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FORM 10-Q/A
AMENDMENT NO. 1 TO FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended: October 31, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission file number: 00025397
VIRTUAL TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1639011
(State or other jurisdiction) (IRS Employer
of Incorporation) Identification Number)
3100 WEST LAKE STREET
SUITE 400
MINNEAPOLIS, MN 55416
(Address of Principal Executive Offices)
(612) 915-1122
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such that the registrant was required to file
such reports), and (2) has shorter period been subject to such filing
requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 20, 1999, the latest practicable date: 32,669,044
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TABLE OF CONTENTS
ITEM PAGE
- ---- ----
Part II
Other Information
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................ 2
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................. 2
Explanatory note: This Amendment No. 1 to the Form 10-Q for the period ended
October 31, 1999 is filed solely to correct certain information in Part II, Item
2(c), Recent Sales of Unregistered Securities, and to file certain previously
omitted exhibits.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent Sales of Unregistered Securities.
(1) Sales in exchange for services rendered to accredited investors only
pursuant to Rule 506 at Regulation D and/or Section 4(2) of the Act: Between
August 1 and October 31, 1999, the Registrant issued 1,687,500 shares of its
Common Stock to 10 individuals and entities in exchange for $2,990,426 by value
of services.
(2) Issuance of options and warrants involving no sale of securities: Between
August 1 and October 31, 1999, the Registrant granted to six individuals an
aggregate of 66,000 options to purchase shares of the Registrant's Common Stock,
exercisable at prices ranging between $2.22 and $2.50 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
4.2 Form of Common Stock Purchase Warrant issued on December 17, 1999.
10.11 E-Commerce Agreement with Lycos, Inc. (note: portions of this Exhibit
have been omitted pursuant to a request for confidential treatment).
10.12 First and Second Amendments to Loan and Security Agreement with Coast
Business Credit.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused Amendment No. 1 to this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Virtual Technology Corporation
(Registrant)
By: /s/ John L. Harvatine
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Its: Chief Financial Officer
Date: December 29, 1999
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EXHIBIT INDEX
EXHIBITS DESCRIPTION
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4.2 Form of Common Stock Purchase Warrant issued on December 17, 1999.
10.11 E-Commerce Agreement with Lycos, Inc. (note: portions of this Exhibit
have been omitted pursuant to a request for confidential treatment).
10.12 First and Second Amendments to Loan and Security Agreement with Coast
Business Credit.
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Exhibit 4.2 Form of Common Stock Purchase Warrant Issued on December 17, 1999
VIRTUAL TECHNOLOGY CORPORATION
COMMON STOCK PURCHASE WARRANT
Virtual Technology Corporation, a Minnesota corporation (the
"Company"), hereby agrees that, for $ value received,
is entitled, subject to the terms set forth below,
to purchase from the Company at any time or from time to time on or after
December 17, 1999, and before 5:00 p.m., Minneapolis, Minnesota time, on
December 17, 2004, ( ) shares (subject to reduction
and other adjustments below) of the Company's Common Stock, par value $.001 per
share, at an exercise price of $0.50 per share (the "Warrant Shares").
1. Exercise of Warrant. The purchase rights granted by this Warrant shall
be exercised (in minimum quantities of 100 Warrant Shares) by the holder
surrendering this Warrant with the form of exercise attached hereto duly
executed by such holder, to the Company at its principal office, accompanied by
payment, in cash or by wire transfer or cashier's check payable to the order of
the Company, of the purchase price payable in respect of the Warrant Shares
being purchased. If less than all of the Warrant Shares purchasable hereunder
are purchased, the Company will, upon such exercise, execute and deliver to the
holder hereof a new Warrant (dated the date hereof) evidencing the number of
Warrant Shares not so purchased. As soon as practicable after the exercise of
this Warrant and payment of the purchase price, the Company will cause to be
issued in the name of and delivered to the holder hereof, or as such holder may
direct, a certificate or certificates representing the Warrant Shares purchased
upon such exercise. The Company may require that such certificate or
certificates contain on the face thereof a legend substantially as follows:
"The transfer of the shares represented by this certificate is
restricted pursuant to the terms of a Common Stock Purchase Warrant dated
December 17, 1999, issued by Virtual Technology Corporation, a copy of which is
available for inspection at the offices of the Company. Transfer may not be made
except in accordance with the terms of the Common Stock Purchase Warrant. In
addition, no sale, offer to sell or transfer of the shares represented by this
certificate shall be made without (i) the opinion of counsel satisfactory to the
Company that such sale, offer, or transfer may be made without registration or
qualification under the Securities Act of 1933, as amended, and applicable state
securities laws or (ii) such registration or qualification."
2. Negotiability and Transfer. This Warrant is issued upon the following
terms, to which each holder hereof consents and agrees:
(a) Until this Warrant is duly transferred on the books of the Company,
the Company may treat the registered holder of this Warrant as absolute owner
hereof for all purposes without being affected by any notice to the contrary.
(b) Each successive holder of this Warrant, or of any portion of the
rights represented thereby, shall be bound by the terms and conditions set forth
herein.
3. Secured Redemption Rights and Adjustments of this Warrant Related
Thereto. At any time that this Warrant is outstanding and has not been exercised
in any part, the holder hereof may demand in writing the redemption of the right
to acquire [one-half] of the Warrant Shares hereunder (the "Secured
Warrant Portion") for $ [the original issuance price]. If the holder
receives good funds from the Company upon such redemption demand within seven
(7) calendar days of the date of such redemption demand, then the right to
acquire the Warrant Shares upon exercise of the Secured Warrant Portion shall
lapse. If the holder does not receive good funds from the Company upon such
redemption demand within such seven (7) calendar days, then no such reduction in
this Warrant shall take effect, but the right of the holder to be paid the
$ [original issuance price] shall continue absolutely. [Optional: The
holder's redemption rights hereunder shall be secured by the Company's pledge
hereby of 100,000 shares of Common Stock of Maximum Holdings, Inc. (the "Maximum
Shares"). The holder may exercise all rights under the Minnesota Uniform
Commercial Code with respect to foreclosing on the Maximum Shares at any time
that the redemption obligation of the Company hereunder is in default. However,
despite the foregoing, upon any
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default, the holder shall be deemed to have immediate title to the Maximum
Shares, subject to the Company's right within six months of the default to
redeem the Maximum Shares back from the holder upon payment of the $
[original issuance price]; provided, however, that prior to such payment the
holder has not given the Company written notice of its intention to retain the
Maximum Shares in lieu of receipt of the $ [original issuance
price] (which notice shall terminate the Company's right of redemption as to the
Maximum Shares). In no event shall the redemption of the Secured Warrant Portion
or holder's foreclosing on the Maximum Shares affect the holder's right to
exercise this Warrant with respect to the other [one-half] of
the Warrant Shares purchasable hereunder.]
4. Antidilution Adjustments. If the Company shall at any time hereafter
subdivide or combine its outstanding shares of Common Stock, or declare a
dividend payable in Common Stock, the exercise price in effect immediately prior
to the subdivision, combination, or record date for such dividend payable in
Common Stock shall forthwith be proportionately increased, in the case of
combination, or proportionately decreased, in the case of subdivision or
declaration of a dividend payable in Common Stock, and the number of Warrant
Shares purchasable upon exercise of this Warrant immediately preceding such
event, shall be changed to the number determined by dividing the then current
exercise price by the exercise price as adjusted after such subdivision,
combination, or dividend payable in Common Stock and multiplying the result of
such division against the number of Warrant Shares purchasable upon the exercise
of this Warrant immediately preceding such event, so as to achieve an exercise
price and number of Warrant Shares purchasable after such event proportional to
such exercise price and number of Warrant Shares purchasable immediately
preceding such event. All calculations hereunder shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. No
fractional Warrant Shares are to be issued upon the exercise of this Warrant,
but the Company shall pay a cash adjustment in respect of any fraction of a
share which would otherwise be issuable in an amount equal to the same fraction
of the market price per share of Common Stock on the day of exercise as
determined in good faith by the Company. In case of any capital reorganization
or any reclassification of the shares of Common Stock of the Company, or in the
case of any consolidation with or merger of the Company into or with another
corporation, or the sale of all or substantially all of its assets to another
corporation, which is effected in such a manner that the holders of Common Stock
shall be entitled to receive stock, securities, or assets with respect to or in
exchange for Common Stock, then, as a part of such reorganization,
reclassification, consolidation, merger, or sale, as the case may be, lawful
provision shall be made so that the holder of the Warrant shall have the right
thereafter to receive, upon the exercise hereof, the kind and amount of shares
of stock or other securities or property which the holder would have been
entitled to receive if, immediately prior to such reorganization,
reclassification, consolidation, merger, or sale, the holder had held the number
of Warrant Shares which were then purchasable upon the exercise of the Warrant.
In any such case, appropriate adjustment (as determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interest thereafter
of the holder of the Warrant, to the end that the provisions set forth herein
(including provisions with respect to adjustments of the exercise price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the exercise of
the Warrant. When any adjustment is required to be made in the exercise price,
initial or adjusted, the Company shall forthwith determine the new exercise
price and (a) prepare and retain on file a statement describing in reasonable
detail the method used in arriving at the new exercise price and (b) cause a
copy of such statement to be mailed to the holder of the Warrant as of a date
within ten (10) days after the date when the circumstances giving rise to the
adjustment occurred.
5. Demand Registration Rights. The Company agrees to use its best efforts
by April 1, 2000 to file a registration statement under the Securities Act of
1933, as amended (the "Act"), on Form S-1 (or if available, on Form S-2 or S-3)
covering all or such part of the Warrant Shares, and all or such part of any
other shares of Common Stock of the Company underlying options, warrants or
other rights to acquire such securities then held by such original holder, as to
which the original holder may prior to April 1, 2000 request registration of in
writing.
(a) Obligations of Holder. It shall be a condition precedent to the
obligation of the Company to register any Warrant Shares or other Common Stock
pursuant to this Section 5 that the original holder hereof shall furnish to the
Company such information regarding the
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Warrant Shares or other Common Stock held by such seller and the intended method
of disposition thereof and other information concerning the seller as the
Company shall reasonably request and as shall be required in connection with the
registration statement to be filed by the Company.
(b) Registration Procedures. If and whenever the Company is
required by the provisions of this Section 5 to effect the registration under
the Act of Warrant Shares or other Common Stock owned by the original holder
hereof, until the Common Stock covered by such registration statement has been
sold or for nine (9) months after effectiveness, whichever is the shorter period
of time, the Company shall:
(i) Prepare and file with the Securities and Exchange
Commission ("SEC") and/or any applicable state securities agency a registration
statement with respect to such Common Stock and use its best efforts to cause
such registration statement to become and remain effective within 60 days after
the demand for registration made hereunder by the original holder;
(ii) Prepare and file such amendments to such registration
statement and supplements to the prospectus contained therein as may be
necessary to keep such registration statement effective;
(iii) Furnish to the original holder hereunder such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such holder may reasonably request in
order to facilitate the public offering of its securities;
(iv) Notify the original holder hereunder promptly after it
shall receive notice thereof of the time when such registration statement has
become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(v) Notify the original holder hereunder promptly of any
request by the SEC or applicable state securities agency for the amending or
supplementing of such registration statement or prospectus or for additional
information;
(vi) Prepare and file promptly upon the request of the
original holder hereunder any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel to the original holder
hereunder, are required under the Act or the rules and regulations thereunder in
connection with the distribution of Common Stock by such holder;
(vii) Prepare and promptly file with the SEC and promptly
notify the original holder hereunder of the filing of such amendment or
supplement to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Act, any event shall
have occurred, the result of which any such prospectus or any other prospectus
as then in effect would include an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading;
(viii) In case the original holder hereunder is required to
deliver a prospectus at a time when the prospectus then in circulation is not in
compliance with the Act, the Company will prepare and file such supplements or
amendments to such registration statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of the Act;
(ix) Advise the original holder hereunder, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
(x) Not file any amendment or supplement to such registration
statement or prospectus to which the original holder hereunder shall reasonably
have objected on the
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grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Act or the rules and regulations
thereunder, after having been furnished with a copy thereof at least two (2)
business days prior to the filing thereof.
(c) Expenses. With respect to the inclusion of shares of Common Stock
in a registration statement pursuant to this Section 5, all reasonable fees,
costs, and expenses of and incidental to such registration, inclusion and public
offering in connection therewith shall be borne by the Company; provided,
however, that the original holder hereof shall bear its pro rata share of any
underwriting discounts and commissions and shall bear any fees and disbursements
of accountants and counsel retained by it (other than accountants and counsel
also retained by the Company).
(d) Adjustment in Number of Warrants if Registration Statement not
Timely Effected. If the Company fails to obtain effectiveness on or before May
31, 2000, of the registration statement demanded above by the original holder
hereof, then ipso facto and without any action on the part of the original
holder hereof or the Company, this Warrant will automatically be adjusted to
represent the right to purchase twice the number of Warrant Shares (i.e.,
Warrant Shares if the Secured Warrant Portion has been redeemed or
Warrant Shares if the Secured Warrant Portion has not been
redeemed).
6. Notices. The Company shall mail to the registered holder of the
Warrant, at its last known post office address appearing on the books of the
Company, not less than fifteen (15) days prior to the date on which (a) a record
will be taken for the purpose of determining the holders of shares of Common
Stock entitled to dividends (other than cash dividends) or subscription rights
or (b) a record will be taken (or in lieu thereof, the transfer books will be
closed) for the purpose of determining the holders of common stock entitled to
notice of and to vote at a meeting of shareholders at which any capital
reorganization, reclassification of common stock, consolidation, merger,
dissolution, liquidation, winding up, or sale of substantially all of the
Company's assets shall be considered and acted upon. Any other notice or
communication required or permitted hereunder shall in writing and shall be
deemed to have been given, when received, if delivered by hand, telegram, telex
or telecopy, and, when deposited, if placed in the mails for delivery by air
mail, postage prepaid, addressed to the appropriate party as specified on the
first page of this Agreement; provided, however, that any notice sent to the
holder (if by telefax, to ) shall also be sent to
(if by telefax, to );
and provided further, that any notice sent to the Company (if by telefax, to
612/823-7054) shall also be sent to Jeffrey C. Robbins, Esq., Messerli & Kramer
P.A., 150 South Fifth Street, Suite 1800, Minneapolis, Minnesota 55402 (if by
telefax, to 612/672-3777). Addresses may be changed by written notice given
pursuant to this Section; however, any such notice shall not be effective, if
mailed, until three (3) working days after depositing in the mails or when
actually received, whichever occurs first.
7. Reservation of Common Stock. A number of shares of Common Stock
sufficient to provide for the exercise of the Warrant and the Warrant Shares
included therein upon the basis herein set forth shall at all times be reserved
for the exercise thereof.
8. Miscellaneous. Whenever reference is made herein to the issue or sale
of shares of Common Stock, the term "Common Stock" shall include any stock of
any class of the Company other than preferred stock that has a fixed limit on
dividends or a payment preference in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company. The Company will not, by
amendment of its Articles of Incorporation or through reorganization,
consolidation, merger, dissolution, or sale of assets, or by any other voluntary
act or deed, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations, or conditions to be observed or performed hereunder by
the Company, but will, at all times in good faith, assist, insofar as it is
able, in the carrying out of all provisions hereof and in the taking of all
other action which may be necessary in order to protect the rights of the holder
hereof against dilution. Upon written request of the holder of this Warrant, the
Company will promptly provide such holder with a then current written list of
the names and addresses of all holders of warrants originally issued under the
terms of, and concurrent with, this Warrant. The representations, warranties,
and agreements herein contained shall survive the exercise of this Warrant. This
Common Stock Purchase Warrant shall be interpreted under the laws of the State
of Minnesota, exclusive of its conflict of laws rules. All
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Warrant Shares or other securities issued upon the exercise of the Warrant shall
be validly issued, fully paid, and nonassessable, and the Company will pay all
taxes in respect of the issuer thereof. Notwithstanding anything contained
herein to the contrary, the holder of this Warrant shall not be deemed a
shareholder of the Company for any purpose whatsoever until and unless this
Warrant is duly exercised.
IN WITNESS WHEREOF, the undersigned has caused this Warrant to be
signed by its duly authorized officer this 17th day of December, 1999.
VIRTUAL TECHNOLOGY CORPORATION
By:
----------------------------------------
Its:
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EXHIBIT 10.11 E-Commerce Agreement with Lycos, Inc.
Note: Certain portions of this Exhibit marked with asterisks have been omitted
pursuant to a request for confidential treatment and are being filed
separately with the SEC.
E-COMMERCE AGREEMENT
This Agreement, dated as of October 31, 1999 (the "Effective Date"), is made by
and between Lycos, Inc., a Delaware corporation with a principal place of
business at 400-2 Totten Pond Road, Waltham, MA 02451 ("Lycos") and Virtual
Technology Corporation, a Minnesota corporation with a principal place of
business at 3100 West Lake Street, Suite 400, Minneapolis, Minnesota 55416
("Virtual Technology").
Recitals
A. Lycos is the owner or licensee of certain Web services (collectively,
the "Lycos Services"), which are accessible through the URLs www.lycos.com (the
"Lycos Site"), www.tripod.com (the "Tripod Site"), www.angelfire.com (the
"Angelfire Site"), www.mailcity.com, www.wired.com, www.hotbot.com and
www.whowhere.com (all sites are collectively referred to as the "Lycos
Network").
B. Virtual Technology operates a Web site accessible through the URL
www.virtual-world.com and intends to operate a Web site accessible through the
URL www.netdirect.com. On one of the foregoing sites, Virtual Technology shall
sell and promote computer hardware and software products under the brand name
"netdirect" (or such other brand name as Virtual Technology may elect),
including home personal computer systems (such site referred to as the
"Netdirect Storefront Site"; all content and information on the Netdirect
Storefront Site shall be referred to herein as the "Content").
C. Lycos and Virtual Technology wish to establish a relationship through
which Lycos will integrate links throughout the Lycos Network to a co-branded
version of the Netdirect Storefront Site (the "Co-Branded Storefront Site") and
will provide Virtual Technology with access to Lycos' electronic commerce hub,
located, as of the Effective Date, at the URL http://shop.lycos.com/
("E-Market").
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Lycos and Virtual Technology hereby agree as
follows:
Terms
1. Co-Branded Storefront Site.
1.1 Serving and Hosting. Virtual Technology will operate and serve the
Co-Branded Storefront Site in a manner consistent with the present quality
standards of Lycos and which meets response performance standards for Lycos
users at least as good as those of the Lycos Site. In addition, Virtual
Technology will be responsible for system operation software costs, hardware
costs, and network costs. Virtual Technology shall provide Lycos with a contact
at Virtual Technology who shall be available to assist Lycos twenty-four hours a
day, seven days a week (via pager access after Virtual Technology's regular
business hours). Virtual Technology will generate daily traffic reports and
provide Lycos with audited traffic reports on a monthly basis. Without Lycos'
prior approval, Virtual Technology shall not (i) sell or place advertisements or
sponsorships on any page of the Co-Branded Storefront Site for any entity or
person; (ii) sell any merchandise or other items on any page of the Co-Branded
Storefront Site, except as otherwise contemplated herein; or (iii) place a link
to the Netdirect Storefront Site or any other site on the Co-Branded Storefront
Site. Virtual Technology shall provide additional services and functionality
that are developed by Virtual Technology for the Netdirect Storefront Site (or
any successor to the Netdirect Storefront Site) at no additional cost so that
the Co-Branded Storefront Site is maintained at a level substantially equal to
the Netdirect Storefront Site as it appears from time to time. Lycos may elect
not to include on the Co-Branded Storefront Site any such additional services
and functionality. Lycos shall have the right to provide online access to the
Co-Branded Storefront Site to Lycos' subsidiaries, joint venture partners of
Lycos, and licensees of the Lycos Services.
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1.2 Launch Date. Virtual Technology shall launch the Co-Branded Storefront
Site within thirty (30) days of the Effective Date (the "Launch Date"). Lycos
shall provide commercially reasonable technical assistance to Virtual
Technology, as requested, to launch the Co-Branded Storefront Site within the
required time set forth herein.
1.3 Branding. The Co-Branded Storefront Site will have the Lycos Network
branding bar on each page and the Lycos "look and feel," unless otherwise agreed
to by both parties. The URL of the Co-Branded Storefront Site will be
substantially similar to: www.[name of Netdirect Storefront Site].lycos.com.
1.4 Content. Subject to Section 1.1 above, the content on the Co-Branded
Storefront Site shall include all Content on the Netdirect Storefront Site,
unless otherwise mutually agreed to by the parties.
1.5 Sales. Virtual Technology shall be responsible for all aspects of
sales generated from the Co-Branded Storefront Site, including, without
limitation, taking orders, processing payments, shipping orders, ordering and
stocking inventory, processing returns, refunds and credits, insuring shipments
(if customary in Virtual Technology's shipment of product sold other than via
the Web), etc. Lycos shall take no part in, and have no responsibility or
liability for, the actual sales transactions.
2. Lycos Network Integration.
2.1 Links on the Lycos Network. Lycos will display the impressions
purchased by Virtual Technology outlined in Section 4 and Exhibit A, which is
incorporated herein, in accordance with the time schedule specified therein. In
addition, if Virtual Technology creates a program (the "Company Affiliate
Program") through which users of the Tripod and Angelfire Sites can place links
to the Co-Branded Storefront Site on their home pages and receive incentives to
sell Virtual Technology products on their home page, then Lycos agrees to
promote the Company Affiliate Program to its users of the Tripod and Angelfire
Sites through additional mutually agreeable impressions. Virtual Technology
shall provide Lycos with any reasonable assistance requested by Lycos in
establishing all links between the Lycos Network and the Co-Branded Storefront
Site and any Company Affiliate Program, and with all artwork (subject to Lycos'
approval) for the advertising banners and links. In addition, Virtual Technology
represents and warrants that it can track each user that clicks through one of
the impressions or links on the Lycos Network to the Co-Branded Storefront Site
so as to determine whether such user purchases a product(s) or service(s) from
the Co-Branded Storefront Site.
2.2 Promotion and Merchandising in E-Market. Upon the launch of the
Co-Branded Storefront Site, Lycos shall place one anchor tenant link to the
Co-Branded Storefront Site from (i) the top level page of the "Computers"
products category, (ii) one sub-category within the "Computers" products
category and (iii) one sub-category within the "Electronics" products category,
such sub-categories to be selected by Virtual Technology within 30 days of the
Effective Date (the "Selected Sub-Categories"). Subject to Lycos' sole
discretion, the Co-Branded Storefront Site will be included among the "Suggested
Merchants" on the top level page of the "Computers" products category (the
"Suggested Merchants Section"). Lycos shall select Suggested Merchants based
upon objective criteria, such as, but not limited to, quantity of pageviews and
click-throughs, such criteria subject to change at Lycos' sole discretion.
However, if placement in the Suggested Merchants Section becomes a product that
can be purchased by retailers, Lycos shall ensure that Virtual Technology is
placed in the Suggested Merchants Section. The Co-Branded Storefront Site shall
be promoted among the "Featured LYCOShops" on the top level page of the
"Computers" products category (in the upper left position for the first 60 days
after the Launch Date) and on the two Selected Sub-Categories. In addition, to
the extent that Lycos has not otherwise provided such advertising space to
another E-Market participating retailer, Lycos shall promote the Co-Branded
Storefront Site as one of the "Featured "LYCOShops" in each of the
sub-categories in the "Computer" category not otherwise selected by Virtual
Technology to be a Selected Sub-Category. In addition, in Lycos' sole discretion
and based on availability, if Virtual Technology provides Lycos with the
Co-Branded Storefront Site product listings in XML file format on a mutually
agreeable basis, Lycos will promote the Co-Branded Storefront Site and its
products and services within relevant areas of E-Market including, without
limitation, those areas relating to featured
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*** Asterisk material has been omitted as described on the first page of this
Exhibit.
products, sales and specials, and special events, to the extent in Lycos' sole
discretion such promotion is appropriate in such areas in relation to the
products and services offered in the Co-Branded Storefront Site. Further, if
Virtual Technology provides Lycos with the Co-Branded Storefront Site product
listings in XML file format on a mutually agreeable basis, Lycos shall include
the Co-Branded Storefront Site products and services in Lycos' E-Market database
which lists the products and services available on E-Market and shall guarantee
that certain mutually agreeable Co-Branded Storefront Site products will receive
prominent placement in the product listings and search results in E-Market.
Virtual Technology shall use commercially reasonable efforts to integrate the
Co-Branded Storefront Site with E-Market so that E-Market users may include
Co-Branded Storefront Site purchases in the E-Market universal shopping cart.
2.3 Program Optimization Discussions. Every six months, or at some other
mutually agreeable interval, the parties agree to discuss the effectiveness of
the integration program set forth above in Sections 2.1 and 2.2 and whether any
reasonable repositioning of the impressions provided for herein would increase
user traffic to the Co-Branded Storefront Site (the "Program Discussion"). In
conducting the Program Discussion, the parties may consider the following
figures in discussing the effectiveness of the integration program: ***
click-through average rate for "E-Market Placements" (as described on Exhibit
A), and *** click-through average rate for "Planned Impressions" (as described
on Exhibit A). If the parties conclude during the Program Discussion that
reasonable repositioning of the impressions would increase user traffic to the
Co-Branded Storefront Site, then Lycos will use good faith efforts to reasonably
reposition or replace the impressions with impressions of equivalent value,
subject to availability, based on the Program Discussion. The parties agree that
this Section does not, directly or indirectly, constitute a guarantee of traffic
volume, click-throughs, click-through rates, revenue or any other measure of the
effectiveness of the impressions or the integration program, nor does it,
directly or indirectly, obligate Lycos to provide or place impressions other
than as explicitly set forth in this Agreement. The parties acknowledge that
there are many factors that contribute to achievement of any particular
click-through rate, and that many such factors are not subject to the control of
either party. In addition, Virtual Technology agrees that it shall not
constitute a breach of the Agreement, or be a basis for termination or
non-performance of this Agreement, in part or whole, if the click-through rates
specified above are not met.
2.4 Sweepstake Promotions. Lycos shall host and administer two co-branded
sweepstake promotions per each year of Term, or such other frequency as mutually
agreed upon by the parties, that promote the Co-Branded Storefront Site. Virtual
Technology shall provide all prizes, the value and type of which will be
determined by Virtual Technology in its sole discretion.
2.5 Advertising Revenue. Lycos may sell banner advertising space on the
Co-Branded Storefront Site; provided, however, that such advertising shall not
promote computer products or software. Lycos shall pay Virtual Technology *** of
Net Advertising Revenue (as defined below) from such advertising. "Net
Advertising Revenue" means gross advertising revenue from the sale of banner
advertisements targeted to the Co-Branded Storefront Site less Lycos' costs,
which are deemed to be a flat *** of such gross revenue. Payment by Lycos will
be made within forty-five (45) days following the quarter in which Lycos
receives the gross advertising revenue.
2.6 Account Manager. Each party shall appoint an employee to act as the
other party's primary point of contact, which employees, among other things,
will oversee the implementation of the commitments outlined in these Sections
1-4.
2.7 Virtual Technology Marketing Plan. Within thirty (30) days of the
Effective Date, Virtual Technology shall develop and provide to Lycos a
marketing plan for the promotion of the Co-Branded Storefront Site, which shall
include a breakdown of planned marketing expenditures. In connection with such
plan, Virtual Technology will spend at least *** during the first year of the
Term for the sole purpose of promoting the Co-Branded Storefront Site (the
"First Year Advertising"). Virtual Technology shall ensure that Lycos is
prominently promoted in at least twenty-five percent (25%) of the First Year
Advertising. In addition, Virtual Technology agrees to promote Lycos in all of
its off-line First Year Advertising by
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*** Asterisk material has been omitted as described on the first page of this
Exhibit.
prominently featuring the Lycos brand and the tagline "Find us at Lycos.com,
keyword `Net Direct'". The branding and manner of all advertising provided by
Virtual Technology under this Section shall be subject to Lycos' prior approval,
such approval not to be unreasonably withheld. Lycos shall have two business
days after receiving advertising artwork and copy in which to approve or object
to such advertising.
3. Redesigning of the Lycos Network Sites. Virtual Technology
acknowledges that, consistent with Lycos' need for editorial discretion, Lycos
may redesign, delete or replace any pages on sites in the Lycos Network,
including, without limitation, those pages relating to E-Market and related
terms of service, and those pages on which the impressions described in Sections
2.2 and 4 and Exhibit A will be displayed. In addition, Lycos may redesign or
replace the type of links, buttons, boxes and banners described above.
Notwithstanding the foregoing, Lycos will use good faith efforts to provide
Virtual Technology with comparable links and banners on any re-designed or
replacement pages.
4. Impression Guarantees. For purposes of this agreement, the term
"impression" means an advertising banner, link, tab or other promotional
material served by Lycos, as provided in Exhibit A. Lycos guarantees that during
the Term, Lycos shall provide Virtual Technology with *** Lycos Network
impressions as outlined in Exhibit A, consisting of approximately ***
impressions during the first year, *** impressions during the second year and
*** impressions during the third year of the Term hereof, the placement of which
will be as described on Exhibit A (unless revised pursuant to Section 2.3). If
Lycos fails to provide the guaranteed number of impressions during each year of
the Term, Lycos will make good on this Agreement by providing Virtual Technology
with additional impressions in mutually agreed upon locations. The impressions
provided pursuant to Section 2.2 count toward the impression guarantee herein.
Impressions provided on the Co-branded Storefront Site do not count toward the
impression guarantee herein. In the event that multiple impressions appear on a
single page of a Lycos Network site (e.g., a site page includes a banner ad and
a showcase box), each impression will be counted toward the Lycos impression
guarantees set forth herein.
5. Standard Terms and Conditions. The advertising products outlined in
Section 4 will be provided pursuant to the Terms and Conditions outlined in
attached Exhibit B, which Terms and Conditions are incorporated herein by
reference. Throughout the Term, all advertising banners must meet the Lycos
specifications found at http://adreporting.lycos.com/specs.html, as they appear
from time to time.
6. Royalties and Fees.
6.1 Lycos Network Integration Fees. During the Term, Virtual Technology
shall pay Lycos integration fees totaling $14,500,000 allocable as follows:
Year 1 of the Term: $4,500,000, of which:
Payable on Effective Date: $1,125,000
Payable 30 days after the Launch Date: $1,125,000
Payable 90 days after the Launch Date: $1,125,000
Payable 180 days after the Launch Date: $1,125,000
Year 2 of the Term: $5,000,000, of which:
Payable one year after the Effective Date (the "One Year Anniversary Date"):
$1,250,000
Payable in three equal quarterly payments due 90, 180 and 270 days after the One
Year Anniversary Date: $1,250,000
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*** Asterisk material has been omitted as described on the first page of this
Exhibit.
Year 3 of the Term: $5,000,000, of which:
Payable two years after the Effective Date (the "Two Year Anniversary Date"):
$1,250,000
Payable in three equal quarterly payments due 90, 180 and 270 days after the Two
Year Anniversary Date: $1,250,000
6.2 Lycos Transaction Royalties. During the Term, in addition to the
integration fees outlined above, Virtual Technology shall pay Lycos (a) *** of
gross revenue, exclusive of sales taxes, rebates, returns and shipping charges,
from purchases of products and/or services on the Co-branded Site associated
with the Company Affiliate Program and (b) the greater of (i) *** of gross
margin (defined as gross revenue, exclusive of sales taxes, rebates and returns,
less direct costs, including shipping charges) or (ii) a Specified Percentage
(as described below) of the gross revenue, exclusive of sales tax, rebates,
returns and shipping charges, from purchases of products and/or services on the
Co-Branded Storefront Site (excluding those purchases associated with the
Company Affiliate Program). For sales during 1999, the Specified Percentage is
***. For sales during the first, second and third quarters of 2000, the
Specified Percentage is ***, *** and ***, respectively. For sales during the
fourth quarter of 2000 and thereafter, the Specified Percentage is ***. Payment
will be made in the month following the month in which the user purchases such
products.
7. Reporting. Virtual Technology shall provide Lycos with monthly reports
regarding: (i) click-throughs to the Co-Branded Storefront Site from the
impressions outlined in Section 4 and Exhibit A; (ii) a breakdown of First Year
Advertising expenditures; and (iii) the number of Lycos user sales and sales
from links on Tripod and Angelfire Site member homepages and the amount of such
sales. In addition, within 45 days of the end of each quarter, Virtual
Technology shall provide Lycos a report detailing the calculation and
determination of the gross margin, gross revenue and direct costs as described
above in Section 6.2.
8. Audit Rights. Each party shall maintain complete and accurate records
with respect to the calculation of all payments due under this Agreement. Each
party shall have the right, at its expense (except as provided below), to audit
the other party's books and records for the purpose of verifying and tracking
payment amounts. Any audits made pursuant to this Section shall be made not more
than once per year, on not less then ten (10) days written notice, during
regular business hours, by auditors reasonably acceptable to the party being
audited. In the case of audits performed for the purpose of verifying and
tracking payments, if the auditor's figures reflect payment due under this
Agreement other than those reported by the party being audited, then the party
being audited shall pay the amount owed (if such amount is higher than
reported), or the party conducting the audit shall reimburse the difference (if
such amount is lower than reported), as the case may be. In addition, for any
audit performed hereunder, if the auditor's figures vary by more than 10% from
the figures provided by the party being audited, then the party being audited
shall also pay the reasonable cost of the audit.
9. User Information. With respect to the Co-Branded Storefront Site,
Virtual Technology shall manage the user database on such site, which shall
include, without limitation, any and all information provided by users (the
"User Information") on the Co-Branded Storefront Site, provided, however, that
Lycos and Virtual Technology shall jointly own all User Information obtained on
the Co-Branded Storefront Site. Neither Lycos nor Virtual Technology may,
without a user's permission, sell or otherwise transfer a user's User
Information to any third party (other than by merger, consolidation or sale of
all or substantially all of the assets of such party). Both Virtual Technology
and Lycos agree that the sharing of any such User Information and the use
thereof shall be consistent with the parties' privacy policies disclosed to the
users when the information is collected. On a monthly basis, Virtual Technology
shall provide Lycos with all User Information obtained on the Co-Branded
Storefront Site within ten (10) days after the end of each month, in a manner to
be mutually agreed to by the parties.
10. Term. The term ("Term") of this Agreement shall commence on the
Effective Date and continue for three (3) years unless terminated earlier as
provided in Section 17 below.
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11. Licenses. To the extent access to the Co-Branded Storefront Site is
deemed a use, public display, transmission, distribution or reproduction of the
Content, or to the extent the Content is actually used, publicly displayed,
transmitted, distributed or reproduced on the Lycos Network, Virtual Technology
hereby grants Lycos a non-exclusive, non-transferable (except as provided
herein), royalty-free (except as provided herein), worldwide license to use,
publicly display, transmit, distribute and reproduce the Co-Branded Storefront
Site and the Content during the Term solely for the purposes described herein.
Virtual Technology represents and warrants that it has obtained all necessary
licenses, consents and approvals relating to all Content provided by a third
party and that it is responsible for obtaining any such licenses, consents and
approvals during the Term.
12. Marks. Lycos hereby grants to Virtual Technology a non-exclusive,
non-transferable license to reproduce and display Lycos' trademarks, service
marks, logos and the like solely for the purposes specified in this Agreement
and in accordance with Lycos' established trademark usage policies and
procedures. Virtual Technology hereby grants Lycos a non-exclusive,
non-transferable license to reproduce and display Virtual Technology's
trademarks, service marks, logos and the like solely for the purposes specified
in this Agreement and in accordance with Virtual Technology's established
trademark usage policies and procedures. Except as expressly stated herein,
neither party shall make any other use of the other party's marks. Upon request
of either party, the other party shall provide appropriate attribution of the
use of the requesting party's marks. (e.g., "Go Get It(R) is a registered
service mark of Lycos, Inc. All Rights Reserved.") or immediately cease using
such requesting party's marks. In connection with the licenses granted
hereunder, each party shall have the unilateral right to establish such quality
standards and additional terms and conditions concerning the use of its
trademarks as such party deems necessary to reasonably protect its trademarks.
Such licenses shall terminate automatically upon the effective date of
expiration or termination of this Agreement.
13. Representations and Warranties. Each party hereby represents and
warrants as follows:
(a) Corporate Power. Such party is duly organized and validly existing
under the laws of the state of its incorporation and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof.
(b) Due Authorization. Such party is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder.
(c) Binding Agreement. This Agreement is a legal and valid obligation
binding upon it and enforceable with its terms. The execution, delivery and
performance of this Agreement by such party does not conflict with any
agreement, instrument or understanding, oral or written, to which it is a party
or by which it may be bound, nor violate any law or regulation of any court,
governmental body or administrative or other agency having jurisdiction over it.
(d) Intellectual Property Rights.
(i) Virtual Technology has the full and exclusive right to grant or
otherwise permit Lycos to access the Netdirect Storefront Site and the
Co-Branded Storefront Site, and to use Virtual Technology's intellectual
property as necessary for Lycos to perform its obligations under this Agreement,
and Virtual Technology is aware of no claims by any third parties adverse to any
of such intellectual property rights.
(ii) Lycos has the full and exclusive right to grant or otherwise permit
Virtual Technology to access the Lycos Network and to use Lycos' intellectual
property as necessary for Virtual Technology to perform its obligations under
this Agreement, and Lycos is aware of no claims by any third parties adverse to
any of such intellectual property rights.
(iii) If either party's (the "Infringing Party") intellectual property
rights are alleged or held to infringe the intellectual property rights of a
third party, the Infringing Party shall, at its own expense, and in its sole
discretion, (1) procure for the non-Infringing Party the right to continue to
use the allegedly infringing intellectual property or (2)
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replace or modify the intellectual property to make it non-infringing; provided,
however, if neither option is possible or economically feasible and if the
inability to use such intellectual property would cause a material breach of
this Agreement (as determined by the non-Infringing Party), the Infringing Party
may terminate this Agreement.
The representations and warranties and covenants in this Section 13 are
continuous in nature and shall be deemed to have been given by each party at
execution of this Agreement and at each stage of performance hereunder. These
representations, warranties and covenants shall survive termination or
expiration of this Agreement.
14. Limitation of Warranty. EXCEPT AS EXPRESSLY WARRANTED IN SECTIONS 2.1,
4, 11, 12 AND 13 ABOVE, EACH PARTY EXPRESSLY DISCLAIMS ANY FURTHER WARRANTIES,
EXPRESS, IMPLIED, OR STATUTORY, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, LYCOS MAKES NO EXPRESS OR IMPLIED
WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE LYCOS NETWORK (INCLUDING
E-MARKET), THE CO-BRANDED STOREFRONT SITE AND THE CONTENT, AND LYCOS SHALL NOT
BE LIABLE FOR THE CONSEQUENCES OF ANY INTERRUPTIONS OR ERRORS RELATED THERETO.
LYCOS SPECIFICALLY DISCLAIMS ALL LIABILITY FOR THE CO-BRANDED STOREFRONT SITE
(EXCEPT FOR ADVERTISING SOLD BY LYCOS FOR DISPLAY THEREON), THE CONTENT AND ANY
ADVERTISING PROVIDED BY VIRTUAL TECHNOLOGY TO LYCOS FOR DISPLAY, AND VIRTUAL
TECHNOLOGY SPECIFICALLY DISCLAIMS ALL LIABILITY FOR THE LYCOS NETWORK (EXCLUDING
THE CO-BRANDED STOREFRONT SITE) AND THE CONTENT THEREIN. EXCEPT AS EXPRESSLY SET
FORTH IN THIS AGREEMENT, LYCOS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR
REPRESENTATIONS WITH RESPECT TO ANY PRODUCTS OFFERED OR SOLD THROUGH THE LYCOS
NETWORK, THE NETDIRECT STOREFRONT SITE OR THE CO-BRANDED STOREFRONT SITE
(INCLUDING, WITHOUT LIMITATION, WARRANTIES OF FITNESS, MERCHANTABILITY,
NON-INFRINGEMENT OR ANY IMPLIED WARRANTIES ARISING OUT OF A COURSE OF
PERFORMANCE, DEALING OR TRADE USAGE).
15. Indemnification; Insurance.
15.1 Indemnification.
15.1.1 Virtual Technology Indemnity. Virtual Technology will at all times
defend, indemnify and hold harmless Lycos and its officers, directors,
shareholders, employees, accountants, attorneys, agents, affiliates,
subsidiaries, successors and assigns from and against any and all third party
claims, damages, liabilities, costs and expenses, including reasonable legal
fees and expenses, arising out of or related to: (i) any breach of any warranty,
representation, covenant or agreement made by Virtual Technology in this
Agreement; (ii) the development, operation or maintenance of the Netdirect
Storefront Site or the Co-Branded Storefront Site, including the Content thereon
(but not including any advertising sold by Lycos for display on the Co-Branded
Storefront Site); and (iii) the sale of any products or services through the
Netdirect Storefront Site or the Co-Branded Storefront Site, including without
limitation the purchase, acceptance, use or misuse of, or reliance on, such
products and services by any customer or user. Lycos shall give Virtual
Technology prompt written notice of any claim, action or demand for which
indemnity is claimed. Virtual Technology shall have the right, but not the
obligation, to control the defense and/or settlement of any claim in which it is
named as a party and which arises as a result of Virtual Technology's breach of
any warranty, representation, covenant or agreement under this Agreement. Lycos
shall have the right to participate in any defense of a claim by Virtual
Technology with counsel of Lycos' choice at Lycos' own expense. The foregoing
indemnity is conditioned upon: prompt written notice by Lycos to Virtual
Technology of any claim, action or demand for which indemnity is claimed;
complete control of the defense and settlement thereof by Virtual Technology;
and such reasonable cooperation by Lycos in the defense as Virtual Technology
may request.
15.1.2 Lycos Indemnity. Lycos will at all times defend, indemnify and hold
harmless Virtual Technology and its officers, directors, shareholders,
employees, accountants, attorneys, agents, affiliates, subsidiaries, successors
and assigns from and against any and all third party claims, damages,
liabilities, costs and expenses, including reasonable legal fees and expenses,
arising out of or related to any breach of any warranty, representation,
covenant or agreement made by Lycos in this Agreement, the development,
operation or maintenance of the Lycos Network, including the content thereon
(but specifically excluding the Co-branded Storefront Site, the Content and any
content posted by users and appearing in search results, chat or bulletin
boards). Virtual Technology
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shall give Lycos prompt written notice of any claim, action or demand for which
indemnity is claimed. Lycos shall have the right, but not the obligation, to
control the defense and/or settlement of any claim in which it is named as a
party. Virtual Technology shall have the right to participate in any defense of
a claim by Lycos with counsel of Virtual Technology's choice at Virtual
Technology's own expense. The foregoing indemnity is conditioned upon; prompt
written notice by Virtual Technology to Lycos of any claim, action or demand for
which indemnity is claimed; complete control of the defense and settlement
thereof by Lycos; and such reasonable cooperation by Virtual Technology in the
defense as Lycos may request.
15.1.3 Settlement. Neither party shall, without the prior written consent of
the other party, settle, compromise or consent to the entry of any judgment with
respect to any pending or threatened claim unless the settlement, compromise or
consent provides for and includes an express, unconditional release of all
claims, damages, liabilities, costs and expenses, including reasonable legal
fees and expenses, against the indemnified party.
15.2 Insurance. For the length of the Term, Virtual Technology shall cause
Lycos to be included as an "additional insured" on all of Virtual Technology's
relevant insurance policies that provide coverage of any kind relating to or
regarding the services or content provided by or the goods and products sold by
Virtual Technology in accordance with the terms of this Agreement.
16. Confidentiality, Press Releases.
16.1 Non-Disclosure Agreement. The parties agree and acknowledge that, as a
result of negotiating, entering into and performing this Agreement, each party
has and will have access to certain of the other party's Confidential
Information (as defined below). Each party also understands and agrees that
misuse and/or disclosure of that information could adversely affect the other
party's business. Accordingly, the parties agree that, during the Term of this
Agreement and thereafter, each party shall use and reproduce the other party's
Confidential Information only for purposes of this Agreement and only to the
extent necessary for such purpose and shall restrict disclosure of the other
party's Confidential Information to its employees, consultants or independent
contractors with a need to know and shall not disclose the other party's
Confidential Information to any third party without the prior written approval
of the other party. Notwithstanding the foregoing, it shall not be a breach of
this Agreement for either party to disclose Confidential Information of the
other party if required to do so under law or in a judicial or other
governmental investigation or proceeding, provided the other party has been
given prior notice and the disclosing party has sought all available safeguards
against widespread dissemination prior to such disclosure.
16.2 Confidential Information Defined. As used in this Agreement, the term
"Confidential Information" refers to: (i) the terms and conditions of this
Agreement; (ii) each party's trade secrets, business plans, strategies, methods
and/or practices; and (iii) other information relating to either party that is
not generally known to the public, including information about either party's
personnel, products, customers, marketing strategies, services or future
business plans. Notwithstanding the foregoing, the term "Confidential
Information" specifically excludes (A) information that is now in the public
domain or subsequently enters the public domain by publication or otherwise
through no action or fault of the other party; (B) information that is known to
either party without restriction, prior to receipt from the other party under
this Agreement, from its own independent sources as evidenced by such party's
written records, and which was not acquired, directly or indirectly, from the
other party; (C) information that either party receives from any third party
reasonably known by such receiving party to have a legal right to transmit such
information, and not under any obligation to keep such information confidential;
and (D) information independently developed by either party's employees or
agents provided that either party can show that those same employees or agents
had no access to the Confidential Information received hereunder.
16.3 Press Releases. Lycos and Virtual Technology may jointly prepare press
releases concerning the existence of this Agreement and the terms hereof.
Otherwise, no public statements concerning the existence or terms of this
Agreement shall be made or released to
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any medium except with the prior approval of Lycos and Virtual Technology or as
required by law.
17. Termination. Either party may terminate this Agreement if (a) the other
party files a petition for bankruptcy or is adjudicated bankrupt; (b) a petition
in bankruptcy is filed against the other party and such petition is not
dismissed within sixty (60) days of the filing date; (c) the other party becomes
insolvent or makes an assignment for the benefit of its creditors pursuant to
any bankruptcy law; (d) a receiver is appointed for the other party or its
business; (e) upon the occurrence of a material breach of a material provision
by the other party if such breach is not cured within thirty (30) days after
written notice is received by the breaching party identifying the matter
constituting the material breach; or (f) by mutual consent of the parties.
Further, after the first year of the Term, Lycos shall have the right to
terminate this Agreement for any or no reason upon sixty (60) days written
notice (the "At Will Termination Right"). Notwithstanding the foregoing, if,
prior to the commencement of the second year of the Term, Virtual Technology
agrees in writing to pay Lycos an additional $1,500,000 in the second year of
the Term (payable in four equal installments on the same schedule as in Section
6.1), Lycos shall not exercise the At Will Termination Right during the second
year of the Term. If, prior to the commencement of the third year of the Term,
Virtual Technology agrees in writing to pay Lycos an additional $1,500,000 in
the third year of the Term (payable in four equal installments on the same
schedule as in Section 6.1), Lycos shall not exercise the At Will Termination
Right during the third year of the Term.
18. Force Majeure. In the event that either party is prevented from
performing, or is unable to perform, any of its obligations under this Agreement
due to any cause beyond the reasonable control of the party invoking this
provision, the affected party's performance shall be excused and the time for
performance shall be extended for the period of delay or inability to perform
due to such occurrence.
19. Relationship of Parties. Virtual Technology and Lycos are independent
contractors under this Agreement, and nothing herein shall be construed to
create a partnership, joint venture or agency relationship between Virtual
Technology and Lycos. Neither party has authority to enter into agreements of
any kind on behalf of the other.
20. Assignment, Binding Effect. Neither Lycos nor Virtual Technology may
assign this Agreement or any of its rights or delegate any of its duties under
this Agreement without the prior written consent of the other. Notwithstanding
the foregoing, either party may assign this Agreement to any successor of such
party.
21. Choice of Law and Forum. This Agreement, its interpretation,
performance or any breach thereof, shall be construed in accordance with, and
all questions with respect thereto shall be determined by, the laws of the
Commonwealth of Massachusetts applicable to contracts entered into and wholly to
be performed within said state. Virtual Technology hereby consents to the
personal jurisdiction of the Commonwealth of Massachusetts, acknowledges that
venue is proper in any state or Federal court in the Commonwealth of
Massachusetts, agrees that any action related to this Agreement must be brought
in a state or Federal court in the Commonwealth of Massachusetts, and waives any
objection Virtual Technology has or may have in the future with respect to any
of the foregoing.
22. Good Faith. The parties agree to act in good faith with respect to each
provision of this Agreement and any dispute that may arise related hereto.
23. Counterparts and Facsimile Signatures. This Agreement may be executed
in multiple counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same instrument. Facsimile
signatures will be considered original signatures.
24. No Waiver. The waiver by either party of a breach or a default of any
provision of this Agreement by the other party shall not be construed as a
waiver of any succeeding breach of the same or any other provision, nor shall
any delay or omission on the part of either party to exercise or avail itself of
any right, power or privilege that it has, or may have hereunder, operate as a
waiver of any right, power or privilege by such party.
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25. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, successors and
assigns.
26. Severability. Each provision of this Agreement shall be severable from
every other provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
27. Notices. All notice required to be given under this Agreement must be
given in writing and delivered either in hand, by facsimile, by certified mail,
return receipt requested, postage pre-paid, or by Federal Express or other
recognized overnight delivery service, all delivery charges pre-paid, and
addressed:
If to Lycos:
Lycos, Inc.
400-2 Totten Pond Road
Waltham, MA 02451
Fax No.: (781) 370-2600
Attention: General Counsel
Telefax: (781) 370-2600
If to Virtual Technology:
Virtual Technology Corporation
3100 West Lake Street, Suite 400
Minneapolis, Minnesota 55416
Attention: Kenneth Israel, Chairman
Telefax: (612) 915-1133
with a copy to:
Messerli & Kramer P.A.
150 South Fifth Street, Suite 1800
Minneapolis, Minnesota 55402
Attention: Jeffrey C. Robbins, Esq.
Telefax: (612) 672-3777
28. Entire Agreement. This Agreement and all exhibits thereto contain the
entire understanding of the parties hereto with respect to the transactions and
matters contemplated hereby, supersedes all previous agreements between Lycos
and Virtual Technology concerning the subject matter, and cannot be amended
except by a writing signed by both parties. No party hereto has relied on any
statement, representation or promise of any other party or with any other
officer, agent, employee or attorney for the other party in executing this
Agreement except as expressly stated herein.
29. Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR
EXEMPLARY DAMAGES (EVEN IF SUCH DAMAGES ARE FORSEEABLE OR THAT PARTY HAS BEEN
ADVISED OR HAS CONSTRUCTIVE KNOWLEDGE OF THE POSSIBILITY OF SUCH DAMAGES),
ARISING FROM SUCH PARTY'S PERFORMANCE OR NON-PERFORMANCE PURSUANT TO ANY
PROVISION OF THIS AGREEMENT OR THE OPERATION OF SUCH PARTY'S SITE (INCLUDING
SUCH DAMAGES INCURRED BY THIRD PARTIES), SUCH AS, BUT NOT LIMITED TO, LOSS OF
REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. IN NO EVENT SHALL EITHER PARTY
BE LIABLE FOR DAMAGES IN EXCESS OF THE VALUE TO BE RECEIVED BY THE OTHER PARTY
UNDER THIS AGREEMENT. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, HOWEVER,
THIS SECTION SHALL NOT LIMIT EITHER PARTY'S LIABILITY TO THE OTHER FOR (A)
WILLFUL AND MALICIOUS MISCONDUCT; (B) DIRECT DAMAGES TO REAL OR TANGIBLE
PERSONAL PROPERTY; (C) BODILY INJURY OR DEATH CAUSED BY NEGLIGENCE; OR (D)
INDEMNIFICATION OR CONFIDENTIALITY OBLIGATIONS HEREUNDER.
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30. Survival. All terms of this Agreement, which by their nature extend
beyond its termination, remain in effect until fulfilled, and apply to
respective successors and assigns.
IN WITNESS WHEREOF, the parties have duly executed and delivered this Agreement
as of the date set forth above.
VIRTUAL TECHNOLOGY CORPORATION
By:
Name: /s/ Greg Appelhof
--------------------------------------------
Title: President
--------------------------------------------
Date: November 8, 1999
--------------------------------------------
LYCOS, INC.
By: /s/ Thomas E. Guifoile
--------------------------------------------
Name: Thomas E. Guifoile
--------------------------------------------
Title: Vice President Finance and Administration
--------------------------------------------
Date: November 2, 1999
--------------------------------------------
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10.12 First and Second Amendments to Loan and Security Agreement with Coast
Business Credit
First Amendment to Loan and Security Agreement
Borrower: Virtual Technology Corporation
Address: 3100 West Lake Street, Suite 410
Minneapolis, MN 55416
Borrower: GTI Acquisition Corporation
Address: 7615 Golden Triangle Drive, Suite G
Minneapolis, MN 55344
Borrower: T2 Acquisition Corporation
Address: 6698 Shady Oak Road
Eden Prairie, MN 55344
Date: December 10, 1999
THIS FIRST AMENDMENT TO THE LOAN AND SECURITY AGREEMENT is entered into as of
the above date between COAST BUSINESS CREDIT, a division of Southern Pacific
Bank ("Coast"), a California corporation, with offices at 12121 Wilshire
Boulevard, Suite 1400, Los Angeles, California 90025, and Virtual Technology
Corporation, GTI Acquisition Corporation and T2 Acquisition Corporation (jointly
and severally, the "Borrower") whose chief executive offices are located
respectively at the above addresses ("Borrower's Addresses"). This Amendment
shall for all purposes be deemed to be a part of the Loan and Security Agreement
("Loan Agreement"), and the same is an integral part of the Loan Agreement.
CONSENT AND APPROVAL
1. Coast hereby consents and approves Borrower's request to add T2
Acquisition Corporation, a Minnesota Corporation ("T2") as a co-borrower,
jointly and severally liable for all Obligations under the Loan Agreement and
all documents related thereto (collectively, "Loan Documents").
2. T2 agrees to be bound by all of the terms and conditions in the Loan
Documents, and to be liable, jointly and severally, for all Obligations
thereunder whether now existing or hereinafter arising.
AMENDMENT
1. The Loan Documents are hereby amended in all respects to define
Borrower to include, jointly and severally, T2. All other terms and conditions,
as amended, shall remain the same, and are hereby ratified and affirmed.
2. Section 2.1 (b) of the Schedule shall be amended as follows:
"Inventory Loans, subject to an appraisal acceptable to Coast, in an
amount not to exceed the lesser of:
(1) Fifty percent (50%) of the value of Virtual Technology Corporation
and GTI Acquisition Corporation's Eligible Inventory (as defined in Section 1 of
the Agreement), calculated at the lower of cost or market value and determined
on a first-in, first-out basis, plus
(2) Forty-five percent (45%) of the value of T2 Acquisition
Corporation's Eligible Inventory (as defined in Section 1 of the Agreement),
calculated at the lower of cost or market value and determined on a first-in,
first-out basis, or
(3) Five Million Dollars ($5,000,000.00), plus"
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<PAGE> 2
3. Section 2 of the Schedule is hereby amended to add the
following sub-paragraph at the end of the existing section:
"The availability of the Inventory Loans advanced against T2's Eligible
Inventory, as set forth in Section 2.1 (b) (2), is subject to Coast's receipt of
a final appraisal of the T2 Inventory being not less than fifty percent (50%) of
Orderly Liquidation Value."
4. Section 3.2 of the Schedule entitled "Facility Fee" is hereby
amended to substitute "$6,000" in place of "$5,000".
5. Section 8.1 of the Schedule is hereby amended to add the following
sub-paragraphs:
17. Virtual Technology Corporation ("VTC") shall execute and issue an
additional warrant to Coast with respect to shares of voting common stock of VTC
representing 250,000 shares of common stock with a term of three (3) years and
an aggregate exercise price equal to the average stock price of the past thirty
(30) trading days immediately preceding the date of the First Amendment to the
Loan and Security Agreement. The warrant shall include standard and customary
issuer representations, warranties and such other provisions as Coast shall
require, in form and substance acceptable to Coast.
18. Borrower shall as of January 1, 2000, and at all times thereafter,
maintain a minimum consolidated Tangible Net Worth of not less than a negative
Three Million Five Hundred Thousand Dollars ($3,500,000.00), measured monthly."
6. Section 8.3 of the Schedule is hereby amended to add the following
sub-paragraph:
"Quarterly inventory appraisals (desktop only), as soon as available,
and in any event within forty-five (45) days after the end of each fiscal
quarter of Borrower."
7. Section 9.1 of the Schedule entitled "Maturity Date" is hereby amended
to substitute "March 31, 2003" in place of "March 31, 2002".
8. Section 9.1 of the Schedule entitled "Early Termination Fee" is hereby
amended to read as follows:
"An amount equal to the greater of (i) an amount equal to all interest
due and payable during the six (6) months immediately preceding the effective
date of termination, or (ii) an amount equal to the average monthly interest due
and payable based on the greater of the six (6) month monthly interest
immediately preceding the effective date of termination or, if the effective
date of termination is less than six (6) months from the Closing Date, an amount
equal to the average monthly interest due hereunder multiplied by the number of
full or partial months from the effective date of termination to the Maturity
Date, or (iii) an amount equal to the average monthly interest accrued during
the six (6) months immediately preceding the effective date of termination
multiplied by the number of full or partial months from the effective date of
termination to the Maturity Date."
VARIANCE FROM FINANCIAL COVENANTS
1. Coast hereby consents and agrees to waive Borrower's failure to comply
with the minimum consolidated Tangible Net Worth provision set forth in Section
8.1 (13) of the Schedule for the months September, 1999 and October, 1999, and
only as to those two months.
CONDITIONS PRECEDENT TO EFFECTIVENESS OF FIRST AMENDMENT
1. T2 shall comply with each and every condition precedent contained in
the Loan Documents.
2. Borrowers' execution and return of this First Amendment.
3. Borrowers' execution and return of a Stock Pledge, in form and
substance acceptable to Coast, pledging all of the stock of T2 as additional
Collateral (as defined in Section 1 of the Loan and Security Agreement).
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<PAGE> 3
4. Borrower shall pay Coast a Restructuring Fee by way of an additional
Warrant, in form and substance acceptable to Coast, for an additional 200,000
shares of VTC, as set forth above under Amendment Section 5.
5. Borrower shall pay Coast a Waiver Fee by way of an additional Warrant,
in form and substance acceptable to Coast, for an additional 50,000 shares of
VTC, as set forth above under Amendment Section 5.
6. Borrowers' execution and return of a Security Agreement in Patent and
Trademarks, in form and substance acceptable to Coast, assigning rights in and
to all trademarks acquired from Tech Squared, Inc.
7. Borrowers' delivery of a fully executed assignment from Tech Squared,
Inc. to T2 of Tech Squared, Inc.'s trademarks.
8. Coast's receipt and approval of a fully executed copy of the Asset
Purchase Agreement and all Schedules and Exhibits thereto between T2 and Tech
Squared, Inc.
9. Confirmation, in form and substance acceptable to Coast, that all
conditions to the Tech Squared, Inc. Asset Purchase Agreement have been
satisfied and title to all assets transferred to T2.
10. Coast's receipt and approval of an Opinion of Counsel, in form and
substance satisfactory to Coast, in connection with the transaction contemplated
in this First Amendment.
11. Confirmation, in form and substance acceptable to Coast, of Borrower's
receipt in December 1999 of an equity infusion of not less than Two Million
Dollars ($2,000,000.00).
EXCEPT AS EXPRESSLY PROVIDED FOR HEREIN, ALL OF THE TERMS AND CONDITIONS OF THE
LOAN AGREEMENT AND ALL OTHER DOCUMENTS AND AGREEMENTS BETWEEN COAST AND
BORROWER, AS AMENDED, SHALL CONTINUE IN FULL FORCE AND EFFECT AND THE SAME ARE
HEREBY RATIFIED AND AFFIRMED. THE WAIVERS CONTAINED HEREIN DO NOT CONSTITUTE A
WAIVER OF ANY OTHER PROVISION OR TERM OF THE LOAN AGREEMENT NOR ANY RELATED
DOCUMENT OR AGREEMENT, NOR AN AGREEMENT TO WAIVE ANY TERM OR CONDITION OF THE
LOAN AGREEMENT NOR ANY RELATED DOCUMENT OR AGREEMENT IN THE FUTURE.
Borrower:
VIRTUAL TECHNOLOGY CORPORATION
By: /s/ Gregory Appelhof
----------------------------------------------------
Gregory Appelhof, President
And by: /s/ John L. Harvatine
------------------------------------------------
John L. Harvatine, Chief Financial Officer
Borrower:
GTI ACQUISITION CORPORATION
By: /s/ Gregory Appelhof
----------------------------------------------------
Gregory Appelhof, President
And by: /s/John L. Harvatine
------------------------------------------------
John L. Harvatine, Chief Financial Officer
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<PAGE> 4
Coast:
COAST BUSINESS CREDIT
By: /s/ Todd Davock
----------------------------------------------------
Todd Davock, Vice President
The undersigned hereby agrees to be bound by all of the terms and conditions set
forth in the Loan Documents, and further expressly agrees to be liable, jointly
and severally, for all outstanding Obligations existing as of the date hereof
and arising hereafter.
Borrower:
T2 ACQUISITION CORPORATION
By: /s/ Gregory Appelhof
-----------------------------------------------------
Gregory Appelhof, President and
Chief Executive Officer
And by: /s/ John L. Harvatine
-------------------------------------------------
John L. Harvatine, Chief Financial
Officer, Secretary and Treasurer
Second Amendment to Loan and Security Agreement
Borrower: Virtual Technology Corporation
Address: 3100 West Lake Street, Suite 410
Minneapolis, MN 55416
Borrower: GTI Acquisition Corporation
Address: 7615 Golden Triangle Drive, Suite G
Minneapolis, MN 55344
Borrower: T2 Acquisition Corporation
Address: 6698 Shady Oak Road
Eden Prairie, MN 55344
Date: December 15, 1999
THIS SECOND AMENDMENT TO THE LOAN AND SECURITY AGREEMENT is entered into as of
the above date between COAST BUSINESS CREDIT, a division of Southern Pacific
Bank ("Coast"), a California corporation, with offices at 12121 Wilshire
Boulevard, Suite 1400, Los Angeles, California 90025, and Virtual Technology
Corporation, GTI Acquisition Corporation and T2 Acquisition Corporation (jointly
and severally, the "Borrower") whose chief executive offices are located
respectively at the above addresses ("Borrower's Addresses"). This Amendment
shall for all purposes be deemed to be a part of the Loan and Security Agreement
("Loan Agreement"), and the same is an integral part of the Loan Agreement.
RECITALS
1. Coast and Borrower entered into a First Amendment to the Loan and
Security Agreement as of December 10, 1999.
2. Condition Precedent to Effectiveness of First Amendment No. 11
("Condition No. 11") requires Borrower's receipt in December 1999 of an equity
infusion of not less than Two Million Dollars ($2,000,000.00).
3. Borrower has requested that Coast extend additional credit as if the
First Amendment is effective even though Borrower, to date, is unable to satisfy
Condition No. 11.
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<PAGE> 5
LIMITED AND CONDITIONAL WAIVER FROM FINANCIAL COVENANTS
1. Coast hereby consents and agrees to a limited, conditional waiver of
Condition No. 11 as follows:
(a) Coast will deem the First Amendment effective upon Coast's receipt, in
form and substance acceptable to Coast, of Borrower's receipt of an equity
infusion of not less than One Million Dollars ($1,000,000.00) in December 1999.
CONDITION OF WAIVER
1. On or before December 31, 1999, Borrower shall confirm its receipt, in
form and substance acceptable to Coast, of a total equity infusion in December
1999 of not less than Two Million Dollars ($2,000,000.00), inclusive of the One
Million Dollars ($1,000,000.00) that is a condition precedent to the
effectiveness of this Amendment.
AGREEMENT OF THE PARTIES
1. Coast and Borrower agree that Borrower's failure to satisfy Condition
of Waiver No. 1, above, shall be an Event of Default under the Loan Agreement.
CONDITIONS PRECEDENT TO EFFECTIVENESS OF SECOND AMENDMENT
1. Borrowers' execution and return of this Second Amendment.
2. Coast's receipt of confirmation, in form and substance acceptable to
Coast, of Borrower's receipt of an equity infusion of not less than One Million
Dollars ($1,000,000.00) in December 1999.
EXCEPT AS EXPRESSLY PROVIDED FOR HEREIN, ALL OF THE TERMS AND CONDITIONS OF THE
LOAN AGREEMENT AND ALL OTHER DOCUMENTS AND AGREEMENTS BETWEEN COAST AND
BORROWER, AS AMENDED, SHALL CONTINUE IN FULL FORCE AND EFFECT AND THE SAME ARE
HEREBY RATIFIED AND AFFIRMED. THE WAIVERS CONTAINED HEREIN DO NOT CONSTITUTE A
WAIVER OF ANY OTHER PROVISION OR TERM OF THE LOAN AGREEMENT NOR ANY RELATED
DOCUMENT OR AGREEMENT, NOR AN AGREEMENT TO WAIVE ANY TERM OR CONDITION OF THE
LOAN AGREEMENT NOR ANY RELATED DOCUMENT OR AGREEMENT IN THE FUTURE.
Borrower:
VIRTUAL TECHNOLOGY CORPORATION
By: /s/ Gregory Appelhof
------------------------------------------------
Gregory Appelhof, President
And by: /s/ John L. Harvatine
--------------------------------------------
John L. Harvatine, Chief Financial Officer
Borrower:
GTI ACQUISITION CORPORATION
By: /s/ Gregory Appelhof
------------------------------------------------
Gregory Appelhof, President
And by: /s/ John L. Harvatine
--------------------------------------------
John L. Harvatine, Chief Financial Officer
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<PAGE> 6
Borrower:
T2 ACQUISITION CORPORATION
By: /s/ Gregory Appelhof
------------------------------------------------
Gregory Appelhof, President
and Chief Executive Officer
And by: /s/ John L. Harvatine
--------------------------------------------
John L. Harvatine, Chief Financial
Officer, Secretary and Treasurer
Coast:
COAST BUSINESS CREDIT
By: /s/ Britt Terrell
------------------------------------------------
Britt Terrell, Vice President
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