cause our stock
price to fall.
If our quarterly revenue or operating results fall below investor or
securities analyst expectations, our stock price could fall substantially.
Because of our limited operating history under our current business model, it
is difficult to accurately forecast our revenues and operating results. In
addition, we do not yet have sufficient historical data on how successful our
business model will be, and we cannot currently forecast revenue from regular
customers or accurately predict revenue trends. We believe that quarter-to-
quarter comparisons of our operating results are poor predictors of our future
performance. Our quarterly revenue and operating results have fluctuated
significantly in the past and may fluctuate significantly in the future due to
a variety of factors, including:
. fluctuations in the number of visitors to our Web site and our ability
to convert visitors into customers;
. demand for our products;
. our use of advertising, discount pricing and promotions;
. amount and timing of our operating costs and capital expenditures;
. introductions by our competitors of new or enhanced Web sites, products
or services;
. fluctuations in shipping costs or delivery times;
. management of our inventory levels and fulfillment operations;
. price competition and fluctuations in the wholesale prices of the
products we sell;
. changes in the mix of products we sell;
. shifts in research findings, media publicity and consumer perception
regarding VSM products;
. costs related to potential strategic relationships or acquisitions of
content, technology or businesses;
. changes in or enforcement of government regulations affecting our
business;
. changes in our management team and key personnel; and
. fluctuations in general economic conditions and economic conditions
specific to the Internet, electronic commerce and the VSM and natural
products industries.
Our limited operating history makes it difficult to assess the impact of
these factors on our operating results. One or more of these factors could
reduce our gross margins and harm our operating results in future periods.
Government regulations may restrict the way we sell our products and impair our
operations.
The packaging, labeling, advertising, distribution and sale of most of our
products are subject to extensive federal, state and local regulation. The
federal agencies which regulate our business include primarily the United
States Food and Drug Administration, or FDA, and the Federal Trade Commission,
or FTC. State health agencies and attorneys general have parallel authority to
federal agencies and also could exercise jurisdiction over our products or
business practices. The laws, regulations and enforcement policies governing
our dietary supplement products are relatively new and still evolving. In
general, the dietary supplement industry has adopted more aggressive
interpretations of these laws than have the relevant regulatory agencies. We
cannot be
7
<PAGE>
certain that our attempts, or those of our suppliers, to comply with laws and
regulations in this area are or will be deemed sufficient by the appropriate
regulatory agencies. Enforcement actions by any of these agencies can result in
civil and criminal penalties, an injunction to stop or modify certain selling
methods, seizure of our products, adverse publicity or voluntary recalls and
labeling changes. If the FDA, FTC or other federal or state governmental agency
were to undertake an enforcement action against us, it would harm our business.
State professional licensing bodies also may object to the provision of health-
related information or advice on our site.
The law relating to the sale of most of our products, especially over the
Internet, remains largely unsettled and we cannot predict what enforcement
positions the FDA or other governmental agencies may take with respect to our
selling methods. The FDA has indicated that claims or statements made on a
company's Web site about dietary supplements may constitute "labeling" and thus
be subject to regulation. For example, the FDA may determine that, under
certain circumstances, the integration of content describing the health
benefits of dietary supplements with the sale of those supplements violates
labeling restrictions applicable to such products. If the FDA makes that
determination, products that would otherwise be considered supplements could
then be deemed to be unapproved and, therefore, illegal drugs. In particular,
the FDA may limit the claims that can be made, or information that can be used,
discussing or implying the benefits of dietary supplements with respect to
certain health conditions. Under applicable law, "statements of nutritional
support" may be used in dietary supplement labeling provided the statements do
not state drug claims, i.e., a claim that the supplement will diagnose,
mitigate, treat, cure or prevent a disease. It is possible that the statements
presented with initial product descriptions on our site may be determined by
the FDA to be drug claims rather than acceptable statements of nutritional
support. In addition, some of our suppliers may incorporate objectionable
statements directly in their product names or on their products' labels, or
otherwise fail to comply with applicable manufacturing, labeling and
registration requirements for over-the-counter or homeopathic drugs or dietary
supplements. As a result, we may have to remove objectionable statements or
products from our site or modify these statements, or product names or labels,
in order to comply with FDA regulations. Such changes could interfere with our
marketing of products and could harm our business.
In addition, the FDA permits the dissemination of third-party literature in
connection with the sale of dietary supplements in establishments if, among
other things, there is physical separation between such literature and
supplements. It is not yet clear how this restriction may apply to online
retailers. Because of the evolving regulatory regime for supplements, we cannot
assure you that the way in which we present information about products on our
site would be determined to be lawful by the FDA. As a result, we may have to
remove objectionable literature from our site or modify our selling methods in
order to comply with any FDA enforcement actions, which could harm our
business.
The FTC has the right to monitor and regulate our advertising and has pursued
numerous manufacturers and retailers of dietary supplements for deceptive
advertising or failure to substantiate promotional claims. Moreover, the FTC is
implementing a recent initiative to monitor and bring enforcement actions
against Web sites that may be disseminating false or unsubstantiated health
claims. In addition, our activities are regulated by various agencies of the
states--including state medical, pharmacy or dietician licensing bodies--
localities and foreign countries in which our customers reside. Our efforts to
comply with existing laws and regulations may be costly, may force us to change
our selling strategy and may not be successful. We cannot assure you that we
will be able to comply with any future laws, regulations, interpretations or
applications without incurring significant costs or adjusting our business
model. A more detailed discussion of the government regulations affecting our
business is included in this prospectus under the heading "Business--Regulatory
Environment."
Our brand may not achieve the broad recognition necessary for our business to
succeed.
We believe that broader recognition and favorable consumer perception of the
MotherNature.com brand are essential to our future success. Due to the early
stage and competitive nature of the online market for VSM and other natural and
healthy living products, if we do not establish our brand quickly, we may lose
the opportunity to build a critical mass of customers. Accordingly, we have
spent and intend to continue to spend
8
<PAGE>
significant amounts on an aggressive brand-enhancement strategy, which includes
advertising, promotional programs and public relations activities. Our brand
promotion efforts may not be successful or may not sufficiently increase our
revenues to cover our advertising and promotional expenses. In addition, even
if our brand recognition increases, the number of new users or transactions in
our online store may not increase.
We may fail to compete effectively in our market.
Increased competition in our market may result in lower revenues due to price
reductions or loss of market share. The electronic commerce industry is new,
rapidly evolving and intensely competitive, and we expect competition to
intensify in the future. Barriers to entry are minimal and current and new
competitors can launch sites at a relatively low cost. In addition, the VSM and
natural and healthy living products market is very competitive and highly
fragmented, with no clear dominant leader and increasing public and commercial
attention. We may not be able to compete successfully, or competitive pressures
may hurt our business. If we fail to attract and retain a large customer base
and our competitors establish a market position more prominent than ours, we
will not be able to grow our business. We compete with a variety of other
companies, including:
. traditional VSM and natural and healthy living products retailers,
including General Nutrition Centers and Vitamin Shoppe;
. the online retail initiatives of several traditional VSM and natural and
healthy living products retailers, including VitaminShoppe.com and
Vitamins.com;
. online retailers of pharmaceutical products which also carry VSM and
natural and healthy living products, including Drugstore.com,
PlanetRx.com and CVS.com;
. independent online retailers specializing in VSM and natural and healthy
living, including Greentree Nutrition, Inc., HealthShop.com, eNutrition,
allherb.com, vitamins.net and Vitanet;
. mail-order and catalog retailers of VSM and natural and healthy living
products, including NBTY, Amrion, Rexall Sundown and Vitamin Shoppe,
some of which have already developed online retail outlets; and
. direct sales organizations, retail drugstore chains, health and natural
food store merchants, mass market retail chains and various
manufacturers of natural products.
Many of our competitors have longer operating histories, larger customer or
user bases, greater brand recognition and significantly greater financial,
marketing and other resources than we have. In addition, larger, well
established and well financed entities may acquire, invest in or form joint
ventures with our online competitors as the use of the Internet and other
online services increases. Increased competition from these or other
competitors could harm our business.
If we are unable to manage our growth and the related expansion in our
operations effectively, our business may be harmed.
We have experienced rapid growth in our operations and expect to continue to
increase the scope of our operations. This growth has placed, and our
anticipated future operations will continue to place, a significant strain on
our management, information systems and other resources. We will not be able to
implement our business model in a rapidly evolving market without an effective
planning and management process.
Our success in managing our rapid growth will depend in part on our ability
to continue to attract, integrate and retain skilled technical, managerial,
editorial, merchandising, marketing and customer service personnel. The number
of our employees has increased from 10 at December 31, 1997 to 40 at December
31, 1998, and to 112 at June 30, 1999. Our senior management team, including
our Chief Executive Officer, Chief Financial Officer, Chief Technology Officer,
Chief Knowledge Officer, Vice President, Sales and Site Operations and Vice
President, Brand Marketing, has joined us in the last thirteen months. We
expect that we will need to add additional key personnel in the near future.
Further, many of our senior management have no prior senior management
experience at public companies.
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Our ability to improve existing and implement new operational, financial and
management controls, reporting systems and procedures also will be fundamental
to our ability to manage our rapid growth. We recently installed a new
accounting and financial reporting system and are currently in the process of
integrating this system with our other information systems.
Moreover, our future success will depend in part on our ability to rapidly
expand our Web site, transaction-processing systems, order fulfillment
infrastructure and inventory management systems without any systems
interruptions in order to accommodate increased traffic and demand. We are
currently implementing new technical and operational systems, including a new
order processing, inventory management, shipping and billing software package
to accommodate anticipated increases in customer traffic and order demand. Any
inability to scale our systems may cause unanticipated system disruptions,
slower response times, degradation in customer service levels, impaired quality
and speed of order fulfillment, or delays in reporting accurate financial
information. We are not certain that we will be able to project the rate or
timing of increases, if any, in the use of our Web site accurately or promptly
enough to permit us to effectively upgrade and expand our transaction-
processing systems or to integrate smoothly any newly developed or purchased
modules with our existing systems.
If we do not successfully expand our distribution operations, our revenues may
fall below expectations.
Our success depends on our ability to rapidly expand our distribution
operations and related information systems in order to accommodate an expected
increase in customer orders. If we do not successfully expand our distribution
operations to accommodate increases in demand, we will not be able to increase
our revenues in accordance with the expectations of securities analysts and
investors.
The planned expansion of our distribution operations may cause disruptions in
our business. Our historical distribution operations in Southhampton,
Pennsylvania were not adequate to accommodate significant increases in customer
demand. We recently leased a second distribution facility in Springfield,
Massachusetts, from which we began distributing products in July 1999. Our
ability to effectively process and ship customer orders from this new facility
is uncertain. If we do not effectively manage the transition to our new
distribution center, we could lose customers.
Expanding the breadth and depth of our product and service offerings is
expensive and difficult, and these efforts may not be profitable.
We intend to expand the number of products we offer on our site by promoting
new or complementary products or services. Expansion of our offerings in this
manner will require significant additional expenditures and could strain our
management, financial and operational resources. For example, we may need to
incur significant marketing expenses, develop relationships with new
fulfillment partners or manufacturers or comply with new regulations. We cannot
be certain that we will be able to expand our product and service offerings in
a cost-effective or timely manner. Furthermore, any new product or service
offering that is not favorably received by consumers could damage the
reputation of our brand. The lack of market acceptance of our efforts to expand
offerings or our inability to generate satisfactory revenues from such expanded
offerings could harm our business.
Our existing technical and operational systems could fail.
We have experienced periodic systems interruptions which we believe may
continue to occur. Our systems and operations, including our fulfillment
operations, are vulnerable to damage or interruption from fire, flood,
earthquake, power loss, telecommunications failure, break-ins, vandalism and
similar events. Substantially all of our product development and information
management systems are in facilities we lease in Massachusetts. All of our
inventory is stored in facilities we lease in Pennsylvania and Massachusetts.
In addition, substantially all of our computer and communications hardware
systems are located at a third-party facility in Andover, Massachusetts. We
have no formal disaster recovery plans, and our insurance may not adequately
compensate
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us for losses that may occur. The occurrence of a natural disaster or other
unanticipated problems at our facilities in Massachusetts or Pennsylvania, or
at the third-party facility in Andover, Massachusetts, could cause
interruptions or delays in our business or data loss, or could render us unable
to accept and fulfill customer orders. In addition, any failure by the third-
party facility to provide the data communications capacity we require could
result in interruptions in our service. The occurrence of any of these events
could harm our business.
The success of our business operations depends on the continuing contribution
of our key personnel.
Our future success depends to a significant extent on the continued services
and performance of our senior management and other key personnel, particularly
Michael I. Barach, our President, Chief Executive Officer and a director, and
Donald Pettini, our Chief Technology Officer. We do not have employment
agreements with any of our officers or key employees. This means that any
officer or employee can terminate his or her relationship with us at any time.
We also do not have "key person" life insurance policies covering any of our
employees. We may be unable to retain our key employees or attract, assimilate
or retain other highly qualified employees in the future. The loss of the
services of Mr. Barach, Mr. Pettini or any of our other executive officers or
key employees could harm our business.
The loss of third-party content providers could adversely impact our ability to
generate sales.
We believe that consumers become interested in purchasing our products in
part because of the information we include on our Web site regarding health
conditions, herbal and homeopathic remedies, drug interactions and our
products. Much of this information is licensed from third parties and could
cease to be available to us or could be available only at a higher cost. The
loss of this content could require us to develop similar content or to obtain
content that is of lower quality or at a higher cost. In addition, we cannot be
certain that we will be able to license additional content on favorable terms
or at all. Increases in fees paid to our information providers or our failure
to license sufficient content could adversely impact our ability to generate
sales.
We depend on a limited number of third-party suppliers for the products we
require to meet customer demands.
Our business depends on the ability of a limited number of third-party
vendors to provide us with the products, including our private label products,
that we sell. In 1998, two suppliers accounted for 51% of our inventory
purchases, and in 1997, one of those suppliers accounted for 44% of the
inventory we purchased. Furthermore, we purchase nearly all of our private
label products through one supplier. We do not have long-term contracts with
any of our suppliers. If we fail to develop or maintain our relationships with
these or our other vendors, the products we offer could cease to be available
to us or could be available only at higher cost or after a long delay. We
cannot be certain that in the future we will be able to procure sufficient
quantities of our products on acceptable commercial terms.
The failure of third-party delivery services to promptly deliver products would
harm our business.
We rely on third-party carriers for product shipments, including shipments to
and from our fulfillment facility. We are therefore subject to the risks,
including employee strikes and delays due to inclement weather, associated with
these carriers' ability to provide delivery services to meet our shipping
needs. Failure to deliver products to our customers in a timely manner would
harm our business.
We may be subject to product liability claims.
Like other retailers, distributors and manufacturers of products that are
ingested, we face an inherent risk of exposure to product liability claims in
the event that the use of the products we sell results in injury. We may be
subjected to various product liability claims, including claims that the
products we sell contain
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contaminants, are improperly labeled or include inadequate instructions as to
use or inadequate warnings concerning side effects and interactions with other
substances. We cannot predict whether product liability claims will be brought
against us in the future or if the resulting adverse publicity would harm our
business. Moreover, we may not have adequate resources in the event of a
successful claim against us. We do not maintain product liability insurance and
do not have formal indemnification arrangements with the third-party vendors
from which we source our products. Further, our general liability insurance may
not cover product liability claims. If our insurance protection is inadequate
and we are not indemnified by our third-party vendors, the successful assertion
of product liability claims against us could harm our business.
Although many of the ingredients in our products are vitamins, minerals,
herbs and other substances for which there is a long history of human
consumption, some of our products contain innovative ingredients or
combinations of ingredients. There is little long-term experience with human
consumption of some of these innovative product ingredients or combinations in
concentrated form. In addition, interactions of these products with other
similar products, prescription medicines and over-the-counter drugs have not
been fully explored. Although the manufacturer may perform research and tests
in connection with the formulation and production of the products that we sell,
there are no conclusive clinical studies regarding many of our products.
We may be liable for content we provide on our Web site or which is accessed
from our Web site.
We believe that our future success will depend in part upon our ability to
deliver original and compelling descriptive content about health conditions,
herbal and homeopathic remedies, drug interactions and the products that we
sell. As a publisher of Internet content, we face potential liability for
negligence, copyright, patent or trademark infringement, defamation or other
claims based on the nature and content of materials that we publish or
distribute. In the past, plaintiffs have brought such claims and sometimes
successfully litigated them against online services. Although we carry general
liability insurance, our insurance may not cover claims of these types or may
be inadequate to indemnify us for all liability imposed on us. Our business
would be harmed and we could be exposed to potentially significant monetary
damages if we were held liable based on our Internet content.
We face inventory risk.
We plan to increase the number and range of products that we stock in
inventory in order to ensure that we can promptly deliver products to our
customers. In addition, the market for nutritional supplements is characterized
by sudden changes in consumer tastes. We must accurately predict these trends
and stock sufficient quantities of popular vitamins, supplements, minerals and
other products and not overstock unpopular products. Many of our products have
a limited shelf life, and we may be unable to sell inventory that we have
stored for an extended period of time. In the event that one or more of the
products we stock do not achieve widespread consumer acceptance, we may be
required to take inventory markdowns. Failure to properly manage the growth of
our inventory levels will harm our business.
Unfavorable publicity regarding nutritional supplements could harm our
business.
We believe the VSM market is affected by national media attention regarding
the consumption of nutritional supplements. Future research reports or
publicity that are perceived as less favorable or that question earlier
research or publicity could harm our business. Because of our dependence upon
consumer perceptions, adverse publicity associated with illness or other
undesirable effects resulting from the consumption of the products we sell or
any similar products distributed by other companies, whether or not accurate,
also could damage the trust our customers have in our products and would harm
our business. Unfavorable publicity could arise even if the adverse effects
associated with products resulted from consumers' failure to consume such
products appropriately.
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We face risks associated with potential acquisitions of complementary
companies, products or technologies.
We may make investments in or acquire complementary companies, products or
technologies. We may not realize the anticipated benefits of these investments
or acquisitions, and these transactions could be detrimental to our business.
If we buy a business, we could have difficulty assimilating its personnel and
operations, or the key personnel of the acquired business may decide not to
work for us. We also could have difficulty assimilating acquired technology or
products into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Furthermore, we may have to incur debt or issue equity securities to pay for
any future acquisitions or investments, the issuance of which could be dilutive
to our existing stockholders.
We need to continue to establish and maintain strategic relationships with
other Internet companies.
We depend on distribution relationships with Internet companies which have
high-traffic Web sites for a portion of our traffic. There is intense
competition for placement on these sites, and we may not be able to enter into
distribution relationships on commercially reasonable terms or at all. Even if
we enter into distribution relationships with these Web sites, they may not
attract significant numbers of users or increase traffic to our Web site.
We may be unable to protect adequately our intellectual property.
Our trademarks, service marks, copyrights, trade dress, trade secrets and
similar intellectual property are critical to our success. We rely upon a
combination of trademark and copyright law, trade secret protection and
confidentiality or license agreements with our employees, affiliates and others
to protect our proprietary rights. We have submitted trademark and service mark
applications for our name combined with our logo, and these applications are
pending. Effective trademark, service mark, copyright and trade secret
protection may not be available, and the steps we have taken and may take in
the future to protect our proprietary rights may not be adequate. For instance,
we may not be able to register our name combined with our logo as a federal
trademark because there are other companies using the words "mother nature" who
may have prior rights in those words. In addition, we may not be able to
prevent other people from using the words "mother nature" in their businesses.
It is possible that others could use the words "mother nature" in such a way as
to damage the goodwill associated with our business, which could harm our
business. The unauthorized reproduction or other misappropriation of our
trademarks or other intellectual property could diminish the value of our
proprietary rights or goodwill. In addition, we license our trademarks and
other intellectual property to third parties, and we cannot be certain that
such licensees will not take actions that harm the value of our proprietary
rights. The failure to protect our intellectual property adequately could harm
our business.
The legal protection of our domain names is uncertain.
We currently hold several Web domain names relating to our brand, including
"mothernature.com." The acquisition and maintenance of domain names generally
is regulated by governmental agencies and their designees. The regulation of
domain names in the United States and abroad is expected to change in the near
future. Governing bodies may establish additional top-level domains, appoint
additional domain name registrars or modify the requirements for holding domain
names. As a result, we may be unable to acquire or maintain relevant domain
names in all countries in which we conduct business. Furthermore, 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 are similar
to, infringe upon or otherwise decrease the value of our domain names,
trademarks and other proprietary rights.
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Year 2000 risks may disrupt our operations.
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year
2000 problem. These failures or miscalculations could cause disruptions of our
operations, including a temporary inability to process customer orders, operate
our Web site or engage in similar ordinary business activities.
Our operations also depend on the performance of operating software and
systems used by our vendors and service providers. We cannot assure you that
our vendors and service providers have, or will have, operating software and
systems that are year 2000 compliant. Year 2000-related failures in the
software or systems of our vendors or third-party service providers could
interrupt our operations or require us to incur significant unanticipated
expenses. Such disruptions could harm our business. In addition, disruptions
caused by year 2000 problems could affect Internet usage generally, which also
could harm our business.
Our inability to adapt to rapid technological change may harm our business.
To remain competitive, we must continue to enhance and improve the
functionality and features of our online store. If our competitors introduce
new products and services embodying new technologies, or if new industry
standards and practices emerge, our existing Web site and proprietary
technology and systems may be rendered obsolete. Our future success will depend
on our ability to:
. enhance our existing services;
. internally develop and/or license from third parties new services and
technologies; and
. respond to technological advances and emerging industry standards and
practices on a cost-effective and timely basis.
We may use new technologies ineffectively or fail to adapt our Web site,
transaction-processing systems, order fulfillment infrastructure and inventory
management systems to customer requirements or emerging industry standards. If
we experience delays in introducing new services, products and enhancements,
our customers may forego the use of our services and use those of our
competitors. Failure to react effectively to technological change could harm
our business.
We do not expect to pay dividends, and investors should not buy our common
stock expecting to receive dividends.
We have never declared or paid any cash dividends on our capital stock. We
presently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends in the foreseeable
future. You should not purchase our common stock with the expectation of
receiving cash dividends.
We are subject to anti-takeover provisions in our charter, by-laws and Delaware
law that could delay or prevent an acquisition of our company, even if the
acquisition would be beneficial to our stockholders.
Certain provisions of our certificate of incorporation, our by-laws and
Delaware law could make it more difficult for a third party to acquire us, even
if doing so would be beneficial to our stockholders. For additional information
on these anti-takeover provisions, please refer to the information in this
prospectus under the heading "Description of Securities."
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Risks of Doing Business Over the Internet
We depend on continued use of the Internet and growth of the online VSM and
other natural and healthy living products market.
Our future revenues and profits, if any, substantially depend upon the
widespread acceptance and use of the Internet as an effective medium of
business and communication by our target consumers. Rapid growth in the use of
and interest in the Internet has occurred only recently. As a result,
acceptance and use may not continue to develop at historical rates, and a
sufficiently broad base of consumers may not adopt, and continue to use, the
Internet and other online services as a medium of commerce.
In addition, the Internet may not be accepted as a viable long-term
commercial marketplace for a number of reasons, including potentially
inadequate development of the necessary network infrastructure or delayed
development of enabling technologies and performance improvements. Our success
will depend, in large part, upon third parties maintaining the Internet
infrastructure to provide a reliable network backbone with the speed, data
capacity, security and hardware necessary for reliable Internet access and
services.
Further, the online market for VSM and other natural and healthy living
products is in its infancy. The market is significantly less developed than the
online market for books, auctions, music, software and numerous other consumer
products. Even if use of the Internet and electronic commerce continues to
increase, the rate of growth, if any, of the online VSM and other natural and
healthy living products market could be significantly less than the online
market for other products. Our rate of revenue growth could therefore be
significantly less than that of other online merchants.
We are exposed to risks associated with electronic commerce security and credit
card fraud.
Consumer concerns regarding the security of transactions conducted on the
Internet and users' privacy may inhibit the growth of use of the Internet and
electronic commerce. To transmit confidential information securely, such as
customer credit card numbers, we rely on encryption and authentication
technology that we license from third parties. We cannot predict whether we
will experience compromises or breaches of the technologies we use to protect
customer transaction data. Furthermore, our servers may be vulnerable to
computer viruses, physical or electronic break-ins and similar disruptions. We
may need to expend significant additional capital and other resources to
protect against security breaches or alleviate problems caused by any such
breaches. We cannot guarantee that security breaches will not occur, and if our
security measures fail, our business could be harmed. Any penetration of our
network security or misappropriation of our users' personal or credit card
information could subject us to liability. We may be liable for claims based on
unauthorized purchases with credit card information, impersonation or other
similar fraud claims. Claims also could be based on other misuse of personal
information, including use for unauthorized marketing purposes. These claims
could result in litigation.
Under current credit card practices, merchants are liable for fraudulent
credit card transactions where, as is the case with the transactions we
process, the merchant does not obtain a cardholder's signature. A failure to
adequately control fraudulent credit card transactions would harm our business.
Privacy concerns may limit the information we can gather.
Web sites typically place "cookies" on a user's hard drive without the user's
knowledge or consent. We use cookies for a variety of reasons, including the
collection of data derived from the user's Internet activity. Most currently
available Web browsers allow users to remove cookies at any time or to prevent
cookies from being stored on their hard drives. In addition, some commentators,
privacy advocates and governmental bodies have suggested limiting or
eliminating the use of cookies. Any reduction or limitation in the use of
cookies could limit the effectiveness of our sales and marketing efforts. For
example, the European Union recently
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adopted a directive addressing data privacy that may limit the collection and
use of certain information regarding Internet users. This directive may limit
our ability to target advertising or collect and use information in certain
European countries. In addition, the FTC and several states have investigated
the use by certain Internet companies of personal information. We could incur
significant additional expenses if new regulations regarding the use of
personal information are introduced or if our privacy practices are
investigated.
Our business is subject to government regulation of the Internet and other
legal uncertainties which could negatively impact our operations.
Statutes and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent. The law remains largely
unsettled, however, even in areas where there has been legislative action.
Congress recently passed laws regarding online children's privacy, copyrights
and taxation. Existing or future legislation could dampen growth in use of the
Internet. In addition, we do not currently collect sales or other similar taxes
for physical shipments of goods into states other than Massachusetts and
Pennsylvania. However, local, state or foreign jurisdictions may seek to impose
sales tax collection obligations on us. If one or more states or any foreign
country successfully asserts that we should collect sales or other taxes on the
sale of our products, it could negatively affect our revenues and business. It
may take years to determine whether and how existing laws governing
intellectual property, privacy, libel and taxation apply to the Internet,
electronic commerce and online advertising. In addition, the growth and
development of electronic commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad. The adoption or
modification of laws or regulations applicable to the Internet could negatively
impact our operations.
Risks Associated with this Offering
Our management has broad discretion over the use of proceeds from this
offering.
Presently, we intend to use the majority of the proceeds from this offering
for increased advertising and marketing expenditures. The remaining proceeds
will be used to fund operating losses and for general corporate purposes,
including expanding our product and service offerings, enhancing our
infrastructure and working capital. We also may use a portion of the proceeds
to expand our business through strategic alliances and acquisitions. We have
not yet determined the amount of net proceeds to be used specifically for any
of the foregoing purposes. As a result, investors in this offering will be
relying on management's judgment with only limited information about its
specific intentions regarding the use of proceeds. We cannot assure you that
the proceeds will be invested to yield a favorable return. Additional
information regarding the ways in which we intend to spend the proceeds of this
offering is included in this prospectus under the heading "Use of Proceeds."
Our officers and directors will control % of our common stock and will be able
to significantly influence corporate actions.
After this offering, our executive officers, directors and entities
affiliated with them will control approximately % of our common stock. As a
result, these stockholders, acting together, will be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of mergers or other business combination
transactions.
There is no prior public market for our common stock, and you may not be able
to resell shares of our common stock for a profit.
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders for investors. The
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initial public offering price for the shares will be determined by negotiations
between us and the representatives of the underwriters and may not be
indicative of prices that will prevail in the trading market. The market price
of the common stock may decline below the initial public offering price. A more
detailed discussion of the factors to be considered in determining the initial
public offering price is included in this prospectus under the heading
"Underwriting."
We are likely to require additional financing and may not be able to raise
additional financing on favorable terms or at all.
We currently anticipate that the net proceeds of this offering, together with
current cash and cash equivalents, will be sufficient to meet our anticipated
needs for advertising and marketing expenditures, funding operating losses and
general corporate purposes through at least the next 12 months. We anticipate
that we are likely to need additional financing to execute on our business
model thereafter or sooner if we need to respond to business contingencies.
Such contingencies may include the need to:
. fund additional advertising expenditures;
. develop new or enhance existing site content, features or services;
. enhance our operating infrastructure;
. respond to competitive pressures; or
. acquire complementary businesses or necessary technologies.
If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
and these newly-issued securities may have rights, preferences or privileges
senior to those of existing stockholders, including those acquiring shares in
this offering. We cannot assure you that additional financing will be available
on terms favorable to us, or at all. If adequate funds are not available or are
not available on acceptable terms, our ability to fund our operations, take
advantage of unanticipated opportunities, develop or enhance our site content,
features or services, or otherwise respond to competitive pressures would be
significantly limited. For a further discussion, please see "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operation--Liquidity and Capital Resources."
Market prices of emerging Internet companies have been highly volatile, and the
market for our stock may exhibit volatility as well.
The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies, particularly
Internet companies, have been extremely volatile. Recent initial public
offerings by Internet companies have been accompanied by exceptional share
price and trading volume changes in the first days and weeks after the
securities were released for public trading. Investors may not be able to
resell their shares at or above the initial public offering price. In the past,
following periods of volatility in the market price of a public company's
securities, securities class action litigation has often been instituted
against that company. Such litigation could result in substantial costs and a
diversion of management's attention and resources.
The reliability of the market data included in this prospectus is uncertain.
Since we are a relatively new company and operate in a new and rapidly
changing market, we have included market data in this prospectus from industry
publications, including Packaged Facts and International Data Communications.
Industry publications generally state that the information contained in these
publications
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has been obtained from sources believed to be reliable, but that its accuracy
and completeness is not guaranteed. Although we believe market data used in
this prospectus is reliable, it has not been independently verified and we
cannot assure you of its reliability.
New investors will suffer immediate and substantial dilution in the net
tangible book value of their shares.
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. Therefore, you will
incur immediate dilution in net tangible book value of $ per share, assuming
an initial public offering price of $ per share. You may incur additional
dilution if holders of stock options exercise their options or if
warrantholders exercise their warrants to purchase common stock. Additional
information regarding the dilution to investors in our initial public offering
is included in this prospectus under the heading "Dilution."
The large number of shares eligible for public sale after this offering could
cause our stock price to decline.
The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in
the market after this offering or the perception that such sales could occur.
These sales also might make it more difficult for us to sell equity securities
in the future at a time and price that we deem appropriate. Please see the
information in this prospectus under the heading "Shares Eligible for Future
Sale" for a description of sales that may occur in the future.
Forward-looking statements contained in this prospectus may not be realized.
This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are often accompanied by words
such as "believe," "anticipate," "plan," "expect" and similar expressions.
These statements include statements about the market opportunity for online
sales of VSM and other natural and healthy living products, our business
strategy, competition and expected expense levels. Our actual results could
differ materially from those expressed or implied by these forward-looking
statements as a result of various factors, including the risk factors described
above and elsewhere in this prospectus.
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USE OF PROCEEDS
Our net proceeds from the sale of shares of common stock offered by us are
estimated to be $ million, assuming an initial public offering price of $ per
share and after deducting underwriting discounts and commissions and estimated
offering expenses payable by us. If the underwriters' over-allotment option is
exercised in full, we estimate that the net proceeds we will receive will be $
million.
We intend to use the majority of the proceeds from this offering for
advertising and marketing expenditures. We intend to use the remaining proceeds
to fund operating losses and for general corporate purposes, including
expanding our product and service offerings, enhancing our infrastructure and
working capital.
We believe opportunities may exist from time to time to expand our current
business through strategic alliances or through acquisitions of complementary
companies, products or technologies. We may use a portion of the proceeds for
these purposes. We are not currently a party to any contracts, letters of
intent, commitments or agreements and are not currently engaged in active
negotiations with respect to any acquisitions.
We have not yet determined the amount of net proceeds to be used specifically
for any of the foregoing purposes. Accordingly, our management will have
significant flexibility in applying the net proceeds of the offering. Pending
the uses described above, we intend to invest the net proceeds in high-quality,
short-term, interest-bearing securities.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
inception and do not expect to pay any cash dividends for the foreseeable
future. We expect to use future earnings, if any, to finance expansion of our
business. Investors should not purchase our common stock with the expectation
of receiving cash dividends.
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CAPITALIZATION
The following table shows our capitalization as of June 30, 1999:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion of all of our
convertible preferred stock outstanding as of June 30, 1999 into
66,201,914 shares of our common stock upon the closing of this offering;
and
. on a pro forma as adjusted basis to reflect the sale by us of the
shares of common stock offered by this prospectus at an assumed initial
public offering price of $ per share, after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
This information should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operation" and our financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ------------ -----------
<S> <C> <C> <C>
Long-term portion of notes payable and
capital lease obligations.............. $ 17,691 $ 17,691 $ --
Preferred stock:
Series A -- 23,811,358 shares
authorized; 23,316,097 shares issued
and outstanding actual; no shares
issued and outstanding pro forma and
pro forma as adjusted................ 233,160 -- --
Series B-1 -- 23,019,375 shares
authorized; 23,019,375 shares issued
and outstanding actual; no shares
issued and outstanding pro forma and
pro forma as adjusted................ 230,194 -- --
Series B-2 -- 1,800,000 shares
authorized; no shares issued and
outstanding actual, pro forma and pro
forma as adjusted.................... -- -- --
Series C -- 18,958,178 shares
authorized; 18,409,629 shares issued
and outstanding actual; no shares
issued and outstanding pro forma and
pro forma as adjusted................ 184,096 -- --
Common stock, $.01 par value, 86,000,000
shares authorized; 6,531,783 share
issued and outstanding actual;
72,733,697 shares issued and
outstanding pro forma; and shares
issued and outstanding pro forma as
adjusted............................... 65,318 727,337
Additional paid-in capital.............. 60,552,108 60,537,539
Deferred compensation................... (472,708) (472,708)
Accumulated deficit..................... (21,851,389) (21,851,389)
Total shareholders' equity (deficit).. 38,940,779 38,940,779
----------- ------------ ----
Total capitalization................ $38,958,470 $ 38,958,470 $
=========== ============ ====
</TABLE>
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $(38,940,779),
or $(0.54) per share of common stock. Pro forma net tangible book value per
share represents the amount of total tangible assets less total liabilities,
divided by the number of shares of common stock outstanding after giving effect
to the conversion of all shares of preferred stock. After giving effect to the
sale by us of shares of common stock offered by this prospectus at an
assumed initial public offering price of $ per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value as of June 30, 1999 would have
been approximately $ , or $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors
purchasing shares of common stock in this offering. The following table
illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $
Pro forma net tangible book value per share as of June 30, 1999...... $
Increase per share attributable to this offering.....................
---
Pro forma net tangible book value per share after this offering
attributable to new investors........................................
---
Net tangible book value dilution per share to new investors in this
offering............................................................. $
===
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999, the
total number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid to us by existing
stockholders and by new investors purchasing shares in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ------------- ---
<S> <C> <C> <C> <C> <C> <C>
Existing stockholders... 72,733,697 % $61,307,253 % $0.84
New investors...........
---------- --- ----------- --- -----
Total................. 100% $ 100% $
========== === =========== === =====
</TABLE>
The foregoing tables and calculations are based on shares outstanding on June
30, 1999 and:
. include 66,201,914 shares of common stock issuable upon the conversion
of all of our outstanding convertible preferred stock outstanding as of
June 30, 1999;
. exclude 7,628,247 shares of common stock issuable upon exercise of all
options outstanding under our 1998 Stock Plan as of June 30, 1999 with a
weighted average exercise price of $0.35 per share (819,850 of which
were exercisable on June 30, 1999); and
. exclude 1,207,317 shares of common stock issuable upon exercise of all
of our outstanding warrants outstanding as of June 30, 1999.
21
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
financial statements and the notes to those statements appearing elsewhere in
this prospectus and the information under "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The statement of operations
data for years ended December 31, 1996, 1997 and 1998, and the balance sheet
data at December 31, 1997 and 1998, are derived from our audited financial
statements appearing elsewhere in this prospectus. Interim results for the
periods ended June 30, 1998 and 1999 are derived from our unaudited financial
statements appearing elsewhere in this prospectus which, in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of that data. Historical results
are not indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
--------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- --------- ----------- --------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $ 21,489 $ 193,064 $ 476,549 $ 254,239 $ 954,650
Cost of sales........... 10,681 71,484 417,998 148,905 844,330
--------- --------- ----------- --------- ------------
Gross profit.......... 10,808 121,580 58,551 105,334 110,320
Operating expenses:
Selling and
marketing............ 3,564 98,137 3,001,483 438,175 9,830,170
Product development... -- -- 2,135,570 8,672 3,101,587
General and
administrative....... 87,925 174,725 1,596,663 323,015 2,485,574
--------- --------- ----------- --------- ------------
Total operating
expenses............. 91,489 272,862 6,733,716 769,862 15,417,331
--------- --------- ----------- --------- ------------
Operating loss.......... (80,681) (151,282) (6,675,165) (664,528) (15,307,011)
--------- --------- ----------- --------- ------------
Interest income
(expense), net......... -- (8,250) 64,481 3,137 306,519
Net loss................ $ (80,681) $(159,532) $(6,610,684) $(661,391) $(15,000,492)
========= ========= =========== ========= ============
Basic and diluted net
loss per common
share(1)............... $(0.05) $(0.03) $(1.32) $(0.13) $(2.69)
========= ========= =========== ========= ============
Pro forma basic and
diluted net loss per
common share(1)(2)..... $(0.05) $(0.03) $(0.36) $(0.09) $(0.26)
========= ========= =========== ========= ============
Shares used to compute
basic and diluted net
loss per common
share(1)............... 1,469,593 4,855,479 5,017,613 5,000,000 5,566,430
Shares used to compute
pro forma basic and
diluted net loss per
common share(1)(2)..... 1,469,593 4,855,479 18,507,968 7,370,344 57,280,112
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30, 1999
--------------------- ------------------------
Pro Forma as
1997 1998 Actual Adjusted(3)
-------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...... $ 4,241 $11,243,943 $39,683,712 $
Working capital (deficit)...... (65,439) 12,193,907 37,863,146
Total assets................... 90,306 13,461,613 41,605,003
Total long-term debt, net of
current portion............... 74,930 21,091 17,691
Total convertible preferred
stock......................... -- 463,354 647,450
Total shareholders' equity
(deficit)..................... (91,900) 12,579,472 38,940,779
</TABLE>
- --------
(1) Please see the financial statements and the notes to those statements
appearing elsewhere in this prospectus for the determination of shares used
in computing basic and diluted net loss per common share and pro forma
basic and diluted net loss per common share.
(2) The pro forma data give effect to the conversion of all of our convertible
preferred stock into 66,201,914 shares of our common stock upon the closing
of this offering.
(3) The pro forma as adjusted data give effect to the conversion of all of our
convertible preferred stock outstanding as of June 30, 1999 into 66,201,914
shares of our common stock upon the closing of this offering and reflect
the sale of shares of common stock offered by us in this offering at an
assumed initial offering price of $ per share after deducting underwriting
discounts and commissions and estimated offering expenses payable by us.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations
of our company should be read in conjunction with the financial statements and
the notes to those statements appearing elsewhere in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties.
Overview
We are a leading online retail store and information site for vitamins,
supplements, minerals, or VSM, and other natural and healthy living products.
By offering approximately 13,000 products on our site, we provide one-stop
shopping for customers, 24 hours a day, seven days a week. Our online store,
www.MotherNature.com, offers educational and authoritative information, broad
product selection, a high level of customer service, competitive pricing and
easy-to-use navigation and search capabilities.
We were incorporated in the Commonwealth of Pennsylvania in December 1995 as
Mother Nature's General Store, Inc. Our founders worked for approximately three
years to establish distribution channels and an online presence as a retailer
of VSM and other natural and healthy living products. During that time, we
developed and managed our own Web site, built relationships with many vendors
in the VSM and natural and healthy living products industries, established our
private label line and opened our first distribution and customer service
center in Southampton, Pennsylvania. In early 1998, our founders sought to
secure additional financing to expand our business, promote our brand, invest
in infrastructure and technology improvements, and recruit a seasoned
management team to develop and execute on our business model. These efforts
resulted in the completion of our first round of venture capital financing in
June 1998. At that time we reincorporated in the State of Delaware, changed our
name to MotherNature.com, Inc. and began to recruit our current management
team.
Shortly after our new management team joined us, we launched our first major
online banner campaigns, including banner and button purchases on major portals
and shopping areas. In late 1998, we redesigned and launched our Web site,
which included an improved user interface, a more flexible, fully-featured
database structure and enhanced integration of content and merchandise. We have
continued to focus on building our organization, developing our technology
infrastructure, further developing and upgrading our Web site, increasing
customer traffic and sales, expanding our product assortment, promoting our
brand and enhancing our fulfillment and customer service operations. In early
1999, we invested in an aggressive, offline advertising campaign, supplemented
by online advertising, business incentive programs, direct marketing and public
relations.
The success of these efforts has been demonstrated by our growth in quarterly
revenues, which have increased from $105,000 in the fourth quarter of 1998, to
$251,000 in the first quarter of 1999, to $704,000 in the second quarter of
1999. In order to manage the increase in our site traffic and revenues, we have
expanded and continue to upgrade our site, fulfillment operations and
organizational infrastructure. This expansion to date includes enhancing the
features and functions on our site, adding server and database capacity,
building our internally developed fulfillment and logistics system and adding
to our management and employee team, which totaled 112 employees as of June 30,
1999.
In order to finance our rapid growth, we have raised a total of $61.2 million
in venture capital financing during the last 13 months from leading firms, such
as CMG@Ventures, Bessemer Venture Partners and North Castle Partners, which
have expertise in investing in both Internet and healthy living companies. In
addition, during this period we secured subordinated debt and lease financing
for up to $3.3 million, none of which has been drawn down to date.
Despite the growth in our revenues, we continue to incur significant net
losses. Through the first six months of 1999, we incurred a net loss of
approximately $15.0 million. We have not achieved profitability and expect to
incur operating losses for the foreseeable future. We also expect that the rate
at which we incur such
23
<PAGE>
losses will increase significantly from current levels as we continue to incur
expenses related to intensifying our brand development, expanding our product
offerings and Web site content, providing promotional benefits to our
customers, enhancing and upgrading our Web site and our fulfillment and other
systems, expanding our distribution and warehousing facilities, developing and
renewing strategic relationships, and employing additional personnel.
We recognize revenue at the time of shipment. Cash is generally collected in
less than a week as a substantial portion of our sales are paid for by credit
card. Advertising expenditures are expensed as incurred.
Results of Operations
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net Sales. Net sales consist of product sales to customers net of product
returns, promotional discounts and coupons, and include shipping and handling
charges. Net sales increased 275% to $955,000 for the six months ended June 30,
1999 from $254,000 for the six months ended June 30, 1998. This increase was
attributable primarily to the significant growth of our customer base and an
increase in repeat purchases from our existing customers. We believe that the
increase in our customer base was primarily attributable to the implementation
of our offline marketing strategy.
Cost of Sales. Cost of sales consists primarily of the costs of merchandise,
including outbound shipping costs. Cost of sales does not include promotional
discounts and coupons used for new customer purchases, which are included in
selling and marketing expense. Cost of sales increased 467% to $844,000 for the
six months ended June 30, 1999 from $149,000 for the six months ended June 30,
1998. This increase was attributable primarily to our increased sales volume
and unreimbursed costs of shipping products to customers. Our gross margin
decreased to 12% of net sales for the six months ended June 30, 1999 from 41%
of net sales for the six months ended June 30, 1998. This decrease was due to a
number of factors, including increased sales discounts, product database
inconsistencies and more aggressive pricing strategies.
Selling and Marketing Expense. Selling and marketing expense consists
primarily of advertising and promotional expenditures, fulfillment facility
expenses and payroll and related expenses for personnel engaged in marketing,
fulfillment and customer service operations. Selling and marketing expenses
increased to $9.8 million for the six months ended June 30, 1999 from $438,000
for the six months ended June 30, 1998. This increase was attributable
primarily to expenditures related to our offline and online advertising
strategy and expenditures related to promotional discounts offered to attract
new customers. In addition, in the first six months of 1999, we hired a Chief
Marketing Officer and directors and managers for Business Development, Customer
Service and Fulfillment. We intend to continue to pursue an aggressive branding
and marketing campaign and, therefore, we expect selling and marketing expenses
to increase significantly in future periods.
Product Development Expense. Product development expense consists primarily
of payroll and related expenses for merchandising, Web site development, Web
content and design and information technology personnel and related
infrastructure. Product development expenses increased to $3.1 million for the
six months ended June 30, 1999 from $9,000 for the six months ended June 30,
1998. This increase was attributable primarily to increased staffing and
associated costs related to enhancing the features, content and functionality
of our online store and increasing the capacity of our transaction-processing
systems. We believe that continued investment in product development is
critical to attaining our strategic objectives and, therefore, we expect
product development expense to increase significantly in future periods.
General and Administrative Expense. General and administrative expense
consists of payroll and related expenses for executive and administrative
personnel, recruiting, professional fees, travel and other general corporate
expenses. General and administrative expenses increased to $2.5 million for the
six months ended June 30, 1999 from $323,000 for the six months ended June 30,
1998. This increase was attributable primarily
24
<PAGE>
to increased headcount and related expense associated with additional
personnel. We believe general and administrative expenses will increase as we
expect to incur additional costs related to the growth of our business.
Interest Income (Expense). Interest income (expense), net consists of income
earned on our cash balances in money market accounts partially offset by
expenses attributable to capital lease obligations, commitment fees, warrant
financing and original issue discount related to notes payable. Interest income
(expense) increased to $307,000 for the six months ended June 30, 1999 from
$3,000 for the six months ended June 30, 1998. This increase was attributable
primarily to earnings on higher average cash and cash equivalent balances
during the first six months of 1999.
Provision for Income Taxes. We have had net operating losses for every period
through June 30, 1999. We may not be able to utilize all or any of these tax
loss carry-forwards as a result of this offering and prior financings. We have
not recognized a provision for income taxes due to the uncertainty surrounding
the realization of the favorable tax attributes in future tax returns and we
have placed a valuation allowance against our net deferred tax assets.
Net Loss. As a result of the foregoing factors, we incurred a net loss of
$15.0 million for the six months ended June 30, 1999 as compared to $661,000
for the six months ended June 30, 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Sales. Net sales increased 147% to $477,000 in fiscal 1998 from $193,000
in fiscal 1997 as a result of the significant growth in our customer base and
repeat purchases from existing customers.
Cost of Sales. Cost of sales increased to $418,000 in fiscal 1998 from
$71,000 in fiscal 1997. This increase was attributable primarily to our
increased sales volume, a shift in our product mix toward lower margin products
and inconsistencies in our product database, as well as certain one-time
writedowns taken in the fourth quarter of 1998. As a result, our gross margin
decreased to 12% of net sales in fiscal 1998 from 63% of net sales in fiscal
1997.
Selling and Marketing Expense. Selling and marketing expense increased to
$3.0 million in fiscal 1998 from $98,000 in fiscal 1997. This increase was
attributable primarily to $1.9 million incurred in 1998 for online advertising
and an increase in staffing and associated costs, as we hired our Vice
President, Brand Marketing and directors of distribution and online marketing,
as well as several other employees needed to implement our marketing strategy.
Product Development Expense. Product development expense increased to $2.1
million in fiscal 1998. This increase was attributable primarily to $830,000
incurred for professional consulting services, $750,000 for the purchase of a
developed natural products database and Web site and an increase in staffing
and associated costs, as we hired our Chief Technology Officer, Executive
Producer and directors and managers of content and technology.
General and Administrative Expense. General and administrative expense
increased to $1.6 million in fiscal 1998 from $175,000 in fiscal 1997. This
increase was attributable primarily to expenditures incurred related to the
growth of our business, including computer hardware and software, recruiting
and legal expense as well as an increase in staffing and associated costs, as
we hired our Chief Executive Officer and Chief Financial Officer.
Interest Income (Expense). Interest income (expense), net increased to
$64,000 in fiscal 1998 from ($8,000) in fiscal 1997. This increase was
attributable primarily to interest income on higher average cash and cash
equivalent balances during fiscal 1998.
Net Loss. As a result of the foregoing factors, we incurred a net loss of
$6.6 million in fiscal 1998 as compared to $160,000 million in fiscal 1997.
25
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net Sales. Net sales increased to $193,000 in fiscal 1997 from $21,000 in
fiscal 1996, as a result of the significant growth in our customer base.
Cost of Sales. Cost of sales increased to $71,000 in fiscal 1997 from $11,000
in fiscal 1996. This increase was attributable primarily to an increase in
sales volume. Our gross profit increased from $11,000 in fiscal 1996 to
$122,000 in fiscal 1997 primarily as a result of our growth in revenues. As a
result, our gross margin increased to 63% of net sales in fiscal 1997 from 50%
of net sales in fiscal 1996.
Selling and Marketing Expense. Selling and marketing expense increased to
$98,000 in fiscal 1997 from $4,000 in fiscal 1996. This increase was
attributable primarily to our increased sales volume.
General and Administrative Expense. General and administrative expense
increased to $175,000 in fiscal 1997 from $88,000 in fiscal 1996. This increase
was attributable primarily to the growth of our business and an increase in
staffing.
Interest Income (Expense). Interest income (expense), net increased to
$(8,000) in fiscal 1997. This increase in interest expense was attributable
primarily to original issue discount related to a loan entered into in 1997.
Net Loss. As a result of the foregoing factors, we incurred a net loss of
$160,000 in fiscal 1997 as compared to $81,000 in fiscal 1996.
Liquidity and Capital Resources
From inception until June 1998, we financed our operations through a
combination of loans and equity investments aggregating approximately $208,000.
Since June 1998, we have financed our operations primarily through private
sales of convertible preferred stock. Through June 30, 1999, these private
equity financings totaled $61.2 million.
Net cash used in operating activities was $13.4 million for the six months
ended June 30, 1999 as compared to $609,000 for the six months ended June 30,
1998. This increase in cash used in operating activities was attributable
primarily to a $14 million increase in net loss, an increase in accounts
receivable, inventories, prepaid expenses and other assets, offset in part by
increases in accounts payable, accrued expenses, accrued compensation and
depreciation and amortization. Net cash used in operating activities was $5.0
million in fiscal 1998, as compared to $80,000 in fiscal 1997 and $3,000 in
fiscal 1996. In each of these periods our principal operating cash requirements
were to fund our net loss, offset in part by increases in accrued expenses. The
significant increase in working capital in fiscal 1998 was due primarily to
significant growth in our operations.
Net cash used in investing activities was $838,000 for the six months ended
June 30, 1999 as compared to $876,000 for the six months ended June 30, 1998.
Net cash used in investing activities was $1.2 million in fiscal 1998, as
compared to $28,000 in fiscal 1997 and $5,500 in fiscal 1996. The increase was
attributable primarily to purchases of property and equipment. In each period,
net cash used in investing activities consisted primarily of purchases of
property and equipment.
Net cash provided by financing activities was $42.6 million for the six
months ended June 30, 1999 as compared to $6.7 million for the six months ended
June 30, 1998. In the first six months of 1999, we received $43.6 million from
the issuance of convertible preferred stock. Net cash provided by financing
activities was $17.4 million in fiscal 1998, as compared to $111,000 in fiscal
1997 and $9,000 in fiscal 1996. Net cash provided by financing activities for
fiscal 1998 consisted primarily of proceeds of $17.5 million from the issuance
of convertible preferred stock. In fiscal 1997, net cash provided by financing
activities consisted
26
<PAGE>
primarily of proceeds of $89,000 from stockholder advances and notes payable
and $25,000 in connection with the issuance of common stock. In fiscal 1996,
net cash provided by financing consisted primarily of proceeds from stockholder
advances.
As of June 30, 1999, we had $39.7 million of cash and cash equivalents. As of
that date, our principal commitments consisted of obligations outstanding under
capital leases in the amount of $2,200 and media purchase commitments of
$2,800,000. Although we currently have no material commitments for capital
expenditures, we anticipate that our business model will require us to commit
resources to promote our brand aggressively, expand our product and service
offerings, and enhance our infrastructure. Our media purchases generally
require a one to three month advance commitment, though some of these
commitments may be resaleable.
We currently anticipate that the net proceeds of this offering, together with
current cash and cash equivalents, will be sufficient to meet our anticipated
needs for working capital and capital expenditures through at least the next 12
months. We anticipate that we are likely to need additional financing to
execute our business model after that 12-month period or sooner if we need to
respond to business contingencies, such as funding additional advertising
expenditures, developing new or enhancing existing content, features or
services, enhancing our operating infrastructure, responding to competitive
pressures, or acquiring complementary businesses or technologies. If we raise
additional funds through the issuance of equity, or convertible debt
securities, the percentage ownership of our stockholders will be reduced, and
these newly-issued securities may have rights, preferences or privileges senior
to those of existing stockholders, including those acquiring shares in this
offering. We cannot be certain that additional financing will be available to
us on favorable terms when required, or at all.
Year 2000 Readiness Disclosure
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use software, computer technology and other services internally
developed and provided by third-party vendors that may fail due to the year
2000 phenomenon. For example, we are dependent on the financial institutions
involved in processing our customers' credit card payments for product orders
and on a third party that hosts our servers. We are also dependent on
telecommunications vendors to maintain our network and the United States Postal
Service and other third-party carriers to deliver orders to customers.
We have reviewed the year 2000 compliance of our internally developed
proprietary software. Since our inception, we have internally developed
substantially all of the systems for the operation of our Web site. These
systems include our online search and navigation capabilities, customer service
and transaction-processing and fulfillment functions, as well as firewall,
security, monitoring and back-up capabilities. Based upon our assessment to
date, we believe that our internally developed proprietary software is year
2000 compliant.
We are currently assessing the year 2000 readiness of our third-party
supplied software, computer technology and other services of our vendors. Based
upon the results of this assessment, we will develop and implement, if
necessary, a remediation plan with respect to third-party software, third-party
vendors and computer technology and services that may fail to be year 2000
compliant. At this time, the expenses associated with this assessment and
potential remediation plan are expected to be insignificant. The failure of our
software and computer systems and of our third-party suppliers to be year 2000
compliant would harm our business.
The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the integrity
and stability of the Internet and NaviSite, Inc., our Web site hosting service,
to provide our services. We also depend on the year 2000 compliance of the
computer systems
27
<PAGE>
and financial services used by consumers. A significant disruption in the
ability of consumers to reliably access the Internet or portions of it or to
use their credit cards would have an adverse effect on the demand for our
services and would harm our business.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, requiring computer software
costs associated with internal-use software to be expensed as incurred until
certain capitalization criteria are met. We adopted SOP 98-1 for the year ended
December 31, 1998. Adoption of this statement did not have a material impact on
our financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on Costs of Start-Up
Activities, requiring all costs associated with preopening, preoperating and
organization activities to be expensed as incurred. We have adopted the
statement and have expensed all amounts.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. As issued, SFAS 133 is effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999, with
earlier application encouraged. In May 1999, the FASB delayed the effective
date of SFAS 133 for one year, to fiscal years beginning after June 15, 2000.
We do not currently nor do we intend in the future to issue derivative
instruments and therefore do not expect that the adoption of SFAS 133 will have
any impact on our financial position or results of operations.
28
<PAGE>
BUSINESS
Overview
We are a leading online retail store and information site for vitamins,
supplements and minerals, or VSM, and other natural and healthy living
products. Through our innovative combination of content and commerce, we intend
to establish MotherNature.com as the preferred destination for consumers
interested in natural and healthy living products. We currently offer
approximately 13,000 products on our site and can special order additional
products through our supplier relationships. We continue to increase our
product assortment. In addition, we provide educational and authoritative news
and information about our products and healthy living in general, which we
integrate with our product offerings in an easily accessible way. We are
building the MotherNature.com brand and increasing our customer base through an
aggressive mass-media advertising program that promotes our memorable name.
Through these marketing efforts, we are seeking to establish MotherNature.com
as a trusted advisor to our growing online community, which includes
approximately 77,000 registered members as of July 31, 1999.
Industry Background
Growth of the Internet and Electronic Commerce
The Internet has become an increasingly significant medium for communication,
information and commerce. According to International Data Corporation (IDC),
there were approximately 142 million Internet users worldwide at the end of
1998 and this number is expected to grow to approximately 398 million Internet
users by the end of 2002. The total value of services and products purchased
over the Internet grew from approximately $296 million at the end of 1995 to
approximately $50 billion at the end of 1998 according to IDC. Although we
cannot be certain of any future growth, IDC estimates that this amount will
increase to approximately $733 billion by the end of 2002. According to IDC,
worldwide business-to-consumer sales over the Internet are expected to increase
from approximately $15 billion in 1998 to approximately $116 billion by 2002.
We believe that this dramatic growth presents significant opportunities for
online retailers.
The VSM and Natural Products Market
According to Packaged Facts, a consumer products market research firm, sales
of VSM totaled approximately $8.9 billion in 1998 and are expected to grow to
approximately $16.6 billion by 2003, a compound annual growth rate of 13.3%. We
believe that several factors are driving this growth, including a rapidly
growing segment of the population that is concerned with aging and disease, a
growing interest in preventative health care, favorable consumer attitudes
toward natural products and a favorable regulatory statute, the Dietary
Supplement Health and Education Act of 1994. Additionally, public awareness of
the positive effects of vitamins and other nutritional supplements on health
has been heightened by widely publicized reports of favorable research
findings. According to data published by Packaged Facts, 56% of U.S. adults
took vitamins in 1998, up from 43% in 1993. We believe, based upon this data,
that 78% of these adults now take vitamins at least once a day.
The VSM market is a subset of the broader natural products market, which
includes product categories such as personal care products, household and other
general merchandise, perishable and non-perishable foods, organic coffees and
teas, sports nutrition, cosmetics, baby care products and pet care products.
Due to the size of this market and the absence of a dominant online natural
products retailer, we believe that additional opportunities for online sales
within the broader natural products market also exist.
Limitations of Traditional Retailers of VSM and Natural Products
We believe that traditional retailers of VSM and other natural and healthy
living products face several challenges in providing a satisfying shopping
experience for consumers, including:
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. Lack of information and product guidance. The typical retail shopping
experience can be confusing and often lacks timely, relevant and
credible information to educate and guide the consumer to an effective
product solution. In particular, retail stores offer consumers limited
means to choose among many products or to select the appropriate product
for a given condition other than by asking store personnel who may not
be knowledgeable. Further, researching a product or health condition in
a retail store can be difficult due to the lack of easily accessible
reference materials.
. Lack of convenience and privacy. Traditional retailers have limited
store hours and locations. Traditional retailers are also unable to
provide consumers with privacy while shopping, as consumers must often
reveal personal health conditions when asking store personnel for
product advice.
. Limited product assortment. The capital and real estate intensive nature
of store-based retailers limit the product selection that can be
economically offered in each store location.
. Lack of customer information and communication. Traditional retailers
cannot easily obtain demographic information about their customers,
which prevents them from customizing product presentation and selection
and undertaking focused direct marketing activities. Traditional
retailers often have little interaction with their customers and most
are unable to establish ongoing communication with them.
As a result of the foregoing limitations, we believe there is significant
unmet demand for an alternative shopping channel that can provide consumers of
VSM and other natural and healthy living products with a broad array of
products, a wealth of news and information to help them research and select
products and a convenient and private shopping experience.
The MotherNature.com Solution
We attract and retain consumers through the following key attributes of our
site:
Educational and Authoritative Information. Our online store is designed to
inform consumers and assist them in making appropriate, educated purchase
decisions. Our users can access timely and authoritative literature on all
aspects of healthy living, including over 1,300 articles, news clips and
encyclopedia entries from the Encyclopedia of Natural Health included on our
site, as well as narratives on health conditions, natural remedies, products
and recent developments. Our site offers a wealth of internally developed and
third-party licensed content developed by physicians, nutritionists and other
health professionals. The content on our site is based on research and studies
published in prominent medical journals, such as the Journal of the American
Medical Association, the Lancet and the New England Journal of Medicine, as
well as news articles and various other books and periodicals.
Integration of Content and Commerce. Our site integrates information on
healthy living and specific health conditions with access to products, and
thereby provides comprehensive solutions to consumer concerns. Consumers can
use our content to search for and research specific products or brands or to
locate products targeted to their particular lifestyle or special interest.
Alternatively, consumers can research a specific health concern or browse the
Encyclopedia of Natural Health and select from natural solutions merchandised
through links to the content. For example, under a discussion of "depression,"
consumers are presented with a targeted selection of natural products,
including "St. John's Wort," with a "click to buy" option. The consumer also
has the option of selecting from a set of "solution baskets" which we have
created to address particular health concerns.
Convenient and Private Shopping. Our Web site is easily accessible for
shopping 24 hours a day, seven days a week. Consumers shop in the privacy of
their home or office and can comfortably research sensitive health concerns and
purchase products that they might be uncomfortable purchasing in a retail
store. Our Web site also provides a number of features which make the shopping
process more convenient. For example, we
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have simplified the reordering process by enabling customers to select their
past orders for reorder with one click. In addition, we provide each customer
with a personal shopping list of every product the customer has previously
ordered, which allows quick and easy selection of specific items for reorder.
We also offer a personal shopper service in which a customer service
representative finds desired products and information for those customers that
complete an online request form.
Broad Expandable Product Assortment. Our product selection is substantially
larger than that offered by store-based retailers. We offer approximately
13,000 VSM and other natural and healthy living products on our site, and
provide customers with the ability to order additional products through our
suppliers. Our online store is easily expandable to include additional natural
and healthy living products and related services we may add in the future. Our
current product offerings include such categories as: Vitamins, Minerals,
Supplements, Herbs, Homeopathy, Teas, Bath & Body, Aromatherapy, Pet Products,
Books and General Merchandise. We organize our broad product assortment by
allowing consumers to search by brand, health concern, lifestyle or special
interest or product category.
Customer Information and Ongoing Communication. We use e-mail to provide
order status and shipping confirmation, to inform customers of news stories
which relate to their particular past purchases and to respond to customer
service inquiries. In addition, we use e-mail to send our customers a bi-weekly
newsletter which is also made available on our Web site. Through the member
registration process we can determine the demographics of our customer base and
can use this information to customize our Web site and product and service
offerings, thereby enabling us to better address certain demographic segments
of our customer base.
The MotherNature.com solution also includes quality customer service, rapid
product delivery and e-mail order confirmation. Through our warehouse and
distribution center, we can manage inventory levels based on customer demand
and indicate on our site which products are in stock. In addition, we are
developing the MotherNature.com community to provide consumers with a forum for
sharing natural and healthy living product experiences, ideas and advice.
Our Strategy
We intend to establish MotherNature.com as the leading online retailer and
information site for VSM and other natural and healthy living products. Our
strategy for growing our business includes the following:
Promote the MotherNature.com Brand. We intend to promote our highly memorable
brand name through the aggressive use of traditional offline advertising, the
promotion of our private label products and the selective use of online
advertising, direct marketing and public relations. In particular, we believe
our offline advertising campaign has been and will continue to be successful in
rapidly building awareness of our brand in the geographic markets we target. We
intend to broaden this advertising campaign from radio, newspaper, magazine and
outdoor media to include a national television campaign, which we expect to
commence in the Fall of 1999.
Establish MotherNature.com as the Trusted Authority for VSM and Other Natural
and Healthy Living Products. Through our marketing efforts, we intend to
establish our Web site as a trusted consumer resource by providing informative
and authoritative content that will differentiate our Web site from those of
our competitors. We believe the content on our site, including the Encyclopedia
of Natural Health, the numerous articles and news clips from leading sources
and the authoritative contributions of our staff of health professionals,
provides consumers with trustworthy information to conduct thorough research on
hundreds of health conditions and VSM and other natural and healthy living
products. We have established a Medical Advisory Board comprised of health
professionals, including an internist, an exercise physiologist, a
cardiologist, a dermatologist, a biochemist and a nutritionist, all of whom are
either medical doctors or Ph.Ds. Members of our Medical Advisory Board are
responsible for making individual content contributions and for providing our
editorial staff with guidance on developing and reviewing content as requested.
We intend to
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further develop our community and establish trust with consumers by providing
question and answer sessions with members of our Medical Advisory Board.
Promote Repeat and Complementary Purchases. We intend to capitalize on the
inherent need for regular replenishment of VSM products by promoting repeat
sales through features including automatic reorder, personalized nutritional
supplement programs, customer profiling, loyalty programs and targeted news
feeds. We also plan to introduce impulse items at checkout, first with standard
products and later with highly targeted items based on the contents of the
consumer's shopping basket. As we offer a broader range of natural products, we
intend to provide consumers with natural alternatives to frequently used
products such as household detergents, pet foods and cosmetics.
Develop Business Incentive Programs. We intend to enlist and provide
financial incentives for primary care physicians, alternative health providers,
corporate health plans, HMOs and physician networks, wellness centers and
health clubs to generate additional revenue opportunities through the promotion
of VSM and other natural and healthy living product purchases and referrals to
our Web site. We believe that our relationships with these businesses and
individuals will increase consumer traffic to our site as well as provide
additional sources of content and enhance the credibility of our site.
Provide Quality Customer Service. We intend to provide our customers with a
high level of service, primarily through our in-house distribution center. We
are increasing inventory levels of popular products and are moving to a new
25,000 square foot fulfillment facility, located adjacent to a U.S. Postal
Service Priority Mail processing center, that will expand our warehousing and
rapid distribution capacity. We believe that our control over our distribution
center will enable us to fill customer orders more promptly and maintain higher
customer satisfaction levels. We also endeavor to provide quality customer
service through e-mail communications and our responsive call center.
Expand Presence in International Markets. We believe that there are
significant opportunities in the VSM and other natural and healthy living
products market internationally, particularly in Asia, the United Kingdom and
Canada. As an online retailer, we believe that we will be able to effectively
penetrate and serve these international markets. We intend to expand our
international sales by translating our Web site into several foreign languages
and advertising in those strategically selected areas where we believe a
substantial market may exist.
Our Site
Shopping Our Store
From the MotherNature.com home page, consumers can shop in four ways:
. By Product Department. Consumers can search for products among the 13
product departments on our Web site, such as Vitamins, Supplements,
Minerals, Herbs and Pet Products.
. By Lifestyle and Special Interest. Consumers can search for products
among five main categories: Personal & Family Health, Anti-Aging, Sports
& Fitness, Nutrition & Weight Control and Ayurvedic Medicine (an Indian
healing system). These categories include subcategories such as women's
health, men's health, strength training and nutrition, bone and joint
health and mind and memory.
. By "What Ails You?" Consumers can search for products related to over
100 health concerns included in the Concerns From A-Z category. In
addition, this section of the site includes 133 solution baskets, each
of which contains multiple products for use in addressing a particular
health concern.
. By "Brands From A-Z." Consumers can search for their favorite brand and
can browse the various categories of products which are provided for
each listed brand.
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We also alert consumers to special values, new products, product promotions
and new merchandise categories. For example, consumers can easily locate
product specials on our "Specials" page and new product offerings on our
"What's New" page. Also, our home page features our best-selling products and
promotes various "Featured Product Lines."
Our Web site offers several personalized services. We provide our members
with a free bi-weekly e-mail newsletter containing timely news stories and
articles, as well as product specials which are designed to encourage customer
purchases. In addition, we provide a free clipping service through which
customers can choose to receive direct e-mail news clippings on over 40 health
topics.
Our site offers consumers an easy and convenient shopping experience.
Consumers simply click on a button to add products to their virtual shopping
baskets. As they browse, consumers can add and subtract products from their
shopping baskets prior to making a final purchase decision. We deduct
promotional dollars from the purchase price of products, eliminating the need
to cut coupons. Customers who shop using our personal shopper feature are sent
an e-mail when their basket has been filled by one of our customer service
representatives, leaving them one click away from purchasing. To submit orders,
customers click on the "Proceed to Check Out" button and are prompted to supply
shipping and credit card details online, or by e-mail, phone or facsimile. A
variety of shipping options are offered and large orders receive shipping
discounts. Customers are provided with automated e-mail order verification,
back-order processing and shipping confirmation. Upon their first order, every
MotherNature.com customer is assigned a password-accessible personal account
number. This "Your Account" function allows customers to easily view current
order status and previous order contents and to select past orders for one-
click reorders.
Our Content
Our site offers a wealth of authoritative and educational content. We believe
that our integration of content and commerce results in a more rewarding
shopping experience for consumers. Our site includes over 1,300 articles, news
clips and encyclopedia entries from the Encyclopedia of Natural Health, as well
as narratives on health conditions, natural remedies, products and recent
developments, all of which are designed to provide credible information and
assist consumers with their purchase decisions. A key component of our
merchandising strategy is our ability to link relevant product offerings
throughout the text of the various articles, encyclopedia entries and other
narratives displayed on our Web site. This strategy enables us to more
effectively market our products, since consumers are able to research a
specific health concern and at the same time access the natural product
solutions mentioned within the content. Our "In the News" section alerts
consumers to timely news stories regarding VSM and other healthy living issues,
while enabling us to highlight applicable product offerings.
The Encyclopedia of Natural Health is based on content licensed from
HealthNotes Online and incorporates information gathered from over 500
authoritative scientific and medical journals, such as The Journal of the
American Medical Association, the Lancet and the New England Journal of
Medicine. The Encyclopedia home page displays six main categories of
encyclopedia entries, thereby enabling consumers to easily search its contents.
For example, under the "Health Concerns" category, the entries address over 140
health concerns and helpful dietary supplements. Under the "Herbs & Botanicals"
category, a consumer can find reviews covering 150 herbs, which include
information on where the herbs are grown and their historical or traditional
uses.
In addition, our site includes internally developed content, such as our
"Consumer Guides", bi-weekly newsletter and a section devoted to recent news
stories, as well as content licensed from third parties, such as the American
Botanical Council. Members of our Medical Advisory Board write articles,
columns and narratives for inclusion on our site, review and critique selected
portions of our content, provide advice and guidance to our editorial staff and
assist in developing our solution baskets. Medical Advisory Board members also
assist us in preparing articles on new product or market developments,
including responses to current media publicity regarding VSM products.
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Our Community
We are building an active community dedicated to educating consumers about
VSM, healthy living and natural products. We are also developing interactive
tools for the site in order to provide a fulfilling shopping experience and to
build a sense of community among our customers. We currently provide a news
clipping service and several forums, including forums on herbs, weight control,
natural pet care and women's health, which are monitored by qualified
professionals and which enable consumers to ask and respond to each other's
questions. Future plans include the introduction of additional forums, medical
advice sessions hosted by members of our Medical Advisory Board, health quizzes
and customer testimonials.
Marketing and Site Promotion
Our marketing strategy is designed to strengthen the MotherNature.com brand
name, increase traffic to the MotherNature.com store, build strong customer
loyalty, maximize repeat purchases and develop incremental revenue
opportunities. We believe our offline advertising campaign, launched in March
1999, has proven to be especially successful in achieving these objectives.
Therefore, we intend to continue to promote the MotherNature.com brand through
aggressive offline advertising as well as through online advertising, business-
to-business programs, direct marketing and public relations. Our marketing
efforts are targeted at active, health- conscious adults and consist of:
Offline advertising. We are committing significant resources to building our
brand name by using print, radio and outdoor advertising campaigns. Our offline
campaign commenced in early March 1999 and was primarily targeted at the
metropolitan areas of Boston, New York City, San Francisco and Seattle. In May
and June, the campaign was expanded to include several additional cities,
including Los Angeles, Detroit, Dallas, Denver, Chicago and Washington D.C. In
connection with this campaign, we have retained Ogilvy & Mather Worldwide as
our creative firm. The campaign is comprised of radio advertisements, print
advertisements in newspapers, including The New York Times, The Boston Globe
and The San Francisco Chronicle, regional editions of national magazines, such
as People Magazine, and outdoor media such as billboards and buses. Targeted
ads have also been placed in natural products and health-related magazines and
relevant sections of national newspapers. The radio advertisements feature
recognized and celebrity voices, including the voice of actress Blythe Danner
as "Mother Nature." In addition, we are planning the introduction of a major
national brand-building campaign on television which is expected to commence in
the Fall of 1999.
Other advertising. To a lesser extent, we are using online advertising,
direct marketing and public relations in our marketing strategy. Our online
strategy involves selective advertising on the Web sites of major Internet
content and service providers and targeted health-related Web sites. We have
established hypertext links on sites including Yahoo! and America Online
Shopping Channels. In addition, we have established an affiliates program which
allows third parties to receive commissions for sales generated by customers
that hyperlink to MotherNature.com from the third-party site.
We will continue to refine our direct marketing campaign by tailoring
offerings to the demographics of our targeted audience. Currently, our direct
marketing activities consist of our bi-weekly newsletter, e-mail and regular
mail postcards, and special inducements.
We have engaged a public relations firm to generate media interest in our
site through editorial coverage in business, consumer and industry trade
publications. Our first public relations event, "Stress Relief for a Taxing
Day," was held on April 15, 1999 in Boston, New York, San Francisco and
Seattle, where we handed out samples of our private label Kava Kava, a natural
stress reliever, to persons mailing their income tax returns.
Business incentive programs. We believe we can increase traffic to our site
and acquire loyal customers through the establishment of business incentive
programs. We intend to enlist and provide financial incentives for primary care
physicians, alternative health providers, corporate health plans, HMOs and
physician networks,
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wellness centers and health clubs to generate additional revenue opportunities
through the promotion of VSM and other natural and healthy living product
purchases and referrals to our Web site. We believe that our relationships with
these businesses and individuals will increase consumer traffic to our site, as
well as provide additional sources of content and enhance the credibility of
our site.
Our Products
Products we offer. The following is a representative sampling of the products
offered on our Web site:
<TABLE>
<CAPTION>
Vitamins Supplements Minerals Herbs Bath & Body Teas
- -------- ----------- -------- ----- ----------- ----
<S> <C> <C> <C> <C> <C>
Beta Carotene Acidophilus Boron Alfalfa Acne Products Aloe
Bioflavonoids Adrenal Supplements Calcium Anise Seed After Shave Anise
Biotin Antioxidants Chromium Bayberry Aloe Vera Gels Antioxidant
Children's Vitamins Bee Pollen Copper Calendula Bar Soaps Assorted Herbal
Choline Borage Dolomite Echinacea Body Lotions Black Currant
Folic Acid Bran Germanium Elderberry Cosmetics Chai
Inositol Brewer's Yeast Iron Ginkgo Biloba Deodorants Chamomile
Multivitamins Chlorella Magnesium Ginseng Facial Cleanser Dandelion
Niacin DHEA Silica Kava Root Shaving Cream Ginseng
Paba CLA Potassium Goldenseal Root Foot Care Products Dong Quai
Pantothenic Acid Cod Liver Oil Selenium Hyssop Massage Oil Fennel
Pyridoxine Evening Primrose Oil Zinc Saw Palmetto Sun Care Green
Rutin Glucosamine St. John's Wort Melatonin
Vitamins A-E Lecithin
</TABLE>
<TABLE>
<CAPTION>
Homeopathy Aromatherapy Books Pets General Merchandise
- ---------- ------------ ----- ---- -------------------
<S> <C> <C> <C> <C>
Belladonna All Spice Oil Allergies Catnip Air Fresheners
Cell Salts Camphor Oil Arthritis Grooming Products Candy/Gum/Mints
Fever Remedies Cedar Oil Ayurvedic Medicine Herbal Collars Coffee
Headache & Migraine Clove Oil Cooking Pet Books Diapers
Remedies Grapefruit Oil Depression Pet Foods Feminine Care
Heartburn Remedies Hyssop Oil Gardening Pet Supplements Household Cleaners
Nux Vomica Jasmine Oil Herbs Toys Juicers & Pulp Extractors
Oscillococcinum Lavender Oil Homeopathy Laundry Products
Sabina Orange Oil Juices Paper Products
Sepia Patchouli Oil Sports Nutrition Snacks
Rosemary Oil Supplements Vitamin Accessories
& Pill Crushers
Water Filters
</TABLE>
Product sources. We purchase products from several distributors and
manufacturers. We carry inventories of all of our private label products and
selected, higher-turnover branded items and arrange rapid fulfillment from
major distributors and manufacturers for the remainder of our product
offerings. We market and distribute merchandise from national brands such as
Natrol, TwinLab and NatureMade, and also carry approximately 300 products under
our own private label brand, MotherNature.com, which is manufactured primarily
by Reliance Vitamin Company. To the extent available, our private label
products are displayed first on any search list. In the six months ended June
30, 1999, no one national brand accounted for more than 7% of sales. During the
same period, sales of MotherNature.com branded products accounted for 43% of
sales.
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Product and service offering expansion. Consistent with our objective of
becoming the preferred destination for consumers interested in natural and
healthy living products, we intend to expand our product and service offerings
to address the broader natural products market. We recently added a pet
supplies and a general merchandise category of products to our Web site. In
addition, we recently began offering a private label line of organic coffees on
our site. We intend to expand our existing product and service offerings in the
General Merchandise and Bath & Body categories by adding the following:
recycled cards and stationery; spa and travel; baby care; music and
natural/organic clothing. We also intend to expand the products offered under
our private label to include these and other categories.
Customer Support
We believe that a high level of customer service and support is critical to
retaining and expanding our customer base. Our customer service representatives
are currently available from 9 a.m. to 9 p.m. Eastern time, Monday through
Friday, to provide customer assistance by e-mail or telephone. Our customer
service representatives handle questions about orders and how to navigate our
Web site and assist customers in finding desired products. In addition, we
provide each customer with automated e-mail order verification, back-order
processing and shipping confirmation. We provide pre- and post-sales support by
e-mail, facsimile and toll-free telephone service. Upon ordering for the first
time, each customer receives a password-accessible personal account which
allows the customer to view current order status and prior order contents and
to select past orders for one-click reorders.
Order Fulfillment
We maintain a fulfillment center in Southampton, Pennsylvania which operates
five days per week. All product receiving, warehousing and pick, pack and ship
operations are housed in this facility. We currently stock approximately 8,000
SKUs, including approximately 300 private label products, and have plans to
increase the number of items in-stock over time. All items that are in-stock
are noted as being "in-stock" on our Web site and are available for same day
shipment if the order is received prior to 3:00 p.m. EST. Orders for products
not in our warehouse are usually available for shipment within 24 to 72 hours,
and these items are ordered from suppliers at least once per day. Customers are
not charged for their orders until the ordered product is shipped. Orders are
shipped to locations worldwide by major carriers including the U.S. Postal
Service, UPS, Federal Express and DHL.
We are relocating our fulfillment center to a 25,000-square-foot facility in
Springfield, Massachusetts, which we anticipate to be completely operational by
the end of 1999, at which point we anticipate closing the Southampton facility.
Until our Springfield facility becomes fully operational, we intend to maintain
fulfillment operations in both centers. Since the Springfield fulfillment
center is located across the street from a U.S. Postal Service Priority Mail
processing center, we intend to ship most orders by Priority Mail, thereby
reducing our current shipping costs.
Order processing, inventory management, shipping and billing are primarily
handled by our proprietary system. We are in the process of converting from our
proprietary system to a system licensed from a third-party vendor, Yantra
Corporation, located in Acton, Massachusetts. When this conversion is
completed, the Yantra system, plus other third-party software modules, is
expected to handle order-to-fulfillment processing, including purchase order,
receiving, inventory management, shipping and billing and are expected to be
fully integrated with our front end.
Technology and Systems
We have implemented a broad array of Web site management, search engine,
customer support, order-processing and fulfillment systems using a combination
of commercially available, licensed technologies and selected proprietary
technologies. The front end of our Web site is built on industry standard
technologies,
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including Compaq multiprocessor servers, the Microsoft Windows NT operating
system, Microsoft Internet Information Server and a robust Oracle database.
These technologies are integrated using a variety of proprietary scripts, the
majority of which are written in HTML, Javascript and Microsoft Active Server
Pages. These scripts handle user interface, product search, ordering, order
tracking and customer communications.
The current Web site front-end architecture can be scaled to handle increases
in traffic and usage. Further, in response to capacity concerns and site
development needs, we recently increased from one to four the number of servers
that run our Web site and are in the process of configuring these servers in a
manner to provide redundant capacity. We intend to continue to invest in
technologies that will enable us to handle growth in traffic and advancements
in site infrastructure. In the near future, we plan to implement several new
systems, including tools for providing enhanced personalization of the front
end in response to consumer demographics and shopping preferences.
The continued, uninterrupted operation of our Web site and transaction-
processing systems is essential to our business, and we employ a group of
systems administrators to monitor and manage our Web site, network operations
and transaction-processing systems to ensure their continued operation and
reliability. In addition, the system includes redundant hardware on mission
critical components and can survive a variety of failures with minimal
downtime.
We subcontract the hosting of our servers to NaviSite, Inc., an Internet data
center specialist. NaviSite provides Internet connections to multiple Internet
access points, a secure physical environment, climate control, redundant power
and 24-hour-a-day, 7-day-a-week monitoring services. NaviSite currently hosts
several of our servers in its Andover, Massachusetts data center. NaviSite has
adequate capacity for expansion in its Massachusetts facility to support our
growth. NaviSite currently provides us with a dedicated 100 Megabit per second
connection to the Internet for each of our four servers, which can be upgraded
to 400 Megabit per second or beyond. NaviSite has multiple connections to the
Internet through separate connections to various Internet service providers,
and these connections can be expanded as necessary to handle the traffic and
demands of our site. We plan to expand the hosting of our services into
additional facilities to provide additional support for our site in the event
of a disaster at one facility.
Competition
The electronic commerce industry is new, rapidly evolving and intensely
competitive, and we expect competition to intensify in the future. Barriers to
entry are minimal and current and new competitors can launch sites at a
relatively low cost. In addition, the VSM and natural and healthy living
products market is very competitive and highly fragmented, with no clear
dominant leader and increasing public and commercial attention.
We believe that the principal competitive factors in our market are:
. brand recognition and trust-worthiness;
. ability to attract and retain customers;
. breadth of product selection;
. product pricing;
. availability of educational and authoritative information; and
. quality and responsiveness of customer service.
We believe that we compete favorably on these factors. However, we will have no
control over how successful our competitors are in addressing these factors. In
addition, with little difficulty, our online competitors can duplicate many of
the products, services or content offered on our site.
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Our competitors can be divided into several groups including:
. traditional VSM and natural products retailers, including General
Nutrition Centers and Vitamin Shoppe;
. the online retail initiatives of several traditional VSM and natural
product retailers, including VitaminShoppe.com and Vitamins.com;
. online retailers of pharmaceutical products that also carry VSM and
natural products retailers, including Drugstore.com, PlanetRx.com and
CVS.com;
. independent online retailers specializing in VSM, including Greentree
Nutrition, Inc., HealthShop.com, eNutrition, allherb.com, vitamins.net
and Vitanet;
. mail-order and catalog retailers of VSM and natural products, including
NBTY, Amrion, Rexall Sundown and Vitamin Shoppe, some of which have
already developed online retail outlets; and
. direct sales organizations, retail drugstore chains, health and natural
food store merchants, mass market retail chains and various
manufacturers of natural products.
Many of our current and potential competitors have longer operating
histories, larger customer or user bases, greater brand recognition and
significantly greater financial, marketing and other resources than we have.
Additionally, industry consolidation may increase competition. Recently,
Drugstore.com announced the formation of a strategic relationship with Rite Aid
and General Nutrition Centers. In addition, an online retailer may be acquired
by, receive investments from, or enter into other commercial relationships
with, larger, well-established and well-financed companies as use of the
Internet and other electronic services increases. Competitors have and may
continue to adopt aggressive pricing or inventory availability policies and
devote substantially more resources to Web site and systems development than we
do. Increased competition may result in reduced operating margins, loss of
market share and a diminished brand franchise.
Regulatory Environment
Government regulation of our products. The manufacturing, processing,
formulating, packaging, labeling and advertising of the products we sell are or
may be subject to regulation by one or more federal agencies, including the
FDA, the FTC, the United States Department of Agriculture and the Environmental
Protection Agency. These activities also may be regulated by various agencies
of the states, localities and foreign countries in which consumers reside.
The FDA, in particular, regulates the formulation, manufacture, labeling and
distribution of foods, including dietary supplements, cosmetics and over-the-
counter or homeopathic drugs. Under the Federal Food, Drug, and Cosmetic Act,
the FFDC Act, the FDA may undertake enforcement actions against companies
marketing unapproved drugs, or "adulterated" or "misbranded" products. The
remedies available to the FDA include: criminal prosecution; an injunction to
stop the sale of a company's products; seizure of products; adverse publicity;
and "voluntary" recalls and labeling changes.
FDA regulations require that certain informational labeling be presented in a
prescribed manner on all foods, drugs, dietary supplements and cosmetics.
Specifically, the FFDC Act requires that food, including dietary supplements,
drugs and cosmetics, not be "misbranded." A product may be deemed an unapproved
drug and "misbranded" if it bears improper claims or improper labeling. The FDA
has indicated that promotional statements made about dietary supplements on a
company's Web site may constitute "labeling" for purposes of compliance with
the provisions of the FFDC Act. A manufacturer or distributor of dietary
supplements must notify the FDA when it markets a product with labeling claims
that the product has an effect on the structure or function of the body.
Noncompliance with the FFDC Act, and recently enacted amendments to the FFDC
Act discussed below, could result in enforcement action by the FDA.
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The FFDC Act has been amended several times with respect to dietary
supplements, most recently by the Nutrition Labeling and Education Act of 1990,
NLEA and the Dietary Supplement Health and Education Act of 1994, DSHEA. The
DSHEA created a new statutory framework governing the definition, regulation
and labeling of dietary supplements. With respect to definition, the DSHEA
created a new class of dietary supplements, consisting of vitamins, minerals,
herbs, amino acids and other dietary substances for human use to supplement the
diet, as well as concentrates, metabolites, extracts or combinations of such
dietary ingredients. Generally, under the DSHEA, dietary ingredients that were
on the market before October 15, 1994 may be sold without FDA pre-approval and
without notifying the FDA. In contrast, a new dietary ingredient, i.e., one not
on the market before October 15, 1994, requires proof that it has been used as
an article of food without being chemically altered or evidence of a history of
use or other evidence of safety establishing that it is reasonably expected to
be safe. Retailers, in addition to dietary supplement manufacturers, are
responsible for ensuring that the products they market for sale comply with
these regulations. Noncompliance could result in enforcement action by the FDA,
an injunction prohibiting the sale of products deemed to be noncompliant, the
seizure of such products and criminal prosecution.
With respect to labeling, the DSHEA amends, for dietary supplements, the NLEA
by providing that "statements of nutritional support," also referred to as
"structure/function claims," may be used in dietary supplement labeling without
FDA pre-approval, provided certain requirements are met. These statements may
describe how particular dietary ingredients affect the structure or function of
the body, or the mechanism of action by which a dietary ingredient may affect
body structure or function, but may not state a drug claim, i.e., a claim that
a dietary supplement will diagnose, mitigate, treat, cure or prevent a disease.
A company making a "statement of nutritional support" must possess
substantiating evidence for the statement, disclose on the label that the FDA
has not reviewed the statement and that the product is not intended for use for
a disease and notify the FDA of the statement within 30 days after its initial
use. We cannot assure you that the statements of nutritional support we include
on our Web site, and on the labels or labeling of the products we sell, will
not be determined by the FDA to be drug claims rather than acceptable
"statements of nutritional support." Such a determination could render the
product that is the subject of the statement an unapproved drug or a
"misbranded" product, potentially subjecting us to enforcement action by the
FDA, and could require removal of the objectionable "drug claim," interfering
with our continued marketing of that product.
In addition, the DSHEA allows the dissemination of "third party literature"
in connection with the sale of dietary supplements to consumers at retail if
the publication meets statutory requirements. Under the DSHEA, "third party
literature" may be distributed if, among other things, it is not false or
misleading, no particular manufacturer or brand of dietary supplement is
promoted, a balanced view of available scientific information on the subject
matter is presented and there is physical separation from dietary supplements
in stores. The extent to which this provision may be used by online retailers
is not yet clear, and we cannot assure you that all pieces of "third party
literature" that may be disseminated in connection with the products we offer
for sale will be determined by the FDA to satisfy each of these requirements.
Any such failure could render the involved product an unapproved drug or a
"misbranded" product, potentially subjecting us to enforcement action by the
FDA, and could require the removal of the noncompliant literature from our Web
site, interfering with our continued marketing of that product.
Given the fact that the DSHEA was enacted only five years ago, the FDA's
policy and enforcement positions on certain aspects of the new law are still
evolving. Moreover, ongoing and future litigation between dietary supplement
companies and the FDA will likely further refine the legal interpretations of
the DSHEA. As a result, the regulatory status of certain types of dietary
supplement products, as well as the nature and extent of permissible claims
will remain unclear for the foreseeable future. Two areas in particular that
pose potential regulatory risk are the limits on claims implying some benefit
or relationship with a disease or related condition and the application of the
physical separation requirement for "third party literature" as applied to
Internet sales.
The FDA currently proposes to regulate the sale of non-prescription products
containing ephedra, a natural product that contains a small percentage of the
ephedrine alkaloids that are used in some prescription and over-
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the-counter stimulants and antihistimines. Less than 1% of our 1998 revenues
were derived from products that contain ephedra. We do not believe that a
complete loss of sales of these products or further restrictions in
jurisdictions in which these products may be sold would materially impact our
business.
In addition to the regulatory scheme under the FFDC Act, the advertising and
promotion of dietary supplements, foods, over-the-counter drugs and cosmetics
is subject to scrutiny by the FTC. The Federal Trade Commission Act prohibits
"unfair or deceptive" advertising or marketing practices, and the FTC has
pursued numerous food and dietary supplement manufacturers and retailers for
deceptive advertising or failure to substantiate promotional claims, including,
in many instances, claims made via the Internet. The FTC has the power to seek
administrative or judicial relief prohibiting a wide variety of claims, to
enjoin future advertising, to seek redress or restitution payments and to seek
a consent order and seek monetary penalties for the violation of a consent
order. In general, existing laws and regulations apply fully to transactions
and other activity on the Internet. The FTC is in the process of reviewing its
policies regarding the applicability of its rules and its consumer protection
guides to the Internet and other electronic media. The FTC has already
undertaken a new monitoring and enforcement initiative, "Operation Cure-All,"
targeting allegedly bogus health claims for products and treatments offered for
sale on the Internet.
Many states impose their own labeling or safety requirements that differ from
or add to existing federal requirements. For example, the State of California
and the National Resources Defense Council filed lawsuits against a large
number of manufacturers of dietary supplements containing calcium, claiming
that naturally-occurring lead levels in these supplements exceed acceptable
levels under California law. Although this lawsuit has since been settled by
the parties involved, we cannot assure you that we will not be the subject of
future claims asserted by the State of California or private parties or that
any such claim might not have a material adverse effect on our reputation,
results of operations and business. Also, there can be no assurance that other
states will not enact legislation similar to that enacted by the State of
California or that such legislation will not extend to any of the other
products that we offer for sale.
In addition, states enforce their own advertising or unfair and deceptive
trade practices statutes, and the vast majority authorize private rights of
action. For example, many state and federal agencies, including state attorneys
general, also have adopted Internet policies and have established dedicated
units or task forces for investigating possible violations of law on the
Internet.
State medical, pharmacy or dietician licensing bodies may also have
regulations or policies that could interfere with our ability to market our
products or services. International regulatory or customs authorities may also
limit our ability to market our products and services to consumers outside the
United States. Additional federal, state, local or international laws or
regulations may also affect our ability to market certain products or services,
such as "organic" foods, insect repellents, pet foods and other items.
We cannot predict the nature of any future laws, regulations, interpretations
or applications, nor can we determine what effect additional governmental
regulations or administrative orders, when and if promulgated, would have on
our business in the future. Although the regulation of dietary supplements is
less restrictive than that of drugs and food additives, we cannot assure you
that the current statutory scheme and regulations applicable to dietary
supplements will remain less restrictive. Further, we cannot assure you that,
under existing laws and regulations, or if more stringent statutes are enacted,
regulations are promulgated or enforcement policies are adopted, we are or will
be in compliance with these existing or new statutes, regulations or
enforcement policies without incurring material expenses or adjusting our
business strategy. Any laws, regulations, enforcement policies, interpretations
or applications applicable to our business could require the reformulation of
certain products to meet new standards, the recall or discontinuance of certain
products not capable of reformulation, additional record keeping, expanded
documentation of the properties of certain products, expanded or different
labeling or scientific substantiation.
Government regulation of the Internet. In general, existing laws and
regulations apply to transactions and other activity on the Internet; however,
the precise applicability of these laws and regulations to the Internet is
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sometimes uncertain. The vast majority of such laws were adopted prior to the
advent of the Internet and, as a result, do not contemplate or address the
unique issues of the Internet or electronic commerce. Nevertheless, numerous
federal and state government agencies have already demonstrated significant
activity in promoting consumer protection and enforcing other regulatory and
disclosure statutes on the Internet. Additionally, due to the increasing use of
the Internet as a medium for commerce and communication, it is possible that
new laws and regulations may be enacted with respect to the Internet and
electronic commerce covering issues such as user privacy, freedom of
expression, advertising, pricing, content and quality of products and services,
taxation, intellectual property rights and information security. The adoption
of such laws or regulations and the applicability of existing laws and
regulations to the Internet may adversely impact our ability to conduct our
business and the growth of Internet use, thereby negatively affecting our
business, results of operations and financial condition.
We have adopted a privacy policy that sets forth our policies regarding our
use of personal user information and have posted this policy on our site. It is
possible, however, that federal or state legislation may be enacted governing
user privacy, use of personal user information and privacy policy requirements.
In fact, several states have recently proposed legislation that would limit the
uses of personal user information gathered online and require the establishment
of privacy policies. While we have implemented programs designed to enhance the
protection of the privacy of our users, including children, we cannot assure
you that such programs will conform with any regulations that may be
established. We may become subject to such an investigation, or the FTC's
regulatory and enforcement efforts may adversely affect the ability to collect
demographic and personal information from users, which could have an adverse
effect on our ability to provide highly targeted opportunities for advertisers
and e-commerce marketers. Any of these developments could harm our business.
It is also possible that "cookies" may become subject to laws limiting or
prohibiting their use. The term "cookies" refers to information keyed to a
specific server, file pathway or directory location that is stored on a user's
hard drive, possibly without the user's knowledge, which is used to track
demographic information and to target advertising. Certain currently available
Internet browsers allow users to modify their browser settings to remove
cookies at any time or prevent cookies from being stored on their hard drives.
In addition, a number of Internet commentators, advocates and governmental
bodies in the United States and other countries have urged the passage of laws
limiting or abolishing the use of cookies. Limitations on or elimination of the
use of cookies could restrict the effectiveness of our targeting of
advertisements, which could have a material adverse effect on our ability to
generate advertising revenue.
Planned features of our Web site include the retention of personal
information about our users which we obtain with their consent. We have a
stringent privacy policy covering this information. However, if third parties
were able to penetrate our network security and gain access to, or otherwise
misappropriate, our users' personal information, we could be subject to
liability. Such liability could include claims for misuses of personal
information, such as for unauthorized marketing purposes or unauthorized use of
credit cards. These claims could result in litigation, our involvement in
which, regardless of the outcome, could require us to expend significant
financial resources. Moreover, to the extent any of the data constitute or are
deemed to constitute patient health records, a breach of privacy could violate
federal law.
The European Union has adopted a directive that imposes restrictions on the
collection and use of personal data. Under the European Union directive,
European Union citizens are guaranteed certain rights, including the right of
access to their data, the right to know where the data originated, the right to
have inaccurate data rectified, the right to recourse in the event of unlawful
processing and the right to withhold permission to use their data for direct
marketing.
The European Union directive could, among other things, affect U.S. companies
that collect information over the Internet from individuals in European Union
member countries, and may impose restrictions that are more stringent than
current Internet privacy standards in the United States. In particular,
companies with offices located in European Union countries will not be allowed
to send personal information to countries that do not maintain adequate
standards of privacy. The European Union directive does not, however, define
what
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standards of privacy are adequate, and efforts by the U.S. government to
negotiate "safe harbors" principles defining how U.S. companies can comply with
the E.U. directive have not yet culminated in an agreement. As a result, we
cannot assure you that the European Union directive will not adversely affect
the activities of entities such as our company that engage in data collection
from users in European Union member countries.
A number of legislative proposals have been made at the federal, state and
local level, and by foreign governments, that would impose additional taxes on
the sale of goods and services over the Internet, and certain states have taken
measures to tax Internet-related activities. Although Congress recently placed
a three-year moratorium on new state and local taxes on Internet access or on
discriminatory taxes on electronic commerce, existing state or local laws were
expressly excepted from this moratorium. Further, once this moratorium is
lifted, some type of federal and/or state taxes may be imposed upon Internet
commerce. Such legislation or other attempts at regulating commerce over the
Internet may substantially impair the growth of commerce on the Internet and,
as a result, adversely affect our opportunity to derive financial benefit from
such activities.
Intellectual Property
We regard the protection of our copyrights, service marks, trademarks, trade
dress and trade secrets as critical to our future success and rely on a
combination of copyright, trademark, service mark and trade secret laws,
license agreements and contractual restrictions to establish and protect our
proprietary rights in our site architecture and technology, products, content
and services. We have entered into confidentiality and invention assignment
agreements with our employees and contractors in order to limit disclosure of
our proprietary information and to protect our ownership interest in our site
architecture and technology. We cannot assure you that these contractual
arrangements or the other steps taken by us to protect our intellectual
property will prove sufficient to prevent misappropriation of our technology or
deter independent third-party development of similar technologies. Moreover,
effective trademark, service mark, copyright and trade secret protection may
not be available in every country in which our services are made available
online.
We pursue the registration of our trademarks and service marks in the U.S.
and internationally; however, we cannot assure you that we will be successful
in obtaining the registration of our marks. We have applied for trademarks or
service marks on the following terms and images: "MotherNature.com" combined
with the MotherNature.com logo displayed on our Web site and other materials,
the MotherNature.com logo, "Go Ask Mother@" and "Your Healthy Living
Headquarters." We also have rights to the domain names "MotherNature.com,"
"naturalmarkets.com" and "naturalmarket.com."
We rely on content that we license from third parties, including our
Encyclopedia of Natural Health, which is licensed from HealthNotes Online, and
portions of our Web site that have been developed under license agreements with
third-party contractors. We cannot assure you that these third-party content
licenses and contractor arrangements will continue to be available to us on
commercially reasonable terms. Moreover, the loss of such content licenses
could require us to develop similar content internally or could require us to
obtain content that is of lower quality or at a higher cost, and thereby harm
our business.
We have licensed in the past, and expect that we may license in the future,
certain of our proprietary rights, such as trademarks or copyrighted material,
to third parties. While we attempt to ensure that the quality of the
MotherNature.com brand is maintained by such licensees, we cannot assure you
that such licensees will not take actions that might materially adversely
affect the value of our proprietary rights or reputation, which could harm our
business.
Employees
As of June 30, 1999, we had 112 employees. We also employ a limited number of
independent contractors and temporary employees on a periodic basis. None of
our employees is represented by a labor union, and we consider our employee
relations to be good.
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Properties
We currently lease approximately 10,000 square feet of office space in
Concord, Massachusetts, which houses our corporate headquarters. We also lease
approximately 6,000 square feet of mixed-use facilities in Southampton,
Pennsylvania, which houses our customer support and fulfillment operations. In
connection with relocating our customer support and fulfillment operations from
Pennsylvania to Massachusetts, we have signed a lease for approximately 25,000
square feet of mixed-use space in Springfield, Massachusetts. We currently
conduct limited operations in this space and anticipate that the space will be
fully operational by the end of 1999. Additionally, we lease approximately
5,000 square feet of office space in Acton, Massachusetts which we use for
customer support and administrative functions. We believe that these facilities
are adequate for our current operations and that additional leased space can be
obtained as needed on commercially reasonable terms.
Legal Proceedings
On June 30, 1999, a civil complaint was filed as Ross A. Love v.
MotherNature.com, Inc., Mother Nature's General Store, Inc. and Michael Barach,
individually in the Superior Court of Suffolk County, Massachusetts, Case No.
99-3087C. In the lawsuit, the plaintiff, a founder and former officer and
director, alleges causes of action including economic duress, breach of
fiduciary duty and unfair and deceptive acts and practices. Mr. Love, among
other things, alleges that he was compelled under economic duress to sign an
agreement in connection with his termination of employment. In addition, Mr.
Love claims that we breached our fiduciary duty to him as a stockholder by
allegedly failing to provide him with certain information in connection with
our May 1999 preferred stock financing. Mr. Love seeks recovery of actual
damages which he alleges to be $50,000,000. We believe that the claims made by
Mr. Love are without merit and intend to defend this lawsuit vigorously.
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MANAGEMENT
Executive Officers, Directors and Other Key Employees
The following sets forth the names, ages and positions of our executive
officers and directors as of June 30, 1999:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael I. Barach.......... 41 Chief Executive Officer, President and Director
Michael L. Bayer........... 33 Chief Financial Officer, Treasurer and Secretary
Donald J. Pettini.......... 36 Chief Technology Officer
Sharon L. Rice............. 50 Vice President, Brand Marketing
Jeffrey A. Steinberg....... 36 Chief Marketing Officer
Beverly J. Weich........... 34 Vice President, Sales and Site Development
Michael A. Greeley(1)...... 36 Director
Keith M. Kerman(2)......... 41 Director
Brent R. Knudsen(2)........ 43 Director
Jason G. Olim.............. 30 Director
Marc D. Poirier(1)......... 34 Director
</TABLE>
- --------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Executive Officers and Directors
Michael I. Barach has served as our Chief Executive Officer and President and
a director since June 1998. From October 1990 until June 1998, Mr. Barach was
employed by Bessemer Venture Partners, where he specialized in the
telecommunications, retail and electronic commerce categories. Mr. Barach was a
Partner at Bessemer from February 1994 until June 1998. Prior to October 1990,
Mr. Barach held several executive management positions in various retail
organizations. Mr. Barach holds a B.A. from Amherst College, where he graduated
summa cum laude and Phi Beta Kappa. Mr. Barach received a J.D. from Harvard Law
School and a M.B.A. from Harvard Business School, where he graduated as a Baker
Scholar.
Michael L. Bayer has served as our Chief Financial Officer, Treasurer and
Secretary since December 1998, having started with us as our Vice President,
Finance in July 1998. From August 1995 until April 1998, he worked for Lifeline
Systems, a manufacturer and service provider of personal response systems,
first as Assistant Treasurer and then as Treasurer. Prior to that, Mr. Bayer
was Vice President, Strategic Planning for Specialty Loose Leaf, Inc., a custom
manufacturer of office supplies, from March 1995 until August 1995, where he
helped launch a leveraged buyout spin-off. From July 1992 until February 1995,
Mr. Bayer served in various financial management roles with Avery Dennison
Corporation, a multinational manufacturer of office supplies and adhesive
products. Mr. Bayer holds a B.S. in Finance and Investments with Distinction
from Babson College and a M.B.A. with Distinction from Cornell University,
where he was a Fried Fellow. Mr. Bayer is a Chartered Financial Analyst.
Donald J. Pettini has served as our Chief Technology Officer since June 1998.
From March 1996 until April 1998, he worked for Digital Equipment Corporation
as the initial member of the AltaVista Engineering Team, where he led several
projects as Project Director, including MilliCent. From 1985 until February
1996, Mr. Pettini held various engineering roles within Digital Equipment
Corporation, including as a member of the internal trouble-shooting team, and
he specialized in network design and encryption technology.
Sharon L. Rice has served as our Vice President, Brand Marketing since
September 1998. From September 1997 until September 1998, Ms. Rice was Director
of Marketing and Sales for financial cards at Polaroid Corporation. From
September 1995 to June 1997, Ms. Rice was Director of Marketing for
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BankBoston's credit card business. From June 1988 until August 1995, Ms. Rice
held a series of positions of increasing responsibility at Citibank, leaving as
Vice President of Credit Card Marketing. Ms. Rice received her B.A. from
American University and her M.A. in communication from Emerson College.
Jeffrey A. Steinberg has served as our Chief Marketing Officer since February
1999. Prior to that, Mr. Steinberg was Vice President of Marketing for Net
Grocer, Inc., an online retailer of grocery products, from February 1997
through December 1998. From September 1995 to February 1997, he was a manager
at A.T. Kearney, a management consulting firm, where he was involved with their
consumer products consulting practice and specialized in interactive and
database marketing. From October 1991 to September 1995, Mr. Steinberg worked
in the Deloitte & Touche Consulting Group's Retail and Direct Marketing
practice, first as a senior consultant and then as a manager. Since 1994, Mr.
Steinberg has authored three books on interactive marketing, relationship
marketing and database marketing on behalf of the Direct Marketing Association.
Mr. Steinberg holds a B.A. in Computer Science and Geography from Clark
University and a M.S. in Venture Capital Management from the MIT Sloan School
of Management.
Beverly J. Weich has served as our Vice President, Sales and Site Development
since June 1999 and was our Executive Producer from October 1998 through June
1999, having joined us in July 1998 as Director, Online Marketing. Prior to
that, she was a founder and Vice President, Marketing and Operations at E-
guide, an Internet venture, from February 1996 until June 1998. Ms. Weich first
developed natural product knowledge as General Manager of a full-facility
health club from April 1992 to October 1994, and then as General Manager of a
weight loss clinic from November 1994 to May 1995. Ms. Weich received her
B.B.A., cum laude, in Marketing from University of Massachusetts (Amherst) and
a M.B.A. in Marketing and Entrepreneurial Management from the University of
Southern California (Los Angeles).
Michael A. Greeley has served as a director since May 1999. Since June 1994,
Mr. Greeley has been Senior Vice President of GCC Investments, Inc., the
private equity investment group of GC Companies, Inc., which has as its primary
operating subsidiary General Cinema Theatres. Prior to this position, Mr.
Greeley was a Vice President from December 1992 until June 1994 at Wasserstein
Perella & Co., Inc., an international investment bank specializing in mergers
and acquisitions and corporate finance transactions. Mr. Greeley received a
B.A. with honors from Williams College and a M.B.A. from Harvard Business
School.
Keith M. Kerman, M.D. has served as a director since June 1998. Dr. Kerman is
a General Partner of Morgenthaler Venture Partners, a venture capital firm,
which he joined in April 1997. From February 1995 to March 1997, Dr. Kerman was
a partner at Marquette Venture Partners, a venture capital firm. Prior to 1995,
he was President of Corporate Health Administrators, Inc. and Vice President,
Medical Delivery at U.S. Healthcare, from June 1991 to February 1995. Dr.
Kerman is a board-certified internist. He received his medical and
undergraduate degrees from Brown University, where he graduated Phi Beta Kappa
and magna cum laude. He has a M.B.A. from The Wharton School of the University
of Pennsylvania where he was a Robert Wood Johnson Foundation Scholar.
Jason G. Olim has served as a director since June 1998. Mr. Olim co-founded
CDNow, Inc., an online music retailer, in February 1994 and has been its Chief
Executive Officer since November 1997. Previously, Mr. Olim was employed in the
Professional Services group of Soft-Switch, Inc., a software concern, where he
designed and built software systems for routing mail and documents for domestic
and international clients. Mr. Olim holds a B.A. in Computer Science from Brown
University.
Brent R. Knudsen has served as a director since December 1998. Mr. Knudsen is
currently the Managing Director of North Castle Partners L.L.C., a private
equity firm. Prior to joining North Castle in 1998, Mr. Knudsen served from
November 1997 to July 1998 as President and Chief Executive Officer of GolfWeb,
Inc., a Web site catering to golf enthusiasts, prior to its acquisition by
SportsLine USA, Inc. From September 1996 to November 1997, Mr. Knudsen served
as President of the Sports and Mass Division of Bell Sports, Inc., a bicycle
and bicycle accessory company. From January 1994 to September 1996, Mr. Knudsen
served as a Division President of Specialized Bicycle Components, Inc. From
September 1985 through
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December 1994, Mr. Knudsen had marketing and business development
responsibilities at the Price Company which was later merged with Costco
Wholesale, Inc. Mr. Knudsen served as the original Vice President of Marketing
and Business Development for Price Club and as Managing Director of Price
Costco Industries. Mr. Knudsen holds degrees from the University of Utah, where
he received a B.A., with highest honors, in Economics and English, and
Georgetown Law School, where he received a J.D.
Marc D. Poirier has served as a director since September 1998. He has been a
General Partner of @Ventures III, L.P., a venture capital firm affiliated with
CMGI, Inc. since August 1998. Mr. Poirier joined CMGI in May 1996 at Planet
Direct, a CMGI subsidiary providing Web portals to consumers through Internet
service providers and other co-branding partners. At Planet Direct, Mr. Poirier
served as Director, Business Development, and then as Vice President of
Electronic Commerce. Mr. Poirier was employed by Ernst & Young LLP in the
Mergers & Acquisitions Group from June 1992 to May 1996 and in the
Entrepreneurial Services Group from September 1986 to August 1990. Mr. Poirier
is a Certified Public Accountant, and he holds a B.S. in Business
Administration from Providence College and a M.B.A. from Harvard Business
School.
Other Key Employees
Set forth below is the name and recent business experience of each of the key
members of our management team not described above.
Selena Anderson has served as our Director, Purchasing since January 1999.
From August 1996 to August 1998, Ms. Anderson was the Director of Nutrition and
Body Care for Nature's Heartland. From January 1996 to June 1996 she was the
East Coast Regional Sales Manager for Jason Cosmetics. From June 1995 to
December 1995, she was a Sales Representative for Matrix Marketing. From
January 1995 to June 1995 she was the Regional Merchandiser for BIN Sales &
Marketing. From March 1994 to October 1994, she was a Purchasing Assistant for
Wild Oats. From May 1993 through December 1993 she was the Northern California
Regional Sales Manager for Stonyfield Farm. From January 1991 to May 1993, she
was a Field Sales Representative for Sunbelt Sales & Marketing. From January
1985 to January 1991, Ms. Anderson was the founder and owner of Vegan Street,
Inc., one of the first mail-order companies in the US dedicated to cruelty-free
and environmentally safe products. Ms. Anderson holds a B.A. in Psychology from
the University of Maryland.
C. Brad Eisold has served as our Director, Merchandising since January 1999.
Prior to joining us, Mr. Eisold served as Director of Grocery, Frozen Foods,
Dairy, Bulk Foods and Beer/Wine departments at Nature's Heartland stores in the
Boston area from June 1996 to August 1998. From November 1994 through June
1996, Mr. Eisold worked with Harris Teeter Supermarkets, Inc., where he
developed and instituted a natural products program for the chain. From May
1994 until November 1994, Mr. Eisold served as Director, Purchasing at Wild
Oats Markets. From February 1991 through November 1993, Mr. Eisold, as Vice
President of Purchasing with Fresh Fields Markets, developed and directed the
programs for the grocery, frozen foods and dairy departments. Mr. Eisold holds
a B.A. in Psychology and Sociology from American International College and an
M.Ed. in Psychology and Counseling from Springfield College.
Neil Hartford has served as our Director, Operations since May 1999. From
April 1998 to May 1999, Mr. Hartford was the Director, North American
Operations for BOL.com, an Internet retailer, where he was responsible for
establishing and directing operations. From March 1997 to April 1998, Mr.
Hartford served as Director, Customer Service for Talbot's Inc., a retailer of
women's clothing. From October 1995 to March 1997, Mr. Hartford was Director,
Catalog Operations for West Marine, Inc., a provider of boating supplies and
equipment. Prior to that, Mr. Hartford served as Director, Operations for
Catalog Ventures, Inc., a jewelry and gift distributor from 1990 to September
1995. Mr. Hartford holds an A.S.B.A. in Business from Northeastern University.
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Craig N. Weatherby has served as our Director, Content since joining us in
June 1998. From June 1996 to April 1998, Mr. Weatherby researched and wrote The
Arthritis Bible, the lead title from Healing Arts Press for the Spring of 1999.
In February 1997, Mr. Weatherby served as Director of Marketing at Nature's
Heartland, Inc. From November 1992 to April 1998, Mr. Weatherby wrote feature
articles for leading consumer and trade magazines, including Natural Health and
Natural Pharmacy, and operated Write Stuff Marketing, a communications
consultancy producing newsletters and biomedical monographs for major natural
products companies, including Whole Foods Market, Cornucopia Natural Foods,
Wild Harvest/Star Markets and Madis Botanicals. From July 1987 to October 1992
he served as Marketing Manager for the Bread & Circus Whole Foods Supermarket
chain, where he produced a comprehensive educational publications program. Mr.
Weatherby holds a B.A. in History from Windham College.
Board Committees
The board of directors has established an audit committee and a compensation
committee. The audit committee reviews, acts on and reports to the board of
directors with respect to various auditing and accounting matters, including
the recommendations and performance of our independent auditors, the scope of
the annual audits, fees to be paid to the independent auditors, and our
internal accounting and financial control policies and procedures. The members
of the audit committee are presently Messrs. Poirier and Greeley.
The compensation committee has the power to create our executive compensation
policy and determines the salaries and benefits for our employees, consultants,
directors and other individuals compensated by us. The committee also
administers our stock option and stock purchase plans. The members of the
compensation committee are presently Messrs. Kerman and Knudsen.
Director Compensation
Directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending meetings of the board of directors and for meetings of any committees
of the board of directors on which they serve. No employee will receive
separate compensation for services rendered as a director. Non-employee
directors are also eligible for participation in our 1999 Non-Employee Director
Stock Option Plan. See the description of that Plan under the section of this
prospectus called "Management -- Stock Plans." In addition, in July 1998, we
granted Mr. Olim an option to purchase 80,000 shares of our common stock with
an exercise price of $.03 per share in consideration for his services on our
board of directors.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship exists between the board of directors or
compensation committee and the board of directors or compensation committee of
any other company, nor has any interlocking relationship existed in the past.
47
<PAGE>
Executive Compensation
The following table sets forth all compensation awarded to, earned by or paid
to our Chief Executive Officer and to another individual who served as our
Chief Executive Officer during 1998 for services rendered in all capacities
during 1998. No other executive officer or employee had compensation in excess
of $100,000 during 1998. We may refer to these officers as our named executive
officers in other parts of this prospectus.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------- --------------------
Other Annual Number of Securities All Other
Name and Principal Position Salary Compensation Underlying Options Compensation
- --------------------------- ------- ------------ -------------------- ------------
<S> <C> <C> <C> <C>
Michael I. Barach, Chief
Executive Officer and
President(1)........... $37,840 -- 3,100,884 --
Ross A. Love, former
Chief Executive Officer
and President(2)....... $18,846 $3,800(3) 1,170,000(2) $41,123(4)
</TABLE>
- --------
(1) Mr. Barach assumed the offices of Chief Executive Officer and President in
June 1998.
(2) Mr. Love resigned as Chief Executive Officer and President in June 1998 and
resigned as an employee and director in August 1998. Unvested options to
purchase 1,053,112 shares automatically expired in connection with his
resignation of employment in August 1998.
(3) Includes $3,000 in relocation expenses.
(4) Represents severance payments in the amount of $26,923 and forgiveness of
indebtedness in the amount of $14,200 in connection with Mr. Love's
resignation of employment.
Option Grants During the Year Ended December 31, 1998
The following table sets forth specified information regarding options
granted to each of the named executive officers during the year ended December
31, 1998. We have not granted any stock appreciation rights. The options were
granted under our 1998 Stock Plan. In general, options granted under the plan
vest over four years, with 25% of the option shares granted vesting on the one-
year anniversary of the grant date and the remainder vesting in 12 equal
quarterly installments, and expire on the tenth anniversary of the date of
grant, subject to earlier termination in certain situations related to
resignation or termination of employment. The percentage of total options
granted to employees in 1998 shown in the table below is based on options to
purchase an aggregate of 7,896,694 shares of common stock granted during the
year ended December 31, 1998. Potential realizable values are net of exercise
prices and before taxes, and are based on an assumed initial public offering
price of $ per share and the assumption that our common stock appreciates at
the annual rate shown, compounded annually, from the date of grant until the
expiration of the option term. These numbers are calculated based on Securities
and Exchange Commission requirements and do not reflect our projection or
estimate of future stock price growth. The amounts shown in this table
represent hypothetical gains that could be achieved for the respective options
if exercised at the end of the option term. Actual gains, if any, on stock
option exercises will depend on the future performance of the common stock, the
optionholders' continued employment through the option period and the date on
which the options are exercised.
With respect to Mr. Barach's options, options to purchase 260,368 shares are
currently exercisable as of June 30, 1999 and the balance of the options
continue to vest in different increments through October 1, 2002. With respect
to Mr. Love's options, the board of directors accelerated the vesting of
options to purchase 116,888 shares, and unvested options to purchase 1,053,112
shares automatically expired in connection with his
48
<PAGE>
resignation of employment in August 1998. Since none of Mr. Love's options
listed below were outstanding as of June 30, 1999, the potential realizable
values at assumed annual rates of stock price appreciation are not included in
the table below.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term
--------------------- ------------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees Price Per Expiration
Name Granted in 1998 Share Date 5% 10%
---- ---------- ---------- --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael I. Barach....... 1,408,000 17.8% $0.03 6/10/08
Michael I. Barach....... 885,000 11.2% $0.03 6/15/08
Michael I. Barach....... 807,884 10.2% $0.10 12/22/08
Ross A. Love............ 255,000 3.2% $0.03 6/10/08 -- --
Ross A. Love............ 915,000 11.6% $0.03 6/15/08 -- --
</TABLE>
1998 Option Exercises and Year-End Option Values
The following table sets forth certain information concerning the number and
value of options exercised by each of the named executive officers as of
December 31, 1998 and the number and value of unexercised options held by each
of the named executive officers at December 31, 1998. The value of unexercised
in-the-money options represents the total gain which would be realized if all
in-the-money options held at December 31, 1998 were exercised, determined by
multiplying the number of shares underlying the options by the difference
between an assumed initial public offering price of $ per share and the per
share option exercise price. An option is in-the-money if the fair market value
of the underlying shares exceeds the exercise price of the option.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options at Options at
December 31, 1998 December 31, 1998
------------------------- -------------------------
Number of
Shares Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael I. Barach....... -- -- 586,669 2,514,215 $ $
Ross A. Love............ 116,888 -- -- -- --
</TABLE>
Stock Plans
1998 Stock Plan. Our board of directors and stockholders adopted the
MotherNature.com, Inc. 1998 Stock Plan in June 1998. The aggregate number of
shares of common stock which may be issued under the 1998 Stock Plan was
originally 12,655,219. Under the 1998 Stock Plan, we are authorized to grant
incentive stock options and non-qualified stock options, as well as awards of
common stock and opportunities to make direct purchases of common stock to
employees, consultants, directors and officers. The 1998 Stock Plan is
administered by the compensation committee. The 1998 Stock Plan provides that
the compensation committee has the authority to select the participants and
determine the terms of the stock options, awards and purchase rights granted
under the 1998 Stock Plan. An incentive stock option is not transferable by the
recipient except by will or by the laws of descent and distribution. Non-
qualified stock options and other awards are transferable only to the extent
provided in the agreement relating to such option or award or in response to a
valid domestic relations order. Generally, no incentive stock options may be
exercised more than three months following termination of employment. However,
in the event that termination is due to death or disability, the stock option
is exercisable
49
<PAGE>
for a maximum of 180 days after such termination. In July 1999, the board of
directors and the stockholders voted to terminate the 1998 Stock Plan with
respect to future grants of options or stock effective on the consummation of
the offering. As of June 30, 1999, we had outstanding under the 1998 Stock Plan
incentive stock options to purchase 7,264,747 shares of common stock and non-
qualified stock options to purchase 363,500 shares of common stock.
1999 Stock Plan. Our 1999 Stock Plan was adopted by our board of directors
in July 1999 and approved by our stockholders in August 1999. The 1999 Stock
Plan provides for the grant of stock-based awards to employees, officers and
directors of, and consultants or advisors to, MotherNature.com and its
subsidiaries, including incentive stock options and non-qualified stock options
and other equity-based awards. Incentive stock options may be granted only to
our employees. A total of shares of common stock may be issued upon the
exercise of options or other awards granted under the 1999 Stock Plan. The
maximum number of shares that may be granted to any employee under the 1999
Stock Plan shall not exceed shares of common stock during any calendar
year.
The 1999 Stock Plan is administered by the board of directors and the
compensation committee. The 1999 Stock Plan provides that the board of
directors and the compensation committee have the authority to select the
persons to whom awards are granted and determine the terms of each award,
including the number of shares of common stock to be granted. Payment of the
exercise price of an award may be made in cash, shares of common stock, a
combination of cash or stock or by any other method approved by the board or
compensation committee, consistent with Section 422 of the Internal Revenue
Code and Rule 16b-3 under the Securities Exchange Act of 1934, as amended.
Unless otherwise permitted by us, awards are not assignable or transferable
except by will or the laws of descent and distribution.
The board of directors or the compensation committee may amend, modify or
terminate any award granted or made under the 1999 Stock Plan, so long as such
amendment, modification or termination would not materially and adversely
affect the participant. The board of directors or the compensation committee
may also accelerate or extend the date or dates on which all or any particular
option or options granted under the 1999 Stock Plan may be exercised. No
options or other equity-based awards have been granted to date under the 1999
Stock Plan.
1999 Non-Employee Director Stock Option Plan. Our 1999 Non-Employee Director
Stock Option Plan, or Director Plan, was adopted by the board of directors in
July 1999 and approved by the stockholders in August 1999 and becomes effective
on the date on which our common stock is registered under the Exchange Act. A
total of 250,000 shares of common stock have been authorized for issuance under
the Director Plan.
The Director Plan is administered by the compensation committee. Under the
Director Plan, each non-employee director who is or becomes a member of the
board of directors is automatically granted on the date on which the common
stock becomes registered under the Exchange Act or, if not a director on that
date, the date first elected to the board of directors, an initial option to
purchase 20,000 shares of common stock. In addition, provided that the director
continues to serve as a member of the board of directors, each non-employee
director will be automatically granted on the third anniversary of his or her
initial option grant date and each three years thereafter an option to purchase
20,000 shares of common stock. Provided that the director continues to serve as
a member of the board of directors, one-third of the shares included in each
grant will become exercisable on each of the first, second and third
anniversaries of the date of grant. All options granted under the Director Plan
will have an exercise price equal to the fair market value of the common stock
on the date of grant and a term of 10 years from the date of grant. Options may
not be transferred except by will or by the laws of descent and distribution or
by a domestic relations order. Unexercisable options terminate when the
director ceases to be a director for any reason other than death or permanent
disability. Exercisable options may be exercised at any time during the option
term. In the event that a director dies or is permanently disabled, any options
that are not exercisable will become exercisable, and the optionee or his or
her representative, heir or legatee may exercise all options for the remaining
exercise period of the option. The term of the Director Plan is 10 years,
unless sooner terminated by vote of the board of directors. No options have
been granted to date under the Director Plan.
50
<PAGE>
1999 Employee Stock Purchase Plan. The 1999 Employee Stock Purchase Plan was
adopted by the board of directors in July 1999 and approved by the stockholders
in August 1999. The 1999 Employee Stock Purchase Plan provides for the issuance
of a maximum of 750,000 shares of common stock.
The 1999 Employee Stock Purchase Plan is administered by the board of
directors and the compensation committee. All of our employees whose customary
employment is for more than 20 hours per week and for more than five months in
any calendar year and who have completed more than 90 days of employment with
us on or before the first day of any six-month payment period are eligible to
participate in the 1999 Employee Stock Purchase Plan. Outside directors and
employees who would own 5% or more of the total combined voting power or value
of our stock immediately after the grant may not participate in the 1999
Employee Stock Purchase Plan. To participate in the 1999 Employee Stock
Purchase Plan, an employee must authorize us to deduct an amount not less than
one percent nor more than 10 percent of a participant's total cash compensation
from his or her pay during each six-month payment periods. The first payment
period will commence on a date to be determined by the board of directors and
end on December 31, 1999. Thereafter, the payment periods will commence on the
first day of January and July and end on the last day of the following June and
December, respectively, of each year, but in no case shall an employee be
entitled to purchase more than shares in any one payment period. The
exercise price for the option granted in each payment period is 85% of the
lesser of the average market price of the common stock on the first or last
business day of the payment period, in either event rounded up to the nearest
cent. If an employee is not a participant on the last day of the payment
period, such employee is not entitled to exercise his or her option, and the
amount of his or her accumulated payroll deductions will be refunded. Options
granted under the 1999 Employee Stock Purchase Plan may not be transferred or
assigned. An employee's rights under the 1999 Employee Stock Purchase Plan
terminate upon his or her voluntary withdrawal from the plan at any time or
upon termination of employment. No options have been granted to date under the
1999 Employee Stock Purchase Plan.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of June 30, 1999, and as adjusted to reflect
the sale of the shares of common stock offered in this prospectus, by:
. each named executive officer;
. each of our directors;
. each person known by us to be the beneficial owner of more than 5% of
our common stock; and
. all executive officers and directors as a group.
Unless otherwise noted below, the address of each person listed on the table
is c/o MotherNature.com, Inc., One Concord Farms, 490 Virginia Road, Concord,
Massachusetts 01742, and each person has sole voting and investment power over
the shares shown as beneficially owned except to the extent authority is shared
by spouses under applicable law and except as set forth in the footnotes to the
table.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Shares of common stock issuable by us to a
person or entity listed in the table pursuant to options or warrants that may
be exercised within 60 days after June 30, 1999 are deemed to be beneficially
owned and outstanding for purposes of calculating the number of shares and the
percentage beneficially owned by that person or entity. However, these shares
are not deemed to be beneficially owned and outstanding for purposes of
computing the percentage beneficially owned by any other person or entity.
For purposes of calculating the percentage of common stock beneficially owned
by any person, the number of shares deemed outstanding before the offering
includes:
. shares of common stock outstanding as of June 30, 1999;
. shares of common stock issuable upon the conversion of convertible
preferred stock outstanding as of June 30, 1999; and
. shares of common stock issuable upon the exercise of options and
warrants which may be exercised by that person or entity within 60 days
of June 30, 1999.
For purposes of calculating the percentage beneficially owned by any person
or entity, the number of shares deemed outstanding after the offering includes:
. all shares deemed to be outstanding before the offering; and
. shares being sold in this offering.
52
<PAGE>
<TABLE>
<CAPTION>
Percentage of Common
Stock Outstanding
------------------------
Number of Shares Before After
Name and Address of Beneficial Owner Beneficially Owned Offering Offering
- ------------------------------------ ------------------ ---------- ----------
<S> <C> <C> <C>
Executive Officers and
Directors:
Michael I. Barach(1)............ 1,568,072 2.1%
Ross A. Love.................... 1,480,388 2.0
Michael A. Greeley(2)........... 4,735,743 6.5
Keith M. Kerman(3).............. 9,269,162 12.7
Jason G. Olim(4)................ 105,645 *
Brent R. Knudsen(5)............. -- --
Marc D. Poirier(6).............. 9,269,162 12.7
All executive officers and
directors as a group
(12 persons)(7)................ 26,781,817 36.4
Five Percent Stockholders:
CMG@Ventures II, LLC(8)......... 9,269,162 12.7
c/o CMGI, Inc.
100 Brickstone Square
Andover, MA 01810
Morgenthaler Venture Partners
IV, L.P (9).................... 9,269,162 12.7
50 Public Square
Suite 2700
Cleveland, OH 44113
Bessemer Venture Entities (10).. 9,269,162 12.7
83 Walnut Street
Wellesley, MA 02481
North Castle Entities (11)...... 5,437,121 7.5
60 Arch Street
Greenwich, CT 06830
Chestnut Hill Nature, LLC....... 4,735,743 6.5
c/o GCC Investments, Inc.
1300 Boylston Street
Chestnut Hill, MA 02467
Markas Holding BV............... 4,735,743 6.5
c/o LVMH Technology
525 Market Street
33rd floor
San Francisco, CA 94105
Covestco-AtEura, LLC............ 4,735,743 6.5%
c/o Barnard & Co.
590 Madison Avenue
37th Floor
New York, NY 10022
</TABLE>
- --------
* Less than 1%
(1) Includes 1,148,764 shares held by Mr. Barach. Also includes 64,516 shares
issuable upon exercise of a warrant held by Mr. Barach and 354,792 shares
deemed to be beneficially owned by Mr. Barach pursuant to options
exercisable within 60 days of June 30, 1999.
(2) Includes 4,735,743 shares held by Chestnut Hill Nature LLC, a wholly-owned
subsidiary of GCC Investments, Inc. Mr. Greeley is a Senior Vice President
of GCC Investments, Inc. and may be deemed to share voting and investment
power with respect to all shares held by Chestnut Hill Nature LLC. Mr.
Greeley disclaims beneficial ownership of such shares.
53
<PAGE>
(3) Includes 9,204,647 shares held by Morgenthaler Venture Partners IV, L.P.
Also includes 64,516 shares issuable upon exercise of a warrant held by
Morgenthaler Venture Partners IV, L.P. Mr. Kerman is a General Partner of
Morgenthaler Venture Partners IV, L.P. and may be deemed to share voting
and investment power with respect to all shares held by Morgenthaler
Venture Partners IV, L.P. Mr. Kerman disclaims beneficial ownership of such
shares.
(4) Includes 25,000 shares deemed to be beneficially owned by Mr. Olim pursuant
to options exercisable within 60 days of June 30, 1999.
(5) Does not include 5,156,303 shares held by North Castle Partners II, L.P.,
127,356 shares held by NCP Co-Investment Fund, L.P., and 153,462 shares
held by NCP-MNC, L.P. Mr. Knudsen is a limited partner of NCP GP II, L.P.,
which is the General Partner of North Castle Partners II, L.P., and Mr.
Knudsen is a Managing Director of North Castle GP II, LLC, which serves as
the general partner of NCP GP II, L.P. as well as NCP-MNC, L.P. Mr. Knudsen
is also a Managing Director of NCP Co-Investment G. P., LLC, which is the
general partner of NCP Co-Investment Fund, L.P. Mr. Knudsen does not share
voting and investment power with respect to the shares held by North Castle
Partners II, L.P., NCP Co-Investment Fund, L.P. and NCP-MNC, L.P.
(6) Includes 9,204,646 shares held by CMG@Ventures II, LLC. Also includes
warrants for 64,516 shares issuable upon exercise of a warrant held by
CMG@Ventures II, LLC. Mr. Poirier is a General Partner of @Ventures
Partners III, L.P. which is an affiliate of CMG@Ventures II, LLC. Mr.
Poirier may be deemed to share voting and investment power with respect to
all shares held by CMG@Ventures II, LLC. Mr. Poirier disclaims beneficial
ownership of such shares.
(7) Includes 25,854,832 shares of common stock, 733,437 shares subject to
options exercisable within 60 days of June 30, 1999 and 193,548 shares
issuable upon exercise of warrants.
(8) Includes 9,204,646 shares held by CMG@Ventures II, LLC. Also includes
64,516 shares issuable upon exercise of a warrant held by CMG@Ventures II,
LLC.
(9) Includes 9,204,646 shares held by Morgenthaler Venture Partners IV, L.P.
Also includes 64,516 shares issuable upon exercise of a warrant held by
Morgenthaler Venture Partners IV, L.P.
(10) Includes 5,159,051 shares held by Bessemer Venture Partners IV L.P.,
3,160,649 shares held by Bessec Ventures IV L.P. and 884,946 shares held
by Bessemer Venture Investors L.P. Also includes 32,258 shares issuable
upon exercise of a warrant held by Bessemer Venture Partners IV L.P. and
32,258 shares issuable upon exercise of a warrant held by Bessec Ventures
IV, L.P.
(11) Includes 5,156,303 shares held by North Castle Partners II, L.P., 127,356
shares held by North Castle Co-Investment Fund, L.P. and 153,462 shares
held by NCP-MNC, L.P.
54
<PAGE>
CERTAIN TRANSACTIONS
We believe that all of the transactions set forth below were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties. We intend that all future transactions, including loans, between us
and our officers, directors, principal stockholders and their affiliates, will
be approved by a majority of the board of directors, including a majority of
the independent and disinterested members of the board of directors, and will
be on terms no less favorable to us than those that could be obtained from
unaffiliated third parties.
Sales of Stock, Notes and Warrants
Convertible Note and Warrant Financing. In May 1998, we issued and sold
$400,000 of secured convertible promissory notes and warrants to purchase an
aggregate of 258,064 shares of our common stock at an exercise price of $0.31
per share to five accredited investors. Pursuant to their terms, the notes
converted into an aggregate of 1,290,322 shares of series A preferred stock
upon the closing of the series A convertible preferred stock financing
discussed below. Investors owning five percent or more of our shares and our
Chief Executive Officer (who is also President and a director) who participated
in this transaction include:
<TABLE>
<CAPTION>
Investor Promissory Note Warrant Shares
-------- --------------- --------------
<S> <C> <C>
CMG@ Ventures II, LLC........................ $100,000 64,516
Morgenthaler Ventures IV, L.P................ $100,000 64,516
Bessemer Venture Entities.................... $100,000 64,516
Michael Barach............................... $100,000 64,516
</TABLE>
Marc Poirier, one of our directors, is a general partner of @Ventures III,
L.P., which is an affiliate of CMG@ Ventures II, LLC. Keith Kerman, one of our
directors, is a general partner of Morgenthaler Venture Partners IV, L.P.
Bessemer Venture Partners IV L.P., Bessec Ventures IV L.P. and Bessemer Venture
Investors IV L.P. are affiliated entities, collectively own greater than 10% of
our shares and are collectively referred to in this prospectus as the Bessemer
Venture entities.
Series A Preferred Stock Financing. In June 1998, we issued and sold an
aggregate of 21,451,613 shares of series A preferred stock at a price per share
of $0.31 to seven accredited investors. In July 1998, we issued and sold an
additional 1,864,484 shares of series A preferred stock to nine accredited
investors. The series A shares will be converted into an aggregate of
23,316,097 shares of common stock upon the closing of this offering. We sold
80,645 shares of series A preferred stock to Jason Olim, one of our directors,
as part of this financing. Investors owning five percent or more of our shares
who purchased shares of series A preferred stock and the number of shares each
purchased, including shares issued upon conversion of the promissory notes
discussed under the heading "Convertible Note and Warrant Financing" above,
include:
<TABLE>
<CAPTION>
Investor Number of Series A Shares
-------- -------------------------
<S> <C>
CMG@ Ventures II, LLC............................. 6,451,613
Morgenthaler Venture Partners IV, L.P............. 6,451,613
Bessemer Venture Entities......................... 6,451,613
Michael Barach.................................... 483,871
</TABLE>
Series B-1 Preferred Stock Financing. In December 1998, we issued and sold
19,950,126 shares of series B-1 preferred stock at a price per share of $0.5213
to 13 accredited investors. In January 1999, we issued and sold an additional
3,069,250 shares of series B-1 preferred stock to one accredited investor. The
series B-1 shares will be converted into an aggregate of 23,019,375 shares of
common stock upon the closing of this offering. Brent Knudsen, one of our
directors, is a limited partner of NCP GP II, L.P., which is the General
Partner of North Castle Partners II, L.P., and Mr. Knudsen is a Managing
Director of North Castle GP II, LLC, which serves as the general partner of NCP
GP II, L.P., as well as NCP-MNC, L.P. Mr. Knudsen is also a Managing Director
of NCP Co-Investment G.P., LLC, which is the general partner of NCP Co-
Investment Fund, L.P. North Castle Partners II, L.P., North Castle Co-
Investment Fund, L.P. and NCP-MNC, L.P. are collectively referred to in this
prospectus as the North Castle entities. NCP-MNC, L.P. purchased 3,069,250
55
<PAGE>
shares of series B-1 preferred stock. Investors owning five percent or more of
our shares who purchased shares of series B-1 preferred stock and the number of
shares each purchased include:
<TABLE>
<CAPTION>
Number of Series
Investor B-1 Shares
-------- ----------------
<S> <C>
CMG@Ventures II, LLC....................................... 2,397,852
Morgenthaler Venture Partners IV, L.P. .................... 2,397,852
Bessemer Venture Entities.................................. 2,397,852
North Castle Entities...................................... 3,069,250
</TABLE>
Series C Preferred Stock Financing. In May 1999, we issued and sold
18,409,629 shares of series C preferred stock at a price per share of $2.2787
to 16 accredited investors. These shares will be converted into an aggregate of
19,866,442 shares of common stock upon the closing of this offering, after
giving effect to the amendment to our certificate of incorporation described
below under the heading "Changes in Preferred Stock Conversion Features." Mr.
Michael Greeley, one of our directors, is a Senior Vice President of GCC
Investments, Inc., which wholly-owns Chestnut Hill Nature, LLC. Chestnut Hill
Nature, LLC purchased 4,388,468 shares of series C preferred stock. Investors
owning five percent or more of our shares who purchased shares of series C
preferred stock and the number of shares purchased include:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock
Investor Number of Series C Shares upon Conversion
-------- ------------------------- ----------------
<S> <C> <C>
CMG@ Ventures II, LLC............ 329,136 355,181
Morgenthaler Venture Partners,
L.P. ........................... 329,136 355,181
Bessemer Venture Entities........ 329,136 355,181
North Castle Entities............ 2,194,234 2,367,871
Covestco-AtEura LLC.............. 4,388,468 4,735,743
Markas Holding B.V............... 4,388,468 4,735,743
Chestnut Hill Nature, LLC........ 4,388,468 4,735,743
</TABLE>
Registration Rights. In connection with the preferred stock financings, we
granted registration rights to the preferred stockholders. See "Description of
Securities - Registration Rights."
Changes in Preferred Stock Conversion Features
On July 30, 1999, we filed an amendment to our certificate of incorporation
increasing the number of shares of common stock into which each share of
series C preferred stock will automatically convert in connection with a public
offering of our equity securities from one share of common stock to
approximately 1.08 shares of common stock, subject to certain conditions
related to the offering. At the same time, holders of our series A shares,
series B-1 shares and series C shares agreed to automatic conversion of their
series A shares, series B-1 shares and series C shares, respectively, into
shares of our common stock effective upon the closing of this offering.
Agreements with Affiliates of CMG@ Ventures II, LLC
We have a Web site hosting agreement with NaviSite, Inc. and have an online
advertising agreement with Lycos, Inc. During fiscal 1998 and the six months
ended June 30, 1999, we paid service fees to NaviSite of $22,643 and $52,100,
respectively, and advertising fees to Lycos of $318,325 and $214,365,
respectively. NaviSite is a majority owned subsidiary of CMGI, Inc. and 17.05%
of Lycos is owned by CMGI. CMGI, through its venture capital fund CMG@ Ventures
II, LLC, owns greater than five percent of our outstanding common stock.
56
<PAGE>
Certain Agreements
In connection with Ross Love's resignation of employment on August 7, 1998,
we entered into a termination agreement whereby we agreed to pay Mr. Love
salary continuation in the amount of $70,000 per year through May 31, 2000,
forgive $21,100 in indebtedness incurred by Mr. Love while he was an employee,
pay up to $3,000 of Mr. Love's relocation expenses and accelerate the vesting
of Mr. Love's incentive stock options to purchase 116,888 shares of our common
stock.
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DESCRIPTION OF SECURITIES
The following description of our capital stock and certain provisions of our
restated certificate of incorporation and by-laws are summaries and are
qualified by reference to the certificate and the by-laws. Copies of these
documents have been filed with the Securities and Exchange Commission as
exhibits to our registration statement, of which this prospectus forms a part.
The descriptions of the common stock and preferred stock reflect changes to our
capital structure that will occur upon the closing of this offering.
Upon the completion of this offering, our authorized capital stock will
consist of shares of common stock, par value $.01 per share, and shares of
preferred stock, par value $.01 per share.
Common Stock
As of June 30, 1999, there were 72,733,697 shares of common stock outstanding
and held of record by 48 stockholders, assuming conversion of all outstanding
shares of preferred stock. In addition, we have reserved an aggregate of
11,655,219 shares of common stock for issuance under our 1998 Stock Plan,
shares of common stock for issuance under our 1999 Stock Plan, 750,000 shares
of common stock for issuance under our 1999 Employee Stock Purchase Plan,
250,000 shares of common stock for issuance under our 1999 Non-Employee
Director Stock Plan and 1,207,317 shares of common stock for issuance upon the
exercise of outstanding common stock purchase warrants.
The holders of common stock are entitled to one vote for each share of common
stock held of record on our books for the election of directors and on all
matters submitted to a vote of stockholders. The holders of common stock are
entitled to receive ratably dividends, if any, when, as and if declared by the
board of directors out of assets legally available therefor, subject to any
preferential dividend rights of any outstanding preferred stock. Upon our
dissolution, liquidation or winding up, the holders of common stock are
entitled to receive ratably our net assets available after the payment of all
debts and other liabilities, subject to the preferential rights of any
outstanding preferred stock. Holders of the common stock have no preemptive,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future. Upon the closing of this
offering, there will be no shares of preferred stock outstanding.
Preferred Stock
Upon the closing of this offering, the board of directors will be authorized,
without further vote or action by the stockholders, to issue from time to time
up to an aggregate of shares of preferred stock in one or more series and to
fix or alter the designations, rights, preferences and privileges and any
qualifications, limitations or restrictions of the shares of each such series
of preferred stock, including the dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption including sinking fund provisions,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series, any or all of which may
be greater than the rights of common stock. The issuance of preferred stock
could adversely affect the voting power of holders of common stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control. We have no present plans to issue any shares of preferred
stock.
Warrants
In April 1998, we issued warrants to purchase an aggregate of 300,000 shares
of our common stock at an exercise price of $.01 per share, exercisable at any
time prior to April 29, 2003. These warrants include a cashless exercise
feature, and the holders are entitled to certain customary antidilution
protection, including
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<PAGE>
adjustments to the number of shares of common stock issuable upon exercise of
the warrants in the event of a subdivision or combination of the common stock
or the payment of a stock dividend on our common stock.
In May 1998, we issued warrants to purchase an aggregate of 258,064 shares of
our common stock at an exercise price of $0.31 per share, exercisable at any
time prior to May 1, 2006. These warrants include a cashless exercise feature,
and the holders are entitled to certain customary antidilution protection,
including adjustments to the number of shares of common stock issuable upon
exercise of the warrants in the event of a subdivision or combination of our
common stock or payment of a stock dividend on our common stock. These warrants
were issued in connection with our convertible note and warrant financing. See
"Certain Transactions- Sales of Stock, Notes and Warrants." The holders of the
warrants are entitled to registration rights pursuant to the registration
rights agreement with respect to the shares of common stock issuable upon
exercise of the warrants. These registration rights are the same as those
afforded the parties to the registration rights agreement. The registration
rights agreement and applicable registration rights are discussed below under
the heading "Registration Rights."
In connection with a subordinated loan and equipment lease financing in
December 1998, we issued warrants to purchase an aggregate of 495,261 shares of
common stock at an exercise price of $0.5028 per share, exercisable at any time
prior to the earlier of December 4, 2005 or three years from the effective date
of our initial public offering. The warrants include a cashless exercise
feature, and the holders are entitled to certain customary antidilution
protection, including adjustments to the number of shares of common stock
issuable in the event of a merger or sale of assets, reclassification of
shares, subdivision or combination of our common stock or payment of a stock
dividend on our common stock. The holder of the warrants is entitled to
registration rights pursuant to the registration rights agreement with respect
to the shares of common stock issuable upon exercise of the warrants. These
registration rights are the same as those afforded the parties to the
registration rights agreement. The registration rights agreement and applicable
registration rights are discussed below under the heading "Registration
Rights."
In May 1999, we issued a warrant to purchase an aggregate of 137,140 shares
of our common stock at an exercise price per share of $2.7344, exercisable at
any time prior to May 12, 2004. This warrant includes a cashless exercise
feature, and the holder is entitled to certain customary antidilution
protection, including adjustments to the number of shares of common stock
issuable upon exercise of the warrant in the event of a subdivision or
combination of our common stock or payment of a stock dividend on our common
stock. Pursuant to antidilution adjustments, an additional 10,852 shares of
common stock will be issuable under the warrant, subject to certain conditions
related to the offering. The holder of the warrants is entitled to registration
rights pursuant to the registration rights agreement with respect to the shares
of common stock issuable upon exercise of the warrants. These registration
rights are the same as those afforded the parties to the registration rights
agreement. The registration rights agreement and applicable registration rights
are discussed below under the heading "Registration Rights."
In June 1999, we issued a warrant to purchase an aggregate of up to 6,000
shares of our common stock at an exercise price per share of $2.50, exercisable
at any time prior to June 22, 2002. This warrant includes a cashless exercise
feature, and the holder is entitled to certain customary antidilution
protection, including adjustments to the number of shares of common stock
issuable upon exercise of the warrant in the event of a subdivision or
combination of our common stock or payment of a stock dividend on our common
stock.
Convertible Note
Pursuant to the loan agreement with our subordinated lender, we granted the
lender the right to convert, on one occasion, up to 30% of the original
aggregate principal amount of all advances under the loan agreement into shares
of our common stock at an exercise price of $0.50 per share. This conversion
option expires on December 4, 1999. The maximum amount that we are entitled to
borrow under the loan agreement is $3,000,000. As of the date of this
prospectus, we have not borrowed any money under the loan agreement. The lender
is entitled to registration rights pursuant to the registration rights
agreement with respect to the shares of common stock issuable upon exercise of
the conversion option. The registration rights agreement and applicable
registration rights are discussed below under the heading "Registration
Rights."
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<PAGE>
Registration Rights
Pursuant to the terms of a registration rights agreement, after this
offering, the holders of approximately 68,256,532 shares of common stock,
warrants to acquire 901,317 shares of common stock and options to acquire
2,435,991 shares of common stock will be entitled to certain rights with
respect to the registration of such shares under the Securities Act. Under the
terms of the registration rights agreement, if we propose to register any of
our securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, the holders
are entitled to notice of such registration and are entitled to include shares
of their common stock therein. Additionally, the holders are entitled to
certain demand registration rights pursuant to which they may require us to
file a registration statement under the Securities Act at our expense with
respect to their shares of common stock, and we are required to use our best
efforts to effect that registration. We are not required to effect more than
two of these demand registrations. In addition, the holders are entitled to
demand registration rights pursuant to which they may require us to file a
registration statement under the Securities Act on Form S-3 at our expense with
respect to their shares of common stock, and we are required to use our best
efforts to effect that registration. We are not required to effect more than
one of these Form S-3 demand registrations in any twelve-month period. All of
these registration rights are subject to conditions and limitations, including
the right of the underwriters of an offering to limit the number of shares
included in such registration and our right not to effect a requested
registration within six months following any offering of our securities,
including this offering. In addition, our obligation to register shares of
common stock terminates immediately with respect to a security holder holding
2% or less of our outstanding shares, provided that all shares held by the
holder may be publicly sold within a three-month period pursuant to the
Securities Act. In any event, all registration rights terminate four years from
the date of this prospectus.
Anti-Takeover Effects of Provisions of Delaware Law and Our Certificate of
Incorporation and By-laws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203 of Delaware law
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the board of directors or unless the business combination is
approved in a prescribed manner. A "business combination" is defined as a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder. Subject to various exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the past three years did own, 15% or more of a corporation's voting
stock. This statute could prohibit or delay the accomplishment of mergers or
other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.
In addition, some provisions of the certificate and by-laws may be deemed to
have an anti-takeover effect and may delay, defer or prevent a tender offer or
takeover attempt that a stockholder might deem to be in his or her best
interest. The existence of these provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
These provisions include:
Stockholder Action; Special Meeting of Stockholders. The certificate of
incorporation provides that stockholders may not take action by written
consent, but only at a duly called annual or special meeting of stockholders.
The certificate of incorporation further provides that special meetings of our
stockholders may be called only by the chairman of the board of directors, and
in no event may the stockholders call a special meeting. Thus, without approval
by the board of directors or chairman, stockholders may take no action between
meetings.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The by-laws provide that a stockholder seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice of this
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intention in writing. To be timely, a stockholder's notice must be delivered to
or mailed and received at our principal executive offices not less than 120
days prior to the first anniversary of the date of our notice of annual meeting
provided with respect to the previous year's annual meeting of stockholders.
However, if no annual meeting of stockholders was held in the previous year or
the date of the annual meeting of stockholders has been changed to be more than
30 calendar days from the time contemplated at the time of the previous year's
proxy statement, then a proposal shall be received no later than the close of
business on the 10th day following the date on which notice of the date of the
meeting was mailed or a public announcement was made, whichever first occurs.
The by-laws also include a similar requirement for making nominations at
special meetings and specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting of stockholders or from making nominations for
directors at an annual or special meeting of stockholders.
Authorized but Unissued Shares. The authorized but unissued shares of common
stock and preferred stock are available for future issuance without stockholder
approval, subject to certain limitations imposed by the Nasdaq National Market.
These additional shares may be utilized for a variety of corporate acquisitions
and employee benefit plans. The existence of authorized but unissued and
unreserved common stock and preferred stock could render more difficult or
discourage an attempt to obtain control of us by means of a proxy contest,
tender offer, merger or otherwise.
Super-majority Voting. Delaware law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or bylaws, unless a
corporation's certificate of incorporation or bylaws, as the case may be,
require a greater percentage. We have provisions in our certificate of
incorporation and by-laws which require a super-majority vote of the
stockholders to amend, revise or repeal anti-takeover provisions.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation provides that, to the extent permitted by
Delaware law, our directors shall not be personally liable to us or our
stockholders for monetary damages for any breach of fiduciary duty as a
director. Under Delaware law, the directors have a fiduciary duty to us that is
not eliminated by this provision of the certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under Delaware law for breach of the
director's duty of loyalty to us, for acts or omissions which are found by a
court of competent jurisdiction to be not in good faith or that involve
intentional misconduct or knowing violations of law, for action leading to
improper personal benefit to the director and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by Delaware
law. This provision also does not affect the directors' responsibilities under
any other laws, such as the federal securities laws.
Our certificate of incorporation further provides for the indemnification of
our directors and officers to the fullest extent permitted by Section 145 of
the Delaware corporate law, provided that this provision shall not eliminate or
limit the liability of a director:
. for any breach of the director's duty of loyalty to the corporation or
its stockholders;
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. arising under Section 174 of the Delaware corporate law; or
. for any transaction from which the director derived an improper personal
benefit.
Transfer Agent and Registrar
Upon the closing of this offering, the transfer agent and registrar for the
common stock will be ChaseMellon Shareholder Services, LLC.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and we make no prediction as to the effect, if any, that market sales of
shares of common stock or the availability of shares of common stock for sale
will have on the market price of the common stock prevailing from time to time.
Nevertheless, sales of substantial amounts of common stock in the public
market, or the perception that such sales could occur, could adversely affect
the market price of the common stock and could impair our future ability to
raise capital through the sale of equity securities.
Upon the closing of this offering, we will have an aggregate of shares of
common stock outstanding, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options or warrants. Of the
outstanding shares, all of the shares sold in this offering will be freely
tradable, except that any shares purchased by "affiliates" (as that term is
defined in Rule 144 under the Securities Act), may only be sold in compliance
with the limitations described below. The remaining 72,733,697 shares of common
stock will be deemed "restricted securities" as defined in Rule 144. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rule 144, including Rule
144(k), or Rule 701 promulgated under the Securities Act, which rules are
summarized below. Giving effect to the lock-up agreements described below and
the provisions of Rule 144, including Rule 144(k), and Rule 701, shares will be
available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number
of Shares Date
--------- ----
<C> <S>
2,370,000 Immediately after the date of this prospectus
1,300,744 At various times after 90 days from the date of this
prospectus (Rules 144 and 701)
69,062,953 At various times after 180 days from the date of
this prospectus (subject, in some cases, to volume limitations)
</TABLE>
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate of ours,
who has beneficially owned shares for at least one year is entitled to sell,
within any three-month period commencing 90 days after the date of this
prospectus, a number of shares that does not exceed the greater of 1% of the
then outstanding shares of common stock, approximately shares immediately
after this offering, or the average weekly trading volume in the common stock
during the four calendar weeks preceding the date on which notice of such sale
is filed, subject to restrictions. In addition, a person who is not deemed to
have been an affiliate at any time during the 90 days preceding a sale and who
has beneficially owned the shares proposed to be sold for at least two years
would be entitled to sell such shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from an
affiliate of ours, such person's holding period for the purpose of effecting a
sale under Rule 144 commences on the date of transfer from the affiliate.
Our directors and officers and stockholders holding an aggregate of
68,162,145 shares in the aggregate have agreed that they will not offer, sell
or agree to sell, directly or indirectly, or otherwise dispose of any shares of
common stock without the prior written consent of Bear, Stearns & Co. Inc. for
a period of 180 days from the date of this prospectus.
Any of our employees or consultants who purchased his or her shares pursuant
to a written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701, which permits nonaffiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of June 30, 1999, the holders of options exercisable for
approximately 819,850 shares of common stock will be eligible to sell their
shares on the expiration of the 180-day lockup period or subject in some cases
to vesting of such options. In addition, the holders of warrants exercisable
for approximately 1,053,325 shares of common stock will be eligible to sell
their shares pursuant to Rule 144 beginning 90 days after the date of this
prospectus.
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We intend to file one or more registration statements on Form S-8 under the
Securities Act to register all shares of common stock subject to outstanding
stock options and common stock issued or issuable under our stock plans. We
expect to file the registration statement covering shares offered pursuant to
the 1998 Stock Plan, the 1999 Stock Plan, the 1999 Non-Employee Director Plan
and the 1999 Employee Stock Purchase Plan within 180 days after the date of
this prospectus, permitting the resale of such shares by nonaffiliates in the
public market without restriction under the Securities Act.
We have agreed not to sell or otherwise dispose of any shares of common stock
during the 180-day period following the date of the prospectus, except that we
may issue, and grant options to purchase, shares of common stock under the 1998
Stock Plan, the 1999 Stock Plan, the 1999 Non-Employee Director Plan and the
1999 Employee Stock Purchase Plan. In addition, we may issue shares of common
stock in connection with any acquisition of, or strategic relationship with,
another company if the terms of issuance provide that such common stock shall
not be resold prior to the expiration of the 180-day period referenced in the
preceding sentence.
Following this offering, holders of 68,256,532 shares of outstanding common
stock will have demand registration rights with respect to their shares of
common stock, subject to the 180-day lock-up arrangement described above, to
require us to register their shares in any future registration of our
securities. See "Description of Securities -- Registration Rights."
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UNDERWRITING
Underwriting Agreement
Subject to the terms and conditions set forth in an agreement among the
underwriters and us, each of the underwriters named below, through their
representatives Bear, Stearns & Co. Inc., Hambrecht & Quist LLC and Wit Capital
Corporation, has severally agreed to purchase from us the aggregate number of
shares of our common stock set forth opposite its name below:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Bear, Stearns & Co. Inc...........................................
Hambrecht & Quist LLC.............................................
Wit Capital Corporation...........................................
---
Total...........................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of various legal matters by their counsel
and to various other conditions, including delivery of legal opinions by our
counsel, the delivery of a letter by our independent auditors and the accuracy
of the representations and warranties made by us in the underwriting agreement.
Under the underwriting agreement, the underwriters are obliged to purchase and
pay for all of the above shares of our common stock if any are purchased.
The underwriters, at the request of MotherNature.com, have reserved for sale
at the initial public offering price up to shares of our common stock by Wit
Capital in the offering. Purchases of the reserved shares are to be made
through an account at Wit Capital in accordance with Wit Capital's procedures
for opening an account and transacting in securities. Any reserved shares not
purchased by registered users of Wit Capital's Web site will be offered by the
underwriters on the same basis as other shares offered hereby. The prospectus
in electronic format is being made available on an Internet Web site maintained
by Wit Capital Corporation.
Public Offering Price
The underwriters propose to offer the shares of our common stock directly to
the public at the offering price set forth on the cover page of this prospectus
and at that price less a concession not in excess of $ per share of common
stock to other dealers who are members of the National Association of
Securities Dealers, Inc. The underwriters may allow, and those dealers may
reallow, concessions not in excess of $ per share of common stock to certain
other dealers. After this offering, the offering price, concessions and other
selling terms may be changed by the underwriters. Our common stock is offered
subject to receipt and acceptance by the underwriters and subject to other
conditions, including the right to reject orders in whole or in part. The
underwriters have informed us that the underwriters do not expect to confirm
sales of common stock to any accounts over which they exercise discretionary
authority.
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The following table summarizes the per share and total public offering price
of the shares of common stock in the offering, the underwriting compensation to
be paid to the underwriters by us and the proceeds of the offering, before
expenses, to us. The information presented assumes either no exercise or full
exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
Total
-------------------
Without With
Over- Over-
Per Share allotment allotment
--------- --------- ---------
<S> <C> <C> <C>
Public offering price........................
Underwriting discounts and commissions
payable by us...............................
Proceeds, before expenses, to us.............
</TABLE>
The underwriting discount and commission per share is equal to the public
offering price per share of our common stock less the amount paid by the
underwriters to us per share of common stock.
We estimate total expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $ .
Over-Allotment Option to Purchase Additional Shares
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of additional shares of our common stock
exercisable at the offering price less the underwriting discounts and
commissions, each as set forth on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each of the
underwriters will be obligated to purchase additional shares of common stock in
proportion to their respective purchase commitments as shown in the table set
forth above, subject to various conditions.
Indemnification and Contribution
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the
Securities Act or will contribute to payments that the underwriters may be
required to make in respect of those liabilities.
Lock-Up Agreements
Our directors and officers and stockholders holding 68,162,145 shares have
agreed that they will not offer, sell or agree to sell, directly or indirectly,
or otherwise dispose of any shares of common stock in the public market without
the prior written consent of Bear, Stearns & Co. Inc. for a period of 180 days
from the date of this prospectus.
In addition, we have agreed that for a period of 180 days from the date of
this prospectus, we will not, without the prior written consent of Bear,
Stearns & Co. Inc, offer, sell or otherwise dispose of any shares of common
stock, except that we may issue, and grant options to purchase, shares of
common stock under the 1998 Stock Plan, the 1999 Stock Plan, the 1999 Non-
Employee Director Plan and the 1999 Employee Stock Purchase Plan. In addition,
we may issue shares of common stock in connection with any acquisition of, or
strategic relationship with, another company if the terms of such issuance
provide that such common stock shall not be resold prior to the expiration of
the 180-day period referenced in the preceding sentence.
Nasdaq National Market Quotation
Prior to this offering, there has been no public market for our common stock.
Consequently, the initial offering price for the common stock will be
determined by negotiations between us and the representatives of
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the underwriters. Among the factors to be considered in those negotiations, the
primary factors will be our results of operations in recent periods, estimates
of our prospects and the industry in which we compete, an assessment of our
management, the general state of the securities markets at the time of this
offering and the prices of similar securities of generally comparable
companies. We have applied for approval for the quotation of our common stock
on the Nasdaq National Market, under the symbol "MTHR." We cannot assure you,
however, that an active or orderly trading market will develop for the common
stock or that the common stock will trade in the public market subsequent to
this offering at or above the initial offering price.
Stabilization, Syndicate Short Position and Penalty Bids
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after this offering.
Specifically, the underwriters may over-allot or otherwise create a short
position in the common stock for their own account by selling more shares of
common stock than we have actually sold to them. The underwriters may elect to
cover any such short position by purchasing shares of common stock in the open
market and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price
at a level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the common stock to
the extent that it discourages resales thereof. No representation is made as to
the magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
Reserved Share Program
At our request, the underwriters have reserved for sale at the initial public
offering price up to shares of common stock to be sold in this offering for
sale to our directors, officers, employees, business associates, vendors and
related persons. Purchases of reserved shares are to be made through an account
at Bear, Stearns & Co. Inc. in accordance with Bear, Stearns & Co. Inc.'s
procedures for opening an account and transacting in securities. The number of
shares available for sale to the general public will be reduced to the extent
that any reserved shares are purchased. Any reserved shares not purchased by
our directors, officers, employees, business associates, vendors and related
persons will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus.
Wit Capital Corporation
Wit Capital Corporation, a member of the National Association of Securities
Dealers, Inc., will participate in the offering as one of the underwriters. The
National Association of Securities Dealers, Inc. approved the membership of Wit
Capital on September 4, 1997. Since that time, Wit Capital has acted as an
underwriter, e-Manager or selected dealer in over 125 public offerings. Except
for its participation as a manager in this offering, Wit Capital has no
relationship with MotherNature.com, Inc., or any of its founders or significant
stockholders.
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LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed upon
for us by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts. Certain legal
matters in connection with this offering will be passed upon for the
underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Boston,
Massachusetts.
EXPERTS
Our financial statements and schedules as of December 31, 1998 and 1997, and
for the three years in the period ending December 31, 1998 included in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
report.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including the exhibits, schedules and amendments
thereto) under the Securities Act with respect to the shares of common stock to
be sold in this offering. As permitted by the Securities Exchange Commission's
rules and regulations, this prospectus does not contain all the information set
forth in the registration statement. For further information regarding our
company and the shares of common stock to be sold in this offering, please
refer to the registration statement and the contracts, agreements and other
documents filed as exhibits to the registration statement.
You may read and copy all or any portion of the registration statement or any
other information that we file at the Securities Exchange Commission's public
reference room at 450 Fifth Street, N.W., Washington D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by
writing to the Securities Exchange Commission. Please call the SEC at 1-800-
SEC-0330 for further information on the operation of the public reference
rooms. Our SEC filings, including the registration statement, are also
available to you on the Securities Exchange Commission's Web site
(http://www.SEC.gov).
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance therewith, will
file periodic reports, proxy statements and other information with the
Securities and Exchange Commission.
We intend to furnish to our stockholders annual reports containing financial
statements audited by an independent public accounting firm.
67
<PAGE>
MOTHERNATURE.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of December 31, 1997 and 1998 and June 30, 1999
(Unaudited).............................................................. F-3
Statements of Operations for the Years Ended December 31, 1996, 1997 and
1998 and for the Six Months Ended June 30, 1998 and 1999 (Unaudited)..... F-4
Statements of Shareholders' Equity (Deficit) for the Years Ended December
31, 1996, 1997 and 1998 and for the Six Months Ended June 30, 1999
(Unaudited).............................................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and
1998 and for the Six Months Ended June 30, 1998 and 1999 (Unaudited)..... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of MotherNature.com, Inc.:
We have audited the accompanying balance sheets of MotherNature.com, Inc. (a
Delaware corporation) as of December 31, 1998 and 1997, and the related
statements of operations, shareholders' equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MotherNature.com, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 17, 1999
F-2
<PAGE>
MotherNature.com, Inc.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
Pro Forma
Shareholders' Equity
June 30, (Deficit) at June 30,
1997 1998 1999 1999
--------- ----------- ------------ ---------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents........... $ 4,241 $11,243,943 $ 39,683,712
Accounts receivable.... 6,961 10,914 116,303
Subscription
receivable............ -- 1,600,000 --
Inventories............ 30,635 27,752 535,915
Prepaid expenses....... -- 172,348 173,749
--------- ----------- ------------
Total current
assets.............. 41,837 13,054,957 40,509,679
--------- ----------- ------------
Property and equipment,
net.................... 48,176 383,856 1,009,603
Other assets............ 293 22,800 85,721
--------- ----------- ------------
Total assets......... $ 90,306 $13,461,613 $ 41,605,003
========= =========== ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....... $ 75,504 $ 31,794 $ 280,973
Accrued expenses....... 4,481 681,356 2,015,326
Accrued compensation... 6,835 126,742 346,959
Other current
liabilities........... -- 2,250 --
Current portion of
notes payable......... 15,400 14,492 2,226
Current portion of
capital lease
obligations........... 5,056 4,416 1,049
--------- ----------- ------------
Total current
liabilities......... 107,276 861,050 2,646,533
Long-term portion of
notes payable.......... 44,517 13,142 16,595
Long-term portion of
capital lease
obligations............ 16,609 7,949 1,096
Shareholder advances
payable................ 13,804 -- --
Commitments and
contingencies (NOTE 8)
SHAREHOLDERS' EQUITY
(DEFICIT):
Preferred stock, $0.01
par value--
Authorized--
67,588,911 shares
Issued and
outstanding--
23,316,097 series A
shares, 23,019,375
series B-1 shares and
18,409,629 series C
shares; entitled to
$7,227,990,
$12,000,000 and
$41,950,022 in
liquidation,
respectively.......... -- 463,354 647,450 --
Common stock, $0 and
$0.01 par value in
1997 and 1998,
respectively, and
$0.01 par value in
1999--Authorized--
86,000,000 shares
Issued and
outstanding--
5,116,888 and
5,000,000 shares in
1998 and 1997,
respectively,
6,531,783 in 1999,
and 72,733,697 in
1999, pro forma....... 51,169 65,318 727,337
Additional paid-in
capital................ 148,313 18,915,846 60,552,108 60,537,539
Deferred compensation... -- -- (472,708) (472,708)
Accumulated deficit..... (240,213) (6,850,897) (21,851,389) (21,851,389)
--------- ----------- ------------ ------------
Total shareholders'
equity (deficit).... (91,900) 12,579,472 38,940,779 38,940,779
========= =========== ============ ============
Total liabilities and
shareholders'
equity.............. $ 90,306 $13,461,613 $ 41,605,003
========= =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MotherNature.com, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
--------------------------------- -----------------------
1996 1997 1998 1998 1999
--------- --------- ----------- --------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 21,489 $ 193,064 $ 476,549 $ 254,239 $ 954,650
Cost of sales........... 10,681 71,484 417,998 148,905 844,330
--------- --------- ----------- --------- ------------
Gross profit.......... 10,808 121,580 58,551 105,334 110,320
Operating expenses:
Selling and
marketing............ 3,564 98,137 3,001,483 438,175 9,830,170
Product development... -- -- 2,135,570 8,672 3,101,587
General and
administrative....... 87,925 174,725 1,596,663 323,015 2,485,574
--------- --------- ----------- --------- ------------
Total operating
expenses........... 91,489 272,862 6,733,716 769,862 15,417,331
--------- --------- ----------- --------- ------------
Operating loss...... (80,681) (151,282) (6,675,165) (664,528) (15,307,011)
Interest income......... -- -- 110,113 12,508 379,853
Interest expense........ -- (8,250) (45,632) (9,371) (73,334)
--------- --------- ----------- --------- ------------
Net loss............ $ (80,681) $(159,532) $(6,610,684) $(661,391) $(15,000,492)
========= ========= =========== ========= ============
Basic and diluted net
loss per common share.. $ (0.05) $ (0.03) $ (1.32) $ (0.13) $ (2.69)
========= ========= =========== ========= ============
Pro forma basic and
diluted net loss per
common share........... $ (0.05) $ (0.03) $ (0.36) $ (0.09) $ (0.26)
========= ========= =========== ========= ============
Shares used to compute
basic and diluted net
loss per common share.. 1,469,593 4,855,479 5,017,613 5,000,000 5,566,430
========= ========= =========== ========= ============
Shares used to compute
pro forma basic and
diluted net loss per
common share........... 1,469,593 4,855,479 18,507,968 7,370,344 57,280,112
========= ========= =========== ========= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MotherNature.com, Inc.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 AND FOR THE SIX MONTHS ENDED JUNE
30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------- ------------------- Additional Paid- Deferred Accumulated Total Shareholders'
Share Amount Shares Amount in Capital Compensation Deficit Equity (Deficit)
---------- -------- ---------- ------- ---------------- ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December
31, 1995......... -- $ -- 1,000,000 $ -- $ 200 $ -- $ -- $ 200
---------- -------- ---------- ------- ----------- --------- ------------ -----------
Issuance of
common stock for
services
rendered........ -- -- 3,750,000 -- 75,000 -- -- 75,000
Net loss........ -- -- -- -- -- -- (80,681) (80,681)
---------- -------- ---------- ------- ----------- --------- ------------ -----------
BALANCE, December
31, 1996......... -- -- 4,750,000 -- 75,200 -- (80,681) (5,481)
Issuance of
common stock.... -- -- 100,000 -- 25,000 -- -- 25,000
Issuance of
common stock in
connection with
a note.......... -- -- 75,000 -- 18,750 -- -- 18,750
Issuance of
common stock for
services
rendered........ -- -- 75,000 -- 18,750 -- -- 18,750
Deemed capital
contribution.... -- -- -- -- 10,613 -- -- 10,613
Net loss........ -- -- -- -- -- -- (159,532) (159,532)
---------- -------- ---------- ------- ----------- --------- ------------ -----------
BALANCE, December
31, 1997......... -- -- 5,000,000 -- 148,313 -- (240,213) (91,900)
Retirement of
common stock in
connection with
reincorporation.. -- -- (5,000,000) -- (148,313) -- -- (148,313)
Issuance of
common stock in
connection with
reincorporation.. -- -- 5,000,000 50,000 98,313 -- -- 148,313
Conversion of
promissory notes
into Series A
convertible
preferred
stock........... 1,290,323 12,903 -- -- 387,097 -- -- 400,000
Issuance of
Series A
convertible
preferred stock,
net of issuance
costs........... 21,854,839 218,548 -- -- 6,516,452 -- -- 6,735,000
Exercise of
common stock
options......... -- -- 116,888 1,169 2,338 -- -- 3,507
Conversion of
loans and
advances into
Series A
convertible
preferred
stock........... 170,935 1,709 -- -- 51,281 -- -- 52,990
Compensation
expense related
to common stock
options......... -- -- -- -- 24,855 -- -- 24,855
Issuance of
detachable
warrants for
Series A
convertible
preferred
stock........... -- -- -- -- 106,065 -- -- 106,065
Issuance of
Series B-1
convertible
preferred stock,
net of issuance
costs........... 23,019,375 230,194 -- -- 11,729,445 -- -- 11,959,639
Net loss........ -- -- -- -- -- -- (6,610,684) (6,610,684)
---------- -------- ---------- ------- ----------- --------- ------------ -----------
BALANCE, December
31, 1998......... 46,335,472 463,354 5,116,888 51,169 18,915,846 -- (6,850,897) 12,579,472
Additional costs
of Series B-1
convertible
preferred stock
issuance........ -- -- -- -- (21,261) -- -- (21,261)
Exercise of
common stock
options......... -- -- 1,414,895 14,149 28,298 -- -- 42,447
Issuance of
Series C
convertible
preferred stock,
net of issuance
costs........... 18,409,629 184,096 -- -- 40,854,390 -- -- 41,038,486
Compensation
expense related
to common stock
options and
warrants........ -- -- -- -- 224,521 -- -- 224,521
Deferred
compensation.... -- -- -- -- 550,314 (550,314) -- --
Amortization of
deferred
compensation.... -- -- -- -- -- 77,606 -- 77,606
Net loss........ -- -- -- -- -- -- (15,000,492) (15,000,492)
---------- -------- ---------- ------- ----------- --------- ------------ -----------
BALANCE, June 30,
1999
(unaudited)...... 64,745,101 $647,450 6,531,783 $65,318 $60,552,108 $(472,708) $(21,851,389) $38,940,779
========== ======== ========== ======= =========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MotherNature.com, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------------- ------------------------
1996 1997 1998 1998 1999
-------- --------- ----------- ---------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............... $(80,681) $(159,532) $(6,610,684) $ (661,391) $(15,000,492)
Adjustments to
reconcile net loss to
net cash used in
operating activities-
Depreciation and
amortization......... 1,364 9,039 850,112 24,800 219,249
Common stock issued
for services
rendered............. 75,000 18,750 -- -- --
Loss on disposal of
equipment............ -- -- 33,265 -- 7,994
Compensation expense
relating to common
stock options and
warrants............. -- -- 24,855 -- 224,521
Amortization of
deferred
compensation......... -- -- -- -- 77,606
Amortization of debt
discount.............. -- 4,228 18,045 -- 3,452
Changes in operating
assets and
liabilities-
Accounts receivable... -- (5,861) (3,953) (14,383) (105,389)
Inventories........... (799) (29,836) 2,883 (27,888) (508,163)
Prepaid expenses...... (734) -- (41,283) -- (16,401)
Other assets.......... -- -- (22,507) (14,759) (62,921)
Accounts payable...... 3,094 72,410 (43,710) 65,767 249,179
Accrued expenses...... 75 4,406 678,950 230 1,333,970
Accrued
compensation......... -- 6,835 119,907 18,705 220,217
Other current
liabilities.......... -- -- 2,250 -- (2,250)
-------- --------- ----------- ---------- ------------
Net cash used in
operating
activities......... (2,681) (79,561) (4,991,870) (608,919) (13,359,428)
-------- --------- ----------- ---------- ------------
INVESTING ACTIVITIES:
Purchases of property
and equipment........ (5,500) (28,391) (1,214,057) (876,483) (837,990)
-------- --------- ----------- ---------- ------------
FINANCING ACTIVITIES:
Cash paid to secure
financing............ -- -- (30,000) -- --
Repayments of capital
lease obligations.... -- (2,582) (9,300) -- (10,220)
Proceeds from
shareholder advances
payable.............. 4,382 8,322 -- -- --
Proceeds from
(repayment of) notes
payable.............. 4,650 80,402 (13,217) 13,936 (12,265)
Proceeds from Secured
Convertible
Promissory Note
Financing............ -- -- 400,000 -- --
Proceeds from Series
A Preferred
Financing, net of
issuance costs....... -- -- 6,735,000 6,650,000 --
Proceeds from Series
B-1 Preferred
Financing, net of
issuance costs....... -- -- 10,359,639 -- 1,578,739
Proceeds from Series
C Preferred
Financing, net of
issuance costs....... -- -- -- -- 41,038,486
Proceeds from
exercise of common
stock options........ -- -- 3,507 -- 42,447
Proceeds from
issuance of common
stock................ -- 25,000 -- -- --
-------- --------- ----------- ---------- ------------
Net cash provided by
financing
activities......... 9,032 111,142 17,445,629 6,663,936 42,637,187
-------- --------- ----------- ---------- ------------
Net increase in cash
and cash
equivalents........ 851 3,190 11,239,702 5,178,534 28,439,769
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............. 200 1,051 4,241 4,241 11,243,943
-------- --------- ----------- ---------- ------------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD................ $ 1,051 $ 4,241 $11,243,943 $5,182,775 $ 39,683,712
======== ========= =========== ========== ============
SUPPLEMENTAL DISCLOSURE
OF NONCASH FINANCING
ACTIVITY:
Conversion of loans
and advances into
preferred stock...... $ -- $ -- $ 52,990 $ -- $ --
======== ========= =========== ========== ============
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW
INFORMATION:
Cash paid during the
year for interest.... $ -- $ 740 $ 19,030 $ 5,315 $ 1,599
======== ========= =========== ========== ============
Cash paid during the
year for taxes....... $ -- $ -- $ -- $ -- $ 29,500
======== ========= =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
(1) Summary of Significant Accounting Policies
Description of Business
MotherNature.com, Inc. (MotherNature.com or the Company), formerly Mother
Nature's General Store, Inc., is a leading online retail store and information
site for vitamins, supplements, minerals and other natural and healthy living
products. The Company currently offers approximately 13,000 products on its
site and can special order additional products through its supplier
relationships. MotherNature.com also provides educational and authoritative
news and information about its products and healthy living in general.
The Company, originally incorporated in the Commonwealth of Pennsylvania in
December 1995, reincorporated in the State of Delaware in June 1998 prior to
its first round of financing. Since its inception, the Company has incurred
significant losses and as of June 30, 1999 had an accumulated deficit of
approximately $21.9 million. The Company has incurred costs to develop and
enhance its technology, to create, introduce and enhance its Web site, to
establish marketing and distribution relationships and to build its
administrative organization. The Company intends to continue to invest heavily
in marketing and promotion, development of its Web site, technology and
administrative organization. As a result, the Company believes that it will
incur substantial operating losses for the foreseeable future. There can be no
assurance that the Company will be able to generate sufficient revenues to
achieve or sustain profitability in the future.
The Company has been funded principally from the issuance of preferred stock
in June/July 1998, December 1998/January 1999 and May 1999 (the Series A, B-1,
and C Preferred Financings) in the amounts of $7.2 million, $12.0 million and
$42.0 million, respectively (see Note 7).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
reported amounts of net sales and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents are carried at cost plus accrued interest, which
approximates fair value. The Company considers all highly liquid investments
with an original maturity date of three months or less to be cash equivalents.
Revenue Recognition
Net sales, which consist primarily of vitamins, supplements, minerals, and
other natural and healthy living products sold via the Internet, include
outbound shipping and handling charges incurred by the customer and are
recognized at the time of shipment. The Company generally does not extend
credit to customers, except through third-party credit cards. Credit under
these accounts is extended by third parties, and accordingly, the Company bears
no financial risk under these agreements except in the case of fraud. The
Company's agreements with third-party credit companies provide for the
electronic processing of credit approvals and the electronic submission of
transactions. Upon the submission of these transactions to the credit card
companies, payment is transmitted to the Company's bank account. Accordingly,
the Company records these amounts as cash upon the electronic submission of the
transaction to the appropriate processing agency.
F-7
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
Inventories
Inventories are stated at the lower of cost or market and are valued using
the first-in, first-out (FIFO) method. Cost of sales includes purchased
merchandise and outbound freight incurred by the Company.
Selling and Marketing Expense
Selling and marketing expense includes advertising and promotional
expenditures, fulfillment facility expenses and payroll and related expenses
for personnel engaged in marketing, fulfillment and customer service
operations. Advertising expenditures are expensed as incurred as such efforts
historically have not met the direct-response criteria required for
capitalization. MotherNature.com advertising to date has related primarily to
building brand awareness, including traditional media advertising such as
radio, print and billboards and sponsorship of special events and promotions.
Total advertising costs for the years ended December 31, 1996, 1997 and 1998,
and for the six months ended June 30, 1998 and 1999, were $0, $257 and
$1,900,561, and $119,391 and $7,882,311, respectively.
Product Development Expense
Product development expense includes payroll and related expenses for
merchandising, Web site development, Web content and design and information
technology personnel and related infrastructure.
Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, requires that stock awards granted subsequent to
January 1, 1995 be recognized as compensation expense based on their fair value
at the date of grant. Alternatively, a company may use Accounting Principles
Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and
disclose pro forma income amounts that would have resulted from recognizing
such awards at their fair value. The Company has elected to account for stock-
based compensation expense under APB No. 25 and make the required pro forma
disclosures for compensation (see Note 7).
Income Taxes
The Company records income taxes in accordance with SFAS No. 109, Accounting
for Income Taxes. Under SFAS No. 109, the liability method is used in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates. A valuation allowance has been established against the deferred tax
assets because the Company believes it is more likely than not that the benefit
will not be realized.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
accounts receivable, notes payable, capital lease obligations, and accounts
payable, and are carried at cost or carrying value. These amounts were not
materially different from their fair values.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted
number of common shares outstanding for all periods presented. Diluted net loss
per share reflects the dilutive effect of shares under
F-8
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
option plans, warrants and convertible preferred stock. Potentially dilutive
shares outstanding during the period have been excluded from diluted net loss
per share because their effect would be anti-dilutive. Pro forma net loss per
share is computed using the weighted average number of common shares
outstanding, including the pro forma effects of the automatic conversion of the
Company's convertible preferred stock into shares of the Company's common
stock, effective upon the closing of the Company's initial public offering as
if such conversion occurred on June 10, 1998, or at the date of the original
issuance, if later.
The weighted average common shares outstanding, the dilutive effect of
outstanding stock options and warrants, the pro forma weighted average number
of common shares outstanding, and the shares under option plans, warrants and
convertible preferred stock which were antidilutive for the periods ended
December 31, 1996, 1997 and 1998 and June 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
------------------------------ ---------------------
1996 1997 1998 1998 1999
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Weighted average common
shares used in basic EPS
calculation.............. 1,469,593 4,855,479 5,017,613 5,000,000 5,566,430
Additional weighted
average common shares
used in diluted EPS
calculation.............. -- -- -- -- --
Weighted average
convertible preferred
shares assumed to convert
to common shares......... -- -- 13,490,355 2,370,344 51,713,682
--------- --------- ---------- ---------- ----------
Weighted average common
shares used in pro forma
basic and diluted EPS
calculations............. 1,469,593 4,855,479 18,507,968 7,370,344 57,280,112
========= ========= ========== ========== ==========
Shares under option plans,
warrants and convertible
preferred stock excluded
in computation of diluted
earnings per share due to
antidilutive effects..... -- -- 56,292,447 28,693,722 75,037,488
========= ========= ========== ========== ==========
</TABLE>
Unaudited Interim Information
The financial information as of June 30, 1999, and for the six months ended
June 30, 1998 and 1999 is unaudited. In the opinion of management, such
information contains all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of such period.
The interim results are not necessarily indicative of results for the year.
Comprehensive Income
Comprehensive income is defined as the change in net assets of a business
enterprise during a period from transactions generated from nonowner sources.
It includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company had no material
other comprehensive income in any of the periods presented.
Segment Information
The Company complies with the provisions of SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Company identifies its
operating segments based on business activities and management responsibility.
The Company operates in a single business segment selling vitamins,
supplements, minerals and other natural and healthy living products online.
F-9
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
New Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, requiring computer software
costs associated with internal-use software to be expensed as incurred until
certain capitalization criteria are met. The Company adopted SOP 98-1 for the
year ended December 31, 1998. Adoption of this statement did not have a
material impact on the Company's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on Costs of Start-Up
Activities, requiring all costs associated with preopening, preoperating and
organization activities to be expensed as incurred. The Company has adopted the
statement and has expensed all costs of start up activities.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. As
issued, SFAS 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999, with earlier application encouraged. In May
1999, the FASB delayed the effective date of SFAS 133 for one year, to fiscal
years beginning after June 15, 2000. The Company does not currently nor does it
intend in the future to issue derivative instruments and therefore does not
expect that the adoption of SFAS 133 will have any impact on its financial
position or results of operations.
(2) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Expenditures that significantly improve or extend the life of an asset are
capitalized. Maintenance and repairs are charged to expense when incurred.
Depreciation of property and equipment is calculated on the straight-line basis
over an estimated useful life of two to five years. Leasehold improvements and
equipment under capital leases are amortized over the shorter of the related
lease term or the useful life of the asset.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
June 30,
1997 1998 1999
------- -------- ----------
<S> <C> <C> <C>
Computer equipment and software............. $20,831 $419,489 $1,043,795
Office equipment and furniture.............. 13,009 27,910 157,106
Equipment under capital lease............... 24,298 18,413 5,924
Leasehold improvements...................... -- 16,800 96,317
------- -------- ----------
58,138 482,612 1,303,142
Less -- Accumulated depreciation and
amortization............................... (9,962) (98,756) (293,539)
------- -------- ----------
$48,176 $383,856 $1,009,603
======= ======== ==========
</TABLE>
For the years ended December 31, 1996, 1997 and 1998, depreciation expense
was $1,217, $8,745 and $845,112, respectively. For the six months ended June
30, 1998 and 1999, depreciation expense was $24,800 and $204,249, respectively.
The net book value of property and equipment under capital leases was $21,829
and $11,748 at December 31, 1997 and 1998, respectively, and $18,371 and $1,811
at June 30, 1998 and 1999, respectively.
F-10
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
(3) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------- June 30,
1997 1998 1999
------ -------- ----------
<S> <C> <C> <C>
Accrued professional services.................... $1,200 $236,757 $ 216,250
Accrued marketing................................ -- 243,299 1,084,642
Other accrued expenses........................... 3,281 201,300 714,434
------ -------- ----------
$4,481 $681,356 $2,015,326
====== ======== ==========
</TABLE>
(4) Employee Benefit Plans
The Company has a savings plan (the 401(k) Plan), which qualifies as a
defined contribution arrangement under Section 401(a), 401(k) and 501(a) of the
Internal Revenue Code. Under the 401(k) Plan, participating employees may defer
a percentage (not to exceed 15%) of their eligible pretax earnings up to the
Internal Revenue Service's annual contribution limit. All employees on the
payroll of the Company are eligible to participate in the 401(k) Plan. The
Company will determine its contributions, if any, based on its current profits
and/or retained earnings; however, no contributions have been made since the
inception of the 401(k) Plan.
(5) Debt
In December 1998, the Company entered into a loan and security agreement (the
Loan Agreement) with a bank (the Bank) to borrow up to $500,000 under a
revolving credit facility (the Credit Facility) and/or a 36-month equipment
term loan facility (the Equipment Loan). The interest rate per year on the
Credit Facility is equal to the Bank's prime rate for the initial six months of
the Credit Facility, and the Bank's prime rate plus 25 basis points thereafter.
The interest rate per year on the Equipment Loan is equal to the Bank's prime
rate plus 75 basis points. The Bank's prime rate as of June 30, 1999 was 7.75%.
On the first advance date of the Equipment Loan, the Company may, at its
option, elect a fixed interest rate on the Equipment Loan, at a rate determined
by the Bank, which shall thereafter be applicable to all advances under the
Equipment Loan. After the last advance date, the unpaid principal balance of
the Equipment Loan is payable in 30 monthly installments of principal plus
interest. As security for the loan, the Bank has a perfected security interest
in all of the Company's personal property and in all proceeds and products
thereof. To date, the Company has used the Credit Facility to fund corporate
credit card expenses which under the terms of the Credit Facility may not
exceed $175,000 at any time and are required to be repaid on a monthly basis.
In December 1998, the Company entered into a subordinated loan and security
agreement (the Subordinated Loan Agreement) with a commercial lender (the
Commercial Lender). The Subordinated Loan Agreement allows the Company to
borrow up to $3 million, during the one-year period beginning December 1998, in
minimum installments of $250,000 each, at an interest rate of prime plus 50
basis points per year, fixed at the time of the advance. The Commercial
Lender's prime rate as of June 30, 1999 was 7.75%. Interest on each advance is
due and payable in 12 equal monthly installments, followed by 24 equal monthly
installments of principal and interest. As a condition to entering into the
Subordinated Loan Agreement, the Commercial Lender required the Company to pay
a commitment fee equal to 1% of the total amount available for borrowing, which
the Company has capitalized in the accompanying balance sheet. As security for
the loan, the Commercial Lender has a perfected secondary security interest in
the Company's personal property and in all proceeds and products thereof. In
addition, the Commercial Lender may convert, on one occasion only, up
F-11
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
to 30% of the original aggregate principal amount of all advances under the
Subordinated Loan Agreement into shares of common stock at a price of $0.50 per
share. To date, the Company has had no outstanding borrowings under the
Subordinated Loan Agreement. In connection with the Subordinated Loan
Agreement, the Company issued warrants to the Commercial Lender to purchase
477,360 shares of common stock with an exercise price of approximately $0.5028
per share. These warrants are exercisable until the earlier of the seventh
anniversary of the date of the Subordinated Loan Agreement or the third
anniversary of the effective date of the Company's initial public offering.
These warrants were valued using the Black-Scholes option-pricing model (see
Note 7).
In addition, the Company also entered into a master lease agreement (the
Lease Agreement) with the Commercial Lender. Pursuant to the Lease Agreement,
the Commercial Lender has agreed to lease to the Company certain equipment
specifically approved by the Commercial Lender, during the one-year period
beginning December 1998, up to an aggregate purchase price of $300,000. The
term of the lease is 48 months, and the Company will have the option at the
expiration of the initial term of the equipment lease to purchase all of the
equipment for a purchase price not to exceed 15% of the equipment cost. As of
December 31, 1998, and as of June 30, 1999, the Company had no outstanding
borrowings under the Lease Agreement. Borrowings under the Lease Agreement will
be accounted for as capital leases when such borrowings occur. In connection
with the Lease Agreement, the Company issued warrants to purchase 17,901 shares
of common stock with an exercise price of approximately $0.5028 per share.
These warrants are exercisable until the earlier of the seventh anniversary of
the date of the Lease Agreement or the third anniversary of the effective date
of the Company's initial public offering. These warrants were valued using the
Black-Scholes option-pricing model (see Note 7).
(6) Note Payable
In 1997, the Company borrowed $35,000 from a vendor in the form of a
promissory note (the Note), payable in monthly installments of $2,000 at an
interest rate of 10% per year, commencing January 1, 1999. The Company also
issued a total of 150,000 shares of common stock to the vendor, 75,000 of which
related to the Note. The estimated value of the common stock was recorded as an
original issue discount on the Note and will be amortized over the term of the
Note. At December 31, 1997 and 1998, and at June 30, 1999, the balance on the
Note, net of the original issue discount, was $19,860 and $27,634, and $18,821,
respectively.
(7) Shareholders' Equity
Reincorporation and Authorized Capital
Prior to June 1998, the Company was incorporated in the Commonwealth of
Pennsylvania with authorized capital of 10,000,000 shares of no par value
common stock. In June 1998, the Company reincorporated in the state of Delaware
with authorized capital of 40,000,000 shares of $0.01 par value common stock
and 47,490,000 shares of $0.01 par value preferred stock. In May 1999, the
Company increased its authorized common stock to 86,000,000 shares and
increased its authorized preferred stock to 67,588,911 shares.
Preferred Stock
The Company has authorized Series A Preferred, Series B-1 Preferred, Series
B-2 Preferred and Series C Preferred. In the event of a public offering of the
Company's equity securities effective on or before December 31, 1999 and
resulting in gross proceeds to the Company of $20,000,000 or greater, each
outstanding share of Series A Preferred, Series B-1 Preferred and Series B-2
Preferred will automatically convert into one share of common stock, and under
the circumstances described in Note 12, the Series C Preferred will
automatically convert into approximately 1.08 shares of common stock.
F-12
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
In June and July 1998, the Company issued 21,854,839 shares of Series A
Preferred at a price of $0.31 per share in conjunction with the Series A
Preferred Financing and 1,290,323 shares of Series A Preferred in conjunction
with the conversion of $400,000 in principal amount of secured convertible
notes. Additionally, in July and November 1998, the Company issued 170,935
shares of Series A Preferred in consideration for the forgiveness of
shareholder advances and loans payable. The Series A Preferred is convertible
at the option of the holder, at any time, at a rate of one share of common
stock for one share of Series A Preferred, subject to certain antidilution
adjustments.
In December 1998 and January 1999, the Company issued 19,950,125 and
3,069,250 shares of Series B-1 Preferred, respectively, at a price of $0.5213
per share in conjunction with the Series B-1 Preferred Financing. The shares
issued in January 1999 were issued pursuant to a binding agreement entered into
in December 1998 and have been included in the total shares of Series B-1
Preferred in the accompanying financial statements at December 31, 1998. The
Series B-1 Preferred is convertible at the option of the holder, at any time,
at a rate of one share of common stock for one share of Series B-1 Preferred,
subject to certain antidilution adjustments.
In May 1999, the Company issued 18,409,629 shares of Series C Preferred at a
price of $2.2787 per share in conjunction with the Series C Preferred
Financing. The Series C Preferred is convertible at the option of the holder,
at any time, at a rate of one share of common stock for one share of Series C
Preferred, subject to certain antidilution adjustments.
Voting
Each share of Series A Preferred, Series B-1 Preferred, Series B-2 Preferred
and Series C Preferred entitles the holder to the number of votes per share as
equals the number of shares of common stock into which each share of preferred
stock is convertible.
Dividends
The holders of Series A Preferred, Series B-1 Preferred, Series B-2 Preferred
and Series C Preferred are entitled to receive, when and if declared by the
Board of Directors, quarterly dividends at the rate of $0.0186, $0.0313, $0.03
and $0.1367 per share, respectively. The preferred dividends are not
cumulative. For the year ended December 31, 1998, and for the six months ended
June 30, 1999, the Company did not declare any dividends.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series A Preferred, Series B-1 Preferred, Series B-2 Preferred
and Series C Preferred are entitled to receive, in preference to the holders of
common stock, any distribution of assets of the Company in an amount per share
equal to $0.31, $0.5213, $0.50, and $2.2787 respectively, plus any declared but
unpaid dividends.
Common Stock
Each share of common stock entitles the holder to one vote per share. In
April 1998, the Company effected a 5,000-for-1 stock split in the form of a
stock dividend. All references in the financial statements to the number of
shares and to per share amounts have been retroactively restated to reflect
these changes.
F-13
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
Warrants
In April 1998, the Company issued warrants to purchase an aggregate of
300,000 shares of common stock at an exercise price of $0.01 per share, fair
market value of common stock at date of grant, to a founding employee of the
Company and to a non-employee, early contributor to the Company. These warrants
expire on April 29, 2003. Using the Black-Scholes option-pricing model, the
warrants issued to the non-employee were valued at $50, which was recorded as
expense in 1998.
In May 1998, the Company issued warrants, in connection with a $400,000
secured convertible note financing (the Secured Convertible Note Financing) to
purchase 258,064 shares of common stock at an exercise price of $0.31 per
share, fair market value of preferred stock at date of grant. These warrants
expire on May 1, 2006.
As consideration for the Subordinated Loan Agreement and the Lease Agreement,
the Commercial Lender received warrants to purchase 495,261 shares of common
stock at a price of approximately $0.5028 per share, fair market value of
preferred stock at date of grant (see Note 5). Using the Black-Scholes option-
pricing model, the warrants were valued at $106,065 and were included in
prepaid expenses, net of amortization, on the balance sheet at December 31,
1998. The expense will be amortized over the term of the Subordinated Loan
Agreement and the Lease Agreement.
In May 1999, the Company issued warrants, in connection with the services
provided by an investment bank (the Investment Bank) for the Series C Preferred
Financing, to purchase 137,140 shares of common stock at an exercise price of
$2.7344 per share, subject to adjustment of the conversion price of the Series
C Preferred (see Note 12). These warrants expire on May 12, 2004. Using the
Black-Scholes option-pricing model, the warrants issued to the Investment Bank
were valued at $200,438, which was recorded as a reduction to the Series C
Preferred Financing proceeds received in 1999.
In June 1999, the Company issued warrants, in connection with a lease
agreement entered into with a landlord (the Landlord), to purchase an aggregate
of up to 6,000 shares of the Company's common stock at an exercise price per
share of $2.50, fair market value of the common stock at the date of grant. The
warrants are exercisable at any time prior to June 22, 2002. Using the Black-
Scholes option-pricing model, the warrants issued to the landlord were valued
at $9,665, which was recorded as expense in 1999.
Stock Options
In June 1998, the Company adopted the MotherNature.com, Inc. 1998 Stock Plan,
as amended in June 1998 (the Plan), which authorizes the Company to grant
options to purchase up to an aggregate of 6,938,000 shares of common stock.
Later in June 1998, the Plan was amended to increase the aggregate number of
shares of common stock issuable under the Plan to 9,512,000, and in May 1999,
the Plan was amended again to increase the number of shares issuable under the
Plan to 12,655,219. Under the Plan, incentive and nonqualified stock options,
awards of stock and opportunities to make direct purchases of stock may be
granted to employees, officers, directors, independent contractors and
consultants. Generally, options are granted by the Company's Board of Directors
or the Compensation Committee of the Board of Directors. Each outstanding
option granted under the Plan expires at various dates, not to exceed 10 years
from the date of grant, and becomes exercisable in varying installments as
determined by the Board of Directors, or the Compensation Committee of the
Board of Directors, at the date of grant. Effective July 1999, the Board of
Directors terminated the Plan, and adopted the 1999 Stock Plan and 1999 Non-
Employee Director Stock Plan (see Note 13).
F-14
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
In 1998, and for the six months ended June 30, 1999, the Company granted
nonqualified stock options to purchase a total of 29,000 shares and 254,500
shares, respectively, of common stock to non-employees under the Plan with
immediate vesting. As prescribed by SFAS No. 123, the options were valued,
using the Black-Scholes option-pricing model, at $1,305, and $211,538,
respectively, which was recorded as expense in the Company's Statement of
Operations. In addition, in 1998 the Company granted nonqualified stock options
to purchase a total of 2,200,000 shares of common stock to non-employees under
the Plan with a three-year vesting period as follows: 34% immediately and an
additional 22% after years one, two and three. Using the Black-Scholes option-
pricing model, these options were valued at $60,000 and will be amortized to
expense over the vesting period. For the year ended December 31, 1998 and the
six months ended June 30, 1999, $23,500 and $3,318, respectively, was recorded
as expense. During 1999, all the unvested options related to these grants were
cancelled.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
---------- --------
<S> <C> <C>
Balance, December 31, 1997.............................. -- $ --
Options granted....................................... 10,205,694 0.04
Options canceled...................................... (1,185,156) 0.03
Options exercised..................................... (116,888) 0.03
----------
Balance, December 31, 1998.............................. 8,903,650 0.04
Options granted....................................... 2,299,600 1.09
Options canceled...................................... (2,160,108) 0.07
Options exercised..................................... (1,414,895) 0.03
---------- -----
Balance, June 30, 1999.................................. 7,628,247 $0.35
========== =====
</TABLE>
Options granted during the period ended June 30, 1999 resulted in a total
deferred compensation amount of $550,314. This amount will be recognized as
compensation expense over the vesting period. During the six months ended June
30, 1999, such compensation expense amounted to $77,606. At December 31, 1998
and June 30, 1999, 491,462 and 3,495,189 shares of common stock, respectively,
were available for future grant under the Plan.
The following table summarizes information about options outstanding and
exercisable at June 30, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted Weighted
Exercise Options Contractual Average Options Average
Prices Outstanding Life Exercise Price Exercisable Exercise Price
- -------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.03........ 4,023,307 9.04 years $0.03 504,750 $0.03
$0.10........ 1,677,340 9.49 years $0.10 34,000 $0.10
$0.40........ 739,000 9.56 years $0.40 100,000 $0.40
$0.70........ 73,600 9.59 years $0.70 26,600 $0.70
$1.00........ 338,000 9.73 years $1.00 -- $ --
$2.00........ 488,000 9.87 years $2.00 16,000 $2.00
$2.50........ 289,000 9.98 years $2.50 138,500 $2.50
--------- -------
$0.03-2.50... 7,628,247 9.31 years $0.35 819,850 $0.56
========= =======
</TABLE>
F-15
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
If the Company had accounted for the Plan and for the warrants issued in
connection with the Secured Convertible Note Financing in accordance with SFAS
No. 123, the Company's net loss and net loss per share would have been
increased to the following pro forma amounts:
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
-------------------------------- -----------------------
1996 1997 1998 1998 1999
-------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Net loss, as reported... $(80,681) $(159,532) $(6,610,684) $(661,391) $(15,000,492)
Net loss, pro forma..... $(80,681) $(159,532) $(6,690,472) $(681,268) $(15,215,662)
Basic and diluted net
loss per common share,
as reported............ $ (0.05) $ (0.03) $ (1.32) $ (0.13) $ (2.69)
Basic and diluted net
loss per common share,
pro forma.............. $ (0.05) $ (0.03) $ (1.33) $ (0.14) $ (2.73)
Basic and diluted net
loss per common share,
pro forma, for
convertible preferred
shares................. $ (0.05) $ (0.03) $ (0.36) $ (0.09) $ (0.27)
</TABLE>
The fair value of each option grant and of the warrants issued in connection
with the Secured Convertible Note Financing was calculated using the Black-
Scholes option-pricing model. For the year ended December 31, 1998 and the six
months ended June 30, 1999 the weighted average value was calculated using an
expected life of approximately four years (two years for non-qualified stock
options), a dividend yield of 0%, a risk-free interest rate of 5.40% and a
volatility of 100%. The weighted-average fair value of options granted during
1998 and for the six months ended June 30, 1999, using the Black-Scholes
option-pricing model, was $0.029 and $0.7452, respectively.
(8) Commitments and Contingencies
The Company currently leases office and distribution center facilities and
fixed assets under noncancelable operating and capital leases. Rental expense
under operating lease agreements for 1996, 1997 and 1998 was $0, $4,000 and
$81,400, respectively. Rental expense under operating lease agreements for the
six months ended June 30, 1998 and 1999 was $14,800 and $117,532, respectively.
Future minimum commitments as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating
Capital Leases and
Leases Advertising
------- -----------
<S> <C> <C>
Year ending December 31,
1999..................................................... $5,297 $596,090
2000..................................................... 4,175 98,750
2001..................................................... 3,053 52,500
2002..................................................... 1,527 --
2003..................................................... -- --
Thereafter............................................... -- --
------ --------
Total minimum lease and advertising payments............. 14,052 $747,340
------ --------
Less--Interest........................................... 1,687
------
Present value of net minimum lease payments.............. 12,365
Less--Current portion.................................... 4,416
------
Long-term capital lease obligation....................... $7,949
======
</TABLE>
F-16
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
As of June 30, 1999, the Company had media purchase commitments, which
consist of off-line and online advertising, totalling approximately $2,800,000.
From time to time, the Company may have certain contingent liabilities that
arise in the ordinary course of its business activities. The Company accrues
for contingent liabilities when it is probable that future expenditures will be
made and such expenditures can be reasonably estimated. In the opinion of
management, there are no pending claims of which the outcome is expected to
result in a material adverse effect in the financial position or results of
operations of the Company.
(9) Income Taxes
Due to losses incurred since inception of the Company, there is no income tax
provision or payable in any of the periods presented. As of December 31, 1998,
the Company had approximately $6.3 million of federal tax net operating loss
carryforwards, which begin to expire in 2011. As of June 30, 1999, the Company
had approximately $20.6 million of federal tax net operating loss
carryforwards, which begin to expire in 2011. The net deferred tax asset of the
Company related to the net operating losses is approximately $141,000 and
$2.5 million, and $8.3 million, as of December 31, 1997 and 1998, and June 30,
1999, respectively. A full valuation allowance was established for the deferred
tax asset, as realization of the tax benefit is not assured.
Significant items giving rise to deferred tax assets and deferred tax
liabilities at December 31, 1997, 1998, and June 30, 1999, are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
June 30,
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets--
Nondeductible accruals................. $ -- $ 162,374 $ 375,989
Other deferred tax assets.............. 100 (1,553) 57,906
Net operating loss carryforwards....... 140,637 2,526,000 8,287,307
--------- ----------- -----------
Total deferred tax assets............ 140,737 2,686,821 8,721,202
Deferred tax liabilities................. -- (5,708) (3,402)
Valuation allowance...................... (140,737) (2,681,113) (8,717,800)
--------- ----------- -----------
Total net deferred tax assets
(liabilities)........................... $ -- $ -- $ --
========= =========== ===========
</TABLE>
In addition, the Company's utilization of its net operating loss
carryforwards may be limited pursuant to the Tax Reform Act of 1986, due to
cumulative changes in ownership in excess of 50%, as defined.
(10) Significant Suppliers
The Company purchases a majority of its product from two suppliers. These
suppliers accounted for approximately 51% of the Company's inventory purchases
in 1998 and 75% for the six months ended June 30, 1999. One of these suppliers
accounted for 44% of the Company's inventory purchases in 1997. The Company has
no long-term contracts or arrangements with any of its vendors that guarantee
the availability of merchandise, the continuation of particular payment terms
or the extension of credit limits. There can be no assurance that the Company's
current vendors will continue to sell merchandise to the Company on current
terms or that the Company will be able to establish new or extend current
vendor relationships to ensure acquisition of merchandise in a timely and
efficient manner and on acceptable credit terms.
F-17
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
(11) Related Party Transactions
The Company leases office space from a shareholder under a noncancelable
operating lease. For the years ended December 31, 1996, 1997 and 1998, rent
expense on this lease was $0, $4,000 and $41,400, respectively. For the six
months ended June 30, 1998 and 1999, rent expense on this lease was $14,800 and
$21,800, respectively. As of December 31, 1998 and June 30, 1999, the remaining
commitment under the lease was $28,400 and $6,600, respectively, due in 1999.
The Company purchases inventory from a vendor, which is owned by a
shareholder's relative. For the years ended December 31, 1997 and 1998, the
Company purchased $8,906 and $11,255 of inventory, respectively, from the
vendor. For the six months ended June 30, 1998 and 1999, the Company purchased
$1,306 and $31,260 of inventory, respectively, from the vendor.
(12) Initial Public Offering
In July 1999, the Company's Board of Directors authorized management to file
a registration statement with the Securities and Exchange Commission to permit
the Company to sell shares of its common stock to the public. Also in July
1999, the Company amended its certificate of incorporation to increase from one
share of common stock to approximately 1.08 shares of common stock the number
of shares of common stock into which each share of Series C Preferred will
automatically convert in connection with a public offering which is declared
effective on or before December 31, 1999 and subject to certain conditions
related to the offering. As a result of this amendment and pursuant to
antidilution adjustments, an additional 10,852 warrants to purchase common
stock may be issuable to the Investment Bank for services provided in
connection with the Series C Preferred Financing. Upon completion of the
Company's initial public offering, and assuming the Series C Preferred converts
at the increased ratio, the Series A, Series B-1 and Series C Preferred will
convert into 66,201,914 shares of common stock. Unaudited pro forma
stockholders' equity reflects the assumed conversion of the convertible
preferred stock on this basis as of June 30, 1999.
(13) Subsequent Events
1999 Stock Plan
In July 1999, the Board of Directors adopted the 1999 Stock Plan. The 1999
Stock Plan provides for the grant of stock-based awards to employees, officers
and directors of, and consultants or advisors to, the Company and its
subsidiaries, including incentive stock options and non-qualified stock options
and other equity-based awards. Incentive stock options may be granted only to
the Company's employees. A total of shares of common stock may be issued
upon the exercise of options or other awards granted under the 1999 Stock Plan.
The maximum number of shares that may be granted to any employee under the 1999
Stock Plan shall not exceed shares of common stock during any calendar
year. No options or other equity-based awards have been granted to date under
the 1999 Stock Plan.
1999 Non-Employee Director Stock Option Plan
In July 1999, the Board of Directors adopted the 1999 Non-Employee Director
Stock Option Plan (the Director Plan), and is effective on the date on which
the Company's common stock is registered under the Securities Exchange Act of
1934 (the Exchange Act). A total of 250,000 shares of common stock have been
authorized for issuance under the Director Plan.
F-18
<PAGE>
MotherNature.com, Inc.
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1998 and June 30, 1999
(Including Data Applicable to Unaudited Periods)
The Director Plan is administered by the Compensation Committee. Under the
Director Plan, each non-employee director who is or becomes a member of the
Board of Directors is automatically granted on the date of which the common
stock becomes registered under the Exchange Act or, if not a director on that
date, the date first elected to the Board of Directors, an initial option to
purchase 20,000 shares of common stock. In addition, provided that the director
continues to serve as a member of the Board of Directors, each non-employee
director will be automatically granted on the third anniversary of his or her
initial option grant date and each three years thereafter an option to purchase
20,000 shares of common stock. Provided that the director continues to serve as
a member of the Board of Directors, one-third of the shares included in each
grant will become exercisable on each of the first, second and third
anniversaries of the date of grant. All options granted under the Director Plan
will have an exercise price equal to the fair market value of the common stock
on the date of grant and a term of ten years from the date of grant, unless
sooner terminated by vote of the Board of Directors. Unexercisable options
terminate when the director ceases to be a director for any reason other than
death or permanent disability. Exercisable options may be exercised at any time
during the option term. No options have been granted to date under the Director
Plan.
1999 Employee Stock Purchase Plan
In July 1999, the Board of Directors adopted the 1999 Employee Stock Purchase
Plan. The 1999 Employee Stock Purchase Plan provides for the issuance of a
maximum of 750,000 shares of common stock.
The 1999 Employee Stock Purchase Plan is administered by the Board of
Directors and the Compensation Committee. All of the Company's employees whose
customary employment is for more than 20 hours per week and for more than three
months in any calendar year and who have completed more than 90 days of
employment with the Company on or before the first day of any six-month payment
period are eligible to participate in the 1999 Employee Stock Purchase Plan.
Outside directors and employees who would own 5% or more of the total combined
voting power of value of the Company's stock immediately after the grant may
not participate in the 1999 Employee Stock Purchase Plan. To participate in the
1999 Employee Stock Purchase Plan, an employee must authorize the Company to
deduct an amount not less than one percent nor more than 10 percent of a
participant's total cash compensation from his or her pay during six-month
payment periods. The first payment period will commence on a date to be
determined by the Board of Directors and end on December 31, 1999. Thereafter,
the payment periods will commence on the first day of January and July and end
on the last day of the following June and December, respectively of each year,
but in no case shall an employee be entitled to purchase more than shares in
any one payment period. The exercise price for the option granted in each
payment period is 85% of the lesser of the average market price of the common
stock on the first or last business day of the payment period, in either event
rounded up to the nearest cent. If an employee is not a participant on the last
day of the payment period, such employee is not entitled to exercise his or her
option, and the amount of his or her accumulated payroll deductions will be
refunded. Options granted under the 1999 Employee Stock Purchase Plan may not
be transferred or assigned. An employee's rights under the 1999 Employee Stock
Purchase Plan terminate upon his or her voluntary withdrawal from the plan at
any time or upon termination of employment. No options have been granted to
date under the 1999 Employee Stock Purchase Plan.
F-19
<PAGE>
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Prospective investors may rely only on the information contained in this
prospectus. Neither MotherNature.com, Inc. nor any underwriter has authorized
anyone to provide prospective investors with different or additional
information. This prospectus is not an offer to sell nor is it seeking an
offer to buy these securities in any jurisdiction where the offer or sale is
not permitted. The information contained in this prospectus is correct only as
of the date of this prospectus, regardless of the time of the delivery of this
prospectus or any sale of these securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe the restrictions of that jurisdiction
related to this offering and the distribution of this prospectus.
Until , 1999 (25 days after the date of this prospectus), all dealers that
buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This requirement is in
addition to the dealer's obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
----------------------
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Financial Data.................................................. 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 29
Management............................................................... 44
Principal Stockholders................................................... 52
Certain Transactions..................................................... 55
Description of Securities................................................ 58
Shares Eligible for Future Sale.......................................... 62
Underwriting............................................................. 64
Legal Matters............................................................ 67
Experts.................................................................. 67
Where You Can Find More Information...................................... 67
Index to Financial Statements............................................ F-1
</TABLE>
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MotherNature.com, Inc.
[LOGO]
Shares
Common Stock
----------------
PROSPECTUS
----------------
Bear, Stearns & Co. Inc.
Hambrecht & Quist
Wit Capital Corporation
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
Estimated expenses, other than underwriting discounts and commissions,
payable by us in connection with the sale of the common stock being registered
under this registration statement are as follows:
<TABLE>
<S> <C>
SEC registration fee................................................... $15,985
NASD filing fee........................................................ 6,250
Nasdaq National Market listing fee..................................... *
Printing and engraving expenses........................................ *
Legal fees and expenses................................................ *
Accounting fees and expenses........................................... *
Blue Sky fees and expenses (including legal fees)...................... *
Transfer agent and registrar fees and expenses......................... *
Miscellaneous.......................................................... *
-------
Total................................................................ $ *
=======
</TABLE>
- --------
*To be filed by amendment.
Item 14. Indemnification of Directors and Officers.
The Delaware General Corporation Law and our charter and by-laws provide for
indemnification of our directors and officers for liabilities and expenses that
they may incur in such capacities. In general directors and officers are
indemnified with respect to actions taken in good faith in a manner reasonably
believed to be in, or not opposed to, our best interests and, with respect to
any criminal action or proceeding, actions that the indemnitee had no
reasonable cause to believe were unlawful. Reference is made to our charter and
by-laws filed as Exhibits 3.1 through 3.5 to this registration statement.
The underwriting agreement provides that the underwriters are obligated,
under certain circumstances, to indemnify our directors, officers and
controlling persons against certain liabilities, including liabilities under
the Securities Act. Reference is made to the form of underwriting agreement
filed as Exhibit 1.1 to this registration statement.
In addition, we have an existing directors and officers liability insurance
policy.
Item 15. Recent Sales of Unregistered Securities.
In the three years preceding the filing of this registration statement, we
have issued the following securities that were not registered under the
Securities Act:
(a) Issuances of Capital Stock.
In June 1997, we issued and sold 3,090,000 shares of common stock to five
investors for an aggregate purchase price of $5.
In July 1997, we issued and sold 250,000 shares of common stock to two
investors for an aggregate purchase price of $2.
In January 1998, we issued and sold 650,000 shares of common stock to two
investors for an aggregate purchase price of $130.
In May 1998, we issued and sold $400,000 of secured convertible promissory
notes and warrants to purchase an aggregate of 258,064 shares of our common
stock at an exercise price of $0.31 per share to five
II-1
<PAGE>
investors. Pursuant to their terms, the notes converted into an aggregate of
1,290,322 shares of series A preferred stock upon the closing of the series A
convertible preferred stock financing discussed below.
In June 1998, we issued and sold an aggregate of 21,451,613 shares of series
A preferred stock at a price per share of $0.31 to seven investors. In July
1998, we issued and sold an additional 1,864,484 shares of Series A preferred
stock to nine investors.
In December 1998, we issued and sold 19,950,125 shares of series B-1
preferred stock at a price per share of $0.5213 to 13 investors. In January
1999, we issued and sold an additional 3,069,250 shares of series B-1 Preferred
Stock to one investor.
In May 1999, we issued and sold 18,409,629 shares of series C preferred stock
at a price per share of $2.2787 to 16 accredited investors. Deutsche Bank Alex.
Brown (formerly BT Alex. Brown Incorporated), served as placement agent for
this offering. As consideration for its services, we paid Deutsche Bank Alex.
Brown $750,000 and issued warrants to Deutsche Bank Alex. Brown to purchase
137,140 shares of our common stock as described in (b) below. Pursuant to
antidilution adjustments, an additional 10,852 shares of common stock will be
issuable under the warrant.
No underwriters were used in the foregoing transactions. All sales of
securities described above were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act (and/or Regulation
D promulgated thereunder) for transactions by an issuer not involving a public
offering.
(b) Issuances of Notes and Warrants.
In April 1998, we issued warrants to two investors to purchase an aggregate
of 300,000 shares of our common stock at an exercise price of $.01 per share in
consideration for one investor's services as an employee and the other
investor's services as a consultant.
In May 1998, we issued warrants to four investors to purchase an aggregate of
258,064 shares of our common stock at an exercise price of $0.31 per share in
consideration for their lending us $400,000 as described in (a) above. Pursuant
to antidilution adjustments, an additional 10,852 shares of common stock will
be issuable under the warrant.
In December 1998, we issued warrants to our subordinated lender to purchase
an aggregate of 495,261 shares of common stock at an exercise price of $0.5028
per share in consideration of the lender entering into subordinated loan and
lease financing agreements with us.
In December 1998, we granted our subordinated lender the right, on one
occasion only, to convert up to 30% of the original aggregate principal amount
of all advances under our subordinated loan agreement with the lender into
shares of common stock at an exercise price of $0.50 per share.
In May 1999, we issued a warrant to Deutsche Bank Alex. Brown (formerly BT
Alex. Brown Incorporated) to purchase an aggregate of 137,140 shares of our
common stock at an exercise price per share of $2.7344 in consideration of
Deutsche Bank Alex. Brown's services as the placement agent for the shares of
series C preferred stock offered in May 1999 as described in (a) above.
Pursuant to antidilution adjustments, an additional 10,852 shares of common
stock will be issuable under the warrant.
In June 1999, we issued a warrant to one investor purchase up to an aggregate
of 6,000 shares of our common stock at an exercise price per share of $2.50 in
consideration for entering into a real estate lease with us.
No underwriters were used in the foregoing transactions. All sales of
securities described above were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act (and/or Regulation
D promulgated thereunder) for transactions by an issuer not involving a public
offering.
II-2
<PAGE>
(c) Grants and Exercises of Stock Options.
Since June 30, 1996, we have granted stock options to purchase 12,505,294
shares of common stock with exercise prices ranging from $.03 to $2.50 per
share, to employees, directors and consultants pursuant to our 1998 Stock Plan.
Of these options, 1,531,783 have been exercised for an aggregate consideration
of $45,953 as of June 30, 1999. The issuance of common stock upon exercise of
the options was exempt either pursuant to Rule 701, as a transaction pursuant
to a compensatory benefit plan, or pursuant to Section 4(2), as a transaction
by an issuer not involving a public offering.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended, of the Registrant
(currently in effect).
3.2* Form of Certificate of Amendment to Certificate of Incorporation
of the Registrant (to be filed upon the effectiveness of the
registration statement).
3.3* Form of First Amended and Restated Certificate of Incorporation of
the Registrant (to be filed upon the closing of the offering).
3.4 By-laws of the Registrant (currently in effect).
3.5* Form of Amended and Restated By-laws of the Registrant (to take
effect as of the effective date of the registration statement).
4.1* Specimen Certificate for shares of the Registrant's Common Stock.
4.2 Description of Capital Stock (contained in the Certificate of
Incorporation filed as Exhibits 3.1 through 3.3).
5.1* Legal Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1+ 1998 Stock Plan.
10.2+* 1999 Stock Plan.
10.3+* 1999 Non-Employee Director Stock Plan.
10.4+* 1999 Employee Stock Purchase Plan.
10.5 Sublease Agreement between Prevision Marketing, Inc. and the
Registrant, dated March 26, 1999, including the Lease between New
England Farms Limited Partnership and Prevision Marketing, Inc.,
dated October 25, 1999, as amended by an Amendment to Lease and
Consent to Sublease, dated March 30, 1999.
10.6 Lease Agreement between Carl E. Breyer, Jr., Raymond P. Pieczarka
and Stephen Spinelli, Jr., Trustees of Park Place Brookdale Realty
Trust, and the Registrant, dated June 18, 1999.
10.7 Lease between Rosemary Nicholson, Trustee of Padala Realty Trust,
and the Registrant, dated June 11, 1998.
10.8 Commercial Lease between Charles W. Ollard and the Registrant,
dated May 1, 1998, including an Addendum to Commercial Lease,
dated May 1, 1998.
10.9 Commercial Lease between Paul A. Bunn and the Registrant, dated
June 30, 1999.
10.10 Second Amended and Restated Registration Rights Agreement dated as
of May 12, 1999 as amended on July 26, 1999.
10.11 Letter agreement between the Company and Ross A. Love dated August
7, 1998.
11.1 Statement re: Computation of Per Share Earnings.
23.1* Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit
5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (contained on page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+Indicates a management contract or any compensatory plan, contract or
arrangement.
(b) Financial Statement Schedules.
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
II-4
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 above, 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.
The undersigned registrant hereby undertakes (1) to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration statement as of
the time it was declared effective; and (3) that for the purpose of determining
any liability under the Securities Act, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Concord, Massachusetts
on August 13, 1999.
MOTHERNATURE.COM, INC.
By: /s/ Michael I. Barach
-------------------------------------
Michael I. Barach
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
We, the undersigned officers and directors of MotherNature.com (the
"Company"), hereby severally constitute and appoint Michael I. Barach and
Michael L. Bayer, and each of them individually, with full powers of
substitution and resubstitution, our true and lawful attorneys, with full
powers to them and each of them to sign for us, in our names and in the
capacities indicated below, the registration statement on Form S-1 filed with
the Securities and Exchange Commission, and any and all amendments to said
registration statement (including post-effective amendments), and any
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, in connection with the registration under the Securities
Act of 1933, as amended, of equity securities of the Company, and to file or
cause to be filed the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as each of them
might or could do in person, and hereby ratifying and confirming all that said
attorneys, and each of them, or their substitute or substitutes, shall do or
cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
below:
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ Michael I. Barach President, Chief Executive August 13, 1999
______________________________________ Officer and Director
Michael I. Barach
/s/ Michael L. Bayer Chief Financial Officer, August 13, 1999
______________________________________ Treasurer and Secretary
Michael L. Bayer
/s/ Michael A. Greeley Director August 13, 1999
______________________________________
Michael A. Greeley
/s/ Keith M. Kerman Director August 13, 1999
______________________________________
Keith M. Kerman
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<S> <C> <C>
/s/ Brent R. Knudsen Director August 13, 1999
______________________________________
Brent R. Knudsen
/s/ Jason G. Olim Director August 3, 1999
______________________________________
Jason G. Olim
/s/ Marc D. Poirier Director August 13, 1999
______________________________________
Marc D. Poirier
</TABLE>
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Incorporation, as amended, of the Registrant
(currently in effect).
3.2* Form of Certificate of Amendment to Certificate of Incorporation
of the Registrant (to be filed upon the effectiveness of the
registration statement).
3.3* Form of First Amended and Restated Certificate of Incorporation of
the Registrant (to be filed upon the closing of the offering).
3.4 By-laws of the Registrant (currently in effect).
3.5* Form of Amended and Restated By-laws of the Registrant (to take
effect as of the effective date of the registration statement).
4.1* Specimen Certificate for shares of the Registrant's Common Stock.
4.2 Description of Capital Stock (contained in the Certificate of
Incorporation filed as Exhibits 3.1 through 3.3).
5.1* Legal Opinion of Testa, Hurwitz & Thibeault, LLP.
10.1+ 1998 Stock Plan.
10.2+* 1999 Stock Plan.
10.3+* 1999 Non-Employee Director Stock Plan.
10.4+* 1999 Employee Stock Purchase Plan.
10.5 Sublease Agreement between Prevision Marketing, Inc. and the
Registrant, dated March 26, 1999, including the Lease between New
England Farms Limited Partnership and Prevision Marketing, Inc.,
dated October 25, 1999, as amended by an Amendment to Lease and
Consent to Sublease, dated March 30, 1999.
10.6 Lease Agreement between Carl E. Breyer, Jr., Raymond P. Pieczarka
and Stephen Spinelli, Jr., Trustees of Park Place Brookdale Realty
Trust, and the Registrant, dated June 18, 1999.
10.7 Lease between Rosemary Nicholson, Trustee of Padala Realty Trust,
and the Registrant, dated June 11, 1998.
10.8 Commercial Lease between Charles W. Ollard and the Registrant,
dated May 1, 1998, including an Addendum to Commercial Lease,
dated May 1, 1998.
10.9 Commercial Lease between Paul A. Bunn and the Registrant, dated
June 30, 1999.
10.10 Second Amended and Restated Registration Rights Agreement dated as
of May 12, 1999 as amended on July 26, 1999.
10.11 Letter agreement between the Company and Ross A. Love dated August
7, 1998.
11.1 Statement re: Computation of Per Share Earnings.
23.1* Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit
5.1).
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (contained on page II-6).
27.1 Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+Indicates a management contract or any compensatory plan, contract or
arrangement.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MOTHER NATURE'S GENERAL STORE, INC.
* * * * * *
FIRST. The name of the corporation is Mother Nature's General Store,
Inc. (the "Corporation").
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, New Castle
County, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation 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.
FOURTH. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 87,490,000, consisting of
40,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), and47,490,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock"), of which 23,745,000 shares shall be designated Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Stock") and
23,745,000 shares shall be undesignated Preferred Stock (the "Undesignated
Preferred Stock").
The Undesignated Preferred Stock may be designated and issued in one or
more series by action of the Board of Directors with such rights, designations
and preferences set forth in paragraph A.8 of this Certificate of Incorporation
and may only be issued pursuant to paragraph A.8. Each series of Preferred Stock
shall be so designated as to distinguish the shares thereof from the shares of
all other series and classes.
A. SERIES A CONVERTIBLE PREFERRED STOCK
1. Number of Shares. The series of Preferred Stock designated and known as
----------------
"Series A Convertible Preferred Stock" shall consist of 23,745,000 shares.
2. Voting.
------
2A. General. Except as may be otherwise provided in this Certificate of
-------
Incorporation or by law, the Series A Convertible Preferred Stock shall vote
together with all other classes and series of stock of the Corporation as a
single class on all actions to be taken by the stockholders of the Corporation,
including, but not limited to actions amending the Certificate of Incorporation
of the Corporation to increase the number of authorized shares of
<PAGE>
-2-
Common Stock. Each share of Series A Convertible Preferred Stock shall entitle
the holder thereof to such number of votes per share on each such action as
shall equal the number of shares of Common Stock (including fractions of a
share) into which each share of Series A Convertible Preferred Stock is then
convertible.
2B. Board Size. For so long as at least 50% of the shares of Series A
----------
Convertible Preferred Stock issued pursuant to that certain Series A Convertible
Preferred Stock Purchase Agreement dated as of June 10, 1998 by and between the
Corporation and the other parties named therein (the "Purchase Agreement")
remain outstanding (including any shares of Undesignated Preferred Stock issued
pursuant to paragraph 8) (appropriately adjusted to reflect any stock split,
stock dividend or otherwise with respect to the Series A Convertible Preferred
Stock), the Corporation shall not, without the written consent or affirmative
vote of the holders of greater than fifty percent (50%) of the then outstanding
shares of Series A Convertible Preferred Stock (including any shares of
Undesignated Preferred Stock issued pursuant to paragraph 8), given in writing
or by vote at a meeting, consenting or voting (as the case may be) separately as
a series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of seven (7).
2C. Board Seats. For only so long as at least 75% of the shares of
-----------
Series A Convertible Preferred Stock issued pursuant to the Purchase Agreement
remain outstanding (including any shares of Undesignated Preferred Stock issued
pursuant to paragraph 8) (appropriately adjusted to reflect any stock split,
stock dividend or otherwise with respect to the Series A Convertible Preferred
Stock), the holders of the Series A Convertible Preferred Stock (including any
shares of Undesignated Preferred Stock issued pursuant to paragraph 8), voting
as a separate series, shall be entitled to elect four (4) directors of the
Corporation. The holders of the Common Stock, voting as a separate class, shall
be entitled to elect all of the remaining directors of the Corporation. At any
meeting (or in a written consent in lieu thereof) held for the purpose of
electing directors, the presence in person or by proxy (or the written consent)
of the holders of a majority of the shares of Series A Convertible Preferred
Stock then outstanding (including any shares of Undesignated Preferred Stock
issued pursuant to paragraph 8) shall constitute a quorum of the Series A
Convertible Preferred Stock for the election of directors to be elected solely
by the holders of the Series A Convertible Preferred Stock. A vacancy in any
directorship elected by the holders of the Series A Convertible Preferred Stock
shall be filled only by vote or written consent of the holders of the Series A
Convertible Preferred Stock (including any shares of Undesignated Preferred
Stock issued pursuant to paragraph 8), and a vacancy in any directorship elected
by the holders of the Common Stock shall be filled only by vote or written
consent of the holders of the Common Stock.
3. Dividends. The holders of the Series A Convertible Preferred Stock shall
---------
be entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors, quarterly dividends at the rate per annum of
$.0186 per share (the "Series A Dividends"). The Series A Dividends shall not
be cumulative. No dividends shall be declared with respect to the Series A
Convertible Preferred Stock unless and solely to the extent that the same
dividend (on an as-converted basis) is declared with respect to the Common
Stock; provided, however, that the Corporation shall pay any such dividends in
-------- -------
full first to the holders of the Series A Convertible Preferred Stock before any
such dividends are paid to the holders of Common Stock.
<PAGE>
-3-
4. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation, whether voluntary or involuntary, distributions to the stockholders
of the Corporation shall be made in the following manner:
4A. The holders of the shares of Series A Convertible Preferred Stock
shall first be entitled, before any distribution or payment is made upon any
stock ranking on liquidation junior to the Series A Convertible Preferred Stock,
to be paid an amount equal to $0.31 per share plus, in the case of each share,
an amount equal to all Series A Dividends declared but unpaid thereon and any
other dividends declared but unpaid thereon, computed to the date payment
thereof is made available, such amount payable with respect to one share of
Series A Convertible Preferred Stock being sometimes referred to as the
"Liquidation Preference Payment" and with respect to all shares of Series A
Convertible Preferred Stock being sometimes referred to as the "Liquidation
Preference Payments". If upon such liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series A Convertible Preferred Stock shall be insufficient
to permit payment in full to the holders of Series A Convertible Preferred Stock
of the Liquidation Preference Payments, then the entire assets of the
Corporation to be so distributed shall be distributed ratably among the holders
of Series A Convertible Preferred Stock.
4B. Upon any such liquidation, dissolution or winding up of the
Corporation, immediately after the holders of Series A Convertible Preferred
Stock shall have been paid in full the Liquidation Preference Payments set forth
in subparagraph 4A above, the remaining net assets of the Corporation available
for distribution shall be distributed ratably among the holders of Series A
Convertible Preferred Stock and Common Stock (with each share of Series A
Convertible Preferred Stock being deemed, for such purpose, to be equal to the
number of shares of Common Stock (including fractions of a share) into which
such share of Series A Convertible Preferred Stock is convertible immediately
prior to the close of business on the business day fixed for such distribution);
provided that after the holders of Series A Convertible Preferred Stock have
received total distributions equal to $2.17 per share pursuant to this
subparagraph 4B (as adjusted for stock splits and the like), there shall be no
further distributions to the holders of the Series A Convertible Preferred Stock
and all then-remaining assets of the Corporation shall be distributed to the
holders of Common Stock. Nothing contained herein, however, shall limit the
right of the holders of the Series A Convertible Preferred Stock to elect to
convert their shares of Series A Convertible Preferred Stock into shares Common
Stock pursuant to subparagraph 6A hereof.
4C. Written notice of any such liquidation, dissolution or winding up,
stating a payment date, the amount of the Liquidation Preference Payments and
the place where said Liquidation Preference Payments shall be payable, shall be
delivered in person, mailed by certified or registered mail, return receipt
requested, or sent by telecopier or telex, not less than 20 days prior to the
payment date stated therein, to the holders of record of Series A Convertible
Preferred Stock, such notice to be addressed to each such holder at its address
as shown by the records of the Corporation. The consolidation or merger of the
Corporation into or with any other entity or entities which results in the
exchange of outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by any such entity
<PAGE>
-4-
or affiliate thereof (other than a merger to reincorporate the Corporation in a
different jurisdiction), and the sale, lease, abandonment, transfer or other
disposition by the Corporation of all or substantially all its assets, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of the provisions of this paragraph 4. For purposes hereof, the
Common Stock shall rank on liquidation junior to the Series A Convertible
Preferred Stock. Whenever the distribution provided for in this paragraph 4
shall be payable in property other than cash, the value of such distribution
shall be the fair market value of such property as determined in good faith by
the Board of Directors of the Corporation.
5. Restrictions. For so long as at least 50% of the shares of Series A
------------
Convertible Preferred Stock issued pursuant to the Purchase Agreement remain
outstanding (including any shares of Undesignated Preferred Stock issued
pursuant to paragraph 8) (appropriately adjusted to reflect any stock split,
stock dividend or otherwise with respect to the Series A Convertible Preferred
Stock), except where the vote or written consent of the holders of a greater
number of shares of the Corporation is required by law or by the Certificate of
Incorporation, and in addition to any other vote required by law or this
Certificate of Incorporation, without the approval of the holders of greater
than fifty percent (50%) of the then outstanding shares of Series A Convertible
Preferred Stock (including any shares of Undesignated Preferred Stock issued
pursuant to paragraph 8), given in writing or by vote at a meeting, consenting
or voting (as the case may be) separately as a series, the Corporation will not:
5A. Create or authorize the creation of any additional class or series
of shares of stock unless the same ranks junior to the Series A Convertible
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or increase the authorized amount of the
Series A Convertible Preferred Stock or increase the authorized amount of any
additional class or series of shares of stock unless the same ranks junior to
the Series A Convertible Preferred Stock as to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into shares of Series A
Convertible Preferred Stock or into shares of any other class or series of stock
unless the same ranks junior to the Series A Convertible Preferred Stock as to
the distribution of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation, authorization or increase shall be by
means of amendment to the Certificate of Incorporation or by merger,
consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate or merge into or with any other entity or entities or
sell, lease, abandon, transfer or otherwise dispose of all or substantially all
its assets;
5C. Amend, alter or repeal its Certificate of Incorporation if the
effect would be materially adverse in any manner with respect to the rights of
the holders of the Series A Convertible Preferred Stock hereunder;
5D. Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of stock other than the Series
A Convertible Preferred Stock, except for dividends or other distributions
payable on the Common Stock solely in the form of additional shares of Common
Stock and except for the purchase of shares of Common
<PAGE>
-5-
Stock (i) pursuant to the terms of that certain Stockholders Agreement dated as
of June 10, 1998 (the "Stockholders Agreement") by and between the Corporation
and the other parties named therein, or (ii) from former employees of the
Corporation, if each such purchase is made pursuant to contractual rights held
by the Corporation relating to the termination of employment of such former
employee and the purchase price does not exceed the original issue price paid by
such former employee to the Corporation for such shares; or
5E. Redeem or otherwise acquire any shares of Series A Convertible
Preferred Stock except pursuant to the Stockholders Agreement or pursuant to a
purchase offer made pro rata to all holders of the shares of Series A
Convertible Preferred Stock on the basis of the aggregate number of outstanding
shares of Series A Convertible Preferred Stock then held by each such holder.
Notwithstanding anything herein to the contrary, the provisions of this
paragraph 5 shall not apply to the creation of a series of Preferred Stock in
accordance with the provisions of paragraph 8 hereof;
6. Conversions. The holders of shares of Series A Convertible Preferred
-----------
Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of this
----------------
paragraph 6, the holder of any share or shares of Series A Convertible Preferred
Stock shall have the right, at its option at any time, to convert any of such
shares of Series A Convertible Preferred Stock (except that upon any liquidation
of the Corporation the right of conversion shall terminate at the close of
business on the business day fixed for payment of the amount distributable on
the Series A Convertible Preferred Stock) into such number of fully paid and
nonassessable shares of Common Stock as is obtained by (i) multiplying the
number of shares of Series A Convertible Preferred Stock so to be converted by
$0.31 and (ii) dividing the result by the conversion price of $0.31 per share
or, in case an adjustment of such price has taken place pursuant to the further
provisions of this paragraph 6, then by the conversion price as last adjusted
and in effect at the date any share or shares of Series A Convertible Preferred
Stock are surrendered for conversion (such price, or such price as last
adjusted, being referred to as the "Conversion Price"). Such rights of
conversion shall be exercised by the holder thereof by giving written notice
that the holder elects to convert all of the shares of Series A Convertible
Preferred Stock held by such holder into Common Stock and by surrender of a
certificate or certificates for the shares so to be converted to the Corporation
at its principal office (or such other office or agency of the Corporation as
the Corporation may designate by notice in writing to the holders of the Series
A Convertible Preferred Stock) at any time during its usual business hours on
the date set forth in such notice, together with a statement of the name or
names (with address) in which the certificate or certificates for shares of
Common Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected. Promptly after
--------------------------------------------------
the receipt of the written notice referred to in subparagraph 6A and surrender
of the certificate or certificates for the share or shares of Series A
Convertible Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of
<PAGE>
-6-
Common Stock issuable upon the conversion of such share or shares of Series A
Convertible Preferred Stock. To the extent permitted by law, such conversion
shall be deemed to have been effected and the Conversion Price shall be
determined as of the close of business on the date on which such written notice
shall have been received by the Corporation and the certificate or certificates
for such share or shares shall have been surrendered as aforesaid, and at such
time the rights of the holder of such share or shares of Series A Convertible
Preferred Stock shall cease, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No fractional
------------------------------------------------
shares shall be issued upon conversion of Series A Convertible Preferred Stock
into Common Stock and no payment or adjustment shall be made upon any conversion
on account of any cash dividends on the Common Stock issued upon such
conversion. At the time of each conversion, the Corporation shall pay in cash
an amount equal to all dividends, excluding Series A Dividends, accrued and
unpaid on the shares of Series A Convertible Preferred Stock surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in subparagraph 6B. In case the number of shares of Series A
Convertible Preferred Stock represented by the certificate or certificates
surrendered pursuant to subparagraph 6A exceeds the number of shares converted,
the Corporation shall, upon such conversion, execute and deliver to the holder,
at the expense of the Corporation, a new certificate or certificates for the
number of shares of Series A Convertible Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this subparagraph 6C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Series A Convertible Preferred Stock for conversion an
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except as
-------------------------------------------------
provided in subparagraph 6E and subject to paragraph 8 hereof, if and whenever
the Corporation shall issue or sell, or is, in accordance with subparagraphs
6D(1) through 6D(7), deemed to have issued or sold, any shares of Common Stock
for a consideration per share less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then, forthwith upon such
issue or sale, the Conversion Price shall be reduced to the price determined by
dividing (i) an amount equal to the sum of (a) the number of shares of Common
Stock outstanding immediately prior to such issue or sale multiplied by the then
existing Conversion Price and (b) the consideration, if any, received by the
Corporation upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale; provided,
--------
however, that, for the purpose of this subparagraph 6D, all shares of Common
- -------
Stock issuable upon conversion of shares of Series A Convertible Preferred Stock
outstanding immediately prior to such issue shall be deemed to be outstanding,
and immediately after any additional shares of Common Stock are deemed issued
pursuant to subparagraph 6D(1) or 6D(2) (and notwithstanding the provisions of
subparagraph 6E), such additional shares of Common Stock shall be deemed to be
outstanding.
<PAGE>
-7-
For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to
6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or exchangeable
stock or securities being called "Convertible Securities") whether or not
such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon the
exercise of all such Options, plus, in the case of such Options which relate
to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the Conversion
Price in effect immediately prior to the time of the granting of such
Options, then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of
such Options shall be deemed to have been issued for such price per share as
of the date of granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding. Except as
otherwise provided in subparagraph 6D(3), no adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible
Securities.
6D(2) Issuance of Convertible Securities. In case the Corporation
----------------------------------
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then the total maximum number of
shares of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued for such price per
share as of the date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be
<PAGE>
-8-
outstanding, provided that (a) except as otherwise provided in subparagraph
6D(3), no adjustment of the Conversion Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such Convertible Securities
is made upon exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Conversion Price have been or are to
be made pursuant to other provisions of this subparagraph 6D, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
6D(3) Change in Option Price or Conversion Rate. Upon the
-----------------------------------------
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph 6D(1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraph 6D(1) or 6D(2), or the
rate at which Convertible Securities referred to in subparagraph 6D(1) or
6D(2) are convertible into or exchangeable for Common Stock shall change at
any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Conversion Price in
effect at the time of such event shall forthwith be readjusted to the
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the case may
be, at the time initially granted, issued or sold; and on the termination of
any such Option or any such right to convert or exchange such Convertible
Securities, the Conversion Price then in effect hereunder shall forthwith be
increased to the Conversion Price which would have been in effect at the time
of such termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such termination, never been issued.
6D(4) Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation
(other than the Common Stock) payable in Common Stock, Options or Convertible
Securities, then any Common Stock, Options or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares of Common Stock,
-----------------------
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by
the Corporation therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by
the Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation,
without deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In
case any Options shall be issued in connection with the issue and sale of
other securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such Options
by the parties thereto, such Options shall be deemed to have been issued for
such consideration as determined in good faith by the Board of Directors of
the Corporation.
<PAGE>
-9-
6D(6) Record Date. In case the Corporation shall take a record of
-----------
the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options or
Convertible Securities or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to
be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
6D(7) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Stock for the purpose of this
subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein to the
---------------------------------------
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance from and after
the date of filing of these terms of the Series A Convertible Preferred Stock of
(i) shares of Common Stock (or options to purchase such shares) pursuant to
agreements or plans adopted by the Board of Directors of the Corporation to
directors, officers, employees or consultants of the Corporation in connection
with their service as directors of the Corporation, their employment by the
Corporation or their retention as consultants by the Corporation, (ii) shares of
Common Stock issued upon the exercise of Common Stock Purchase Warrants
outstanding as of the date of the initial issuance of the Series A Convertible
Preferred Stock, (iii) solely in consideration for the acquisition (whether by
merger or otherwise) by the Corporation or any of its subsidiaries of all or
substantially all of the stock or assets of any other entity, (iv) shares of
capital stock, or options or warrants therefor, to be issued subject to the
approval of the Corporation's Board of Directors to equipment leasing
organizations in connection with equipment leasing arrangements to which the
Corporation is or shall become a party, and (v) shares of any series Preferred
Stock issued pursuant to paragraph 8 hereof.
6F. Subdivision or Combination of Common Stock. In case the Corporation
------------------------------------------
shall at any time subdivide (by any stock split, stock dividend or otherwise)
its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased. In the case of any such subdivision, no further adjustment shall be
made pursuant to subparagraph 6D(4) by reason thereof.
6G. Reorganization or Reclassification. If any capital reorganization,
----------------------------------
reclassification, recapitalization, consolidation, merger, sale of all or
substantially all of the Corporation's assets or other similar transaction (any
such transaction being referred to herein as an "Organic Change") shall be
effected in such a way that holders of Common Stock shall be entitled to receive
(either directly or upon subsequent liquidation) stock, securities or assets
with
<PAGE>
-10-
respect to or in exchange for Common Stock, then, as a condition of such Organic
Change, lawful and adequate provisions shall be made whereby each holder of a
share or shares of Series A Convertible Preferred Stock shall thereupon have the
right to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of or in addition to, as the case may be, the shares of
Common Stock immediately theretofore receivable upon the conversion of such
share or shares of Series A Convertible Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such Common Stock immediately theretofore receivable upon such
conversion had such Organic Change not taken place, and in any case of a
reorganization or reclassification only appropriate provisions shall be made
with respect to the rights and interests of such holder to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights.
6H. [Reserved].
6I. Notice of Adjustment. Upon any adjustment of the Conversion Price,
--------------------
then and in each such case the Corporation shall give written notice thereof, by
delivery in person, certified or registered mail, return receipt requested,
telecopier or telex, addressed to each holder of shares of Series A Convertible
Preferred Stock at the address of such holder as shown on the books of the
Corporation, which notice shall state the Conversion Price resulting from such
adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
6J. Other Notices. In case at any time:
-------------
(1) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of its
Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into another entity or entities, or a sale, lease,
abandonment, transfer or other disposition of all or substantially all its
assets; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Series A Convertible Preferred
Stock at the address of such holder as shown on the books of the Corporation,
(a) at least 20 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization,
<PAGE>
-11-
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, at
least 20 days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up, as the case may be.
6K. Stock to be Reserved. The Corporation will at all times reserve and
--------------------
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series A Convertible Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series A Convertible Preferred
Stock. The Corporation covenants that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, and,
without limiting the generality of the foregoing, the Corporation covenants that
it will from time to time take all such action as may be requisite to assure
that the par value per share of the Common Stock is at all times equal to or
less than the Conversion Price in effect at the time. The Corporation will take
all such action as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirement of any national securities exchange upon which the Common
Stock may be listed.
6L. No Reissuance of Series A Convertible Preferred Stock. Shares of
-----------------------------------------------------
Series A Convertible Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
6M. Issue Tax. The issuance of certificates for shares of Common Stock
---------
upon conversion of Series A Convertible Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series A Convertible
Preferred Stock which is being converted.
6N. Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any Series A Convertible Preferred Stock
or of any shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Convertible Preferred Stock in any manner which interferes
with the timely conversion of such Series A Convertible Preferred Stock, except
as may otherwise be required to comply with applicable securities laws.
6O. Definition of Common Stock. As used in this paragraph 6, the term
--------------------------
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
par value $0.01 per share, as constituted on the date of filing of these terms
of the Series A Convertible Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter author-
<PAGE>
-12-
ized which shall not be limited to a fixed sum or percentage in respect of the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation; provided that the shares of Common Stock receivable upon
conversion of shares of Series A Convertible Preferred Stock shall include only
shares designated as Common Stock of the Corporation on the date of filing of
this instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.
6P. Mandatory Conversion on Public Offering. If at any time the
---------------------------------------
Corporation shall effect a firm commitment underwritten public offering (the
"Initial Public Offering") of shares of Common Stock in which (i) the aggregate
price paid for such shares by the public shall be at least $7,500,000 and (ii)
the price paid by the public for such shares shall be at least $.93 per share
(appropriately adjusted to reflect the occurrence of any event described in
subparagraph 6F), then effective upon the closing of the sale of such shares by
the Corporation pursuant to such public offering, all outstanding shares of
Series A Convertible Preferred Stock shall automatically convert to shares of
Common Stock on the basis set forth in this paragraph 6. Holders of shares of
Series A Convertible Preferred Stock so converted may deliver to the Corporation
at its principal office (or such other office or agency of the Corporation as
the Corporation may designate by notice in writing to such holders) during its
usual business hours, the certificate or certificates for the shares so
converted. As promptly as practicable thereafter, the Corporation shall issue
and deliver to such holder a certificate or certificates for the number of whole
shares of Common Stock to which such holder is entitled, together with any cash
dividends and payment in lieu of fractional shares to which such holder may be
entitled pursuant to subparagraph 6C. Until such time as a holder of shares of
Series A Convertible Preferred Stock shall surrender his or its certificates
therefor as provided above, such certificates shall be deemed to represent the
shares of Common Stock to which such holder shall be entitled upon the surrender
thereof.
6Q. Mandatory Conversion in Certain Circumstances. In the event that,
---------------------------------------------
at any time, 75% or more of the shares of the Series A Convertible Preferred
Stock issued pursuant to the Purchase Agreement shall have been converted into
fully paid and nonassessable shares of Common Stock, all of the remaining shares
of Series A Convertible Preferred Stock shall be deemed to be converted
automatically into fully paid and nonassessable shares of Common Stock, in the
manner and on the basis set forth in this paragraph 6.
7. Amendments. No provision of these terms of the Series A Convertible
----------
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of greater than fifty percent (50%) of the
then outstanding shares of Series A Convertible Preferred Stock.
8. Special Mandatory Conversion. (a) If any holder of shares of Series A
----------------------------
Convertible Preferred Stock is entitled or otherwise afforded the right to
exercise the right of first refusal as set forth in paragraph 4 of the
Stockholders Agreement (the "Right of First Refusal") with respect to any equity
financing (the "Equity Financing") of the Corporation which would result in the
reduction of the Conversion Price, and (i) the Corporation has fully complied in
all respects with its obligations pursuant to paragraph 4 of the Stockholders
Agreement in respect
<PAGE>
-13-
thereof, (ii) the provisions of the Right of First Refusal set forth in
paragraph 4 of the Stockholders Agreement have not been waived at the written
request of the Corporation by such holder, and (iii) the holder is not
prohibited by law or government regulation from participating in the Equity
Financing, and if such holder (a "Non-Participating Holder") does not by
exercise of such holder's Right of First Refusal acquire such holder's Special
Proportionate Percentage (as hereinafter defined) of the Allocated Offered
Securities (as hereinafter defined) offered to the holders of the Series A
Convertible Preferred Stock in such Equity Financing (a "Mandatory Offering"),
all of such holder's shares of Series A Convertible Preferred Stock shall
automatically and without further action on the part of such holder be converted
effective subject to and concurrently with the consummation of the Mandatory
Offering (the "Mandatory Offering Date") as follows: all shares of Series A
Convertible Preferred Stock held by such Non-Participating Holder shall be
converted into a corresponding number of shares of a newly created series of
Preferred Stock (having only such number of shares as may be required in order
to effect such Special Mandatory Conversion under this paragraph 8) which such
series shall be identical in all respects to the Series A Convertible Preferred
Stock, except that the Conversion Price of such series shall be fixed
immediately prior to the Mandatory Offering Date at the Conversion Price then in
effect for the Series A Convertible Preferred Stock and shall be subject to no
further adjustments in a manner similar to that provided in paragraph 6D. The
Board of Directors shall take all necessary actions to designate such new
series. Upon such conversion, the shares of Series A Convertible Preferred Stock
so converted shall be canceled and not subject to reissuance. As used in this
paragraph 8, the following terms shall have the following respective meanings:
(1) "Allocated Offered Securities" shall mean the gross
amount of Offered New Securities (as defined on the Stockholders
Agreement) which has been offered for purchase by the holders of
the capital stock of the Corporation pursuant to paragraph 4 of
the Stockholders Agreement; and
(2) "Special Proportionate Percentage" shall mean as to a
holder of Series A Convertible Preferred Stock, that percentage figure
which expresses the ratio which (x) the number of shares of
outstanding Common Stock (including shares of Common Stock issuable
upon the exercise of outstanding convertible securities including
options and warrants) then owned by such holder bears to (y) the
Aggregate number of shares of outstanding Common Stock (including
shares of Common Stock issuable upon the exercise of outstanding
convertible securities including options and warrants) then owned by
all holders of shares of capital stock of the Corporation. For
purposes solely of the computation required for determination of the
Special Proportionate Percentage, the holders of outstanding Series A
Convertible Preferred Stock shall be treated as having converted all
such outstanding Series A Convertible Preferred Stock into shares of
Common Stock at the rate of which such securities are convertible into
Common Stock in effect at the time of such Equity Financing.
(b) The holder of any shares of Series A Convertible Preferred Stock
converted pursuant to paragraph 8(a) hereof, shall deliver to the Corporation
during regular business hours at the office of any transfer agent of the
Corporation for the Series A Convertible Preferred
<PAGE>
-14-
Stock, or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares so converted, duly endorsed or
assigned in blank or to the Corporation. As promptly as practicable thereafter,
the Corporation shall issue and deliver to such holder, at the place designated
by such holder, a certificate or certificates for the number of full shares of
the new series of Preferred Stock to which such holder is entitled. The person
in whose name the certificate for such new series of Preferred Stock is to be
issued shall be deemed to have become a stockholder of record on the Mandatory
Offering Date unless the transfer books of the Corporation are closed on that
date, in which event he shall be deemed to have become a stockholder of record
on the next succeeding date on which the transfer books are open.
(c) In the event that at any time the Special Mandatory Conversion set
forth in this paragraph 8 shall not be effective as to all shares of the Series
A Convertible Preferred Stock then outstanding, the Board of Directors shall
take all necessary actions to designate new series of Preferred Stock (having
such distinctive designations and number of shares as the Board of Directors may
by resolution fix) on each such subsequent occasion that (i) any Equity
Financing occurs, and (ii) any holder of Series A Convertible Preferred Stock
does not by exercise of such holder's Right of First Refusal acquire his Special
Proportionate Percentage of the Allocated Offered Securities then so offered to
the holders of the Series A Convertible Preferred Stock shall be converted into
one share of such newly-created series of Preferred Stock concurrently with the
consummation of the subject Mandatory Offering. Such new series of Preferred
Stock shall be identical in all respects, except with respect to the respective
Conversion Price then in effect, to the new series of Preferred Stock created
pursuant to the provisions of paragraph 8(a).
B. COMMON STOCK
1. Relative Rights of Preferred Stock and Common Stock. All preferences,
---------------------------------------------------
voting powers, relative, participating, optional or other special rights and
privileges, and qualifications, limitations, or restrictions of the Common Stock
are expressly made subject and subordinate to those that may be fixed with
respect to any shares of the Preferred Stock.
2. Voting Rights. Except as otherwise required by law or this Certificate
-------------
of Incorporation, each holder of Common Stock shall have one vote in respect of
each share of stock held by him of record on the books of the Corporation for
the election of directors and on all matters submitted to a vote of stockholders
of the Corporation. Notwithstanding the provisions of Section 242(b)(2) of the
Delaware General Corporation Law, the number of authorized shares of Common
Stock may be increased or decreased (but not below the number of shares then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Corporation, with each such share
being entitled to such number of votes per share as is provided in this Article
FOURTH.
3. Dividends. Subject to the preferential rights of the Preferred Stock, if
---------
any, the holders of shares of Common Stock shall be entitled to receive, when
and if declared by the Board of Directors, out of the assets of the Corporation
which are by law available therefor, dividends payable either in cash, in
property or in shares of capital stock; provided, however, that the Corporation
-------- -------
shall not declare a dividend with respect to the Preferred Stock unless the same
dividend (on an as-converted basis) is declared with respect to the Common
Stock; provided,
--------
<PAGE>
-15-
however, that the Corporation shall pay any such dividends in full first to the
holders of the Preferred Stock before any such dividends are paid to the holders
of Common Stock.
4. Dissolution, Liquidation or Winding Up. In the event of any dissolution,
--------------------------------------
liquidation or winding up of the affairs of the Corporation, after distribution
in full of the preferential amounts, if any, to be distributed to the holders of
shares of the Preferred Stock, holders of Common Stock shall be entitled, unless
otherwise provided by law or this Certificate of Incorporation, to receive all
of the remaining assets of the Corporation of whatever kind available for
distribution to stockholders ratably in proportion to the number of shares of
Common Stock held by them respectively.
FIFTH. The Corporation is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal the By-Laws of the Corporation.
B. Elections of directors need not be by written ballot unless the By-
Laws of the Corporation shall so provide.
C. 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 of Directors of the
Corporation.
SEVENTH. The Corporation eliminates the personal liability of each member
of its Board of Directors to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided, however, that, to
the extent provided by applicable law, the foregoing shall not eliminate the
liability of a director (i) for any breach of such director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of Title 8 of the Delaware Code or (iv) for any
transaction from which such director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
EIGHTH. The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon a stockholder herein are
granted subject to this reservation.
<PAGE>
-16-
NINTH. The name and mailing address of the sole incorporator is as
follows:
Name Mailing Address
----- ---------------
Jennifer C. Muto Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, MA 02110
TENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
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 this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this 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 this Corporation, as the case may
be, to be summoned in such manner 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 this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this 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 this Corporation, as the case may be,
and also on this Corporation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
I, THE UNDERSIGNED, being the sole incorporator hereinabove named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 9th day of June, 1998.
/s/ Jennifer C. Muto
______________________________
Jennifer C. Muto
Sole Incorporator
<PAGE>
-18-
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MOTHER NATURE'S GENERAL STORE, INC.
Mother Nature's General Store, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, the Board of
Directors, at a meeting of the Board of directors on June 15, 1998, duly adopted
a resolution setting forth an amendment to the Certificate of Incorporation of
the Corporation, declaring said amendment to be advisable and directed that the
matter be submitted to the stockholders of the Corporation for the approval of
said amendment.
SECOND: That the stockholders of the Corporation holding the
necessary number of shares of the outstanding capital stock of the Corporation
as required by statute and the Certificate of Incorporation of the Corporation
approved said amendment by written consent effective July 13, 1998, in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That said amendment would amend the Certificate of
Incorporation of the Corporation by amending and restating in its entirety
Article FIRST and substituting in lieu thereof the following new Article FIRST:
"FIRST. The name of the corporation is MotherNature.com, Inc.
(the "Corporation")."
FOURTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Mother Nature's General Store, Inc. has caused
this certificate to be signed as of the 10th day of July, 1998.
MOTHER NATURE'S GENERAL STORE, INC.
By: /s/ Michael Barach
-------------------------------
Michael Barach
President and Chief Executive Officer
<PAGE>
-19-
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
MotherNature.com, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of MotherNature.com, Inc. (the
"Corporation"), by unanimous written consent dated May 12, 1999, duly and
validly adopted the following resolutions:
RESOLVED: That, subject to stockholder approval, the Corporation amend its
Certificate of Incorporation as filed with the Secretary of State of
the State of Delaware (the "Certificate of Incorporation") so that,
as amended and restated Article FOURTH of the Certificate of
Incorporation shall be read in its entirety as set forth on Exhibit
-------
A attached hereto.
-
RESOLVED: That the foregoing amendment is hereby recommended to the
stockholders of the Corporation (the "Stockholders") as being
advisable and in the best interests of the Corporation and its
Stockholders.
RESOLVED: That the proposal to amend the Certificate of Incorporation, as set
forth in the preceding resolution, be submitted to the Stockholders
of the Corporation entitled to vote thereon for their approval in
compliance with Section 242 and 228 of the General Corporation Law
of the State of Delaware.
RESOLVED: That, subject to the approval by the Stockholders of the proposal to
amend the Certificate of Incorporation as described in the foregoing
resolutions, the President and Treasurer of the Corporation be, and
each individually hereby is, authorized and directed to amend the
Certificate of Incorporation as set forth above and to file such
amendment with the Secretary of State of the State of Delaware.
SECOND: That stockholders of the Corporation duly adopted such
resolutions by written consent on May 12, 1999, in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
<PAGE>
-20-
IN WITNESS WHEREOF, said MotherNature.com, Inc. has caused this certificate
to be executed by Michael Barach, its President and Chief Executive Officer, and
attested to by Michael Bayer, its Treasurer and Secretary, on this 12th day of
May, 1999.
MOTHERNATURE.COM, INC.
By: /s/ Michael Barach
-------------------------------------
Michael Barach
President and Chief Executive Officer
ATTEST:
By: /s/ Michael Bayer
------------------------
Michael Bayer
Treasurer and Secretary
<PAGE>
-21-
Exhibit A
---------
"FOURTH. The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 153,588,911, consisting
of 86,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), and 67,588,911 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock"), of which 23,811,358 shares shall be designated Series A
Convertible Preferred Stock (the "Series A Convertible Preferred Stock"),
23,019,375 shares shall be designated Series B-1 Convertible Preferred Stock
(the "Series B-1 Convertible Preferred Stock"), 1,800,000 shares shall be
designated Series B-2 Convertible Preferred Stock (the "Series B-2 Convertible
Preferred Stock"),and 18,958,178 shares shall be designated Series C Convertible
Preferred Stock (the "Series C Convertible Preferred Stock").
Each series of Preferred Stock shall be so designated as to
distinguish the shares thereof from the shares of all other series and classes.
A. PREFERRED STOCK
1. Number of Shares. The series of Preferred Stock designated and
----------------
known as "Series A Convertible Preferred Stock" shall consist of 23,811,358
shares. The Series of Preferred Stock designated and known as "Series B-1
Convertible Preferred Stock" shall consist of 23,019,375 shares. The Series of
Preferred Stock designated and known as "Series B-2 Convertible Preferred Stock"
shall consist of 1,800,000 shares. The Series B-1 Convertible Preferred Stock
and the Series B-2 Convertible Preferred Stock are sometimes collectively
referred to herein as the "Series B Convertible Preferred Stock." The Series of
Preferred Stock designated and known as "Series C Convertible Preferred Stock"
shall consist of 18,958,178 shares. The Series A Convertible Preferred Stock
and the Series B Convertible Preferred Stock and the Series C Convertible
Preferred Stock are sometimes collectively referred to herein as the "Preferred
Stock."
2. Voting.
------
2A. General. Except as may be otherwise provided in this
-------
Certificate of Incorporation or by law, the Preferred Stock shall vote together
with all other classes and series of stock of the Corporation as a single class
on all actions to be taken by the stockholders of the Corporation, including,
but not limited to actions amending the Certificate of Incorporation of the
Corporation to increase the number of authorized shares of Common Stock. Each
share of Preferred Stock shall entitle the holder thereof to such number of
votes per share on each such action as shall equal the number of shares of
Common Stock (including fractions of a share) into which each share of Preferred
Stock is then convertible.
2B. Board Size. For so long as at least 50% of the maximum number
----------
of shares of Preferred Stock which were ever outstanding are, in fact,
outstanding (appropriately adjusted to reflect any stock split, stock dividend
or otherwise with respect to the Preferred Stock), the Corporation shall not,
without the written consent or affirmative vote of the holders of greater
<PAGE>
-22-
than fifty percent (50%) of the then outstanding shares of Preferred Stock,
given in writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a class, increase the maximum number of directors constituting
the Board of Directors to a number in excess of seven (7).
2C. Board Seats.
-----------
(1) For only so long as at least 50% of the shares of Series A
Convertible Preferred Stock issued pursuant to that certain Series A Convertible
Preferred Stock Purchase Agreement dated as of June 10, 1998 by and between the
Corporation and the other parties named therein (the "Series A Purchase
Agreement") remain outstanding (appropriately adjusted to reflect any stock
split, stock dividend or otherwise with respect to the Series A Convertible
Preferred Stock), the holders of the Series A Convertible Preferred Stock,
voting as a separate series, shall be entitled to elect two (2) directors of the
Corporation. At any meeting (or in a written consent in lieu thereof) held for
the purpose of electing directors, the presence in person or by proxy (or the
written consent) of the holders of a majority of the shares of Series A
Convertible Preferred Stock then outstanding shall constitute a quorum of the
Series A Convertible Preferred Stock for the election of directors to be elected
solely by the holders of the Series A Convertible Preferred Stock. A vacancy in
any directorship elected by the holders of the Series A Convertible Preferred
Stock shall be filled only by vote or written consent of the holders of the
Series A Convertible Preferred Stock.
(2) For only so long as at least 50% of the shares of Series B-
1 Convertible Preferred Stock issued pursuant to that certain Series B-1
Convertible Preferred Stock Purchase Agreement dated as of December 21, 1998 by
and between the Corporation and the other parties named therein (the "Series B-1
Purchase Agreement") remain outstanding (appropriately adjusted to reflect any
stock split, stock dividend or otherwise with respect to the Series B-1
Convertible Preferred Stock), the holders of the Series B Convertible Preferred
Stock, voting as a separate series, shall be entitled to elect two (2) directors
of the Corporation. At any meeting (or in a written consent in lieu thereof)
held for the purpose of electing directors, the presence in person or by proxy
(or the written consent) of the holders of a majority of the shares of Series B
Convertible Preferred Stock then outstanding shall constitute a quorum of the
Series B Convertible Preferred Stock for the election of directors to be elected
solely by the holders of the Series B Convertible Preferred Stock. A vacancy in
any directorship elected by the holders of the Series B Convertible Preferred
Stock shall be filled only by vote or written consent of the holders of the
Series B Convertible Preferred Stock.
(3) For only so long as at least 50% of the shares of Series C
Convertible Preferred Stock issued pursuant to that certain Series C Convertible
Preferred Stock Purchase Agreement dated as of May 12, 1999 by and between the
Corporation and the other parties named therein (the "Series C Purchase
Agreement") remain outstanding (appropriately adjusted to reflect any stock
split, stock dividend or otherwise with respect to the Series C Convertible
Preferred Stock), the holders of the Series C Convertible Preferred Stock,
voting as a separate series, shall be entitled to elect two (2) directors of the
Corporation. At any meeting (or in a written consent in lieu thereof) held for
the purpose of electing directors, the presence in person or by proxy (or the
written consent) of the holders of a majority of the shares of Series C
<PAGE>
-23-
Convertible Preferred Stock then outstanding shall constitute a quorum of the
Series C Convertible Preferred Stock for the election of directors to be elected
solely by the holders of the Series C Convertible Preferred Stock. A vacancy in
any directorship elected by the holders of the Series C Convertible Preferred
Stock shall be filled only by vote or written consent of the holders of the
Series C Convertible Preferred Stock.
(4) The holders of the Common Stock, voting as a separate class, shall
be entitled to elect all of the remaining directors of the Corporation. At any
meeting (or in a written consent in lieu thereof) held for the purpose of
electing directors, the presence in person or by proxy (or the written consent)
of the holders of a majority of the shares of Common Stock then outstanding
shall constitute a quorum of the Common Stock for the election of directors to
be elected solely by the holders of the Common Stock. A vacancy in any
directorship elected by the holders of the Common Stock shall be filled only by
vote or written consent of the holders of the Common Stock.
3. Dividends. The holders of the Preferred Stock shall be entitled
---------
to receive, out of funds legally available therefor, when and if declared by the
Board of Directors, quarterly dividends at the rate per annum of (i) $.0186 per
share with respect to the Series A Convertible Preferred Stock (the "Series A
Dividends"), (ii) $.0313 per share with respect to the Series B-1 Convertible
Preferred Stock (the "Series B-1 Dividends"), (iii) $.0300 per share with
respect to the Series B-2 Convertible Preferred Stock (the "Series B-2
Dividends"), and (iv) $0.1367 per share with respect to the Series C Convertible
Preferred Stock (the "Series C Dividends") (the Series A Dividends, the Series
B-1 Dividends, the Series B-2 Dividends and the Series C Dividends are
collectively referred to herein as the "Preferred Dividends"). The Preferred
Dividends shall not be cumulative. No dividends shall be declared with respect
to the Preferred Stock unless and solely to the extent that a dividend in the
amount of $.0186 per share (on an as-converted basis) is declared with respect
to the Common Stock; provided, however, that the Corporation shall pay any such
-------- -------
dividends in full first to the holders of the Preferred Stock before any such
dividends are paid to the holders of Common Stock.
4. Liquidation. Upon any liquidation, dissolution or winding up of
-----------
the Corporation, whether voluntary or involuntary, distributions to the
stockholders of the Corporation shall be made in the following manner:
4A. The holders of the shares of Series A Convertible Preferred Stock
shall be entitled to be paid an amount equal to $0.31 per share plus, in the
case of each share, an amount equal to all Series A Dividends declared but
unpaid thereon and any other dividends declared but unpaid thereon, computed to
the date payment thereof is made available, together (at the same time) with
payment to any class of stock ranking on liquidation equally with the Series A
Convertible Preferred Stock, and before any payment shall be made to the holders
of any stock ranking on liquidation junior to the Series A Convertible Preferred
Stock, such amount payable with respect to one share of Series A Convertible
Preferred Stock being sometimes referred to as the "Series A Liquidation
Preference Payment" and with respect to all shares of Series A Convertible
Preferred Stock being sometimes referred to as the "Series A Liquidation
Preference Payments." The holders of the shares of Series B-1 Convertible
Preferred Stock shall be entitled to be paid an amount equal to $0.5213 per
share plus, in the case of each share, an amount equal
<PAGE>
-24-
to all Series B-1 Dividends declared but unpaid thereon and any other dividends
declared but unpaid thereon, computed to the date payment thereof is made
available, together (at the same time) with payment to any class of stock
ranking on liquidation equally with the Series B-1 Convertible Preferred Stock,
and before any payment shall be made to the holders of any stock ranking on
liquidation junior to the Series B-1 Convertible Preferred Stock, such amount
payable with respect to one share of Series B-1 Convertible Preferred Stock
being sometimes referred to as the "Series B-1 Liquidation Preference Payment"
and with respect to all shares of Series B-1 Convertible Preferred Stock being
sometimes referred to as the "Series B-1 Liquidation Preference Payments." The
holders of the shares of Series B-2 Convertible Preferred Stock shall be
entitled to be paid an amount equal to $0.50 per share plus, in the case of each
share, an amount equal to all Series B-2 Dividends declared but unpaid thereon
and any other dividends declared but unpaid thereon, computed to the date
payment thereof is made available, together (at the same time) with payment to
any class of stock ranking on liquidation equally with the Series B-2
Convertible Preferred Stock, and before any payment shall be made to the holders
of any stock ranking on liquidation junior to the Series B-2 Convertible
Preferred Stock, such amount payable with respect to one share of Series B-2
Convertible Preferred Stock being sometimes referred to as the "Series B-2
Liquidation Preference Payment" and with respect to all shares of Series B-2
Convertible Preferred Stock being sometimes referred to as the "Series B-2
Liquidation Preference Payments." The holders of the shares of Series C
Convertible Preferred Stock shall be entitled to be paid an amount equal to
$2.2787 per share plus, in the case of each share, an amount equal to all Series
C Dividends declared but unpaid thereon and any other dividends declared but
unpaid thereon, computed to the date payment thereof is made available, together
(at the same time) with payment to any class of stock ranking on liquidation
equally with the Series C Convertible Preferred Stock, and before any payment
shall be made to the holders of any stock ranking on liquidation junior to the
Series C Convertible Preferred Stock, such amount payable with respect to one
share of Series C Convertible Preferred Stock being sometimes referred to as the
"Series C Liquidation Preference Payment" and with respect to all shares of
Series C Convertible Preferred Stock being sometimes referred to as the "Series
C Liquidation Preference Payments." The Series A Liquidation Preference Payment,
the Series B-1 Liquidation Preference Payment, the Series B-2 Liquidation
Preference Payment and the Series C Liquidation Preference Payment are sometimes
referred to collectively as the "Preferred Stock Liquidation Preference
Payments." For purposes hereof, the Series A Convertible Preferred Stock, Series
B-1 Convertible Preferred Stock, Series B-2 Convertible Preferred Stock and
Series C Convertible Preferred Stock shall all rank equally on liquidation. If
upon such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Preferred Stock shall be insufficient to permit payment in full to such
stockholders of the Preferred Stock Liquidation Preference Payments, then all of
the assets of the Corporation available for distribution to holders of the
Preferred Stock shall be distributed to such holders of the Preferred Stock pro
rata, so that each holder receives that portion of the assets available for
distribution as the amount of the full liquidation preference to which such
holder would otherwise be entitled bears to the amount of the full liquidation
preference to which all holders of the Preferred Stock would otherwise be
entitled pursuant to this paragraph 4A.
4B. Upon any such liquidation, dissolution or winding up of the
Corporation, immediately after the holders of Preferred Stock shall have been
paid in full the Preferred Stock
<PAGE>
-25-
Liquidation Preference Payments set forth in subparagraph 4A above, the
remaining net assets of the Corporation available for distribution shall be
distributed ratably among the holders of Common Stock and there shall be no
further distributions to such holders of the Preferred Stock. Nothing contained
herein, however, shall limit the right of the holders of the Preferred Stock to
elect to convert their shares of Preferred Stock into shares of Common Stock
pursuant to subparagraph 6A hereof.
4C. Written notice of any such liquidation, dissolution or winding
up, stating a payment date, the amount of the payments payable to the holders of
Preferred Stock pursuant to subparagraph 4A and the place where said payments
shall be payable, shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier or telex, not
less than 20 days prior to the payment date stated therein, to the holders of
record of Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation. The consolidation or
merger of the Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation for securities
or other consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof (other than a merger to re-incorporate the
Corporation in a different jurisdiction, a consolidation or merger into a
subsidiary, or a merger in which the Corporation is the surviving Corporation
and the holders of the Corporation's voting stock outstanding immediately prior
to the transaction constitute a majority of the holders of voting stock
outstanding immediately following the transaction), and the sale, lease,
abandonment, transfer or other disposition by the Corporation of all or
substantially all its assets, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of the provisions of this
paragraph 4. For purposes hereof, the Common Stock shall rank on liquidation
junior to the Preferred Stock. Whenever the distribution provided for in this
paragraph 4 shall be payable in property other than cash, the value of such
distribution shall be the fair market value of such property as determined in
good faith by the Board of Directors of the Corporation.
5. Restrictions.
------------
5A. For so long as at least 50% of the maximum number of shares of
Preferred Stock which were ever outstanding are, in fact, outstanding
(appropriately adjusted to reflect any stock split, stock dividend or otherwise
with respect to the Preferred Stock), except where the vote or written consent
of the holders of a greater number of shares of the Corporation is required by
law or by the Certificate of Incorporation, and in addition to any other vote
required by law or this Certificate of Incorporation, without the approval of
the holders of greater than fifty percent (50%) of the then outstanding shares
of Preferred Stock, given in writing or by vote at a meeting, consenting or
voting (as the case may be) as a single class, the Corporation will not:
(1) Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the Series A
Convertible Preferred Stock, the Series B-1 Convertible Preferred Stock, the
Series B-2 Convertible Preferred Stock and Series C Convertible Preferred Stock
as to the distribution of assets on the liquidation, dissolution or winding up
of the Corporation, or increase the authorized amount of any series of Preferred
Stock or increase the authorized amount of any additional class or series of
shares of stock unless the same ranks junior to the Series A Convertible
Preferred Stock, the Series B-1 Convertible
<PAGE>
-26-
Preferred Stock, the Series B-2 Convertible Preferred Stock and Series C
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or create or authorize any
obligation or security convertible into shares of any series of Preferred Stock
or into shares of any other class or series of stock unless the same ranks
junior to the Series A Convertible Preferred Stock, the Series B-1 Convertible
Preferred Stock, the Series B-2 Convertible Preferred Stock and Series C
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, whether any such creation,
authorization or increase shall be by means of amendment to the Certificate of
Incorporation or by merger, consolidation or otherwise;
(2) Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate or merge into or with any other entity or entities
(other than a merger to re-incorporate the Corporation in a different
jurisdiction, a consolidation or merger into a Subsidiary, or a merger in which
the Corporation is the surviving Corporation and the holders of the
Corporation's voting stock outstanding immediately prior to the transaction
constitute a majority of the holders of voting stock outstanding immediately
following the transaction) or sell, lease, abandon, transfer or otherwise
dispose of all or substantially all its assets;
(3) Purchase or set aside any sums for the purchase of, or pay
any dividend or make any distribution on, any shares of stock other than the
Preferred Stock, except for dividends or other distributions payable on the
Common Stock solely in the form of additional shares of Common Stock and except
for the purchase of shares of Common Stock (i) pursuant to the terms of that
certain Second Amended and Restated Stockholders Agreement dated as of May 12,
1999 (the "Second Amended and Restated Stockholders Agreement") by and between
the Corporation and the other parties named therein, or (ii) from former
employees of the Corporation, if each such purchase is made pursuant to
contractual rights held by the Corporation relating to the termination of
employment of such former employee and the purchase price does not exceed the
original issue price paid by such former employee to the Corporation for such
shares;
(4) Redeem or otherwise acquire any shares of Preferred Stock
except pursuant to the Second Amended and Restated Stockholders Agreement or
pursuant to a purchase offer made pro rata to all holders of the shares of
Preferred Stock on the basis of the aggregate number of outstanding shares of
Preferred Stock then held by each such holder; or
(5) In any manner alter or change the designations, powers,
preferences, rights, qualifications, limitations or restrictions of the
Preferred Stock.
5B. For so long as at least 50% of the maximum number of shares of
any series of Preferred Stock which were ever outstanding are, in fact,
outstanding (appropriately adjusted to reflect any stock split, stock dividend
or otherwise with respect to such series of Preferred Stock), except where the
vote or written consent of the holders of a greater number of shares of the
Corporation is required by law or by the Certificate of Incorporation, and in
addition to any other vote required by law or this Certificate of Incorporation,
without the approval of the holders of greater than fifty percent (50%) of the
then outstanding shares of such series of Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the
<PAGE>
-27-
case may be) separately as a series, the Corporation will not amend, alter or
repeal its Certificate of Incorporation if the effect would be materially
adverse in any manner with respect to the rights of the holders of such series
of Preferred Stock hereunder.
5C. For so long as at least 50% of the maximum number of shares of
Series C Preferred Stock which were ever outstanding are, in fact, outstanding
(appropriately adjusted to reflect any stock split, stock dividend or otherwise
with respect to such series of Preferred Stock), except where the vote or
written consent of the holders of a greater number of shares of the Corporation
is required by law or by the Certificate of Incorporation, and in addition to
any other vote required by law or the provisions of paragraph 5A above, the
Corporation will not enter into any of the transactions set forth in subsection
(2) of such paragraph 5A if (and only if) the consideration per share receivable
by any holder of Series C Preferred Stock in such a transaction is less than
$3.4180 without the approval of the holders of greater than fifty percent (50%)
of the then outstanding shares of Series C Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
single series.
6. Conversions. The holders of shares of Preferred Stock shall have the
following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of this
----------------
paragraph 6, the holder of any share or shares of Preferred Stock shall have the
right, at its option at any time, to convert any of such shares of Preferred
Stock (except that upon any liquidation of the Corporation the right of
conversion shall terminate at the close of business on the business day fixed
for payment of the amount distributable on the Preferred Stock) into such number
of fully paid and nonassessable shares of Common Stock as is obtained (a) in the
case of the Series A Convertible Preferred Stock, by (i) multiplying the number
of shares of Series A Convertible Preferred Stock so to be converted by $0.31
and (ii) dividing the result by the conversion price of $0.31 per share or, in
case an adjustment of such price has taken place pursuant to the further
provisions of this paragraph 6, then by the conversion price as last adjusted
and in effect at the date any share or shares of Series A Convertible Preferred
Stock are surrendered for conversion (such price, or such price as last
adjusted, being referred to as the "Series A Conversion Price"), (b) in the case
of the Series B-1 Convertible Preferred Stock, by (i) multiplying the number of
shares of Series B-1 Convertible Preferred Stock so to be converted by $0.5213
and (ii) dividing the result by the conversion price of $0.5213 per share or, in
case an adjustment of such price has taken place pursuant to the further
provisions of this paragraph 6, then by the conversion price as last adjusted
and in effect at the date any share or shares of Series B-1 Convertible
Preferred Stock are surrendered for conversion (such price, or such price as
last adjusted, being referred to as the "Series B-1 Conversion Price"), (c) in
the case of the Series B-2 Convertible Preferred Stock, by (i) multiplying the
number of shares of Series B-2 Convertible Preferred Stock so to be converted by
$0.50 and (ii) dividing the result by the conversion price of $0.50 per share
or, in case an adjustment of such price has taken place pursuant to the further
provisions of this paragraph 6, then by the conversion price as last adjusted
and in effect at the date any share or shares of Series B-2 Convertible
Preferred Stock are surrendered for conversion (such price, or such price as
last adjusted, being referred to as the "Series B-2 Conversion Price"), and (d)
in the case of the Series C Convertible Preferred Stock, by (i) multiplying the
number of shares of Series C Convertible Preferred Stock so to be converted by
$2.2787 and (ii) dividing the result
<PAGE>
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by the conversion price of $2.2787 per share or, in case an adjustment of such
price has taken place pursuant to the further provisions of this paragraph 6,
then by the conversion price as last adjusted and in effect at the date any
share or shares of Series C Convertible Preferred Stock are surrendered for
conversion (such price, or such price as last adjusted, being referred to as the
"Series C Conversion Price") (the Series A Conversion Price, the Series B-1
Conversion Price, the Series B-2 Conversion Price and the Series C Conversion
Price are each sometimes referred to herein as "Conversion Price"). Such rights
of conversion shall be exercised by the holder thereof by giving written notice
that the holder elects to convert all of the shares of Preferred Stock held by
such holder into Common Stock and by surrender of a certificate or certificates
for the shares so to be converted to the Corporation at its principal office (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to the holders of the Preferred Stock) at any time during
its usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected. Promptly
--------------------------------------------------
after the receipt of the written notice referred to in subparagraph 6A and
surrender of the certificate or certificates for the share or shares of
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
whole shares of Common Stock issuable upon the conversion of such share or
shares of Preferred Stock. To the extent permitted by law, such conversion
shall be deemed to have been effected and the Series A Conversion Price, Series
B-1 Conversion Price, Series B-2 Conversion Price and/or Series C Conversion
Price shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the certificate
or certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or shares of
Preferred Stock shall cease, and the person or persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No fractional
------------------------------------------------
shares shall be issued upon conversion of Preferred Stock into Common Stock and
no payment or adjustment shall be made upon any conversion on account of any
cash dividends on the Common Stock issued upon such conversion. At the time of
each conversion, the Corporation shall pay in cash an amount equal to all
dividends accrued and unpaid on the shares of Preferred Stock surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in subparagraph 6B. In case the number of shares of Preferred Stock
represented by the certificate or certificates surrendered pursuant to
subparagraph 6A exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Preferred Stock represented by the certificate or certificates surrendered which
are not to be converted. If any fractional share of Common Stock would, except
for the provisions of the first sentence of this subparagraph 6C, be delivered
upon such conversion, the Corporation, in lieu of delivering such fractional
share, shall pay to the holder surrendering the Preferred Stock for conversion
an
<PAGE>
-29-
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except as
-------------------------------------------------
provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the Series A Conversion Price, Series B-1 Conversion Price, Series B-2
Conversion Price, and/or Series C Conversion Price, as applicable (the
"Applicable Conversion Price"), in effect immediately prior to the time of such
issue or sale, then, forthwith upon such issue or sale, such Applicable
Conversion Price for any outstanding shares of such series of Preferred Stock
shall be reduced to the price determined by dividing (i) an amount equal to the
sum of (a) the number of shares of Common Stock outstanding immediately prior to
such issue or sale multiplied by the then existing Applicable Conversion Price
and (b) the consideration, if any, received by the Corporation upon such issue
or sale, by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale; provided, however, that, for the purpose
-------- -------
of this subparagraph 6D, all shares of Common Stock issuable upon conversion of
shares of Preferred Stock outstanding immediately prior to such issue shall be
deemed to be outstanding, and immediately after any additional shares of Common
Stock are deemed issued pursuant to subparagraph 6D(1) or 6D(2) (and
notwithstanding the provisions of subparagraph 6E), such additional shares of
Common Stock shall be deemed to be outstanding.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to
6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any time the
-----------------------------
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or exchangeable
stock or securities being called "Convertible Securities") whether or not
such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(i) the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon the
exercise of all such Options, plus, in the case of such Options which relate
to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than an Applicable
Conversion Price in effect immediately prior to the time of the granting of
such Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or exchange of
the total maximum amount of such Convertible Securities
<PAGE>
-30-
issuable upon the exercise of such Options shall be deemed to have been
issued for such price per share as of the date of granting of such Options or
the issuance of such Convertible Securities and thereafter shall be deemed to
be outstanding. Except as otherwise provided in subparagraph 6D(3), no
adjustment of such Applicable Conversion Price shall be made upon the actual
issue of such Common Stock or of such Convertible Securities upon exercise of
such Options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the Corporation
----------------------------------
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than an Applicable Conversion Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been issued for such
price per share as of the date of the issue or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding, provided that
(a) except as otherwise provided in subparagraph 6D(3), no adjustment of such
Applicable Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities and
(b) if any such issue or sale of such Convertible Securities is made upon
exercise of any Options to purchase any such Convertible Securities for which
adjustments of such Applicable Conversion Price have been or are to be made
pursuant to other provisions of this subparagraph 6D, no further adjustment
of such Applicable Conversion Price shall be made by reason of such issue or
sale.
6D(3) Change in Option Price or Conversion Rate. Upon the
-----------------------------------------
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph 6D(1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraph 6D(1) or 6D(2), or the
rate at which Convertible Securities referred to in subparagraph 6D(1) or
6D(2) are convertible into or exchangeable for Common Stock shall change at
any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Applicable Conversion
Price in effect at the time of such event shall forthwith be readjusted to
the Applicable Conversion Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for
such changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold; and on the
termination of any such Option or any such right to convert or exchange such
Convertible Securities, the Applicable Conversion Price then in effect
hereunder shall forthwith be increased to the Applicable Conversion Price
which would have been in effect at the time of such termination had such
Option or Convertible
<PAGE>
-31-
Securities, to the extent outstanding immediately prior to such termination,
never been issued.
6D(4) Stock Dividends. In case the Corporation shall declare a
---------------
dividend or make any other distribution upon any stock of the Corporation
(other than the Common Stock) payable in Common Stock, Options or Convertible
Securities, then any Common Stock, Options or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares of Common
-----------------------
Stock, Options or Convertible Securities shall be issued or sold for cash,
the consideration received therefor shall be deemed to be the amount received
by the Corporation therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash received by
the Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation,
without deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In
case any Options shall be issued in connection with the issue and sale of
other securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such Options
by the parties thereto, such Options shall be deemed to have been issued for
such consideration as determined in good faith by the Board of Directors of
the Corporation.
6D(6) Record Date. In case the Corporation shall take a record of
-----------
the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options or
Convertible Securities or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to
be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
6D(7) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Stock for the purpose of this
subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein to the
---------------------------------------
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of any Conversion Price in the case of the issuance from and after
the date of filing of these terms of the Preferred Stock of (i) shares of Common
Stock (or options to purchase such shares) pursuant to agreements or plans
adopted by the Board of Directors of the Corporation to directors, officers,
employees, consultants or referring physicians of the Corporation in connection
with their service as directors of the Corporation, their employment by the
Corporation, their retention as
<PAGE>
-32-
consultants by or the maintenance of a business relationship with the
Corporation, (ii) shares of Common Stock issued upon the exercise of Common
Stock Purchase Warrants outstanding as of the date of the initial issuance of
the Series C Convertible Preferred Stock, (iii) solely in consideration for the
acquisition (whether by merger or otherwise) by the Corporation or any of its
subsidiaries of all or substantially all of the stock or assets of any other
entity, (iv) shares of Series B-2 Convertible Preferred Stock issued pursuant to
Section 2.4 of the Subordinated Loan and Security Agreement dated December 4,
1998 by and between the Corporation and Comdisco, Inc., (v) shares of capital
stock, or options or warrants therefor, to be issued subject to the approval of
the Corporation's Board of Directors to equipment leasing organizations in
connection with equipment leasing arrangements to which the Corporation is or
shall become a party, and (vi) shares of Common Stock issued upon conversion of
the Preferred Stock.
6F. Subdivision or Combination of Common Stock. In case the
------------------------------------------
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Series A Conversion Price, the Series B-1 Conversion Price, the
Series B-2 Conversion Price, and the Series C Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and,
conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Series A Conversion Price, the Series B-1
Conversion Price, the Series B-2 Conversion Price, and the Series C Conversion
Price in effect immediately prior to such combination shall be proportionately
increased. In the case of any such subdivision, no further adjustment shall be
made pursuant to subparagraph 6D(4) by reason thereof.
6G. Reorganization or Reclassification. If any capital
----------------------------------
reorganization, reclassification, recapitalization, consolidation, merger, sale
of all or substantially all of the Corporation's assets or other similar
transaction (any such transaction being referred to herein as an "Organic
Change") shall be effected in such a way that holders of Common Stock shall be
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such Organic Change, lawful and adequate provisions shall be made
whereby each holder of a share or shares of Preferred Stock shall thereupon have
the right to receive, upon the basis and upon the terms and conditions specified
herein and in lieu of or in addition to, as the case may be, the shares of
Common Stock immediately theretofore receivable upon the conversion of such
share or shares of Preferred Stock, such shares of stock, securities or assets
as may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such conversion had such
Organic Change not taken place, and in any case of a reorganization or
reclassification only appropriate provisions shall be made with respect to the
rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the any Applicable
Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights.
6H. Notice of Adjustment. Upon any adjustment of an Applicable
--------------------
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by delivery in person, certified or registered mail, return
receipt requested, telecopier or telex, addressed to each
<PAGE>
-33-
holder of shares of Preferred Stock at the address of such holder as shown on
the books of the Corporation, which notice shall state the Series A Conversion
Price, the Series B-1 Conversion Price, Series B-2 Conversion Price and/or
Series C Conversion Price resulting from such adjustment, setting forth in
reasonable detail the method upon which such calculation is based.
6I. Other Notices. In case at any time:
-------------
(1) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the holders
of its Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
--- ----
holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or reclassification
of the capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into another entity or entities, or a sale, lease,
abandonment, transfer or other disposition of all or substantially all its
assets; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Preferred Stock at the address
of such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, at
least 20 days prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up, as the case may be.
6J. Stock to be Reserved. The Corporation will at all times reserve
--------------------
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Preferred Stock as herein provided, such number
of shares of Common Stock as shall then be issuable upon the conversion of all
outstanding shares of Preferred Stock. The Corporation covenants that all
shares of Common Stock which shall be so issued shall be duly and validly issued
and fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, and, without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time take all
such action as may be requisite to
<PAGE>
-34-
assure that the par value per share of the Common Stock is at all times equal to
or less than the Series A Conversion Price, Series B-1 Conversion Price, Series
B-2 Conversion Price and Series C Conversion Price in effect at the time. The
Corporation will take all such action as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirement of any national securities exchange
upon which the Common Stock may be listed.
6K. No Reissuance of Preferred Stock. Shares of Preferred Stock
--------------------------------
which are converted into shares of Common Stock as provided herein shall not be
reissued.
6L. Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon conversion of Preferred Stock shall be made without charge to the
holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Preferred Stock which is being
converted.
6M. Closing of Books. The Corporation will at no time close its
----------------
transfer books against the transfer of any Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Preferred
Stock in any manner which interferes with the timely conversion of such
Preferred Stock, except as may otherwise be required to comply with applicable
securities laws.
6N. Definition of Common Stock. As used in this paragraph 6, the
--------------------------
term "Common Stock" shall mean and include the Corporation's authorized Common
Stock, par value $0.01 per share, as constituted on the date of filing of these
terms of the Preferred Stock, and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution or winding up of the Corporation; provided
that the shares of Common Stock receivable upon conversion of shares of
Preferred Stock shall include only shares designated as Common Stock of the
Corporation on the date of filing of this instrument, or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph 6G.
6O. Mandatory Conversion on Public Offering. If at any time the
---------------------------------------
Corporation shall effect a public offering of shares of Common Stock in which
(i) the aggregate price paid for such shares by the public shall be at least
$20,000,000 and (ii) the price paid by the public for such shares shall be at
least $3.4180 per share (appropriately adjusted to reflect the occurrence of any
event described in subparagraph 6F) (herein, an "Initial Public Offering"), then
effective upon the closing of the sale of such shares by the Corporation
pursuant to such public offering, all outstanding shares of Preferred Stock
shall automatically convert to shares of Common Stock on the basis set forth in
this paragraph 6. Holders of shares of Preferred Stock so converted may deliver
to the Corporation at its principal office (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to such
holders) during its usual business hours, the certificate or certificates for
the shares so converted. As promptly as
<PAGE>
-35-
practicable thereafter, the Corporation shall issue and deliver to such holder a
certificate or certificates for the number of whole shares of Common Stock to
which such holder is entitled, together with any cash dividends and payment in
lieu of fractional shares to which such holder may be entitled pursuant to
subparagraph 6C. Until such time as a holder of shares of Preferred Stock shall
surrender his or its certificates therefor as provided above, such certificates
shall be deemed to represent the shares of Common Stock to which such holder
shall be entitled upon the surrender thereof.
6P. Mandatory Conversion in Certain Circumstances. In the event
---------------------------------------------
that, at any time, 75% or more of the maximum number of shares of the Preferred
Stock which were ever outstanding shall have been converted into fully paid and
nonassessable shares of Common Stock, all of the remaining shares of Preferred
Stock shall be deemed to be converted automatically into fully paid and
nonassessable shares of Common Stock, in the manner and on the basis set forth
in this paragraph 6. Notwithstanding the foregoing, if an automatic conversion
pursuant to the preceding sentence is other than in connection with an Initial
Public Offering, then the automatic conversion of the Series C Preferred Stock
under this paragraph 6P shall take place only if more than 50% of the maximum
number of shares of Series C Preferred Stock which were ever outstanding shall
have been converted into fully paid and nonassessable shares of Common Stock.
B. COMMON STOCK
1. Relative Rights of Preferred Stock and Common Stock. All
---------------------------------------------------
preferences, voting powers, relative, participating, optional or other special
rights and privileges, and qualifications, limitations, or restrictions of the
Common Stock are expressly made subject and subordinate to those that may be
fixed with respect to any shares of the Preferred Stock.
2. Voting Rights. Except as otherwise required by law or this
-------------
Certificate of Incorporation, each holder of Common Stock shall have one vote in
respect of each share of stock held by him of record on the books of the
Corporation for the election of directors and on all matters submitted to a vote
of stockholders of the Corporation. Notwithstanding the provisions of Section
242(b)(2) of the Delaware General Corporation Law, the number of authorized
shares of Common Stock may be increased or decreased (but not below the number
of shares then outstanding) by the affirmative vote of the holders of a majority
of the outstanding shares of capital stock of the Corporation, with each such
share being entitled to such number of votes per share as is provided in this
Article FOURTH.
3. Dividends. Subject to the preferential rights of the Preferred
---------
Stock, if any, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property or in shares of capital stock; provided, however, that the
-------- -------
Corporation shall not declare a dividend with respect to the Preferred Stock
unless the same dividend (on an as-converted basis) is declared with respect to
the Common Stock; provided,
--------
<PAGE>
-36-
however, that the Corporation shall pay any such dividends in full first to the
- -------
holders of the Preferred Stock before any such dividends are paid to the holders
of Common Stock.
4. Dissolution, Liquidation or Winding Up. In the event of any
--------------------------------------
dissolution, liquidation or winding up of the affairs of the Corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Preferred Stock, holders of Common Stock shall be
entitled, unless otherwise provided by law or this Certificate of Incorporation,
to receive all of the remaining assets of the Corporation of whatever kind
available for distribution to stockholders ratably in proportion to the number
of shares of Common Stock held by them respectively.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
MotherNature.com, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of MotherNature.com, Inc. (the
"Corporation"), at a meeting duly called and held on July 22, 1999, duly and
validly adopted the following resolutions:
RESOLVED: That, subject to stockholder approval, the Corporation's
Certificate of Incorporation, as amended to such date (the
"Charter"), be amended as set forth in an amendment to the Charter
substantially in the form attached hereto as Exhibit A (the
---------
"Charter Amendment").
-----------------
RESOLVED: That the Board of Directors of the Corporation deems it advisable
and in the best interests of the Corporation that the Corporation
amend the Charter as contemplated by the foregoing resolution and
the Charter Amendment is hereby recommended to the stockholders for
their approval.
RESOLVED: That the Charter Amendment be submitted to the stockholders for
their approval, and that after the approval by the stockholders,
the Chief Executive Officer and the Secretary of the Corporation
be, and each of them acting singly hereby is, authorized to execute
the Charter Amendment; and that, as promptly as practicable
thereafter, the Corporation is hereby authorized to file the
Charter Amendment with the Secretary of State of the State of
Delaware.
SECOND: That stockholders of the Corporation duly adopted such
resolutions by written consent on July 26, 1999, in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-2-
IN WITNESS WHEREOF, said MotherNature.com, Inc. has caused this
certificate to be executed by Michael Barach, its President and Chief Executive
Officer, and attested to by Michael Bayer, its Treasurer and Secretary, on this
30th day of July, 1999.
MOTHERNATURE.COM, INC.
By: /s/ Michael Barach
-----------------------------
Michael Barach
President and Chief Executive Officer
ATTEST:
By: /s/ Michael Bayer
-----------------------
Michael Bayer
Treasurer and Secretary
<PAGE>
EXHIBIT 3.4
BY-LAWS OF
MOTHERNATURE.COM, INC.
A DELAWARE CORPORATION
Dated: June 9, 1998
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1............................................................................. 1
Section 1. Place of Meetings.......................................................... 1
Section 2. Annual Meeting............................................................. 1
Section 3. Special Meetings........................................................... 1
Section 4. Notice of Meetings......................................................... 1
Section 5. Voting List................................................................ 1
Section 6. Quorum..................................................................... 2
Section 7. Adjournments............................................................... 2
Section 8. Action at Meetings......................................................... 2
Section 9. Voting and Proxies......................................................... 2
Section 10. Action Without Meeting.................................................... 3
ARTICLE II............................................................................ 3
Section 1. Number, Election, Tenure and Qualification................................. 3
Section 2. Enlargement................................................................ 3
Section 3. Vacancies.................................................................. 3
Section 4. Resignation and Removal.................................................... 4
Section 5. General Powers............................................................. 4
Section 6. Chairman of the Board...................................................... 4
Section 7. Place of Meetings.......................................................... 4
Section 8. Regular Meetings........................................................... 4
Section 9. Special Meetings........................................................... 4
Section 10. Quorum, Action at Meeting, Adjournments................................... 4
Section 11. Action by Consent......................................................... 5
Section 12. Telephonic Meetings....................................................... 5
Section 13. Committees................................................................ 5
Section 14. Compensation.............................................................. 5
ARTICLE III........................................................................... 6
Section 1. Enumeration................................................................ 6
Section 2. Election................................................................... 6
Section 3. Tenure..................................................................... 6
Section 4. President.................................................................. 6
Section 5. Vice-Presidents............................................................ 7
Section 6. Secretary.................................................................. 7
Section 7. Assistant Secretaries...................................................... 7
Section 8. Treasurer.................................................................. 7
Section 9. Assistant Treasurers....................................................... 8
Section 10. Bond...................................................................... 8
ARTICLE IV............................................................................ 8
Section 1. Delivery................................................................... 8
Section 2. Waiver of Notice........................................................... 8
ARTICLE V............................................................................. 9
Section 1. Actions other than by or in the Right of the Corporation................... 9
Section 2. Actions by or in the Right of the Corporation.............................. 9
Section 3. Success on the Merits...................................................... 9
Section 4. Specific Authorization..................................................... 10
Section 5. Advance Payment............................................................ 10
Section 6. Non-Exclusivity............................................................ 10
Section 7. Insurance.................................................................. 10
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
Section 8. Continuation of Indemnification and Advancement of Expenses........................ 10
Section 9. Severability....................................................................... 10
Section 10. Intent of Article................................................................. 10
ARTICLE VI.................................................................................... 11
Section 1. Certificates of Stock.............................................................. 11
Section 2. Lost Certificates.................................................................. 11
Section 3. Transfer of Stock.................................................................. 11
Section 4. Record Date........................................................................ 11
Section 5. Registered Stockholders............................................................ 12
ARTICLE VII................................................................................... 12
Section 1. Transactions with Interested Parties............................................... 12
Section 2. Quorum............................................................................. 13
ARTICLE VIII.................................................................................. 13
Section 1. Dividends.......................................................................... 13
Section 2. Reserves........................................................................... 13
Section 3. Checks............................................................................. 13
Section 4. Fiscal Year........................................................................ 13
Section 5. Seal............................................................................... 13
ARTICLE IX.................................................................................... 14
</TABLE>
Addendum
Register of Amendments to the By-Laws
(ii)
<PAGE>
* * * * *
BY-LAWS
* * * * *
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
-----------------
held at such place within or without the State of Delaware as may be fixed from
time to time by the Board of Directors or the Chief Executive Officer, or if not
so designated, at the registered office of the corporation.
Section 2. Annual Meeting. Annual meetings of stockholders shall be held
--------------
on the second Tuesday of May in each year if not a legal holiday, and if a legal
holiday, then on the next secular day following, at 10:00 a.m., or at such other
date and time as shall be designated from time to time by the Board of Directors
or the Chief Executive Officer, at which meeting the stockholders shall elect by
a plurality vote a Board of Directors and shall transact such other business as
may properly be brought before the meeting. If no annual meeting is held in
accordance with the foregoing provisions, the Board of Directors shall cause the
meeting to be held as soon thereafter as convenient, which meeting shall be
designated a special meeting in lieu of annual meeting.
Section 3. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes, may, unless otherwise prescribed by statute or by the
certificate of incorporation, be called by the Board of Directors or the Chief
Executive Officer and shall be called by the Chief Executive Officer or
Secretary at the request in writing of any two members of the Board of
Directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the Corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting. Business transacted at any special meeting shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
Section 4. Notice of Meetings. Except as otherwise provided by law,
------------------
written notice of each meeting of stockholders, annual or special, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten or more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 5. Voting List. The officer who has charge of the stock ledger of
-----------
the Corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of
<PAGE>
-2-
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city or town where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 6. Quorum. The holders of a majority of the stock issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute, the
certificate of incorporation or these By-Laws. Where a separate vote by a class
or classes is required, a majority of the outstanding shares of such class or
classes, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter. If no quorum
shall be present or represented at any meeting of stockholders, such meeting may
be adjourned in accordance with Section 7 hereof, until a quorum shall be
present or represented.
Section 7. Adjournments. Any meeting of stockholders may be adjourned
------------
from time to time to any other time and to any other place at which a meeting of
stockholders may be held under these By-Laws, which time and place shall be
announced at the meeting, by a majority of the stockholders present in person or
represented by proxy at the meeting and entitled to vote (whether or not a
quorum is present), or, if no stockholder is present or represented by proxy, by
any officer entitled to preside at or to act as Secretary of such meeting,
without notice other than announcement at the meeting. At such adjourned
meeting, any business may be transacted which might have been transacted at the
original meeting, provided that a quorum either was present at the original
meeting or is present at the adjourned meeting. If the adjournment is for more
than thirty 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 of record entitled to vote at the meeting.
Section 8. Action at Meetings. When a quorum is present at any meeting,
------------------
the affirmative vote of the holders of a majority of the stock present in person
or represented by proxy, entitled to vote and voting on the matter (or where a
separate vote by a class or classes is required, the affirmative vote of the
majority of shares of such class or classes present in person or represented by
proxy at the meeting) shall decide any matter (other than the election of
Directors) brought before such meeting, unless the matter is one upon which by
express provision of law, the certificate of incorporation or these By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such matter. The stock of holders who abstain from
voting on any matter shall be deemed not to have been voted on such matter.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting, entitled to vote and voting on
the election of Directors.
Section 9. Voting and Proxies. Unless otherwise provided in the
------------------
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote
<PAGE>
-3-
for each share of capital stock having voting power held of record by such
stockholder. Each stockholder entitled to vote at a meeting of stockholders, or
to express consent or dissent to corporate action in writing without a meeting,
may authorize another person or persons to act for him by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period.
Section 10. Action Without Meeting. Any action required to be taken at
----------------------
any annual or special meeting of stockholders, or any action which may be taken
at any annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be (1) signed and dated by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and (2) delivered to
the Corporation within sixty days of the earliest dated consent by delivery to
its registered office in the State of Delaware (in which case delivery shall be
by hand or by certified or registered mail, return receipt requested), its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
DIRECTORS
Section 1. Number, Election, Tenure and Qualification. The number of
------------------------------------------
Directors which shall constitute the whole board shall be not less than one (1)
nor more than seven (7). Within such limit, the number of Directors shall be
determined by resolution of the Board of Directors or by the stockholders at the
annual meeting or at any special meeting of stockholders. The Directors shall
be elected at the annual meeting or at any special meeting of the stockholders,
except as provided in Section 3 of this Article, and each director elected shall
hold office until his successor is elected and qualified, unless sooner
displaced. Directors need not be stockholders.
Section 2. Enlargement. The number of the Board of Directors may be
-----------
increased at any time by vote of a majority of the Directors then in office.
Section 3. Vacancies. Vacancies and newly created Directorships resulting
---------
from any increase in the authorized number of Directors may be filled by a
majority of the Directors then in office, though less than a quorum, or by a
sole remaining director, and the Directors so chosen shall hold office until the
next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no Directors in office, then an
election of Directors may be held in the manner provided by statute. In the
event of a vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law or these By-Laws, may exercise the powers of the full
board until the vacancy is filled.
<PAGE>
-4-
Section 4. Resignation and Removal. Any director may resign at any time
-----------------------
upon written notice to the Corporation at its principal place of business or to
the Chief Executive Officer or Secretary. Such resignation shall be effective
upon receipt unless it is specified to be effective at some other time or upon
the happening of some other event. Any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of Directors, unless otherwise
specified by law or the certificate of incorporation.
Section 5. General Powers. The business and affairs of the Corporation
--------------
shall be managed by its Board of Directors, which may exercise all powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
Section 6. Chairman of the Board. If the Board of Directors appoints a
---------------------
chairman of the board, he shall, when present, preside at all meetings of the
stockholders and the Board of Directors. He shall perform such duties and
possess such powers as are customarily vested in the office of the chairman of
the board or as may be vested in him by the Board of Directors.
Section 7. Place of Meetings. The Board of Directors may hold meetings,
-----------------
both regular and special, either within or without the State of Delaware.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held without notice at such time and at such place as shall from time to
time be determined by the board; provided that any director who is absent when
such a determination is made shall be given prompt notice of such determination.
A regular meeting of the Board of Directors may be held without notice
immediately after and at the same place as the annual meeting of stockholders.
Section 9. Special Meetings. Special meetings of the board may be called
----------------
by the Chief Executive Officer, Secretary, or on the written request of two (2)
or more Directors, or by one director in the event that there is only one
director in office. Two (2) days' notice to each director, either personally or
by telegram, cable, telecopy, commercial delivery service, telex or similar
means sent to his business or home address, or three (3) days' notice by written
notice deposited in the mail, shall be given to each director by the Secretary
or by the officer or one of the Directors calling the meeting. A notice or
waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
Section 10. Quorum, Action at Meeting, Adjournments. At all meetings of
---------------------------------------
the board a majority of Directors then in office, but in no event less than one
third of the entire board, shall constitute a quorum for the transaction of
business and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by law or by the certificate of
incorporation. For purposes of this section, the term "entire board" shall mean
the number of Directors last fixed by the stockholders or Directors, as the case
may be, in accordance with law and these By-Laws; provided, however, that if
less than all the number so fixed of Directors were elected, the "entire board"
shall mean the greatest number of Directors so elected to hold office at any one
<PAGE>
-5-
time pursuant to such authorization. If a quorum shall not be present at any
meeting of the Board of Directors, a majority of the Directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 11. Action by Consent. Unless otherwise restricted by the
-----------------
certificate of incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 12. Telephonic Meetings. Unless otherwise restricted by the
-------------------
certificate of incorporation or these By-Laws, members of the Board of Directors
or of any committee thereof may participate in a meeting of the Board of
Directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 13. Committees. The Board of Directors may designate one or more
----------
committees, each committee to consist of one or more of the Directors of the
corporation. The board may designate one or more Directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to (a) adopting, amending or repealing the By-
Laws of the Corporation or any of them or (b) approving or adopting, or
recommending to the stockholders any action or matter expressly required by law
to be submitted to stockholders for approval. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee shall keep regular
minutes of its meetings and make such reports to the Board of Directors as the
Board of Directors may request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the Directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
By-Laws for the conduct of its business by the Board of Directors.
Section 14. Compensation. Unless otherwise restricted by the certificate
------------
of incorporation or these By-Laws, the Board of Directors shall have the
authority to fix from time to time the compensation of Directors. The Directors
may be paid their expenses, if any, of attendance at each meeting of the Board
of Directors and the performance of their responsibilities as Directors and may
be paid a fixed sum for attendance at each meeting of the Board of Directors
and/or a stated salary as director. No such payment shall preclude any director
from serving the Corporation or its parent or subsidiary corporations in any
other capacity and receiving compensation therefor. The Board of Directors may
also allow compensation for members of special or standing committees for
service on such committees.
<PAGE>
-6-
ARTICLE III
OFFICERS
Section 1. Enumeration. The officers of the Corporation shall be chosen
-----------
by the Board of Directors and shall be a President, a Secretary and a Treasurer
and such other officers with such titles, terms of office and duties as the
Board of Directors may from time to time determine, including a Chairman of the
Board, one or more Vice-Presidents, and one or more Assistant Secretaries and
Assistant Treasurers. If authorized by resolution of the Board of Directors,
the Chief Executive Officer may be empowered to appoint from time to time
Assistant Secretaries and Assistant Treasurers. Any number of offices may be
held by the same person, unless the Certificate of Incorporation or these By-
Laws otherwise provide.
Section 2. Election. The Board of Directors at its first meeting after
--------
each annual meeting of stockholders shall choose a President, a Secretary and a
Treasurer. Other officers may be appointed by the Board of Directors at such
meeting, at any other meeting, or by written consent.
Section 3. Tenure. The officers of the Corporation shall hold office
------
until their successors are chosen and qualify, unless a different term is
specified in the vote choosing or appointing him, or until his earlier death,
resignation or removal. Any officer elected or appointed by the Board of
Directors or by the Chief Executive Officer may be removed at any time, with or
without cause, by the affirmative vote of a majority of the Board of Directors
or a committee duly authorized to do so, except that any officer appointed by
the Chief Executive Officer may also be removed at any time, with or without
cause, by the Chief Executive Officer. Any vacancy occurring in any office of
the Corporation may be filled by the Board of Directors, at its discretion. Any
officer may resign by delivering his written resignation to the Corporation at
its principal place of business or to the Chief Executive Officer or the
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
Section 4. President. The President shall be the Chief Operating Officer
---------
of the corporation. He shall also be the Chief Executive Officer unless the
Board of Directors otherwise provides. If no Chief Executive Officer shall have
been appointed by the Board of Directors, all references herein to the "Chief
Executive Officer" shall be to the President. The President shall, unless the
Board of Directors provides otherwise in a specific instance or generally,
preside at all meetings of the stockholders and the Board of Directors, have
general and active management of the business of the Corporation and see that
all orders and resolutions of the Board of Directors are carried into effect.
The President shall execute bonds, mortgages, and other contracts requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation.
<PAGE>
-7-
Section 5. Vice-Presidents. In the absence of the President or in the
---------------
event of his or her inability or refusal to act, the Vice-President, or if there
be more than one Vice-President, the Vice-Presidents in the order designated by
the Board of Directors or the Chief Executive Officer (or in the absence of any
designation, then in the order determined by their tenure in office) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. The Vice-
Presidents shall perform such other duties and have such other powers as the
Board of Directors or the Chief Executive Officer may from time to time
prescribe.
Section 6. Secretary. The Secretary shall have such powers and perform
---------
such duties as are incident to the office of Secretary. The Secretary shall
maintain a stock ledger and prepare lists of stockholders and their addresses as
required and shall be the custodian of corporate records. The Secretary shall
attend all meetings of the Board of Directors and all meetings of the
stockholders and record all the proceedings of the meetings of the Corporation
and of the Board of Directors in a book to be kept for that purpose and shall
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the Stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be from time to time prescribed by the Board of Directors or Chief
Executive Officer, under whose supervision the Secretary shall be. The
Secretary shall have custody of the corporate seal of the Corporation and the
Secretary, or an assistant Secretary, shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by his or
her signature or by the signature of such assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his or her signature.
Section 7. Assistant Secretaries. The assistant Secretary, or if there be
---------------------
more than one, the assistant secretaries in the order determined by the Board of
Directors, the Chief Executive Officer or the Secretary (or if there be no such
determination, then in the order determined by their tenure in office), shall,
in the absence of the Secretary or in the event of his or her inability or
refusal to act, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the Secretary may from time to time
prescribe. In the absence of the Secretary or any assistant Secretary at any
meeting of stockholders or Directors, the person presiding at the meeting shall
designate a temporary or acting Secretary to keep a record of the meeting.
Section 8. Treasurer. The Treasurer shall perform such duties and shall
---------
have such powers as may be assigned to him or her by the Board of Directors or
the Chief Executive Officer. In addition, the Treasurer shall perform such
duties and have such powers as are incident to the office of Treasurer. The
Treasurer shall have the custody of the corporate funds and securities and shall
keep full and accurate accounts of receipts and disbursements in books belonging
to the Corporation and shall deposit all moneys and other valuable effects in
the name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the Chief Executive Officer and the
Board of Directors, when the Chief Executive Officer or Board of Directors so
<PAGE>
-8-
requires, an account of all his or her transactions as Treasurer and of the
financial condition of the corporation.
Section 9. Assistant Treasurers. The assistant Treasurer, or if there
--------------------
shall be more than one, the assistant Treasurers in the order determined by the
Board of Directors, the Chief Executive Officer or the Treasurer (or if there be
no such determination, then in the order determined by their tenure in office),
shall, in the absence of the Treasurer or in the event of his or her inability
or refusal to act, perform the duties and exercise the powers of the Treasurer
and shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer or the Treasurer may from time to time
prescribe.
Section 10. Bond. If required by the Board of Directors, any officer
----
shall give the Corporation a bond in such sum and with such surety or sureties
and upon such terms and conditions as shall be satisfactory to the Board of
Directors, including without limitation a bond for the faithful performance of
the duties of his office and for the restoration to the Corporation of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control and belonging to the corporation.
ARTICLE IV
NOTICES
Section 1. Delivery. Whenever, under the provisions of law, or of the
--------
Certificate of Incorporation or these By-Laws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Unless written notice by mail is required by law, written notice
may also be given by telegram, cable, telecopy, commercial delivery service,
telex or similar means, addressed to such director or stockholder at his address
as it appears on the records of the corporation, in which case such notice shall
be deemed to be given when delivered into the control of the persons charged
with effecting such transmission, the transmission charge to be paid by the
Corporation or the person sending such notice and not by the addressee. Oral
notice or other in-hand delivery (in person or by telephone) shall be deemed
given at the time it is actually given.
Section 2. Waiver of Notice. Whenever any notice is required to be given
----------------
under the provisions of law or of the certificate of incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
<PAGE>
-9-
ARTICLE V
INDEMNIFICATION
Section 1. Actions other than by or in the Right of the Corporation. 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 proceedings, 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 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.
Section 2. Actions by or in the Right of the Corporation. 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 or she 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
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner he or
she 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 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 of the State of Delaware
or such other court shall deem proper.
Section 3. Success on the Merits. To the extent that any person described
---------------------
in Section 1 or 2 of this Article V has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in said
Sections, 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.
<PAGE>
-10-
Section 4. Specific Authorization. Any indemnification under Section 1 or
----------------------
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 any person described in said Sections is proper in the
circumstances because he has met the applicable standard of conduct set forth in
said Sections. Such determination shall be made (1) by the Board of Directors by
a majority vote of Directors who were not parties to such action, suit or
proceeding (even though less than a quorum), or (2) if there are no
disinterested Directors or if a majority of disinterested Directors so directs,
by independent legal counsel (who may be regular legal counsel to the
corporation) in a written opinion, or (3) by the stockholders of the
corporation.
Section 5. Advance Payment. Expenses incurred in defending a pending or
---------------
threatened civil or criminal 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 any person
described in said Section to repay such amount if it shall ultimately be
determined that he or she is not entitled to indemnification by the Corporation
as authorized in this Article V.
Section 6. Non-Exclusivity. 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 provided
indemnification or advancement of expenses may be entitled under any By-Law,
agreement, vote of stockholders or disinterested Directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office.
Section 7. Insurance. The Board of Directors may authorize, by a vote of
---------
the majority of the full board, the Corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, 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 this Article V.
Section 8. Continuation of Indemnification and Advancement of Expenses.
-----------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article V shall 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.
Section 9. Severability. If any word, clause or provision of this Article
------------
V or any award made hereunder shall for any reason be determined to be invalid,
the provisions hereof shall not otherwise be affected thereby but shall remain
in full force and effect.
Section 10. Intent of Article. The intent of this Article V is to provide
-----------------
for indemnification and advancement of expenses to the fullest extent permitted
by Section 145 of the General Corporation Law of Delaware. To the extent that
such Section or any successor section may be amended or supplemented from time
to time, this Article V shall be amended
<PAGE>
-11-
automatically and construed so as to permit indemnification and advancement of
expenses to the fullest extent from time to time permitted by law.
ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock. Every holder of stock in the
---------------------
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by, the chairman or Vice-chairman of the Board of Directors,
or the President or a Vice-President and the Treasurer or an assistant
Treasurer, or the Secretary or an assistant Secretary of the corporation,
certifying the number of shares owned by such holder in the corporation. Any or
all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue. Certificates may be issued for partly
paid shares and in such case upon the face or back of the certificates issued to
represent any such partly paid shares, the total amount of the consideration to
be paid therefor, and the amount paid thereon shall be specified.
Section 2. Lost Certificates. The Board of Directors may direct a new
-----------------
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to give
reasonable evidence of such loss, theft or destruction, to advertise the same in
such manner as it shall require and/or to give the Corporation a bond in such
sum as it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed or the issuance of such new certificate.
Section 3. Transfer of Stock. Upon surrender to the Corporation or the
-----------------
transfer agent of the Corporation of a certificate for shares, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and proper evidence of compliance with other conditions to rightful
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 4. Record Date. 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, the Board of Directors may fix a record date, which
shall not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which shall not be more than sixty days
nor less then ten days before the date of such meeting. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
If no record date is fixed, the
<PAGE>
-12-
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day before the
day on which notice is given, or, if notice is waived, at the close of business
on the day before the day on which the meeting is held. In order that the
Corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which shall not be more
than ten days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors. If no record date is fixed, the record date
for determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the Corporation as
provided in Section 10 of Article I. If no record date is fixed and prior action
by the Board of Directors is required, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the Board of
Directors adopts the resolution taking such prior action. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the stockholders
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 of Directors
may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted, and which shall be not more than
sixty days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating to
such purpose.
Section 5. Registered Stockholders. The corporation shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VII
CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties. No contract or
------------------------------------
transaction between the Corporation and one or more of its Directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its Directors or
officers are Directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the board or committee thereof
which authorizes the contract or transaction or solely because his or their
votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the
<PAGE>
-13-
board or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested Directors, even though
the disinterested Directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
(c) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee thereof, or the stockholders.
Section 2. Quorum. Common or interested Directors may be counted in
------
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
---------
corporation, if any, may be declared by the Board of Directors at any regular or
special meeting or by written consent, pursuant to law. Dividends may be paid
in cash, in property, or in shares of the capital stock, subject to the
provisions of the certificate of incorporation.
Section 2. Reserves. The Directors may set apart out of any funds of the
--------
Corporation available for dividends a reserve or reserves for any proper purpose
and may abolish any such reserve.
Section 3. Checks. All checks or demands for money and notes of the
------
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be fixed
-----------
by resolution of the Board of Directors.
Section 5. Seal. The Board of Directors may, by resolution, adopt a
----
corporate seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the Board
of Directors.
<PAGE>
-14-
ARTICLE IX
AMENDMENTS
These By-Laws may be altered, amended or repealed or new By-Laws may be
adopted by the stockholders or by the Board of Directors, when such power is
conferred upon the Board of Directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the Board of Directors or at any
special meeting of the stockholders or of the Board of Directors provided,
however, that in the case of a regular or special meeting of stockholders,
notice of such alteration, amendment, repeal or adoption of new By-Laws be
contained in the notice of such meeting.
<PAGE>
Register of Amendments to the By-Laws
Date Section Affected Change
- ---- ---------------- ------
7/13/98 Cover Change Name from Mother Nature's
General Store, Inc. to
MotherNature.com, Inc.
<PAGE>
EXHIBIT 10.1
MOTHERNATURE.COM, INC.
1998 STOCK PLAN
---------------
1. Purpose. The purpose of the MotherNature.com, Inc. 1998 Stock Plan
-------
(the "Plan") is to encourage key employees of MotherNature.com, Inc. (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and Non-
Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. Administration of the Plan.
---------------------------
A. Board or Committee Administration. The Plan shall (be
---------------------------------
administered by the Board of Directors of the Company (the "Board")
or, subject to paragraph 2(D) (relating to compliance with Section
162(m) of the Code), by a committee appointed by the Board (the
"Committee"). Hereinafter, all references in this Plan to the
"Committee" shall mean the Board if no Committee has been appointed.
Subject to ratification of the grant or authorization of each Stock
Right by the Board (if so required by applicable state law), and
subject to the terms of the Plan, the Committee shall have the
authority to (i) determine to whom (from among the class of employees
eligible under paragraph 3 to receive ISOs) ISOs shall be granted, and
to whom (from among the class of individuals and entities eligible
under paragraph 3 to receive Non-Qualified Options and Awards and to
make Purchases) Non-Qualified Options, Awards and authorizations to
make Purchases may be granted; (ii) determine the time or times at
which Options or Awards shall be granted or Purchases made; (iii)
determine the purchase price of shares subject to each Option or
Purchase, which prices shall not be less than the minimum price
specified in paragraph 6; (iv) determine whether each Option granted
shall be an ISO or a Non-Qualified Option; (v) determine (subject to
paragraph 7) the time or times when each Option shall become
exercisable and the duration of the exercise period; (vi) extend the
period during which outstanding Options may be exercised; (vii)
determine whether restrictions such as repurchase options are to be
imposed on shares subject to Options, Awards and Purchases and the
nature of such restrictions, if any, and (viii) interpret the Plan and
prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take
whatever actions it
<PAGE>
-2-
deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as
an ISO. The interpretation and construction by the Committee of any
provisions of the Plan or of any Stock Right granted under it shall be
final unless otherwise determined by the Board. The Committee may from
time to time adopt such rules and regulations for carrying out the
Plan as it may deem advisable. No member of the Board or the Committee
shall be liable for any action or determination made in good faith
with respect to the Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of its
-----------------
members as its chairman, and shall hold meetings at such time and
places as it may determine. A majority of the Committee shall
constitute a quorum and acts of a majority of the members of the
Committee at a meeting at which a quorum is present, or acts reduced
to or approved in writing by all the members of the Committee (if
consistent with applicable state law), shall be the valid acts of the
Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with
or without cause) and appoint new members in substitution therefor,
fill vacancies however caused, or remove all members of the Committee
and thereafter directly administer the Plan.
C. Grant of Stock Rights to Board Members. Stock Rights may be
--------------------------------------
granted to members of the Board. All grants of Stock Rights to members
of the Board shall in all respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Members
of the Board who either (i) are eligible to receive grants of Stock
Rights pursuant to the Plan or (ii) have been granted Stock Rights may
vote on any matters affecting the administration of the Plan or the
grant of any Stock Rights pursuant to the Plan, except that no such
member shall act upon the granting to himself or herself of Stock
Rights, but any such member may be counted in determining the
existence of a quorum at any meeting of the Board during which action
is taken with respect to the granting to such member of Stock Rights.
D. Performance-Based Compensation. The Board, in its
------------------------------
discretion, may take such action as may be necessary to ensure that
Stock Rights granted under the Plan qualify as "qualified performance-
based compensation" within the meaning of Section 162(m) of the Code
and applicable regulations promulgated thereunder ("Performance-Based
Compensation"). Such action may include, in the Board's discretion,
some or all of the following (i) if the Board determines that Stock
Rights granted under the Plan generally shall constitute Performance-
Based Compensation, the Plan shall be administered, to the extent
required for such Stock Rights to constitute Performance-Based
Compensation, by a Committee consisting solely of two or more "outside
directors" (as defined in applicable regulations promulgated under
Section 162(m) of the Code), (ii) if any Non-Qualified Options with an
exercise price less than the fair market value per share of Common
Stock are granted under the Plan and the Board determines that
<PAGE>
-3-
such Options should constitute Performance-Based Compensation, such
options shall be made exercisable only upon the attainment of a pre-
established, objective performance goal established by the Committee,
and such grant shall be submitted for, and shall be contingent upon
shareholder approval and (iii) Stock Rights granted under the Plan may
be subject to such other terms and conditions as are necessary for
compensation recognized in connection with the exercise or disposition
of such Stock Right or the disposition of Common Stock acquired
pursuant to such Stock Right, to constitute Performance-Based
Compensation.
3. Eligible Employees and Others. ISOs may be granted only to employees
-----------------------------
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
4. Stock. The stock subject to Stock Rights shall be authorized but
-----
unissued shares of Common Stock of the Company, par value $.01 per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. The aggregate number of shares which may be issued pursuant to the Plan
is 6,938,000, subject to adjustment as provided in paragraph 13. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part or shall be repurchased by the Company, the unpurchased shares of
Common Stock subject to such Option shall again be available for grants of Stock
Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 4,856,600 shares of Common Stock
under the Plan during any fiscal year of the Company. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part or shall be repurchased by the Company, the shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan
------------------------
at any time on or after June 10, 1998 and prior to June 10, 2008. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant.
<PAGE>
-4-
6. Minimum Option Price; ISO Limitations.
-------------------------------------
A. Price for Non-Qualified Options, Awards and Purchases.
-----------------------------------------------------
Subject to paragraph 2(D) (relating to compliance with Section 162(m)
of the Code), the exercise price per share specified in the agreement
relating to each Non-Qualified Option granted, and the purchase price
per share of stock granted in any Award or authorized as a Purchase,
under the Plan may be less than the fair market value of the Common
Stock of the Company on the date of grant; provided that, in no event
shall such exercise price or such purchase price be less than the
minimum legal consideration required therefor under the laws of any
jurisdiction in which the Company or its successors in interest may be
organized.
B. Price for ISOs. The exercise price per share specified in
--------------
the agreement relating to each ISO granted under the Plan shall not be
less than the fair market value per share of Common Stock on the date
of such grant. In the case of an ISO to be granted to an employee
owning stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any
Related Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date
of grant. For purposes of determining stock ownership under this
paragraph, the rules of Section 424(d) of the Code shall apply.
C. $100,000 Annual Limitation on ISO Vesting. Each eligible
-----------------------------------------
employee may be granted Options treated as ISOs only to the extent
that, in the aggregate under this Plan and all incentive stock option
plans of the Company and any Related Corporation, ISOs do not become
exercisable for the first time by such employee during any calendar
year with respect to stock having a fair market value (determined at
the time the ISOs were granted) in excess of $100,000. The Company
intends to designate any Options granted in excess of such limitation
as Non-Qualified Options, and the Company shall issue separate
certificates to the optionee with respect to Options that are Non-
Qualified Options and Options that are ISOs.
D. Determination of Fair Market Value. If, at the time an
----------------------------------
Option is granted under the Plan, the Company's Common Stock is
publicly traded, "fair market value" shall be determined as of the
date of grant or, if the prices or quotes discussed in this sentence
are unavailable for such date, the last business day for which such
prices or quotes are available prior to the date of grant and shall
mean (i) the average (on that date) of the high and low prices of the
Common Stock on the principal national securities exchange on which
the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on
that date) of the Common Stock on the Nasdaq National Market, if the
Common Stock is not then traded on a national securities exchange; or
(iii) the closing bid price (or average of bid prices) last quoted (on
<PAGE>
-5-
that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National
Market. If the Common Stock is not publicly traded at the time an
Option is granted under the Plan, "fair market value" shall mean the
fair value of the Common Stock as determined by the Committee after
taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the
Common Stock in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
---------------
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs
9 and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the
-------
date of grant or shall become exercisable thereafter in such
installments as the Committee may specify.
B. Full Vesting of Installments. Once an installment becomes
----------------------------
exercisable, it shall remain exercisable until expiration or
termination of the Option, unless otherwise specified by the
Committee.
C. Partial Exercise. Each Option or installment may be
----------------
exercised at any time or from time to time, in whole or in part, for
up to the total number of shares with respect to which it is then
exercisable.
D. Acceleration of Vesting. The Committee shall have the right
-----------------------
to accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the
consent of an optionee, accelerate the permitted exercise date of any
installment of any Option granted to any employee as an ISO (and not
previously converted into a Non-Qualified Option pursuant to paragraph
16) if such acceleration would violate the annual vesting limitation
contained in Section 422(d) of the Code, as described in paragraph
6(C).
9. Termination of Employment. Unless otherwise specified in the agreement
-------------------------
relating to such ISO, if an ISO optionee ceases to be employed by the Company
and all Related Corporations other than by reason of death or disability as
defined in paragraph 10, no further
<PAGE>
-6-
installments of his or her ISOs shall become exercisable, and his or her ISOs
shall terminate on the earlier of (a) three months after the date of termination
of his or her employment, or (b) their specified expiration dates, except to the
extent that such ISOs (or unexercised installments thereof) have been converted
into Non-Qualified Options pursuant to paragraph 16. For purposes of this
paragraph 9, employment shall be considered as continuing uninterrupted during
any bona fide leave of absence (such as those attributable to illness, military
obligations or governmental service) provided that the period of such leave does
not exceed 90 days or, if longer, any period during which such optionee's right
to reemployment is guaranteed by statute or by contract. A bona fide leave of
absence with the written approval of the Committee shall not be considered an
interruption of employment under this paragraph 9, provided that such written
approval contractually obligates the Company or any Related Corporation to
continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. Death; Disability.
-----------------
A. Death. If an ISO optionee ceases to be employed by the
-----
Company and all Related Corporations by reason of his or her death,
any ISO owned by such optionee may be exercised, to the extent
otherwise exercisable on the date of death, by the estate, personal
representative or beneficiary who has acquired the ISO by will or by
the laws of descent and distribution, until the earlier of (i) the
specified expiration date of the ISO or (ii) 180 days from the date of
the optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the
----------
Company and all Related Corporations by reason of his or her
disability, such optionee shall have the right to exercise any ISO
held by him or her on the date of termination of employment, for the
number of shares for which he or she could have exercised it on that
date, until the earlier of (i) the specified expiration date of the
ISO or (ii) 180 days from the date of the termination of the
optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Code or any successor statute.
11. Assignability. No ISO shall be assignable or transferable by the
-------------
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee shall be exercisable only by such optionee. Stock
Rights other than ISOs shall be transferable to the extent set forth in the
agreement relating to such Stock Right.
12. Terms and Conditions of Options. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11
<PAGE>
-7-
hereof and may contain such other provisions as the Committee deems advisable
which are not inconsistent with the Plan, including restrictions applicable to
shares of Common Stock issuable upon exercise of Options. The Committee may
specify that any Non-Qualified Option shall be subject to the restrictions set
forth herein with respect to ISOs, or to such other termination and cancellation
provisions as the Committee may determine. The Committee may from time to time
confer authority and responsibility on one or more of its own members and/or one
or more officers of the Company to execute and deliver such instruments. The
proper officers of the Company are authorized and directed to take any and all
action necessary or advisable from time to time to carry out the terms of such
instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common
--------------------------------
Stock shall be subdivided or combined into a greater or smaller number
of shares or if the Company shall issue any shares of Common Stock as
a stock dividend on its outstanding Common Stock, the number of shares
of Common Stock deliverable upon the exercise of Options shall be
appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect
such subdivision, combination or stock dividend.
B. Consolidations or Mergers. If the Company is to be
-------------------------
consolidated with or acquired by another entity in a merger or other
reorganization in which the holders of the outstanding voting stock of
the Company immediately preceding the consummation of such event,
shall, immediately following such event, hold, as a group, less than a
majority of the voting securities of the surviving or successor
entity, or in the event of a sale of all or substantially all of the
Company's assets or otherwise (each, an "Acquisition"), the Committee
or the board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board"), shall, as to
outstanding Options, either (i) make appropriate provision for the
continuation of such Options by substituting on an equitable basis for
the shares then subject to such Options either (a) the consideration
payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition, (b) shares of stock of the surviving
or successor corporation or (c) such other securities as the Successor
Board deems appropriate, the fair market value of which shall not
materially exceed the fair market value of the shares of Common Stock
subject to such Options immediately preceding the Acquisition; or (ii)
upon written notice to the optionees, provide that all Options must be
exercised, to the extent then exercisable or to be exercisable as a
result of the Acquisition, within a specified number of days of the
date of such notice, at the end of which period the Options shall
terminate; or (iii) terminate all Options in exchange for a cash
payment equal to the excess of the fair market value of the shares
subject to such Options (to the extent then
<PAGE>
-8-
exercisable or to be exercisable as a result of the Acquisition) over
the exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a
transaction described in subparagraph B above) pursuant to which
securities of the Company or of another corporation are issued with
respect to the outstanding shares of Common Stock, an optionee upon
exercising an Option shall be entitled to receive for the purchase
price paid upon such exercise the securities he or she would have
received if he or she had exercised such Option prior to such
recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to subparagraphs A, B or C with respect to
ISOs shall be made only after the Committee, after consulting with
counsel for the Company, determines whether such adjustments would
constitute a "modification" of such ISOs (as that term is defined in
Section 424 of the Code) or would cause any adverse tax consequences
for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification
of such ISOs or would cause adverse tax consequences to the holders,
it may refrain from making such adjustments.
E. Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at
such other time and subject to such other conditions as shall be
determined by the Committee.
F. Issuances of Securities. Except as expressly provided
-----------------------
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than
securities of the Company.
G. Fractional Shares. No fractional shares shall be issued
-----------------
under the Plan and the optionee shall receive from the Company cash in
lieu of such fractional shares.
H. Adjustments. Upon the happening of any of the events
-----------
described in subparagraphs A, B or C above, the class and aggregate
number of shares set forth in paragraph 4 hereof that are subject to
Stock Rights which previously have been or subsequently may be granted
under the Plan shall also be appropriately adjusted to reflect the
events described in such subparagraphs. The Committee or the
Successor Board shall determine the specific adjustments to be made
under
<PAGE>
-9-
this paragraph 13 and, subject to paragraph 2, its determination shall
be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
---------------------------
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price therefor either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as defined in Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on
--------------------------
June 10, 1998, subject, with respect to the validation of ISOs granted under the
Plan, to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained prior to June 10, 1999, any grants of ISOs under
the Plan made prior to that date will be rescinded. The Plan shall expire at the
end of the day on June 10, 2008(except as to Options outstanding on that date).
Subject to the provisions of paragraph 5 above, Options may be granted under the
Plan prior to the date of stockholder approval of the Plan. The Board may
terminate or amend the Plan in any respect at any time, except that, without the
approval of the stockholders obtained within 12 months before or after the Board
adopts a resolution authorizing any of the following actions: (a) the total
number of shares that may be issued under the Plan may not be increased (except
by adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may action of the Board or
stockholders alter or impair the rights of a grantee, without such grantee's
consent, under any Stock Right previously granted to such grantee.
<PAGE>
-10-
16. Modifications of ISOs; Conversion of ISOs into Non-Qualified Options.
--------------------------------------------------------------------
Subject to paragraph 13(D), without the prior written consent of the holder of
an ISO, the Committee shall not alter the terms of such ISO (including the means
of exercising such ISO) if such alteration would constitute a modification
(within the meaning of Section 424(h)(3) of the Code). The Committee, at the
written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of installments thereof) that have not been
exercised on the date of conversion into Non-Qualified Options at any time prior
to the expiration of such ISOs, regardless of whether the optionee is an
employee of the Company or a Related Corporation at the time of such conversion.
Such actions may include, but shall not be limited to, extending the exercise
period or reducing the exercise price of the appropriate installments of such
ISOs. At the time of such conversion, the Committee (with the consent of the
optionee) may impose such conditions on the exercise of the resulting Non-
Qualified Options as the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with this Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's ISOs
converted into Non-Qualified Options, and no such conversion shall occur until
and unless the Committee takes appropriate action. Upon the taking of such
action, the Company shall issue separate certificates to the optionee with
respect to Options that are Non-Qualified Options and Options that are ISOs.
17. Application Of Funds. The proceeds received by the Company from the
--------------------
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. Notice to Company of Disqualifying Disposition. By accepting an ISO
----------------------------------------------
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
19. Withholding of Additional Income Taxes. Upon the exercise of a Non-
--------------------------------------
Qualified Option, the transfer of a Non-Qualified Stock Option pursuant to an
arm's-length transaction, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includible in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the transfer of a Non-Qualified
Stock Option, (iii) the grant of an Award, (iv) the making of a Purchase of
Common Stock for less than its fair market value, or (v) the vesting or
transferability of restricted stock or securities acquired by exercising an
Option, on the grantee's making satisfactory arrangement for such withholding.
Such arrangement may include payment by the grantee in cash or by check of the
amount of the withholding taxes or, at the discretion of the Committee, by the
grantee's delivery of previously held shares of Common Stock or the
<PAGE>
-11-
withholding from the shares of Common Stock otherwise deliverable upon exercise
of a Option shares having an aggregate fair market value equal to the amount of
such withholding taxes.
20. Governmental Regulation. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
21. Governing Law. The validity and construction of the Plan and the
-------------
instruments evidencing Stock Rights shall be governed by the laws of Delaware,
or the laws of any jurisdiction in which the Company or its successors in
interest may be organized.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-12-
AMENDMENT NO. 1
TO THE MOTHERNATURE.COM, INC.
1998 STOCK PLAN
July 13, 1998
Pursuant to the resolution of the Board of Directors adopted at a meeting
held on July 13, 1998 and the Written Consent of Stockholders in Lieu of a
Meeting dated as of July 13, 1998, Paragraph 4 of the MotherNature.com, Inc.
1998 Stock Plan (the "Plan") is hereby amended as of the date hereof by
----
increasing the aggregate number of shares of Common Stock of the Company, $.01
par value per share, which may be issued pursuant to the Plan from 6,938,000
shares to 9,512,000 shares, and the first sentence of the second paragraph of
Paragraph 4 of the Plan is hereby amended by deleting the number 4,856,600
inserting the number 6,658,400.
<PAGE>
-13-
AMENDMENT NO. 2
TO THE MOTHERNATURE.COM, INC.
1998 STOCK PLAN
May 12, 1999
Pursuant to the resolution of the Board of Directors adopted at a meeting
held on May 12, 1999 and the Written Consent of Stockholders in Lieu of a
Meeting dated as of May 12, 1999, Paragraph 4 of the MotherNature.com, Inc. 1998
Stock Plan (the "Plan") is hereby amended as of the date hereof by increasing
----
the aggregate number of shares of Common Stock of the Company, $.01 par value
per share, which may be issued pursuant to the Plan from 9,512,000 shares to
12,655,219 shares, and the first sentence of the second paragraph of Paragraph 4
of the Plan is hereby amended by deleting the number 6,658,400 inserting the
number 8,858,653.
<PAGE>
EXHIBIT 10.5
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (the "Sublease") is entered into by and between
PREVISION MARKETING, INC., a Delaware corporation ("Sublessor"), and MOTHER
NATURE.COM, INC., a Delaware corporation ("Sublessee"),
WITNESSETH
On October 25, 1996, the Sublessor and New England Farms Limited
Partnership ("Landlord") entered into that certain Lease Agreement (the "Base
Lease"), a copy of which is attached hereto as Exhibit A, wherein Landlord
leased to Sublessor and Sublessor leased from Landlord certain premises in the
office building located at One Concord Farms, 490 Virginia Road, Concord,
Massachusetts (the "Building").
Sublessee desires to sublease from Sublessor and Sublessor desires to
sublease to Sublessee the Subleased Premises (as hereinafter defined) subject to
the terms and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and for other good and valuable consideration paid by each
party hereto to the other, Sublessor and Sublessee agree as follows:
1. Terms. Capitalized terms used herein but not defined herein shall have
-----
the meanings specified in the Base Lease.
2. Agreement to Sublease. Sublessor subleases to Sublessee, and Sublessee
---------------------
sublease from Sublessor, approximately 10,340 square feet of Premises Rentable
Area as measured in accordance with the Measurement Method (the "Subleased
Premises Rentable Area") located on the second (2nd ) and third (3rd ) floor of
the Building (the "Subleased Premises") in accordance with the terms, conditions
and provisions of this Sublease. A floor plan depicting the Subleased Premises
is attached hereto as Exhibit "B."
3. Term. The term (the "Term") of this Sublease shall commence (the
----
"Commencement Date") on the earlier of (a) April 12, 1999 or (b) the date
Sublessee actually occupies the Subleased Premises, and shall expire on February
28, 2002 (the "Expiration Date"), unless earlier terminated pursuant to the
terms of this Sublease. Sublessor represents and warrants that the term under
the Base Lease does not expire before the Expiration Date.
4. Rent.
----
a) Commencing on the Commencement Date (the "Rent Commencement Date")
and continuing thereafter through the day before the first anniversary of
the Commencement Date, Sublessee shall pay to Sublessor, as rent (the
"Basic Rent") for the Subleased Premises, the sum of Two Hundred Fifty
Three Thousand Three Hundred And
<PAGE>
Thirty Dollars ($253,330.00) per annum payable on the first day of each
month in equal monthly installments of $21,110.83.
b) Commencing on the first anniversary of the Rent Commencement Date
and continuing until the day before the second anniversary of the Rent
Commencement Date, Sublessee shall pay to Sublessor as rent (the "Basic
Rent") for the Subleased Premises, the sum of Two Hundred Fifty Eight
Thousand, Five Hundred Dollars ($258,500.00) per annum payable on the first
day of each month in equal monthly installments of $21,541.67.
c) Commencing on the second anniversary of the Rent Commencement Date
and continuing throughout the balance of the Term, Sublessee shall pay to
Sublessor as Rent (the "Basic Rent") for the Subleased Premises, the sum of
Two Hundred Sixty Three Thousand, Six Hundred Seventy Dollars ($263,670)
per annum payable on the first day of each month in equal monthly
installments of $21,972.50.
d) Sublessee shall pay all amounts that become payable by Sublessee
under this Sublease to Sublessor at the times and in the manner provided in
this Sublease, without demand, deduction, setoff or counterclaim, except as
set forth herein at 55 Old Bedford Road, Lincoln, Massachusetts 01773
Attention: Ms. Deborah Pine (or such other address as Sublessor may
designate in writing). In the event any amounts payable under this
Sublease shall not be paid within five (5) days of the date when due, a
"late charge" of five cents ($.05) per each dollar so overdue may be
charged by Sublessor for the purpose of defraying Sublessor's
administrative expenses incident to the handling of such overdue payments;
and Sublessee agrees to pay such late charges to Sublessor on demand as
additional rent.
5. Additional Charges. Sublessee shall pay to Sublessor within thirty
------------------
(30) days of demand (i) during the first calendar year of the Term, seventy-five
percent (75%) of the amount by which Operating Expenses for any calendar year
subsequent to calendar year 1998 exceed the actual Operating Expenses payable
under Section 6 of the Base Lease during calendar year 1998, and (ii) during the
subsequent calendar years of the Term, one hundred percent (100%) of the amount
by which Operating Expenses for any calendar year subsequent to calendar year
1998 exceed the actual Operating Expenses payable under Section 6 of the Base
Lease during calendar year 1998. Sublessor estimates that the Operating
Expenses due under Section 6 of the Base Lease for calendar year 1998 will be
$7.50 per square foot on an annualized basis. Sublessor shall have the right to
require that Sublessee make estimated monthly payments of such increases in
Operating Expenses to the extent Sublessor is required to do the same as tenant
under the Base Lease. In the event such estimated amounts are insufficient to
pay the Sublessee's share of Operating Expenses due hereunder (a "Deficiency"),
Sublessee shall pay the Deficiency within thirty (30) days of receipt of an
invoice therefore by Sublessor. If the estimated amounts exceed the Operating
Expenses due hereunder (a "Surplus"), Sublessor shall immediately refund the
amount of the Surplus to Sublessee. Sublessor shall supply Sublessee with
copies of any documents delivered to Sublessor as tenant under the Base Lease by
Landlord, including the statement of Operating Expenses due under Section 6.b.
of the Base Lease. In any year
<PAGE>
subsequent to calendar year 1998, Sublessor may, at Sublessor's option, conduct
an audit of Operating Expenses pursuant to Section 6.d. of the Base Lease.
6. Electricity. The electricity supplied to the Subleased Premises shall
-----------
be separately measured by meters. Sublessee shall pay the electric charges for
the Subleased Premises.
7. Parking. Sublessor assigns to Sublessee the exclusive use of the
-------
eleven (11) designated parking spaces in the parking area adjacent to the
Building for the use of Sublessee's employees and visitors. Sublessor also
assigns to Sublessee the right to use all other parking spaces in the parking
lot on Landlord's property as provided in the Lease, in common with all others
entitled thereto, not designated for the exclusive use of other tenants in the
Building.
8. Use of Subleased Premises. Sublessee may use and occupy the Subleased
-------------------------
Premises only for the Permitted Uses, and for no other purpose whatsoever.
9. Acceptance of and Improvements to the Subleased Premises. Upon the
--------------------------------------------------------
Commencement Date, Sublessor shall tender, and Sublessee shall accept,
possession of the Subleased Premises in it "AS-IS," "WHERE-IS" and "WITH ALL
FAULTS" condition, without the benefit of any further improvement, and Sublessor
shall not be obligated to incur (or to cause Landlord to incur) any cost or
obligation whatsoever for the installation, renovation or demolition of any
improvements to the Subleased Premises. Premises shall be delivered in broom
clean condition, free of all occupants and their personal property on the
Commencement Date. In the event Sublessor fails to deliver possession of the
Subleased Premises to Sublessee in the condition required hereunder on the
Commencement Date, the Basic Rent shall abate until the Subleased Premises are
delivered to Sublessee in such condition and Sublessee shall be entitled to
enter and occupy the Premises on the Commencement Date even if Sublessor (or
anyone claiming by through or under continues to occupy the same.
Notwithstanding the foregoing or any other terms of this Sublease, Sublessee
shall have no obligation to (i) bring the Subleased Premises into compliance
with any laws, ordinances or regulations existing as of the date of this
Sublease unless arising out of Sublessee's particular use of the Subleased
Premises, or (ii) remove from the Subleased Premises any improvements which
Sublessor may have installed upon the Subleased Premises.
10. Indemnification. Subject to the provisions of Paragraph 15 below, and
---------------
except to the extent, if any, of the negligence or willful misconduct of
Sublessor, Sublessee shall indemnify and hold Sublessor harmless from and
against claims by third parties for any loss or damage to property or person,
and all costs (including reasonable attorney's fees) incurred in connection with
the defense of any such claims, to the extent caused by the negligence or
willful misconduct of Sublessee, its agents, employees, and contractors in the
Building, or arising from the conduct or management of Sublessee's business in
the Building or Sublessee's use of the Subleased Premises. Subject to the
provisions of Paragraph 15 below, and except to the extent, if any, of the
negligence or willful misconduct of Sublessee, Sublessor shall indemnify and
hold Sublessee harmless from any claims by third parties for any loss or damage
to person or property and all costs (including reasonable attorneys' fees)
incurred in connection with the defense of any such claims, to the extent caused
by the negligence or willful misconduct of Sublessor, its agents, employees and
contractors in the Building, or arising from the conduct or management of
<PAGE>
Sublessor's business in the Building or Sublessor's use of the Subleased
Premises prior to the Commencement Date.
11. Assignment and Subletting. In no event shall Sublessee assign this
-------------------------
Sublease or sublease the Subleased Premises or any part thereof without first
obtaining the prior written consent (which consent shall not be unreasonably
withheld, conditioned or delayed) of Sublessor. Any such assignment or sublease
shall also be in accordance with and subject to the terms of Section 16 of the
Base Lease with respect to any consent required by Lessor. Notwithstanding any
such assignment or sublease, Sublessee shall remain primarily liable and shall
continue to make all rental payments and all other payments that may become due
and payable hereunder to Sublessor in a timely manner. Any violation of this
Paragraph by Sublessee shall constitute an Event of Default under this Sublease,
entitling Sublessor to exercise any and all of the remedies herein provided for
an Event of Default by Sublessee, including, but not limited to, termination of
this Sublease. Notwithstanding the foregoing, Sublessee shall have the right,
without Landlord's or Sublessor's approval, to assign this Sublease or sublet
the Subleased Premises or any portion thereof, to any successor of Sublessee
resulting from a merger of consolidation of Sublessee or to any entity which is
a parent, subsidiary or affiliate of Sublessor or to any successor to Sublessor
due to a sale of its business (whether stock or asset sale).
12. Sublessee Default. Any one or more of the following events will
-----------------
constitute an event of default ("Event of Default") by Sublessee under this
Sublease:
i) failure or refusal by Sublessee to timely pay any installment of
Basic Rent, any adjustments thereto, or any other amount herein provided to
be paid by Sublessee to Sublessor, where such failure shall continue for
ten (10) days after the receipt of written notice from Sublessor or
designating such failure; or
ii) failure or refusal by Sublessee to perform or observe any other
term, covenant or provision of this Sublease required to be performed or
observed by Sublessee, where such failure continues for thirty (30) days
after written notice to Sublessee from Sublessor (or if such default of
Sublessee is of such a nature that Sublessee cannot reasonably remedy the
same within a thirty (30) day period, Sublessee shall additional time as is
necessary, provided Sublessee promptly commences and diligently pursues
care of the same); or
iii) the institution in a court of competent jurisdiction of
proceedings for reorganization, liquidation, or involuntary dissolution by
Sublessee, or for its adjudication as a bankrupt or insolvent, or for the
appointment of a receiver of the property of Sublessee, provided that
proceedings are not dismissed, and any receiver, trustee, or liquidator
appointed therein is not discharged within ninety (90) days after the
institution of said proceedings.
At any time after such an Event of Default has occurred, Sublessor may
exercise all rights and remedies provided under Section 21 of the Base Lease to
the extent incorporated herein, including, but not limited to, declaring this
Sublease terminated, and Sublessor may immediately
<PAGE>
or at any time thereafter reenter the Subleased Premises and remove all persons
therefrom in accordance with all applicable laws and without prejudice to any of
its other legal rights . In addition, without limiting the foregoing, in the
event Sublessor reasonably believes that Sublessee's failure to cure a breach
under subparagraph (ii) above shall cause a default by Sublessor to occur under
the Base Lease, Sublessor shall specifically have the right, upon giving
Sublessee not less than ten (10) days prior written notice thereof, to cure such
breach or default and be reimbursed by Sublessee for all expenses incurred by
Sublessor in connection therewith upon demand and presentation of invoices
therefor. All rights and remedies of Sublessor herein enumerated shall be
cumulative and none shall exclude any other right or remedy allowed by law or in
equity, and said rights and remedies may be exercised and enforced concurrently
and whenever and as often as occasion therefore arises. Sublessor agrees to use
reasonable efforts to mitigate damages in the event this Sublease is terminated
but Sublessor shall have no liability for its failure to obtain a replacement
occupant for the Subleased Premises after an Event of Default provided it has
used such reasonable efforts.
13. Relationship of Parties. Sublessee recognizes that Sublessor is not
-----------------------
the owner of the Subleased Premises, and that the Landlord is the party with
whom Sublessee would normally deal regarding matters concerning the Subleased
Premises and the Building, and that the Sublessor shall have no obligation to
deliver or provide any services to the Tenant or the Subleased Premises except
to the extent and only to the extent Landlord delivers such services to
Sublessor. Accordingly, in the event Sublessee desires any extra services (for
example, additional air-conditioning services) other than those provided to the
Subleased Premises under the Base Lease, has any complaints concerning services
required to be provided by Landlord under the Base Lease to the Subleased
Premises, or the improvements thereto, or has any other matters which would
normally be discussed with a landlord, Sublessee agrees to contact Landlord
directly to handle such matters; it being the intention of the parties hereto
that, as to such matters, the only connection between Sublessee and Sublessor
shall be (a) the flow-through of rights and obligations of Sublessor under the
Base Lease, and (b) the payment of all amounts payable hereunder by Sublessee to
Sublessor as herein provided. Notwithstanding the foregoing, Sublessor agrees
to use reasonable efforts to enforce Landlord's obligations under the Base Lease
in the event Landlord fails to perform such obligations, and Sublessor shall
contact Landlord, on behalf of Sublessee, regarding any matter set forth in the
previous sentence if Landlord refuses to deal with Sublessee regarding the same.
In the event Sublessee acquires any additional services from Landlord for which
additional costs are incurred and Sublessee does not pay Landlord directly for
such services, then Sublessee shall pay Sublessor such amounts incurred by
Sublessee within ten (10) days following receipt from Sublessor of Landlord's
invoice for such services. In the event the Base Lease allows Sublessor to
terminate the Base Lease in the event of fire or other casualty or taking by
eminent domain, Sublessor shall only exercise such right if Sublessee consents
to the same.
14. Waiver of Subrogation. Anything in this Sublease to the contrary
---------------------
notwithstanding, Sublessor and Sublessee each hereby waive any and all rights of
recovery, claim, action or cause of action against the other, its officers,
directors, employees or agents for any damage to their respective property
located in the Subleased Premises, regardless of cause or origin, including the
negligence of Sublessor, Sublessee and such parties' respective officers,
directors, employees or agents, and each covenants that no insurer or other
third party shall hold
<PAGE>
any right of subrogation against such other party on account thereof. The
provisions of this Paragraph 15 shall survive the expiration or termination of
this release.
15. Holding Over. In the event Sublessee remains in possession of the
------------
Subleased Premises after the Expiration Date, then Sublessee, at Sublessor's
option, shall be deemed to be occupying the Subleased Premises as a tenant at
will at a base rental equal to one hundred fifty percent (150%) of the Basic
Rent, and shall otherwise remain subject to all the conditions, provisions and
obligations of this Sublease insofar as the same are applicable to a tenancy at
will, including without limitation, the payment of all additions to Basic Rent
provided and all other sums payable hereunder. No holding over by Sublessee
after the expiration or termination of this Sublease shall be construed to
extend or renew the Term or in any other manner be construed as permission by
Sublessor to hold over. Sublessee shall indemnify and hold Sublessor harmless
from and against any and all damages (except indirect or consequential damages),
losses, costs and expenses, including reasonable attorneys' fees; incurred by
Sublessor reason of such holding over.
16. Care of the Subleased Premises by Sublessee. Sublessee shall maintain
-------------------------------------------
and repair the Subleased Premises in the manner required by Section 10 of the
Base Lease and shall not commit or allow any waste to be committed on any
portion of the Subleased Premises. At the expiration or earlier termination of
this Sublease, Sublessee shall deliver up the Subleased Premises to Sublessor in
at least the same condition as of the date of this Sublease, excepting only (i)
ordinary wear and tear, (ii) any casualty damage, and/or (iii) repairs which
are the obligation of the Landlord under the Base Lease.
17. Incorporation of Base Lease Terms: Except for Sections 1, 2.a., 3, 4,
----------------------------------
5, 6.a. (except for the definition of "Operating Expenses"), 6.b. (except for
the third paragraph thereof), 6.c., 8, 9.a., 9.b., 9.c., 9.d., 11.a., 11.e., 16,
20, 21.a., 21.f., 21.g., 23, 27, 28, 29, 30, 31, 32, 33, and Exhibits A-E to the
Base Lease, the terms, provisions, covenants and conditions of the Base Lease
are hereby incorporated into this Sublease by reference as fully as if
completely reproduced herein, and to the extent not otherwise inconsistent with
the agreements and understandings expressed in this Sublease or applicable only
to the original parties to the Base Lease, Sublessee assumes the same, subject
to the following:
a) The term "Landlord" as used therein shall refer to Sublessor
hereunder and its successors and assigns; the term "Tenant" as used therein
shall refer to Sublessee hereunder and its successors and permitted
assigns; the term "Term" as used therein shall refer to the Term hereunder;
and the term "Premises" as used therein shall refer to Subleased Premises
herein; and the term "Fixed Rent" as used therein shall refer to Basic Rent
hereunder; the term "Lease" as used therein shall refer to this Sublease;
and the term "Annual Rental" shall refer to the Basic Rent and Operating
Expenses due hereunder in each operating year;
b) In any case where Landlord reserves the right to enter the
Subleased Premises, said right shall inure to the benefit of Sublessor as
well as to Landlord;
<PAGE>
c) Sublessee hereby expressly assumes and agrees (i) to perform all
of the terms, obligations, covenants and conditions to be performed by
Sublessor pursuant to the Base Lease to the extent incorporated into this
Sublease, and (ii) Sublessee shall be entitled to all of the rights and
benefits of Sublessor as Tenant under the Base Lease with respect to the
Subleased Premises;
d) Sublessor hereby expressly agrees not to do, suffer or permit
anything to be done which would result in a default under the Base Lease or
cause the Base Lease to be terminated or forfeited, except pursuant to a
right specifically provided to Sublessor therein. In addition, in no event
shall there be any modification or amendment to the Base Lease without the
prior written consent of Sublessee, which consent may be given or withheld
in Sublessee's sole and absolute discretion;
e) To the extent that any notice or consent is required under this
Sublease, Sublessee shall provide copies of all such notices to Landlord;
and
f) Sublessee agrees to promptly provide Sublessor with any notices
received from Landlord alleging a default under the Base Lease.
18. Security Deposit. Upon the execution of this Sublease, Sublessee
----------------
shall deposit with Sublessor $63,332.49 (the "Security Deposit"), as security
----------------
for the faithful performance and observance by Sublessee of the terms,
provisions, agreements, covenants and conditions of this Sublease. The Security
Deposit shall not be considered an advance payment of Basic Rent or Additional
Charges, and the Security Deposit shall not be considered a measure of
Sublessor's damages in case of the occurrence of any default under this
Sublease. Sublessor shall place the Security Deposit in a separate interest
bearing account (with interest to Sublessor) with the name of the bank and the
account number provided to Sublessee. In the event Sublessee defaults beyond
applicable notice and owe periods in respect to any of the terms, provisions,
agreements, covenants and conditions of this Sublease including, but not limited
to, the payment of Basic Rent or Additional Charges, Sublessor may, at
Sublessor's option, from time to time, without prejudice to any other remedy,
use, apply or retain the whole or any part of the Security Deposit not
theretofore applied to Basic Rent or Additional Charges to the extent necessary
to make good any arrears of Basic Rent or Additional Charges or any damage,
injury, expense or liability caused by such default. If Sublessor shall ever
use the Security Deposit not theretofore applied to Basic Rent to pay the sums
described above, and if this Sublease has not terminated, Sublessee shall
deposit with Sublessor additional monies equal to the amount so used within ten
(10) days after request therefore. The Security Deposit (less any amounts
properly retained by Sublessor) shall be returned to Sublessee within thirty
(30) days after the termination or expiration of this Sublease.
19. Notices. All notices or requests provided for hereunder shall be in
-------
writing and shall be either delivered by hand or sent by United States
Registered or Certified Mail, return receipt requested, postage prepaid, if to
Sublessor, to 55 Old Bedford Road, Lincoln, Massachusetts 01773; or if for
Sublessee at the Subleased Premises or, if prior to the commencement hereof, to
360 Mass Ave., #103, Acton, MA 01720, Attention: Michael Bayer, with a copy to
Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston, MA 02110, Attention:
<PAGE>
Real Estate Department. All such notices shall be deemed received either when
hand delivered or two (2) business days after being placed in the United States
Mail in the manner set forth above. The parties hereto shall have the right
from time to time to change their respective address by at least five (5) days
prior written notice to the other party.
20. Governing Law. THIS SUBLEASE SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
21. Interest on Sublessee's Obligations. All amounts owed by Sublessee to
-----------------------------------
Sublessor under this Sublease shall bear interest from the date due until paid
at the lesser of (i) the maximum, nonusurious rate permitted by law or (ii)
eighteen percent (18%) per annum, but the payment of such interest shall not
excuse or cure the Event of Default.
22. Severability. In the event that any one or more of the provisions
------------
contained in this Sublease shall be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof; and this Sublease shall be
construed as if such invalid, illegal, or unenforceable provision had never been
contained herein.
23. Attorneys' Fees. If any action at law or in equity, including an
---------------
action for declaratory relief, is brought to enforce or interpret the provision
of this Sublease, the prevailing party shall be entitled to recover reasonable
attorneys' fees from the other party.
24. Amendments. This sublease may not be altered, changed or amended,
----------
except by an instrument in writing executed by all parties hereto.
25. NO REPRESENTATIONS OR WARRANTIES. SUBLESSEE HEREBY EXPRESSLY
--------------------------------
ACKNOWLEDGES AND AGREES THAT SUBLESSOR HAS MADE NO REPRESENTATIONS OR WARRANTIES
TO SUBLESSEE AS TO THE USE OR CONDITION OF THE SUBLEASED PREMISES OR THE
BUILDING OR AS TO THE ADEQUACY OF ANY EQUIPMENT (INCLUDING THE HEATING,
VENTILATING OR AIR CONDITIONING EQUIPMENT), EITHER EXPRESS OR IMPLIED, AND
SUBLESSOR EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTY THAT THE SUBLEASED PREMISES
ARE SUITABLE FOR SUBLESSEE'S INTENDED COMMERCIAL PURPOSE OR ANY OTHER IMPLIED
WARRANTY REGARDING THE SUBLEASED PREMISES. IN ADDITION, EXCEPT AS HEREIN
EXPRESSLY PROVIDED, SUBLESSEE EXPRESSLY ACKNOWLEDGES AND AGREES THAT SUBLESSEE'S
OBLIGATION TO PAY BASIC RENT OR ANY OTHER SUMS DUE HEREUNDER IS NOT DEPENDENT
UPON THE CONDITION OF THE SUBLEASED PREMISES OR THE PERFORMANCE BY SUBLESSOR OF
ITS DUTIES OR OBLIGATIONS HEREUNDER (OR BY LANDLORD OR ITS DUTIES UNDER THE
LEASE), AND THAT SUBLESSEE WILL CONTINUE TO PAY BASIC RENT AND ALL OTHER SUMS
PROVIDED FOR HEREIN TO BE PAID BY SUBLESSEE WITHOUT ABATEMENT, SETOFF, OR
DEDUCTION, (EXCEPT AS ALLOWED HEREUNDER) NOTWITHSTANDING BREACH BY SUBLESSOR OF
ITS DUTIES OR OBLIGATIONS HEREUNDER (OR BY LANDLORD OF ITS DUTIES UNDER
<PAGE>
THE BASE LEASE), EXPRESS OR IMPLIED. SUBLESSOR AND SUBLESSEE EXPRESSLY AGREE
THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY,
HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER KIND ARISING OUT OF
THIS SUBLEASE AND THAT ALL EXPRESS OR IMPLIED WARRANTIES IN CONNECTION HEREWITH
ARE EXPRESSLY DISCLAIMED.
26. Quiet Enjoyment. Provided Sublessee has performed all of the terms,
---------------
covenants, agreements and conditions of this Sublease Agreement, Sublessee shall
peaceably and quietly hold and enjoy the Subleased Premises against Sublessor
and all persons claiming by, through or under Sublessor or Landlord, for the
Term herein described, subject to the provisions and conditions of this Sublease
and of the Base Lease.
27. Entire Agreement. This Sublease constitutes the entire agreement
----------------
between Sublessee and Sublessor and supersedes all prior agreements (whether
written or otherwise) which may exist between the parties with regard to the
lease and use of the Subleased Premises by Sublessee.
28. Brokers. Sublessee acknowledges that Fallon Hines & O'Connor and CB
-------
Richard Ellis, Whittier Partners are the brokers on this transaction (the
"Brokers"). Additionally, Sublessee and Sublessor each warrant and represent to
the other that it has not dealt with any real estate brokers and/or salesman in
connection with the negotiation or execution of this Sublease other than Brokers
and no such broker or salesman has been involved in connection with this
Sublease. Brokers are being compensated pursuant to a separate agreement with
Sublessor. Sublessee and Sublessor each agree to defend, indemnify and hold
harmless the other from and against any and all costs, expenses, attorneys' fees
or liability for any compensation, commission and charges claimed by any real
estate broker and/or salesman (other than Brokers), arising out of its breach of
the foregoing representation and warranty.
29. Sublessor's Representations and Warranties. Sublessor warrants and
------------------------------------------
represents that:
(i) the copy of the Base Lease attached to this Sublease as Exhibit
A is a complete and accurate copy of the Base Lease, which is in effect and
has not been amended except as set forth in Exhibit A;
(ii) To the best of Sublessor's knowledge, Lessor is not in material
default under the Base Lease, nor has any event occurred which, after any
applicable notice and/or the expiration of any grace period, shall
constitute a material default by Lessor under the Base Lease;
(iii) Sublessor is not in default under the Base Lease, nor has any
event occurred which, after any applicable notice and/or the expiration of
any grace period, shall constitute a material default by Sublessor under
the Base Lease; and
<PAGE>
(iv) Sublessor shall not agree to any amendment or voluntary
termination of the Base Lease without the prior written consent of
Sublessee which may be withheld in its sole discretion, and in the event of
a termination of the Base Lease due to a default of Sublessor, as tenant
thereunder, shall hold harmless, defend and indemnify Sublessee from all
loss, costs, damages and liabilities to Sublessee arising out of the
termination of the Base Lease and the corresponding termination of this
Sublease;
(v) All rent, additional rent and other charges due under the Base
Lease have been paid as billed or required in the normal course through
March 31, 1999.
The provisions of this Section 29 shall survive the expiration or earlier
termination of this Sublease.
30. Consent of Landlord. This Sublease shall be effective only upon
--------------------
Landlord's consent hereto evidenced by a separate document executed by Landlord.
31. Insurance. Sublessee agrees to maintain insurance throughout the Term
---------
as required under Section 11.b and 11.c of the Base Lease.
EXECUTED in multiple counterparts, each of which shall have the force and
effect of an original, as of this 26th day of March, 1999.
SUBLESSOR: SUBLESSEE:
PREVISION MARKETING, INC., MOTHER NATURE.COM, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Deborah Pine By: /s/ Michael Barach
-------------------------------- --------------------------------
Name: Name:
------------------------------ ------------------------------
Title: Title:
----------------------------- -----------------------------
<PAGE>
BASE LEASE
<PAGE>
LEASE
-----
ONE CONCORD FARMS
490 VIRGINIA ROAD, CONCORD, MA
Tenant: PreVision Marketing, Inc.
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. LEASE OF PREMISES.......................................... 1
2. DEMISE OF PREMISES......................................... 1
3. TERM....................................................... 2
4. RENT....................................................... 4
5. TIME AND PLACE OF PAYMENTS/LATE FEE/SECURITY DEPOSIT....... 5
6. TENANT'S SHARE OF OPERATING EXPENSES; UTILITY OBLIGATIONS.. 6
7. SERVICES................................................... 9
8. QUIET ENJOYMENT............................................ 13
9. CONDITION/PREPARATION OF PREMISES/ALTERATIONS.............. 13
10. MAINTENANCE AND REPAIRS.................................... 17
11. INSURANCE.................................................. 17
12. FIRE AND CASUALTY DAMAGE................................... 18
13. EMINENT DOMAIN............................................. 19
14. SIGNS...................................................... 20
15. ACCESS..................................................... 21
16. SUBLEASE AND ASSIGNMENT.................................... 21
17. [INTENTIONALLY DELETED].................................... 22
18. SUBORDINATION.............................................. 22
19. TENANT'S COVENANTS......................................... 23
20. TENANT'S DEFAULTS.......................................... 25
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
21. RIGHTS OF LANDLORD UPON TENANT'S DEFAULT................... 26
22. RECORDING.................................................. 28
23. LIABILITY.................................................. 28
24. FORCE MAJEURE.............................................. 29
25. MECHANICS' LIENS........................................... 29
26. WAIVER; ACCORD AND SATISFACTION............................ 29
27. DEFINITIONS................................................ 29
28. SEPARABILITY CLAUSE........................................ 29
29. EXECUTION.................................................. 30
30. NOTICES.................................................... 30
31. BROKER'S INDEMNITY......................................... 30
32. HOLDING OVER............................................... 30
33. LANDLORD'S MORTGAGES....................................... 30
</TABLE>
EXHIBITS:
Exhibit A - Plan of Premises
---------
Exhibit B - Plan of Expansion Premises
---------
Exhibit C-1 - Preliminary Plans of Third Floor Improvements
-----------
Exhibit C-2 - Preliminary Plans of Second Floor Improvements
-----------
Exhibit C-3 - Narrative Summary of Leasehold Improvements
-----------
Exhibit D - Landlord's Building Standards
---------
Exhibit E - Landlord's Building Plans
---------
Exhibit F - Rules and Regulations
---------
-ii-
<PAGE>
LEASE
-----
This lease (the "Lease") entered into by and between:
NEW ENGLAND FARMS LIMITED PARTNERSHIP, a Massachusetts limited partnership
("Landlord"),
and
PREVISION MARKETING, INC., a Delaware corporation ("Tenant").
1. LEASE OF PREMISES
In consideration of the rents and covenants contained herein to be paid,
performed and observed by Tenant, the Landlord hereby leases to the Tenant and
the Tenant hereby leases from the Landlord, subject to the terms and conditions
hereinafter set forth, the Premises (as defined in Section 2 below).
2. DEMISE OF PREMISES
2.a. Premises. The premises demised hereby (the "Premises") are located in
--------
the building known as One Concord Farms, located at 490 Virginia Road in
Concord, Massachusetts (the "Building"). The Building together with the land
upon which it is located are referred to as "Landlord's Property". The Premises
consist of certain rentable space in the Building designated as Suites 30, 31
and 32 on the Third Floor (Suites 30 and 31 also include mezzanine space) the
"Third Floor Premises"), and as Suites 20, 21 and 22 on the Second Floor (the
"Second Floor Premises"), which spaces are shown on Exhibit A, attached hereto.
---------
The Third Floor Premises and the Second Floor Premises together constitute the
Premises.
Notwithstanding the foregoing, from the Term Commencement Date (as defined in
Section 3) until the Second Floor Completion Date (as defined in Section 9),
Tenant may only use and occupy the Third Floor Premises; and Tenant may not use
or occupy any portion of the Second Floor Premises until after the Second Floor
Completion Date.
2.b. Exceptions and Reservations. Excepted and reserved to the Landlord,
---------------------------
however, from the Premises, is the space in utility closets, pipes, ducts,
shafts, conduits, chases and cable runs necessary to install, maintain and
operate, by means of pipes, ducts, wires or otherwise those utilities and
services required for the Building and common facilities thereof (including the
Premises), and the right of access and entry to the Premises by the Landlord and
its agents for the purpose of making repairs, alterations and additions to the
Premises and to the Building and other tenant space therein. Landlord agrees to
perform such installation, maintenance and repair so as to minimize interference
with Tenant's use and occupancy of the Premises.
2.c. Expansion Rights. Landlord agrees that if, during the original Term,
----------------
Suits 10, 11 or 12, on the First Floor of the Building, which spaces are shown
on Exhibit B, attached hereto (the "Expansion Premises"), shall become available
---------
for rent, prior to marketing the Expansion Premises to the general public,
Landlord shall notify Tenant of the availability of the Expansion Space, and for
a period of 30 days following such notice, Tenant shall have the exclusive right
to
-1-
<PAGE>
negotiate with Landlord regarding the leasing of such space; and Landlord
agrees, if Tenant informs Landlord that it is interested in leasing the
Expansion Space, to negotiate in good faith with Tenant regarding the terms of
such a lease. After the expiration of said 30-day period, the rights of Tenant
under this Subsection shall expire and be of no further force and effect. the
foregoing right shall not be applicable to the initial leasing of the Expansion
Premises.
3. TERM
3.a. Term. Subject to the conditions herein stated, the Tenant shall hold
----
the Premises for a term of 5 years (the "Term" or the "original Term")
commencing on the Third Floor Completion Date (the "Term Commencement Date"),
and terminating on the last day of the calendar month in which the fifth
anniversary of the Term Commencement Date occurs. Landlord and Tenant agree to
execute a written confirmation of the Term Commencement Date, once it is
established.
As used herein, the term "lease year" shall mean each successive 12-month period
included in whole or in part in the Term, the first lease year beginning on the
Term Commencement Date and ending on the last day of the calendar month in which
the first anniversary of the Term Commencement Date, once it is established.
As used herein, the term "lease year" shall mean each successive 12-month period
included in whole or in part in the Term, the first lease year beginning on the
Term Commencement Date and ending on the last day of the calendar month in which
the first anniversary of the Term Commencement Date occurs.
3.b. Option to Extend the Term.
-------------------------
(1) Option. The Tenant shall, subject to the provisions of this
------
Section, have the option to extend the Term of this Lease for either (a) two (2)
additional 3-year terms (the "3-Year Extensions") or (b) one (1) additional 5-
year term (the "5-Year Extension"). The option to extend (and the further option
to extend, if Tenant exercises the 3-Year Extensions) shall be conditioned on:
(i) Tenant not having sublet more than 50% of the Premises or assigned this
Lease to any party, and (ii) Tenant providing Landlord with written notice of
such election to extend the Term, at least 9 months (but not more than 12
months) prior to the expiration of the Term or the extension term then in
effect. At the time of the exercise of the option to extend, and as a condition
of the validity off such exercise, Tenant shall irrevocably select either the 3-
Year Extensions or the 5-Year Extension. If Tenant shall be in default under the
terms of this Lease beyond all applicable notice and cure periods (whether or
not the same is subsequently cured) at the time of the exercise of such option
or at any time thereafter until the expiration of the original Term or the then
current extension term, as applicable, Tenant's options to extend the Term
hereunder shall automatically become null and void and of no further force and
effect.
In the event that Tenant shall exercise this 3-Year Extensions, each such
extension shall be on the same terms and conditions as set forth in this Lease,
except: (i) after the second of the 3-Year Extensions is exercised, there shall
be no further right to extend the Term of this Lease; and (ii) the annual Fixed
Rent during each of the extension terms shall be as follows:
-2-
<PAGE>
The annual Fixed Rent due hereunder during the first 3-year extension
term and during the second 3-year extension term shall equal the
greater of (i) the annual Fixed Rent payable during the last lease
year of the original Term, or the last lease year of the first
extension term, including any prior CPI Increase (as defined in
Section 4 below), or (ii) the fair market rental value of the
Premises.
In the event that Tenant shall exercise the 5-Year Extension, such extension
shall be on the same terms and conditions as set forth in this Lease, except:
(i) there shall be no further right to extend the Term of this Lease; and (ii)
the annual Fixed Rent during the extension term shall be as follows:
The annual Fixed Rent due hereunder during the 5-year extension term
shall equal the greater of (i) the annual Fixed Rent payable during
the last lease year of the original Term, including any prior CPI
Increase, or (ii) the fair market rental value of the Premises.
During the extension terms, Tenant shall continue to pay all additional rent and
other charges as provided hereunder, including without limitation Tenant's share
of the Operating Expenses (as provided in Section 6). The CPI Increase shall be
fully applicable to the annual Fixed Rent during the extension terms, to the
extent provided in Section 4 below.
Should Tenant extend the Term as provided herein, the term "Term", as used
herein shall refer to the original Term together with the extension term or
terms.
If the Fixed Rent to be paid during any extension term has not been fully
determined as of the first day of the extension term, Tenant shall make payments
of Fixed Rent hereunder in the amount of 115% of the annual Fixed Rent payable
during the last lease year period to such extension term, including any CPI
Increase, if applicable; and upon such Fixed Rent amount being determined, an
appropriate retroactive Fixed Rent adjustment payment or credit shall be made,
if necessary.
(2) Determination of Rent. The fair market rental value of the
---------------------
Premises shall be initially established by Landlord by written notice to the
Tenant within 30 days after Landlord's receipt of Tenant's notice exercising the
applicable extension option. Such determination shall be deemed the fair market
rental value hereunder unless Tenant objects in writing within 7 days of
receiving such notice. If Tenant does so object, and the parties are unable to
agree on such value within 30 days, the fair market rental value shall be
determined by arbitration as follows: Landlord and Tenant shall each promptly
designate a fit and impartial person knowledgeable in the field of real estate
as arbitrator and the two arbitrators so designated shall designate a third
arbitrator with similar qualifications. The three arbitrators, so designated,
shall make a determination of the fair market rental value of the Premises in
accordance with generally accepted real estate appraisal practice. Their
determination shall be conclusive, final and binding on the parties and
enforceable in any court having jurisdiction over the parties, and the costs of
the arbitration shall be shared equally by the parties.
-3-
<PAGE>
4. RENT
4.a. Fixed Rent. The annual fixed rent ("Fixed Rent") payable by the
----------
Tenant to the Landlord shall be payable as follows (subject to increases
pursuant to the last paragraph of this Section):
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Premises Annual Fixed Rent Monthly Installments
-------- ----------------- --------------------
--------------------------------------------------------------------------------------
<S> <C> <C>
Third Floor Premises $102,846 $ 8,570.50
--------------------------------------------------------------------------------------
Second Floor Premises $ 54,839 $ 4,569.92
-------- ----------
--------------------------------------------------------------------------------------
TOTAL: $157,685 $13,140.42
--------------------------------------------------------------------------------------
</TABLE>
All Fixed Rent shall be payable in monthly installments due on the first day of
every month during the Term. All rent payments are due in advance without
notice, demand, deduction or set-off (except only as expressly provided
otherwise herein). The obligation to pay the Fixed Rent shall commence on the
Term Commencement Date. Fixed Rent for the first month of the Term, together
with the installment payment on account of Tenant's share of the Operating
Expenses for such month, as provided in Section 6 below, shall be payable at the
time of the execution of this Lease. If the first lease year is longer than one
12-month calendar year, the annual Fixed Rent for such lease year shall be
increased proportionately to the greater length of such lease year.
Notwithstanding the foregoing, from the Term Commencement Date until the Second
Floor Commencement Date (as defined in Section 9 below), the Fixed Rent
hereunder shall be payable in the amount of $8,570.50 per month.
In order to reflect increases in the cost of living over the Term of this Lease
(as it may be extended), the Fixed Rent to be paid by Tenant hereunder (as set
forth above) shall be increased every three years during the Term (and any
extensions thereof), on a cumulative basis, commencing on the third anniversary
of the Term Commencement Date, by a percentage equal to 1/2 of the percentage
increase in the Consumer Price Index during the same three-year period (the "CPI
Increase"). The CPI Increase shall be determined by utilizing the Consumer
Price Index for all Urban Consumers (CPI-U): Boston, Massachusetts Area, All
Items (1982-84=100), as published by the Bureau of Labor Statistics, Department
of Labor, based on the index published next prior to the date of the last CPI
Increase (or the Term Commencement Date, if it is the first increase) and the
index published next prior to the effective date of the increase, provided that
the CPI Increase hereunder shall never be less than $0. If such index shall be
altered or updated or discontinued, the landlord shall appropriately adjust the
index to used hereunder or designate a comparable index. Notwithstanding the
foregoing, (i) if Tenant exercises the 3-Year Extensions (as provided in Section
3.b. above), there shall be no CPI Increase during said extension terms, and
(ii) if Tenant exercises the 5-Year Extension (as provided in Section 3.b.
above), the CPI Increase during the extension term shall occur on the
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third anniversary of the commencement date of the 5-Year Extension, and shall
relate to the three-year period commencing on the commencement date of the 5-
Year Extension.
4.b. Additional Rent. Tenant shall also pay, in addition to the Fixed Rent,
---------------
as additional rent hereunder, without notice, abatement, deduction or set-off
(except as expressly provided otherwise herein), all sums, impositions, costs,
expenses and other payments which Tenant in any of the provisions of this Lease
assumes or agrees to pay (including without limitation, Tenant's share of the
Operating Expenses as provided in Section 6 below), and, in case of any
nonpayment thereof, Landlord shall have all of the rights and remedies provided
by law or provided for in the Lease for the nonpayment of Fixed Rent.
5. TIME AND PLACE OF PAYMENTS/LATE FEE/SECURITY DEPOSIT
5.a. Payment of Rent. All payments of rent and other amounts due hereunder
---------------
shall be made by the Tenant to the Landlord without notice or demand at such
place as the Landlord may from time to time designate in writing. The extension
of time for the payment of any amount due hereunder, or the acceptance thereof
after the time at which it is payable shall not be a waiver of the rights of the
Landlord to insist on having all other payments made in the manner at the times
herein specified.
5.b. Late Fee. In the event any Fixed Rent, additional rent or any other
--------
payments are not paid within 10 days of the due date thereof, Tenant shall be
charged a late fee of $150.00 for each late payment for each month or portion
thereof that said payment remains outstanding. Said late fee shall be payable
in addition to and not in exclusion of additional remedies herein provided to
Landlord.
5.c. Security Deposit. Simultaneously with the execution of this Lease,
----------------
Tenant shall deliver to Landlord the sum of $19,387.50 (the "Security Deposit"),
as security for the payment of the rents and the performance and observance of
the agreements and conditions in this Lease contained on the part of the Tenant
to be performed and observed.
In the event of any default or defaults in such payment, performance or
observance, Landlord may apply the Security Deposit or any part thereof toward
the curing of any such default or defaults and/or toward compensating Landlord
for any loss or damage arising from any such defaults or defaults, including any
damages or deficiencies in the reletting of the Premises, whether such damage or
deficiency occurs before or after a repossession proceeding or other reentry by
Landlord. Tenant shall not be entitled to any interest on the Security Deposit.
It is understood and agreed that Landlord shall always have the right to apply
the Security Deposit, or any part thereof, as aforesaid in the event of any such
default or defaults, without prejudice to any other remedy or remedies which
Landlord may have or Landlord may pursue any other such remedy or remedies in
lieu of applying the Security Deposit or any part thereof. If Landlord shall
apply the Security Deposit or any part thereof as aforesaid, Tenant shall upon
demand pay to Landlord the amount so applied by Landlord, to restore the
Security Deposit to its original amount. Upon yielding up of the Premises at
the expiration or other termination of the Term, if Tenant shall not then be in
default or otherwise liable to Landlord, the security Deposit or the unapplied
balance thereof shall be returned to Tenant. Whenever the holder of Landlord's
interest in this Lease shall transfer its interest in this Lease, said holder
shall turn over to its
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<PAGE>
transferee the Security Deposit or the unapplied balance thereof, and thereafter
such holder shall be released from any and all liability to Tenant with respect
to the security Deposit or its application or return. The holder of any mortgage
upon Landlord's Property shall never be responsible to Tenant for the Security
Deposit or its application or return unless the Security Deposit shall actually
have been received by such holder.
Notwithstanding anything to the contrary contained herein, if Tenant shall
fully, promptly and punctually perform all of its obligations under this Lease
during the original Term and shall exercise the option to extend the Term, as
provided in Section 3.b., Landlord shall promptly return the Security Deposit to
Tenant upon the commencement of such extension term.
6. TENANT'S SHARE OF OPERATING EXPENSES; UTILITY OBLIGATIONS
6.a. Tenant's Operating Expense Obligation. Tenant shall pay to the
-------------------------------------
Landlord, as additional rent hereunder, the greater of (i) 57.67% of the
Landlord's Operating Expenses (as defined below), for each operating year, or
(ii) Landlord's Operating Expenses Base (as defined below). Should Landlord make
additions to the Building during the Term, Tenant's percentage share of the
Operating Expenses shall be appropriately adjusted by Landlord. In addition,
Tenant shall also pay to Landlord 100% of any Operating Expenses which are
incurred by Landlord and either are caused solely by any default or any
negligent act or omission by the Tenant or its employees, agents, contractors or
invitees, are due to services performed as special services exclusively for the
Tenant which services are not provided generally to other tenants of the
Building, or are otherwise directly allocable to the Premises pursuant to the
terms hereof.
The term "Landlord's Operating Expenses Base" shall mean the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Landlord's Operating
Premises Expenses Base Monthly Installments
- -------- ------------- --------------------
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Third Floor Premises $48,894 $4,074.50
Second Floor Premises $26,071 $2,172.58
------- ---------
TOTAL: $74,965 $6,247.08
- ------------------------------------------------------------------------------------------
</TABLE>
If the first lease year is longer than one 12-month calendar year, the
Landlord's Operating Expenses Base for the first lease year shall be increased
proportionately to the greater length of such lease year.
Notwithstanding the foregoing (except for Tenant's obligation to pay 100% of
certain Operating Expenses, as provided in the last sentence of the first
paragraph of this Section, which shall be unaffected):
(1) If, with respect to any lease year, Tenant's percentage share of
Landlord's Operating Expenses shall be less than Landlord's
Operating Expenses Base, Tenant's additional rent obligation on
account of Landlord's Operating Expenses, as determined
hereunder, shall be reduced by an amount equal to 75% of such
difference.
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<PAGE>
(2) For the first lease year of the Term, Tenant's additional rent
obligation on account of Landlord's Operating Expenses shall not
exceed Landlord's Operating Expense Base.
(3) From the date that Tenant gives the Notice to Proceed (as defined
in Section 9) until the Second Floor Commencement Date (as
defined in Section 9), the additional rent due hereunder on
account of Landlord's Operating Expenses shall be in the amount
of $4,075 per month.
For the purpose of this Lease the term "Operating Expenses" shall mean those
costs incurred by Landlord with respect to the operating, administration,
cleaning, repair, management and maintenance of Landlord's Property (including
both the Building and the land on which the Building is located and specifically
including the Landlord's Property's share of certain common costs and expenses
of the Concord Farms office park, including all costs relating to the Health
Club), including but not limited to the following: Salaries, wages, medical,
surgical and general welfare benefits (including group life insurance), pension
payments, payroll taxes and workmen's compensation insurance of employees of
Landlord engaged in the operation and maintenance of Landlord's Property, such
expenses shall be reasonably allocated and apportioned to Landlord's Property);
electricity, air conditioning, steam, gas, heating fuel and utility charges and
taxes; real estate taxes and assessments of every kind and nature imposed,
assessed or levied by a governmental authority on Landlord's Property, including
without limitation all taxes, betterments, and assessments (ordinary and
extraordinary), and all installments thereof (provided, with respect to any
betterment assessments which may be paid in installments, same, together with
any interest or other charges associated with the payment in installments, shall
be deemed paid over the longest period permitted and included only to the extent
of installments payable during the Term); water and sewer rents, taxes and
charges; casualty, liability and other insurance premiums (or the portions
thereof applicable to the Building or Landlord's Property); repairs and
maintenance, rubbish removal, window cleaning (interior and exterior), snow
removal and care of landscaping; costs and expenses of inspection, use and
maintenance of machinery and equipment used in connection with the operation
and maintenance of Landlord's Property; costs of heating both rentable spaces
of the Building and the common areas of the Building; costs of providing
cleaning services for the common facilities and for tenants of the Building;
building and cleaning supplies, uniforms and dry cleaning, accounting and legal
fees and charges related to the operation and administration of Landlord's
Property (exclusive of any fees and disbursements incurred in the preparation of
leases or in disputes with other tenants of the Building); management fees of 4%
of the aggregate of all rent and other revenue (including without limitation all
Fixed Rent, additional rent and other amounts received from operations at
Landlord's Property); service contracts with independent contractors; telephone,
telegraph and stationery; and all other expenses paid in connection with the
operation of Landlord's Property which are properly chargeable against income.
Operating Expenses shall not include: (i) franchise, estate, inheritance,
succession, capital levy, income or excess profit taxes assessed against the net
income of Landlord; (ii) costs incurred in performing work or furnishing
services for individual tenants which work or services are substantially in
excess of the work or services required to be provided to Tenant; (iii)
depreciation of the Building or any other improvements on Landlord's Property;
(iv) interest or any increase in the rate of interest payable by Landlord with
respect to any debts secured by a mortgage on the Building and/or Landlord's
Property; (v) leasing or brokerage commissions; (vi) costs incurred for which
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<PAGE>
Landlord to the extent reimbursed by tenants of the Building (including Tenant)
or by third parties (including insurers); (vii) expenses for repair or
replacement to the extent paid by proceeds of condemnation awards or property
insurance policies; (viii)charitable or political contributions; (ix)
improvements to the Building or Landlord's Property which are capitalized; (x)
the costs of services provided by entities affiliated with Landlord, but only to
the extent such contracts provide for excessive fees when compared to those then
charged for similar services by third-party vendors, and (xi) home office
expenses which relate to matters other than the maintenance and operation of
Landlord's Property.
6.b. Payment of Share of Operating Expenses. For the first lease year,
--------------------------------------
Tenant shall pay such additional rent for its share of the Operating Expenses in
monthly installments equal to the monthly installment of Landlord's Operating
Expenses Base ($6,247.08 per month), except as provided in the clause (3) of the
fourth paragraph of Section 6.a. Following the first lease year, Tenant shall
pay such additional rent in estimated monthly installments, as determined by the
Landlord from time to time, as provided below. Such monthly installment
payments from Tenant to Landlord for Operating Expenses shall begin as of the
Term Commencement Date and shall be due on the Term Commencement Date and on the
first day of each month thereafter during the Term, such payments to be made
together with the payments of Fixed Rent hereunder.
At the beginning of each operating year, Landlord shall determine the estimated
monthly installment payments for the operating year, which amount shall remain
in effect until the last day of that operating year, unless further adjusted by
Landlord from time to time. Such estimated monthly amount shall never be less
than the monthly installment of the Landlord's Operating Expenses Bases.
After the end of each operating year, Landlord shall provide Tenant with a
statement setting forth in reasonable detail the actual Operating Expenses for
that operating year, Tenant's share thereof, and any additional rent owed by
Tenant or overpayment by Tenant with respect to that operating year. Within 30
days thereafter, Tenant shall pay Landlord any balance due. If Tenant overpaid
the additional rent for such operating year, such overpayment shall be credited
to the next installment of rent due hereunder, or promptly shall be paid to
Tenant if the Term hereof shall have expired.
The term "operating year" shall mean a period of 12 months as designated from
time to time by the Landlord, the operating year currently being the fiscal year
beginning July 1 and ending June 30. If the Term shall contain only a partial
operating year, at the beginning or end of the Term, the Landlord's Operating
Expenses for such operating year shall be pro rated.
Tenant's obligation to pay additional rent under this Section shall survive the
expiration or early termination of the Term.
6.c. Tenant's Utility Obligations. The Tenant shall promptly pay for all
----------------------------
utilities furnished to the Premises which are separately metered or measured.
Operating Expenses do not include utilities supplied to tenants of the Building
that are separately billed to the tenants receiving the same. Operating
Expenses do include all utilities furnished to the Premises and to all other
tenants of the Building which are not separately metered or measured. If any
utility is furnished to the Premises and to other tenants, but not all other
tenants, of Building, and such
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<PAGE>
utilities are not separately metered or measured, Tenant shall pay, as
additional rent hereunder, upon demand, its pro rata share of such utility
charges based upon the aggregate rentable square footage of all the premises
receiving such utility service.
6.d. Tenant's Audit Rights. Landlord shall permit Tenant, at Tenant's
---------------------
expense and during normal business hours but only one time with respect to any
operating year, to review Landlord's invoices and statements relating to
Operating Expenses for the applicable operating year for the purpose of
verifying the statement which Landlord is required to deliver to Tenant
hereunder, provided that notice of Tenant's desire to so review is given to
Landlord not later than three months after Tenant receives such statement from
Landlord, and provided that such review is thereafter commenced and prosecuted
by Tenant with due diligence. Any such accounting by Landlord shall be binding
and conclusive upon Tenant unless (i) Tenant duly requests such audit within
such three month period, and (ii) within three months after such audit request,
Tenant shall notify Landlord in writing that Tenant disputes the correctness of
such statement, specifying the particular respects in which the statement is
claimed to be incorrect. If such dispute has not been settled by agreement
within two months thereafter, either party may submit the dispute to arbitration
in accordance with the commercial arbitration rules of the American Arbitration
Association with 30 days after the expiration of the aforementioned two month
period. The decision of the arbitrators shall be final and binding on Landlord
and Tenant and judgment thereon may be entered in any court of competent
jurisdiction. If Tenant's audit shows a discrepancy of more than five percent
(5%) between Landlord's accounting of the Operating Expenses and the actual
Operating Expenses for the applicable period, Landlord shall pay the cost of
such audit.
7. SERVICES
7.a. Electric Current. With respect to electrical service, it is agreed as
----------------
follows:
(1) The Premises will contain separate electric meters for measuring
electricity furnished to the Premises. Tenant shall contract with the company
supplying electrical current for the purchase and obtaining of electrical
current directly from such company, which shall be billed directly to and paid
for by Tenant. This shall include all current used in the Premises, including
but not limited to all electricity used for heating, air conditioning and
ventilation, lighting, equipment and machines.
Notwithstanding the foregoing, and so long as electricity is consumed at the
Premises solely for lights, convenience receptacles and air conditioning in
connection with ordinary office use, if the charges for electrical service to
the Premises exceed $15,510 during the first lease year, Landlord agrees to
reimburse Tenant for the amount of such excess. Tenant shall provide Landlord
with copies of paid bills evidencing such electrical charges and such excess
amount shall be credited to the next installment of rent due hereunder. The
foregoing shall apply only to electrical charges for the first lease year.
(2) If tenant shall require electrical current for use in the Premises
in excess of the capacities provided after the completion of the Leasehold
Improvements, and if in Landlord's reasonable judgment, Landlord's facilities
are inadequate for such excess requirements or such excess requirements will
result in an additional burden on the Building systems and additional
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<PAGE>
costs to Landlord on account thereof, then Landlord shall upon written request
and at the sole cost and expense of Tenant, furnish and install such additional
wires, conduits, feeders, switchboards and appurtenances as reasonably may be
required to supply such additional requirements of Tenant, provided current
therefor is available to Landlord, and provided further that the same shall be
permitted by applicable laws and insurance regulations and shall not cause
permanent damage to the Building or the Premises, cause or create a dangerous or
hazardous condition, entail excessive or unreasonable alterations or repairs, or
interfere with or disturb other tenants or occupants of the Building. Tenant
shall reimburse Landlord on demand for all costs incurred by Landlord on account
thereof.
(3) Tenant shall be responsible, at Tenant's expense, for keeping all
light fixtures properly lamped at all times and for purchasing and installing
all lamps and replacement lamps (including without limitation both incandescent
and fluorescent) used in the Premises.
(4) Landlord shall not in any way be liable or responsible to Tenant
for any loss, damage or expense which Tenant may sustain or incur if the
quantity, character or supply of electrical energy is changed or is no longer
available or suitable for Tenant's requirements, except as expressly provided
otherwise herein.
(5) Tenant agrees that it shall not make any material alteration or
material addition to the electrical equipment or appliances in the Premises
without obtaining the prior written consent of Landlord in each instance, which
consent will not be unreasonably withheld, conditioned or delayed, and Tenant
shall promptly advise Landlord of any other alteration or addition to such
electrical equipment appliances.
7.b. Water. Landlord shall furnish hot and cold water to common area
-----
restrooms for ordinary office-type cleaning, toilet, lavatory and drinking
purposes, and, if the Premises contains any lavatories or other similar
facilities with utilize water for such purposes, Landlord shall also furnish hot
and cold water to such lavatories and facilities for such purposes. If Tenant
requires, uses or consumes water for any purpose other than for the
aforementioned purposes or otherwise in excessive quantities, Landlord may (i)
assess a reasonable charge for the additional water used or consumed by Tenant,
or (ii) install a water meter and thereby measure Tenant's water consumption for
all purposes. In the latter event, Landlord shall pay the cost of the meter and
the cost of installation thereof and shall keep said meter and installation
equipment in good working order and repair. Tenant agrees to pay for water
consumed, as shown on said meter, together with the sewer use charge based on
said meter charges as and when bills are rendered. On default in making such
payment, Landlord may pay such charges and collect the same from Tenant as
additional rent hereunder. Any piping and other equipment and facilities
installed by, or for, Tenant (including the Leasehold Improvements) for use of
water within the Premises (if any) will be maintained by Tenant at Tenant's sole
cost and expense.
7.c. Heat. Landlord shall furnish heat to the Premises and to the Common
----
Areas of the Building during the normal heating season. The heat for the
Premises is separately controlled from within the Premises. Tenant covenants
and agrees to keep the Premises heated to no more than usual and customary
levels for office occupancy during Business Hours, to keep the Premises heated
to minimum levels to protect the Premises and building systems during all hours
when the Premises are not occupied, to keep all windows shut while the Premises
are being
-10-
<PAGE>
supplied with heat, and to otherwise cooperate with Landlord in reducing the
costs of heating the Premises and the Building.
The costs of all heat furnished to the Premises (and to other rentable areas of
the Building) and the Building shall be included as part of the Operating
Expenses.
7.d. Elevators. Landlord shall provide elevator facilities (which may be
---------
manually or automatically operated, either or both, as Landlord may from time to
time elect) for the Building, and shall maintain (subject to the provisions of
Section 7.e. and Section 24 hereof) at least one elevator in operation at all
times for Tenant's use, non-exclusively, together with others having business in
the Building; Landlord shall equip any elevator serving the Third Floor Premises
with a security device which Tenant may utilize to prevent other tenants or
occupants of the Building or their invitees from accessing the Third Floor
Premises.
7.e. Interruption or Curtailment of Services. Landlord reserves the right
---------------------------------------
to interrupt, curtail, stop or suspend the furnishing of services (including the
elevator) and the operation of the plumbing, mechanical, heating and electric
systems whenever necessary for repairs, alterations, replacements or
improvements desirable or necessary to be made in the reasonable judgment of
Landlord or whenever necessary due to accident or emergency, difficulty or
inability in securing supplies or labor strikes, or any other cause beyond the
reasonable control of Landlord, whether such other cause be similar or
dissimilar to those hereinabove specifically mentioned, until said cause has
been removed. Except when caused by the gross negligence of Landlord, there
shall be no diminution or abatement of rent or other compensation due from
Tenant to Landlord hereunder, nor shall this Lease be affected or any of
Tenant's obligations hereunder reduced, and Landlord shall have no
responsibility or liability for any such interruption, curtailment, stoppage or
suspension of services or systems, except that Landlord shall exercise all due
diligence to eliminate the cause of same. Landlord agrees to provide reasonable
prior written notice of any scheduled interruption, curtailment, stoppage or
suspension, and in the case of an emergency or unscheduled interruption, to
provide notice as is reasonable under the circumstances (including oral or
telephonic notice). Landlord shall use diligent efforts to minimize the
duration of any interruption of services, and where reasonably practicable,
attempt to schedule work causing such interruption after Business Hours.
Notwithstanding the foregoing, if due to events arising or causes originating
solely within the Building or only affecting the Building and no other
buildings, and if not due to the default or the acts or negligence of the Tenant
or any of Tenant's employees, agents, contractors or invitees, (i) the Premises
lack sufficient heat, water, electricity or access, and (ii) not less than one
entire floor of the Premises shall be rendered unusable for the Permitted Uses
as a result thereof, and (iii) such untenantability continues for 5 consecutive
business days after Tenant provides Landlord with written notice of same, the
ratable portion of Fixed Rent and additional rent on account of Operating
Expenses shall be abated for such portion of the Premises rendered untenantable
thereby, commencing on the day immediately succeeding the expiration of such 5
business day period and ending on the date that the Premises (or such portion)
are rendered tenantable. If the conditions set forth in clauses (i), (ii) and
(iii) of the immediately preceding sentence shall continue for a period in
excess of 30 consecutive days, Tenant shall have the right to terminate this
Lease by giving written notice thereof to Landlord, and this Lease shall
terminate 7 days after the date of receipt of said notice as if such date were
the expiration date of
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<PAGE>
this Lease; provided, however, if the Premises (or such portion thereof) shall
be rendered tenantable prior to the expiration of such 7 day period, such notice
of termination shall be null and void and of no further force and effect.
7.f. Energy Conservation. Notwithstanding anything to the contrary
-------------------
contained in this Lease, Landlord may institute such reasonable policies,
programs or measures as may be necessary, required or expedient for the
conservation and/or preservation of energy or energy services, provided either
the majority of similar buildings in the area in which the Building is located
are subject to similar policies, programs or measures, or such are necessary or
required to comply with applicable governmental codes, rules, regulations or
standards.
7.g. Health Club. Landlord has made arrangements for an unattended fitness
-----------
and recreational facility (the "Health Club") to be operated at the Building.
The Health Club will be available during the Term for the non-exclusive use of
Tenant and Tenant's employees during its hours of operation, which are currently
6:00 AM to 9:00 PM Monday through Friday. Such use shall be subject to the rules
and regulations established from time to time by the Health Club, and any use of
the Health Club and its facilities shall be in accordance with the rules and
regulations. There shall be no charge imposed for the use of the Health Club by
Tenant or Tenant's employees; however, the costs of operation of the Health Club
are included in the Landlord's Operating Expenses.
No person may use the Health Club unless he or she has first (i) signed a copy
of the Health Club's rules and regulations, (ii) signed a copy of the Health
Club's form of release and hold harmless agreement and (iii) received an entry
card from the Landlord. Landlord will issue individual entry cards to Tenant's
employees without charge; however, a charge will be made for the replacement of
lost cards.
It is understood and agreed that all use of the Health Club and its facilities
shall be at the sole risk of Tenant and the employees using same. The Tenant
hereby releases Landlord, and the owner and operator of the Health Club, and
their successors and assigns, from any liability in connection with Tenant's and
Tenant's employees use of the Health Club and its facilities, and indemnifies
and holds the Landlord, and the owner and operator of the Health Club; and their
successors and assigns, jointly and severally harmless from and against any
loss, cost, liability, damage or expense (including attorneys fees) occasioned
by or in any way relating to arising from the use of the Health Club or its
facilities by Tenant or Tenant's employees, or from the use of the Health Club
or its facilities by any unauthorized party allowed to use same by Tenant or any
of its employees. This paragraph shall survive any termination of this Lease.
Landlord reserves the right at any time and from time to time to discontinue the
Health Club or to alter any of the services provided or to relocate the Health
Club within the Concord Farms office park. Tenant understands that the Health
Club is not owned or operated by Landlord, and that Landlord may, at its
election, operate the Health Club directly or contract with any third party to
operate same.
7.h. Cleaning. Landlord agrees to perform daily cleaning of the Premises
--------
and the common areas serving the Premises on business days and such other
cleaning and janitorial services as are provided by Landlord to other tenants of
the building and/or by landlords of
<PAGE>
buildings of similar class and quality as the Building in the Lexington/Concord
area, including, without limitation, periodic interior and exterior window
cleaning and rubbish removal. The cost of such cleaning shall be included in
Operating Expenses.
7.i. Parking. Landlord shall designate with signage 11 parking spaces in
-------
the parking area adjacent to the Building for the exclusive use of Tenant's
employees and visitors. Tenant shall have the right to use all other parking
spaces in the parking lot on Landlord's Property, in common with all others
entitled thereto, not designated for the exclusive use of other tenants in the
Building. Landlord agrees that it shall not designate more than 1 parking space
in such parking area per 1,000 square feet of rentable square footage of any
other Building tenant's premises for such tenant's exclusive use and that
Landlord shall not designate any parking spaces in such parking lot for the
exclusive use of any other tenant of Landlord in the Concord Farms office park.
8. QUIET ENJOYMENT
The Tenant, upon prompt payment of the rent and other amounts herein
reserved, and upon the performance of all of its obligations under this Lease,
shall at all times during the Term and during any extension or renewal thereof,
peaceably and quietly enjoy the Premises without any disturbance from the
Landlord or from any other person claiming through the Landlord, subject,
however, to the rights of holders of senior mortgages and to the terms and
provisions of this Lease.
9. CONDITION/PREPARATION OF PREMISES/ALTERATIONS
9.a. Third Floor Improvements. Landlord has had preliminary plans
------------------------
prepared for the layout of Tenant's leasehold improvements for the Third Floor
Premises, which are to be constructed using, and in accordance with, Landlord's
building standards for tenant improvements, in accordance with the narrative
summary of the improvements and in substantial compliance with all applicable
governmental laws, bylaws, rules, regulations, ordinances and codes (the "Third
Floor Improvements"). The preliminary plans have been approved of by the Tenant
and are attached hereto as Exhibit C-1, the narrative summary of the
-----------
improvements has been approved of by the Tenant and is attached hereto as
Exhibit C-3 and the building standards are attached hereto as Exhibit D
- ----------- ---------
(together, the "Third Floor Preliminary Plans"). The Third Floor Improvements
shall not include Tenant's furniture, trade fixtures, equipment and personal
property, including without limitation any office systems or bullpen separations
in the cubicle and work area portions of the Third Floor Premises, and the Third
Floor Improvements are limited to the work specifically depicted on the Third
Floor Preliminary Plans.
Landlord shall cause construction plans in sufficient detail to permit
Landlord's contractor to construct the Third Floor Improvements, to be prepared
in substantial conformity with the Third Floor Preliminary Plans, and upon their
completion, shall submit same to Tenant for approval. Tenant shall promptly
review same and advise Landlord in writing within 5 business days as to whether
same are approved of by Tenant, or, if not, specifically detailing the
deficiencies claimed by Tenant; and Tenant's failure to respond within 5
business days shall be deemed Tenant's approval of such plans. Tenant's
approval right shall be limited to confirmation that such plans substantially
conform to the Third Floor Preliminary Plans, and approval (not to be
<PAGE>
unreasonably withheld) to any changes or variations from the Third Floor
Preliminary Plans, and such approvals shall be consistent with all previous
approvals given. Such plans, when approved (or deemed approved) of by Tenant,
are referred to as the "Third Floor Plans."
Following Tenant's approval of the Third Floor Plans, Landlord shall proceed
diligently, and at its sole cost and expense, to obtain all necessary permits
and approvals for the construction of the Third Floor Improvements, to engage a
contractor to perform the construction, to cause the contractor to proceed
diligently with the construction of the Third Floor Improvements and to use
reasonable efforts to Substantially Complete the Third Floor Improvements in
substantial conformance with Third Floor Plans by the date 90 days following
Tenant's written approval (or following the date such plans are deemed approved)
of the Third Floor Plans. Landlord shall endeavor to provide Tenant with 30
days advance notification of the date by which it expects the Third Floor
Improvements to be Substantially Completed.
The date that the Third Floor Improvements have been Substantially Completed
shall be the "Third Floor Completion Date."
9.b. Second Floor Improvements. Landlord has had preliminary plans prepared
-------------------------
for the layout of Tenant's leasehold improvements for the Second Floor Premises,
which are to be constructed using, and in accordance with, Landlord's building
standards for tenant improvements, in accordance with the narrative summary of
the improvements and in substantial compliance with all applicable governmental
laws, bylaws, rules, regulations, ordinances and codes (the "Second Floor
Improvements"). The preliminary plans have been approved of by the Tenant and
area attached hereto as Exhibit C-2, the narrative summary of the improvements
-----------
have been approved of by the Tenant and is attached hereto as Exhibit C-3 and
-----------
the building standards are attached hereto as Exhibit D (together, the "Second
---------
Floor Preliminary Plans"). The Second Floor Improvements shall not include
Tenant's furniture, trade fixtures, equipment and personal property, including
without limitation any office systems or bullpen separations in the cubicle and
work area portions of the Second Floor Premises, and the Second Floor
Improvements are limited to the work specifically depicted on the Second Floor
Preliminary Plans.
Prior to the date 90 days after the Third Floor Completion Date, Tenant shall
provide Landlord with a written notice to proceed (the "Notice to Proceed") with
the Second Floor Improvements. Following Landlord's receipt of the Notice to
Proceed, Landlord shall cause construction plans, in sufficient detail to permit
Landlord's contractor to construct the Second Floor Improvements, to be prepared
in substantial conformity with the Second Floor Preliminary Plans, and upon
their completion, shall submit same to Tenant for approval. Tenant shall
promptly review same and advise Landlord in writing within 5 business days as to
whether same are approved of by Tenant, or, if not, specifically detailing the
deficiencies claimed by Tenant; and Tenant's failure to respond within 5
business days shall be deemed Tenant's approval of such plans. Tenant's
approval right shall be limited to confirmation that such plans substantially
conform to the Second Floor Preliminary Plans, and approval (not to be
unreasonably withheld) to any changes or variations from the Second Floor
Preliminary Plans, and such approvals shall be consistent with all previous
approvals given. Such plans, when approved (or deemed approved) of by Tenant,
are referred to as the "Second Floor Plans."
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Following Tenant's approval of the Second Floor Plans, Landlord shall proceed
diligently, and at its sole cost and expense, to obtain all necessary permits
and approvals for the construction of the Second Floor Improvements, to engage a
contractor to perform the construction, to cause the contractor to proceed
diligently with the construction of the Second Floor Improvements and to use
reasonable efforts to Substantially Complete the Second Floor Improvements in
substantial conformance with the Second Floor Plans by the date 90 days
following Tenant's written approval (or following the date such plans are deemed
approved) of the Second Floor Plans.
The date that the Second Floor Improvements have been Substantially Completed
shall be the "Second Floor Completion Date."
The earlier to occur of (i) the Second Floor Completion Date, or (ii) the date
180 days after the Third Floor Completion Date shall be the "Second Floor
Commencement Date." Notwithstanding the foregoing (and notwithstanding Tenant's
obligation to pay rent hereunder with respect thereto), in no event shall Tenant
use or occupy the Second Floor Premises prior to the Second Floor Completion
Date.
9.c. Leasehold Improvements. The following shall be applicable to the Third
----------------------
Floor Improvements and the Second Floor Improvements (together, the "Leasehold
Improvements"):
(1) The term "Substantial Completion" or "Substantially Completed"
shall mean that the work is sufficiently advanced so that Landlord has obtained
a Certificate of Occupancy from the Town of Concord permitting the applicable
portion of the Premises to be occupied (subject to the completion by Tenant of
any of fit-out work which is not Landlord's responsibility hereunder) for the
Permitted Use (as defined in Section 19). Landlord shall complete any
unfinished items as soon as reasonably practicable, Landlord shall take all
reasonable steps necessary to minimize any interference with Tenant's use and
occupancy of the Premises which may result therefrom, and Tenant shall afford
Landlord reasonable access to the Premises for such purposes.
(2) Landlord shall use good faith efforts to accommodate requests by
Tenant for modifications of the approved plans ("Changes"), provided: (i) the
Changes do not modify the scope of the work or any major components thereof;
(ii) the Changes are approved of by Landlord's lender; (iii) any additional cost
(including without limitation, architects and engineering fees and supervision
and management costs charged by Landlord or its affiliates) resulting from the
Changes is paid by Tenant in full prior to Landlord commencing such
construction, and (iv) the Changes, individually or in the aggregate, will not,
in Landlord's opinion, cause any delay in the completion of the work according
to Landlord's then current schedule.
Landlord shall also use good faith efforts to accommodate requests by Tenant for
Changes which do not meet the requirements of clauses (i) or (iv) above,
provided: (a) clauses (ii) and (iii) above shall be fully applicable and (b)
if, in Landlord's opinion, the Changes will cause any delay in the completion of
the work according to Landlord's then current schedule, Tenant shall take such
steps as Landlord may require to ensure that Landlord does not sustain any loss
resulting therefrom, including the commencement of payments of rent hereunder as
of the date work would have been Substantially Completed, in Landlord's opinion,
absent such Changes.
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It is agreed that Changes shall, without limitation, include modifications to
the preliminary plans requested by Tenant, including the use of quantities or
qualities of materials or items in excess of the building standards, unless
specifically included and depicted in the preliminary plans.
(3) Tenant shall give Landlord prompt written notice of any specific
defects or incomplete remaining items of work with respect to the Leasehold
Improvements. Except with respect to the items contained in any such notice
given prior to the first anniversary of the Term Commencement Date, Tenant shall
be deemed satisfied with the Leasehold Improvements, Landlord shall be deemed to
have completed all of its obligations under this Section 9, and Tenant shall
have no claim that Landlord has failed to perform in full its obligations
hereunder.
(4) It is agreed and understood that, except only for the Leasehold
Improvements, any and all work to be done in or on the Premises to prepare same
for Tenant's occupancy shall be performed by Tenant, at Tenant's sole cost and
expense, in accordance with the terms of this Lease.
9.d. Condition of Building and Premises. Tenant agrees as follows:
----------------------------------
(1) Except only for the construction of the Leasehold Improvements,
the Tenant accepts the Premises in its "as is" condition, without representation
or warranty, express or implied, in fact or in law, by Landlord and without
recourse to Landlord as to the condition thereof.
(2) Tenant has examined the plans and specifications for the
renovation of the Building (the "Renovation"), which plans are listed on Exhibit
-------
E attached hereto (the "Renovation Plans"), and Tenant hereby approves of such
- -
renovations. Except only for the construction of the renovations indicated
thereon, Tenant accepts the Building in its "as is" condition, without
representation or warranty, express or implied, in fact or in law, by Landlord
and without recourse to Landlord as to the nature, condition or usability
thereof. Landlord agrees to proceed diligently, and at its sole cost and
expense, to complete the Renovations in substantial conformity with the
Renovation Plans and all applicable governmental laws, bylaws, rules,
regulation, ordinances and codes, and Landlord agrees that if any such work
occurs after the Term Commencement Date, Landlord shall use reasonable efforts
to minimize interference with the Tenant's use and occupancy of the Premises
which may result therefrom.
9.e. Alterations. No alterations, additions or improvements (hereinafter
-----------
"Alterations") to the Premises shall be made by the Tenant without written
consent of the Landlord, and with respect to nonstructural Alterations Landlord
agrees not to unreasonably withhold, condition or delay such consent. All work
done in connection with any Alterations, following Landlord's approval thereof,
shall be done in a good and workmanlike manner, in accordance with all
applicable laws, with all permits and approvals therefor obtained by Tenant and
performed by contractors approved by Landlord. Any such contractor shall be
required to provide a certificate of comprehensive general liability and
property damage insurance in the amount of $1,000,000.00, naming Landlord as an
additional insured. Any Alterations made by the Tenant after such consent shall
have been given, and any non-trade fixtures installed as part thereof shall
become the property of the Landlord upon the expiration or other sooner
termination of this Lease, unless, at the time of Landlord's consent to such
Alterations, Landlord shall require the
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removal of some or all of same, in which event the Tenant shall have the
obligation to remove such Alterations or fixtures, (or the portion thereof
designated by Landlord) at the Tenant's cost upon the termination of this Lease,
in all events, leaving the Premises in good order and repair, reasonable wear
and tear and damage by fire or other casualty only excepted. It is agreed that
(unless otherwise required by Landlord at the time of its consent) all wiring
and cabling installed in the Premises shall remain upon the termination of the
Lease and shall become Landlord's property.
10. MAINTENANCE AND REPAIRS
Tenant shall maintain all portions of the Premises in good order and repair
and shall keep the Premises and immediate adjoining areas free of obstructions.
The Tenant shall make all nonstructural repairs necessary to maintain the
Premises in good order and repair, except such repairs related to common
facilities or utility installations for the common use of the Building, or
exterior glass (but if such repairs are required as a result of Tenant's acts,
negligence or default, Tenant shall be responsible for the costs thereof), and
shall return the Premises to Landlord at the end of the Term in good condition,
reasonable wear and tear, damage by fire or other casualty only excepted.
Landlord shall perform all necessary maintenance, repairs and replacements to
the structural elements of the Building and all common areas and facilities
serving the Premises, including, without limitation, the roof and structural
elements of the Building, all building systems and building service equipment,
including, without limitation, electrical, plumbing, sprinkler and heating,
ventilating and air conditioning systems ("HVAC") the Building exterior and all
landscaping and snow removal in order to keep the same in good condition and
repair, reasonable wear and tear, damage by fire or other casualty or taking by
eminent domain only excepted. All such maintenance, repairs and replacements
shall be paid by Landlord and (except only to the extent provided otherwise in
Section 6.a.) shall be included in the Operating Expenses, unless such
maintenance, repairs and replacements are due to the neglect or fault of Tenant
or its agents, employees or contractors, in which event Tenant shall promptly
reimburse Landlord for the cost thereof upon receipt of Landlord's invoice
therefor.
11. INSURANCE
11.a. Indemnification. Subject to the provisions of Section 11.e., the
---------------
Tenant shall save the Landlord harmless and indemnified from and against all
injury, loss, claim or damage to any person or property while on the Premises or
Landlord's Property arising out of the use or occupancy of the Premises by the
Tenant (unless caused by the gross negligence or default of the Landlord, its
employees, agents, licensees or contractors) and from and against all injury,
loss, claim or damage to any person or property occasioned by any wrongful act,
negligence or default of the Tenant or any of Tenant's agents, employees or
contractors. The provisions of this Section shall be deemed modified by the
provisions M.G.L. Chapter 186, Section 15, to the extent applicable.
11.b. Liability Insurance. The Tenant shall maintain with respect to the
-------------------
Premises and appurtenances thereto comprehensive general liability and property
damage including the broad form comprehensive general liability endorsement and
a contractual liability coverage
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endorsement, in limits of not less than $2,000,000.00 per occurrence, or such
greater amount as shall be reasonably required by Landlord from time to time,
for combined single limit bodily injury and property damage liability, in
companies qualified to do business in Massachusetts and acceptable to Landlord,
insuring the Landlord as well as the Tenant against injury to persons or damage
to property as herein provided.
11.c. Property Insurance. The Tenant shall maintain, at its sole cost and
------------------
expense, fire and extended coverage insurance for all of its contents,
furniture, furnishings, equipment, improvements, funds, personal property and
fixtures located within or about the Premises, providing protection in an amount
equal to 100% of the full replacement value of said items (replacement value
meaning the cost of repairing or replacing the damaged property without
deduction for depreciation). Upon the request of Landlord, Tenant shall provide
Landlord with evidence of such insurance coverage.
Landlord shall maintain property insurance covering the Building in amounts and
with such coverages as Landlord shall reasonably deem adequate, and the costs of
same shall be included as part of the Operating Expenses hereunder. Upon the
request of Tenant, Landlord shall provide Tenant with evidence of such insurance
coverage.
11.d. Insurance Policies. The Tenant shall deposit with the Landlord
------------------
certificates of insurance that it is required to maintain under this Section, at
or prior to the commencement date of this Lease, and thereafter, within 30 days
prior to the expiration of each such policy. Such policies shall to the extent
obtainable, provide that the policies may not be changed or canceled without at
least 30 days prior written notice to the Landlord. Such insurance may be
maintained by the Tenant under a blanket policy or policies so-called.
11.e. Waiver of Subrogation. Landlord and Tenant and all parties claiming
---------------------
under them mutually release and discharge each other from all claims and
liabilities arising from or caused by any casualty or hazard covered or required
hereunder to be covered by insurance on the Premises or Landlord's Property or
in connection with property on or activities conducted on the Premises or
Landlord's Property, and waive any right of subrogation which might otherwise
exist in or accrue to any person on account thereof, provided that such release
shall not operate in any case where the effect is to invalidate or increase the
cost of such insurance coverage (provided, that in the case of increased cost,
the other party shall have the right, within 30 days following written notice,
to pay such increased cost, thereby keeping such release and waiver in full
force and effect).
12. FIRE AND CASUALTY DAMAGE
12.a. Termination. Should all or a portion of the Premises, or of the
-----------
Building, be substantially damaged (as defined below) by fire or other casualty,
the Landlord at its option may elect to terminate this Lease. Should all or a
portion of the Premises, or the common areas and facilities of the Building
necessary for the use and occupancy of the Premises, be substantially damaged
(as defined below) by fire or other casualty, the Tenant may elect to terminate
this Lease if:
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<PAGE>
(1) The Landlord fails to give written notice within 60 days after
such damage of its intention to restore the Premises and such
appurtenant common areas and facilities, and
(2) Such damage causes the Premises to be rendered untenantable for
Tenant's use thereof for more than 120 days, or has not been
substantially restored as nearly as reasonably practicable to
the same condition as they were prior to such damage within 180
days.
Tenant shall exercise its option to terminate by giving written notice to
Landlord, as applicable, within 30 days after Landlord's failure to notify or
within 30 days after such 120-day or 180-day period.
The term "substantial damage" as used herein shall refer to damage of such a
character that the same cannot, in ordinary course, be reasonably expected to be
repaired within 120 days from the time that such work commences, as reasonably
determined by Landlord.
12.b. Restoration and Abatement. If the Term of this Lease is not so
-------------------------
terminated, Landlord will, with reasonable diligence and at its expense, repair
and rebuild the Premises, and the common areas and facilities of the Building
necessary for the use and occupancy of the Premises, as nearly as reasonably
practicable to the same condition as they were in prior to such damage.
Landlord's obligations to repair and rebuild shall in all events be limited to
the insurance proceeds made available to Landlord. Landlord shall not be
obligated to repair or restore Tenant's personal property, fixtures, furniture,
equipment or floor coverings or any Alterations performed by Tenant.
If the Term of this Lease is not so terminated, for so long as such fire or
casualty renders the Premises substantially unsuitable for their Tenant's use, a
just and proportionate abatement of rent shall be made until Landlord's repairs
have been completed.
It is expressly understood and agreed that nothing in this Lease contained shall
be deemed to create in Tenant any interest in any hazard insurance policies or
the proceeds thereof.
13. EMINENT DOMAIN
13.a. Termination. In the event that the whole of the Premises or
-----------
Landlord's Property shall be lawfully condemned or taken in any manner for any
public or quasi-public use, this Lease and the Term hereby granted shall
forthwith terminate as of the date of the divesting of Landlord's title. Should
a portion of the Premises, or of the Building, or of Landlord's Property, be so
condemned or taken, and such taking is substantial (as defined below), the
Landlord at its option may elect to terminate this Lease. Should a portion of
the Premises, or the common areas and facilities of the Building necessary for
the use and occupancy of the Premises, be so condemned or taken, and such taking
is substantial (as defined below), the Tenant may elect to terminate this Lease
if:
(1) Such taking or condemnation results in the permanent loss of
reasonable access to the Premises, or 10% or more of the
Premises, or facilities that
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supply heat, air conditioning, water, drainage, plumbing,
electricity or other utilities or services to the Premises; or
(2) Such taking or condemnation renders the Premises untenantable
for Tenant's use thereof for more than 120 days, or has not been
substantially restored as nearly as reasonably practicable to
the same condition as they were prior to such taking within 180
days.
Tenant shall exercise its option to terminate by giving written notice to
Landlord within 60 days following the date on which Landlord's title has bee
divested by such authority or within 60 days after such 120-day or 180-day
period.
The term "substantial" as used herein shall refer to a condemnation or taking
which: reduces the floors area of the Building, or reduces the total area of
Landlord's Property by more than 5%, or affects parking and/or access to
Landlord's Property and the Building, or will require, in Landlord's judgment,
more than 120 days to restore.
13.b. Restoration and Abatement. If neither the Landlord or Tenant elects
-------------------------
to terminate this Lease as aforesaid, this Lease shall be unaffected by such
taking, except that the Fixed Rent shall be abated equitably. In the event that
only a part of the Premises shall be so condemned or taken and this Lease is not
terminated as hereinbefore provided, Landlord will, with reasonable diligence
and at its expense, restore the remaining portion of the Premises as nearly as
reasonably practicable to the same condition as it was prior to such
condemnation or taking. Landlord's obligations to restore shall in all events be
limited to the condemnation proceeds made available to Landlord.
13.c. Award. In the event of any condemnation or taking hereinbefore
-----
mentioned of all or part of Landlord's Property, Landlord shall be entitled to
receive the entire award in the condemnation proceedings, including any award
made for the value of the estate vested by this Lease in the Tenant, and Tenant
hereby expressly assigns to the Landlord any and all right, title and interest
of Tenant now or hereafter arising in or to any such award or any part thereof.
Notwithstanding the foregoing, Tenant shall have the right to bring a separate
condemnation proceeding for relocation expenses and the unamortized value of
trade fixtures payable in the manner and extent as, and if, provided by law.
14. SIGNS
Landlord shall install, at its expense, an exterior sign on Landlord's
Property near the driveway entrance to Landlord's Property from Virginia Road,
identifying the Building and including Tenant's trade name, PreVision Marketing.
The entrance sign shall be similar to the entrance signage of other buildings at
Concord Farms, but smaller in scale reflecting the smaller size of the Building.
Tenant may, at its sole cost and expense, install a sign on or adjacent to the
interior entrance door to the Premises identifying Tenant by its trade name,
which sign shall be of a size, design and location in accordance with the
Building's signage standards, as established from time to time by Landlord, and
subject to the prior approval of the Landlord. Tenant shall not place any other
signs or other forms of advertising on or about the exterior of the Premises,
the exterior or interior of the Building or elsewhere on Landlord's Property;
and the foregoing
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prohibition shall also prohibit any signs or other advertising on the windows of
the Premises or located within the interior of the Premises that are visible
from the exterior of the Building, without Landlord's prior written consent,
which may be withheld at Landlord's sole discretion.
Tenant shall be identified on the building directory in the entrance lobby to
the Building. Landlord also agrees to provide signage identifying the parking
spaces reserved for Tenant's exclusive use (pursuant to Section 7.i. hereof).
15. ACCESS
Tenant shall have access to the Premises (subject to the provisions of
Section 7.e. and Section 24 hereof), on a 24 hour a day, 7 days a week basis,
provided, during non-business hours and on non-business days, Landlord may
impose security requirements on access to the Building (such as card controlled
access) and such access shall be subject to the Landlord's rules and
regulations.
The Landlord shall have access to the Premises at all reasonable times upon
reasonable prior written or oral notice, except in the case of emergency, when
Landlord shall have the right to enter the Premises at any time, provided
Landlord uses reasonable efforts to provide notice if and to the extent same is
practicable under the circumstances.
16. SUBLEASE AND ASSIGNMENT
The Tenant shall not assign the Lease or sublet the Premises for the
remainder of the Term except with the prior written approval of the Landlord,
which consent shall not be unreasonably withheld, conditioned or delayed.
Without limitation, Landlord's consent shall be deemed reasonably withheld
unless Tenant is able to demonstrate to the reasonable satisfaction of Landlord
that:
(1) The financial strength of the proposed subtenant/assignee is
reasonably acceptable to the Landlord, and in any event is
sufficient to provide reasonable assurance of its ability to
comply with the provisions of this Lease;
(2) The business reputation of the proposed subtenant/assignee is in
accordance with generally acceptable commercial standards;
(3) The use of the Premises by the proposed subtenant/assignee is in
accordance with the requirements of this Lease; and
(4) The use of the Premises by the proposed subtenant/assignee will
not be competitive, directly or indirectly, with that of any
other tenant of the Building, including without limitation
Spaulding Management Corporation and its affiliates, and the
proposed use of the premises (if different than Tenant's use)
will not violate any other agreements affecting the Building, the
Landlord or other tenants.
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For the purposes hereof, any transfer of the stock of Tenant or any merger or
consolidation of Tenant with another entity shall be deemed an assignment
hereunder; provided transfers of stock among existing shareholders or between
existing shareholders and their family members and transfers of stock or merger
or consolidation with any parent or subsidiary shall not require the consent of
Landlord; and provided transfers of stock to third parties totaling less than
50% in the aggregate which do not result in a change in control of the Tenant
shall not require the consent of Landlord.
Notwithstanding any such assignment or subletting, it is understood and agreed
that the original Tenant named herein shall always remain primarily and
unconditionally liable to Landlord for the observance and performance of the
obligations and agreements of Tenant in this Lease contained.
It shall be a condition precedent to the granting of any consent by Landlord
hereunder that any such assignee or subtenant shall enter into an agreement with
Landlord, in form satisfactory to counsel to Landlord, pursuant to which such
assignee or subtenant agrees directly with Landlord to assume and perform all of
the obligations and agreements of Tenant contained in this Lease. Tenant agrees
to pay Landlord's reasonable out-of-pocket costs and expenses in connection with
the consideration of any such proposed assignment or subletting, including
reasonable attorney's fees.
Tenant shall pay to Landlord monthly one-half of the excess of the rents and
other charges received by Tenant pursuant to the assignment or sublease (after
deduction of the reasonable out-of-pocket costs and expenses incurred by Tenant
in connection with such assignment or sublease, including without limitation,
brokerage commissions, reasonable attorney's fees and alterations to the
Premises) over the rents and other charges reserved to Landlord under this Lease
attributable to the space assigned or sublet.
17. [INTENTIONALLY DELETED]
18. SUBORDINATION
Subject to the provisions of this Section 18, this Lease is subject and
subordinate to all ground leases and to all real estate mortgages prior to or
subsequent to the date or execution and delivery of this lease and to all
renewals, modifications, consolidations, replacements or extensions thereof.
Upon the request of Landlord, the Tenant shall promptly execute and deliver all
such instruments as may be appropriate to subordinate this Lease to any ground
leases and/or mortgages, and to all advances made thereunder and to the interest
thereon, and all renewals, replacements and extensions thereof, provided that,
in the case of ground leases or mortgages entered into subsequent to the date of
execution and delivery of this Lease, at the Tenant's request, Landlord shall
obtain from a ground lessor under any ground lease or the holder of any mortgage
encumbering Landlord's Property a so-called nondisturbance agreement in any
commercially reasonable form customarily used by such ground lessor or
mortgagee, pursuant to which such party agrees not to disturb the occupancy of
Tenant under the Lease in the event of termination of any such ground lease or
foreclosure of any such mortgage if Tenant is not in default of any of the terms
and conditions of this Lease.
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19. TENANT'S COVENANTS
The Tenant covenants and agrees as follows:
(a) Tenant shall perform promptly all of the obligations of the Tenant set
forth in this Lease and shall pay when due all rent (including all Fixed
Rent and additional rent) and all other charges which by the terms of this
Lease are to be paid by the Tenant.
(b) Tenant shall obtain all necessary governmental licenses and permits
required for the proper and lawful conduct of Tenant's business and
Tenant's use of the Premises. Tenant, at Tenant's expense, shall comply
with all health, safety and police requirements affecting or applicable to
the Premises or the cleanliness, safety, occupancy and use thereof, whether
or not same are substantial, foreseen or unforeseen, ordinary or
extraordinary. Tenant shall at all times conduct its business in a
reputable manner.
(c) Tenant shall (subject to the provisions of Section 11.e.) pay all
costs on demand for all damages to the Premises and Landlord's Property
suffered or incurred by Landlord and caused by the wrongful act or
negligence or default of Tenant, its agents, employees, invitees or
assigns.
(d) Tenant shall (subject to the cleaning services to be provided by
Landlord pursuant to Section 7.h hereof) keep the interior of the Premises
in a clean, neat and orderly condition. Tenant shall keep all refuse,
rubbish and debris in covered containers located only in areas approved by
Landlord. If additional rubbish pick-up is required, or if the dumpster
needs to be emptied due to Tenant's usage, then such additional cost shall
be paid by Tenant, as additional rent hereunder, promptly upon demand from
Landlord.
(e) Tenant shall permit Landlord and its agents to examine the Premises at
reasonable times after reasonable notice, and to show the premises to
prospective tenants commencing 6 months prior to the expiration of this
Lease. The Landlord may enter the Premises to make any replacements and
repairs desired by Landlord, provided same does not unreasonably interfere
with Tenant's use and occupancy of the Premises.
(f) Tenant shall use the Premises only for office (the "Permitted Use")
and for no other purpose.
(g) Tenant shall not injure, overload, deface or otherwise harm the
Premises, commit any nuisance or permit the emission of any objectionable
odor, or make any use of the Premises which will increase the cost of the
Landlord's insurance (unless Tenant pays for such increased cost). Tenant
shall not sell or display merchandise in or store or dispose of trash or
refuse in or otherwise obstruct the driveways, walks, halls, parking area,
or other common areas. The sidewalks, entrances and stairways shall not be
obstructed or encumbered by the Tenant or used for any purpose other than
egress to and from the Premises.
(h) Tenant shall not suffer or permit strip or waste of the Premises.
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(i) Tenant shall not permit any use of the premises that unreasonably
interferes with or affects any other tenants in the Building or creates a
public or private nuisance or fire hazard.
(j) Tenant shall not conduct any auction, fire, bankruptcy or going-out-
of-business sale, nor use or permit any sound apparatus for reproduction or
transmission of music or sound which shall be audible beyond the physical
interior of the Premises.
(k) Tenant shall comply with Landlord's Rules and Regulations as are
currently in effect and such reasonable rules and regulations as shall from
time to time hereafter be established by the Landlord for the safety, care,
cleanliness or orderly conduct of the Premises and landlord's Property, and
for the benefit, comfort and convenience of all of the occupants of the
Building, provided such rules and regulations hereafter established shall
not unreasonably interfere with Tenant's use and occupancy of the Premises.
The Rules and Regulations as currently in effect are as set forth in
Exhibit F attached hereto.
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(l) If during the Term and any extension thereof, the fire insurance rate
of the Building or the Premises is increased due to the nature of the
Tenant's occupancy, Tenant shall pay to the Landlord any additional
insurance premiums resulting from such rate increase. Any such additional
premiums payable by the Tenant shall be additional rent and shall be paid
to the Landlord within 10 days after written demand accompanied by the
insurance premium notice or other satisfactory evidence of the amount due.
(m) Tenant shall not at any time use or occupy the Premises in violation
of the certificate of occupancy or building permit issued for the Building
or any applicable zoning ordinance. The statement in the Lease of the
nature of the business to be conducted by the Tenant in the Premises does
not constitute a representation or guaranty by the Landlord that any
particular business or use may be conducted on the Premises or is lawful
under the certificate of occupancy or building permit or is otherwise
permitted by law.
(n) Tenant shall not abandon the Premises (temporary closures for
Alterations or in connection with a sublease or assignment shall not be
deemed abandonment). Tenant shall operate and conduct its business within
the Premises in a first class and reputable manner and in such a manner
both as regards noise and other nuisances, as will not unreasonably
interfere with or disturb any other tenant's use and occupancy of its
premises in the Building, or the Landlord in the management of the
Building.
(o) Tenant, and Tenant's employees, agents, contractors, licensees,
invitees, guests or customers, shall not generate, store or spill upon,
dispose of or transfer to or from the Premises or Landlord's Property any
hazardous waste materials (as defined below), except only for such
materials as are commonly found in office products and supplies, and Tenant
shall strictly comply with all applicable laws relating to hazardous waste
materials. Tenant shall save Landlord (together with its partners,
beneficial owners, trustees, employees, agents, contractors, attorneys and
mortgagees) harmless and indemnified from and against any and all damages
(including without limitation clean-up and remediation costs) which may be
asserted on account of the presence or release of
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hazardous waste materials on, in or from the Premises during the Term and
any period when Tenant (or those claiming by or through Tenant) occupies
the Premises, on account of the activities of Tenant (or those claiming by
or through Tenant) in violation of any applicable laws relating to
hazardous waster materials, or on account of the breach of any of the
covenants contained in the previous sentence. Tenant agrees that if it or
anyone claiming under it violates this provision, Tenant shall forthwith
remove the hazardous waste materials in the manner provided by applicable
law, regardless of when such hazardous waste materials shall be discovered,
and Tenant shall forthwith repair and restore any portion of the Premises
or Landlord's Property which it shall disturb in so removing said hazardous
waste materials to the condition which existed prior to Tenant's
disturbance thereof. The provisions of this subparagraph shall be in
addition to any other obligations or liabilities of Tenant under this Lease
or under applicable law, and in addition to any other remedies of Landlord
under this Lease or under applicable law, and the obligations of Tenant
under this subparagraph shall survive the termination of this Lease.
For purposes of this subparagraph, "hazardous waste materials" shall mean
any substance which is or becomes defined as hazardous waste, hazardous
material or oil under any Federal, State or local laws, or which is toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic or
otherwise hazardous to health and which is or becomes regulated under any
applicable law.
(p) Tenant hereby represents to the Landlord that it has the authority to
enter into this Lease, that the execution and delivery of this Lease is not
in contravention of its charter or by-laws or applicable state laws, and
has been duly authorized by, as appropriate, its Board of Directors and
Shareholders, its Partners, or its Beneficiaries.
20. TENANT'S DEFAULTS
The following shall be deemed to be defaults hereunder:
(a) If Tenant shall fail to pay the Fixed Rent or any monthly
estimated installments of its share of the Operating Expenses when due
hereunder and such failure continues for more than 7 days after
written notice from Landlord designating such failure (provided if
Landlord gives such written notice more than 2 times in any 12-month
period, no such written notice shall thereafter be required, and
thereafter the failure to make such payment within seven days of the
due date, without notice, shall constitute a default hereunder); or if
Tenant fails to pay any other additional rent or other charges
provided for hereunder and such failure continues for more than 7 days
after written notice form Landlord designated such failure; or
(b) If Tenant shall fail to comply with any other obligation or
covenant hereunder and such failure continues for more than 30 days
after written notice from Landlord to Tenant specifying such failure;
provided, if such failure by its nature cannot be cured within 30
days, Tenant shall be given such additional time as is reasonably
necessary, not to exceed 60 days, provided Tenant has
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commenced diligently to correct said failure and thereafter diligently
pursued such correction to completion; or
(c) If Tenant makes any assignment for the benefit of creditors,
commits any act of bankruptcy or files a petition under any bankruptcy
or insolvency law; if a petition is filed against Tenant or any
guarantor and is not dismissed within 60 days; if a receiver or
similar officer becomes entitled to Tenant's leasehold hereunder and
is not returned to Tenant within 60 days; or if such leasehold is
taken from Tenant on execution or other process of law in any action;
or
(d) If Tenant is a corporation, its failure to remain a corporation
in good standing and qualified to do business in Massachusetts.
21. RIGHTS OF LANDLORD UPON TENANT'S DEFAULT
21.a. Landlord's Remedies. In the event any default shall occur, Landlord
-------------------
shall have the right, then or at any time thereafter, at its sole
election either:
(1) To terminate this Lease by written notice to Tenant, which
termination shall take effect on the date of Landlord's giving of
said notice or on any later date specified in Landlord's
termination notice; or
(2) To enter upon and take possession of the Premises (or any part
thereof in the name of the whole) without demand or notice, and
repossess the same as of the Landlord's former estate, expelling
Tenant and those claiming under Tenant, forcibly if necessary,
without being deemed guilty of any manner of trespass and without
prejudice to any other remedy for any default hereunder.
Landlord's repossession of the Premises under this Section shall not be
construed to effect a termination of this Lease, unless Landlord sends Tenant a
written notice of termination as required hereunder. Tenant hereby waives any
rights of redemption under Massachusetts General Laws chapter 186.
21.b. Reletting. Landlord shall have the right (at its sole election and
---------
whether or not this Lease shall be terminated under Section 20.a) to
relet the Premises or any part thereof for such period or periods
(which may extend beyond the term) and at such rent or rents and upon
such other terms and conditions as Landlord may deem advisable, and in
connection with any such reletting, Landlord may make or cause to be
made such additions, alterations and improvements to the Premises as
Landlord may deem advisable.
21.c. Removal of Goods. If Landlord shall terminate this Lease or take
----------------
possession of the Premises by reason of a default, Tenant, and those
claiming under Tenant, shall forthwith remove their goods and effects
from the Premises. If Tenant or any such claimant shall fail so to
remove forthwith, Landlord, without liability to Tenant or to those
claiming under Tenant, may remove such goods and effects and may store
the same for the account of Tenant or of the owner thereof in any
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place selected by Landlord or, at Landlord's sole election, Landlord
may sell the same at public auction or at private sale on such terms
and conditions as to price, payment and otherwise as Landlord, in its
sole judgment, may deem advisable. Tenant shall be responsible for
all costs of removal, storage and sale, and Landlord shall have the
right to reimburse itself from the proceeds of any such sale for all
such costs paid or incurred by Landlord. If any surplus sale proceeds
shall remain after such reimbursement, Landlord may deduct from such
surplus any other sum due to Landlord hereunder and shall pay over to
Tenant the remaining balance of such surplus sale proceeds, if any.
21.d. Current Damages. No termination or repossessions provided for in this
---------------
Section shall relieve Tenant of its liabilities and obligations
hereunder, all of which shall survive such termination or
repossession. In the event of any such termination or repossession,
Tenant shall pay Landlord, in advance, o the first day of each month
(and pro rata for the fraction of any month) for what would have been
the entire balance of the term, one-twelfth of the Annual Rental for
the Premises, as defined in Section 20.e. hereof), less the proceeds
(if any) of any reletting of the Premises which remain after deducting
Landlord's expenses in connection with such reletting. Such expenses
shall include, without limitation, removal, storage and remodeling
costs, the cost of painting and refurbishing the Premises, and
attorneys' and brokers' fees.
21.e. Annual Rental. The Annual Rental for the Premises shall be the total
-------------
of the Fixed Rent and Tenant's share of Operating Expenses, and all
other charges payable by Tenant (whether or not to Landlord) for the
operating year ending next prior to such termination or repossession.
21.f. Remedies Cumulative. Any and all rights and remedies which Landlord
-------------------
may have under this Lease and at law and equity, shall be cumulative
and shall not be deemed inconsistent with each other, and any two or
more of all such rights and remedies may be exercised at the same time
insofar as permitted by law.
21.g. Landlord's Right to Cure Defaults. Landlord shall have the right but
---------------------------------
not the obligation, to cure at any time and without notice, any
default by Tenant under this Lease. Whenever Landlord so elects, all
costs and expenses incurred by Landlord, including reasonable
attorney's fees, in curing a default shall be paid by Tenant to
Landlord on demand, as additional rent hereunder, together with lawful
interest thereon from the date of payment by Landlord to the date of
payment by Tenant.
21.h. Costs of Enforcement. Tenant shall pay, within 7 days after receipt of
--------------------
Landlord's bill therefor, all costs and expenses (including without
limitation reasonable attorneys' fees) incurred by Landlord in
enforcing Tenant's obligations or Landlord's rights under this Lease.
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22. RECORDING
The parties agree not to record this Lease. However, if this Lease is for a
term (including any options) of more than 7 years, Tenant may record a Notice of
Lease in the form suggested by the applicable statute, with such recording to be
at Tenant's expense.
23. LIABILITY
In no event shall Landlord be liable for any breach of covenant during the Term
unless the same shall occur during and within the period of the time that it is
the record owner of and in possession of Landlord's Property. It is
specifically understood and agreed that there shall be no personal liability
under this Lease for any of the obligations of the Landlord hereunder, and no
trustee, beneficiary, holder of a beneficial interest, joint venturer, tenant in
common or partner (general or limited) of Landlord shall have any personal
liability hereunder. Tenant agrees to look only to Landlord's interest in
Landlord's Property for satisfaction of any claim against Landlord hereunder.
So long as Tenant is a corporation, no shareholder, director or officer of
Tenant shall have any personal liability under this Lease for any obligations of
the Tenant hereunder.
The Landlord's failure to provide any service to the Premises to any specific
degree, quantity, quality or character shall not form a basis of claim for
damages or breach of covenant against Landlord, or any offset of rent, except
only as specifically otherwise provided herein. The placement by Tenant of any
goods, wares and merchandise in the Premises or any areas within Landlord's
Property shall be at the sole risk and hazard of the Tenant.
In no event and under no circumstances whatsoever shall Landlord be liable to
Tenant for any consequential damages in connection with any act of Landlord, its
agents or servants. In no event and under no circumstances whatsoever shall
Tenant be liable to Landlord for any consequential damages in connection with
any act of Tenant, its agents or servants; provided, however, the foregoing
shall not limit in any way the damages to which Landlord shall be entitled
(which may include all consequential damages resulting therefrom) in the event
of: (i) the failure of Tenant to vacate the Premises as and when required
hereunder, (ii) the failure of Tenant to strictly comply with Section 19.o.
hereof, (iii) with respect to any indemnifications contained herein, or (iv) the
gross negligence or willful misconduct of Tenant, its agents or servants.
Landlord shall not be deemed to be in default in the performance of any of its
obligations or covenants hereunder unless Landlord shall fail to perform any
such obligations or covenants and such failure continues for a period of 30 days
after written notice has been given by Tenant to Landlord specifying such
failure; provided, if such failure by its nature cannot be cured within 30 days,
Landlord shall be given such additional time as is reasonably necessary, not to
exceed 60 days, provided Landlord has commenced diligently to correct said
failure and thereafter diligently pursues such cure to completion.
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24. FORCE MAJEURE
In any case where Landlord or Tenant is required to do any act (other than the
payment of any monetary obligation under this Lease), the time for the
performance thereof shall be extended by a period equal to any delay caused by
or resulting from Act of God, war, civil commotion, fire or other casualty,
labor difficulties, shortages of labor, materials or equipment, government
regulations or other causes beyond such party's reasonable control, whether such
time be designated by a fixed time or "reasonable time."
25. MECHANICS' LIENS
The Tenant will not permit any mechanic's or materialmen's or other liens to
stand against the Premises or Landlord's Property for any labor or materials
furnished the Tenant in connection with work of any character performed on the
Premises by or at the direction of the Tenant. Any such lien shall be
discharged within ten days. If Tenant fails to discharge such lien, Landlord
may do so at Tenant's sole cost and expense.
26. WAIVER; ACCORD AND SATISFACTION
The waiver of one failure to comply with any term, condition, covenant,
obligation or agreement of this Lease shall not be considered to be a waiver of
that or any other term, condition, obligation or agreement or of any subsequent
failure.
No acceptance by Landlord of a lesser sum than any sum due under any provisions
of this Lease shall be deemed to be other than on account of the earliest
installment of such sum doe, nor shall any endorsement or statement on any check
or letter accompanying any check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
any rights to recover the balance of such installment or pursue any other remedy
in this Lease provided.
27. DEFINITIONS
The words "Landlord" and "Tenant" as used herein shall include their respective
heirs, executors, administrators, successors, representatives, assigns,
invitees, agents and servants. The words "it", "he" and "him" where applicable
shall apply to the Landlord or Tenant regardless of gender, number, corporate
entity, trust or other body. If more than one party signs this Lease as Tenant,
the covenants, conditions and agreements of the Tenant shall be joint and
several obligations of each party.
28. SEPARABILITY CLAUSE
If any provision in this Lease (or portion of such provision) or the application
thereof to any person or circumstance is held invalid, the remainder of the
Lease (or the remainder of such provision) and the application thereof to other
persons or circumstances shall not be affected thereby.
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29. EXECUTION
This Lease may be executed in any number of counterparts and each fully executed
counterpart shall be deemed an original.
30. NOTICES
Any notices required under this Lease shall be in writing and delivered by hand
or mailed by registered or certified mail: if to Tenant, to the Premises, to
the attention of Deborah Pine, with a copy to Martha Juelich Gordon, Esquire,
Sullivan & Worcester LLP, One Post Office Square, Boston, Massachusetts 02109 or
to such other additional addresses (not exceeding 2 addresses in total) as
Tenant may designate by like notice to Landlord from time to time; and if to
Landlord, care of its management agent, Spaulding Management Corporation, 2345
Washington Street, Newton Lower Falls, Massachusetts 02162, or to such other or
additional addresses (not exceeding 2 addresses in total) as Landlord may
designate by like notice to Tenant from time to time. Time is of the essence
with respect to all notices and periods for giving notices or taking any action
thereto under this Lease.
31. BROKER'S INDEMNITY
Landlord and Tenant each hereby represent and warrant to the other that, except
to the extent, if any, hereinafter set forth, it has dealt with no broker in
connection with this Lease and there are no brokerage commissions or other
finders' fees due in connection herewith. Landlord and Tenant each hereby agree
to hold the other harmless from, and indemnified against, all loss or damage
(including, without limitation, the cost of defending same) arising from any
claim by any broker or finder claiming to have dealt with such party. The
parties acknowledge that Cranberry Hill Associates, Inc., acted as broker in
connection with this lease, and that Landlord shall pay a commission on account
thereof as agreed between Landlord and said broker.
32. HOLDING OVER
If for any reason Tenant holds over or occupies the Premises beyond the Term,
then Tenant shall have no more rights than a tenant by sufferance (or, at
Landlord's sole option, such holding over shall constitute a tenancy from month
to month, terminable by either party upon 30 days prior written notice to the
other), and, in any case, Tenant shall be liable for payment of rent during such
period in an amount equal to one and one-half times the rent (including Fixed
Rent and all additional rent) payable hereunder for the final year of the Term
prior to such holding over. Such tenancy shall otherwise be on the same terms
and conditions as set forth in the Lease, as far as applicable. Nothing in this
Section shall be construed to permit such holding over, or to limit Landlord's
other rights and remedies on account thereof.
33. LANDLORD'S MORTGAGES
After receiving notice from Landlord or from any person, firm or other entity
that such person, firm or other entity holds a mortgage, which includes the
Premises as part of the mortgaged premises, no notice from Tenant to Landlord
shall be effective unless and until a copy of the same is given by certified or
registered mail to such holder, and the curing of any of Landlord's defaults by
such holder shall be treated as performance by Landlord, it being understood and
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agreed that such holder shall be afforded a reasonable period of time after the
receipt of such notice in which to effect such cure.
Tenant shall cooperate with Landlord so that Landlord will be able to procure
mortgage financing for any and all of Landlord's properties. Upon request,
Tenant agrees to execute and deliver to Landlord estoppel or offset letters as
reasonably required by Landlord's mortgage lenders.
Executed under seal on October 25, 1996.
TENANT:
PREVISION MARKETING, INC.
By: /s/ Deborah Pine
-------------------------------------------
Name:
Title: President
By: /s/ Deborah Pine
-------------------------------------------
Name:
Title: Treasurer
[Tenant shall deliver a Certificate of Legal Existence from the Massachusetts
Secretary of State Office for the Tenant and a Certificate of Vote authorizing
this Lease and authorizing the signatories on behalf of Tenant]
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LANDLORD:
NEW ENGLAND FARMS LIMITED PARTNERSHIP
By its General Partner
NEW ENGLAND CENTER, INC.
By: /s/ Richard W. Spaulding
-------------------------------------------
Name: Richard W. Spaulding
Title: President
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AMENDMENT TO LEASE AND CONSENT TO SUBLEASE
------------------------------------------
This Amendment to Lease and Agreement ("Agreement") is entered into this 30th
day of March, 1999.
Reference is hereby made to that certain lease dated October 25, 1996 (the
"Lease") by and between New England Farm Limited Partnership ("Lessor") and
PreVision Marketing, Inc., a Delaware corporation ("Sublessor"). The premises
demised thereby (the "Premises") are located in the building known a One Concord
Farms, located at 490 Virginia Road in Concord, Massachusetts (the "Building").
The Premises consist of Suite 30, 31, and 32 on the Third Floor (Suite 30 and 21
also include mezzanine space) and Suites 20, 21 and 22 on the Second Floor of
the Building.
Reference is also made to a Sublease dated as of April 1, 1999 (the "Sublease"),
by and between Sublessor and Mothernature.com, Inc., a Delaware corporation, as
sublessee ("Sublessee"), with respect to the Premises.
Pursuant to the Lease, Sublessor, as the tenant thereunder, may not sublet the
Premises without first obtaining Lessor's written approval.
Lessor hereby grants its consent to the Sublease on and subject to each of the
following terms and conditions, which are hereby agreed to by Sublessor and
Sublessee:
1. Sublessor and Sublessee hereby represent and warrant that attached hereto
as Exhibit A is a true, correct and complete copy of the Sublease, and that
---------
the Sublease constitutes the entire agreement of Sublessor and Sublessee
with respect to the matters therein described. The sublease shall not be
amended or modified without the prior written consent of Lessor.
2. Sublessee understands and agrees that the Sublease is in fact a sublease of
Sublessor's interest in the Lease; and the Sublease is subject to the
provisions of the Lease and is subordinate thereto. In the event the Lease
shall be canceled or terminated for any reason, the term of the Sublease
shall automatically terminate as of the date of such cancellation or
termination.
3. Sublessee covenants that, notwithstanding any provisions of the Sublease to
the contrary, Sublessee shall not commit, or suffer to be committed, any
act or omission in violation of the provisions of the Lease, and Sublessee
agrees directly with Lessor to be bound by all the obligations of the
Sublessor thereunder, to the extent that same are the obligation or
responsibility of the Sublessee under the Sublease.
4. The consent given by Lessor in this Agreement shall not be deemed to create
any obligations on the part of Lessor with respect to Sublessee or with
respect to the Sublease or the Premises, or constitute any consent to any
further sublease or assignment, or relieve Sublessor of its obligations
under the Lease; and Sublessor shall remain fully and primarily liable for
the prompt and timely payment of all rent, additional rent and other
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charges under the Lease and for the timely performance of all of the
tenant's obligations under the Lease. This Agreement shall in no way
release Sublessor from any of its covenants, agreements, liabilities and
duties under the Lease, all of which Sublessor agrees it remains
responsible for paying or performing as the case may be.
5. Sublessor and Sublessee agree that Lessor is not responsible for the
payment of any commission or fees in connection with the Sublease and they
each jointly and severally agree to indemnify and hold harmless Lessor from
and against any claims, liabilities, losses or expenses, including
reasonable attorney's fees, incurred by Lessor in connection with any
claims for commissions or fees by any broker or agent in connection with
the Sublease.
6. As a condition of Lessor's consent, Sublessor shall reimburse Lessor on
demand for any reasonable costs (including all attorney's fees) that Lessor
incurred in connection with the consideration of the consent contained
herein.
7. Simultaneously with the execution of this Agreement, Sublessee shall
deliver to Lessor a certificate or certificate of insurance confirming that
the required insurance is in force (including $2,000,000 in liability
insurance, full replacement cost coverage for all equipment and personal
property and workman's compensation coverage) and all premiums are current,
and naming Lessor and Lessor's agent, Spaulding Management Corporation, as
additional insureds.
8. This Agreement shall not be deemed Lessor's consent to any Alterations of
the Premises, all of which require the Lessor's prior written consent
pursuant to the terms of the Lease. Notwithstanding any approvals that may
be given for any Alternations, the Premises shall be returned to Lessor at
the end of the Term in its condition as of the date hereof, with all
improvements, work and Alterations that may be performed by or for
Sublessee being removed and all damage caused thereby being repaired. It
is agreed that Lessor may condition its approval of any Alterations on
Lessor designating the contractors to be used in connection therewith and
that all costs of Lessor's review and supervision of the construction of
the Alterations (including in-house staff costs) shall be paid for by
Sublessor promptly upon billing therefor by Lessor.
9. Lessor shall promptly be provided with copies of all written notices given
or received by either Sublessor or Sublessee under the Sublease. Lessor
shall endeavor to provide Sublessee with copies of all notices of default
sent by Lessor to Sublessee.
10. Sublessee shall not subsublet its interest in the Premises or to assign its
rights under the Sublease without, in each such instance, first obtaining
the Lessor's prior written consent, which consent may be withheld at the
Lessor's sole and absolute discretion. Notwithstanding the foregoing,
Lessor's consent shall not be required for any assignment to a parent,
subsidiary or affiliate of Sublessee, or for any merger of Sublessee with
another entity or the sale of all or substantially all of the assets of
Sublessee on an ongoing business, provided reasonable evidence thereof is
provided to Lessor, and provided such assignee (if a different entity than
the named Sublessee) enters into a written assumption agreement
satisfactory to Lessor with respect to the Sublease.
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11. Following the occurrence of a default under the Lease, Lessor, in addition
to any other remedies provided hereunder or at law, may at its option, by
giving written notice thereof to Sublessee, collect directly from Sublessee
all rents becoming due to the Sublessor under the Sublease and apply such
rent against any amounts due Lessor by Sublessor under the Lease; and it is
understood that no such election or collection or payment shall be
construed to constitute a novation of the Lease or a release of Sublessor
hereunder, or to create any lease or occupancy agreement between the Lessor
and Sublessee or impose any obligations on Lessor, or otherwise constitute
the recognition of the Sublease by Lessor for any purpose. Sublessor
agrees that Sublessee may rely on any notice from Lessor that a default has
occurred under the Lease and all rents paid to Lessor after receipt of such
notice shall be credited to the sums due under the Sublease.
12. Sublessee may not use any photos, drawings or other imagery of the Building
in any way, form or media unless each such use has first been consented to
in writing by the Lessor in its sole discretion.
13. Lessor consents to the provision of the Sublease which permits Sublessee to
use the designated parking spaces provided for in the Lease, provided all
costs incurred by Lessor in connection therewith (including without
limitation any new signage and labeling) shall be paid to Lessor by
Sublessor promptly upon billing therefor.
14. Sublessee agrees to maintain a fire extinguisher in any kitchen areas at
all times.
15. The provisions of Section 14 of the Lease shall be inapplicable to
Sublessee, and Sublessee shall have the following signage rights: (i)
Lessor shall, upon request of Sublessee, at Sublessor's sole expense (all
such costs to be paid by Sublessor within 15 days of billing therefor),
modify the existing free-standing exterior sign on the Property currently
identifying the Sublessor, so as to identify Sublessee by its trade name,
MotherNature.com; and (ii) Sublessee may, at its sole cost and expense,
install a sign on the glass window adjacent to the interior entrance door
to the Premises identifying Sublessee by its trade name. Such signs shall
be of a size, design, quality and location in accordance with the
Building's signage standards, as established from time to time by Lessor,
and subject to the prior written approval of the Lessor. Sublessee shall
also be identified on the Building directory in the entrance lobby to the
Building, at Sublessor's sole cost and expense, it being understood that in
order to accommodate this change, Lessor will be replacing the current
Building directory with a new one, at Sublessor's expense.
Sublessee shall not place any other signs or other forms of advertising on
or about the exterior of the Premises, the exterior or interior of the
Building or elsewhere on the Property; and the foregoing prohibition shall
also prohibit any signs or other advertising on the windows of the Premises
or located within the interior of the Premises that are visible from the
exterior of the Building.
16. Any and all costs incurred by Lessor incident to the change in occupancy
contemplated by the Sublease, including without limitation the issuance of
new access cards and re-working of access needs, the issuance of keys, and
issuance of new parking tags will
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be the sole cost of Sublessor, which shall be paid by Sublessor the Lessor
promptly following billing therefor. Sublessor must return all keys to
Lessor prior to the commencement of the Sublease and, in turn, keys will be
issued by Lessor to Sublessee.
17. Sublessor confirms that, pursuant to Section 16 of the Lease, Sublessor
shall pay to Lessor on a monthly basis, as additional rent under the Lease,
one-half of all rent paid by Sublessee under the Sublease in excess of the
rent payable by Sublessor under the Lease, as provided in Section 16 of the
Lease. It is agreed that any deductions Sublessee wishes to utilize in
calculating such excess shall have been communicated in writing to Lessor
(along with documentation of same reasonably satisfactory to Lessor) on or
prior to the date of this Agreement.
18. Sublessor and Lessor hereby certify that attached hereto as Exhibit B is a
---------
true, correct and complete copy of the Lease, the Lease is in full force
and effect, that there have been no modifications or amendments thereto,
that all rent, additional rent and other payments due under the Lease as of
the date hereof have been paid by Sublessor, and, as of the date hereof, to
the Sublessor's and Lessor's knowledge, there exists no default under the
Lease.
19. This Agreement may not be changed orally, but only by an agreement in
writing signed by the party against whom enforcement of any change is
sought.
20. Lessor and Sublessor hereby agree that the Lease shall be amended as
follows:
(a) The provisions of Section 2.c of the Lease (Expansion Rights) is
hereby deleted and of no further force and effect.
(b) The provisions of Section 3.b of the Lease (Option to Extend the Term)
is hereby deleted and of no further force and effect.
(c) Section 5.b of the Lease (Late Fee) is hereby amended to provide that
the late fee shall be in the amount of $300.00.
(d) The provisions of Section 7.g of the Lease (Health Club) is hereby
deleted and of no further force and effect.
(e) Simultaneously with the execution of this Agreement, Sublessor shall
deliver to Lessor the sum of $19,388 which shall be held as an
additional security desposit in accordance with Section 5.c of the
Lease as security for the payment of rents and the performance and
observation of the agreements and conditions contained in the Lease.
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The term "Lease" as used herein, shall refer to the Lease as amended by this
Agreement.
Executed under seal as of the above date.
Sublessee:
MOTHERNATURE.COM, INC.
By: /s/ Michael Barach
---------------------------------
Name:
Title:
Sublessor:
PREVISION MARKETING, INC.
By: /s/ Deborah Pine
---------------------------------
Name:
Title:
Lessor:
NEW ENGLAND FARM LIMITED PARTNERSHIP
By its General Partner
SPAULDING MANAGEMENT CORPORATION
By: /s/ Richard W. Spaulding
---------------------------------
Name:
Title:
-37
<PAGE>
EXHIBIT 10.6
LEASE AGREEMENT
Lease Agreement entered into this 18th day of June, 1999 by and between
CARL E. BREYER, JR., RAYMOND P. PIECZARKA and STEPHEN SPINELLI, JR. TRUSTEES OF
PARK PLACE BROOKDALE REALTY TRUST recorded with the Registry District of Hampden
County as Document No. 131504 on Certificate of Title 28989, of 545 School
Street, Agawam, Massachusetts [hereinafter "LANDLORD"] and MOTHERNATURE.COM,
INC., a Delaware corporation, of Concord, Massachusetts [hereinafter "TENANT"].
1. PREMISES: The LANDLORD does hereby lease, demise and let unto the
TENANT the premises described as follows: the entire building located at 189
Brookdale Drive, Springfield, Massachusetts, containing approximately 25,000
square feet of office and warehouse space (the "Premises"). The lot on which the
Premises is located has a total area of approximately 2.8 acres and is legally
described on Exhibit A (the "Land"). As a right appurtenant to the Premises,
---------
Tenant shall have the exclusive right to use all of the parking spaces,
driveways, sidewalks and access roads on the Land, and in common with Landlord,
the benefit of all easements and appurtenances which benefit the Land. LANDLORD
makes no representations concerning zoning relating to TENANT's intended use and
leaves TENANT to its own inquiry.
2. TERM: The term of the lease shall be for five (5) years, commencing on
the first of August 1999 (the "Scheduled Commencement Date") and terminating on
the last day of July 2004. On the Scheduled Commencement Date, LANDLORD agrees
that it shall deliver possession of the Premises to TENANT in "broom clean"
condition free of all tenants and their possessions with LANDLORD's work
described on Exhibit B (the "Landlord's Work") completed and Landlord shall
provide Tenant with a copy of a valid certificate of occupancy for the entire
Premises. The date on which the foregoing requirements are satisfied shall be
the "Commencement Date" but in no event shall the Commencement Date be earlier
that the Scheduled Commencement Date. In the event the foregoing requirements
are not satisfied by the Scheduled Commencement Date, then the Commencement Date
shall be delayed until each of the foregoing requirements are satisfied. If the
Commencement Date does not occur by September 1, 1999, TENANT shall have the
right to terminate this Lease by written notice to the LANDLORD.
3. RENT:
a. Commencing on the Commencement Date, rent for the Premises for
the term of the lease shall be as follows:
<TABLE>
<CAPTION>
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Monthly Annual
-----------------------------------------------------------------
<S> <C> <C>
Year 1 $ 7,083.33 $ 85,000.00
-----------------------------------------------------------------
Year 2 9,583.33 115,000.00
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Year 3 10,208.33 122,000.00
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Year 4 10,666.66 128,000.00
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Year 5 11,250.00 135,000.00
-----------------------------------------------------------------
</TABLE>
<PAGE>
b. In the event that any payment of rent is not made to the LANDLORD
by the close of business on the fifth (5/th/) day following the
due date, a late charge equal to three percent (3%) of the
payment due shall be paid by the TENANT.
c. In addition to the payment of the rent due under Section 3(c)
above, TENANT shall pay the following reasonable expenses of
LANDLORD: (i) accounting expenses relating to the administration
of this Lease, (ii) attorneys' fees incurred by LANDLORD in
enforcing any of TENANT's obligations under this Lease, (iii)
expenses of LANDLORD incurred in connection with responding to
TENANT's request for consent as required under this Lease, and
(iv) reasonable administrative and office expenses (including
telephone, postage and stationary supplies) incurred by LANDLORD
in carrying out its obligations under this Lease.
d. TENANT shall, provided it is not in default under the terms of
this lease beyond applicable notice and cure periods, have an option to
renew this lease for an additional five (5) years or an additional one (1)
year period upon giving LANDLORD 12 months written notice ("TENANT's
Extension Notice") TENANT's Extension Notice shall specify if TENANT is
extending the term for one year or five years. Rent for the option period
shall be at the then Fair Market Value (as defined below), however, in no
event shall the rent be less than that of the final year of the first term.
Within thirty (30) days of LANDLORD's receipt of TENANT's Extension Notice,
LANDLORD shall notify TENANT of LANDLORD's good faith estimate of Fair
Market Rent for the option period (the "Proposed Rent Notice"). "Fair
Market Rent" shall be the rental rate that willing unrelated parties
negotiating at arms length would enter into a lease for space similar to
the Premises in the Great Springfield area on substantially the same terms
and conditions as contained in the Lease for the option period specified in
TENANT's Extension Notice. TENANT may either accept the Fair Market Rent
contained in the Proposed Rent Notice or negotiate with LANDLORD for a
period of thirty (30) days after receipt of the Proposed Rent Notice. If
after such thirty (30) day period LANDLORD and TENANT are unable to agree
on the Fair Market Rent, the Fair Market Rent shall be determined according
to the following procedures:
(i) At any time after such 30-day period, LANDLORD and TENANT each
shall have the right, by written notice (a "Notice of
Arbitration") to the other, to demand arbitration of the
calculation of the Fair Market Rent. The party demanding
arbitration (the "first party") shall appoint an arbitrator in
the Notice of Arbitration. Within seven days after the Notice of
Arbitration is given, the other party (the "second party") shall
by notice to the first party appoint a second arbitrator. If the
second party fails to appoint a second arbitrator within such
seven-day period, the position taken by the first party shall be
deemed to be the correct calculation of the Fair Market Rent.
<PAGE>
(ii) Within seven days after the designation of the second
arbitrator, LANDLORD and TENANT shall submit their respective
positions with respect to the calculation of the Fair Market
Rent to the two arbitrators. Within fourteen days after the
designation of the second arbitrator, the two arbitrators shall
determine the correct calculation of the Fair Market Rent. The
arbitrators, or either of them, shall give notice of such
resolution (or notice of their inability to reach agreement, as
the case may be) to the LANDLORD and the TENANT within such
fourteen-day period. Any agreement of the two arbitrators shall
be binding upon the LANDLORD and the TENANT.
(iii) If the two arbitrators are unable to reach an agreement within
such fourteen-day period, the two arbitrators shall, within such
fourteen-day period, designate a third arbitrator. If the two
arbitrators fail to agree upon the designation of a third
arbitrator within such fourteen-day period, then either party on
behalf of both may apply to the president of the Greater
Springfield Real Estate Board or, on his or her failure, refusal
or inability to act, to a court of competent jurisdiction, for
the designation of such third arbitrator.
(iv) Within seven business days after the designation of the third
arbitrator, the parties shall submit their respective positions
with respect to the calculation of the Fair Market Rent to the
third arbitrator. Within fourteen days after the designation of
the third arbitrator, the third arbitrator shall conduct such
hearings and investigations as he or she may deem appropriate
and determine the correct calculation of the Fair Market Rent.
Within such fourteen-day period, the third arbitrator shall give
notice of such resolution to Lessor and Lessee. The third
arbitrator's determination shall be binding upon Lessor and
Lessee.
(v) All arbitrators shall be qualified real estate professionals who
shall have had at least five years of experience appraising
buildings substantially similar to the Premises in the Greater
Springfield area. Tenant and Landlord shall each be entitled to
present evidence to the arbitrators in support of their
respective positions. The arbitrators shall not make any
determination inconsistent with the terms of this Lease. The
arbitrators shall not have the power to add to, modify or change
any of the provisions of this Lease. The determination of the
arbitrator(s) shall be conclusive and shall have the same force
as a judgment in a court of competent jurisdiction. Judgment on
the determination made by the arbitrator(s) under the foregoing
provisions may be entered in any court of competent
jurisdiction.
<PAGE>
(vi) Each party shall pay the fees, costs and expenses of the
arbitrator appointed by such party and of the attorneys and
expert witnesses of such party and one-half of the other fees,
costs and expenses of arbitration and of the fees, costs and
expenses of the third arbitrator.
4. UTILITIES: On or before the Commencement Date, LANDLORD shall ensure
that all utilities necessary for the operation of the Premises are connected to
the Premises. TENANT shall be responsible for paying for all utilities
including, but not limited to, heat, electricity, gas, oil, water, sewer, and
all utilities, if allowed, shall be carried in the name of the TENANT.
5. REAL ESTATE TAXES: TENANT shall, in addition to rent, pay all real
estate taxes, including betterment assessments, assessed on the Premises and the
Land, pro rated for the period during which the TENANT is occupying the
Premises. LANDLORD represents and warrants that the Land is assessed as a
single tax parcel and that no other improvements shall be constructed on the
Land without the prior written consent of Tenant. LANDLORD shall provide TENANT
with a copy of each real estate tax invoice from the local assessor for the Land
and Premises, and upon receipt of same, TENANT shall pay 1/12 of the annual
taxes indicated on such invoice with each monthly rent payment to LANDLORD, who
shall hold said sums in escrow in an interest bearing account, and LANDLORD
shall pay the taxes when due. At the end of each fiscal tax year, LANDLORD
shall refund any overpayments on account of real estate taxes made by TENANT.
TENANT, at its own expense, may apply for an abatement of real estate taxes at
any time in its own name or the name of the LANDLORD. If either the LANDLORD or
TENANT prosecutes an application for an abatement, the other shall cooperate and
furnish any pertinent information in its files reasonably required by the
prosecuting party. Notwithstanding the above, the costs and expenses of
obtaining an abatement shall be a first charge against the abatement. LANDLORD
shall pay all interest accruing on the tax escrow amount on an annual basis to
TENANT. Provided TENANT makes the payments due hereunder, TENANT shall not be
responsible for, and LANDLORD shall pay, all fees, interest and fines for the
late payment of taxes.
6. USE: TENANT shall use the Premises only for office, warehouse,
distribution, packaging, assembly, retail, light manufacturing and accessory
uses. Any other purposes or uses may be undertaken only with written permission
of the LANDLORD. No trade or occupation shall be conducted on the Premises or
use made thereof which shall be unlawful or contrary to any law or regulation,
including, but not limited to the Zoning By-Laws of Springfield and Section 4 of
the Agreement Imposing Protective Covenants for Industry East dated October 27,
1970 to the extent the same remains in full force and effect during the term of
this Lease. No hazardous materials or substances, as defined in Massachusetts
General Laws, c. 21E, shall be stored or used on the Premises (except for such
hazardous materials and substances as are customarily used in connection with
office, distribution and/or warehouse use, provided the same is done in
compliance with applicable law) without the express written permission of the
LANDLORD and the obtaining of any required permits and licenses.
<PAGE>
7. SUBLEASING: TENANT shall not sublet or assign the Premises or this
lease without the express written consent of the LANDLORD, which consent shall
not be unreasonably withheld, conditioned or delayed. Notwithstanding any
contrary provision of this Lease, TENANT shall have the right, without the prior
consent of LANDLORD, to assign this Lease and to sublet all or any portion of
the Premises to any person or entity (a) controlling, controlled by, or under
common control with TENANT, (b) acquiring all or substantially all of the assets
of TENANT or (c) with or into which TENANT merges or consolidates.
8. MAINTENANCE AND REPAIRS: LANDLORD agrees that at the commencement of
the tenancy all utilities and mechanical systems (including, without limitation,
the electrical, plumbing and HVAC systems) shall be in good working order and
LANDLORD shall do the pre-occupancy work as detailed in the attached Exhibit B.
---------
TENANT agrees to maintain the Premises in the same condition as they are at the
commencement of the term or as they may be put in during the term of this Lease,
reasonable wear and tear, damage by fire and other casualty only excepted.
TENANT shall be responsible for all necessary maintenance and repairs (but not
replacements), including but not limited to lights, air conditioning units,
heating units, plumbing, electrical, security system, sprinkler system,
elevator, doors, windows, including repairs to the interior and exterior of the
Building and parking areas. Work shall be done by authorized and licensed,
where appropriate, technicians. LANDLORD shall be notified in advance of any
work expected to exceed $2,000. Notwithstanding any provision of this Lease to
the contrary, LANDLORD agrees, at its cost, to (i) keep in good order, condition
and repair, the roof, the load-bearing walls (excluding exterior glass), the
foundation and the structure of the Building and the pavement of the parking
areas serving the Premises; (ii) make all replacements to the Building systems
(including, but not limited to, heating, ventilation and air conditioning
system, sprinkler system, plumbing system, and electrical system) and all
repairs estimated to cost in excess of $1,250.00 to such systems, provided
LANDLORD shall not be responsible for such repairs when the need arises from the
abuse or improper maintenance of such systems by TENANT, and provided further
that LANDLORD shall not be responsible for the routine maintenance and repair of
such systems.
a. TENANT shall be responsible for removing snow and ice from the
parking areas and sidewalks on the Land, including sanding and salting
where appropriate and reasonable for the safety of the customers and
occupants. Wherever necessary, TENANT shall replace plate glass and other
glass therein. The interior and exterior of the Premises shall be kept in
a neat and clean condition. TENANT shall be responsible for landscape
maintenance.
b. TENANT shall not permit the Premises to be overloaded, damaged,
stripped or defaced nor suffer any waste.
9. SIGNS: TENANT shall not erect or paint any signs on or about the
Premises without the written consent of the LANDLORD, which shall not be
unreasonably withheld. LANDLORD agrees that TENANT shall have the right to
place TENANT's name on the exterior of the Building, provided the same is done
in compliance with all zoning by-laws and Section 7 of the Agreement Imposing
Protective Covenants for Industry East dated October 27, 1970 to the extent the
same remains in full force and effect during the term of this Lease.
<PAGE>
10. ALTERATIONS: TENANT shall not make structural alterations or
additions to the Premises, but may make nonstructural alterations, provided the
LANDLORD consents thereto, which consent shall not be unreasonably withheld,
conditioned or delayed. All such allowed alterations shall be at TENANT's
expense and shall be in quality at least equal to the present construction and
in compliance with all state and city building, zoning and sanitary codes.
TENANT shall not permit any mechanics' liens, or similar liens, to remain upon
the Premises for labor and material furnished to TENANT, or claimed to have been
furnished to TENANT, in connection with work or any character performed or
claimed to have been performed at the direction of TENANT and shall cause any
such lien to be bonded over or released of record forthwith without cost to
LANDLORD. Any such alterations or improvements made by the TENANT shall become
the property of the LANDLORD at the termination of occupancy as provided herein.
Provided, however, that TENANT may at the termination of the tenancy, remove any
trade or business items or fixtures, restoring the Premises to its pre-
installation condition. Notwithstanding the foregoing, TENANT shall have the
right to make non-structural alterations to the Premises without the consent of
LANDLORD but upon prior written notice to LANDLORD throughout the term of this
lease when the estimate cost of each alteration individually in less than
$5,000.00 and the aggregate cost of such alterations throughout the term is less
$75,000.00.
11. ENTRY AND INSPECTION: LANDLORD shall have the right upon reasonable
notice to enter upon the Premises during normal business hours, and other times
in case of emergency, for the purpose of inspecting the same and determining the
need for repairs. If repairs are necessary and are required to be made by the
TENANT pursuant to the terms hereof, LANDLORD may demand that TENANT make the
same forthwith, and if TENANT refuses or neglects to commence such repairs and
complete the same with reasonable dispatch after such demand, LANDLORD may (but
shall not be required to) make or cause such repairs to be made. LANDLORD may
add the reasonable and actual cost of such repairs to TENANT's rent.
12. INDEMNIFICATION: TENANT agrees to indemnify and save harmless the
LANDLORD from and against all claims of whatever nature arising from willful
misconduct or negligence of the TENANT or TENANT's contractors, licensees,
agents, servants, employees, members, officers, guests or invitees. LANDLORD
shall indemnify, defend and hold harmless TENANT from all liabilities, expenses,
damages, causes of action, suits, claims or judgments caused by or arising out
of the negligence or willful misconduct of LANDLORD or its agents, employees,
contractors, licensees, servants, members, officers, guest or invitees. This
indemnity and hold harmless agreement shall include indemnity against all
reasonable costs, expenses and liabilities incurred in connection with any such
claim or process brought thereon, and the defense thereof, including reasonable
attorney's fees.
13. INSURANCE: TENANT agrees to maintain in full force a policy of
commercial public liability and property damage insurance with minimum coverage
of $1,000,000 per occurrence combined single limit for bodily injury and
property damage with a $2,000,000 general aggregate limit. LANDLORD shall
maintain fire and casualty insurance on the Building in an amount equal to
replacement value of the Building, and TENANT, within thirty (30) days of
delivery of the insurer's invoice therefore, shall pay the premium for the same
to
<PAGE>
LANDLORD, such premium to be prorated for any period not within the term. TENANT
shall provide LANDLORD evidence of its insurance coverage. TENANT agrees also to
keep its fixtures merchandise, equipment and other property insured against loss
or damage by fire or other casualty. It is understood that TENANT assumes all
risk of damage to TENANT's property and business arising from any cause whatever
including, but not limited to, loss by theft, unless caused by or arising out of
the negligence or willful misconduct of LANDLORD.
14. DAMAGE OR TAKING: Should a portion of the Premises, or of the Land of
which they are a part, be damaged by fire or other casualty, or be taken by
eminent domain, the LANDLORD shall forthwith proceed to repair and restore the
Premises and the Land to the condition that existed prior to such casualty or
taking as quickly as possible. In the event the cost to restore the Premises to
the condition that existed prior to such casualty exceeds $100,000, the LANDLORD
shall not be obligated to spend a sum for such work in excess of any insurance
proceeds recovered provided LANDLORD has maintained the insurance required to be
carried by it under this Lease. If (i) the LANDLORD is unable, despite the use
of diligent good faith efforts, to accomplish the restoration in the event of a
casualty within 90 days of such casualty and the cost to complete the
restoration in estimated in good faith to cost in excess of $100,000, or (ii)
the cost to complete the restoration in estimated in good faith to cost in
excess of $100,000 and the insurance proceeds available to LANDLORD are not
sufficient to cover the cost of such restoration (provided LANDLORD has
maintained the insurance required to be carried by it under this Lease),
LANDLORD may elect to terminate this lease provided LANDLORD delivers written
notice to TENANT within 100 days of the casualty, and in such event all
obligations shall cease. If (i) the LANDLORD fails to restore the Premises
within 90 days of a casualty or taking to the condition required hereunder, or
(ii) a taking of the Land reduces the amount of parking available to TENANT
below the levels required in order the comply with applicable zoning
requirements, TENANT may elect to terminate this lease provided TENANT delivers
written notice to LANDLORD within 100 days of the casualty or taking, and in
such event all obligations shall cease. In the event of any casualty or taking
which renders all or a portion of the Premises untenantable or inaccessible,
there shall be a pro rata abatement of all rent due hereunder from the date of
such casualty or taking until the Premises and access thereto are restored to
the condition which existed prior to the casualty or taking.
15. DEFAULT: In the event the TENANT shall default in the payment of any
installment or rent or other sums herein provided for, and said default shall
continue for 15 days after receipt of written notice from LANDLORD, or if the
TENANT shall default in the observance or performance of any other of the
TENANT's covenants, agreements or obligations hereunder, and such default shall
continue for 30 days after receipt of notice thereof from the LANDLORD (or such
longer period of time as is necessary, provided TENANT promptly commences and
diligently pursues the same to completion) or if the TENANT shall be declared
bankrupt or insolvent according to the law, or shall enter an assignment for the
benefit of creditors, then the LANDLORD shall have the right thereafter to enter
and take complete possession of the Premises in accordance with all applicable
laws and to terminate the lease, without prejudicing any other remedies
available under this lease or at law for arrears of rent or other charges or
damages. In the event TENANT defaults beyond applicable notice and cure periods
and vacates the Premises, LANDLORD agrees to use reasonable efforts to relet the
Premises in order to mitigate its damages.
<PAGE>
16. OCCUPANCY: LANDLORD covenants that the TENANT, subject to the terms
and provisions of this lease, on payment of the rent, other charges, and
observing, keeping and performing all of the terms and provisions of this lease
shall lawfully, peaceably and quietly have, hold, occupy and enjoy the Premises
during the term(s) hereof.
17. SHOWING PREMISES: During the last six months of the term or upon
receipt of notice from TENANT that it will not extent the term of this Lease,
LANDLORD may, upon reasonable advance notice to Tenant at reasonable times
during the term, enter and show the Premises to perspective tenants and post
rental signs on the Premises. Tenant shall have the right to have a
representative present at such showings.
18. TERMINATION: The TENANT shall at the expiration or other termination
of this lease remove all TENANT's goods and effect from the Premises, including
signs. TENANT shall deliver to the LANDLORD the Premises and all keys and other
fixtures connected therewith and all alterations and additions made to or upon
the Premises, in the same condition as they were at the commencement of the
term, or as they were put in during the term hereof, reasonable wear and tear
and damage by fire or other casualty only excepted. In the event of the
TENANT's failure to remove any of TENANT's property from the Premises, LANDLORD
is hereby authorized without liability to TENANT for loss or damage thereto, and
at the sole risk of TENANT, to remove and store any of the property at TENANT's
expense, or to retain same under LANDLORD's control or to sell at public or
private sale, without notice except to the TENANT at the last know address
provided by TENANT, any or all of the property not so removed and to apply the
net proceeds of such sale to the payment of any sum due hereunder or to dispose
of such property.
20. SUBORDINATION: Provided LANDLORD delivers to TENANT an agreement (a
"Non-Disturbance Agreement") from the holder of any mortgage and the landlord
under any ground lease which provides that if (i) any such holder forecloses or
otherwise exercises its rights under its mortgage, (ii) any such LANDLORD
terminates or otherwise exercises its rights under the ground lease or (iii)
such holder or landlord otherwise acquires LANDLORD's interest in the Lease,
such holder or landlord shall recognize TENANT's rights under this Lease, shall
not disturb TENANT's occupancy of the Premises under this Lease and shall assume
LANDLORD's obligation under this Lease, this lease shall be subordinated to
mortgages, deeds of trust now or at any time hereafter on the Premises.
21. TENANT ACCESS: TENANT shall have immediate access to the Premises,
without liability for the rent due hereunder through the Commencement Date for
the purpose of preparing the Premises for Tenant's occupancy which shall
include, without limitation, installation of telephone and computer cabling,
furnishing the Premises and constructing racks for Tenant's merchandise.
22. DEPOSITS: TENANT shall pay to LANDLORD a sum equal to a month's rent
to be applied to the TENANT's last month's rent to be due.
23. COMPLIANCE WITH LAWS: Notwithstanding anything to the contrary in
this Lease contained, LANDLORD shall be responsible, at its sole expense, for
maintaining
<PAGE>
the Premises in compliance with all laws, orders, ordinances and regulations of
federal, state and municipal authorities applicable to the Premises including
without limitation the Americans with Disabilities Act (the "Laws") throughout
the term of this Lease except to the extent the non-compliance with the Laws
arises out of the particular use of the Premises made by TENANT, in which event
compliance shall be TENANT's responsibility. For example, LANDLORD shall be
responsible for maintaining the Premises in compliance with the Laws which apply
to the Premises regardless of the particular use undertaken by the tenant
thereof.
24. LANDLORD REPRESENTATIONS: LANDLORD represents and warrants that (i)
LANDLORD has fee simple title to the Premises and the Land, (ii) LANDLORD has
full right and authority to lease the Premises to the TENANT without the consent
or approval of any other party, (iii) the Premises is free and clear of all
mortgages except a mortgage from United Cooperative Bank, and (iv) those persons
executing this Lease on LANDLORD's behalf are duly authorized to execute and
deliver this Lease on its behalf, and that this Lease is binding upon LANDLORD
in accordance with its terms.
25. ENVIRONMENTAL COMPLIANCE AND INDEMNITY: LANDLORD will hold harmless,
defend and indemnify TENANT and its successors and assigns against all claims,
liabilities, loss, cost, and expenses, including reasonable attorneys' fees,
incurred as a result of (i) any Hazardous Materials existing in, on or under the
Premises as of the date of this Lease, and (ii) in connection with the release,
storage or disposal of Hazardous Materials in, on or under the Premises by
LANDLORD, its agents, employees, contractors or invitees, and the provisions of
this sentence shall survive the expiration or earlier termination of this Lease.
TENANT will hold harmless, defend and indemnify LANDLORD and its successors and
assigns against all claims, liabilities, loss, cost, and expenses, including
reasonable attorneys' fees, incurred as a result of the release, storage or
disposal of Hazardous Materials in, on or under the Premises by TENANT, its
agents, employees, contractors or invitees, and the provisions of this sentence
shall survive the expiration or earlier termination of this Lease. The term
"Hazardous Materials" shall mean any explosive, radioactive, hazardous wastes or
hazardous substances or substances defined as "hazardous substances" in any
federal, state or local laws, ordinance, regulation or governmental requirement
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq., Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq.,
Massachusetts Oil and Hazardous Material Release Prevention and Response Act,
M.G.L. Chapter 21E, and Massachusetts Hazardous Waste Management Act, M.G.L.
Chapter 21C. LANDLORD represents and warrants that, except as disclosed in the
Phase I Environmental Report dated May,1990 and prepared by Michael Abel of
Environmental Compliance Services, it is not aware of the presence of any
Hazardous Materials on the Premises.
26. WAIVER OR CLAIMS/ WAIVER OF SUBROGATION: LANDLORD and TENANT each
hereby release the other from any and all liability or responsibility to the
other for any loss or damage to the Building or property contained therein
against which the waiving party is protected by insurance or required to be
protected by insurance under this Lease, even if such loss or damage is caused
by the fault or negligence of the other party, or any one for whom such party is
responsible. Each party shall obtain a waiver of subrogation for the benefit of
the other in its property insurance policy. If a property insurance policy
cannot be
<PAGE>
obtained with a waiver of subrogation or is obtainable only by the payment of an
additional premium charge above that charged by insurance companies issuing
policies without waivers of subrogation, the party undertaking to obtain such
policy shall notify the other of this fact. The other party shall have a period
of 20 days after having receiving such notice either to place the insurance with
a company that is reasonably acceptable to the other party and that will carry
the insurance with the waiver of subrogation at no additional cost or to agree
to pay the additional premium that such a policy is obtainable at additional
cost. If the insurance cannot be obtained or the party in whose favor a waiver
of subrogation is desired or such party has refused to pay the additional
premium charged, the other party shall be relieved of the obligation to obtain a
waiver of subrogation with respect to the particular insurance involved.
27. NOTICES: All notices and demands which may, or are required, to be
given by either party to the other hereunder shall be in writing. All notices
and demands by LANDLORD to TENANT shall be sent by United States mail, postage
prepaid, or by any reputable overnight or same day courier, addressed to TENANT
at 490 Virginia Road, Concord, Massachusetts 01742, Attention: Chief Financial
Officer, with a copy to Testa, Hurwitz & Thibeault, LLP, 125 High Street,
Boston, Massachusetts 02110, Attention: Real Estate Department, or to such other
place as TENANT may from time to time designate by notice to LANDLORD hereunder.
All notices and demands by TENANT to LANDLORD shall be sent by United States
mail, postage prepaid, or by any reputable overnight or same day courier,
addressed to LANDLORD at 545 School Street, Agawam, Massachusetts, with a copy
to Stephen W. Silverman, Esq., 73 State Street, Suite 203, Springfield,
Massachusetts 01103, or to such other place as LANDLORD may designate from time
to time by notice to TENANT hereunder. Notices sent by same day courier will be
effective immediately upon delivery to the addressee at the designated address;
notices sent by overnight courier will be effective one (1) business day after
acceptance by the service for delivery; and notices sent by mail will be
effective three (3) business days after mailing.
28. BROKERS: LANDLORD and TENANT each warrant and represent to the other
that such party has negotiated this Lease only with R.J. Greeley Company, LLC
(the "Broker") and has not authorized or employed or acted by implication to
authorize or employ any other real estate broker or salesman to act for such
party in connection with this Lease. Each party shall hold the other harmless
from and indemnify and defend the other against any and all claims by any real
estate broker or salesman, other than the Brokers. LANDLORD will pay any
commission owing to the Broker pursuant to a separate agreement.
IN WITNESS WHEREOF, the said parties have hereunto set their hands and
seals this 18th day of June, 1999.
PARK PLACE BROOKDALE
REALTY TRUST
By: /s/ Carl Breyer
- ------------------------------------ --------------------------------
<PAGE>
Trustee
____________________________________
Trustee
____________________________________
Trustee
MOTHER NATURE.COM, INC.
By: /s/ Michael Barach
- --------------------------------- ---------------------------------
From the Office of
Stephen W. Silverman, Esq. 73 State Street, Springfield, Massachusetts
<PAGE>
EXHIBIT 10.7
STANDARD FORM COMMERCIAL LEASE
- ------------------------------
1. PARTIES: Padala Realty Trust,
------------------------------------------------------------
76 Strawberry Hill Road,
Concord, Massachusetts, 01742,
who Rosemary Nicholson Trustee,
------------------------------------------------------------
expressly warrants that it is the owner of the property at
360 Massachusetts Avenue, Acton, Massachusetts
and a Lessor of said property.
LESSOR, which expression shall include its heirs,
successors, and assigns where the context so admits, does
hereby lease to:
Mother Nature's General Store, Inc.
------------------------------------------------------------
dba Mothernature.com
LESSEE, which expression shall include its successors,
executors, administrators and assigns where the context so
admits, and the LESSEE hereby leases the following described
premises:
2. PREMISES: Approximately 5,000 s.f. gross of a two story office
----------
building at 360 Massachusetts Avenue, Acton, Massachusetts
01720 together with the right to use in common, with others
entitled thereto, the hallways, stairways, and elevators,
necessary for access to said leased premises, and lavatories
nearest thereto.
3. TERM: The term of this lease shall be for three (3) years
-----
commencing on July 1, 1998
------------
and ending on June 30, 2001
-------------
4. RENT: The LESSEE shall pay to the LESSOR rent at the rate of:
Year One: $80,000 per year
------------------------------------------------------------
$6,666.67 in monthly installments
------------------------------------------------------------
payable in advance.
------------------------------------------------------------
Year Two: $92,500 per year
------------------------------------------------------------
$7,708.33 in monthly installments
------------------------------------------------------------
payable in advance.
------------------------------------------------------------
Year Three: $105,000 per year
------------------------------------------------------------
$8,750 in monthly installments
------------------------------------------------------------
payable in advance.
------------------------------------------------------------
5. SECURITY Upon the execution of this lease, the LESSEE shall pay to
DEPOSIT: the LESSOR the amount of: $16,458 Dollars as security
------
deposit and last month's rent which shall be held as a
security for the LESSEE's performance as herein provided and
refunded to the
<PAGE>
-2-
LESSEE at the end of this lease subject to the
LESSEE's satisfactory compliance with the
conditions hereof.
6. RENT The LESSEE shall pay to the LESSOR as additional
ADJUSTMENT: rent 25% percent per year for a proportionate
share of any increase in operating expenses,
based on actual costs in the preceding year of
lease. (Excepting Real Estate Taxes, which will
be based on actual increases not to be capped.)
*See Exhibit "B" .
The LESSEE shall make payment within thirty (30)
days of written notice from the LESSOR that such
operating expenses, or increased taxes, are
payable by the LESSOR.
7. UTILITIES: The LESSOR agrees to furnish utilities, water and
sewer, reasonable HVAC to the leased premises,
hallways, stairways, and lavatories during normal
business hours on regular business days of the
appropriate seasons. To make available such
cleaning services as is customary in similar
buildings in said city or town, all subject to
interruption due to any accident, to the making
of repairs, alterations or improvements to labor
difficulties, to trouble in obtaining fuel,
electricity, service or supplies from the sources
from which they are usually obtained for said
building, or to any cause beyond the LESSOR's
control.
Electricity, separately metered - for the demised
premises which is total cost of electricity for
the premises, including lights, plugs, and all
heating costs will be paid by the LESSEE.
All cleaning services for the demised premises
will be paid for by the LESSEE.
8. USE OF LEASED The LESSEE shall use the leased premises only for
PREMISES: the purpose of General Business Office use, and
according to the attached `Building Rules'.
*Exhibit "A".
9. COMPLIANCE The LESSEE acknowledges that no trade or
WITH LAWS: occupation shall be conducted in the leased
premises or use made thereof which will be
unlawful, improper, noisy or offensive, or
contrary to any law or ordinance in force in the
city or town in which the premises are situated.
10. FIRE INSURANCE: The LESSEE shall not permit any use of the leased
premises which will make voidable any insurance
of the property of which the leased premises are
a part, or on the contents of said property or
which shall be contrary to any law or regulation
from time to time established by the New England
Fire Insurance Rating
<PAGE>
-3-
association or any similar body succeeding to its
powers. The LESSEE shall on demand reimburse the
LESSOR, and all other tenants, all extra
insurance premiums caused by the LESSEE's use of
the premises.
11. MAINTENANCE The LESSEE agrees to maintain the leased premises
OF PREMISES: in the same condition as they are at the
commencement of the term or as they may be put in
during the term of this lease, reasonable wear
and tear, damage by fire and other casualty only
excepted, and whenever necessary, to replace
plate glass and other glass therein,
acknowledging that the leased premises are now in
good order and the glass whole. The LESSEE shall
not permit the leased premises to be overloaded,
damaged, stripped, or defaced, nor suffer any
waste.
LESSEE shall obtain written consent of LESSOR
before erecting any sign on the premises.
12. ALTERATIONS/ The LESSEE shall not make structural alterations
ADDITIONS: or additions to the leased premises, but may make
nonstructural alterations provided the LESSOR
consents thereto in writing, which consent shall
not be unreasonably withheld or delayed. All such
allowed alterations shall be at LESSEE's expense
and shall be in quality at least equal to the
present construction. LESSEE shall not permit any
mechanics liens, or similar liens, to remain upon
the leased premises for labor and material
furnished to LESSEE or claimed to have been
furnished to LESSEE in connections with work
performed at the direction of LESSEE and shall
cause any such lien to be released of record
forthwith without cost to LESSOR. Any permanent
alterations or improvements made by the LESSEE
shall become the property of the LESSOR at the
termination of occupancy as provided herein.
13. ASSIGNMENT/ The LESSEE shall not assign or sublet the whole
SUBLEASING: or any part of the leased premises without
LESSOR's prior written consent, which consent
shall not be unreasonably withheld or delayed.
Notwithstanding such consent, LESSEE shall remain
liable to LESSOR for the payment of all rent and
for the full performance of the covenants and
conditions of this lease.
14. SUB-ORDINATION: This lease shall be subject and subordinate to
any and all mortgages, deeds of trust and other
instruments in the nature of a mortgage, now or
at any time hereafter, a lien or liens on the
property of which the leased premises are a part
and the LESSEE shall, when requested, promptly
execute and deliver such written instruments as
shall be necessary to show the subordination of
<PAGE>
-4-
this lease to said mortgages, deed of trust or
other such instruments in the nature of a
mortgage.
15. LESSOR'S The LESSOR or AGENTS of the LESSOR may, at
ACCESS: reasonable times, and upon reasonable notice,
enter to view the leased premises and may remove
placards and signs not approved and affixed as
herein provided, and make repairs and alterations
as LESSOR should elect to do and may show the
leased premises to others, at any time within six
(6) months before the expiration of the term, and
may affix a space available sign to any suitable
part of the leased premises or property of which
the leased premises are a part and keep the same
so affixed without hindrance or molestation.
16. INDEMNIFICATION: The LESSEE shall save the LESSOR harmless from
all loss and damage occasioned by the use or
escape of water or by the bursting of pipes, as
well as from any claim or damage resulting from
neglect in not removing snow and ice from the
roof of the building or from the sidewalks
bordering upon the premises so leased, or by any
nuisance made or suffered on the leased premises,
unless such loss is caused by the neglect of the
LESSOR. The removal of snow and ice from the
sidewalks and parking areas bordering upon the
leased premises shall be the LESSOR's
responsibility.
17. LESSEE'S The LESSEE shall maintain with respect to the
LIABILITY leased premises and the property, of which the
INSURANCE: leased premises are a part, comprehensive public
liability insurance in the amount of $100,000.00,
with property damage insurance in limits of
$300,000.00, in responsible companies qualified
to do business in Massachusetts and in good
standing therein insuring the LESSOR as well as
LESSEE against injury to persons or damage to
property as provided. The LESSEE shall deposit
with the LESSOR certificates for such insurance
at or prior to the commencement of the term, and
thereafter thirty (30) days prior to the
expiration of any such policies. All such
insurance certificates shall provided that such
policies shall not be cancelled without at least
ten (10) days prior written notice to each
assured named therein.
18. FIRE, CASUALTY - Should a substantial portion of the leased
EMINENT DOMAIN: premises, or of the property of which they are a
part, be substantially damaged by fire or other
casualty, or be taken by eminent domain, the
LESSOR may elect to terminate this lease. When
such fire, casualty, or taking renders the leased
premises substantially unsuitable for their
intended use, a just and proportionate
<PAGE>
-5-
abatement of rent shall be made, and the LESSEE
may elect to terminate this lease if:
(a) The LESSOR fails to give written notice
within thirty (30) days of intention to
restore leased premises, or
(b) The LESSOR fails to restore the leased
premises to a condition substantially
suitable for their intended use within ninety
(90) days of said fire, casualty, or taking.
The LESSOR reserves, and the LESSEE grants to the
LESSOR, all rights which the LESSEE may have for
damage or injury to the leased premises for
taking by eminent domain, except for damage to
the LESSEE's fixtures, property or equipment.
19. DEFAULT AND In the event that:
BANKRUPTCY: (a) The LESSEE shall default in the payment of
any installment of rent or other sum herein
specified and such default shall continue for
ten (10) days after written notice thereof;
or
(b) The LESSEE shall default in the observance or
performance of any other of the LESSEE's
covenants, agreements, or obligations
hereunder and such default shall not be
corrected within thirty (30) days after
written notice thereof; or
(c) The LESSEE shall be declared bankrupt or
insolvent according to law, or if any
assignments shall be made of LESSEE's
property for the benefit of creditors,
then the LESSOR shall have the right thereafter,
while such default continues, to re-enter and
take complete possession of the leased premises,
to declare the term of this lease ended, and
remove the LESSEE's effects, using due and
reasonable care, without prejudice to any
remedies which might be otherwise used for
arrears of rent or other default. The LESSEE
shall indemnify the LESSOR against all loss of
rent and other payments which the LESSEE may
incur by reason of such termination during the
residue of the term. If the LESSEE shall default,
after reasonable notice thereof, in the
observance or performance of any condition or
covenants on LESSEE's part to be observed or
performed under or by virtue of any of the
provisions in any article of this lease, the
LESSOR, without being under any obligation to do
so and without thereby waiving such default, may
remedy such default for the account and at the
expense of the LESSEE. If the LESSOR makes any
expenditures or incurs any obligations for the
payment of money in connection therewith,
including but not limited to, reasonable
attorney's fees in instituting, prosecuting or
defending any action or proceeding, such sums
paid or obligations insured, with interest at the
rate of six (6) percent per annum and costs,
shall
<PAGE>
-6-
be paid to the LESSOR by the LESSEE as
additional rent.
20. NOTICE: Any notice from the LESSOR to the LESSEE relating
to the leased premises or to the occupancy
thereof, shall be deemed duly served, if left at
the leased premises addressed to the LESSEE, or
if mailed to the leased premises, registered or
certified mail, return receipt requested, postage
prepaid, addressed to the LESSEE. Any notice from
the LESSEE to the LESSOR relating to the leased
premises or to the occupancy thereof, shall be
deemed duly served, if mailed to the LESSOR by
registered or certified mail, return receipt
requested, postage prepaid, addressed to the
LESSOR at such address as the LESSOR may from
time to time advise in writing. All Rent and
Notices shall be paid and sent to the LESSOR at
360 Massachusetts Avenue, Acton, Ma. 01720.
21. SURRENDER: The LESSEE shall at the expiration or other
termination of this lease, remove all LESSEE's
goods and effects from the leased premises,
(including without hereby limiting the generality
of the foregoing, all signs and lettering affixed
or painted by the LESSEE, either inside or
outside the leased premises). LESSEE shall
deliver to the LESSOR the leased premises and all
keys, locks thereto, and other fixtures connected
therewith and all permanent alterations and
additions made to or upon the leased premise, in
the same conditions as they were at the
commencement of the term, or as they were put in
during the term hereof, reasonable wear and tear
and damage by fire or other casualty only
excepted. In the event of the LESSEE's failure to
remove any of the LESSEE's property from the
premises, LESSOR is hereby authorized, without
liability to LESSEE for loss or damage thereto,
and at the sole risk of LESSEE, to remove and
store any of the property at LESSEE's expense, or
to retain same under LESSOR's control or to sell
at public or private sale, without notice, any or
all of the property not so removed and to apply
the net proceeds of such sale to the payment of
any sum due hereunder, or to destroy such
property.
22. OTHER PROVISIONS: It is also understood and agreed that the
attached addendum and Plan of the Office space
(Exhibit "A"), are attached and made a part
hereof. The Building Rules and Regulations are
also attached and made a part hereof as Exhibit
"B". Also Exhibit "C": Operating Expenses for
1995. It is further understood that Parsons
Commercial Group, Inc. is the Broker of Record
with regard to this transaction and shall be
compensated by Lessor in accordance with
Exclusive Listing Agreement dated April 24, 1996.
<PAGE>
-7-
IN WITNESS WHEREOF, the LESSOR AND LESSEE have hereunto set their hands and
common seals this 11th day of June, 1998.
PADALA REALTY TRUST
By: /s/ Rosemary Nicholson
------------------------------------
LESSOR: Rosemary Nicholson, Trustee
/s/ Michael Barach
---------------------------------------
LESSEE: Michael Barach, President
<PAGE>
-8-
EXHIBIT A
---------
BUILDING RULES AND REGULATIONS
1. Tenant shall not obstruct or interfere with the rights of other tenants of
the Building, or of persons having business in the Building, or in any way
injure or annoy such tenants or persons. Tenant will not conduct any
activity within the Demised Premises which will create excessive traffic or
noise anywhere in the Building.
2. Canvassing, soliciting and peddling in the Building are prohibited, and
Tenant shall cooperate to prevent such activities.
3. Tenant shall not bring or keep within the Building any animal, bicycle,
motorcycle, or other type of vehicle.
4. All office equipment and any other device of any electrical or mechanical
nature shall be placed by Tenant in the Demised Premises in settings
approved by Landlord, so as to absorb or prevent any vibration, noise, or
annoyance. Tenant shall not construct, maintain, use or operate within the
Demised Premises or elsewhere in the Building or outside of the Building
any equipment or machinery which produces music, sound or noise, which is
audible beyond the Demised Premises. Tenant shall not cause improper
noises, vibrations or odors within the Building.
5. Tenant shall not deposit any trash, refuse, cigarettes, or other substances
of any kind within or out of the Building, except in the refuse containers
provided therefor. No material shall be placed in the trash boxes or
receptacles if such material is of such nature that it may not be disposed
of in the ordinary and customary manner of removing and disposing of office
building trash and garbage without being in violation of any law or
ordinance governing such disposal. Tenant shall be charged the cost of
removal for any items left by Tenant that cannot be so removed. All garbage
and refuse disposal shall be made only through entryways and elevators
provided for such purposes and at such times as Landlord shall designate.
Tenant shall not introduce into the Building any substance which might add
an undue burden to the cleaning or maintenance of the Demised Premises or
the Building. Tenant shall exercise its best efforts to keep the sidewalks,
entrances, passages, courts, lobby areas, garages or parking areas,
elevators, escalators, stairways, vestibules, public corridors and halls in
and about the Building (hereinafter "Common Areas") clean and free from
rubbish. No Tenant shall cause any unnecessary labor by reason of such
Tenant's carelessness or indifference in the preservation of good order and
cleanliness. Landlord shall not be responsible to any Tenant for any loss
of property on the Demised Premises, however occurring, or for any damage
done to the effect of any tenant by the cleaning service or any other
employee or any other person.
6. Tenant shall use the Common Area only as a means of ingress and egress, and
Tenant shall permit no loitering by any persons upon Common Areas or
elsewhere within the Building. The Common Areas and roof of the Building
are not for the use of the general
<PAGE>
-9-
public, and Landlord shall in all cases retain the right to control or
prevent access thereto by all persons whose presence, in the judgment of
Landlord, shall be prejudicial to the safety, character, reputation or
interests of the Building and its Tenants. Tenant shall not enter or
install equipment in the mechanical rooms, air conditioning rooms,
electrical closets, janitorial closets, or similar areas or go upon the
roof of the Building without the prior written consent of Landlord. No
tenant shall install any radio or television antenna, loudspeaker, or other
devise on the roof or exterior walls of the Building.
7. Without limitation upon any of the provisions of the Lease, Tenant shall
not mark, paint, drill into, cut, string wires within, or in any way deface
any part of the Building, without the prior written consent of Landlord,
and as Landlord may direct. Upon removal of any wall decorations or
installations or floor coverings by Tenant, any damage to the walls or
floors shall be repaired by Tenant at Tenant's sole cost and expense.
Tenant shall not lay linoleum or similar floor coverings so that the same
shall come into direct contact with the floor of the Demised Premises and,
if linoleum or other similar floor covering is to be used, an interlining
of builder's deadening felt shall be first affixed to the floor by a paste
or other materials soluble in water. The use of cement or other similar
adhesive material is expressly prohibited. Floor distribution boxes for
electric and telephone wires must remain accessible at all times.
8. Tenant shall not install or permit the installation of any awnings, shades,
mylar films or sunfilters on windows. Tenant shall cooperate with Landlord
in obtaining maximum effectiveness of the cooling system of the Building by
closing drapes and other window coverings when the sun's rays fall upon
windows of the Demised Premises. Tenant shall not obstruct, alter or in any
way impair the efficient operation of Landlord's heating, ventilating, air
conditioning, electrical, fire, safety or lighting systems, nor shall
Tenant tamper with or change the setting of any thermostat or temperature
control valves in the Building. Landlord shall deem it necessary to make
such a change. The word "key" as used herein shall refer to keys, keycards,
and all such means of obtaining access through restricted access systems.
9. For purposes hereof, the terms "Landlord", "Tenant", "Building" and
"Demised Premises" are defined as those terms are defined in the Lease to
which these Rules and Regulations are attached. The term "Building" shall
include the Demised Premises, and any obligations of Tenant hereunder with
regard to the Building shall apply with equal force to the Demised Premises
and to other parts of the Building.
10. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the agreements,
covenants, conditions and provisions of any lease of Demised Premises in
the Building.
<PAGE>
EXHIBIT 10.8
Commercial Lease
This Commercial Lease ("Lease") is entered into as of May 1, 1998 between
CHARLES W. OLLARD, a Sole Proprietorship / Individual, with his principal place
of business at 963 Street Road, in the city of Southampton, in the county of
Bucks, in the Commonwealth of Pennsylvania and MOTHER NATURE'S GENERAL STORE, a
Pennsylvania Corporation with its principal place of business at 965 Street
Road, in the city of Southampton, in the county of Bucks, in the Commonwealth of
Pennsylvania.
General
The Lessor wishes to lease the premises located at Southampton in the
Commonwealth of Pennsylvania described as 965 Street Road Offices and 965 Street
Road Warehouse and having an area of approximately 4500 rentable square feet
(including a pro rata share of the common area), as further described and set
forth on the maps attached as Exhibit A (the "Site") and Exhibit B (the
"Premises") to Lessee. The Lessee wishes to Lease those premises from the
Lessor under the terms and conditions of this Lease.
In consideration for the mutual promises, covenants, and agreements made
below, the parties, intending to be legally bound, agree as follows:
Agreement
1. Term & Rent
The Lessor leases the above Premises to the Lessee, for a Term of one year
commencing May 1, 19998 and terminating on April 30, 1999. The Lessee will pay
to the Lessor as rent for the Premises, without demand, deduction, or right of
off-set, equal monthly installments of $3,800.00. Each installment is payable in
advance on the first (1/st/) day of each month for that month's rental, during
the term of this Lease. All rental payments should be made out to the Lessor and
sent to the address stated above (unless otherwise changed by the Lessor).
2. Late Charges
The Lessee hereby acknowledges that late payment by the Lessee to the Lessor of
rent or other sums due under this Lease will cause the Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Accordingly, if any installment of rent or of a sum due
from the Lessee will not be received by the Lessor's designees by 12:00 noon on
the fifth (5/th/) day of each month of the term, then the Lessee will pay to the
Lessor a late charge equal to 1.5% percent of such overdue amount. The parties
hereby agree that such late charges represent a fair and reasonable estimate of
the cost that the Lessor will incur by reason of the late payment by the Lessee.
Acceptance of such late charges by the Lessor will in no event constitute a
waiver of the Lessee's default with respect to such overdue amount, nor prevent
the Lessor from exercising any of the other rights and remedies granted in this
Lease.
<PAGE>
-2-
3. Use
3.1 Uses Permitted
The Lessee will use and occupy the Premises for Internet Commerce specifically,
business offices, customer service, order fulfillment and warehousing. The
Premises will not be used for any other purpose, unless otherwise contractually
agreed to by the parties. The Lessor represents that the Premises may lawfully
be used for such purpose.
3.2 Uses Prohibited
3.2.1 The Lessee will not do or permit anything to be done in or about the
Premises nor bring or keep anything that will increase the existing rate or
affect any fire or other insurance upon the building or any of its contents, or
cause a cancellation of any insurance policy covering said building or any part
or any of its contents, nor will the Lessee sell or permit to be kept, used or
sold in or about said Premises any articles or substances, inflammable or
otherwise, that may be prohibited by a standard form policy of fire insurance.
3.2.2 The Lessee will not do or permit anything to be done in or about the
Premises that will in any way obstruct or interfere with the rights of other
lessees of the building or injure or annoy them or use or allow the Premises to
be used for any unlawful or objectionable purpose.
3.2.3 The Lessee will not use the Premises or permit anything to be done in or
about the Premises that will in any way conflict with any law now in force or
that may hereafter be enacted. The Lease will at its cost promptly comply with
all laws now in force or that may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body relating to
the Lessee's improvements or acts.
3.3 Liens
The Lessee will keep the Premises and the property in which the Premises is
situated free from any liens arising out of any work performed, materials
furnished or obligations incurred by the Lessee. The Lessor may require the
Lessee to provide the Lessor, at the Lessee's cost, with a lien and completion
bond in an amount equal to one and one-half (1 1/2) times the estimated cost of
any improvements, additions, or alterations by the Lessee, to insure the Lessor
against liability for mechanic's and material men's liens and to insure
completion for the work.
4. Repairs & Maintenance
By taking possession of the Premises, the Lessee will be deemed to have accepted
the Premises as being in good sanitary order, condition and repair. The Lessee
will at the Lessee's cost, keep the Premises and every part of it in good
condition and repair except for damages beyond the control of the Lessee and
ordinary wear and tear. The Lessee will, upon the expiration or sooner
termination of this Lease, surrender the Premises to the Lessor in good
condition, ordinary wear and tear and damage from causes beyond the reasonable
control of the Lessee excepted. Unless specifically provided in an addendum to
this Lease, the Lessor will have no obligation to alter, remodel, improve,
repair, decorate or paint the Premises or any part of it and the parties here,
affirm that the Lessor has made no representations to the Lessee respecting the
condition of the Premises and the building except as specifically stated in this
Lease. Despite the above
<PAGE>
-3-
provisions, the Lessor will repair and maintain or cause to be repaired and
maintained the structural portions of the building, including the standard
plumbing, air conditioning, heating and electrical systems furnished by the
Lessor, unless such maintenance and repairs are caused in part or in whole by
the act, neglect, fault or omission of any duty by the Lessee, its agents,
employees or invitees, in which case the Lessee will pay to the Lessor the
reasonable cost of such maintenance and repairs. The Lessee will give the Lessor
written notice of any required repairs or maintenance. The Lessor will not be
liable for any failure to repair or to perform any maintenance unless such
failure will persist for an unreasonable time after written notice. Any repairs
or maintenance to supplemental cooling equipment required for the Lessee's
special needs are the responsibility of the Lessee. Except as specifically
stated in this Lease, there will be no abatement of rent and no liability of the
Lessor by reason of any injury to or interference with the Lessee's business
arising from making of any repairs, alterations or improvements to any portion
of the building or the Premises or to fixtures, appurtenances and equipment. The
Lessee waives the right to make repairs at the Lessor's expense under any law,
statute or ordinance now or hereafter in effect.
5. Alterations
The Lessee will not, without first obtaining the written consent of the Lessor,
make any alterations, additions, or improvements, in, to or about the Premises.
Any such alterations, additions or improvements, including, but not limited to,
wall covering, paneling and built-in cabinet work, but excepting movable
furniture and trade fixtures, will become a part of the Premises, will belong to
the Lessor, and will be surrendered with the Premises at expiration or
termination of the Lease. If the Lessor consents to any such alterations,
additions or improvements by the Lessee, they will be made by the Lessee at the
Lessee's cost, and any contractor or person selected by the Lessee to perform
the work will first be approved of, in writing, by the Lessor. Upon expiration,
or sooner termination of the Lease, the Lessee will, upon written demand by the
Lessor, promptly remove any alterations, additions or improvements made by the
Lessee and designated by the Lessor to be removed. Such removal and repair of
any damage to the Premises caused by such removal will be at the Lessee's cost.
6. Ordinances & Statutes
The Lessee will comply with all statutes, ordinances and requirements of all
municipal, state and federal authorities now in force, or that may hereafter be
in force, pertaining to the Premises, occasioned by or affecting the use by the
Lessee.
7. Assignment & Subletting
The Lessee will not assign this Lease or sublet any portion of the Premises
without prior written consent of the Lessor, which consent will not be
unreasonably withheld. Any such assignment or subletting without consent will
be void and, at the option of the Lessor, may terminate this Lease.
8. Service & Utilities
8.1 Lessor's Obligations
The Lessor agrees to furnish to the Premises during reasonable hours of
generally recognized business days to be determined by the Lessor, and subject
to the rules and regulations of the
<PAGE>
-4-
building, electricity for heat and air conditioning required in the Lessor's
judgment for the comfortable use and occupancy of the Premises. The Lessor will
also maintain and keep lighted the common stairs, galleries, entries and toilet
rooms in the building. The Lessor will not be liable for and the Lessee will not
be entitled to any reduction of rental by reason of the Lessor's failure to
furnish any of the foregoing when such failure is caused by accident, breakage,
repairs, strikes, lockouts or other labor disturbances or labor disputes of any
character, or by any other cause, similar or dissimilar, beyond the reasonable
control of the Lessor.
8.2 Lessee's Obligations
The Lessee will pay for, prior to delinquency, all telephone, all
communications, all electricity and all other materials and services, not
expressly required to be paid by the Lessor, that may be furnished to or used
in, on or about the Premises during the term of this Lease. The Lessee will
not, without the prior written consent of the Lessor and subject to any
conditions the Lessor may impose, use any apparatus or device in the Premises
that will in any way increase the amount of electricity or water usually
furnished for use of the Premises as a general office space. If the Lessee will
require water or electric current in excess of that usually furnished or
supplied for use of the Premises as a general office space, the Lessee will
first obtain the consent of the Lessor. Wherever heat generating machines or
equipment are used in the Premises that affect the temperature otherwise
maintained by the air conditioning system, the Lessor reserves the right to
install supplementary air conditioning units in the Premises and the cost of
them, including the cost of installation, operation and maintenance of them,
will be paid by the Lessee to the Lessor upon demand by the Lessor. The Lessor
will not be liable for its failure to furnish any of the foregoing when such
failure is caused by any cause beyond the reasonable control of the Lessor. The
Lessor will not be liable under any circumstances for loss of or injury to
property, however occurring, in connection with failure to furnish any of the
foregoing.
9. Entry & Inspection
The Lessor reserves the right to enter the Premises at any time to inspect the
Premises, to provide any service for which the Lessor is obligated under this
Lease, to submit the Premises to prospective purchasers or the Lessees, to post
notices of non-responsibility, and to alter, improve, maintain or repair the
Premises or any portion of the building that the Premises are a part that the
Lessor deems necessary or desirable, all without abatement of rent. The Lessor
may erect scaffolding and other necessary structures where reasonably required
by the character of the work to be performed, but will not block entrance to the
Premises and not interfere with the Lessee's business, except as reasonably
required for the particular activity by the Lessor. The Lessor will not be
liable in any manner for any inconvenience, disturbance, loss of business,
nuisance, interference with quiet enjoyment, or other damage arising out of the
Lessor's entry on the Premises as provided in this section, except damage, if
any, resulting from the negligence or willful misconduct of the Lessor or its
authorized representative. The Lessor will retain a key with which to unlock
all doors into, within, and about the Premises, excluding the Lessee's vaults,
safes and files. In an emergency, the Lessor will have the right to use any
means that the Lessor deems reasonably necessary to obtain entry to the
Premises, without liability to the Lessee, except for any failure to exercise
due care for the Lessee's property. Any such entry to the Premises by the
Lessor will not be construed or deemed to be forcible or unlawful entry into the
Premises or an eviction of the Lessee from the Premises or any portion of it.
<PAGE>
-5-
10. Possession
If the Lessor is unable to deliver possession of the Premises at the
commencement, the Lessor will not be liable for any damage caused thereby, nor
will this Lease be void or voidable, but the Lessee will not be liable for any
rent until possession is delivered. The Lessee may terminate this Lease if
possession is not delivered within thirty (30) days of the commencement of the
term of this Lease.
11. Indemnification of Lessor
The Lessee will hold the Lessor harmless from any claims arising from the
Lessee's use of the Premises or from any activity permitted by the Lessee in or
about the Premises, and any claims arising from any breach or default in the
Lessee's performance of any obligation under the terms of this Lease. If any
action or proceeding is brought by reason of any such claim in which the Lessor
is named as a party, the Lessee will defend the Lessor therein at the Lessee's
expense by counsel reasonably satisfactory to the Lessor. The Lessor and its
agents will not be liable for any damage to property entrusted to the employees
of the building, nor for loss or damage to any property by theft or damage, nor
from any injury to or damage to persons or property resulting from any cause
whatsoever, unless caused by or due to the negligence or willful misconduct of
the Lessor, its agents or employees. The Lessor will not be liable for any
latent defect in the Premises or in the building of which they are a part. The
Lessee will give prompt notice to the Lessor in case of fire or accidents on the
Premises or in the building or of alleged defects in the building, fixtures or
equipment.
12. Insurance
12.1 Coverage
The Lessee will assume the risk of damage to any fixtures, goods, inventory,
merchandise, equipment, furniture and Leasehold improvements, and the Lessor
will not be liable for injury to the Lessee's business or any loss of income
relative to such damage. The Lessee will, at all times during the term of this
Lease, and at its own cost, procure and continue in force comprehensive public
liability insurance, insuring the Lessor and the Lessee against any liability
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant.
12.2 Insurance Policies
The limits of said insurance policies will not, however, limit the liability of
the Lessee under this Lease. The Lessee may carry said insurance under a
blanket policy, providing, however, said insurance by the Lessee will name the
Lessor as an additional insured. If the Lessee will fail to procure and
maintain said insurance, the Lessor may, but will not be required to, procure
and maintain same, but at the expense of the Lessee. Insurance required under
this Lease will be in companies that rate B+ or better in "Best's Insurance
Guide." The Lessee will deliver to the Lessor prior to occupancy of the
Premises copies of policies of insurance required or certificates evidencing the
existence and amounts of such insurance with loss payable clauses, satisfactory
to the Lessor and naming the Lessor as an additional named insured. No policy
will be cancelable or subject to reduction of coverage except after thirty (30)
days prior written notice to the Lessor. The minimum acceptable amount of
comprehensive liability insurance is $1,000,000 against claims in any
occurrence, and property damage insurance in an amount of not less than $100,000
<PAGE>
-6-
per occurrence, or combined single limit of $1,000,000 comprehensive liability
and property damage insurance.
12.3 Waiver of Subrogation
As long as their respective insurers so permit, the Lessor and the Lessee each
hereby waive any and all rights of recovery against the other for any loss or
damage occasioned to such waiving party or its property of others under its
control to the extent that such loss or damage is insured against under any fire
or extended coverage insurance policy that either may have in force at the time
of such loss or damage. Each party will obtain any special endorsement, if
required by their insurer, to evidence compliance with this waiver.
13. Eminent Domain
If more than twenty-five percent (25%) of the Premises is taken or appropriated
by any public or quasi-public authority under the powers of eminent domain,
either party under this Lease will have the right at its option to terminate
this Lease. If less than twenty-five percent (25%) of the Premises is taken (or
neither party elects to terminate as above, provided if more than twenty-five
percent (25%) is taken), the Lease will continue, but the rental thereafter to
be paid will be equitably reduced. If any part of the building of which the
Premises are a part is so taken or appropriated, whether or not any part of the
Premises is involved, the Lessor will be entitled to the entire award and
compensation for the taking that is paid or made by the public or quasi-public
agency, and the Lessee will have no claim against said award.
14. Destruction of Premises
In the event of a partial destruction of the Premises during the term of this
Lease, from any cause, the Lessor will forthwith repair the same, provided that
such repairs can be made within sixty days under existing governmental rules and
regulations, but such partial destruction will not terminate this Lease, except
that the Lessee will be entitled to a proportionate reduction of rent while such
repairs are being made, based upon the extent to which the making of such
repairs will interfere with the business of the Lessee on the Premises. If such
repairs cannot be made within said sixty days, the Lessor, at his option, may
make the same within said sixty days, the Lessor, at his option, may make the
same within a reasonable time, this Lease continuing in effect with the rent
proportionately abated as aforesaid, and in the event that the Lessor will not
elect to make such repairs that cannot be made within sixty days, this Lease may
be terminated at the option of either party. In the event that the building in
which the demised Premises may be situated is destroyed to an extent of not less
than one-third of the replacement costs, the Lessor may elect to terminate this
Lease whether the demised Premises be insured or not. A total destruction of
the building in which the Premises may be situated will terminate this Lease.
15. Lessor's Remedies on Default
15.1 If the Lessee defaults in the payment of rent, or any additional rent, or
defaults in the performance of any of the other covenants or conditions of
this Lease, the Lessor may give the Lessee notice of such default and if
the Lessee does not cure any such default within three (3) business days,
after the giving of such notice (or if such other default is of such a
nature that it cannot be completely cured within such period, if the
Lessee does not commence such curing within such three (3) business days
and thereafter proceed
<PAGE>
-7-
with reasonable diligence and in good faith to cure such default), then
the Lessor may terminate this Lease on not less than thirty (30) calendar
days' notice to the Lessee. On the date specified in such notice the term
of this Lease will terminate, and the Lessee will then quit and surrender
the Premises to the Lessor, but the Lessee will remain liable as provided
in this Lease. If this Lease will have been so terminated by the Lessor,
the Lessor may at any time thereafter resume possession of the Premises by
any lawful means and remove the Lessee or other occupants and their
effects. No failure to enforce any term will be deemed a waiver.
15.2 The making by the Lessee of any general assignment or general arrangement
for the benefit of creditors; the filing by or against the Lessee of a
petition to have the Lessee adjudged a bankrupt or of a petition for
reorganization or arrangement under any law relating to bankruptcy
(unless, in the case of a petition filed against the Lessee, same is
dismissed within sixty days; the appointment of a trustee or receiver to
take possession of substantially all the Lessee's assets located at the
Premises or of the Lessee's interest in this Lease, where possession is
not restored to the Lessee within thirty (30) days; or the attachment,
execution or other judicial seizure of substantially all of the Lessees
assets located at the Premises or of the Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days.
16. Security Deposit
The Lessee will deposit with the Lessor the sum of $7,600.00 as security for the
performance of the Lessee's obligations under this Lease, including without
limitation the surrender of possession of the Premises to the Lessor as provided
in this Lease. The Lessee will pay $4,000.00 to the Lessor at the time of
signing this Lease and will pay the remaining sum of $3,600.00 to the Lessor no
later than May 1, 1998. If the Lessor applies any part of the deposit to cure
any default of the Lessee, the Lessee will on demand deposit with the Lessor the
amount so applied so that the Lessor will have the full deposit on hand at all
times during the term of this Lease.
17. Taxes
The Lessee will pay before delinquency, all taxes levied or assessed and that
become payable during the term of this Lease upon all the Lessee's Leasehold
improvements, equipment, furniture, fixtures and personal property located in
the Premises, except that which has been paid for by the Lessor and is the
standard of that building. Should the Commonwealth of Pennsylvania Constitution
be changed in a way that results in a higher or lower tax on the Premises than
the annual increases now a matter of law, any such increase will be passed
through to the Lessee on a prorated basis. The Lessee will pay to the Lessor
its share of such taxes, if any, within thirty (30) days after delivery to the
Lessee by the Lessor of a statement in writing setting forth the amount of such
taxes.
18. Common Area Expenses
The Lessee agrees to pay his pro-rata share of maintenance, taxes and insurance
for the common area.
19. Attorneys' Fees
<PAGE>
-8-
In case suit should be brought for recovery of the Premises, or for any sum due
under this Lease, or because of any act that may arise out of the possession of
the Premises, by either party, the prevailing party, will be entitled to all
costs incurred in connection with such action, including reasonable attorneys'
fees.
20. Waiver
No failure of the Lessor to enforce any term of this Lease will be deemed to be
a waiver.
21. Termination of Lease
It is hereby mutually agreed that either party hereto may determine this lease
at the end of said term by giving to the other party written notice hereof at
least ninety (90) days prior thereto, but in default of such notice, this lease
shall continue upon the same terms and conditions in force immediately prior to
the expiration of the term hereof as are herein contained for a further period
of one year and so on from May 1st to April 30th unless or until terminated by
either party hereto, giving the other ninety days written notice for removal
previous to expiration of the then current term; PROVIDED, however, that should
this lease be continued for a further period under the terms hereinabove
mentioned, any allowances given Lessee on the rent during the original term
shall not extend beyond such original term, and further provided, however, that
if Lessor shall have given such written notice prior to the expiration of any
term hereby created, of his intention to change the terms and conditions of this
Lease, and Lessee shall not within sixty days from such notice notify Lessor of
Lessee's intention to vacate the demised premises at the end of the then current
term, Lessee shall be considered as Lessee under the terms and conditions
mentioned in such notice for a further term as above provided, or for such
further term as may be stated in such notice. In the event that Lessee shall
give notice, as stipulated in this lease, of intention to vacate the demised
premises at the end of the present term, or any renewal or extension thereof,
and shall fail or refuse so to vacate the same on the date designated by such
notice, then it is expressly agreed that Lessor shall have the option either (a)
to disregard the notice so given as having no effect, in which case all the
terms and conditions of this lease shall continue thereafter with full force
precisely as if such notice had not been given, or (b) Lessor may, at any time
within (30) thirty days after the present term or any renewal or extension
thereof, as aforesaid, give the said Lessee ten days written notice of his
intention to terminate the said lease; whereupon the Lessee expressly agrees to
vacate said premises at the expiration of said period of ten (10) days specified
in said notice. All powers granted to Lessor by this lease may be exercised and
all obligations imposed upon Lessee by this lease shall be performed by Lessee
as well as during any extension of the original term of this lease as during the
original term itself.
22. Notices
Any notice that either party may or is required to give, will be given by
certified mail, return receipt requested, postage prepaid, to the Lessee at the
Premises, or the Lessor at the address shown above, or at such other places as
may be designated by the parties from time to time.
23. Heirs, Assigns, Successors
This Lease is binding upon and inures to the benefit of the heirs, assigns and
successors in interest to the parties.
<PAGE>
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24. Subordination
This Lease is and will be subordinated to all existing and future liens and
encumbrances against the property.
25. Rules and Regulations
The Lessee will faithfully observe and comply with the rules and regulations
attached as Exhibit C to this Lease, as well as such rules and regulations that
the Lessor will from time to time promulgate. The Lessor reserves the right
from time to time to make all reasonable modifications to those rules that will
be binding to the Lessee upon delivery of a copy of them to the Lessee. The
Lessor will not be responsible to the Lessee for the nonperformance of any of
said rules by any other Lessee.
26. Statement to Lender
The Lessee will at any time and from time to time, upon not less than ten (10)
days prior written notice from the Lessor, execute, acknowledge, and deliver to
the Lessor a statement in writing, (1) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modifications and certifying that this Lease as so modified, is in full force
and effect), and the date that the rental and other charges are paid in advance,
if any, and (2) acknowledging that there are not, to the Lessee's knowledge, any
uncured defaults on the part of the Lessor under this Lease, or specifying such
defaults if any are claimed. Any such statements may be relied upon by any
prospective purchaser of all or any portion of the real property of which the
Premises are a part.
27. Parking
The Lessee will have the right to use, in common with the other tenants or
occupants of the building, parking facilities, provided by the Lessor for
tenants of 965 Street Road, subject to the rules and regulations established by
the Lessor.
28. Corporate Authority
Each individual executing this Lease on behalf of the Lessee's corporation
represents and warrants that he is duly authorized to execute and deliver this
Lease on behalf of said corporation, in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance with
the by-laws of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms.
29. Lender Requirements
Upon request of the Lessor, the Lessee will, in writing, subordinate its rights
under this Lease to the lien of any mortgage, or deed of trust to any bank,
insurance company or other lending institution, now or hereafter in force
against the land and building that the Premises are a part, and to all advances
made or hereafter to be made upon the security. If any proceedings are brought
for foreclosure, or in the event of the exercise of the power of sale under any
mortgage or deed of trust made by the Lessor covering the Premises, the Lessee
will recognize such purchaser as the Lessor under this Lease.
<PAGE>
-10-
30. Name
The Lessee will not use the name of the development in which the Premises are
situated for any purpose other than as an address of the business to be
conducted by the Lessee in the Premises, unless written authorization is
obtained from the Lessor.
31. Severability
If any provision of this Lease is found invalid or unenforceable under judicial
decree or decision, the remainder will remain valid and enforceable according to
its terms. Without limiting the previous, it is expressly understood and agreed
that each and every provision of this Lease that provides for a limitation of
liability, disclaimer of warranties, or exclusion of damages is intended by the
parties to be severable and independent of any other provision and to be
enforced as such. Further, it is expressly understood and agreed that if any
remedy under this Lease is determined to have failed of its essential purpose,
all other limitations of liability and exclusion of damages set forth in this
section will remain in full force and effect.
32. Governing Law
This Lease will be governed by the laws of the Commonwealth of Pennsylvania
applicable to agreements made and fully performed in the Commonwealth of
Pennsylvania by the residents of the Commonwealth of Pennsylvania and all
disputes will be tried by the appropriate federal and state courts within the
commonwealth.
33. Toxics
The Lessor and the Lessee acknowledge that they have been advised that numerous
federal, state, and/or local laws, ordinances and regulations ("Laws") affect
the existence and removal, storage, disposal, leakage of contamination by
materials designated as hazardous or toxic ("Toxics"). Many materials, some
utilized in everyday business activities and property maintenance, are
designated as hazardous or toxic. Some of the Laws require that Toxics be
removed or cleaned up without regard to whether the party required to pay for
the "clean up" caused the contamination, owned the property at the time the
contamination occurred or even knew about the contamination. Some items, such
as asbestos or PCB's, that were legal when installed, are now classified as
Toxics, and are subject to removal requirements. Civil lawsuits for damages
resulting from Toxics may be filed by third parties in certain circumstances.
34. Signs
The Lessor at no cost to the Lessee will design and construct signs to reflect
the multi-tenant nature of the building. The Lessee will be given a pro rata
share of any major exterior sign.
35. Furniture & Other Personal Property
In further consideration, the Lessor will provide for the use of the Lessee
during the term of this Lease the furniture and other personal property listed
in Exhibit D for the sum of $0.00 per month over and above the dollar amount for
the Premises described above. The Lessee acknowledges that it has inspected the
Premises and that all of the items listed in Exhibit D are present in good and
serviceable condition on the Premises on effective fate of this Lease. During
the term of this Lease, these items will remain the property of the Lessor and
the Lessee will not mortgage, pledge or otherwise encumber any of these items.
Furthermore, the Lessee will maintain full replacement insurance in the manner
noted above for these items and will name the
<PAGE>
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Lessor as an additional insured. All deductible and excess will be paid by the
Lessee. (If the Lessee fulfills the payment requirements of this Lease, upon its
expiration, the Lessee will come into possession of each and every item of
furniture previously owned by the Lessor at the Premises [Exhibit D]; the Lessee
will receive title to this furniture at no cost if the above conditions are
met.)
36. Entire Agreement
The parties acknowledge that this Lease expresses their entire understanding and
agreement, and that there have been no warranties, representations, covenants or
understandings made by either party to the other except such as are expressly
set forth in this section. The parties further acknowledge that this Lease
supersedes, terminates and otherwise renders null and void any and all prior
agreements or contracts, whether written or oral, entered into between the
Lessee and the Lessor with respect to the matters expressly set forth in this
Lease.
We have carefully reviewed this Lease and agree to and accept its terms
and conditions. We are executing this Lease as of the day and year first written
above.
LESSEE LESSOR
/s/ Paul A. Bunn /s/ Charles W. Ollard
- ---------------------------------------- ----------------------------------
Paul A. Bunn Charles W. Ollard
Vice-President/Treasurer Land Owner
Mother Nature's General Store, Inc.
<PAGE>
-12-
Addendum to Commercial Lease between Mr. Charles W. Ollard
And Mother Nature's General Store, Inc. (MotherNature.com, Inc.) May 1, 1998
It is hereby mutually agreed that Charles W. Ollard and MotherNature.com, Inc.
(formerly Mother Nature's General Store, Inc.) will extend the terms of the
current lease dated May 1, 1998, for the premises located at Southampton in the
Commonwealth of Pennsylvania described as 965 Street Road Offices and 965 Street
Road Warehouse having an area of approximately 4500 rentable square feet, for a
term of four (4) months, commencing May 1, 1999 and terminating August 31, 1999,
this lease shall continue upon the same mutual promises, covenants, and
agreements now in force.
The Lessor and Lessee mutually agree to extend the premises of the current lease
dated May 1, 1998, located at Southampton in the Commonwealth of Pennsylvania
described as 965 Street Road Offices and 965 Street Road Warehouse from an area
of approximately 4500 rentable square feet to an area of approximately 6035
rentable square feet, as further described and set forth on the map attached as
Exhibit C (the "Map of Premises (Revised)").
The Lessor agrees to reduce the monthly installments for the above Premises, for
the remaining term of the current lease dated May 1, 1998 as well as for the
term of this addendum, from equal monthly installments of 3,800.00 Dollars to
equal monthly installments of 3,300.00 Dollars.
The Lessor and Lessee mutually agree that either party hereto may determine the
lease dated May 1, 1998 terminated on August 31, 1999 by giving to the other
party written notice hereof at least ninety (90) days prior thereto, but in
default of such notice, the lease dated May 1, 1998 shall continue upon the same
mutual promises, covenants, and agreements in force immediately prior to the
expiration of the term hereof as are herein contained for a further period of
one (1) year and so on from September 1/st/ to August 31/st/ unless or until
terminated by either party hereto, giving the other ninety (90) days written
notice for removal previous to expiration of the then current term.
MotherNature.com, Inc. shall have the right to terminate the lease dated May 1,
1998 at no penalty upon the execution of a lease between Charles W. Ollard and
MotherNature.com, Inc. for the premises located at Southampton in the
Commonwealth of Pennsylvania described as 965 Street Road Offices and 965 Street
Road Warehouse, having an area of approximately 6035 rentable square feet, for a
term of no less than one (1) year.
Lessor's Signature /s/ Charles W. Ollard 1/31/99
--------------------------- -----------------------
Charles W. Ollard Date
Lessee's Signature /s/ Michael Barach 2/17/99
--------------------------- -----------------------
Name Date
----------------------
Title:
--------------------
<PAGE>
Exhibit 10.9
COMMERCIAL LEASE
This Lease is made this 30th day of June, by and between Paul A. Bunn
(hereinafter "Landlord') and MotherNature.com (hereinafter "Tenant"). In
consideration for the mutual promises and covenants contained herein, and for
other good and valuable consideration, the parties hereby agree as follows:
1. The Landlord leases to the Tenant, and the Tenant rents from the Landlord
the following described premises: 965 Street Road Offices & 965 Street Road
Warehouse, located in the township of Upper Southampton, in county of Bucks, in
the Commonwealth of Pennsylvania.
2. The term of the Lease shall be for four (4) months commencing September
1st, 1999 and ending December 31st, 1999.
3. The Tenant shall pay to Landlord as base rent thirteen thousand two hundred
dollars ($13,200.00) per the term of this lease in equal monthly installments of
three thousand three hundred dollars ($3,300.00), payable in advance by the 1st
of each month.
3a. The Tenant shall pay to Landlord four thousand eight hundred dollars
($4,800.00) to be held as security deposit, payable in advance by the 1st of
September, 1999.
4. This Lease is subject to all present or future mortgages affecting the
premises.
5. Tenant shall use and occupy the premises only as a mail order offices and
distribution subject at all times to the approval of the Landlord.
6. The Tenant shall not make any alterations, additions or improvements to the
premises without the prior written consent of the Landlord.
<PAGE>
7. The Landlord, at his own expense, shall furnish the following utilities or
amenities for the benefit of the Tenant: None.
8. The Tenant, at his own expense, shall furnish the following: electrical
service, telephone service, gas service, water & sewer service, incidental
maintenance costs, adequate refuse, waste and trash removal.
9. The Tenant shall purchase at his own expense public liability insurance in
the amount of $1,000,000.00 as well as fire and hazard insurance in the amount
of $500,000.00 for the premises and shall provide satisfactory evidence thereof
to the Landlord and shall continue same in force and effect throughout the Lease
term hereof.
10. The Tenant shall not permit or commit waste to the premises.
11. The Tenant shall comply with all rules and regulations, ordinances codes
and laws of all governmental authorities having jurisdiction over the premises.
11a. The Tenant shall comply with all rules and regulations set forth by the
Landlord for the premises.
12. The Tenant shall not permit or engage in any activity which will effect an
increase in the rate of insurance for the Building in which the premises is
contained nor shall the Tenant permit or commit and nuisance thereon.
13. The Tenant shall not sublet or assign the premises nor allow any other
person or business to use or occupy the premises without the prior written
consent of the Landlord, which consent may not be unreasonably withheld.
14. At the end of the term of this Lease, the Tenant shall surrender and
deliver up the premises in the same condition (subject to any additions,
alterations or improvements, if any) as presently exists, reasonable wear and
tear excluded.
2
<PAGE>
15. Upon default in any term or condition of this Lease, the Landlord shall
have the right to undertake any or all other remedies permitted by Law.
16. This Lease shall be binding upon, and inure to the benefit of, the parties,
their heirs, successors, and assigns.
Signed this 30th day of June (Month) 1999 (Year).
/s/ Michael Barach /s/ Paul A. Bunn
- -------------------- ------------------------
Tenant Paul A. Bunn (Landlord)
- --------------------
Tenant
3
<PAGE>
EXHIBIT 10.10
SECOND AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
May 12, 1999
To each of the several Purchasers named in
Schedule 1.01A to each of the Series A
Convertible Preferred Stock Purchase
Agreement dated June 10, 1998 (the "Series A
Purchasers"), the Series B-1 Convertible
Preferred Stock Purchase Agreement, dated as
of December 21, 1998 (the "Series B-1
Purchasers"), the Series C Convertible
Preferred Stock Purchase Agreement of even
date herewith (the "Series C Purchasers")
and to each of Comdisco, Inc. ("Comdisco")
and BT Alex. Brown Incorporated ("BT Alex.
Brown") (the Series A Purchasers, the Series
B-1 Purchasers, the Series C Purchasers,
Comdisco and BT Alex. Brown are sometimes
collectively referred to herein as the
"Senior Rights Holders") and Ross Love and
Michael Barach (collectively, the "Junior
Rights Holders;" together with the Senior
Rights Holders, the "Rights Holders")
Dear Sirs:
This will confirm that, in consideration of (i) the Series C Purchasers'
agreement on the date hereof to purchase an aggregate of up to 18,958,178 shares
of Series C Convertible Preferred Stock, $.01 par value per share (the "Series C
Preferred Stock") of MotherNature.com, Inc., a Delaware corporation (the
"Company"), pursuant to the Series C Convertible Preferred Stock Purchase
Agreement of even date herewith (the "Series C Purchase Agreement") between the
Company and the Series C Purchasers, (ii) the purchase by the Series A
Purchasers of 23,316,097 shares of Series A Convertible Preferred Stock, $.01
par value per share (the "Series A Preferred Stock") of the Company pursuant to
the Series A Convertible Preferred Stock Purchase Agreement dated as of June 10,
1998, as amended (the "Series A Purchase Agreement") between the Company and the
Series A Purchasers, (iii) the purchase by the Series B-1 Purchasers of
23,019,375 shares of Series B-1 Convertible Preferred Stock, $.01 par value per
share (the "Series B-1 Preferred Stock") of the Company pursuant to the Series
B-1 Convertible Preferred Stock Purchase Agreement dated as of December 21, 1998
(the "Series B-1 Purchase Agreement"), (iv) the transactions contemplated by the
Subordinated Loan and Security Agreement (the "Loan and Security Agreement")
dated as of December 4, 1998 between the Company and Comdisco, and the Master
Lease Agreement dated as of December 4, 1998 (the "Master Lease Agreement") by
and between the Company and Comdisco, and (v) the services provided by BT Alex.
Brown in connection with the sale of the Series C Preferred Stock, and as
<PAGE>
-2-
an inducement to consummate the transactions contemplated by the Series C
Purchase Agreement, the Company covenants and agrees with each of you as
follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Comdisco Conversion Option" shall mean the right set forth in Section 2.4
--------------------------
of the Loan and Security Agreement.
"Comdisco Warrants" shall mean (i) the Warrant dated as of December 4, 1998
-----------------
issued to Comdisco in connection with the Loan and Security Agreement and
(ii) the Warrant dated as of December 4, 1998 issued to Comdisco in
connection with the Master Lease Agreement.
"Commission" shall mean the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.01 par value, of the Company,
------------
as constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Common Stock issued or issuable
-----------------
upon conversion of the Preferred Shares or upon exercise of the Warrants, and
any shares of capital stock received in respect thereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
------------
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Preferred Shares" shall mean the shares of Preferred Stock issued (i)
----------------
pursuant to each of the Series A Purchase Agreement, Series B-1 Purchase
Agreement, and Series C Purchase Agreement, (ii) upon exercise of the
Comdisco Warrants and (iii) upon exercise of the Comdisco Conversion Option.
"Preferred Stock" shall mean all classes and series of the Preferred Stock,
---------------
$.01 par value, of the Company.
"Purchase Agreements" shall mean the Series A Purchase Agreement, the
-------------------
Series B-1 Purchase Agreement, and the Series C Purchase Agreement.
"Senior Rights Holders" shall mean the Series A Purchasers, the Series B-1
---------------------
Purchasers, the Series C Purchasers, BT Alex. Brown and Comdisco.
"Registration Expenses" shall mean the expenses so described in Section 8.
---------------------
<PAGE>
-3-
"Restricted Stock" shall mean (1) the Conversion Shares, excluding
----------------
Conversion Shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and disposed
of in accordance with the registration statement covering them or (b)
publicly sold pursuant to Rule 144 under the Securities Act, and (2) shares
of Common Stock held by the Junior Rights Holders, but excluding shares of
Common Stock which have been (a) registered under the Securities Act pursuant
to an effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them, or (b) publicly
sold pursuant to Rule 144 under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
--------------
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 8.
----------------
"Warrants" shall mean (i) the Common Stock Purchase Warrants dated as of
--------
May 1, 1998 issued to certain of the Senior Rights Holders in connection with
the Company's 1998 Bridge Financing, and (ii) the Common Stock Purchase
Warrant dated as of May 12, 1999 issued to BT Alex. Brown.
2. Restrictive Legend. Each certificate representing Preferred Shares or
------------------
Restricted Stock shall, except as otherwise provided in this Section 2 or in
Section 3, be stamped or otherwise imprinted with a legend substantially in the
following form:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933 or
applicable state securities laws. These securities have
been acquired for investment and not with a view to
distribution or resale, and may not be sold mortgaged,
pledged, hypothecated or otherwise transferred without an
effective registration statement for such securities under
the Securities Act of 1933 and compliance with applicable
state securities laws, or the availability of an exemption
from the registration provisions of the Securities Act of
1933."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company, which may be counsel to the Company (it being
agreed that Hale and Dorr LLP or Jones, Day, Reavis & Pogue or other counsel
experienced in securities laws matters shall be satisfactory) the securities
being sold thereby may be publicly sold without registration under the
Securities Act.
3. Notice of Proposed Transfer. Prior to any proposed transfer of any
---------------------------
Preferred Shares or Restricted Stock (other than under the circumstances
described in Sections 4, 5 or 6), the holder thereof shall give written notice
to the Company of its intention to effect such transfer. Each such notice shall
describe the manner of the proposed transfer and, if requested by the Company
(it being understood that if such transfer is intended to be in accordance with
the provisions of Rule 144, the Company shall generally not require an opinion
of counsel), shall be
<PAGE>
-4-
accompanied by an opinion of counsel satisfactory to the Company (it being
agreed that Hale and Dorr LLP or Jones, Day, Reavis & Pogue or other counsel
experienced in securities laws matters shall be satisfactory) to the effect that
the proposed transfer may be effected without registration under the Securities
Act, whereupon the holder of such stock shall be entitled to transfer such stock
in accordance with the terms of its notice, subject to the provisions of a
certain Second Amended and Restated Stockholders Agreement of even date
herewith. Each certificate for Preferred Shares and/or Restricted Stock
transferred as above provided shall bear the legend set forth in Section 2,
except that such certificate shall not bear such legend if (i) such transfer is
in accordance with the provisions of Rule 144 (or any other rule permitting
public sale without registration under the Securities Act) or (ii) the opinion
of counsel referred to above is to the further effect that the transferee and
any subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration under
the Securities Act. The restrictions provided for in this Section 3 shall not
apply to securities which are not required to bear the legend prescribed by
Section 2 in accordance with the provisions of that Section. If the Company does
not accept an opinion of counsel required hereby signed by the original holder's
general counsel, the Company will pay the reasonable fees and disbursements of
other counsel in connection with all opinions rendered by them pursuant to this
Section 3.
4. Required Registration.
---------------------
(a) At any time after the earlier of (i) three months after any
registration statement covering the initial public offering of securities of the
Company under the Securities Act shall have become effective, and (ii) May 15,
2001, Senior Rights Holders holding at least 60% of the total shares of
Restricted Stock then held by Senior Rights Holders (in their capacity as such)
may request the Company to register for sale under the Securities Act all or any
portion of the shares of Restricted Stock held by such requesting holder or
holders for sale in the manner specified in such notice, if the reasonably
anticipated aggregate price to the public of such sale would exceed $5,000,000.
Notwithstanding anything to the contrary contained herein, no request may be
made under this Section 4 within 120 days after the effective date of a
registration statement filed by the Company covering a firm commitment
underwritten public offering in which the holders of Restricted Stock shall have
been entitled to join pursuant to Sections 5 or 6.
(b) Following receipt of any notice under this Section 4, the Company
shall immediately notify all holders of Restricted Stock from whom notice has
not been received and such holders shall then be entitled within 20 days after
receipt of such notice from the Company to request the Company to include in the
requested registration all or any portion of their shares of Restricted Stock.
The Company shall use its best efforts to register under the Securities Act, for
public sale in accordance with the method of disposition specified in the notice
from requesting Senior Rights Holders described in paragraph (a) above, the
number of shares of Restricted Stock specified in such notice (and in all
notices received by the Company from other holders within 20 days after the
receipt of such notice by such holders). If such method of disposition shall be
an underwritten public offering, the Senior Rights Holders holding sixty percent
(60%) of the shares of Restricted Stock requested to be sold in such offering
may designate the managing underwriter of such offering, subject to the approval
of the Company,
<PAGE>
-5-
which approval shall not be unreasonably withheld or delayed. The Company shall
be obligated to register Restricted Stock pursuant to this Section 4 on two (2)
occasions only, provided, however, that such obligation shall be deemed
-------- -------
satisfied only (i) if the method of disposition is not a firm commitment
underwriting, when a registration statement covering all shares of Restricted
Stock specified in the original notices received pursuant to subsection (a)
above, for sale in accordance with the method of disposition specified by the
requesting holders, shall have become effective or (ii) if such method of
disposition is a firm commitment underwritten public offering, when at least 75%
of the shares originally requested to be included by the Senior Rights Holders
shall have been sold pursuant thereto.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, except as and to the extent that, in
the opinion of the managing underwriter (if such method of disposition shall be
an underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold. Except for registration statements
on Form S-4, S-8 or any successor thereto, the Company will not file with the
Commission any other registration statement with respect to its Common Stock,
whether for its own account or that of other stockholders, from the date of
receipt of a notice from requesting holders pursuant to this Section 4 until the
completion of the period of distribution of the registration contemplated
thereby or 120 days after the effective date of such registration, whichever is
later.
(d) If in the opinion of the managing underwriter the inclusion of
all of the Restricted Stock requested to be registered under this Section would
adversely affect the marketing of such shares, after any shares to be sold by
the Company and held by Junior Rights Holders have been excluded, shares to be
sold by the Senior Rights Holders (in their capacity as such) shall be excluded
in such manner that the shares to be sold shall be allocated among the selling
holders pro rata based on their ownership of Restricted Stock.
(e) If the Company shall furnish to the holders of Restricted Stock a
certificate that in the good faith judgment of the Board of Directors it would
be seriously detrimental to the Company or its stockholders for a registration
statement to be filed in the near future, then the Company's obligation to use
its best efforts to file a registration statement pursuant to this Section 4
shall be deferred for a period not to exceed 90 days; provided, however, that
the Company shall not obtain such a deferral more than once in any 12 month
period.
5. Incidental Registration. If the Company at any time (other than
-----------------------
pursuant to Section 4 or Section 6) proposes to register any of its securities
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Restricted Stock for sale to the public), each such time it will
give written notice to all holders of outstanding Restricted Stock of its
intention so to do. Upon the written request of any such holder, received by
the Company within 30 days after the giving of any such notice by the Company,
to register any of its Restricted Stock, the Company will use its best
<PAGE>
-6-
efforts to cause the Restricted Stock as to which registration shall have been
so requested to be included in the securities to be covered by the registration
statement proposed to be filed by the Company, all to the extent requisite to
permit the sale or other disposition by the holder (in accordance with its
written request) of such Restricted Stock so registered. In the event that any
registration pursuant to this Section 5 shall be, in whole or in part, an
underwritten public offering of Common Stock, the number of shares of Restricted
Stock to be included in such an underwriting may be reduced (up to 100% in the
case of an initial public offering and, to the extent such shares are requested
for inclusion, to not less than 30% of the total offering in the case of a
subsequent public offering) if and to the extent that the managing underwriter
shall be of the opinion that such inclusion would adversely affect the marketing
of the securities to be sold by the Company therein; provided, however, that
-------- -------
such reduction shall be applied first to the Restricted Stock requested to be
included by the Junior Rights Holders (but in no event shall the number of
shares of Restricted Stock of the Junior Rights Holders be less than the lesser
of (i) 50% of the number of shares of Restricted Stock included in such an
underwriting, or (ii) all shares of Restricted Stock requested by the Junior
Rights Holders to be included in such registration statement), and then to the
Restricted Stock requested to be included by the Senior Rights Holders, in such
manner that the shares to be sold shall be allocated among the selling Senior
Rights Holders pro rata based on their ownership of Restricted Stock, and
provided further that such number of shares of Restricted Stock shall not be
reduced if any shares are to be included in such underwriting for the account of
any person other than the Company, the Junior Rights Holders or requesting
Senior Rights Holders holding Restricted Stock. Notwithstanding the foregoing
provisions, the Company may withdraw any registration statement referred to in
this Section 5 without thereby incurring any liability to the holders of
Restricted Stock.
6. Registration on Form S-3. Subject to a limit of one registration
------------------------
hereunder in any 12 month period, if at any time (i) any holder or holders of
Restricted Stock then outstanding request that the Company file a registration
statement on Form S-3 or any successor thereto for a public offering of all or
any portion of the shares of Restricted Stock held by such requesting holder or
holders, the reasonably anticipated aggregate price to the public of which would
exceed $1,000,000, and (ii) the Company is a registrant entitled to use Form S-3
or any successor thereto to register such shares, then the Company shall use its
best efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of shares of Restricted Stock specified in such
notice. Whenever the Company is required by this Section 6 to use its best
efforts to effect the registration of Restricted Stock, each of the procedures
and requirements of Section 4, including but not limited to the requirement that
the Company notify all holders of Restricted Stock from whom notice has not been
received and provide them with the opportunity to participate in the offering;
provided, however that holders shall have no more than ten (10) days to reply to
- -------- -------
the Company's notice in order to participate in the offering), shall apply to
such registration, provided, however, that except as provided above there shall
-------- -------
be no limitation on the number of registrations on Form S-3 which may be
requested and obtained under this Section 6, and provided, further, however,
-------- ------- -------
that the requirements contained in the first sentence of Section 4(a) shall not
apply to any registration on Form S-3 which may be requested and obtained under
this Section 6. Notwithstanding the foregoing, the Company's obligation to file
a registration statement pursuant to this Section 6 shall be deferred if: (a)
the Company shall furnish to the
<PAGE>
-7-
requesting holders of Restricted Stock a certificate that the Company has a bona
fide intention to file a registration statement within 45 days; (b) 90 days have
not elapsed after the effective date of a registration statement filed by the
Company; or (c) the Company shall furnish to the requesting holders of
Restricted Stock a certificate that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its stockholders
for a registration statement to be filed in the near future; provided, however,
that the deferral provided for in subsection (c) above shall be for a period no
greater than 90 days, and may not be requested more than once in any 12 month
period.
7. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as provided in the third-to-last paragraph of this Section
7);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and each such
amendment and supplement thereto (in each case including all exhibits) and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
provided, however, that the Company shall not for any such purpose be required
- -------- -------
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
<PAGE>
-8-
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and promptly prepare
and furnish to such seller a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Restricted Stock, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock is delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters and to such seller,
to such effects as reasonably may be requested by counsel for the underwriters
or by such seller or its counsel, and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
(h) make available for inspection by each seller of Restricted Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, reasonable access to all financial and other records, pertinent
corporate documents and properties of the Company, as such parties may
reasonably request, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(i) cooperate with the selling holders of Restricted Stock and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Restricted Stock to be sold, such certificates to
be in such denominations and registered in such names as such holders or the
managing underwriters may request at least two business days prior to any sale
of Restricted Stock; and
(j) permit any holder of Restricted Stock which holder might
reasonably be deemed to be a controlling person of the Company, to participate
in good faith in the preparation of such registration or comparable statement.
<PAGE>
-9-
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, but in any event not later than
60 days after effectiveness of the registration statement, and the period of
distribution of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all Restricted Stock covered thereby and
120 days after the effective date thereof (which such period shall be tolled
during the period of any suspension pursuant to Section 13(h) herein).
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information
requested by the Company with respect to themselves and the proposed
distribution by them as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws; and such sellers
shall provide the Company with appropriate representations with respect to the
accuracy of such information.
In connection with each registration pursuant to Sections 4, 5 or 6
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. Expenses. All expenses incurred by the Company in complying with
--------
Sections 4, 5 and 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, costs of any insurance which might be
obtained and the reasonable fees and disbursements, not to exceed $25,000, of
one counsel selected by a majority in interest of the sellers of Restricted
Stock, but excluding any Selling Expenses, are called "Registration Expenses".
All underwriting discounts and selling commissions applicable to the sale of
Restricted Stock are called "Selling Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4, 5 or 6. All Selling Expenses in
connection with each registration statement under Sections 4, 5 or 6 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.
9. Indemnification.
---------------
(a) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, the Company will
indemnify and hold harmless each holder of Restricted Stock, its officers and
directors, each underwriter of such Restricted Stock thereunder and each other
person, if any, who controls such holder or underwriter within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or
<PAGE>
-10-
several, to which such holder, officer, director, underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Restricted Stock was registered under the Securities Act pursuant to Sections 4,
5 or 6, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, (ii) any blue sky application or other document
executed by the Company specifically for that purpose or based upon written
information furnished by the Company filed in any state or other jurisdiction in
order to qualify any or all of the Restricted Stock under the securities laws
thereof (any such application, document or information herein called a "Blue Sky
Application"), (iii) the omission or alleged omission to state in any such
registration statement, prospectus, amendment or supplement or in any Blue Sky
Applications executed or filed by the Company, a material fact required to be
stated therein or necessary to make the statements therein not misleading, (iv)
any violation by the Company or its agents of any rule or regulation promulgated
under the Securities Act applicable to the Company or its agents and relating to
action or inaction required of the Company in connection with such registration,
or (v) any failure to register or qualify the Restricted Stock in any state
where the Company or its agents has affirmatively undertaken or agreed in
writing that the Company (the undertaking of any underwriter chosen by the
Company being attributed to the Company) will undertake such registration or
qualification (provided that in such instance the Company shall not be so liable
if it has used its best efforts to so register or qualify the Restricted Stock)
and will reimburse each such seller, and such officer and director, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the
-------- -------
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such holder, any such underwriter
or any such controlling person in writing specifically for use in such
registration statement or prospectus.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each other seller of
Restricted Stock, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
other seller, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Restricted Stock was registered
under the Securities Act pursuant to Sections 4, 5 or 6, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or any Blue Sky Application 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
<PAGE>
-11-
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, other seller, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that such seller will be liable
-------- -------
hereunder in any such case if and only to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus, and provided, further, however, that the
-------- ------- -------
liability of each seller hereunder shall not in any event exceed the proceeds
received by such seller from the sale of Restricted Stock covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
--------
however, that, if the defendants in any such action include both the indemnified
- -------
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) The indemnities provided in this Section 9 shall survive the
transfer of any Restricted Stock by such holder.
10. Changes in Common Stock or Preferred Stock. If, and as often as,
------------------------------------------
there is any change in the Common Stock or Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be deemed to be made in the provisions hereof so
that the rights and privileges granted hereby shall continue with respect to the
Common Stock or Preferred Stock as so changed.
<PAGE>
-12-
11. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
after 90 days after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon request
a written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Restricted Stock without
registration.
12. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Charter or By-laws of the Company or any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent the
indemnification or contribution provisions herein may be deemed not enforceable.
13. Miscellaneous.
-------------
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including without
limitation transferees of any Restricted Stock), whether so expressed or not,
provided, however, that the registration rights conferred herein on the holders
- --------
of Preferred Shares and Restricted Stock shall only inure to the benefit of a
transferee
<PAGE>
-13-
if (i) there is transferred to such transferee either Preferred Shares or
Restricted Stock representing at least 100,000 shares of Common Stock (as
adjusted for stock splits, stock dividends and the like) or all of the
transferor's Preferred Shares and Restricted Stock, or (ii) such transferee is a
partner, shareholder or affiliate of a party to this Agreement; and the term
"Purchaser" herein shall be deemed to refer to any transferee of a Purchaser to
whom such benefit so inures. All Restricted Stock held or acquired by any
affiliate of any Purchaser shall be aggregated with those held or acquired by
such Purchaser for the purpose of determining the availability of or discharge
of any rights of such Purchaser under his Agreement.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered to the following addresses:
if to the Company or any other party hereto, at the address of such party
set forth in either of the Purchase Agreements or in a certain Second Amended
and Restated Stockholders Agreement by and among the parties hereto dated as
of the date hereof;
if to any subsequent holder of Restricted Stock, to it at such address as
may have been furnished to the Company in writing by such holder;
or, in any case, to such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Restricted Stock) or to
the holders of Restricted Stock (in the case of the Company) in accordance with
the provisions of this paragraph.
(c) This Agreement shall be construed and enforced in accordance with
and governed by the General Corporation Law of the State of Delaware as to
matters within the scope thereof and as to all matters shall be governed by and
construed in accordance with internal laws of the Commonwealth of Massachusetts.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company, and the
holders of greater than 75% of the outstanding shares of Restricted Stock, which
in every event must include the holders of greater than 50% of the outstanding
Conversion Shares then constituting Restricted Stock, provided, however, that
-------- -------
without the consent of holders of greater than 50% of the outstanding Conversion
Shares held by Junior Rights Holders, no amendment, modification or waiver shall
be effected which adversely affects the rights of the Junior Rights Holders in a
manner different from those of all holders of Restricted Stock.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument. Any person who, after the date hereof, acquires
Preferred Shares pursuant to the Series C Purchase Agreement shall become a
party to this Agreement as a "Purchaser" and a holder of "Restricted Stock" for
all purposes hereunder, are upon execution by such person and true Company of a
counterpart to this Agreement. If, for any reason, any Stockholder no longer
holds any shares of Preferred Stock or Common Stock, such Stockholder shall no
longer be
<PAGE>
-14-
allowed to be a party hereto or in any manner entitled to the rights,
obligations or benefits hereunder.
(f) Not in limitation of the definition of the term "Restricted Stock" as
provided above, the obligations of the Company to register shares of Restricted
Stock under Sections 4, 5 or 6 shall terminate immediately with respect to any
Rights Holder who holds two percent (2%) or less of the aggregate outstanding
shares of the Company's capital stock, provided that all of the shares of
Restricted Stock held by such holder may be publicly sold within any one three-
month period pursuant to Rule 144 of the Securities Act, and, in any event, such
registration obligations shall terminate with respect to all Rights Holders on
the date four years from the completion of a public offering of the Company's
shares of Common Stock.
(g) If requested in writing by the underwriters for the initial
underwritten public offering of securities of the Company, each holder of
Restricted Stock who is a party to this Agreement shall agree not to sell,
assign, transfer, pledge, hypothecate, mortgage, encumber or otherwise dispose
of all or any of such holder's shares of Restricted Stock or any other shares of
Common Stock (other than shares of Restricted Stock or other shares of Common
Stock being registered in such offering), without the consent of such
underwriters, for a period of not more than 180 days following the effective
date of the registration statement relating to such offering and shall execute
such customary underwriters' agreement with respect thereto; provided, however,
-------- -------
that all persons selling shares of Common Stock in such offering and all
executive officers and directors of the Company shall also have agreed not to
sell publicly their Common Stock under the circumstances and pursuant to the
terms set forth in this Section 13(g).
(h) Notwithstanding the provisions of Section 7(a), the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended for a period not to
exceed 90 days in any 12-month period if there exists at the time material non-
public information relating to the Company which, in the reasonable opinion of
the Company, should not be disclosed.
(i) The Company shall not grant to any third party any registration rights
more favorable than, or in any way conflicting with, any of those contained
herein, so long as any of the registration rights under this Agreement remains
in effect.
(j) If any provision of this Agreement shall be held to be illegal, invalid
or unenforceable, such illegality, invalidity or unenforceability shall attach
only to such provision and shall not in any manner affect or render illegal,
invalid or unenforceable any other provision of this Agreement, and this
Agreement shall be carried out as if any such illegal, invalid or unenforceable
provision were not contained herein.
(k) The undersigned Senior Rights Holders and Junior Rights Holders agree
that, to the extent they were parties to a certain Amended and Restated
Registration Rights Agreement dated as of December 21, 1998 (the "Prior
Agreement"), such Prior Agreement (A) shall be of no further force and effect,
(B) shall be deemed canceled in its entirety and (C) shall be deemed amended and
restated by this Agreement, all upon the effectiveness hereof.
<PAGE>
-15-
Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be a
binding agreement between the Company and you.
Very truly yours,
MOTHERNATURE.COM, INC.
By: /s/ Michael Barach
------------------------------------
Michael Barach
President and Chief Executive Officer
AGREED TO AND ACCEPTED as of the
date first above written.
SENIOR RIGHTS HOLDERS:
COVESTCO, LLC
By: Venteura, LLC
its Manager
By: /s/ Albin A. Johann
----------------------------------
Title:
<PAGE>
-16-
MORGENTHALER VENTURE PARTNERS IV, L.P.
By: Morgenthaler Management Partners IV, L.P.
its General Partner
By: /s/ Keith Kerman
----------------------------------
Title:
-------------------------------
BESSEMER VENTURE INVESTORS L.P.
By: Deer IV & Co. LLC
By: /s/ Robert Buescher
----------------------------------
Managing Member
BESSEMER VENTURE PARTNERS IV L.P.
By: Deer IV & Co. LLC
By: /s/ Robert Buescher
----------------------------------
Managing Member
BESSEC VENTURES IV L.P.
By: Deer IV & Co. LLC
By: /s/ Robert Buescher
----------------------------------
Managing Member
<PAGE>
-17-
CMG @ VENTURES II, LLC
By: /s/ Andrew J. Hajducky
---------------------------------
Title:
------------------------------
PLATINUM VENTURE PARTNERS II, L.P.
By: /s/ Michael Santer
---------------------------------
Michael Santer
General Partner
SHAD RUN INVESTMENTS L.P.
By: /s/ Sarah Hendrickson
---------------------------------
Title:
------------------------------
COMDISCO, INC.
By: /s/ James Labe
---------------------------------
Title:
------------------------------
COMMONWEALTH CAPITAL VENTURES II L.P.
By: Commonwealth Venture Partners II L.P.
its General Partner
By: /s/ Rob S. Chandra
----------------------------
Rob S. Chandra
General Partner
<PAGE>
-18-
ZERO STAGE CAPITAL VI, L.P.
By: Zero Stage Capital Associates VI, LLC
its General Partner
By: /s/ Stanley Fung
------------------------------
Stanley Fung
Managing Member
BANCBOSTON VENTURES, INC.
By: /s/ John Doggett
-----------------------------------
Title:
--------------------------------
NCP-MNC, L.P.
By: North Castle GP II, L.L.C.
its General Partner
By: /s/ Brent Knudsen
------------------------------
Name: Brent Knudsen
Title: Managing Director
NORTH CASTLE PARTNERS II, L.P.
By: NCP G.P., L.P.
its General Partner
By: North Castle GP II, L.L.C.
its General Partner
By: /s/ Brent Knudsen
-------------------------
Name: Brent Knudsen
Title: Managing Director
<PAGE>
-19-
NORTH CASTLE CO-INVESTMENT FUND, L.P.
By: NCP CO-INVESTMENT FUND G.P., L.L.C.
its General Partner
By: /s/ Brent Knudsen
------------------------------
Name: Brent Knudsen
Title: Managing Director
DAIN RAUSCHER WESSELS INVESTORS LLC
By: /s/ Mary Zimmer
----------------------------------------
Title:
-------------------------------------
BLUE CHIP CAPITAL FUND II, LIMITED PARTNERSHIP
By: Blue Chip Venture Fund Company, Ltd.
By: /s/ John H. Wyant
-----------------------------------
John H. Wyant
Manager
/s/ Michael Barach
- --------------------------------------------
Michael Barach
- --------------------------------------------
Paul A. Bunn
- --------------------------------------------
Edward L. Estrin
/s/ Robert Haft
- --------------------------------------------
Robert Haft
- --------------------------------------------
Paul Love
<PAGE>
-20-
/s/ Jason Olim
- -------------------------------------
Jason Olim
- -------------------------------------
David Tolmie
BT ALEX. BROWN INCORPORATED
By: /s/ Donald D. Notman, Jr.
---------------------------------
Title:
------------------------------
<PAGE>
-21-
CHESTNUT HILL NATURE, LLC
By: /s/ Michael Greeley
-----------------------------
Title:
<PAGE>
-22-
MARKAS HOLDINGS
By: /s/ M. C. van der Sluijs-Plantz
---------------------------------
Title:
<PAGE>
-23-
JUNIOR RIGHTS HOLDERS:
/s/ Ross A. Love
- ------------------------------------------
Ross A. Love
/s/ Michael Barach
- ------------------------------------------
Michael Barach
<PAGE>
EXHIBIT 10.11
MotherNature.com, Inc.
360 Massachusetts Avenue, Suite 103
Acton, Massachusetts 01720
August 7, 1998
Mr. Ross A. Love
5521 Baywater Drive
Tampa, Florida 33615
Dear Ross:
This letter sets forth our agreement concerning the arrangements to govern
your termination of employment at MotherNature.com, Inc. ("MotherNature"). You
have played a significant role at MotherNature and we are appreciative of your
contributions.
1. (a) From and after August 7, 1998 (the "Termination Date") you shall
cease to serve as an active employee, but you will receive salary continuation
at the rate of $70,000.00 per year (the "Salary Continuation") through May 31,
2000 (the "Continuation Period"). All such amounts described in the preceding
sentence will be payable in connection with the normal MotherNature payroll as
presently in effect, and are subject to applicable federal and state
withholding, payroll and other taxes. All Salary Continuation payments will be
made to an account or address designated by Employee.
(b) Subject to your continued compliance with the provisions of
Section 7 below, MotherNature hereby agrees to forgive your repayment of the
$21,100 in loans and/or advances extended to you by MotherNature on or before
August 7, 1998, at the rate of $3,550 per month commencing on September 1, 1998
and continuing monthly thereafter until the active balance is forgiven. Failure
to comply with the provisions of Section 7 below prior to the complete
forgiveness of such loans will result in the balance of the loans and/or
advances being deducted from your Salary Continuation.
(c) You have agreed to move out of the apartment currently rented by
the Company in Waltham, MA; and, MotherNature agrees to pay your relocation
expenses up to but not exceeding $3,000 associated with your relocation to
Florida.
2. You hereby confirm your resignation as VP Marketing, Secretary and as
Director of MotherNature effective on or before August 7, 1998 and agree to
irrevocably waive and terminate any and all rights granted to you under Section
5.01(k) of the Series A Convertible Preferred Stock Purchase Agreement dated
June 10, 1998 by and between MotherNature and the certain Purchasers named in
Exhibit 1.01A thereto (the "Purchase Agreement"), including your right to attend
each meeting of the Board of Directors of MotherNature and each meeting of any
committee thereof. You further agree that you shall not in the future seek
election or agree to serve as a director of MotherNature.
<PAGE>
3. You hereby irrevocably waive and rescind any and all right to purchase
shares of MotherNature's Series A Convertible Preferred Stock. Accordingly,
MotherNature shall cancel and return the Promissory Note in the amount of
$53,334.90 dated July 15, 1998 between you and MotherNature, and you shall not
be deemed to be (or have been) a Purchaser under the Purchase Agreement for any
purpose.
4. No later than September 15, 1998, you will return to MotherNature any
keys, credit cards or other items that you might have in your possession that
are the property of MotherNature. In addition, on or before such date, you will
return all company files, reports, books, data, memoranda, manuals, diskettes,
business or marketing plans, reports, projections, computer equipment and
software programs, and all other MotherNature information or property held by
you or under your control. You agree not to use any of the foregoing
MotherNature materials from and after September 15, 1998. Notwithstanding the
foregoing, you shall be entitled to keep the notebook computer provided to you
by MotherNature and to purchase for $200.00 the laser printer, provided to you
by MotherNature, which is located at your Waltham apartment. .
5. (a) In exchange for the compensation described in Paragraph 1, and
MotherNature's compliance with its obligations set forth in this agreement, and
other good and valuable consideration, receipt of which is hereby acknowledged,
you hereby agree that, except to the extent of the obligations undertaken by
MotherNature herein, you, your representatives, agents, estate, successors and
assigns, release and forever discharge MotherNature and/or its successors,
assigns, directors, shareholders, officers, employees and/or agents, both
individually and in their official capacities with the company, from any and all
actions or causes of action, suits, claims, complaints, contracts, liabilities,
agreements, promises, debts and damages, whether existing or contingent, known
or unknown, which arise out of your employment with or your termination of
employment from MotherNature. This release is intended by you to be all
encompassing and to act, except to the extent of the obligations undertaken by
MotherNature herein, as a full and total release of any claims that you may have
or have had against MotherNature, its successors, assigns, officers, employees
and/or agents, both individually and in their official capacity with the company
which arise out of your employment with or your termination of employment from
MotherNature, including, but not limited to, any federal or state law or
regulation dealing with either employment or employment discrimination such as
those laws or regulations concerning discrimination on the basis of age, race,
color, religion, creed, sex, sexual preference, national origin, disability, or
status as a disabled or Vietnam era veteran; any contract, whether oral or
written, express or implied; or common law.
(b) You agree not only to release and discharge MotherNature, its
subsidiaries and/or their respective successors, assigns, stockholders,
officers, directors, employees and agents from any and all claims as stated
above that you could make on your own behalf or on behalf of others, but also
those claims which might be made by any other person or organization on behalf
of you, and you specifically waive any right to become, and promise not to
become, a member of any class in a case in which claim or claims against
MotherNature, its subsidiaries and/or their respective successors, assigns,
stockholders, officers, directors, employees and/or agents are made involving
any matters which arise out of your employment with or termination from
MotherNature, or in any manner related to your ownership (prior to the date
hereof) of
<PAGE>
MotherNature stock. You agree that once MotherNature has made the payments
specified in Paragraph 1, MotherNature will have satisfied any and all legal
and/or contractual obligations to you. Nothing in this letter agreement is to be
construed as an admission by MotherNature, its subsidiaries and/or their
successors, assigns, or their respective stockholders, officers, directors,
employees or agents of any liability or unlawful conduct whatsoever.
6. You agree and acknowledge the payments and benefits set forth in this
letter, together with payments and benefits previously provided to you by
MotherNature, are the only payments and benefits you will receive in connection
with your employment or its termination. With respect to your Incentive Stock
Option Agreements, you agree that your Incentive Stock Option Agreement dated as
of July 15, 1998 for 955,000 shares of Common Stock of MotherNature shall
terminate unexercised as of the date hereof. With respect to your Incentive
Stock Option Agreement dated as of June 10, 1998 for 255,000 shares of Common
Stock of MotherNature ("ISO No. 1"), you agree pursuant to the terms of Section
4(a) of ISO No. 1 your option to purchase up to 116,888 shares of Common Stock
is deemed vested and exercisable as of the date hereof; and, to the extent not
previously exercised, your option to purchase such shares will terminate (and
may no longer be exercised) effective three (3) months following from the date
hereof. It is understood and agreed that you shall be responsible for any
federal and state income tax consequences to you arising out of the exercise of
any such stock options and/or the sale or disposition of the underlying Common
Stock.
7. You agree not to directly communicate with any senior employee,
executive officer or Director of MotherNature (individually, a "Team Member" and
collectively, the "Team Members") with the exception of Michael Barach, Jason
Olim, Sam Estrin, John Thompson, Paul Bunn, and, with respect to administrative
matters only, to the senior financial officer; provided, however, that you may
respond to and communicate with Team Members if the Team Member directly
contacts you via telephone, e-mail, facsimile or other method of correspondence.
With respect to e-mail, facsimiles and other correspondence, "directly contact"
does not include e-mail, facsimiles and other correspondence for which you are a
---
copy collated (a "cc") addressee only. You further agree not to make any
negative or adverse statement (oral or written) or otherwise disseminate any
non-public, confidential or proprietary information (oral or written) to other
persons or entities concerning the business, operations, products, services,
marketing, strategies, pricing policies, affairs, financial condition or
reputation of MotherNature or any of its officers, employees, directors or
investors in their capacity as such, except as may be required by law. Not in
limitation of the foregoing, you agree not to make any negative or adverse
statement (oral or written) or disseminate any nonpublic, confidential or
proprietary information (oral or written) to any analyst, broker, investment
banker, commercial lender, institutional investor or other member of the
financial community regarding MotherNature, its business, financial condition or
prospects, or any of its officers, employees, directors or investors. We remind
you of your obligation not to divulge any information regarding the terms of
this Agreement or any other confidential or proprietary information of
MotherNature following the termination of your employment.
8. You agree that the terms of Sections 6, 7(a), and 7(b) of your
Employment Agreement dated June 10, 1998 by and between MotherNature and you
shall survive your termination from MotherNature hereunder and shall remain in
effect through the Continuation
<PAGE>
Period. You further acknowledge that you are a party to and will continue to be
bound by that certain Stockholders Agreement dated June 10, 1998 by and among
MotherNature, the Purchasers listed in the signature pages thereto and the
Existing Shareholders listed in the signature pages thereto (the "Stockholders
Agreement").
9. (a) The invalidity or unenforceability of any provision of this
agreement shall not affect the other provisions of this agreement, but this
agreement shall be revised, construed and reformed to the fullest extent
possible to effectuate the purposes of this agreement. This agreement shall be
binding upon and inure to the benefit of you and MotherNature and your
respective heirs, successors and assigns. You agree that MotherNature will not
have an adequate remedy if you fail to comply with Paragraphs 5, 7 and/or 8
hereof, and that damages will not be readily ascertainable, and that in the
event of such failure, you shall not oppose any application by MotherNature
requiring a decree of specific performance or an injunction enjoining a breach
of this agreement.
(b) In addition to all other remedies available to MotherNature,
effective immediately upon any breach by you any of your obligations hereunder,
(i) you shall forfeit all right to the forgiveness of outstanding loans provided
for in Paragraph 1(b) and such Paragraph 1(b) shall be null and void and of no
further force or effect and (ii) with respect to each such breach hereunder, you
shall forfeit all right to 25% of the total Salary Continuation that you would
otherwise be entitled to under Paragraph 1(a) (the "Aggregate Salary
Continuation"); provided, however, that, in the event that upon any such breach
-------- -------
the total Salary Continuation then remaining to be paid is less than 25% of the
Aggregate Salary Continuation, you shall forfeit all right to all Salary
Continuation then remaining to be paid. Notwithstanding the foregoing, the
rights of forfeiture provided for in clauses (i) and/or (ii) of this Section
9(b) may be waived in any instance by the Company in its sole discretion;
provided, however, that waiver of such rights shall not be deemed a waiver of
- -------- -------
such rights on any other occasion.
(c) This agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts, without giving effect to the
principles of conflicts of law thereof.
(d) This letter agreement represents a complete understanding between the
parties and supersedes any and all other agreements and understandings, except
for the agreements referenced in Paragraph 8 above which such agreements shall
remain in full force and effect (to the extent indicated). You represent that
you have read the foregoing Letter Agreement, fully understand the terms and
conditions of such Agreement, and are voluntarily executing the same. In
entering into this Letter Agreement, you are not relying on any representation,
promise or inducement made by MotherNature, with the exception of the
consideration described in this letter. If the foregoing accurately sets forth
our agreement, please sign the enclosed copy of this letter and return it to me.
[Remainder of Page Intentionally Left Blank]
<PAGE>
Very truly yours,
MOTHERNATURE.COM, INC.
/s/ Michael Barach
-----------------------------------------
By: Michael Barach, President and
Chief Executive Officer
Agreed and accepted:
/s/ Ross A. Love
- -------------------------------
Ross A. Love
Date: August 25, 1998
<PAGE>
MotherNature.com, Inc.
360 Massachusetts Avenue, Suite 103
Acton, MA 01720
September 10, 1998
Ross Love
61 Mt. Vernon Circle
Dunwoody, GA 30338
Re: Termination Agreement dated August 7, 1998
Dear Ross:
In connection with the Termination Agreement (the "Agreement") dated August
7, 1998 between you and MotherNature.com, Inc. ("MotherNature"), Section 7 of
the Agreement is hereby amended to include Robert Haft in the list of
MotherNature Team Members with whom you may directly communicate. Section 7 as
hereby amended and all other provisions of the Agreement remain in full force
and effect.
Sincerely,
MOTHERNATURE.COM, INC.
By /s/ Michael Barach
---------------------------
Michael Barach
Chief Executive Officer
Agreed and Accepted:
/s/ Ross A. Love
- -------------------------
Ross A. Love
<PAGE>
Exhibit 11.1
<TABLE>
<CAPTION>
31 Dec 96 31 Dec 97 31 Dec 98 30 Jun 99
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Basic EPS Computation
Numerator
Net Loss $ (80,681) $ (159,532) $(6,610,684) $(15,000,492)
Denominator:
Weighted average common shares outstanding 1,469,593 4,855,479 5,017,613 5,566,430
Basic EPS $ (0.05) $ (0.03) $ (1.32) $ (2.69)
Diluted EPS Computation
Numerator
Net Loss $ (80,681) $ (159,532) $(6,610,684) $(15,000,492)
Denominator
Weighted average common shares outstanding 1,469,593 4,855,479 5,017,613 5,566,430
Weighted average convertible preferred shares 0 0 13,490,355 51,713,682
------------- ------------- ------------- -------------
Total shares 1,469,593 4,855,479 18,507,968 57,280,112
Diluted EPS $ (0.05) $ (0.03) $ (0.36) $ (0.26)
</TABLE>
<PAGE>
Exhibit 23.2
ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
Boston, Massachusetts
August 13, 1999 /s/ Arthur Andersen LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 11,243,943 39,683,712
<SECURITIES> 0 0
<RECEIVABLES> 10,914 116,303
<ALLOWANCES> 0 0
<INVENTORY> 27,752 535,915
<CURRENT-ASSETS> 13,054,957 40,509,679
<PP&E> 482,612 1,303,142
<DEPRECIATION> 98,756 293,539
<TOTAL-ASSETS> 13,461,613 41,605,003
<CURRENT-LIABILITIES> 861,050 2,646,533
<BONDS> 0 0
0 0
463,354 647,450
<COMMON> 51,169 65,318
<OTHER-SE> 12,064,949 38,700,719
<TOTAL-LIABILITY-AND-EQUITY> 13,461,613 41,605,003
<SALES> 476,549 954,650
<TOTAL-REVENUES> 476,549 954,650
<CGS> 417,998 844,330
<TOTAL-COSTS> 417,998 844,330
<OTHER-EXPENSES> 6,733,716 15,417,331
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 45,632 73,334
<INCOME-PRETAX> (6,610,684) (15,000,492)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (6,610,684) (15,000,492)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,610,684) (15,002,492)
<EPS-BASIC> (1.32) (2.69)
<EPS-DILUTED> (1.32) (2.69)
</TABLE>
