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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 1, 1999
REGISTRATION NO.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MYPOINTS.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7311 94-3255692
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
MYPOINTS.COM, INC.
565 COMMERCIAL STREET, 4TH FLOOR
SAN FRANCISCO, CA 94111-3031
(415) 676-3700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
STEVEN M. MARKOWITZ
CHIEF EXECUTIVE OFFICER
MYPOINTS.COM, INC.
565 COMMERCIAL STREET, 4TH FLOOR
SAN FRANCISCO, CA 94111-3031
(415) 676-3700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
MARIO M. ROSATI, ESQ. LAIRD H. SIMONS III, ESQ.
CHRISTOPHER D. MITCHELL, ESQ. KATHERINE TALLMAN SCHUDA, ESQ.
ADAM D. LEVY, ESQ. CYNTHIA E. GARABEDIAN, ESQ.
WILSON SONSINI GOODRICH & ROSATI, P.C. FENWICK & WEST LLP
650 PAGE MILL ROAD TWO PALO ALTO SQUARE
PALO ALTO, CA 94304 PALO ALTO, CA 94306
(650) 493-9300 (650) 494-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AGGREGATE OFFERING REGISTRATION
BE REGISTERED PRICE(1) FEE
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Common stock, $0.001 par value................ $69,000,000 $19,182.00
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</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell securities, and we are not soliciting offers to buy these securities, in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED APRIL 1, 1999
LOGO
SHARES
COMMON STOCK
MyPoints.com, Inc. is offering shares of common stock. This
is MyPoints.com's initial public offering, and no public market currently exists
for our shares. We have applied for approval for quotation of our common stock
on the Nasdaq National Market under the symbol "MYPT." We anticipate that the
initial public offering price will be between $ and $ per share.
-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
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<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discounts and Commissions.................... $ $
Proceeds to MyPoints.com, Inc............................. $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
MyPoints.com has granted the underwriters a 30-day option to purchase up to
an additional shares of common stock to cover over-allotments.
-------------------------
BANCBOSTON ROBERTSON STEPHENS
BEAR, STEARNS & CO. INC.
SALOMON SMITH BARNEY
WIT CAPITAL CORPORATION
AS e-Manager(TM)
The date of this prospectus is , 1999
<PAGE> 3
[ARTWORK]
[ARTWORK]
<PAGE> 4
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
"MYPOINTS.COM," "WE," "US" AND "OUR" REFER TO MYPOINTS.COM, INC. AND ITS
SUBSIDIARIES, AND REFERENCES TO "MYPOINTS" REFER TO THE BRAND NAME OF OUR
PRODUCTS AND SERVICES.
UNTIL , 1999, 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 DEALERS' 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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PAGE
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Summary..................................................... 4
Risk Factors................................................ 7
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 29
Management.................................................. 40
Certain Transactions........................................ 49
Principal Stockholders...................................... 52
Description of Capital Stock................................ 55
Shares Eligible For Future Sale............................. 58
Underwriting................................................ 60
Legal Matters............................................... 62
Experts..................................................... 62
Where You Can Find Additional Information................... 63
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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MyPoints, BonusMail and Rew@rds are registered trademarks, and
MyPoints.com, the MyPoints logo, the MyPoints BonusMail logo, Digital Loyalty
Engine and Intellipost are trademarks of MyPoints.com, Inc. Prodigy is a
registered trademark, and Prodigy Internet, Prodigy Points and the Prodigy
Internet Logo are trademarks of Prodigy Communications Corporation. Other
service marks, trademarks and trade names referred to in this prospectus are the
property of their respective owners.
3
<PAGE> 5
SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary may not contain all of the information that you should consider
before investing in our common stock. You should read the entire prospectus
carefully.
MYPOINTS.COM
MyPoints.com is a leading provider of online direct marketing and loyalty
programs. We integrate targeted email and Web-based direct marketing offers with
online loyalty programs to create valuable benefits for both our consumer
members and our business partners. Our approach gives consumers the opportunity
to earn rewards for receiving and responding to offers, and provides businesses
with comprehensive customer acquisition and retention tools.
We have built a proprietary member database containing approximately two
million detailed consumer profiles. We earn revenues by delivering online direct
marketing offers to this membership base. We charge advertisers a fee based on
offers delivered, qualified leads generated or online transactions executed. We
maintain active relationships with more than 200 advertisers, loyalty partners
and rewards providers, including leading brands such as American Express, Barnes
& Noble, Disney, eBay, GTE, Intuit, Macy's, Sprint and Tower Records.
When consumers enroll in the MyPoints program, they give us permission to
send them targeted online offers, and they receive rewards points for completing
a survey that provides us with demographic information. MyPoints members earn
additional points by responding to direct marketing offers and by providing us
with additional demographic and behavioral data on a secure, confidential basis.
Members may redeem points they earn online for products and services from our
rewards providers. Our member profile database is continuously enriched with
transactional data gathered through members' interaction with promotional
offers, completion of surveys and redemption of points.
MARKET OPPORTUNITY
Businesses engage in various forms of offline and online direct marketing
to generate sales of products or services. Traditional forms of offline direct
marketing include catalog mailings, magazine inserts and telesales. Online
direct marketing takes the form of email and Web-based promotional offers.
Online direct marketing allows advertisers to use technology-based tools to give
them rapid feedback on campaigns, which can be used to tailor new messages and
targeted offers.
Advertisers are committing relatively more dollars to online direct
marketing than to other forms of Internet advertising, such as banner-based
brand marketing. Forrester Research, a leading Internet research firm, projects
Internet advertising expenditures to increase from $1.3 billion in 1998 to $10.5
billion in 2003. Forrester estimates that direct marketing will account for
between 30% and 50% of the total online advertising expenditures in 2001, up
from 21% in 1998.
As the number of Internet users increases, the relative importance to
businesses of customer retention is also increasing. As a result, leading online
merchants and content providers are launching and testing programs aimed at
retaining their most valuable customers. The challenges that these businesses
face in establishing online loyalty programs include the cost of implementing
and operating the program and the ability to provide customers with sufficient
opportunities to earn and redeem awards. We believe that these challenges will
lead many companies to outsource their customer retention programs to providers
capable of delivering full-service loyalty management solutions.
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GROWTH STRATEGY
Online direct marketing programs typically have focused on customer
acquisition. As the Internet continues to grow as a commercial medium, companies
doing business online are increasingly focusing on customer retention. This
creates an opportunity for MyPoints.com to build a leading branded membership
service that enables businesses to acquire and retain customers online more
effectively.
To meet this market opportunity, we are implementing the following
strategies:
- expanding our proprietary member database;
- leveraging our direct marketing and loyalty program expertise;
- increasing awareness of our brand;
- maintaining our technology leadership;
- pursuing strategic acquisitions and alliances; and
- expanding internationally.
CORPORATE INFORMATION
MyPoints.com was incorporated in Delaware under the name Intellipost
Corporation in November 1996. In March 1999, we changed our name to
MyPoints.com, Inc. Our principal executive offices are located at 565 Commercial
Street, 4th Floor, San Francisco, California 94111-3031. Our telephone number at
this location is (415) 676-3700. Our corporate email address is
[email protected].
THE OFFERING
Common stock offered by MyPoints.com......... shares
Common stock to be outstanding after the
offering..................................... shares
Use of proceeds.............................. For general corporate purposes,
including working capital,
advertising, sales and
marketing, new technology and
products, and payment of a
license fee. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... MYPT
Common stock to be outstanding after the offering is based on 18,437,120
shares of common stock outstanding as of March 25, 1999, including the sale of
2,000,000 shares of Series E preferred stock which occurred subsequently. It
does not include:
- 2,609,945 shares issuable upon exercise of stock options outstanding
as of March 25, 1999;
- 1,363,780 shares available for future grant or issuance under our
stock option and stock purchase plans as of March 25, 1999; and
- 1,384,028 shares issuable upon exercise of warrants outstanding as of
March 25, 1999.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NOVEMBER 7,
1996 YEARS ENDED DECEMBER 31,
(INCEPTION) TO -----------------------------------
DECEMBER 31, PRO FORMA
1996 1997 1998 1998
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<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $ -- $ 151 $ 1,286 $ 1,316
Gross profit.............................. -- 73 165 196
Total operating expenses.................. 68 3,018 8,494 17,756
Operating loss............................ (68) (2,945) (8,329) (17,560)
Net loss.................................. (67) (2,889) (8,266) (17,704)
Net loss per share:
Basic and diluted....................... $ (0.08) $ (2.68) $ (4.72) $ (10.12)
Weighted average shares -- basic and
diluted.............................. 891 1,076 1,750 1,750
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 5,089
Working capital deficit................................. (307)
Total assets............................................ 18,306
Long-term obligations, less current portion............. 2,408 2,408
Accumulated deficit..................................... (11,222) (11,222)
Total stockholders' equity.............................. 9,283 19,233
</TABLE>
See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing per share data.
The pro forma 1998 statement of operations data column assumes that the
acquisition of the Web-based rewards program businesses from affiliates of
Experian was completed on January 1, 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Acquisition
Transactions."
In the pro forma balance sheet data column, we have adjusted the actual
data to reflect the issuance of 2,000,000 shares of Series E preferred stock in
1999. In the pro forma as adjusted column, we have adjusted the pro forma
balance sheet data to give effect to receipt of the net proceeds from the sale
in this offering of shares of common stock at an assumed initial public
offering price of $ per share, after deducting the estimated underwriting
discounts and commissions and estimated offering expenses.
Except as otherwise indicated, all of the following information in this
prospectus:
- reflects the sale of 2,000,000 shares of Series E preferred stock in
1999;
- reflects the automatic conversion of each outstanding share of preferred
stock into one share of common stock immediately prior to the closing of
this offering; and
- assumes no exercise of the underwriters' over-allotment option;
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RISK FACTORS
You should consider the risks described below before making an investment
decision. The risks described below are not the only ones facing our company.
Our business, results of operations and financial condition could be materially
and adversely affected by any of the following risks. The trading price of our
common stock could decline due to any of the following risks, and you might lose
all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including the risks faced by us described below and elsewhere in this
prospectus.
WE HAVE A LIMITED OPERATING HISTORY
We have a limited operating history upon which you can evaluate our
business. We commenced operations in November 1996 and did not begin to generate
revenue until July 1997. Although we have experienced revenue growth in recent
periods, these growth rates may not be sustainable or indicative of our future
growth. Our prospects also must be considered in light of the risks and
difficulties frequently encountered by early-stage companies in the electronic
commerce and direct marketing industries. We may not be successful in addressing
these risks, and our business strategy may not be successful. These risks
include our ability to continue to:
- increase membership in our rewards program;
- expand our relationships with advertisers, loyalty partners and rewards
providers;
- increase awareness of our brand;
- expand the number of products and services we offer;
- develop and upgrade our technology to keep pace with the demands of the
electronic commerce and direct marketing industries;
- respond to competitive developments, including the introduction of equal
or superior products or services by our competitors;
- retain and protect our intellectual property rights, which could require
us to incur costs to resolve intellectual property disputes, including
possible royalties and license fees;
- integrate acquired businesses and products;
- attract, retain and motivate qualified personnel; and
- anticipate and adapt to the changing Internet market.
WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES IN THE FORESEEABLE FUTURE
Our accumulated deficit as of December 31, 1998 was $11.2 million. We have
never operated profitably and, given our planned level of operating expenses, we
expect to continue to incur losses in the foreseeable future. We plan to
increase our operating expenses as we continue to build infrastructure to
support the expansion of our business. Our losses may increase in the future,
and we may not be able to achieve profitability. Even if we do achieve
profitability, we may not be able to sustain or increase profitability on a
quarterly or annual basis. If our revenues grow more slowly than we anticipate,
or if our operating expenses exceed our expectations and cannot be adjusted
accordingly, our business, results of operations and financial condition will be
materially and adversely affected. See "Selected Consolidated
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Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND SEASONALITY
Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors, some of which are outside of our control.
These factors, each of which could adversely affect our results of operations
and our stock price, include:
- the commitment of advertisers to online direct marketing and rewards
programs;
- the advertising budget cycles of individual advertisers;
- the responsiveness of our members to the direct marketing offers we send
to them;
- the number of reward points redeemed by members and the costs associated
with these redemptions;
- changes in marketing and advertising costs that we incur to attract and
retain members;
- changes in our pricing policies, the pricing policies of our competitors
or the pricing policies for Internet advertising generally;
- the introduction of new products and services by us or by our
competitors;
- unexpected costs and delays relating to the expansion of our operations;
- the occurrence of technical difficulties or system downtime; and
- general economic and market conditions.
We believe that our revenues will be subject to seasonal fluctuations as a
result of general patterns of retail advertising, which are typically higher
during the fourth calendar quarter. In addition, expenditures by advertisers
tend to be cyclical, reflecting overall economic conditions and consumer buying
patterns.
Due to the above factors, revenues and operating results are difficult to
forecast and you should not rely on period-to-period comparisons of results of
operations as an indication of our future performance. Any significant shortfall
in revenues in relation to our expectations would have a material adverse effect
on our business, results of operations and financial condition. In addition, in
future periods our operating results may fall below the expectations of public
market analysts and investors. In this event, the market price of our common
stock would likely decline. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WE MAY HAVE DIFFICULTIES INTEGRATING RECENT AND FUTURE ACQUISITIONS
In November and December 1998, through our acquisition of companies
affiliated with Experian Information Solutions, Inc., we acquired Internet and
electronic commerce related assets and technologies to support a Web-based
rewards program known as MyPoints. We integrated MyPoints with our BonusMail
email service during March 1999. This integration involved the combination of
two different marketing programs and technology platforms, as well as operations
in San Francisco and Chicago. In connection with this integration, we have
incurred and expect to continue to incur substantial costs. The integrated
MyPoints program is being relaunched on the Web in early April 1999. During the
initial relaunch period, we may encounter unanticipated difficulties in
operating our integrated program. To the extent that we do encounter problems
with the relaunch, we may need to expend significant additional resources and
management time to resolve them. Any difficulties with the relaunch could also
negatively affect our reputation.
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We may pursue other acquisitions in the future. In connection with the
current integration and with any future acquisitions, we will face numerous
risks and uncertainties generally associated with acquisitions, including:
- potential adverse effects on our reported results of operations from
acquisition-related charges and amortization of goodwill and purchased
technology;
- our ability to maintain customers or the reputation of the acquired
businesses;
- potential dilution to current stockholders from the issuance of
additional equity securities;
- difficulties integrating operations, personnel, technologies, products
and information systems of the acquired businesses;
- diversion of management's attention from other business concerns; and
- potential loss of key employees of acquired businesses.
We are currently facing all of these challenges and our ability to meet
them has not been established. As a result, we cannot assure you that we will be
successful in generating additional sources of members and revenues from the
recent acquisitions or any future acquisitions.
WE ARE GROWING RAPIDLY AND MAY BE UNABLE TO MANAGE THIS GROWTH
As we continue to increase the scope of our operations, we will need an
effective planning and management process to implement our business plan
successfully in the rapidly evolving market for online direct marketing. We have
grown from 20 employees on January 1, 1998 to 79 employees on March 25, 1999. Of
these employees, 28 joined us in connection with our acquisitions in November
and December 1998. We are continuing to integrate these individuals into our
organization. We plan to continue the expansion of our technology, sales,
marketing and administrative organizations. This growth will continue to strain
our management systems and resources. We anticipate the need to continue to
improve our financial and managerial controls and our reporting systems. In
addition, we will need to expand, train and manage our rapidly growing work
force. Our business, results of operations and financial condition will be
materially and adversely affected if we are unable to manage our expanding
operations effectively.
WE DEPEND ON THE ACCEPTANCE OF ONLINE ADVERTISING AND DIRECT MARKETING
We expect to derive a substantial portion of our revenues from online
advertising and direct marketing, including both email and Web-based programs.
We cannot assure you that the demand and market acceptance for online
advertising will develop to a sufficient level to support our continued
operations. The Internet has not existed long enough as an advertising medium to
demonstrate its effectiveness relative to traditional advertising media.
Advertisers that have historically relied on traditional advertising may be
reluctant or slow to adopt online advertising. Many potential advertisers have
limited or no experience using email or the Web as an advertising medium. They
may have allocated only a limited portion of their advertising budgets to online
advertising, or may find online advertising to be less effective for promoting
their products and services than traditional advertising media. In addition,
advertisers and advertising agencies that have invested substantial resources in
traditional methods of advertising may be reluctant to reallocate their media
buying resources to online advertising. The market for online advertising also
depends on the overall growth and acceptance of electronic commerce. If the
market for online advertising fails to develop or develops more slowly than we
expect, our business, results of operations and financial condition would be
materially and adversely affected.
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The market for email advertising in general is vulnerable to the negative
public perception associated with unsolicited email, known as "spam." We do not
send unsolicited email. However, public perception, press reports or
governmental action related to spam could reduce the overall demand for email
advertising in general and our MyPoints BonusMail service in particular.
WE DEPEND ON THE ACCEPTANCE OF ONLINE REWARDS PROGRAMS
Our success also depends on the continued growth and acceptance of online
rewards programs. Although loyalty and rewards programs have been used
extensively in conventional marketing and sales channels, they have only
recently begun to be used online. The success of our business model will depend
on our ability to attract and retain members, advertisers, loyalty partners and
rewards providers. Our ability to attract and retain members will depend on our
marketing efforts and on the quality of each member's experience, including the
number and relevance of the direct marketing offers we provide and the perceived
value of the rewards we offer. Our ability to generate significant revenue from
advertisers and loyalty partners will depend on our ability to differentiate
ourselves through the technology and services we provide and obtain adequate
participation from consumers in our online direct marketing and rewards
programs. Rewards providers are also a critical element of our business. The
attractiveness of our program to current and potential members, and loyalty
partners, depends in large part on the attractiveness of the rewards and point
redemption opportunities that we offer. To the extent that our online rewards
program does not achieve market acceptance among members, loyalty partners and
rewards providers, our business would be materially and adversely affected.
WE FACE INTENSE COMPETITION
We face intense competition from both traditional and online advertising
and direct marketing businesses. We expect competition to increase due to the
lack of significant barriers to entry for online business generally. As we
expand the scope of our product and service offerings, we may compete with a
greater number of media companies across a wide range of advertising and direct
marketing services. Currently, several companies offer competitive online
products or services, including CyberGold and Netcentives. We may also face
competition from established online portals and community Web sites that engage
in direct marketing, as well as from traditional advertising agencies and direct
marketing companies that may seek to offer online products or services.
Many of our current competitors and potential new competitors have longer
operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
These advantages may allow them to respond more quickly to new or emerging
technologies and changes in customer requirements. It may also allow them to
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies, and make more
attractive offers to potential employees, strategic partners and advertisers. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products or services to address the needs of our prospective
advertisers and advertising agency customers. As a result, it is possible that
new competitors may emerge and rapidly acquire significant market share.
Increased competition may result in price reductions, reduced gross margins and
loss of our market share. We may not be able to compete successfully, and
competitive pressures may materially and adversely affect our business, results
of operations and financial condition. See "Business -- Competition."
THE SUCCESS OF OUR BUSINESS WILL DEPEND ON OUR ABILITY TO ESTABLISH THE MYPOINTS
BRAND
As competitive pressures in the online direct marketing industry increase,
brand strength will become increasingly important. We intend to devote
substantial marketing and advertising resources to
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establish the MyPoints brand. The reputation of the MyPoints brand will depend
on our ability to provide a high-quality member experience. We cannot assure you
that we will be successful in delivering on this objective. If members are not
satisfied with the quality of their experience with the MyPoints program, their
negative experiences might result in publicity that could damage our reputation.
Any damage to our reputation could have a material adverse effect on our
business, results of operations and financial condition. If we expend additional
resources to build the MyPoints brand and do not generate a corresponding
increase in revenues as a result of our branding efforts, or if we otherwise
fail to promote our brand successfully, our business, results of operations and
financial condition would be materially and adversely affected.
WE FACE RISKS RELATED TO THE LEVEL OF POINT REDEMPTION
Our historical and forecasted financial statements reflect our assumptions
as to the percentage of rewards points issued by us that will not be redeemed by
members prior to expiration. This percentage of unredeemed points is known as
"breakage." The breakage rates we have used in preparing our financial
statements and forecasts are based on breakage rates that have been reported by
other operators of loyalty and rewards programs, such as airlines. We have also
considered our limited experience with our own program since its launch in May
1997. Although we believe that the breakage rates we have used are reasonable in
light of our analysis and experience, we cannot assure you that our actual
breakage rates will equal or exceed our assumed breakage rates. If our actual
breakage rates are less than our assumed breakage rates, meaning that a greater
number of points are actually redeemed than we had assumed would be redeemed,
our results of operations could be materially and adversely affected. In
addition, operators of loyalty programs have, from time to time, for competitive
or other reasons, extended the expiration dates for points, miles or other
rewards currency. For example, we plan to extend the expiration date for the
points associated with the email portion of our program when we relaunch our
email and Web-based services. If it becomes necessary for us to extend the
expiration date of a significant balance of outstanding points in the future, it
is possible that our actual breakage rates would be lower than our assumed
breakage rates, which could materially and adversely affect our results of
operations.
A SMALL NUMBER OF OUR ADVERTISING CUSTOMERS ACCOUNT FOR A SIGNIFICANT PORTION OF
OUR REVENUES
Although no single advertising customer accounts for more than 10% of our
revenues, our four largest advertising customers were responsible for
approximately 30% of our revenues during 1998. We do not have long-term
contracts with most of our customers, and customers can generally terminate
their relationships with us upon specified notice and without penalties, thus we
may not be able to retain our principal customers. The loss of one or more of
our principal customers could have a material adverse effect on our business,
results of operations and financial condition.
WE DEPEND ON THE SERVICES OF OUR EXECUTIVE OFFICERS TO MANAGE OUR GROWTH
Our future success depends on the continued service of our key senior
management and technical and sales personnel. The loss of any of these persons
could have a material adverse effect on our business. We do not have key-person
insurance on any of our employees. Robert C. Hoyler, our President and Chief
Operating Officer, Virgil Bistriceanu, our Senior Vice President, Technology,
and Frank J. Pirri, our Senior Vice President, Partnership Development, joined
us in December 1998 as the result of acquisition transactions that took place in
the fourth quarter of 1998. Charles H. Berman, our Senior Vice President, Sales,
and Robert Wise, our Senior Vice President, Member Marketing, also joined us in
1998. Our recently integrated management team has limited experience working
together.
11
<PAGE> 13
Our success depends on our ability to attract, retain and motivate highly
skilled employees. Competition for employees in our industry is intense. We may
be unable to retain our key employees or to attract, assimilate and retain other
highly qualified employees in the future. We have experienced difficulty from
time to time in attracting the personnel necessary to support the growth of our
business, and we may experience similar difficulty in the future.
FAILURE TO SAFEGUARD OUR DATABASE AND MEMBER PRIVACY COULD HARM OUR BUSINESS
An important feature of the MyPoints program is our ability to develop and
maintain individual member profiles. Security and privacy concerns may cause
consumers to resist providing the personal data necessary to support this
profiling capability. As a result of these security and privacy concerns, we may
incur significant costs to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Usage of our MyPoints program could
decline if any well-publicized compromise of security occurred. In addition,
third parties could alter information in our database that would adversely
affect our ability to target direct marketing offers to members. We could also
be subject to legal claims from members. Any public perception that we engaged
in unauthorized release of member information would adversely affect our ability
to attract and retain members. Any of these events could have a material adverse
effect on our business, results of operations and financial condition.
As part of our point redemption services, we maintain a database containing
information on our members' account balances. Our database may be subject to
access by unauthorized users accessing our systems remotely. If we experience a
security breach, the integrity of our points database may be affected. This
breach could lead to financial losses through the unauthorized redemption of
points.
WE ARE VULNERABLE TO SYSTEM FAILURES
The hardware infrastructure on which the MyPoints system operates is
located at the Exodus Communications data center in Jersey City, New Jersey. We
recently completed a transition to Exodus from a combination of internally
maintained systems and systems maintained by another third-party service
provider. We cannot assure you that we will be able to manage this relationship
successfully to mitigate any risks associated with having our hardware
infrastructure maintained by Exodus. Unexpected events such as natural
disasters, power losses and vandalism could damage our systems.
Telecommunications failures, computer viruses, electronic break-ins or other
similar disruptive problems could adversely affect the operation of our systems.
Our insurance policies may not adequately compensate us for any losses that may
occur due to any damages or interruptions in our systems. Accordingly, we could
be required to make capital expenditures in the event of unanticipated damage.
We do not currently have redundant systems or a formal disaster recovery plan.
Our Web site must accommodate a high volume of traffic and deliver
accurate, frequently updated information in a timely manner. Our Web site has
experienced in the past and may experience in the future, slower response times
or decreased traffic for a variety of reasons. During the last three months of
1998, we experienced a number of instances of unscheduled system downtime, which
resulted in our Web site being inaccessible for an aggregate of approximately 20
hours. In addition, our members depend on Internet service providers for access
to our Web site. Internet service providers and Web sites have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. These problems
could materially and adversely affect our business, results of operations and
financial condition.
12
<PAGE> 14
WE MUST ADAPT TO RAPID TECHNOLOGICAL CHANGES IN OUR INDUSTRY
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions, short development cycles and evolving
industry standards. The recent growth of the Internet and intense competition in
our industry exacerbate these market characteristics. Our future success will
depend on our ability to adapt to rapidly changing technologies by maintaining
and improving the performance features and reliability of our services. We may
experience technical difficulties that could delay or prevent the successful
development, introduction or marketing of new products and services. In
addition, any new enhancements to our products and services must meet the
requirements of our current and prospective users. We could incur substantial
costs to modify our services or infrastructure to adapt to rapid technological
change.
WE DEPEND ON THE DEVELOPMENT OF THE INTERNET INFRASTRUCTURE
A number of factors may inhibit Internet usage, including inadequate
network infrastructure, security concerns, inconsistent quality of service, and
lack of availability of cost-effective, high-speed service. If Internet usage
grows, the Internet infrastructure may not be able to support the demands placed
on it by this growth and its performance and reliability may decline. In
addition, a number of Web-based businesses have experienced interruptions in
their services as a result of outages and other delays occurring throughout the
Internet. If outages or delays occur frequently in the future, Internet usage,
as well as electronic commerce and the usage of our products and services, could
grow more slowly or decline, and this could have an adverse effect on our
business.
FUTURE REGULATION OF THE INTERNET COULD HAVE AN ADVERSE AFFECT ON OUR BUSINESS
Laws and regulations that apply to the Internet may become more prevalent
in the future. The laws governing the Internet and email services remain largely
unsettled. There is no single governmental body overseeing our industry, and
many state laws that have been enacted in recent years have different and
sometimes inconsistent application to our business. As a result, we cannot
assure you that we will comply with these state laws, and our noncompliance may
have a material adverse affect on our business. The governments of foreign
countries may also attempt to regulate electronic commerce. New laws could
dampen the growth in use of the Internet generally and decrease the acceptance
of the Internet as a commercial medium. In addition, existing laws such as those
governing intellectual property and privacy may be interpreted to apply to the
Internet. In the event that foreign governments, the federal government, state
governments or other governmental authorities adopt or modify laws or
regulations relating to the Internet, our business, results of operations and
financial condition could be materially and adversely affected.
In 1998, the United States government enacted a three-year moratorium
prohibiting states and local governments from imposing new taxes on electronic
commerce transactions. Upon expiration of this moratorium, if it is not
extended, states or other governments may levy sales or use taxes on electronic
commerce transactions. An increase in the taxation of electronic commerce
transactions may make the Internet less attractive for consumers and businesses.
WE FACE RISKS ASSOCIATED WITH THIRD PARTY CLAIMS AND PROTECTION OF OUR
INTELLECTUAL PROPERTY RIGHTS
Our business activities may infringe upon the proprietary rights of others,
and other parties may assert infringement claims against us. In the past, we
have received one claim, which was resolved through a license agreement.
Litigation may be necessary to enforce our intellectual property rights, to
protect our trade secrets or to determine the validity and scope of the
proprietary rights of others. An adverse determination in any litigation of this
type could require us to make significant changes to the structure and operation
of our online rewards program, attempt to design around a third
13
<PAGE> 15
party's patent, or license alternative technology from another party.
Implementation of any of these alternatives could be costly and time consuming,
and may not be possible. Accordingly, an adverse determination in any litigation
that may ensue between a third party and us would have a material adverse effect
on our business, results of operations and financial condition. Any intellectual
property litigation would result in substantial costs and diversion of resources
and management attention and could have a material adverse effect on our
business, results of operations and financial condition. Claims and any
resultant litigation, should it occur, might subject us to significant liability
for damages, might result in invalidation of our proprietary rights and, even if
not meritorious, would be time-consuming and expensive to defend and result in
the diversion of management time and attention, any of which might have a
material adverse effect on our business, results of operations and financial
condition.
Our success and ability to compete depends on our internally developed
technologies and trademarks, which we seek to protect through a combination of
patent, copyright, trade secret and trademark laws. Despite actions we take to
protect our proprietary rights, it may be possible for third parties to copy or
otherwise obtain and use our proprietary information without authorization or to
develop similar technology independently. In addition, legal standards relating
to the validity, enforceability and scope of protection of proprietary rights in
Internet-related businesses are uncertain and still evolving. We cannot give any
assurance as to the future viability or value of any of our proprietary rights.
In addition, we cannot give any assurance that the steps taken by us will
prevent misappropriation or infringement of our proprietary information. Any
infringement or misappropriation, should it occur, could have a material adverse
effect on our business, results of operations and financial condition. See
"Business -- Intellectual Property and Proprietary Rights."
WE FACE RISKS ASSOCIATED WITH EXPANDING OUR BUSINESS INTERNATIONALLY
We expect to increase the level of our activities outside of the United
States in the future. Our participation in international markets is subject to a
number of risks, including changes in foreign government regulations, export
license requirements, tariffs and taxes, fluctuations in currency exchange
rates, other trade barriers, difficulties and delays in collecting accounts
receivable, difficulties in managing foreign operations, compliance with
stricter privacy regulations and political and economic instability. To the
extent our customers are impacted by currency devaluations or general economic
crises such as those affecting many Asian and Latin American economies, the
ability of such customers to utilize our services could be materially adversely
affected. Furthermore, we cannot assure you that consumers in these foreign
markets will be attracted to rewards-based marketing programs.
OUR PROSPECTS FOR OBTAINING ADDITIONAL FINANCING ARE UNCERTAIN
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
capital expenditures and working capital requirements through the end of 2000.
Thereafter, we may need to raise additional funds to develop or enhance our
services or products, to fund expansion, to respond to competitive pressures, or
to acquire complementary products, businesses or technologies. If additional
funds are raised through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders would be reduced and these
securities might have rights, preferences or privileges senior to those of our
stockholders. 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 expansion, take
advantage of unanticipated opportunities, develop or enhance services or
products, or otherwise respond to competitive pressures would be significantly
limited. Our business, results of operations and financial condition could be
materially adversely affected by this limitation. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
14
<PAGE> 16
PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS
The costs we have incurred and expect to incur related to Year 2000
compliance have not been material to our business, results of operations or
financial condition. In the event that our assessment of our Year 2000 readiness
is inaccurate, we could be required to expend substantial resources to remedy
any unanticipated Year 2000 problems. Costs associated with unanticipated Year
2000 problems and difficulties in remedying these problems by year end could
have a material adverse effect on our business, results of operations and
financial condition.
The most likely Year 2000 failure scenario attributable to a supplier or
customer is a systematic failure beyond our control or the supplier's or
customer's immediate control, such as a prolonged data communication,
telecommunications or electrical failure. A failure of this sort could prevent
members from accessing our Web site and prevent us from operating our business.
The primary business risks in the event of such a failure would include lost
advertising revenues, increased operating expenses and loss of members. Any of
these risks could have a material adverse effect on our business, results of
operations and financial condition.
OUR EXECUTIVE OFFICERS AND DIRECTORS WILL RETAIN SUBSTANTIAL CONTROL AFTER THE
OFFERING
We anticipate that our executive officers, our directors and entities
affiliated with them will, in the aggregate, beneficially own approximately %
of our outstanding common stock following the completion of this offering, or
% assuming exercise of the underwriters' over-allotment option. These
stockholders will retain substantial control over matters requiring approval by
our stockholders, such as the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control. See "Principal Stockholders."
PROVISIONS OF OUR CORPORATE CHARTER DOCUMENTS COULD DELAY OR PREVENT A CHANGE OF
CONTROL
Various provisions of our Certificate of Incorporation and Bylaws could
have the effect of delaying or preventing a change in control and make it more
difficult for a third party to acquire us, even if doing so would be beneficial
to our stockholders. See "Description of Capital Stock."
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE THE PRICE OF OUR SHARES TO DECLINE
Upon completion of this offering, we will have shares of
common stock outstanding. of these shares will be transferable
without restriction or registration under the Securities Act of 1933, or
pursuant to the volume and other limitations of Rule 144 promulgated under the
Securities Act. Following this offering, resales of a substantial number of
shares of our common stock into the public market could cause its price to
decline.
Approximately 13,835,907 shares of common stock are subject to lock-up
agreements between the holders of those shares and the representatives of the
underwriters, pursuant to which the holders have agreed not to offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of their
common stock until 180 days after the date of this prospectus, subject to
limited exceptions. BancBoston Robertson Stephens may release stockholders from
the lockup agreement at any time and without notice. Following the expiration of
this 180-day period, substantially all of the shares subject to the lock-up
agreements will become available for immediate resale in the public market
subject to the volume and other limitations of Rule 144, except for 2,000,000
shares of common stock issuable upon conversion of Series E preferred stock. See
"Shares Eligible for Future Sale."
15
<PAGE> 17
OUR SECURITIES HAVE NO PRIOR MARKET
There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our common stock will lead to the
development of a trading market or how liquid that market might become. The
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. See "Underwriting."
OUR STOCK PRICE COULD BE VOLATILE FOLLOWING THIS OFFERING
The stock market has experienced significant price and volume fluctuations,
and the market prices of technology companies, particularly Internet-related
companies, have been highly volatile. Investors may not be able to resell their
shares at or above the initial public offering price. In addition, our results
of operations during future fiscal periods following the completion of this
offering may fail to meet the expectations of stock market analysts and
investors. This failure could lead the market price of our common stock to
decline and cause us to become the subject of securities class action lawsuits.
YOU WILL EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF
YOUR INVESTMENT
The initial public offering price of our common stock is substantially
higher than what the net tangible book value per share of the common stock will
be immediately after this offering. If you purchase our common stock in this
offering, you will incur immediate dilution of approximately $ in the
net tangible book value per share of our common stock from the price you pay for
our common stock (based upon an assumed initial public offering price of $
per share). See "Dilution." The exercise of outstanding options and warrants may
result in further dilution.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION IN USE OF PROCEEDS
We intend to use the net proceeds from the sale of the common stock for
brand promotion, expansion of sales and marketing, new technology and products,
working capital and general corporate purposes, including possible future
acquisition transactions. We have allocated approximately $2.6 million of the
net proceeds to complete a technology purchase, but have not determined how the
remaining proceeds will be allocated among the other anticipated uses.
Accordingly, our management will have significant flexibility and broad
discretion in applying the net proceeds of this offering. The failure of
management to apply these funds effectively could have a material adverse effect
on our business, results of operations and financial condition. See "Use of
Proceeds."
16
<PAGE> 18
USE OF PROCEEDS
Our proceeds from the sale of the shares of common stock we
are offering are estimated to be $ million ($ million if the underwriters'
over-allotment option is exercised in full) assuming an initial public offering
price of $ per share and after deducting the estimated underwriting
discounts and commissions and our estimated offering expenses.
We intend to use approximately $2.6 million of the proceeds of the offering
to complete the purchase of technology used in operating our loyalty and rewards
program. We plan to use the remainder of the proceeds for general corporate
purposes, including working capital, branding, membership expansion,
advertising, increases in our sales and marketing operations, new technology and
products, funding of points liability and expansion of network infrastructure.
We may also use some of the proceeds to acquire other companies, technologies,
or products that complement our business, although we are not currently planning
any of these transactions. Pending these uses, the net proceeds of this offering
will be invested in short-term, investment-grade, interest-bearing securities.
We are making the license payment under a license agreement entered into in
November 1998 in connection with our acquisitions of Enhanced Response
Technologies, Inc., MotivationNet LLC and Direct Value to You. For additional
information regarding these transactions, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Acquisition
Transactions" and "Certain Transactions." Under the license agreement, the
amount of the payment is based on the present value of a specified royalty
amount discounted using a discount rate equal to the prime rate plus 2.0%. The
$2.6 million estimate set forth above assumes this payment will be made in June
1999. The actual amount of this payment could vary depending upon the timing of
the payment and fluctuations in interest rates. Once this license payment has
been made, our rights under the license will be fully paid and we will not have
any future royalty or other financial obligations regarding the license.
The principal purposes of this offering are to obtain additional capital,
to create a public market for our common stock, to facilitate our future access
to public equity markets and to provide increased visibility and credibility in
a marketplace where many of our current and potential competitors are or will be
publicly held companies.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Covenants in our capital lease and equipment financing
agreements prohibit the payment of cash dividends.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth:
- the actual capitalization of MyPoints.com at December 31, 1998;
- the pro forma capitalization of MyPoints.com after giving effect to the
issuance of 2,000,000 shares of Series E preferred stock in 1999 and the
conversion of all outstanding shares of preferred stock into 12,388,315
shares of common stock immediately prior to completion of this offering;
and
- the pro forma as adjusted capitalization to give effect to the sale in
this offering of shares of common stock at an estimated public
offering price of $ per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- -------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, less current portion............. $ 2,408 $ 2,408 $ 2,408
Stockholders' equity:
Preferred stock, $0.001 par value; 13,500,000 shares
authorized, shares issued and outstanding:
Actual: 10,388,315 shares
Pro forma: 0 shares
Pro forma as adjusted: 0 shares.................... 10
Common stock, $0.001 par value; 40,000,000 shares
authorized, shares issued and outstanding:
Actual: 6,204,593 shares
Pro forma: 18,592,909 shares
Pro forma as adjusted: shares............. 6 18
Additional paid-in capital.............................. 23,380 33,328
Stock subscription receivable........................... (350) (350) (350)
Deferred compensation................................... (2,541) (2,541) (2,541)
Accumulated deficit..................................... (11,222) (11,222) (11,222)
-------- -------- -------
Total stockholders' equity....................... 9,283 19,233
-------- -------- -------
Total capitalization............................. $ 11,691 $ 21,641 $
======== ======== =======
</TABLE>
This table excludes the following shares:
- shares issuable upon exercise of stock options outstanding as of
December 31, 1998;
- shares available for future grant or issuance under our stock option and
stock purchase plans as of December 31, 1998; and
- shares issuable upon exercise of warrants outstanding as of December 31,
1998.
See "Management -- Stock Plans," "Description of Capital Stock" and Note 8
of Notes to Consolidated Financial Statements.
18
<PAGE> 20
DILUTION
Our pro forma net tangible book value deficit as of December 31, 1998 was
approximately $1.6 million, or approximately $0.26 per share of common stock.
Pro forma net tangible book value per share represents the amount of tangible
assets less total liabilities, divided by the number of shares of common stock
outstanding.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of our common stock in
this offering and the pro forma net tangible book value per share of our common
stock immediately afterwards. After giving effect to our sale of shares
of common stock in this offering at an assumed public offering price of $
per share and after deduction of the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value as of December 31, 1998 would have been approximately $
million, 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 in pro forma net tangible book value of $ per share to
purchasers of common stock in this offering.
<TABLE>
<S> <C>
Assumed public offering price per share.....................
Pro forma net tangible book value per share before
offering...............................................
Increase per share attributable to new investors..........
Pro forma net tangible book value per share after
offering..................................................
Net tangible book value dilution per share to new
investors.................................................
</TABLE>
This table excludes all options and warrants that will remain outstanding
upon completion of this offering. See Note 8 of Notes to Consolidated Financial
Statements. The exercise of outstanding options and warrants having an exercise
price less than the offering price would increase the dilutive effect to new
investors.
The following table sets forth as of December 31, 1998 the total
consideration paid and the average price per share paid by the existing
stockholders and by new investors, before deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by
MyPoints.com at an assumed public offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT NUMBER PERCENT PER SHARE
--------- ------- --------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.........
New investors.................
Total...............
</TABLE>
19
<PAGE> 21
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the period from November 7, 1996 (inception) to December 31, 1996, and
the years ended December 31, 1997 and 1998 and the balance sheet data as of
December 31, 1997 and 1998 are derived from our consolidated financial
statements that have been audited by PricewaterhouseCoopers LLP, independent
accountants, and are included elsewhere in this prospectus. The balance sheet
data as of December 31, 1996 are derived from unaudited financial statements
that are not included in this prospectus.
<TABLE>
<CAPTION>
NOVEMBER 7, 1996 YEAR ENDED DECEMBER 31,
(INCEPTION) TO ------------------------ PRO FORMA
DECEMBER 31, 1996 1997 1998 1998(1)
----------------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ -- $ 151 $ 1,286 $ 1,316
Cost of revenues................................. -- 78 1,121 1,120
------ ------- ------- --------
Gross profit................................... -- 73 165 196
------ ------- ------- --------
Operating expenses:
Technology costs............................... 16 560 1,520 3,913
Sales expenses................................. -- 204 1,355 2,061
Marketing expenses............................. 36 1,465 3,158 5,099
General and administrative expenses............ 16 712 2,029 2,762
Amortization of intangible assets.............. -- -- 275 3,300
Stock-based compensation....................... -- 77 157 621
------ ------- ------- --------
Total operating expenses..................... 68 3,018 8,494 17,756
------ ------- ------- --------
Operating loss................................... (68) (2,945) (8,329) (17,560)
Interest and other income (expense), net......... 1 56 63 (144)
------ ------- ------- --------
Net loss....................................... $ (67) $(2,889) $(8,266) $(17,704)
====== ======= ======= ========
Net loss per share:
Basic and diluted.............................. $(0.08) $ (2.68) $ (4.72) $ (10.12)
====== ======= ======= ========
Weighted average shares -- basic and diluted... 891 1,076 1,750 1,750
====== ======= ======= ========
Pro forma net loss per share(2):
Basic and diluted.............................. $ (0.98) $ (2.09)
======= ========
Weighted average shares -- basic and diluted... 8,463 8,463
======= ========
</TABLE>
- ---------------
(1) Assumes the acquisitions of the Web-based rewards program businesses from
affiliates of Experian were completed on January 1, 1998. The pro forma net
loss per share data set forth in this column do not give effect to the
issuance of 2,000,000 shares of Series E preferred stock in 1999.
(2) Assumes conversion of outstanding shares of preferred stock. (See Note 3 to
Consolidated Financial Statements.)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1997 1998
------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $1,118 $ 2,948 $ 5,089
Working capital (deficit)................................... 1,099 2,381 (307)
Total assets................................................ 1,205 3,474 18,306
Long-term obligations, less current portion................. -- 47 2,408
Accumulated deficit......................................... (67) (2,956) (11,222)
Total stockholders' equity.................................. 1,412 2,692 9,283
</TABLE>
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements based upon current
expectations that involve risks and uncertainties. When used in this prospectus,
the words "intend," "anticipate," "believe," "estimate," "plan" and "expect" and
similar expressions as they relate to MyPoints.com are included to identify
forward-looking statements. Our actual results and the timing of certain events
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this prospectus.
OVERVIEW
MyPoints.com was founded as Intellipost Corporation in November 1996. In
May 1997, we launched our email direct marketing and rewards program. In
November and December 1998, through our acquisition of companies affiliated with
Experian, we acquired Internet and electronic commerce related assets and
technologies through a series of related transactions. For ease of reference, we
refer to these transactions as the Acquisition Transactions in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section. Through the Acquisition Transactions, we acquired a
technology license for the operation of a Web-based rewards program. In March
1999, we changed our corporate name to MyPoints.com, Inc. in order to unify our
corporate and brand identities. During March 1999, we integrated our email and
Web-based direct marketing and rewards programs under the MyPoints brand.
We generate substantially all of our revenues by delivering promotional
email and providing Web-based direct marketing services for our advertising
customers. In exchange for these services, we receive fees from our advertisers
based on any or all of the following:
- the number of offers delivered to members;
- the number of qualified responses generated; and
- the number of qualified purchases made.
For our email service, we recognize revenues when an email is delivered,
when a qualified response is received or when a product is purchased, depending
upon the pricing arrangement used. For our Web-based service, we recognize
revenues when a member redeems points earned from actions, such as responding to
an offer by clicking through to our offer page or by purchasing the product or
service offered.
Our revenues are driven by a number of factors. These include the number of
advertisers engaging us to send direct marketing offers to our membership base,
the size of our membership base, and the responsiveness of our members to these
direct marketing offers.
We also offer technology licensing arrangements to customers seeking to
develop email or Web-based direct marketing and loyalty programs. In December
1998, we entered into our first license arrangement with Sweden Post, the
Swedish postal service, which is establishing a version of the MyPoints
BonusMail program for the Swedish market. This license agreement provides for a
licensing fee, technical support fees and royalties based on a percentage of
revenues from the program site. We will initially recognize revenues under this
agreement as we perform technical service and support. Once the program is
operational, we will recognize royalty revenue as it is received from Sweden
Post. We expect to enter into additional licensing arrangements, particularly
for international markets.
21
<PAGE> 23
We incurred a net loss of $17.7 million in 1998 on a pro forma basis that
assumes that the Acquisition Transactions were completed on January 1, 1998. We
intend to implement our strategies by spending substantial amounts on member
acquisition and retention, brand development, new product offerings, sales and
marketing strategic relationships, and technology and operating infrastructure
development. As a result, we expect increases in our net losses and negative
cash flows for the next several quarters. We expect to incur net losses at least
through 2001. Our limited operating history makes it difficult to forecast
future operating results. Although we have experienced revenue growth in recent
quarters, we cannot be certain that revenues will increase at a rate sufficient
to achieve and maintain profitability. Even if we were to achieve profitability
in any period, we might fail to sustain or increase that profitability on a
quarterly or annual basis.
PRO FORMA QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited statement of operations
data on a pro forma basis, assuming that the Acquisition Transactions were
completed on January 1, 1998. The financial statements from which these data
have been derived were prepared on substantially the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, that we considered necessary for a fair presentation of
our pro forma results of operations for each quarter. Our pro forma results of
operations for any quarter are not necessarily indicative of the results of
operations to be expected in any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998
--------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 150 $ 157 $ 296 $ 713
Cost of revenues................................ 137 108 261 614
------- ------- ------- -------
Gross profit............................... 13 49 35 99
------- ------- ------- -------
Operating expenses:
Technology costs.............................. 1,136 813 965 999
Sales expenses................................ 361 578 568 554
Marketing expenses............................ 537 941 1,838 1,783
General and administrative expenses........... 682 522 636 922
Amortization of intangibles................... 825 825 825 825
Stock-based compensation...................... 63 26 199 333
------- ------- ------- -------
Total operating expenses................... 3,604 3,705 5,031 5,416
------- ------- ------- -------
Operating loss.................................. (3,591) (3,656) (4,996) (5,317)
Interest and other expense, net............... (84) (3) (40) (17)
------- ------- ------- -------
Net loss........................................ $(3,675) $(3,659) $(5,036) $(5,334)
======= ======= ======= =======
</TABLE>
Revenues
Pro forma revenues have increased sequentially in each of the last three
quarters. These increases were a direct result of the growth in our membership
base during 1998 and an increase in the number of direct marketing offers
delivered to our members. We experienced more than 450% growth in our membership
base from March 31, 1998 to December 31, 1998, and more than a tenfold increase
in the number of direct marketing offers delivered between the first and fourth
quarters of 1998.
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Email direct marketing offers generated at least 90% of revenues in each
quarter of 1998. Revenues from email offers increased in absolute dollars in
each of the last three quarters of 1998. Revenues from Web-based direct
marketing offers increased in absolute dollars in each of the last three
quarters. The majority of revenues generated from email offers was from
advertisers that paid us based on members' qualified responses to, or purchases
based on, the offers we delivered.
Gross Profit
Gross profit equals revenues less cost of revenues. Cost of revenues
primarily represents the cost of points awarded to our members for receiving,
responding to and purchasing based on our direct marketing offers. Gross profit
as a percentage of revenues increased from the first quarter to the second
quarter, decreased from the second to the third quarter and remained relatively
constant from the third to the fourth quarter. The sequential increase in gross
profit in the last three quarters was due to a higher number of revenue
generating responses to the direct marketing offers.
Technology Costs
Our technology expenses primarily consist of compensation for technology
personnel, fees for outside technology consultants, and an allocation of fixed
costs. We expense technology costs as they are incurred. Technology costs
decreased during the second quarter before increasing over the last two quarters
of 1998. We expect technology costs to increase during the next several quarters
as we integrate our email and Web-based programs into a single technology
platform and provide technical support for the Sweden Post licensing agreement.
Sales Expenses
Our sales expenses primarily represent compensation for sales and
sales-related employees, expenses for trade shows and other advertising and
promotions directed towards the direct marketing advertising community, and an
allocation of fixed costs. Sales expenses remained relatively constant after the
first quarter of 1998. The increase in sales commissions due to higher revenues
was partially offset by lower sales payroll and sales-related expenses during
the last three quarters of 1998. We expect sales expenses to increase over the
next several quarters as we continue to hire additional sales employees to
pursue our objective of increasing advertising sales.
Marketing Expenses
Our marketing expenses primarily consist of member acquisition expenses,
compensation for marketing personnel and an allocation of fixed costs. Member
acquisition expenses consist primarily of online advertising and promotion costs
to attract members to our email and Web-based programs. Also included in member
acquisition expenses is the cost of the points awarded to members for signing up
and completing demographic and behavioral enrollment forms. Significant
increases in online advertising and promotion expenditures in the second half of
1998 contributed to the growth of membership during the same period. This growth
in membership led to higher expenditures related to the cost of points awarded
to members for signing up and completing enrollment forms.
General and Administrative Expenses
Our general and administrative expenses include compensation for
administrative personnel, fees for outside professional advisors and an
allocation of fixed costs. As a percentage of revenues, general and
administrative expenses decreased during the second half of 1998. The absolute
dollar increase in the second half of 1998 was due to higher outside
professional fees and an increase in the number of
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administrative personnel. We expect that general and administrative expenses
will increase in absolute dollars over the next several quarters, but will
decrease as a percentage of revenues.
ANNUAL RESULTS OF OPERATIONS
We completed the Acquisition Transactions during November and December
1998. Accordingly, approximately one month of operations of the acquired
businesses are included in our actual results of operations for the year ended
December 31, 1998. The discussion below is based on the Statement of Operations
Data set forth under "Selected Consolidated Financial Data."
Revenues
Our revenues increased to $1.3 million in 1998 from $151,000 in 1997. We
had no revenues and no material expenditures in 1996. Our email direct marketing
program was launched in May 1997 and began generating revenues in July 1997. Our
email program produced substantially all of our revenues in 1997 and 1998. The
increase in revenues from 1997 to 1998 was due primarily to an increase in the
number of direct marketing offers delivered to our members for advertisers, as
well as to an increase in the size of our membership base.
Gross Profit
Gross profit increased to $165,000 in 1998 from $73,000 in 1997. This
increase was due primarily to an increase in the number of revenue-generating
responses and purchases by members. In addition, during 1998, based on our
experience with members who became inactive in the points program, we recognized
an allowance for estimated points that are likely to expire prior to their
redemption. This allowance has been credited to cost of revenues during 1998.
Technology Costs
Our technology costs increased to $1.5 million in 1998 from $560,000 in
1997. This increase was primarily due to increased hiring of technical employees
and consultants during 1998.
Sales Expenses
Our sales expenses increased to $1.4 million in 1998 from $204,000 in 1997.
An increase in the number of sales and sales support employees led to higher
payroll expenses. Increases in revenues led to higher sales commissions and,
therefore, higher sales expenses. Also contributing to the increase in sales
expenses were increases in travel, advertising and promotions, and other
sales-related expenses.
Marketing Expenses
Our marketing expenses increased to $3.2 million in 1998 from $1.5 million
in 1997. This increase was primarily due to a large increase in member
acquisition expenses, including online advertising and promotion expenditures as
well as the cost of points awarded to members for enrollments and related
activities. Marketing payroll expense also increased in 1998 as we hired
additional marketing staff including a Senior Vice President, Member Marketing.
General and Administrative Expenses
Our general and administrative expenses increased to $2.0 million in 1998
from $712,000 in 1997. The increase resulted from higher professional fees and,
to a lesser extent, occupancy costs relating to
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<PAGE> 26
opening of sales offices and an increase in the size of our San Francisco
headquarters facility. Payroll expenses associated with hiring administrative
personnel also contributed to the increase.
Income Taxes
We recorded a net loss of $2.9 million in 1997 and $8.3 million in 1998.
Accordingly, no provision for income taxes was recorded in these years, and no
tax benefit has been recognized due to the uncertainty of realizing future tax
deductions for these losses.
As of December 31, 1997 and 1998, we had net operating loss carryforwards
of approximately $1,360,000 and $7,810,000 for federal income tax purposes, and
$1,380,000 and $7,820,000 for state income tax purposes. The federal and state
net operating loss carryforwards begin to expire in the years 2011 and 2004,
respectively. Our ability to utilize our net operating loss carryforwards to
offset future taxable income, if any, may be restricted as a result of equity
transactions that give rise to changes in ownership as defined in the Tax Reform
Act of 1986.
STOCK-BASED COMPENSATION
As of December 31, 1998, we recorded aggregate deferred compensation
totaling $2.5 million in connection with the grant of stock options to employees
and consultants prior to December 31, 1998. This charge is being amortized over
the vesting period of the options which ranges from four to five years. In
addition, during the quarter ending March 31, 1999, we anticipate recording an
additional unearned compensation charge of approximately $4.7 million relating
to options granted during this quarter. This charge will also be amortized over
the vesting period of the options granted.
Stock-based compensation of $63,000, $19,000, $43,000 and $33,000 was
recognized in the quarters ended March 31, June 30, September 30 and December
31, 1998. We expect per quarter amortization of approximately $200,000 in 1999
and annual amortization of approximately $1.5 million in 2000, $1.5 million in
2001 and $1.4 million in 2002, $1.1 million in 2003 and $900,000 in 2004
relating to these options. See Note 8 of Notes to Consolidated Financial
Statements.
ACQUISITION TRANSACTIONS
In November and December 1998, we entered into the Acquisition Transactions
to acquire Internet and electronic commerce related assets from companies
affiliated with Experian. The Acquisition Transactions involved the following
principal elements:
- the merger of a subsidiary of MyPoints.com with and into Enhanced
Response Technologies, Inc., where the outstanding shares and options of
Enhanced Response Technologies were exchanged for 1,435,946 shares of our
common stock and options to purchase 402,818 shares of our common stock;
- the acquisition from two subsidiaries of Experian of all of the
outstanding ownership interests of MotivationNet, LLC in exchange for
1,213,592 shares of our Series D preferred stock and 2,164,535 shares of
our common stock; and
- the acquisition from Experian's subsidiary Metromail Corporation of
certain assets relating to the "Direct Value to You" Internet sponsorship
product for $400,000 in cash, payable over 30 months.
The Acquisition Transactions were accounted for using the purchase method.
The aggregate purchase price was $13.6 million, consisting of $9.1 million in
stock and cash, and $4.5 million in liabilities assumed. The purchase price has
been allocated to acquired tangible and intangible assets
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<PAGE> 27
based on their estimated respective fair values as of the date of acquisition.
Estimated fair values were determined using a combination of methods, including
replacement cost estimates for acquired membership base and customer base, and a
risk-adjusted income and cash flow approach for trademark and tradename and the
acquired technology license agreement. The purchase price allocation and the
schedule over which the value attributable to each acquired asset will be
amortized are as follows:
<TABLE>
<CAPTION>
AMORTIZATION
AMOUNT PERIOD
-------------- ---------------------
(IN THOUSANDS)
<S> <C> <C>
Tangible assets................................. $ 2,400 3 years
Trademark and tradename......................... 1,800 5 years
Technology license agreement.................... 7,300 4 years
Membership base................................. 800 0.5 to 2.5 years
Customer base................................... 500 0.5 to 3 years
Other intangible assets......................... 800 2 years
-------
Total................................. $13,600
=======
</TABLE>
The amortization periods are based on our estimates of the useful lives of
each acquired asset, as it existed at the time of the acquisition. Upon
completion of the public offering of our capital stock we are obligated to
purchase the licensed technology for a payment equivalent to the then present
value of the future minimum royalty payments. We expect to pay approximately
$2.6 million upon completion of the public offering, representing the net
present value of the $4.2 million royalty obligation. See "Use of Proceeds."
LIQUIDITY AND CAPITAL RESOURCES
Since incorporation, we have financed our operations primarily from the
sale of equity securities to venture capital firms and other individual,
institutional and strategic investors. We have also borrowed funds under
long-term capital lease and equipment financing facilities.
Net cash used in operating activities was $2.3 million in 1997 and $5.5
million in 1998. In 1997, the net cash used by our $2.9 million net loss was
partially offset by a $519,000 increase in points redemption liability, a
$52,000 increase in accounts payable and other accrued liabilities, and non-cash
charges of $77,000 in stock-based compensation. In 1998, the net cash used by
our $8.3 million net loss was partially offset by a $1.7 million increase in
points redemption liability, an $878,000 increase in accounts payable and other
accrued liabilities, and non-cash charges of $157,000 in stock-based
compensation.
Net cash used in investing activities was $353,000 in 1997 and net cash
provided by investing activities in 1998 was $1.4 million, all of which in 1997
was used to acquire property and equipment, primarily computer equipment and
software, and most of which in 1998 was provided by an affiliate of Experian in
connection with the Acquisition Transactions.
Net cash provided by financing activities was $4.5 million in 1997 and $6.2
million in 1998. These amounts included net proceeds of equity financings of
$4.3 million in 1997 and $6.1 million in 1998, a $100,000 equipment term loan
established in 1997 and a $400,000 equipment term loan established in 1998. The
loans have floating interest rates of prime plus 1.5% for the 1997 loan and
prime plus 0.5% for the 1998 loan. Both loans are secured by a pledge of our
assets and require us to comply with certain financial covenants. During 1997
and 1998, we were in compliance with these covenants or were operating under
appropriate waivers.
In addition, in 1997 and 1998, we entered into various non-cancelable
capital lease agreements for certain types of capital expenditures. As a result
of these capital lease agreements, we have an
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outstanding lease payment obligation of $298,000 as of December 31, 1998. These
capital lease agreements have terms ranging three to five years with interest
rates ranging from 7.2% to 18.0%.
At December 31, 1998, we had cash and cash equivalents of $5.1 million. In
1999, we completed an equity financing that resulted in net proceeds to us of
$9.9 million. Upon the completion of this offering, we will be obligated to make
a payment of $2.6 million to acquire licensed technology. For additional
information regarding this payment, see "Use of Proceeds." We estimate that we
will make capital expenditures of approximately $2.0 million during the next 12
months.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements through the end of 2000. We
may need to raise additional funds, however, to fund more rapid expansion, to
develop new or enhance existing services or products, to respond to competitive
pressures or to acquire complementary products, businesses or technologies. If
adequate funds are not available on acceptable terms, our business, results of
operations and financial condition could be materially adversely affected.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position (SOP) No. 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP No. 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998. We do
not expect that the adoption of SOP No. 98-1 will have a material impact on our
consolidated financial statements.
In April 1998, the Accounting Standards Executive Committee issued SOP
98-5, Reporting on the Costs of Start-Up Activities. This SOP provides guidance
on the financial reporting of start-up costs and organization costs. It requires
the costs of the start-up activities and organization costs to be expensed as
incurred. The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The Company adopted the SOP during the year
ended December 31, 1998. The adoption of the SOP did not have a material impact
on the consolidated financial statements.
FACTORS AFFECTING OPERATING RESULTS
Our results of operations have varied widely in the past and we expect that
they will continue to vary significantly in the future due to number of factors,
including those set forth under "Risk Factors." You should read the "Risk
Factors" section of this prospectus carefully. Due to these factors, we believe
that quarter-to-quarter or year-to-year comparisons of our results of operations
are not a good indication of our future performance. Our results of operations
in some future quarter may be below the expectations of public market analysts
and investors. In this event, the price of our common stock is likely to
decline.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, computer systems and
software products used by many companies may need to be upgraded to comply with
these year 2000 requirements.
We designed the software underlying our email and Web-based programs as
well as our Web site and related technology infrastructure to be year 2000
compliant. However, we rely on third-party hardware and software in the
operation of our business. We believe we have identified all of the major
information systems used in our internal operations and have substantially
completed all modifications,
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<PAGE> 29
upgrades or replacements to minimize the possibility of a material disruption of
our business. The expenditures that we have incurred to date and the
expenditures we expect to incur in this regard have not been and are not
expected to be material to our business, results of operations and financial
condition.
We have also contacted the vendors of third-party hardware and software we
use in order to gauge their year 2000 compliance. Based on these vendors'
representations and the activities we have conducted, we believe that the
third-party hardware and software we use are year 2000 compliant. We cannot
assure you, however, that we will not experience unanticipated negative
consequences, including material costs caused by undetected errors or defects in
the technology used in our internal systems. If, in the future, it comes to our
attention that the software underlying our email or Web-based programs requires
modification, or that any of our third-party hardware and software are not year
2000 compliant, then we will seek to make modifications to our systems. In such
case, we expect such modifications to be made on a timely basis and we do not
anticipate that the cost of such modifications will have a material effect on
our results of operations. There can be no assurance, however, that we will be
able to modify such systems in a timely and successful manner to comply with the
year 2000 requirements. Any failure to do so could have a material adverse
effect on our business, results of operations and financial condition.
We are also vulnerable to systemic failures resulting from year 2000
problems. These failures could include prolonged data communications,
telecommunications or electrical failures. A failure of this type could prevent
members from accessing our Web site or prevent us from operating our business.
As a result, we could experience lost advertising revenues, increased operating
expenses and loss of members. Any of these eventualities could have a material
adverse effect on our business, results of operations and financial condition.
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BUSINESS
MyPoints.com is a leading provider of online direct marketing and loyalty
programs. We integrate targeted email and Web-based direct marketing offers with
online loyalty programs to create valuable benefits for both our consumer
members and our business partners. Our approach gives consumers the opportunity
to earn rewards for receiving and responding to offers, and provides businesses
with comprehensive customer acquisition and retention tools.
We have built a proprietary member database containing approximately two
million detailed consumer profiles. We earn revenues by delivering online direct
marketing offers to this membership base. We charge advertisers a fee based on
offers delivered, qualified leads generated or online transactions executed. We
maintain active relationships with more than 200 advertisers, loyalty partners
and rewards providers, including leading brands such as American Express, Barnes
& Noble, Disney, eBay, GTE, Intuit, Macy's, Sprint and Tower Records.
INDUSTRY BACKGROUND
Growth of the Internet and Electronic Commerce
The Internet has emerged as a global medium, enabling millions of people
worldwide to share information, communicate and conduct business electronically.
International Data Corporation (IDC), a leading technology research
organization, estimates that the number of Web users will grow from
approximately 97 million worldwide in 1998 to approximately 320 million
worldwide by the end of 2002.
The growing use of the Web represents a significant opportunity for
businesses to conduct commerce over the Internet. According to IDC, transactions
on the Internet are expected to increase from approximately $32 billion
worldwide in 1998 to approximately $426 billion worldwide in 2002. Businesses
typically use the Internet to offer products and services, such as software,
books, home loans and airline tickets, that do not require the customer's
physical presence to make a purchase decision. The Internet allows these
businesses to develop one-to-one relationships with customers worldwide without
making significant investments in traditional infrastructure such as retail
outlets, distribution networks and sales personnel.
Online Direct Marketing
Businesses operating in the electronic commerce marketplace engage in
various forms of online direct marketing to generate sales of products or
services. Direct marketing is advertising that is intended to generate a
specific response or action from a targeted group of consumers. Examples of
traditional forms of direct marketing include catalog mailings, magazine inserts
and telesales. According to the Direct Marketing Association, 1998 direct
marketing advertising commitments totaled $163 billion in the United States.
Online direct marketing can take the form of email or Web-based promotional
offers. Online direct marketing is particularly attractive because advertisers
can use tools that are not available in traditional media, such as measurement
of "click-through" rates and one-click response to email offers. These tools
give advertisers rapid feedback on their marketing campaigns. This feedback can
be used to tailor new messages and targeted offers.
Because of these advantages, advertisers are committing relatively more
dollars to online direct marketing campaigns than to other forms of Internet
advertising, such as banner-based brand marketing. Forrester Research projects
Internet advertising expenditures in general to increase from $1.3 billion in
1998 to $10.5 billion in 2003. Forrester estimates that direct marketing will
account for between 30% and 50% of the total online advertising expenditures in
2001, up from 21% in 1998.
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Despite this trend, significant barriers to online direct marketing remain:
- Inundation. According to Jupiter Communications, a leading Internet
marketing research firm, the quantity of email messages per user sent in
the United States will surpass the volume of pieces of postal mail per
household in 1999. The sheer number of email messages leads to
competition for the attention of consumers. According to Jupiter, 16.0%
of email recipients immediately delete email from commercial sources, and
another 17.0% delete email unless it is from a familiar source.
- Spam. Unsolicited commercial email -- commonly known as "spam" -- is not
an acceptable medium for major brands that value consumer opinion.
Current and pending state and federal legislation places significant
restrictions on the use of unsolicited commercial email.
- Anonymity. Email addresses are largely anonymous. There is no easy way to
correlate email addresses with users' demographic and behavioral data
without their input. Effective targeting of messages online is difficult
without this input.
Online Loyalty Programs
Membership-based loyalty programs have long been a standard part of the
retail product and service landscape. Consumer loyalty programs now operating in
the United States serve businesses as diverse as supermarkets, telecommunication
companies, airlines, and music and book sellers. As the number of Internet users
increases, the relative importance to businesses of customer retention will also
increase. As a result, leading online merchants and content providers are
increasingly launching and testing programs aimed at retaining their most
valuable customers. The challenges that their businesses face in establishing
online loyalty programs include the cost of implementing and operating the
program and the ability to provide consumers with sufficient opportunities to
earn and redeem awards.
Market Opportunity
Online direct marketing programs offer unique advantages to businesses,
including:
- an interactive advertising format that enables consumers to respond and
purchase online, without the need for telephone calls or store visits;
- high rates of response to direct marketing offers of between 5.0% and
15.0%, compared to banner bar click-through rates, which have reportedly
declined from 2.0% to 0.5% over the past year;
- low cost per email message of between $0.01 and $0.25, compared to $1.00
to $2.00 per piece of direct marketing material sent via postal mail; and
- short campaign life cycles of between 48 and 72 hours, compared to six to
eight weeks offline.
Online direct marketing programs typically have focused on customer
acquisition. As the Internet grows as a commercial medium, companies doing
business online are increasingly focusing on customer retention. This creates an
opportunity for an integrated direct marketing and loyalty rewards program.
THE MYPOINTS.COM SOLUTION
MyPoints.com is a leading provider of online direct marketing and loyalty
programs. We believe that we are the first to combine targeted email and
Web-based direct marketing offers with online loyalty programs to create
valuable benefits for both our consumer members and our business partners. This
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approach provides our consumer members with the opportunity to earn rewards for
their participation and our business partners with effective customer
acquisition and retention tools.
Consumer Benefits
The MyPoints program offers the following benefits to members:
- Relevant Offers. The depth of our member database enables us to target
advertisements to our members with a high degree of accuracy. This helps
us to direct only the most relevant offers to each member and increases
the likelihood that the member will view and respond to a given message.
- Leading Brands. We increase the attractiveness of our program by
providing our members with direct marketing offers from name brands such
as American Express, Disney, eBay, Egghead.com, Intuit, GTE, Macy's and
Sprint.
- Wide Variety of Rewards. We have designed our rewards programs to be
broad-based. Rather than focusing on one particular type of consumer
award, such as frequent flyer miles, we provide a range of redemption
opportunities, including electronic gift certificates from name-brand
retailers, credits in other popular rewards programs, long distance
minutes and travel awards.
- Easily Attainable Rewards. Many of our reward opportunities are at point
levels that are low enough to be earned in a matter of weeks by a typical
active member. These easily attainable rewards include $10 gift
certificates at major retailers such as Barnes & Noble and restaurant
chains such as The Olive Garden. We offer our members a variety of point
earning opportunities that do not require a purchase as well as the
ability to earn points for offline activities including credit card and
long distance telephone usage.
- Attractive Member Experience. Our highly personalized, easy-to-use
interface features one-click purchase and redemption capability. We
provide personalized Web interfaces that feature the member's name and
current point balance. We also deliver email offers in rich media
(HTML-enhanced) format.
- Privacy and Control. We assure members that we will not sell personal
information to third parties without permission. We also give members a
significant amount of control over their experience by allowing them to
set their own daily message levels, screen out unwanted advertisement or
award categories, or opt out of the MyPoints program.
Business Benefits
MyPoints.com provides both our advertising clients and our loyalty partners
a competitive advantage in the acquisition of new customers and the retention of
existing customers:
- Access to Our Proprietary Member Database. Our member database consists
of extensive demographic, behavioral and transactional information
provided to us by approximately two million consumers. We use these
detailed member profiles to target offers, allowing our business partners
to reach the most suitable audience for their promotions and increase
consumer response rates.
- Detailed Real-Time Reporting. Online direct marketing campaigns begin to
generate results in two or three days compared to several weeks in
offline campaigns. We employ sophisticated marketing analytics and
real-time reporting technology to evaluate the initial results of a
campaign and use that information to improve the overall results of
current and future campaigns of our advertisers.
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- High Return on Advertising Investment. We offer direct marketers the
ability to target and reward consumers with online offers for
approximately one-tenth the cost of typical offline direct marketing
promotions. As a consequence of improved testing, targeting and rewarding
capabilities, we expect online direct marketing response rates to be
higher than other online and offline media. This combination of lower
delivery costs and higher response rates generates returns on advertising
investment that are higher than those achieved by competing direct
response media.
- Customized Loyalty Solutions. We offer a variety of cost-effective and
customized solutions to our loyalty partners, including co-branded and
private label versions of our MyPoints rewards program. Our proprietary
Digital Loyalty Engine technology enables our business partners to design
and manage innovative and flexible online loyalty programs. Current
loyalty partners include GTE, Prodigy and Talk City.
- Integrated Approach to Online Direct Marketing. We believe we are the
only direct marketing provider that has integrated online direct
marketing with an online rewards program. This enables our advertisers to
increase consumer response and retention rates by rewarding consumers for
responding to their targeted offers.
STRATEGY
Our objective is to build leading online consumer membership services and
to enable our advertising clients and loyalty partners to better acquire and
retain customers online. Key elements of our strategy to achieve this objective
are to:
Expand Our Proprietary Database
To increase the size of our membership base, we plan to use a variety of
approaches, including online advertising, referrals, and co-branded and private
label loyalty partnerships. We increase the depth of our database by rewarding
consumers for joining our MyPoints program and for completing detailed surveys
from which we collect demographic and behavioral data. We also increase the
depth of our database by tracking the transaction activity of our members in the
MyPoints program. We will continue to use our proprietary and third-party data
sources to build more detailed profiles of our members.
Leverage Our Direct Marketing and Loyalty Program Expertise
We will continue to use our significant experience in managing direct
marketing and loyalty membership programs on the Internet on behalf of our
advertising clients and loyalty partners, to enable them to maximize response
rates to their offers and increase customer retention. We have developed an
in-house expertise in database marketing and provide our advertisers with needed
support services, including the design and delivery of rich-media email and
Web-based offers.
Increase Awareness of Our Brand
We seek to increase awareness of the MyPoints brand through extensive
consumer and trade advertising campaigns, including national print and broadcast
placements and strategic industry sponsorships. We have unified our corporate
and consumer brand names to strengthen the MyPoint brand identity. We also plan
to establish partnerships with high-profile Internet brands. We will seek to
further associate our brand with the strong brands of our advertisers and
partners.
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Maintain Our Technology Leadership
The MyPoints Digital Loyalty Engine, which underlies our rewards programs,
is a highly scalable platform designed to serve the needs of our members and
business partners. The system currently supports approximately two million
member accounts working in proprietary, co-branded and private label loyalty
environments, and serves more than one million email and Web-based direct
marketing offers daily. We plan to continue developing and improving our
technology to meet the needs of a growing online marketplace. We also intend to
leverage the technology and experience of Experian, a leading information
services and database management company.
Pursue Strategic Acquisitions and Alliances
We have made several acquisitions, license arrangements and strategic
alliances to build our membership base and improve our level of services. In our
principal acquisition transaction, we acquired Internet and electronic commerce
assets and technologies to support Web-based rewards programs from companies
affiliated with Experian. This acquisition enabled us to integrate email and
Web-based direct marketing and loyalty programs under the MyPoints name. Through
this acquisition, we believe we have become a key element of Experian's
long-term Internet strategy. We intend to pursue additional strategic alliances
and acquisitions aggressively to increase membership through co-branded and
private label programs, offer new products and services, access new geographic
markets and obtain proprietary technologies.
Expand Internationally
We believe the anticipated international growth of Internet usage has the
potential to generate significant additional revenue opportunities for us.
According to IDC, the number of Web users outside the United States is projected
to increase from approximately 46 million in 1998 to approximately 184 million
in 2002. We currently have one international agreement in place with Sweden
Post, the Swedish postal service, to license a localized version of MyPoints
BonusMail for the Swedish market. Sweden Post operates one of Europe's leading
electronic commerce Web sites. Although we currently only have a single
international arrangement in place, we are committed to pursuing opportunities
for additional international strategic transactions.
MYPOINTS.COM PRODUCTS AND SERVICES
MyPoints and MyPoints BonusMail
The MyPoints program serves two primary constituencies, our members and our
business partners. Members enroll to earn rewards by responding to targeted
offers on the Web at the MyPoints Web site and to targeted offers by email
through MyPoints BonusMail. Advertising clients use MyPoints to reach a selected
group of members with targeted offers and incentives. We believe that MyPoints
is the Internet's only direct marketing program that integrates in a single
program outbound electronic commerce via "rewarded" email with Web-based
point-earning opportunities.
The MyPoints program begins with enrollment, where consumers receive
rewards points for providing key demographic and behavioral information. This
enrollment information is supplemented with transactional data gathered as our
members interact with our services. Once enrolled, MyPoints members receive
points for responding to targeted, personalized HTML-enhanced offers. Members
may also earn points by filling out additional online surveys. After earning a
sufficient number of points, MyPoints members may redeem their points online for
products and services from our rewards partners, including long distance
minutes, travel awards, points in other loyalty programs and electronic gift
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certificates. Members may also spend their points at participating catalog sites
where merchandise prices are denominated in points for MyPoints members.
The list of Web-based point-earning opportunities presented to the member
on the MyPoints "earn page" depends on the profile of the visiting member. Some
of the information that determines the point-earning opportunities directed to a
member include geographic location, leisure time interests, financial
information and investment interests. The MyPoints program features a
sophisticated online account maintenance area, where members may change their
preferences and other personal information, access their earning history and
account balance, contact a member care representative, and redeem points.
We also place a high degree of importance on our commitment to maintaining
the security of member information. We are members of both TRUSTe and the Online
Better Business Bureau, and we adhere to the principles of these organizations.
MyPoints Network
The MyPoints Network is a system of participating Web sites which offer our
members the opportunity to earn points at locations on the Internet other than
the MyPoints Web site. We provide participating Web sites with a supply of
reward points to distribute to their visitors as a loyalty and incentive tool in
exchange for the opportunity to enroll their visitors in our service. These
partnerships can be co-branded in cases such as GTE and Talk City, where the
partners commit to bring us a certain number of new members. In these
partnerships, the currency always retains the MyPoints brand and we retain
direct marketing rights to the members generated by the service.
We compensate loyalty partners with points for each new member the partner
brings to the MyPoints program. We either manage the program externally or
enable our partner to set point-earning opportunities without our direct
involvement using our Digital Loyalty Engine. The Digital Loyalty Engine enables
our partners to reward any action that requires a click on the site, such as
clicking on a banner, registering for a service or purchasing a product. We also
provide each partner with a supply of rewards points based on prospective
membership growth, internal promotion to MyPoints members, and, in some cases,
cooperative advertising to launch the new Web site.
Network partnerships create cost-effective membership growth. They also
increase our brand awareness among new affinity groups. Our network partnership
marketing group focuses on current rewards partners, electronic commerce
alliances, major electronic commerce and entertainment sites, Web-based email
providers, and online community sites and portals.
Private Label Loyalty Programs
We also build and operate fully customized, private label point programs
based on the MyPoints technology. We currently operate two private label
programs, on behalf of Prodigy (Prodigy Points) and NextCard Internet VISA
(NextCard Rew@rds). Private label loyalty programs operate in a manner similar
to the MyPoints Network program, except that the points are branded exclusively
for the partners. We may still market to the partners' members; however, the
marketing material we use is branded for the partners and the points issued for
responses are the partners' branded currency. The private label redemption
options can also be adjusted to maximize support for the partner's branding. We
might also include the partners' own product line in the redemption option,
providing a set of highly relevant awards to the partner's consumer base. At all
levels, a private label loyalty program reinforces the partner's brand and
builds loyalty to the partner's brand, while at the same time expanding our
direct marketing service base.
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Licensing Programs
We offer our technology for license to customers seeking to develop email
or Web-based direct marketing and loyalty programs. As part of our license
agreement, we may receive a set up fee and royalties based on a percentage of
revenues derived from the licensed site. We currently have one licensing
agreement in place with Sweden Post. This agreement establishes a version of the
MyPoints BonusMail program for the Swedish market. Licensing is an attractive
way for us to address most international market opportunities, which typically
require a foreign language Web site as well as advertising and points redemption
opportunities relevant to the local market.
SALES AND MARKETING
Our advertising sales organization consisted of 15 employees located in San
Francisco, New York, Los Angeles and Chicago as of March 25, 1999. This
organization is dedicated to developing and maintaining relationships with
leading advertisers and advertising agencies nationwide. We also seek to enter
into relationships with third-party advertising sales representatives to augment
the efforts of our direct sales personnel. For example, we recently entered into
an agreement with a telesales firm specializing in email advertising sales.
During 1998, over 150 advertisers participated in our direct marketing programs.
Our consumer marketing and business development organization consisted of
20 employees in San Francisco, New York and Chicago as of March 25, 1999. This
organization is dedicated to acquiring members for our online direct marketing
program. The consumer marketing group uses a variety of member acquisition
strategies, including referrals by current members, banner bars or other online
media placements, and affiliate programs. Affiliate programs include
relationships in which partners bring new members to MyPoints by introducing the
service to their own user bases in exchange for exposure of their own services
to the MyPoints membership or a cash payment per member. We have a wide variety
of affiliate programs in place, including one with Microsoft under which
MyPoints BonusMail is listed as a preferred product in the download area for
Microsoft's email product, Outlook Express. These products are complementary in
that Outlook Express enables the user to read rich-media email and MyPoints
BonusMail can deliver email in this format. The business development group uses
loyalty partnerships to acquire members for our online direct marketing program.
These partnerships can take various forms, including membership in the MyPoints
Network and private label loyalty programs.
ADVERTISING CLIENTS AND REWARDS PROVIDERS
Set forth below are representative lists of our advertising clients and
MyPoints rewards providers:
Advertising Clients
<TABLE>
<S> <C> <C>
Automotive -- Clarion, Nissan
Financial Services -- Citibank, E*Trade
Entertainment -- BMG Entertainment, Disney
Health -- BPR Health, OnHealth
Internet -- eBay, iVillage
Membership Services -- Cendant, The Signature Group
Publishing -- U.S. News and World Report, Ziff-Davis
Retail -- eToys, Macy's
Software -- Egghead.com, Intuit
Telecommunications -- Sprint, Working Assets
</TABLE>
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Rewards Providers
<TABLE>
<S> <C>
Barnes & Noble Blockbuster
Carnival Cruise Lines Eddie Bauer
Hilton HHonors Hyatt Hotels
Macy's Marriott
The Sharper Image Sony Music
Sprint Target
Tower Records VacationMiles
</TABLE>
MEMBER CARE
We have established a measurable member care process that is designed to
provide superior service to all program participants.
Automated Inquiry System
We have developed automated online support services for our members, such
as online access to account information and transaction histories. Our new
member inquiry interface, which we expect to release in the second quarter of
1999, is designed to answer member questions automatically. Through this member
inquiry system, customers will contact us via a Web form that generates an email
containing relevant customer account information for efficient handling by our
member care staff.
24/7 Support
We employ an internal staff dedicated to member care and a specialized
customer support vendor, Brigade Solutions, to maximize coverage and minimize
cost and turnaround time. Through this combination, we are able to provide
24-hour, 7-day coverage with immediate automated responses for all online
inquiries and a turnaround time of less than 24 hours for more than 95% of basic
member inquiries. We intend to continue to enhance our member care services
through increased availability of online member self-support and improved
customer reporting systems.
TECHNOLOGY AND INFRASTRUCTURE
We have developed a scalable, secure and reliable technology infrastructure
to support our online direct marketing and loyalty rewards program. The
principal element of our proprietary technology is our Digital Loyalty Engine.
The Digital Loyalty Engine enables our loyalty partners to set the parameters of
point-earning transactions without our direct involvement. Customizable elements
include the number of times in a given period an award may be earned, the number
of points per transaction, the maximum number of transactions per member and the
maximum aggregate numbers of points that can be awarded in a given campaign.
Partners can use the Digital Loyalty Engine to take advantage of market
opportunities on a real-time basis by establishing new point-earning
opportunities or altering the parameters of existing opportunities.
Scalability
Our technology is designed to support tens of millions of users. To date,
we have demonstrated the scalability of our architecture with approximately two
million consumers enrolled in our direct marketing and loyalty programs as well
as programs such as MyPoints by GTE, NextCard Rew@rds and Prodigy Points. Our
system is also designed to capture a large amount of data from our members,
which is critical
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to the creation of a successful online loyalty rewards program. Our systems can
also be integrated with our partners' own databases, thereby enhancing data
exchange and data mining for marketing purposes.
Security
We incorporate a variety of encryption techniques meant to protect the
privacy of consumer information and the integrity of client transactions. We
also employ a variety of automated fraud detection procedures to identify
patterns of abuse and potential fraudulent use of the system. Our fraud
detection systems can automatically disable accounts in which fraud is
suspected. The data center where our system is located provides 24/7 security
management.
Reliability
Our software system architecture uses industry standard technologies to
maximize reliability. We use Secure Socket Layer for secure transactions, Oracle
databases, the UNIX operating system and the Netscape Web server within our
infrastructure. All of these platforms have demonstrated a high degree of
reliability. Our databases are also distributed among clients and among
functions. In particular, each Digital Loyalty Engine, where transactions are
recorded, is separate from the main database of account records. As a result a
database failure will typically affect only a particular client or function and
will not adversely impact our entire system. We back up our Oracle databases to
long-term tape storage on a daily basis.
Our network servers are housed separately at Exodus Communications' data
center in Jersey City, New Jersey. The Exodus data center provides redundant
network connections, redundant connections to power grids, diesel generators for
emergency power, air conditioning and 24/7 engineering support. Our
infrastructure is built to maximize reliability through the use of multiple
central processor units and redundant power supplies, networking and
input/output controllers. Our Web servers use dynamic load balancing for
increased throughput and availability.
COMPETITION
We face intense competition from both traditional and online advertising
businesses. We expect competition to increase due to the lack of significant
barriers to entry in the online advertising market. As we expand the scope of
our services, we may compete with a greater number of media companies across a
wide range of advertising and direct marketing services. Currently, several
companies offer competitive online products or services, including CyberGold and
Netcentives. We may also face competition from established online portals and
community Web sites that engage in direct marketing, as well as from traditional
advertising agencies and direct marketing companies that may seek to offer
online products or services.
Our ability to compete depends upon many factors, including:
- the timing and market acceptance of new products and services developed
either by us or our competitors;
- our ability to demonstrate the effectiveness of our service to
advertisers;
- our ability to increase the number of members who participate in our
online programs;
- our ability to increase the depth of information in our database
regarding our members by capturing demographic, behavioral and
transactional data;
- our ability to increase awareness of our brand;
- the capacity of our technology infrastructure to meet the needs of our
members, advertisers and loyalty partners; and
- sales and marketing efforts by us or our competitors.
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INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Our success and ability to compete are substantially dependent on our
internally developed technologies and trademarks, which we seek to protect
through a combination of patent, copyright, trade secret and trademark law. We
have filed four patent applications in the United States. We also plan to file
corresponding international patent applications. We have entered into
confidentiality or license agreements with our employees and consultants, and
corporate and strategic partners and generally seek to control access to and
distribution of our documentation and other proprietary information. Despite
these precautions, it may be possible for third parties to copy or otherwise
obtain and use our proprietary information without authorization or to develop
similar technology independently. We pursue the registration of our trade and
service marks in the United States and internationally. We have registered
trademarks for "MyPoints," "BonusMail" and "Rew@rds" in the United States.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our services are distributed or made
available through the Internet, and policing unauthorized use of our proprietary
information is difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving. We cannot give any assurance as to the future
viability or value of any of our proprietary rights. In addition, we cannot give
any assurance as to the future viability or value, if any, of our proprietary
rights. In addition, we cannot give any assurance that the steps taken by us
will prevent misappropriation or infringement of our proprietary information.
Any infringement or misappropriation, should it occur, could have a material
adverse effect on our business, results of operations and financial condition.
In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Any intellectual
property litigation would result in substantial costs and diversion of resources
and management attention and could have a material adverse effect on our
business, results of operations and financial condition. Our business activities
may infringe upon the proprietary rights of others, and other parties may assert
infringement claims against us. These claims and any resultant litigation,
should it occur, may subject us to significant liability for damages, may result
in invalidation of our proprietary rights and, even if not meritorious, would be
time-consuming and expensive to defend and would result in the diversion of
management time and attention, any of which may have a material adverse effect
on our business, results of operations and financial condition.
We have licensed, and may license in the future, elements of our
trademarks, trade dress and similar proprietary rights to third parties. While
we attempt to ensure that the quality of our brand is maintained by these
business partners, they may take actions that could materially and adversely
affect the value of our proprietary rights or reputation.
EMPLOYEES
As of March 25, 1999, we employed 79 people, including 35 in sales and
marketing, 31 in technology and production and 13 in support, administration,
finance, management and human resources. We believe that we maintain good
relations with our employees.
FACILITIES
We are currently leasing approximately 7,878 square feet of office space in
San Francisco, California, approximately 5,650 square feet of office space in
Schaumburg, Illinois and approximately 4,500 square feet of office space in New
York, New York. Our sales, marketing, finance and administration functions are
based in San Francisco. Our technology and production groups are based in
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Schaumburg. We are currently in the process of expanding our Schaumburg facility
by leasing additional space in our current building and we believe we will be
able to obtain such additional space on commercially reasonable terms. We also
currently plan to increase our office space in San Francisco during 1999. We do
not have any commitments for this additional space, but we believe we can obtain
additional space on commercially reasonable terms. We believe that the
additional space we intend to lease in San Francisco and Schaumburg will meet
our space requirements for the next several years. The lease for the San
Francisco facility expires in November 1999, with an option to extend the lease
for one additional three-year term. The leases for the existing Schaumburg
facility expire in May 1999 and March 2001.
DIRECT MARKETING BOARD OF ADVISORS
We have assembled a board of advisors with significant experience in the
direct marketing industry. Our board of advisors consists of:
Steve Carbone
President, Grey Direct e.marketing
G. Steven Dapper
Chief Executive Officer of Hawkeye Media
Former Chairman and Chief Executive Officer, Rapp Collins Worldwide
Rashi Glazer
Editor-in-Chief, Interactive Marketing Journal
Professor of Marketing, Haas School of Business, University of
California at Berkeley
Worthington Linen
Chairman and Chief Executive Officer, The Signature Group
Former President and Chief Executive Officer, BMG Direct
George S. Wiedemann
Chairman and Chief Executive Officer, Grey Direct Marketing Group
Chairman of the Direct Marketing Association
Lester Wunderman
Founder and former Chairman, Wunderman Cato Johnson
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, as of December 31, 1998, certain
information concerning our executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven M. Markowitz.................. 28 Chief Executive Officer and Chairman of the Board
Robert C. Hoyler..................... 48 President, Chief Operating Officer and Director
Charles H. Berman.................... 47 Senior Vice President, Sales
Virgil Bistriceanu................... 40 Senior Vice President, Technology
Frank J. Pirri....................... 58 Senior Vice President, Partnership Development
Robert Wise.......................... 39 Senior Vice President, Member Marketing
Layton S. Han........................ 33 Vice President, Finance and Chief Financial Officer
Howard L. Morgan..................... 53 Director
Thomas Newkirk....................... 45 Director
Lawrence E. Phillips................. 32 Director
Mario M. Rosati...................... 52 Director
Lester Wunderman..................... 78 Director
</TABLE>
Steven M. Markowitz is a founder of MyPoints.com and has served as our
Chief Executive Officer and Chairman of the Board since November 1996. Mr.
Markowitz also served as our President from November 1996 until December 1998.
From May 1995 to August 1996, Mr. Markowitz was a securities analyst with
Fidelity Management & Research (Far East), a unit of Fidelity Investments. Mr.
Markowitz is also the founder of a specialty catalog for the Japanese software
market and has acted as an advisor to that company since 1992. From 1992 to
1994, Mr. Markowitz was a Tokyo-based correspondent for Dow Jones & Co., Inc., a
business and financial news publishing company. Mr. Markowitz holds an A.B. from
the University of California at Berkeley and an M.B.A. from the Haas School of
Business, University of California at Berkeley.
Robert C. Hoyler has served as our President and Chief Operating Officer
since December 1998 and has served as one of our directors since January 1999.
Prior to joining MyPoints.com, Mr. Hoyler had served as Chief Executive Officer
of MotivationNet since July 1996. From July 1993 to March 1996, Mr. Hoyler
served as Senior Vice President of Diversified Businesses at Keebler, a leading
consumer products company, where he was responsible for sales, marketing and
manufacturing for Keebler's non-store door businesses. Mr. Hoyler holds a B.A.
from Loyola University and a Master of Management from J.L. Kellogg Graduate
School of Management, Northwestern University.
Charles H. Berman has served as our Senior Vice President, Sales since
October 1998. From September 1998 to October 1998, Mr. Berman served as our
Director of Business Development. From February 1998 to September 1998, Mr.
Berman served as our Director of Consumer Marketing where he was responsible for
all membership acquisition. From July 1994 to December 1997, Mr. Berman served
as President of Goodstuffs, a gourmet food and wine company. From 1988 to June
1994, Mr. Berman served as President of WineWrights, a wine membership
organization company, where he managed the company from inception. Mr. Berman
holds a B.A. from Case Western Reserve University and an M.B.A. from San
Francisco State University.
Virgil Bistriceanu has served as our Senior Vice President, Technology
since November 1998. Since August 1994 Mr. Bistriceanu has also been an
instructor in the Computer Science Department of the Illinois Institute of
Technology. From May 1997 to November 1998, Mr. Bistriceanu served as Chief
Technology Officer of MotivationNet where he designed the architecture and
managed implementation
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of its rewards program. Mr. Bistriceanu holds an M.S. in Electrical Engineering
from the Polytechnic Institute of Bucharest, Romania.
Frank J. Pirri has served as our Senior Vice President, Partnership
Development since December 1998. From May 1997 to November 1998 Mr. Pirri served
as Executive Vice President of MotivationNet. From January 1994 to May 1997, Mr.
Pirri served as the President and Chief Executive Officer of Life Facts, Inc., a
medical information products company. From January 1993 to January 1994, Mr.
Pirri served as the Vice Chairman of S&H Citadel, Inc., an incentives marketing
services company, following its merger with S&H Motivation and Citadel
Motivation. From 1987 to January 1993, Mr. Pirri served as President and Chief
Executive Officer of S&H Motivation, a consumer and business-to-business
performance improvement company. Prior to S&H Motivation, Mr. Pirri held
numerous positions over a 24-year period at The Sperry & Hutchinson Company (S&H
Green Stamps). Mr. Pirri holds a B.B.A. from Pace University and a Master of
Management from J.L. Kellogg Graduate School of Management, Northwestern
University.
Robert Wise has served as our Senior Vice President, Member Marketing since
June 1998. From July 1995 to February 1998, Mr. Wise served as Vice President,
Acquisition Marketing for the Consumer Card Group at American Express Travel
Related Services where he led the new customer database marketing business. From
May 1994 to July 1995, Mr. Wise managed acquisition marketing for American
Express' Optima Card. Mr. Wise also managed the first American Express Card
loyalty program. Mr. Wise holds a B.S. and a B.A. from the University of
Pennsylvania and an M.B.A. from the Stern School of Business, New York
University.
Layton S. Han has served as our Vice President, Finance and Chief Financial
Officer since November 1996. From May 1996 to August 1996, Mr. Han served with
the strategy and business development group of US West Media Group, a
telecommunication company. From 1989 to January 1996, Mr. Han served as an
Account Executive of Travelers Insurance Company where he underwrote insurance
and risk financing products for corporate clients. Mr. Han holds a B.S. from the
University of California, Davis and an M.B.A. from the Haas School of Business,
University of California at Berkeley.
Howard L. Morgan has served as one of our directors since November 1996.
Since 1989, Dr. Morgan has been President of the Arca Group, Inc., a consulting
and investment management firm specializing in the areas of computer and
communications technologies. Dr. Morgan also has served as a General Partner of
Idealab! Corporation, an incubator of internet and e-commerce companies, since
January 1999. Dr. Morgan also served as Chief Executive Officer of Franklin
Electronic Publishers, Inc. in early 1998. Dr. Morgan was Professor of Decision
Sciences at the Wharton School of Business at the University of Pennsylvania
from 1972 through 1986. Dr. Morgan serves as director for a number of public
companies, including Cylink Corp., Franklin Electronic Publishers, Inc.,
Infonautics Corporation, Kentek Information Systems, Inc., MetaCreations
Corporation, Segue Software, Inc. and Unitronix Corp. Dr. Morgan holds a B.S.
from City College of New York and a Ph.D. from Cornell University.
Thomas Newkirk has served as one of our directors since January 1999. Mr.
Newkirk has served as the Chairman of Experian and Experian Marketing Solutions,
a subsidiary of the information services company Experian, since 1998. Mr.
Newkirk founded Direct Marketing Technology in 1981 and has served as Chairman
since 1990. Mr. Newkirk holds a B.S. from Massachusetts Institute of Technology
and attended the M.B.A. program at Cornell University.
Lawrence E. Phillips has served as one of our directors since December
1998. In April 1998, Mr. Phillips formed and presently serves as Managing
Director of Primedia Ventures, a venture capital fund of Primedia, a media and
publishing company, where he directs investing activities in early-stage
Internet software, commerce and advertising companies. Prior to founding
Primedia Ventures, from February 1995 to April 1998, Mr. Phillips founded and
managed an Internet division for Primedia's
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Magazine Group, where he had general management responsibilities for the launch
and operation of several Web sites. From September 1992 to February 1995, Mr.
Phillips was a Vice President at Unterberg Harris, an investment banking firm.
Mr. Phillips holds an A.B. from Cornell University and an M.B.A. from Harvard
Business School.
Mario M. Rosati has served as one of our directors since November 1996. Mr.
Rosati has been with the Palo Alto, California law firm of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, since 1971, first as an associate
and then as a member since 1975. Mr. Rosati also serves on the boards of
directors of Sanmina Corporation, Ross Systems, Inc., Vivus, Inc., Meridian
Data, Inc., Genus, Inc. and Aehr Test Systems. Mr. Rosati holds a B.A. from the
University of California, Los Angeles and a J.D. from the University of
California at Berkeley, Boalt Hall School of Law.
Lester Wunderman has served as one of our directors since January 1999. Mr.
Wunderman served as Chairman of Wunderman Cato Johnson, a world-wide direct
marketing agency, which he founded in 1958. Mr. Wunderman is also Visiting
Professor of Direct Marketing at the School for Continuing Education at New York
University. He has served as Chairman of the Executive Committee of the Center
for Direct Marketing at New York University and is a Trustee of the Children's
Television Workshop. Mr. Wunderman serves as a director of Infonautics
Corporation. Mr. Wunderman holds an honorary doctorate from City University of
New York.
BOARD COMPOSITION
Our bylaws currently authorize seven directors. Our certificate of
incorporation and bylaws that become effective upon the completion of this
offering provide that our board will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. The
Class I directors, Messrs. Morgan, Markowitz and Rosati, will stand for
reelection at the 2000 annual meeting of stockholders. The Class II directors,
Messrs. Hoyler and Phillips, will stand for reelection at the 2001 annual
meeting of stockholders. The Class III directors, Messrs. Newkirk and Wunderman,
will stand for reelection at the 2002 annual meeting of stockholders. Any
additional directorships resulting from an increase in the number of directors
will be distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the directors. This staggered classification
of the board of directors may have the effect of delaying or preventing changes
in control or management. There are no family relationships among any of our
directors, officers or key employees.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has a compensation committee and an audit committee.
Our compensation committee consists of Messrs. Morgan, Newkirk and
Phillips. The compensation committee makes recommendations regarding our various
incentive compensation and benefit plans and determines salaries for our
executive officers and incentive compensation for our employees and consultants.
Our audit committee consists of Messrs. Phillips and Wunderman. The audit
committee makes recommendations to the board of directors regarding the
selection of our independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors and reviews and
evaluates our control functions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of our compensation committee was, at any time since
our formation, an officer or employee of MyPoints.com. None of our executive
officers serves as a member of the board of
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directors or compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee. See "Certain Transactions" for a description of transactions between
MyPoints.com and entities affiliated with members of our compensation committee.
DIRECTOR COMPENSATION
We do not currently pay any cash compensation to our directors for their
services as members of the board of directors, although we reimburse them for
reasonable expenses in connection with attending our board and committee
meetings. We do not provide additional compensation for committee participation
or special assignments of the board of directors. From time to time, we have
granted our outside directors options to purchase shares of our common stock
under the 1996 stock plan or the 1999 stock plan. In January 1997, we granted
Mr. Morgan an option to purchase 133,333 shares at a per share exercise price of
$0.05. In September 1997, we granted Mr. Rosati an option to purchase 113,333
shares at a per share exercise price of $0.10. In February 1998, we granted Mr.
Rosati an option to purchase 20,000 shares at a per share exercise price of
$0.10 and Mr. Wunderman, then in his capacity as a member of our board of
advisors, an option to purchase 10,000 shares at a per share exercise price of
$0.05. In January 1999, we granted Mr. Newkirk an option to purchase 25,000
shares, Mr. Phillips an option to purchase 25,000 shares and Mr. Wunderman an
option to purchase 50,000 shares, all at a per share exercise price of $1.00.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us during 1998 to
our Chief Executive Officer and our four other most highly compensated executive
officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING
NAME AND PRINCIPAL POSITIONS SALARY($) OPTIONS(#)
---------------------------- ------------ ------------
<S> <C> <C>
Steven M. Markowitz......................................... $100,000 --
Chief Executive Officer and Chairman of the Board of
Directors
Robert C. Hoyler............................................ 139,682 --
President and Chief Operating Officer
Virgil Bistriceanu.......................................... 108,184 96,675
Senior Vice President, Technology
Frank J. Pirri.............................................. 109,384 --
Senior Vice President, Partnership Development
Robert Wise................................................. 94,583 112,000
Senior Vice President, Member Marketing
</TABLE>
Messrs. Hoyler's, Bistriceanu's and Pirri's salaries include amounts earned
at MotivationNet before its acquisition by MyPoints.com. Mr. Wise joined
MyPoints.com in June 1998 at an annual salary of $145,000.
43
<PAGE> 45
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information relating to stock options
granted during 1998 to our Chief Executive Officer and our four other most
highly compensated executive officers. All such options were awarded under our
1996 stock plan or our 1999 stock plan and have a term of ten years from the
date of grant.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
------------------------------------------------------------ STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL OPTIONS FOR OPTIONS
UNDERLYING GRANTED TERM($)
OPTIONS IN FISCAL EXERCISE EXPIRATION -----------------
NAME GRANTED(#) 1998 PRICE($/SH.) DATE 5% 10%
---- ------------- ------------- --------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Steven M. Markowitz............. -- -- -- -- -- --
Robert C. Hoyler................ -- -- -- -- -- --
Virgil Bistriceanu.............. 96,675 9.0% $0.26 12/23/2008 $15,808 $40,060
Frank J. Pirri.................. -- -- -- -- -- --
Robert Wise..................... 112,000 10.4 0.20 7/06/2008 14,087 35,700
</TABLE>
In 1998, we granted options to purchase an aggregate of 1,079,562 shares of
common stock to our employees, directors and consultants. Generally, we grant
options at an exercise price equal to the fair market value of the underlying
common stock on the date of grant, as determined by our board of directors, and
the options vest over four years from the date of grant. Mr. Bistriceanu's
option vests over three years beginning May 1, 1997.
In accordance with the rules of the Securities and Exchange Commission, the
above table sets forth the potential realizable value over the ten-year period
from the grant date to the expiration date, assuming rates of stock appreciation
of 5.0% and 10.0%, compounded annually. These amounts do not represent our
estimate of future stock price performance. Actual realizable values, if any, of
stock options will depend on the future performance of the common stock.
In addition, in January 1999, we granted Mr. Markowitz an option to
purchase 350,000 shares, Mr. Hoyler an option to purchase 250,000 shares and Mr.
Bistriceanu options to purchase 138,595 shares of common stock. These options
were granted under our 1999 stock plan at an exercise price of $1.00 per share.
44
<PAGE> 46
FISCAL YEAR-END OPTION VALUES
The following table sets forth information for our Chief Executive Officer
and our four other most highly compensated executive officers relating to the
number and value of securities underlying exercisable and unexercisable options
held at December 31, 1998. These executive officers did not exercise any options
during 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1998(#) DECEMBER 31, 1998($)
------------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Steven M. Markowitz.............. -- -- -- --
Robert C. Hoyler................. -- -- -- --
Virgil Bistriceanu............... 62,435 34,240 -- --
Frank J. Pirri................... -- -- -- --
Robert Wise...................... -- 112,000 -- $6,720
</TABLE>
The value of unexercised in-the-money options at December 31, 1998 above is
based on a value of $0.26 per share, the fair market value of our common stock
as of December 23, 1998, as determined by our board of directors, less the per
share exercise price, multiplied by the number of shares issued upon exercise of
the option. All options were granted under our 1996 stock plan or our 1999 stock
plan.
STOCK PLANS
1999 Stock Plan. Our 1999 stock plan was adopted by the board of directors
in November 1998. In March 1999, our board of directors amended the 1999 stock
plan to increase the number of shares reserved for issuance to a total of
2,966,962 shares. As of March 25, 1999, options to purchase an aggregate of
1,828,300 shares were outstanding, 6,550 shares of common stock had been
purchased pursuant to exercises of stock options and stock purchase rights, and
1,132,112 shares were available for future grant.
The 1999 stock plan provides for the grant of incentive stock options, as
defined in Section 422 of the Internal Revenue Code, to employees and
nonstatutory stock options, stock purchase rights and stock bonus rights to
employees, directors and consultants. The 1999 stock plan may be administered by
different committees with respect to different groups of service providers.
Options granted as performance-based compensation within the meaning of Section
162(m) are administered by a committee of two or more outside directors. Option
administration committees may make final and binding determinations regarding
the terms and conditions of the awards granted, including the exercise prices,
the numbers of shares subject to the awards and the exercisability of the
awards, forms of agreement for use under the plan and interpretation of plan
terms.
The exercise price of incentive stock options granted under the 1999 stock
plan must be at least equal to the fair market value of our common stock on the
date of grant. However, for any employee holding more than 10% of the voting
power of all classes of our stock, including the stock of any parent or
subsidiary of MyPoints.com, the exercise price will be no less than 110% of the
fair market value and for any service provider, the exercise price will be no
less than 85% of the fair market value. The exercise price of nonstatutory stock
options is set by the administrator of the 1999 stock plan. However, for any
person holding more than 10% of the voting power of all classes of our stock,
the exercise price will be no less than 110% of the fair market value. The
maximum term of options granted under the 1999 stock plan is ten years.
An optionee whose relationship with us or any related corporation ceases
for any reason, other than death or total and permanent disability, may exercise
options in the three-month period following such cessation, or such other period
of time as determined by the administrator, unless these options terminate or
expire sooner, or for nonstatutory stock options, later, by their terms. The
three-month period is
45
<PAGE> 47
extended to 12 months for terminations due to death or total and permanent
disability. In the event of a merger, sale or reorganization of MyPoints.com
into another corporation that results in a change of control of us, options that
would have become vested within 18 months after the closing date of the merger
transaction will accelerate and become fully vested upon the closing of the
transaction. In the event of a change of control transaction, either other
outstanding options that are not accelerated would be assumed by the successor
company or an equivalent option would be substituted by the successor company.
If any of these options are not assumed or substituted, they would terminate.
None of our employees may be granted options to purchase more than 500,000
shares in any fiscal year, or more than 500,000 shares in the case of a new
employee's initial employment with us. The 1999 stock plan will terminate in
November 2008, unless sooner terminated by the board of directors.
The board of directors may also grant stock purchase rights to employees,
directors and consultants under the 1999 stock plan. These grants are made
pursuant to restricted stock purchase agreements, and the price to be paid for
the shares granted thereunder is determined by the administrator. We are
generally granted a repurchase option exercisable on the voluntary or
involuntary termination of the purchaser's employment with us for any reason,
including death or disability. The repurchase price must be the original
purchase price paid by the purchaser. The repurchase option lapses at a rate
determined by the administrator. Once the stock purchase right has been
exercised, the purchaser will have the rights equivalent to those of a
stockholder.
1996 Stock Plan. Our 1996 stock plan was adopted by the board of directors
in November 1996. In November 1998, the 1996 stock plan was amended to decrease
the number of shares of common stock reserved for issuance to 935,833 shares. As
of March 25, 1999, options to purchase an aggregate of 781,645 shares were
outstanding, 122,520 shares of common stock had been purchased pursuant to
exercises of stock options and stock purchase rights and 31,668 shares were
available for future grant.
The 1996 stock plan provides for the grant of incentive stock options, as
defined in Section 422 of the Internal Revenue Code, to employees and
nonstatutory stock options, stock purchase rights and stock bonus rights to
employees, directors and consultants. The 1996 stock plan may be administered by
the board of directors or a committee appointed by the board. The option
administration committee may make final and binding determinations regarding the
terms and conditions of the awards granted, including the exercise prices, the
numbers of shares subject to the awards and the exercisability of the awards,
forms of agreement for use under the plan and interpretation of plan terms.
The exercise price of incentive stock options granted under the 1996 stock
plan must be at least equal to the fair market value of our common stock on the
date of grant. However, for any employee holding more than 10% of the voting
power of all classes of our stock, the exercise price will be no less than 110%
of the fair market value. The exercise price of nonstatutory stock options is as
follows: for any person holding more than 10% of the voting power of all classes
of our stock including the stock of any parent or subsidiary of MyPoints.com,
the exercise price will be no less than 110% of the fair market value, and for
any service provider, the exercise price will be no less than 85% of the fair
market value. The maximum term of options granted under the 1996 stock plan is
generally ten years. The maximum term of options granted to holders of at least
10% of our stock is five years.
An optionee whose relationship with us or any related corporation ceases
for any reason, other than death or total and permanent disability, may exercise
options in the three-month period following such cessation, or such other period
of time as determined by the administrator, unless these options terminate or
expire sooner, or for nonstatutory stock options, later, by their terms. The
three-month period is extended to 12 months for terminations due to death or
total and permanent disability. In the event of a merger, sale or reorganization
of MyPoints.com into another corporation that results in a change of control of
us, options that would have become vested within 18 months after the closing
date of the merger transaction will accelerate and become fully vested upon the
closing of the transaction. In the event of a change of control transaction,
either other outstanding options that are not accelerated would
46
<PAGE> 48
be assumed by the successor company or an equivalent option would be substituted
by the successor company. If any these options are not assumed or substituted,
they would terminate. The 1996 stock plan will terminate in November 2006,
unless sooner terminated by the board of directors.
The board of directors may also grant stock purchase rights to employees,
directors and consultants under the 1996 stock plan. These grants are made
pursuant to restricted stock purchase agreements, and the price to be paid for
the shares granted thereunder is determined by the administrator. We are
generally granted a repurchase option exercisable on the voluntary or
involuntary termination of the purchaser's employment with us for any reason,
including death or disability. The repurchase price must be the original
purchase price paid by the purchaser. The repurchase option lapses at a rate
determined by the administrator. Once the stock purchase right has been
exercised, the purchaser will have the rights equivalent to those of a
stockholder.
1999 Employee Stock Purchase Plan. Our 1999 employee stock purchase plan
provides employees of MyPoints.com with an opportunity to purchase our common
stock through accumulated payroll deductions. A total of 200,000 shares of
common stock has been reserved for issuance under the purchase plan, none of
which has been issued. The purchase plan will be administered by our board of
directors or by a committee appointed by the board. The purchase plan permits
eligible employees to purchase common stock through payroll deductions of up to
15.0% of an employee's compensation, up to a maximum of $25,000, determined by
the fair market value of the shares at the time the stock is purchased, for all
purchases ending within the same calendar year. Employees are eligible to
participate if they are customarily employed by us for at least 20 hours per
week and more than five months in any calendar year. Unless the board of
directors or its committee determines otherwise, each offering period will run
for six months. The first offering period will commence on the date of this
prospectus and will terminate on December 31, 1999. Thereafter, new six-month
offering periods will begin on January 1 and July 1 of each year. In the event
of an acquisition of MyPoints.com, the offering period then in progress will be
shortened and all rights automatically exercised if the purchase rights are not
assumed or substituted by the successor corporation. The price at which common
stock will be purchased under the purchase plan is equal to 85.0% of the fair
market value of the common stock on the first day of the offering period or the
last day of the offering period, whichever is lower. Employees may end their
participation in an offering period at any time, and participation automatically
ends on termination of employment. The board may amend, modify or terminate the
purchase plan at any time as long as the amendment, modification or termination
does not impair vesting rights of plan participants. The purchase plan will
terminate in March 2009, unless terminated earlier in accordance with its
provisions.
Senior Management Incentive Plan. In 1999, we adopted a senior management
incentive plan under which our executive officers may receive grants of options
upon our achievement of various revenue and cash flow targets. The plan sets
quarterly, semi-annual and annual targets.
401(K) PLAN
In February 1997, we adopted a 401(k) plan covering our full-time employees
located in the United States. The 401(k) plan is intended to qualify under
Section 401(k) of the Internal Revenue Code, so that contributions to the 401(k)
plan by employees or by us, and the investment earnings thereon, are not taxable
to employees until withdrawn from the 401(k) plan, and so that we can deduct our
contributions, if any, when made. Pursuant to the 401(k) plan, employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit ($10,000 in 1999) and to have the amount of the reduction
contributed to the 401(k) plan. The 401(k) plan permits, but does not require,
that we provide additional matching contributions to the 40l(k) plan on behalf
of all participants in the 401(k) plan. To date, we have not made any
contributions to the 401(k) plan.
47
<PAGE> 49
INDEMNIFICATION AND LIMITATION OF LIABILITY
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for any of the
following:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our bylaws provide that we must indemnify our directors and executive
officers and may indemnify our other officers and employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
Prior to the completion of this offering, we will have entered into
agreements to indemnify our directors and executive officers, in addition to
indemnification provided for in our bylaws. These agreements, among other
things, indemnify our directors and executive officers for certain expenses,
including attorneys' fees, judgments, fines and settlement amounts incurred by
them in any action or proceeding, including any action by us arising out of
their services as directors or executive officers of MyPoints.com, any of our
subsidiaries or any other company or enterprise to which the person provides
services at our request. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
48
<PAGE> 50
CERTAIN TRANSACTIONS
MYPOINTS.COM TRANSACTIONS WITH EXPERIAN AND RELATED ENTITIES
In November 1998 and December 1998, we entered into a series of
transactions to acquire Internet and electronic commerce related assets from
companies affiliated with Experian. As part of these transactions, Experian
acquired shares of our common stock equal to 19.9% of our then outstanding
shares of common stock. These transactions involved the following principal
elements:
- The merger of a subsidiary of MyPoints.com with and into Enhanced
Response Technologies, Inc., where the outstanding shares and options of
Enhanced Response Technologies were exchanged for 1,435,946 shares of our
common stock and options to purchase 402,818 shares of our common stock;
- The acquisition from two subsidiaries of Experian of all of the
outstanding ownership interests of MotivationNet, LLC in exchange for
1,213,592 shares of our Series D preferred stock and 2,164,535 shares of
our common stock;
- The acquisition from Metromail Corporation, an affiliate of Experian, of
certain assets relating to the "Direct Value to You Internet" sponsorship
product for $400,000 in cash, payable over 30 months;
- A services agreement between Direct Marketing Technology, Inc., a
wholly-owned subsidiary of Experian, and MyPoints.com in which Direct
Marketing Technology agreed to continue to provide demographic data and
other list processing services that is required for MyPoints.com to
operate and administer its problems; and
- A license agreement between Direct Marketing Technology, Inc. and
MyPoints.com that grants us the right to use certain intellectual
property rights associated with the MyPoints program, in exchange for
royalties specified in the license agreement.
The license agreement provides for an aggregate royalty payment of $4.2
million, payable in monthly installments equal to the greater of $35,000 or 3.0%
of our monthly revenues generated through the operation of the MyPoints program.
The license agreement also provides that, in the event of our initial public
offering, we must prepay the royalty by making a payment equal to the present
value of the $4.2 million royalty amount, less any monthly royalties previously
paid, discounted using a rate equal to the prime rate, as published in The Wall
Street Journal, plus 2.0%. MyPoints estimates that this prepayment will equal
approximately $2.6 million upon the completion of this offering. This estimate
assumes this payment will be made in June 1999. The actual amount of this
payment could vary depending upon the timing of the payment and fluctuations in
interest rates. Once we have made this license payment, our obligations under
the license will be fully satisfied and we will have no future royalty
obligations.
OUR FORMATION
In connection with our incorporation in November 1996, we issued 843,775
shares of common stock to Steven M. Markowitz, 593,750 shares to Mark S. Smith,
593,750 shares to Noah J. Doyle, 250,000 shares to Layton S. Han and 150,000
shares to Daniel K. Kihanya, at a purchase price of $0.001 per share paid in
cash. These founders' shares are subject to a right of repurchase by us at the
original purchase of $0.001 per share. This repurchase right lapses over a
period of four years from the original date of issuance of the shares.
49
<PAGE> 51
PREFERRED STOCK FINANCINGS
In November and December 1996, MyPoints.com issued to various investors a
total of 3,000,000 shares of Series A preferred stock at a purchase price of
$0.50 per share. In several transactions from October 1997 through April 1998,
MyPoints.com issued to various investors a total of 2,926,666 shares of Series C
preferred stock at a purchase price of $1.50 per share. In November 1998, we
issued to various investors a total of 3,961,649 shares of Series D preferred
stock and warrants to purchase 1,374,028 additional shares of Series D preferred
stock at a purchase price of $2.06 per share. In March 1999, we entered into a
binding commitment to sell to various investors, all of whom entered into
binding agreements to purchase, an aggregate of 2,000,000 shares of Series E
preferred stock at a purchase price of $5.00 per share.
Investors in our preferred stock include, among others, the following
directors and holders of more than 5% of our outstanding stock:
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------------------
PREFERRED STOCKHOLDER SERIES A SERIES C SERIES D SERIES E(1)
--------------------- --------- -------- --------- -----------
<S> <C> <C> <C> <C>
HOLDERS OF MORE THAN 5%:
Direct Marketing Technology, Inc........ -- -- 1,213,592(2) 296,229
S-7 Associates, L.L.C................... 866,667 300,000 400,485(3) 160,447
Long Island Venture Fund, L.P........... 1,000,000 333,333 -- --
Harold M. Brierley...................... 1,000,000 200,000(4) -- --
Primedia Ventures....................... -- -- 1,165,049(5) 68,109
Auber Investments Limited............... -- 666,667 436,893(6) 132,622
Applewood Associates, L.P............... -- 666,666 436,893(6) 84,001
DIRECTORS:
Thomas Newkirk.......................... -- -- 1,213,592(7) 296,229(8)
Lawrence E. Phillips.................... -- -- 1,165,049(9) 68,109(10)
Howard L. Morgan........................ 133,333 33,333 36,408(11) 16,743
Lester Wunderman........................ -- 16,667 36,408(11) 4,986
</TABLE>
- -------------------------
(1) On March 30, 1999, we entered into a binding commitment to sell 2,000,000
shares of Series E preferred stock, including those shares listed here.
(2) Represents shares issued in exchange for the acquisition of MotivationNet,
LLC.
(3) Includes 133,495 shares issuable pursuant to a warrant to purchase Series D
preferred stock.
(4) Includes 200,000 shares of Series C preferred stock held by Targeted
Marketing Systems, Inc. Mr. Brierley, President of Targeted Marketing
Systems, disclaims beneficial ownership of the shares held by that entity,
except to the extent of his proportionate pecuniary interest therein based
on his beneficial ownership of the capital stock of Targeted Marketing
Systems.
(5) Includes 388,350 shares issuable pursuant to a warrant to purchase Series D
preferred stock.
(6) Includes 145,631 shares issuable pursuant to a warrant to purchase Series D
preferred stock.
(7) Represents 1,213,592 shares held by Direct Marketing Technology. Mr.
Newkirk, the Chairman of Direct Marketing Technology, disclaims beneficial
ownership of the shares held by that entity, except to the extent of his
proportionate pecuniary interest therein based upon his beneficial
ownership of the capital stock of Direct Marketing Technology.
(8) Represents 296,229 shares held by Direct Marketing Technology. Mr. Newkirk
disclaims beneficial ownership of the shares held by that entity, except to
the extent of his proportionate pecuniary interest therein based upon his
beneficial ownership of the capital stock of Direct Marketing Technology.
(9) Represents 776,699 shares held by Primedia Ventures and 388,350 shares
issuable pursuant to a warrant held by Primedia Ventures to purchase Series
D preferred stock. Mr. Phillips, a managing director of Primedia Ventures,
50
<PAGE> 52
disclaims beneficial ownership of the shares and warrant held by Primedia
Ventures, except to the extent of his proportionate pecuniary interest
therein.
(10) Represents 68,109 shares held by Primedia Ventures. Mr. Phillips disclaims
beneficial ownership of the shares held by Primedia Ventures, except to the
extent of his proportionate pecuniary interest therein.
(11) Includes 12,136 shares issuable pursuant to a warrant to purchase Series D
preferred stock.
Holders of our preferred stock are entitled to registration rights with
respect to the shares of common stock that they will hold following this
offering. See "Description of Capital Stock -- Registration Rights."
OTHER TRANSACTIONS
A former member of our board of directors founded Targeted Marketing
Systems, Inc. a service provider that we engaged for creative services to assist
in the development of our marketing program and Web site. We made total payments
to Targeted Marketing Systems of $223,000 in 1997 and none in 1996 or 1998. As
of December 31, 1997 and 1998, we owed no amounts to Targeted Marketing Systems.
Mario M. Rosati, one of our directors, is also a member of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, which has served as our outside
corporate counsel since our formation.
Prior to the completion of this offering, we plan to enter into
indemnification agreements with each of our directors and executive officers.
See "Management -- Indemnification and Limitation of Liability Matters."
POLICY REGARDING TRANSACTIONS WITH AFFILIATES
It is our policy that future transactions with affiliates, including any
loans we make to our officers, directors, principal stockholders or other
affiliates will be on terms no less favorable to us than we could have obtained
from unaffiliated third parties. These transactions will be approved by a
majority of our board of directors, including a majority of the independent and
disinterested members or, if required by law, a majority of disinterested
stockholders.
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<PAGE> 53
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock, as of March 25, 1999, by the following
individuals or groups:
- each person, or group of affiliated persons, whom we know beneficially
owns more than 5% of our outstanding stock;
- each of our executive officers;
- each of our directors; and
- all of our directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder on this table
is c/o MyPoints.com, Inc., 565 Commercial Street, 4th Floor, San Francisco,
California 94111. Except as otherwise noted, and subject to applicable community
property laws, to the best of our knowledge, the persons named in this table
have sole voting and investing power with respect to all of the shares of common
stock held by them.
This table lists applicable percentage ownership based on 18,437,120 shares
of common stock outstanding as of March 25, 1999, as adjusted to reflect the
conversion of all outstanding shares of preferred stock upon the closing of this
offering, and also lists applicable percentage ownership based on
shares of common stock outstanding after completion of this
offering. Options and warrants to purchase shares of our common stock that are
exercisable within 60 days of March 25, 1999 are deemed to be beneficially owned
by the persons holding these options or warrants for the purpose of computing
percentage ownership of that person, but are not treated as outstanding for the
purpose of computing any other person's ownership percentage.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------
PERCENT BEFORE PERCENT AFTER
BENEFICIAL OWNER NUMBER OFFERING OFFERING
---------------- --------- -------------- -------------
<S> <C> <C> <C>
Direct Marketing Technology, Inc..................... 3,674,356 19.9% %
505 City Parkway West, 10th Floor
Orange, CA 92868
S-7 Associates, L.L.C.(1)............................ 1,727,599 9.3
800 Third Avenue, 33rd Floor
New York, NY 10022
Long Island Venture Fund, L.P. ...................... 1,333,333 7.2
145 Hofstra University, Suite 213
Business Development Center
Hempstead, NY 11550-1090
Harold M. Brierley(2)................................ 1,275,000 6.9
1201 Main Street, Suite 2500
Dallas, TX 75202
Primedia Ventures(3)................................. 1,233,158 6.6
745 Fifth Avenue, 24th Floor
New York, NY 10022
Auber Investments Limited(4)......................... 1,236,182 6.7
505 Park Avenue
New York, NY 10022
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------
PERCENT BEFORE PERCENT AFTER
BENEFICIAL OWNER NUMBER OFFERING OFFERING
---------------- --------- -------------- -------------
<S> <C> <C> <C>
Applewood Associates, L.P.(4)........................ 1,187,560 6.4%
767 Fifth Avenue
45th Floor
New York, NY 10153
Steven M. Markowitz(5)............................... 953,150 5.1
Robert C. Hoyler(6).................................. 516,867 2.8
Layton S. Han(7)..................................... 265,625 1.4
Frank J. Pirri....................................... 112,819 *
Virgil Bistriceanu(8)................................ 91,309 *
Charles H. Berman(9)................................. 3,281 *
Robert Wise.......................................... 0 *
Thomas Newkirk(10)................................... 3,674,356 19.9
Lawrence E. Phillips(11)............................. 1,233,158 6.6
Howard L. Morgan(12)................................. 330,928 1.8
Mario M. Rosati(13).................................. 130,277 *
Lester Wunderman(14)................................. 63,478 *
All directors and executive officers as a group (12
persons) (15)...................................... 7,375,248 38.1% %
</TABLE>
- -------------------------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 133,495 shares issuable pursuant to a warrant exercisable within
60 days of March 25, 1999.
(2) Includes 200,000 shares held by Targeted Marketing Systems, Inc. Mr.
Brierley, President of Targeted Marketing Systems, disclaims beneficial
ownership of the shares held by that entity, except to the extent of his
proportionate pecuniary interest therein based upon his beneficial
ownership of the capital stock of Targeted Marketing Systems.
(3) Includes 388,350 shares issuable pursuant to a warrant exercisable within
60 days of March 25, 1999.
(4) Includes 145,631 shares issuable pursuant to a warrant exercisable within
60 days of March 25, 1999.
(5) Includes 109,375 shares issuable pursuant to stock options exercisable
within 60 days of March 25, 1999. Mr. Markowitz is our Chief Executive
Officer and Chairman of the Board.
(6) Includes 78,125 shares issuable pursuant to stock options exercisable
within 60 days of March 25, 1999. Mr. Hoyler is our President, Chief
Operating Officer and a member of our board of directors.
(7) Includes 15,625 shares issuable pursuant to stock options exercisable
within 60 days of March 25, 1999. Mr. Han is our Vice President, Finance
and Chief Financial Officer.
(8) Includes 72,506 shares issuable pursuant to stock options exercisable
within 60 days of March 25, 1999. Mr. Bistriceanu is our Senior Vice
President, Technology.
(9) Includes 3,281 shares issuable pursuant to stock options exercisable within
60 days of March 25, 1999. Mr. Berman is our Senior Vice President, Sales.
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(10) Represents 3,674,356 shares held by Direct Marketing Technology. Mr.
Newkirk, the Chairman of Direct Marketing Technology, disclaims beneficial
ownership of the shares held by that entity, except to the extent of his
proportionate pecuniary interest therein based upon his beneficial
ownership of the capital stock of Direct Marketing Technology. Mr. Newkirk
is a member of our board of directors.
(11) Represents 844,808 shares held by Primedia Ventures and 388,350 shares
issuable pursuant to a warrant held by Primedia Ventures exercisable within
60 days of March 25, 1999. Mr. Phillips, a managing director of Primedia,
disclaims beneficial ownership of the shares and warrant held by Primedia,
except to the extent of his proportionate pecuniary interest therein. Mr.
Phillips is a member of our board of directors.
(12) Includes 111,111 shares issuable pursuant to stock options and 12,136
shares issuable pursuant to a warrant exercisable within 60 days of March
25, 1999. Mr. Morgan is a member of our board of directors.
(13) Includes 22,500 shares held by WS Investment Company 96B and 105,277 shares
issuable pursuant to stock options exercisable within 60 days of March 25,
1999. Mr. Rosati is a general partner of WS Investment Company 96B and
disclaims beneficial ownership of the shares held by that entity, except to
the extent of his proportionate partnership interest therein. Mr. Rosati is
a member of our board of directors.
(14) Includes 5,417 shares issuable pursuant to stock options and 12,136 shares
issuable pursuant to a warrant exercisable within 60 days of March 25,
1999. Mr. Wunderman is a member of our board of directors.
(15) Includes 500,717 shares issuable pursuant to options and 412,622 shares
issuable pursuant to warrants exercisable within 60 days of March 25, 1999.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Our certificate of incorporation that becomes effective upon the closing of
this offering authorizes the issuance of 100,000,000 shares of common stock,
$0.001 par value, and authorizes the issuance of 10,000,000 shares of
undesignated preferred stock, no par value. From time to time, our board of
directors may establish the rights and preferences of the preferred stock. As of
March 25, 1999, 18,437,120 shares of common stock were issued and outstanding
and held by 77 stockholders, and options to purchase 2,609,945 shares of common
stock were issued and outstanding and held by 86 optionholders.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
preferred stock, holders of common stock are entitled to receive ratably the
dividends, if any, that are declared from time to time by the board of directors
out of funds legally available for that purpose. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of MyPoints.com, the holders
of common stock are entitled to share in our assets remaining after the payment
of liabilities and the satisfaction of any liquidation preference granted to the
holders of any outstanding shares of preferred stock. Holders of common stock
have no preemptive or conversion rights or other subscription rights. There are
no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable. The rights,
preferences and privileges of the 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 in the future.
PREFERRED STOCK
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of this preferred stock. However, the effects
might include, among other things:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control of MyPoints.com without
further action by the stockholders.
Upon the closing of this offering, no shares of preferred stock will be
outstanding, and MyPoints.com has no present plans to issue any shares of
preferred stock.
WARRANTS AND OTHER OBLIGATIONS TO ISSUE CAPITAL STOCK
As of March 25, 1999, we have outstanding warrants to purchase an aggregate
of 1,374,028 shares of Series D preferred stock at an exercise price of $2.06
per share. These warrants are currently exercisable
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<PAGE> 57
in full and will expire in 2003. We also have outstanding a warrant to purchase
10,000 shares of Series C preferred stock at an exercise price of $1.50 per
share. This warrant is currently exercisable in full and will expire in 2008.
Upon the closing of this offering, all of these warrants will become exercisable
for a like number of shares of common stock.
REGISTRATION RIGHTS
After this offering, holders of 13,253,897 shares of common stock and
1,384,028 shares of common stock issuable upon exercise of outstanding warrants
(the "registrable securities") or their transferees are entitled to certain
rights with respect to the registration of their shares under the Securities
Act. These rights are provided under the terms of an agreement between
MyPoints.com and the holders of the registrable securities. Beginning 180 days
after the date of this prospectus, holders of at least 20% of the registrable
securities may require, on two occasions, that we use our best efforts to
register the registrable securities for public resale. MyPoints.com is obligated
to register these shares only if the outstanding registrable securities have an
anticipated public offering price of at least $5,000,000. Also, holders of 10.0%
of the registrable securities may require, no more than once during any
six-month period, that MyPoints.com register their shares for public resale on
Form S-3 or similar short-form registration if the value of the securities to be
registered is at least $500,000. Furthermore, in the event MyPoints.com elects
to register any of its shares of common stock for purposes of effecting any
public offering, the holders of registrable securities are entitled to include
their shares of common stock in the registration, but MyPoints.com may reduce
the number of shares proposed to be registered in view of market conditions.
These registration rights have been waived with respect to this offering.
MyPoints.com will bear all expenses in connection with any registration, other
than underwriting discounts and commissions. All registration rights will
terminate five years following the consummation of this offering or, with
respect to each holder of registrable securities, at such time as the holder is
entitled to sell all of its shares in any 90-day period under Rule 144 of the
Securities Act.
ANTITAKEOVER EFFECTS OF PROVISIONS OF DELAWARE LAW AND OUR CHARTER AND BYLAWS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make the following more difficult:
- the acquisition of MyPoints.com by means of a tender offer;
- the acquisition of MyPoints.com by means of a proxy contest or otherwise;
or
- the removal of MyPoints.com's incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
MyPoints.com to negotiate first with MyPoints.com's board. MyPoints.com believes
that the benefits of increased protection of its potential ability to negotiate
with the proponent of an unfriendly or unsolicited proposal to acquire or
restructure MyPoints.com outweigh the disadvantages of discouraging such
proposals because negotiation of any proposals of this type could result in an
improvement of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
with MyPoints.com's stockholders electing one class each year. See
"Management -- Board Composition." This system of electing and removing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of MyPoints.com, because it generally
makes it more difficult for stockholders to replace a majority of the directors.
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Stockholder Meetings. Under our bylaws, only the board of directors, the
chairman of the board or the president may call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures for stockholder
proposals and for the nomination of candidates for election as directors, other
than nominations made by or at the direction of the board of directors or a
committee of the board.
Delaware Antitakeover Law. MyPoints.com is subject to Section 203 of the
Delaware General Corporation Law, an antitakeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a business
combination with an interested stockholder for a period of three years following
the date the person became an interested stockholder, unless the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a business
combination includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
interested stockholder is a person who, together with affiliates and associates,
owns or within three years prior to the determination of interested stockholder
status, did own, 15% or more of a corporation's voting stock. The existence of
this provision may have an antitakeover effect with respect to transactions not
approved in advance by the board of directors, including discouraging attempts
that might result in a premium over the market price for the shares of common
stock held by stockholders.
Elimination of Stockholder Action by Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
No Cumulative Voting. Our certificate of incorporation and bylaws do not
provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock with
voting or other rights or preferences that could impede the success of any
attempt to change control of MyPoints.com. These and other provisions may have
the effect of deferring hostile takeovers or delaying changes in control or
management of MyPoints.com.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66.7% of the
outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Norwest Bank
Minnesota, N.A.
LISTING
We have applied to list our common stock on the Nasdaq National Market
under the trading symbol "MYPT."
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial amounts
of common stock, including shares issued upon exercise of outstanding options
and warrants, in the public market following this offering could adversely
affect market prices prevailing from time to time and could impair our ability
to raise capital through sale of our equity securities. As described below, no
shares currently outstanding will be available for sale immediately after this
offering because of certain contractual restrictions on resale. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect its prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding
shares of common stock based upon shares outstanding as of March
25, 1999, assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options or warrants that do not expire prior to
completion of this offering. This number also does not reflect our sale of
2,000,000 shares of Series E preferred stock in 1999. Of these shares, the
shares sold in this offering will be freely tradable without
restriction under the Securities Act, except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act. The remaining
13,835,907 shares of common stock held by existing stockholders are "restricted
shares" as defined in Rule 144. All of these restricted shares are subject to
lock-up agreements providing that the stockholder will not offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights
with respect to any shares of common stock or any securities that are
convertible into common stock, owned as of the date of this prospectus or
subsequently acquired, for a period of 180 days after the date of this
prospectus without the prior written consent of BancBoston Robertson Stephens.
As a result of these lock-up agreements, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701, none of
these shares will be resellable until 181 days after the date of this
prospectus.
Beginning 181 days after the date of this prospectus, approximately
6,382,593 restricted shares will be eligible for sale in the public market. All
of these shares are subject to volume limitations under Rule 144, except
2,980,037 shares eligible for sale under Rule 144(k) and 129,747 shares eligible
for sale under Rule 701, subject in some cases to repurchase rights of
MyPoints.com.
In addition, as of March 25, 1999, there were outstanding warrants to
purchase 1,384,028 shares of preferred stock convertible into a like number of
shares of common stock, some of which may be exercised prior to this offering.
All of the shares issuable pursuant to these warrants are subject to lock-up
agreements. BancBoston Robertson Stephens may, in its sole discretion and at any
time without notice, release all or any portion of the restricted shares subject
to lock-up agreements.
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
- 1.0% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after this offering; or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about MyPoints.com. Under Rule 144(k), a person who is not deemed to have been
an affiliate of MyPoints.com at any time during the three months
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preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years including the holding period of any prior owner except an
affiliate, is entitled to sell those shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of or
consultant to MyPoints.com who purchased shares pursuant to a written
compensatory plan or contact may be entitled to rely on the resale provisions of
Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule
144 without complying with the holding period requirements of Rule 144. Rule 701
further provides that non-affiliates may sell their Rule 701 shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling their Rule 701 shares. However, all Rule 701 shares
are subject to lock-up agreements and will only become eligible for sale at the
earlier of the expiration of the 180-day lock-up agreements or the receipt of
the written consent of BancBoston Robertson Stephens more than 90 days after the
date of this prospectus.
After this offering, we intend to file a registration statement on Form S-8
registering shares of common stock subject to outstanding options or reserved
for future issuance under our stock plans. As of March 25, 1999, options to
purchase a total of 2,609,945 shares were outstanding and 1,163,780 shares were
reserved for future issuance under our stock plans. Common stock issued upon
exercise of outstanding vested options or issued pursuant to our employee stock
purchase plan, other than common stock issued to our affiliates will be
available for immediate resale in the open market following expiration of the
180-day lock-up agreements.
Also beginning six months after the date of this offering, holders of
11,253,897 restricted shares and holders of warrants to purchase preferred stock
convertible into 1,384,028 shares of common stock will be entitled to certain
rights with respect to registration of these shares for sale in the public
market. See "Description of Capital Stock -- Registration Rights." Registration
of these shares under the Securities Act would result in their becoming freely
tradable without restriction under the Securities Act, except for shares
purchased by affiliates, immediately upon the effectiveness of the registration.
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UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Bear, Stearns & Co. Inc., Salomon Smith
Barney, Inc. and Wit Capital Corporation, as e-Manager(TM), have severally
agreed with MyPoints.com, subject to the terms and conditions of the
underwriting agreement, to purchase from MyPoints.com the number of shares of
common stock set forth opposite their names below. The underwriters are
committed to purchase and pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...........................
Bear, Stearns & Co. Inc.....................................
Salomon Smith Barney, Inc...................................
Wit Capital Corporation.....................................
--------
Total.....................................................
========
</TABLE>
The representatives of the underwriters have advised us that the
underwriters propose to offer the shares of common stock to the public at the
public offering price set forth on the cover page of this prospectus and to
dealers at this price less a concession of not in excess of $ per share, of
which $ may be reallowed to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the representatives. No reduction of this type will change the
amount of proceeds to be received by us as set forth on the cover page of this
prospectus. The common stock is offered by the underwriters as stated in this
prospectus, subject to receipt and acceptance by them and subject to their right
to reject any order in whole or in part. BancBoston Robertson Stephens Inc.
expects to deliver the shares of common stock to purchasers on ,
1999.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Internet Distribution. The underwriters, at the request of MyPoints.com,
have reserved for sale at the initial public offering price up to shares of
common stock to members and visitors to Wit Capital's services or Web site who
express an interest in purchasing these shares. The sale of these shares will be
made by Wit Capital acting as e-Manager in this offering. Purchases of the
reserved shares will 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 visitors to and users of Wit
Capital's services or Web site will be offered by the underwriters on the same
basis as the other shares offered hereby.
Internet Prospectus. A prospectus in electronic format is being made
available on a Web site maintained by Wit Capital. In addition, pursuant to an
e-Dealer Agreement, all dealers purchasing shares from Wit Capital in the
offering, the e-Dealers, similarly have agreed to make a prospectus in
electronic format available on the Web sites that they maintain.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of
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common stock at the same price per share as we will receive for the
shares that the underwriters have agreed to purchase from us. To
the extent that the underwriters exercise this option, each of the underwriters
will have a firm commitment to purchase approximately the same percentage of
these additional shares that the number of shares of common stock to be
purchased by it shown in the above table represents as a percentage of the
shares offered hereby. If purchased, these additional shares will be sold by the
underwriters on the same terms as those on which the shares are
being sold. We will be obligated, under the terms of the option, to sell shares
to the extent the option is exercised. The underwriters may exercise the option
only to cover over-allotments made in connection with the sale of the shares of
common stock offered hereby. If the option is exercised in full, the total
public offering price will be $ , the total underwriting discounts and
commissions will be $ and the total proceeds to us will be $ .
The expenses of this offering are estimated at $ and are payable
entirely by MyPoints.com.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and MyPoints.com against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Our executive officers, directors, stockholders of
record, optionholders and warrantholders have agreed, for a period of 180 days
after the date of this prospectus, not to offer to sell, contract to sell or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to any
shares of common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into or exchangeable for shares of common
stock owned as of the date of this prospectus or thereafter acquired directly by
such holders or with respect to which they have or hereafter acquire the power
of disposition, without the prior written consent of BancBoston Robertson
Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to lock-up agreements. There are no agreements between the
representatives and any of our stockholders providing consent by the
representatives to the sale of shares prior to the expiration of the period of
180 days after the date of this prospectus.
Future Sales. In addition, we have agreed that during the period of 180
days after the date of this prospectus, we will not, subject to certain
exceptions, without the prior written consent of BancBoston Robertson Stephens
Inc., issue, sell, contract to sell or otherwise dispose of any shares of common
stock, any options or warrants to purchase any shares of common stock or any
securities convertible into, exercisable for or exchangeable for shares of
common stock, other than our sale of shares in this offering, the issuance of
shares of common stock upon the exercise of outstanding options or warrants and
the grant of options to purchase shares of common stock under existing employee
stock option or stock purchase plans. See "Shares Eligible For Future Sale."
Reserved Shares. The underwriters intend to reserve for sale, at the
initial public offering price, a number of shares of common stock (not to exceed
5.0% of the total number of shares offered in this offering) for our customers,
partners and business associates. In addition, the underwriters may reserve, at
the initial public offering price, up to $3.0 million of common stock offered in
this offering for entities affiliated with Technology Crossover Ventures, all of
which are existing stockholders. As a result, the number of shares of common
stock available for sale to the general public in the offering will be reduced
to the extent these entities purchase the reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the general public on
the same terms as the other shares.
Share Purchase. In 1999, Bayview Investors Ltd. purchased 50,000 shares of
Series E preferred stock at a price of $5.00 per share. Bayview is affiliated
with BancBoston Robertson Stephens Inc.
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No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price for
the common stock offered hereby will be determined through negotiations between
us and the representatives. Among the factors to be considered in these
negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Exchange Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of our common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering. A "penalty bid" is
an arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with the
offering if the common stock originally sold by that underwriter or syndicate
member is purchased by the representatives in a syndicate covering transaction
and has therefore not been effectively placed by the underwriter or syndicate
member. The representatives have advised us that transactions of these types may
be effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California will pass upon the validity of the common stock offered hereby for
MyPoints.com. Fenwick & West LLP, Palo Alto, California will pass upon certain
legal matters in connection with this offering for the underwriters. As of March
25, 1999, an investment partnership and members of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, beneficially owned an aggregate of 130,277
shares of common stock of MyPoints.com. Mario M. Rosati, one of our directors
and our secretary, is a member of Wilson Sonsini Goodrich & Rosati.
EXPERTS
The consolidated financial statements of MyPoints.com, Inc. at December 31,
1997 and 1998, and for the period from November 7, 1996 (inception) to December
31, 1996, and for each of the two years in the period ended December 31, 1998
appearing in this prospectus and registration statement have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of Enhanced Response Technologies, Inc.
at December 31, 1997, and for the period from June 25, 1996 (inception) to
December 31, 1996 and the year ended December 31, 1997, appearing in this
prospectus and registration statement have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report thereon, appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
MyPoints.com has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement, exhibits and schedule
thereto. For further information with respect to MyPoints.com and our common
stock, we refer you to the registration statement, exhibits and schedule
thereto. Statements contained in this prospectus regarding the contents of any
contract or any other document to which we refer are not necessarily complete.
In each instance, reference is made to the copy of the contract or document
filed as an exhibit to the registration statement, and each statement is
qualified in all respects by such reference. Copies of the registration
statement, exhibits and schedule thereto, may be inspected without charge at the
Securities and Exchange Commission's principal office in Washington, D.C., or
obtained at prescribed rates from the Public Reference Section of the Securities
and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The
Securities and Exchange Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Securities and Exchange
Commission. The address of the site is http://www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MYPOINTS.COM, INC. -- CONSOLIDATED FINANCIAL STATEMENTS
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
ENHANCED RESPONSE TECHNOLOGIES, INC. -- FINANCIAL STATEMENTS
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-23
Combined Balance Sheets..................................... F-24
Combined Statements of Operations........................... F-25
Combined Statements of Stockholders' Deficiency............. F-26
Combined Statements of Cash Flows........................... F-27
Notes to Combined Financial Statements...................... F-28
</TABLE>
F-1
<PAGE> 66
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
MyPoints.com, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
MyPoints.com, Inc. (formerly Intellipost Corporation) at December 31, 1997 and
1998, and the results of its operations and its cash flows for the period from
November 7, 1996 (date of inception) to December 31, 1996, and the years ended
December 31, 1997 and 1998, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audits 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
March 26, 1999, except for Note 12
as to which the date is March 30, 1999
San Francisco, California
F-2
<PAGE> 67
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
------------------ DECEMBER 31,
1997 1998 1998
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,948 $ 5,089
Accounts receivable, net.................................. 116 586
Unbilled receivables, net................................. -- 413
Deposits and prepaid expenses............................. 52 220
------- --------
Total current assets................................... 3,116 6,308
Intangible assets........................................... -- 10,888
Property and equipment, net................................. 345 1,041
Other assets................................................ 13 69
------- --------
Total assets........................................... $ 3,474 $ 18,306
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 106 $ 1,702
Bank overdraft............................................ 54 --
Notes payable, current portion............................ 50 143
Obligations under capital leases, current portion......... 6 91
Other current liabilities................................. -- 852
Deferred revenue.......................................... -- 258
Software license liability, current portion............... -- 842
Points redemption liability............................... 519 2,727
------- --------
Total current liabilities.............................. 735 6,615
Notes payable, less current portion......................... 32 179
Long-term debt.............................................. -- 240
Obligations under capital leases, less current portion...... 15 207
Software license liability, less current portion............ -- 1,782
------- --------
782 9,023
------- --------
Commitments and contingencies (Note 10)
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 13,500,000
shares authorized; 5,900,000 and 10,388,315 shares
issued and outstanding at December 31, 1997 and 1998,
respectively, aggregate liquidation preference
$14,552................................................ 6 10 --
Common stock, $.001 par value; 40,000,000 shares
authorized; 2,500,000 and 6,204,593 shares issued and
outstanding at December 31, 1997 and 1998,
respectively........................................... 3 6 16
Additional paid-in capital................................ 6,027 23,380 23,380
Stock subscription receivable............................. -- (350) (350)
Deferred compensation..................................... (388) (2,541) (2,541)
Accumulated deficit....................................... (2,956) (11,222) (11,222)
------- -------- --------
Total stockholders' equity............................. 2,692 9,283 $ 9,283
------- -------- ========
Total liabilities and stockholders' equity........ $ 3,474 $ 18,306
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 68
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 7, 1996 DECEMBER 31,
(INCEPTION) TO ------------------
DECEMBER 31,1996 1997 1998
-------------------- ------- -------
<S> <C> <C> <C>
Revenues........................................ $ -- $ 151 $ 1,286
Cost of revenues................................ -- 78 1,121
------ ------- -------
Gross profit.................................. -- 73 165
------ ------- -------
Operating expenses:
Technology costs.............................. 16 560 1,520
Sales expenses................................ -- 204 1,355
Marketing expenses............................ 36 1,465 3,158
General and administrative expenses........... 16 712 2,029
Amortization of intangible assets............. -- -- 275
Stock-based compensation...................... -- 77 157
------ ------- -------
Total operating expenses................... 68 3,018 8,494
------ ------- -------
Operating loss.................................. (68) (2,945) (8,329)
Interest income................................. 1 64 87
Interest expense................................ -- (7) (31)
Other (expense) income.......................... -- (1) 7
------ ------- -------
Net loss................................... $ (67) $(2,889) $(8,266)
====== ======= =======
Net loss per share:
Basic and diluted............................. $(0.08) $ (2.68) $ (4.72)
====== ======= =======
Weighted average shares -- basic and
diluted.................................... 891 1,076 1,750
====== ======= =======
Pro forma net loss per share (unaudited):
Basic and diluted............................. $ (0.98)
=======
Weighted average shares -- basic and
diluted.................................... 8,463
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 69
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM NOVEMBER 7, 1996 (DATE OF INCEPTION) TO
DECEMBER 31, 1996, AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK
CONVERTIBLE COMMON STOCK ADDITIONAL STOCK
---------------- ---------------- PAID-IN SUBSCRIPTION DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
------ ------- ------ ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders........ -- $ -- 2,500 $ 3 $ -- $ (2) $ --
Issuance of Series A preferred stock for
cash, net of issuance costs of $21........ 3,000 3 1,475
Net loss....................................
------ ------- ----- ------- -------- ----- -------
BALANCE, DECEMBER 31, 1996.................. 3,000 3 2,500 3 1,475 (2) --
Issuance of Series B preferred stock for
cash, net of issuance costs of $4......... 500 1 496
Receipt of subscription receivable from
common stock.............................. 2
Issuance of Series C preferred stock for
cash, net of issuance costs of $7......... 2,400 2 3,591
Deferred compensation....................... 465 (388)
Net loss....................................
------ ------- ----- ------- -------- ----- -------
BALANCE, DECEMBER 31, 1997.................. 5,900 6 2,500 3 6,027 -- (388)
Issuance of Series C preferred stock for
cash, net of issuance costs of $6......... 527 784
Issuance of common stock upon exercise of
stock options............................. 104 9
Issuance of stock options to
non-employees for services................ 13
Issuance of warrants to non-employees....... 12
Issuance of Series D preferred stock for
cash, net of issuance costs of $12........ 2,748 3 5,646 (350)
Issuance of Series D preferred stock, net of
issuance costs of $28, pursuant to an
acquisition............................... 1,214 1 2,939
Issuance of common stock pursuant to an
acquisition............................... 3,600 3 5,375
Issuance of stock options pursuant to an
acquisition............................... 264
Deferred compensation....................... 2,311 (2,153)
Net loss....................................
------ ------- ----- ------- -------- ----- -------
BALANCE, DECEMBER 31, 1998.................. 10,389 $ 10 6,204 $ 6 $ 23,380 $(350) $(2,541)
====== ======= ===== ======= ======== ===== =======
<CAPTION>
ACCUMULATED
DEFICIT TOTAL
----------- -------
<S> <C> <C>
Issuance of common stock to founders........ $ -- $ 1
Issuance of Series A preferred stock for
cash, net of issuance costs of $21........ 1,478
Net loss.................................... (67) (67)
-------- -------
BALANCE, DECEMBER 31, 1996.................. (67) 1,412
Issuance of Series B preferred stock for
cash, net of issuance costs of $4......... 497
Receipt of subscription receivable from
common stock.............................. 2
Issuance of Series C preferred stock for
cash, net of issuance costs of $7......... 3,593
Deferred compensation....................... 77
Net loss.................................... (2,889) (2,889)
-------- -------
BALANCE, DECEMBER 31, 1997.................. (2,956) 2,692
Issuance of Series C preferred stock for
cash, net of issuance costs of $6......... 784
Issuance of common stock upon exercise of
stock options............................. 9
Issuance of stock options to
non-employees for services................ 13
Issuance of warrants to non-employees....... 12
Issuance of Series D preferred stock for
cash, net of issuance costs of $12........ 5,299
Issuance of Series D preferred stock, net of
issuance costs of $28, pursuant to an
acquisition............................... 2,940
Issuance of common stock pursuant to an
acquisition............................... 5,378
Issuance of stock options pursuant to an
acquisition............................... 264
Deferred compensation....................... 158
Net loss.................................... (8,266) (8,266)
-------- -------
BALANCE, DECEMBER 31, 1998.................. $(11,222) $ 9,283
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 70
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOVEMBER 7, 1996 YEARS ENDED
(INCEPTION) TO DECEMBER 31,
DECEMBER 31, ------------------
1996 1997 1998
---------------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (67) $(2,889) $(8,266)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 1 70 555
Provision for bad debts................................. -- -- 60
Points redemption liability............................. -- 519 1,732
Barter revenues, net.................................... -- (20) (59)
Issuance of stock options to non-employees for
services.............................................. -- -- 15
Stock-based compensation................................ -- 77 158
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivables.......... (1) (116) (639)
Deposits and prepaid expenses......................... (33) 2 (138)
Other assets.......................................... -- -- (28)
Accounts payable and accrued liabilities.............. 54 52 878
Deferred revenue...................................... -- -- 258
------ ------- -------
Net cash used in operating activities.............. (46) (2,305) (5,474)
------ ------- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (40) (353) (358)
Organization costs........................................ (14) -- --
Proceeds received pursuant to acquisition................. -- -- 1,747
------ ------- -------
Net cash (used in) provided by investing
activities....................................... (54) (353) 1,389
------ ------- -------
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance
costs................................................... 1,218 4,350 6,084
Proceeds from issuance of common stock.................... -- 2 --
Bank overdraft............................................ -- 54 (54)
Borrowings under line of credit........................... -- 100 400
Repayments of borrowings under line of credit............. -- (18) (160)
Principal payments under capital lease obligations........ -- -- (53)
Exercise of stock options................................. -- -- 9
------ ------- -------
Net cash provided by financing activities.......... 1,218 4,488 6,226
------ ------- -------
Net increase in cash and cash equivalents.......... 1,118 1,830 2,141
Cash and cash equivalents, beginning of period.............. -- 1,118 2,948
------ ------- -------
Cash and cash equivalents, end of period.................... $1,118 $ 2,948 $ 5,089
====== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest.................. $ -- $ 12 $ 34
====== ======= =======
Noncash transactions:
Equipment acquired under capital leases................... $ -- $ 22 $ 329
====== ======= =======
Exchange of advertising services.......................... $ -- $ 20 $ 128
====== ======= =======
Issuance of capital stock for business acquisition........ $ -- $ -- $(8,582)
====== ======= =======
Stock subscription receivable............................. $ -- $ -- $ 350
====== ======= =======
Stock options issued to non-employees..................... $ -- $ -- $ 277
====== ======= =======
Warrants issued to non-employeees......................... $ -- $ -- $ 12
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 71
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
MyPoints.com, Inc. (formerly Intellipost Corporation) and its wholly owned
subsidiaries (together, the "Company") was founded in November 1996. The Company
offers advertisers the ability to target Internet users enrolled as members of
its direct marketing and loyalty programs. The Company's programs award enrolled
members reward points for receiving and viewing advertisements. Rewards points
may be redeemed by members for promotional awards provided by the Company.
2. LIQUIDITY
The Company has sustained net losses and negative cash flows from
operations since its inception. The Company's ability to meet its obligations in
the ordinary course of business is dependent upon its ability to establish
profitable operations or to obtain additional funding through public or private
equity financing, collaborative or other arrangements with corporate sources, or
other sources. Management is seeking to increase revenues through continued
marketing of its services while controlling costs to meet working capital needs;
however, additional financing will be required (see Note 12 -- Subsequent
Events).
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The financial statements as of December 31, 1998 and for the year then
ended are consolidated and include the accounts of the Company and its wholly
owned subsidiaries. All significant intercompany balances and transactions have
been eliminated in the consolidation process.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Such estimates include the levels of valuation allowances for doubtful accounts
receivable, deferred taxes, points redemption liability and the value of the
Company's capital stock. Actual results could differ from those estimates, and
such differences could be material.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their respective estimated useful lives, which range
from three to five years. Maintenance and repairs are charged to expense as
incurred, and improvements and betterments are capitalized. When assets are
F-7
<PAGE> 72
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
retired or otherwise disposed of, the cost and accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is
reflected in the consolidated statement of operations for the period in which it
is realized.
INTANGIBLE ASSETS
Intangible assets resulting from the acquisition of Enhanced Response
Technologies, Inc. ("ERT") and MotivationNet LLC ("MNet") were estimated by
management to be primarily associated with the acquired trademark and trade
name, customer base, membership base, technology license agreement and other
intangible assets. Intangible assets are amortized on a straight-line basis over
the estimated periods of benefit which, because of the rapid technological
changes occurring in the Internet industry and the intense competition for
qualified Internet professionals, range from six to 60 months (see Note 4 --
Acquisition).
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes.
Under SFAS No. 109, deferred tax assets and liabilities are determined based on
temporary differences between the financial statement and tax bases of assets
and liabilities and net operating loss and credit carryforwards using enacted
tax rates in effect for the year in which the differences are expected to
reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. A provision for income tax
expense is recognized for income taxes payable for the current period, plus the
net changes in deferred tax amounts.
POINTS REDEMPTION LIABILITY
Points redemption liability represents the estimated costs associated with
the Company's obligation to redeem points, which may be converted by enrolled
members into various third party gift certificates, airline frequent flyer
miles, coupons and other items. Points are awarded to members when they receive
and read direct marketing offers delivered by the Company, or purchase goods
from the advertisers. The Company is liable for purchasing the rewards provided
to members. The cost of points is determined by the weighted average cost of
gift and awards that may be redeemed. Under the current program, points are
valid for two or more years from the date they are awarded to a member and may
be redeemed at any time prior to expiration.
REVENUE RECOGNITION
The Company earns revenues from corporate advertisers by charging fees for
sending targeted email to its members. Under the terms of advertising contracts,
the Company earns revenues generally based on three components: (1) transmission
of email advertisements to enrolled members, (2) receipt of qualified responses
to email sent and (3) actual purchases of goods by members over the Internet. It
is the Company's policy to recognize revenues when email are transmitted to
members, when responses are received and when the Company is notified of
purchases.
Under certain advertising contracts entered into by the Company's
subsidiary prior to acquisition, the Company sold points to advertisers for use
in the advertisers' Web-based campaigns. The Company is responsible for
redeeming points upon request by the recipients of points. Revenues under these
contracts are deferred until the time points are redeemed and an award is
provided by the Company.
F-8
<PAGE> 73
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
BARTER TRANSACTIONS
The Company historically traded advertisements on its Web sites for
advertisements on the Web sites of other companies. Barter revenues and expenses
are recorded at the fair market value of the services provided or received,
whichever is more determinable in the circumstances. Revenues from barter
transactions are recognized as income when the Company delivers advertisements
for other companies on its Web site. Barter expense is recognized when the
Company's advertisements are delivered on the Web properties of other companies,
which is typically in the same period as that when the barter revenues are
recognized. Advertising barter revenues were approximately $0, $20,000 and
$128,000 for the period ended December 31, 1996 and the years ended December 31,
1997 and 1998, respectively. The Company expects that barter revenues will
represent a smaller percentage of its revenues in the future.
TECHNOLOGY COSTS
Product development costs and enhancements to existing products are charged
to technology costs as incurred. Software development costs are required to be
capitalized beginning when a product's technological feasibility has been
established by completion of a working model of the product, and ending when the
product is available for general release to customers. To date, completion of a
working model of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any software development
costs since such costs have not been significant.
BUSINESS RISK AND CONCENTRATION OF CREDIT RISK
The Company has a limited operating history and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
new and rapidly evolving markets for Internet products and services. These risks
include the failure to develop and extend the Company's online service brands,
the rejection of the Company's services by Web consumers and/or advertisers and
the inability of the Company to maintain and increase the levels of traffic on
its online services, as well as other risks and uncertainties. Failure to
address these risks successfully may have a material adverse impact on the
Company's operations and financial position.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments,
including money market mutual fund accounts, and accounts receivable. The
Company deposits its temporary cash investments with two financial institutions
and these deposits exceed insured amounts. The Company does not require
collateral for accounts receivable, but does evaluate customer creditworthiness
and establish allowances as necessary based on management estimates of
collectibility.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB
No. 25, compensation expense is based on the difference, if any, on the date of
the grant, between the estimated fair value of the Company's stock and the
exercise price of options to purchase that stock.
F-9
<PAGE> 74
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
Earnings per Share, and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the
provisions of SFAS No. 128 and SAB No. 98, basic net income per share is
computed by dividing the net income available to common stockholders for the
period by the weighted average number of vested common shares outstanding during
the period. Diluted net income per share is computed by dividing the net income
for the period by the weighted average number of vested common and common
equivalent shares outstanding during the period. However, as the Company
generated net losses in all periods presented, common equivalent shares,
composed of incremental common shares issuable upon the exercise of stock
options and warrants and upon conversion of Series A, Series B, Series C and
Series D convertible preferred stock, are not included in diluted net loss per
share because such shares are anti-dilutive.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net loss........................................ $ (67) $ (2,889) $ (8,266)
---------- ----------- -----------
Net loss available to common stockholders....... $ (67) $ (2,889) $ (8,266)
========== =========== ===========
Denominator:
Weighted average shares......................... 2,500 2,500 2,856
Weighted average unvested common shares subject
to repurchase agreements..................... (1,609) (1,424) (1,106)
---------- ----------- -----------
Denominator for basic calculation............... 891 1,076 1,750
Weighted average effect of dilutive securities:
Net effect of dilutive stock options......... -- -- --
Net effect of dilutive stock warrants........ -- -- --
---------- ----------- -----------
Denominator for diluted calculation............. 891 1,076 1,750
========== =========== ===========
Net loss per share:
Basic........................................... $ (0.08) $ (2.68) $ (4.72)
========== =========== ===========
Diluted......................................... $ (0.08) $ (2.68) $ (4.72)
========== =========== ===========
</TABLE>
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1998 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, Series B, Series C and Series D preferred stock into shares of the
Company's common stock effective upon the closing of the Company's initial
public offering (see Note 12 -- Subsequent Events) as if such conversion
occurred on January 1, 1998, or at the date of original issuance, if later. The
resulting pro forma adjustment results in an increase in the weighted average
shares used to compute basic and diluted net loss per share of 6,713,000 shares
for the year ended December 31, 1998. Pro forma common equivalent shares,
composed of unvested restricted common stock and incremental common shares
issuable upon the exercise of stock options and warrants, are not included in
pro forma diluted net loss per share because they would be anti-dilutive.
F-10
<PAGE> 75
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)
Effective upon the closing of the Company's initial public offering, the
outstanding shares of Series A, Series B, Series C and Series D preferred stock
will automatically convert into 3,000,000, 500,000, 2,926,667 and 3,961,649
shares of common stock, respectively. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro forma
consolidated balance sheet at December 31, 1998 (see Note 12 -- Subsequent
Events).
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current period's presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for the year
ended December 31, 1998. The Company has determined that it does not have any
separately reportable business segments as of December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, Software for Internal Use, which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its
consolidated financial statements.
4. ACQUISITION
Effective November 30, 1998, the Company agreed to acquire all the
outstanding shares of MotivationNet, LLC, and Enhanced Response Technologies,
Inc., two companies operating as affiliates under common management. The
acquisition has been accounted for using the purchase method of accounting and
accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
relative fair values on the acquisition date. The fair value of intangible
assets was determined using a combination of the income approach and cost
approach.
F-11
<PAGE> 76
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The total purchase price of approximately $13.6 million consisted of
3,600,481 shares of the Company's common stock with an estimated fair value of
approximately $5.4 million, 1,213,592 shares of the Company's Series D preferred
stock with an estimated fair value of approximately $3.0 million, 189,115 vested
shares of the Company's stock options with an estimated fair value of
approximately $264,000, $400,000 in cash and $4.5 million of assumed
liabilities. Of the total purchase price, $2.4 million was allocated to tangible
assets and $11.2 million to intangible assets, including a technology license
agreement of $7.3 million, purchased trademark and trade name of $1.8 million,
membership base of $0.8 million, customer base of $0.5 million and workforce of
$0.8 million. The intangible assets will be amortized over their estimated
useful lives of six to 60 months.
Among the liabilities assumed in the acquisition is an obligation under a
software license agreement. According to the terms of the agreement, the Company
is to pay the licensor a royalty, payable in monthly installments of the greater
of 3.0% of monthly revenues, or $35,000, up to a maximum cumulative royalty of
$4.2 million. The Company has recorded the obligation at its estimated fair
value as determined by estimated future cash payments, discounted at an assumed
market rate of 30.0%. The Company has an option to purchase the licensed
software at the conclusion of the ten-year license term. Under the agreement,
upon the completion of an initial public offering of the Company's stock, the
Company is obligated to purchase the rights to the software. The purchase price
in such event will be the then existing present value of future required minimum
payments.
Certain portions of the acquisition were structured as a tax-free exchange
of stock. Therefore, the differences between the recognized fair values of
certain acquired assets, including tangible assets, and their historical tax
bases are not deductible for tax purposes.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the year ended December 31, 1998, as if
the acquisition had occurred on January 1, 1998, after giving effect to purchase
accounting adjustments. These pro forma results have been prepared for
comparative purposes only, do not purport to be indicative of what operating
results would have been had the acquisition actually taken place on January 1,
1998, and may not be indicative of future operating results (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1998
-----------
(UNAUDITED)
<S> <C>
Revenues.................................................... $ 1,316
Operating loss.............................................. (17,560)
Net loss.................................................... (17,704)
Net loss per share:
Basic and diluted......................................... $ (10.12)
Weighted average shares - basic and diluted............... 1,750
</TABLE>
5. RELATED PARTY TRANSACTIONS
A former member of the Company's Board of Directors founded Targeted
Marketing Systems, Inc., a service provider that the Company engaged for
creative services to assist in the development of the Company's marketing
program and Web site. Total payments made to Targeted Marketing Systems amounted
to $223,000 in 1997 and none in 1996 or 1998. As of December 31, 1997 and 1998,
there were no amounts due to Targeted Marketing Systems.
F-12
<PAGE> 77
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
One of the Company's directors, is also a member of the law firm that has
served as the Company's corporate counsel since inception. From inception
through December 31, 1998, the Company has accrued a total of $227,737 in fees
to the law firm.
The Company has entered into a two-year services agreement with Direct
Marketing Technology, Inc., a wholly owned subsidiary of Experian, a stockholder
of the Company, in which Direct Marketing Technology agreed to provide
demographic data and other market research services for the Company. Through
December 31, 1998, no expenses have been incurred under this agreement.
6. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 and 1998 is summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ------
<S> <C> <C>
Computer equipment and software......................... $359 $1,493
Furniture and fixtures.................................. 24 152
Leasehold improvements.................................. 15 22
---- ------
398 1,667
Accumulated depreciation................................ (53) (626)
---- ------
$345 $1,041
==== ======
</TABLE>
Depreciation expense amounted to $632, $49,000 and $265,000 for the period
ended December 31, 1996, and the years ended December 31, 1997 and 1998,
respectively.
7. NOTES PAYABLE
On January 27, 1997, the Company entered into a promissory note with a bank
to borrow $100,000 at an interest rate of prime plus 1.5% (initial rate of
9.75%). The Company was required to make monthly payments of accrued interest
beginning in February 1997 and principal payments in 24 equal installments
beginning on July 31, 1997. The loan agreement contains certain negative
covenants including financial covenants related to minimum liquidity coverage
ratios. The loan is collateralized by all of the assets and property of the
Company.
On December 19, 1997, the Company entered into a promissory note with a
bank to borrow $400,000 at an interest rate of prime plus 0.5% (initial rate of
8.50%). The Company was required to make 36 equal payments from July 31, 1998
through June 30, 2001. The agreement contains certain negative covenants
including financial covenants related to minimum liquidity coverage ratios and
monthly minimum points redemption liability. During 1998, the Company was in
default on the monthly minimum points redemption liability balance and the
liquidity covenant contained in the agreement. The Company obtained waivers of
the violations and was in compliance with these covenants as of December 31,
1998.
F-13
<PAGE> 78
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Annual maturities of notes payable are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
<S> <C>
1999............................................. $143
2000............................................. 115
2001............................................. 64
----
$322
====
</TABLE>
8. CAPITAL STRUCTURE
The Company is authorized to issue 40,000,000 shares of $0.001 par value
common stock and 13,500,000 shares of $0.001 par value preferred stock. The
Board of Directors has the authority to issue the undesignated preferred stock
in one or more series and to fix the rights, preferences, privileges and
restrictions thereof.
PREFERRED STOCK
The Company is authorized to issue 13,500,000 shares of preferred stock of
which 4,000,000 are designated as Series A preferred stock, 1,000,000 are
designated as Series B preferred stock, 3,000,000 are designated as Series C
preferred stock, and 5,500,000 are designated as Series D preferred stock.
DIVIDENDS
The holders of Series D preferred stock are entitled to receive dividends,
in preference to any dividend on common stock or other series of preferred
stock, at an annual rate of 7.0% of the original issue price, whenever funds are
legally available and when and if declared by the Company's Board of Directors.
The holders of all other series of preferred stock are entitled to receive
annual dividends, in preference to any dividends, issued on common stock, at a
rate of 6.0% of the original issuance price, whenever funds are legally
available and when and if declared by the Company's Board of Directors. The
right to dividends is not cumulative except in the event of liquidation. No
dividends have been declared or paid to date.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the Company
either voluntary or involuntary, the holders of Series D preferred stock will be
entitled to receive, in preference to the holders of common stock or other
series of preferred stock, an amount equal to the original issue price of the
Series D preferred stock plus all declared and unpaid dividends, if any.
Thereafter, the holders of other series of preferred stock will be entitled to
receive, in preference to the holders of common stock, an amount equal to the
original issue price of their respective series of preferred stock, plus all
declared and unpaid dividends, if any. Holders of Series D preferred stock are
entitled to receive a cumulative dividend, only in the event of liquidation,
accrued at an annual rate of 7.0%. Series A, B and C preferred stock are
entitled to receive a cumulative dividend, only in the event of liquidation,
accrued at an annual rate of 6.0%. Thereafter, holders of common stock are
entitled to receive on a pro-rata basis assets and funds of the Company in
proportion to the number of shares held by them.
F-14
<PAGE> 79
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONVERSION RIGHTS
Each share of preferred stock is convertible at the option of the holder,
at any time, into shares of common stock. The number of shares of common stock
into which each share of preferred stock may be converted is equal to the
original purchase price of preferred stock divided by the conversion price of
$0.50, $1.00, $1.50 and $2.06 for Series A, Series B, Series C and Series D
preferred stock, respectively, subject to certain adjustments as provided in the
Company's Restated Certificate of Incorporation. Preferred stock will
automatically convert into common stock, at the then applicable conversion rate,
(i) in the event of the closing of an underwritten public offering of the
Company's common stock pursuant to the Securities Act of 1933 where the public
offering price is $5.00 per share or more and the proceeds are at least
$10,000,000, or (ii) upon the election of the holders of at least a majority of
the outstanding shares of preferred stock. The preferred stock also has
provisions that protect the holders of such securities from dilution caused by
capital reorganizations, stock splits or other such capital changes.
VOTING RIGHTS
The holders of preferred stock are entitled to vote on all matters and are
entitled to a number of votes equal to the number of shares of common stock into
which their preferred stock could be converted pursuant to the conversion
rights. Except as otherwise required by law, the holders of preferred stock have
voting rights equal to those of the common stock holders. The holders of the
preferred stock are entitled to directly elect two of the Company's directors.
This right terminates upon the closing of the Company's initial public offering.
WARRANTS
During the year ended December 31, 1998, the Company issued a warrant to
purchase 10,000 shares of Series C preferred stock with an exercise price of
$1.50. The warrant is exercisable until the later of ten years from its issuance
date or five years from the initial public offering of the Company's common
stock. In connection with the issuance of Series D preferred stock, the Company
issued warrants to the holders of Series D preferred stock to purchase 1,374,027
additional shares of Series D with an exercise price of $2.06 per share. The
warrants became exercisable three months from the closing date of the Stock
Purchase Warrant Agreement and are exercisable for a period up to five years.
The Company determined that the fair value of the warrants approximated $1.5
million on the date of grant.
COMMON STOCK OPTIONS
On November 7, 1996, the Company adopted the 1996 Stock Plan and on
November 13, 1998, the Company adopted the 1999 Stock Plan (together, the
"Plans"). The Plans provide for the grant of incentive stock options and
nonstatutory stock options to employees and consultants of the Company.
The Company has reserved 2,402,795 shares of common stock for issuance
under the Plans. The Company has granted incentive stock options with vesting
equal to either 25.0% at the first anniversary date and 1/48th per month
thereafter or 25.0% immediately with the remainder vesting 1/48th per month
thereafter. These options are exercisable for a period of no more than ten years
from the date of grant.
The Company accounts for the Plans in accordance with APB No. 25 and
related Interpretations. In connection with certain stock option grants during
the years ended December 31, 1997 and 1998, the
F-15
<PAGE> 80
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company recognized unearned compensation that is being amortized over the
four-year vesting periods of the related options. Amortization expense
recognized during the years ended December 31, 1997 and 1998 totaled $77,000 and
$157,000, respectively.
Following is a summary of incentive stock option activity for the years
ended December 31, 1997 and 1998. There was no activity in the Plans prior to
January 1, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE
SHARES PRICE
----------- --------
<S> <C> <C>
Outstanding as of January 1, 1997......................... -- --
Granted................................................. 687,166 $0.074
Exercised............................................... -- --
Canceled................................................ (2,500) 0.100
--------- ------
Outstanding as of December 31, 1997....................... 684,666 0.074
Granted................................................. 1,079,562 0.210
Exercised............................................... (104,174) 0.063
Canceled................................................ (245,704) 0.112
--------- ------
Outstanding as of December 31, 1998....................... 1,414,350 $0.172
========= ======
Options vested as of December 31, 1998.................... 254,585 $0.103
========= ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
AT DECEMBER 31, 1998 AT DECEMBER 31, 1998
--------------------------------------- ---------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE VESTED PRICE
------------------------ ----------- ------------ -------- -------- ---------
<S> <C> <C> <C> <C> <C>
$0.05 - $0.15.................. 626,333 8.28 $0.087 214,214 $0.081
$0.20 - $0.26.................. 788,017 9.12 0.239 40,371 0.219
--------- ---- ------ ------- ------
1,414,350 8.75 $0.172 254,585 $0.103
========= ==== ====== ======= ======
</TABLE>
The following disclosures are provided in accordance with SFAS No. 123,
Accounting for Stock-Based Compensation. The weighted average fair values of
options granted in 1997 and 1998 were $0.53 and $2.27, respectively.
Had compensation cost for the Plans been determined based on fair value at
the grant date consistent with the method prescribed by SFAS No. 123, the
Company's net loss would have been increased to the pro forma amounts below (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ------- -------
<S> <C> <C> <C>
Net loss as reported................................ $(67) $(2,889) $(8,266)
Net loss pro forma.................................. -- (2,969) (8,524)
</TABLE>
F-16
<PAGE> 81
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of employee stock option grants has been estimated on the
date of grant using the minimum value model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997 1998
---- ------- -------
<S> <C> <C> <C>
Risk-free interest rate............................... -- 5.72% 4.59%
Expected life......................................... -- 5 years 5 years
Dividends............................................. -- -- --
</TABLE>
OTHER
A portion of the common stock issued to the Company's founders at inception
is subject to restricted stock purchase agreements which provide that one-third
of the Company's repurchase right lapses on the vesting start date and 1/48th of
the Company's remaining repurchase right lapses at the end of the each month
thereafter. Upon a merger or sale of the Company, one-half of the remaining
shares subject to the Company's right of repurchase will become vested.
9. 401(K) SAVINGS PLAN
In February 1997, the Company established a 401(k) Savings Plan (the
"401(k) Plan") that covers substantially all employees. Under the 401(k) Plan,
employees are permitted to contribute a portion of gross compensation not to
exceed standard limitations provided by the Internal Revenue Service.
Discretionary contributions may be made by the Company; however, no
contributions have been made to date.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through the year 2001. Rent
expense amounted to $5,000, $57,000 and $180,000 for the period ended December
31, 1996 and the years ended December 31, 1997 and 1998, respectively.
Future minimum lease payments under non-cancelable capital leases and
operating leases are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ------- ---------
<S> <C> <C>
1999........................................................ $ 113 $146
2000........................................................ 125 --
2001........................................................ 98 --
------- ----
Total minimum lease payments................................ 336 $146
====
Less amount representing interest........................... 38
-------
Present value of capital lease obligations.................. 298
Less current portion........................................ 91
-------
Long-term portion........................................... $ 207
=======
</TABLE>
F-17
<PAGE> 82
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LEGAL
In the normal course of business, the Company is at times subject to
pending and threatened legal actions and proceedings. After reviewing pending
and threatened actions and proceedings with counsel, management believes that
the outcome of such actions or proceedings is not expected to have a material
adverse effect on the financial position or results of operations of the
Company.
OTHER
The Company is obligated to pay commissions to certain third parties for
the referral of members to the Company. Commissions are determined based on
revenues derived from these members over the first two years of membership. For
the year ended December 31, 1998, the referral commissions amounted to $26,000.
11. INCOME TAXES
As of December 31, 1997 and 1998, the Company had net operating loss
carryforwards of approximately $1,360,000 and $7,810,000 for federal income tax
purposes, and $1,380,000 and $7,820,000 for state income tax purposes. The
federal and state net operating loss carryforwards begin to expire in the years
2011 and 2004, respectively. As of December 31, 1998, the Company had research
and experimentation credit carryforwards of approximately $26,000 for federal
and $11,000 for state income taxes purposes. The federal and state research and
experimentation credit carryforwards expire in the year 2001.
The Company's ability to utilize its net operating loss carryforwards to
offset future taxable income, if any, may be restricted as a result of equity
transactions that give rise to changes in ownership as defined in the Tax Reform
Act of 1986. These restrictions may limit, on an annual basis, the Company's
future use of its net operating loss carryforwards and research and
experimentation credit carryforwards.
The difference between the income tax benefit at the federal statutory rate
of 34.0% and the Company's effective tax rate is due primarily to recognition of
a full valuation allowance to offset the deferred tax assets.
F-18
<PAGE> 83
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated tax effects of significant temporary differences and
carryforwards that give rise to deferred income tax assets as of December 31,
1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Non-deducted start-up costs.......................... $ 369 $ 303
Net operating loss carryforwards..................... 545 3,177
Non-deducted research and experimental costs......... 0 1,328
Points redemption liability.......................... 259 1,185
Accrued liabilities and other........................ 53 106
Non-deducted intangible assets....................... -- (834)
----------- -----------
Gross deferred tax assets............................ 1,226 5,265
Valuation allowance.................................. (1,226) (5,265)
----------- -----------
Net deferred tax assets.............................. $ -- $ --
=========== ===========
</TABLE>
The Company has recorded a valuation allowance against gross deferred tax
assets due to uncertainties surrounding their realization.
12. SUBSEQUENT EVENTS
In January 1999, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission for
the purpose of an initial public offering of the Company's common stock. Upon
the completion of this offering, if requirements set forth in its Certificate of
Incorporation are met, the Company's preferred stock will be converted into
10,388,315 shares of common stock, and all outstanding shares of preferred stock
will be cancelled and retired. Upon the conversion of the preferred stock, all
rights to accrued and unpaid dividends will be waived.
During March 1999, the Company entered into a binding commitment to sell,
and the investors entered into a binding commitment to purchase, 2,000,000
shares of Series E preferred stock at $5.00 per share for gross proceeds of
$10.0 million. The holders of Series E preferred stock have rights and
preferences substantially the same as those of the Series D preferred stock.
In October 1998, the Company was notified by an online incentives company
that it believes the Company was infringing its patent rights. The Company has
entered into a settlement agreement with the third party, which provides for an
upfront payment plus ongoing royalties.
Subsequent to December 31, 1998, the Company issued to employees options to
purchase 1,319,937 shares of the Company's common stock. In addition, the
Company repurchased 181,420 shares of common stock from one of its founders at
$0.001 per share.
F-19
<PAGE> 84
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
PROFORMA CONSOLIDATED FINANCIAL INFORMATION
OVERVIEW
Effective November 30, 1998, the Company agreed to acquire all the
outstanding shares of MotivationNet, LLC, and Enhanced Response Technologies,
Inc. (the acquired companies). The acquisition has been accounted for using the
purchase method of accounting and accordingly, the purchase price has been
allocated to the tangible and intangible assets acquired and liabilities assumed
on the basis of their respective fair values on the acquisition date. The fair
value of intangible assets was determined using the income approach and the cost
approach.
The total purchase price of approximately $13.6 million consisted of
3,600,481 shares of the Company's common stock with an estimated fair value of
approximately $5.4 million, 1,213,592 shares of the Company's Series D preferred
stock with an estimated fair value of approximately $3.0 million, 189,115 vested
shares of the Company's stock options with an estimated fair value of
approximately $264,000, $400,000 in cash and $4.5 million of assumed
liabilities. Of the total purchase price, $2.4 million was allocated to tangible
assets and $11.2 million to intangible assets, including a technology license
agreement of $7.3 million, purchased trademark and trade name of $1.8 million,
membership base of $0.8 million, customer base of $0.5 million and workforce of
$0.8 million. The intangible assets will be amortized over their estimated
useful lives of six to 60 months.
The acquisition of Enhanced Response Technologies, Inc. has been structured
as a tax free exchange of stock, therefore, the differences between the
recognized fair values of the acquired assets, including tangible assets, and
their historical tax bases are not deductible for tax purposes. The acquisition
of MotivationNet, LLC, was made under an interest purchase agreement.
The following unaudited pro forma consolidated financial information
reflects the results of operations for the year ended December 31, 1998, as if
the acquisition had occurred on January 1, 1998, after giving effect to purchase
accounting adjustments. These pro forma results have been prepared for
comparative purposes only, do not purport to be indicative of what operating
results would have been had the acquisition actually taken place on January 1,
1998, and may not be indicative of future operating results.
F-20
<PAGE> 85
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------------
ACQUIRED PRO
MYPOINTS.COM, INC. COMPANIES ADJUSTMENTS FORMA
------------------ --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues............................. $ 1,234 $ 82 $ -- $ 1,316
Cost of revenues..................... 1,078 42 1,120
------- ------- ------- --------
Gross profit....................... 156 40 196
------- ------- ------- --------
Operating expenses:
Technology costs................... 1,325 2,588 3,913
Sales expenses..................... 1,269 792 2,061
Marketing expenses................. 2,947 2,152 5,099
General and administrative
expenses........................ 1,984 778 2,762
Amortization of intangible
assets.......................... 3,300 3,300
Stock-based compensation........... 157 464 621
------- ------- ------- --------
Total operating expenses........ 7,682 6,774 3,300 17,756
------- ------- ------- --------
Operating loss....................... (7,526) (6,734) (3,300) (17,560)
Interest income...................... 87 87
Interest expense..................... (31) (230) (261)
Other income......................... 30 30
------- ------- ------- --------
Net loss............................. $(7,470) $(6,934) $(3,300) $(17,704)
======= ======= ======= ========
Pro forma net loss per share:
Basic and diluted................................................................ $ (10.12)
========
Weighted average shares -- basic and diluted..................................... 1,750
========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
F-21
<PAGE> 86
MYPOINTS.COM, INC.
(FORMERLY INTELLIPOST CORPORATION)
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
The following adjustments were applied to the Company's historical
financial statements and those of the acquired companies to arrive at the pro
forma consolidated financial information.
A. To record amortization of a technology license agreement totaling $7.3
million over the estimated period of benefit of 48 months.
B. To record amortization of acquired customer base totaling $500,000 over
the estimated period of benefit of 32 months, and acquired membership
base totaling $800,000 over the estimated period of benefit of 27
months.
C. To record amortization of acquired employee workforce totaling $800,000
for employees of ERT subsequently retained by the Company over the
estimated period of benefit of 24 months.
D. To record amortization of acquired trademark and trade name totaling
$1.8 million over the estimated period of benefit of 60 months.
E. Pro forma basic net loss per share for the year ended December 31, 1998
is computed using the weighted average number of common shares
outstanding, including the pro forma effect of the automatic conversion
of the Company's Series A, Series B, Series C and Series D preferred
stock into shares of the Company's common stock effective upon the
closing of the Company's proposed initial public offering as if such
conversion occurred on January 1, 1998 or on the date of original
issuance, if later. Pro forma diluted net loss per share is computed
excluding the pro forma weighted average number of common and common
equivalent shares outstanding because such common equivalents are
anti-dilutive. Differences between historical weighted average shares
outstanding and pro forma weighted average shares outstanding used to
compute net loss per share result from the inclusion of shares issued in
conjunction with the acquisition as if such shares were outstanding from
January 1, 1998 and from the automatic conversion of the Company's
Series A, Series B, Series C and Series D preferred stock effective upon
the completion of the Company's proposed initial public offering.
F-22
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Enhanced Response Technologies, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of shareholders' deficiency and of cash flows present fairly, in
all material respects, the financial position of Enhanced Response Technologies,
Inc., formerly MotivationNet, Inc. (the Company), as of December 31, 1997, and
the results of its operations and its cash flows for the period from June 25,
1996 (date of inception) to December 31, 1996, and the year ended December 31,
1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
March 26, 1999
Chicago, Illinois
F-23
<PAGE> 88
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 32 $ 42
Accounts receivable....................................... 40 183
Deposits and prepaid expenses............................. 87 51
------- ------
Total current assets................................... 159 276
Property and equipment, net................................. 567 473
Other assets................................................ 5 45
------- ------
Total assets........................................... $ 731 $ 794
======= ======
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Notes payable............................................. $ 4,117 $2,808
Accounts payable.......................................... 324 408
Accrued expenses.......................................... 258 444
Points redemption liability............................... 17 400
Deferred compensation..................................... 100 100
Deferred revenue.......................................... 83 387
------- ------
Total current liabilities.............................. 4,899 4,547
------- ------
Commitments and contingencies (Note 9 and Note 11)
Shareholders' deficiency:
Common stock, no par value; 6,000,000 shares authorized;
2,048,000 and 2,228,000 shares outstanding as of
December 31, 1997 and September 30, 1998,
respectively........................................... 119 131
Additional paid-in capital................................ 17 5,398
Accumulated deficit....................................... (4,291) (9,282)
Unearned compensation..................................... (13) --
------- ------
Total shareholders' deficiency......................... (4,168) (3,753)
------- ------
Total liabilities and shareholders' deficiency......... $ 731 $ 794
======= ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-24
<PAGE> 89
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD YEAR NINE MONTHS ENDED
ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, ---------------------------
1996 1997 1997 1998
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................ $ -- $ -- $ -- $ 30
Cost of revenues.................... -- -- -- 6
----- ------- ------- -------
Gross profit...................... -- -- -- 24
----- ------- ------- -------
Operating expenses:
Technology costs.................. -- 3,213 1,979 1,979
Sales expenses.................... -- 146 54 596
Marketing......................... 35 417 -- 1,484
General and administrative
expenses....................... 177 178 13 784
----- ------- ------- -------
Total operating expenses....... 212 3,954 2,046 4,843
----- ------- ------- -------
Operating loss...................... (212) (3,954) (2,046) (4,819)
Interest expense.................... -- (116) (41) (196)
Other, net.......................... -- (9) 24
----- ------- ------- -------
Net loss....................... $(212) $(4,079) $(2,087) $(4,991)
===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-25
<PAGE> 90
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
COMBINED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
FOR THE PERIOD FROM JUNE 25, 1996 (DATE OF INCEPTION) TO
DECEMBER 31, 1996, AND FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------ PAID-IN ACCUMULATED UNEARNED
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION TOTAL
--------- ------ ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders for cash.............. 1,000 $104 $ -- $ -- $ -- $ 104
Net loss......................... (212) (212)
--------- ---- ------ ------- ---- -------
BALANCE, DECEMBER 31, 1996....... 1,000 104 (212) (108)
Stock option award............... 17 (17)
Amortization of unearned
compensation................... 4 4
Stock issued for services........ 24 15 15
Stock split -- 2000 for 1........ 2,046,976
Net loss......................... -- -- -- (4,079) -- (4,079)
--------- ---- ------ ------- ---- -------
BALANCE, DECEMBER 31, 1997....... 2,048,000 119 17 (4,291) (13) (4,168)
(UNAUDITED)
Conversion of notes payable and
accrued interest to capital in
MNet........................... 5,230 5,230
Exercise of stock options........ 180,000 12 151 13 176
Net loss......................... (4,991) (4,991)
--------- ---- ------ ------- ---- -------
BALANCE, SEPTEMBER 30, 1998...... 2,228,000 $131 $5,398 $(9,282) $ -- $(3,753)
========= ==== ====== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE> 91
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD YEAR NINE MONTHS ENDED
ENDED ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, -----------------
1996 1997 1997 1998
------------ ------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(212) $(4,079) $(2,087) $(4,991)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 2 94 40 173
Stock-based compensation............................ -- 4 -- 164
Stock issued for services........................... -- 15 15 --
Changes in operating assets and liabilities:
Accounts receivable.............................. -- (41) (142) (144)
Deposits and prepaid expenses.................... (2) (85) (5) 37
Accounts payable................................. 27 297 204 84
Accrued expenses................................. 16 242 167 416
Point redemption liability....................... -- 18 -- 382
Deferred compensation............................ 51 49 49 --
Deferred revenue................................. -- 83 -- 304
----- ------- ------- -------
Net cash used in operating activities............ (118) (3,403) (1,759) (3,575)
----- ------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment.................... (13) (649) (593) (79)
Other................................................. -- (6) -- (40)
----- ------- ------- -------
Net cash used in investing activities............ (13) (655) (593) (119)
----- ------- ------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock................ 104 -- -- --
Proceeds from note payable............................ -- 4,057 2,332 3,752
Proceeds from officer notes payable................... 30 30 30 --
Repayments of officer notes payable................... -- -- -- (60)
Exercise of stock options............................. -- -- -- 12
----- ------- ------- -------
Net cash provided by financing activities........ 134 4,087 2,362 3,704
----- ------- ------- -------
Net increase in cash and cash equivalents........ 3 29 10 10
Cash and cash equivalents, beginning of period.......... -- 3 3 32
----- ------- ------- -------
Cash and cash equivalents, end of period................ $ 3 $ 32 $ 13 $ 42
===== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-27
<PAGE> 92
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY
Enhanced Response Technologies, Inc., formerly known as MotivationNet, Inc.
(the "Company"), was founded in June 1996. The Company offers advertisers the
ability to target Internet users enrolled as members of its "MyPoints" incentive
program. The Company's MyPoints program awards points to enrolled members for
receiving and responding to email communications, accessing and responding to
advertisers' and MyPoints's Internet Web page offers, purchasing advertisers'
products, and completing of surveys to obtain demographic information. MyPoints
points may be redeemed by members for a variety of goods and services.
NOTE 2 -- BASIS OF PRESENTATION (UNAUDITED)
The Company's primary source of funding for the development of the
technology supporting the MyPoints program was obtained from Direct Marketing
Technology, Inc. ("DMT") through a note payable. In early 1998, DMT informed the
Company that it wanted to convert the note payable to an equity interest. On
March 31, 1998, the Company and DMT entered into an agreement whereby the
Company transferred its MyPoints technology, which was carried at zero net book
value, a $5,209,600 note payable to DMT and certain other assets and liabilities
to MotivationNet, LLC ("MNet"), with $5,000,000 of the note payable to DMT and
related accrued interest being converted by DMT to a capital interest in MNet.
Upon the formation of MNet, the Company's and DMT's interest in MNet were 34.0%
and 66.0%, respectively. To avoid confusion with MotivationNet, LLC, the Company
changed its name from MotivationNet, Inc. to Enhanced Response Technologies,
Inc. Also, on March 31, 1998, the Company established a wholly-owned subsidiary,
MyPoints.Com, LLC ("MyPoints.Com"), to which the Company contributed the
MyPoints operations.
In connection with its formation, MNet licensed the MyPoints technology
back to the Company. Beginning in April 1998, the MyPoints program was operated
on MNet's computer systems for which MNet began charging MyPoints.Com for use of
the computer system and technical support. In addition, MNet provided
fulfillment services related to the redemption of MyPoints points for goods and
services for which MNet charged MyPoints.Com based on the face value of the
points redeemed, $.01 per point.
Pursuant to the agreement to establish MNet, DMT agreed to provide MNet
additional financing through a note payable to fund the operations of MNet, as
well as to allow MNet to provide financing to the Company through a note payable
to fund the Company's operations, including the operations of MyPoint.Com.
In the fourth quarter of 1998, the Company and MNet were acquired by
Intellipost Corporation (subsequently renamed "MyPoints.com, Inc.").
The financial statements for periods prior to March 31, 1998 reflect the
operations of the Company as a stand-alone entity. The financial statements for
periods subsequent to March 31, 1998 reflect the operations of the Company and
MNet on a combined basis as (a) the companies have common management, (b) both
companies were acquired by Intellipost Corporation and (c) the presentation is
considered most meaningful. All intercompany transactions have been eliminated.
F-28
<PAGE> 93
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- LIQUIDITY
The Company has sustained net losses and negative cash flows from
operations since its inception. The Company's ability to meet its obligations in
the ordinary course of business is dependent upon its ability to establish
profitable operations or to obtain additional funding through public or private
equity financing, collaborative or other arrangements with corporate sources, or
other sources. Management is seeking to increase revenues through continued
marketing of its services while controlling costs to meet working capital needs;
however, additional financing will be required.
To support its working capital requirements in 1998, the Company received
additional funding from DMT through MNet. Since the merger with Intellipost
Corporation in late 1998, Intellipost Corporation has been funding the Company's
operations. Intellipost has committed to fund the Company's working capital
needs through at least December 31, 1999.
NOTE 4 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL DATA (UNAUDITED)
The financial statements as of September 30, 1998 and for the nine-month
periods ended September 30, 1997 and 1998 are unaudited. In the opinion of
management, these financial statements reflect all adjustments necessary for a
fair presentation of the financial statements for such periods. These
adjustments consist of normal, recurring items. The results of operation for the
nine-month period ended September 30, 1998 are not necessarily indicative of the
results of operations that may be expected for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Such estimates include the levels of valuation allowances for accounts
receivable and deferred taxes. Actual results could differ from those estimates
and such differences could be material.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with original
maturities of three months or less when purchased.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over their respective estimated useful lives, generally
three years. Maintenance and repairs are charged to expense as incurred, and
improvements and betterments are capitalized. When assets are retired or
otherwise disposed of, the cost and accumulated depreciation and amortization
are removed from the accounts and any resulting gain or loss is reflected in the
statement of operations for the period realized.
F-29
<PAGE> 94
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are determined based on temporary
differences between the financial statement and tax bases of assets and
liabilities and net operating loss and credit carryforwards using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
POINTS REDEMPTION LIABILITY
Points redemption liability represent the estimated costs associated with
the accumulation of MyPoints points earned by MyPoints members in conjunction
with the Company's internal marketing activities. These MyPoints may be
converted by members into various third party goods and services. The Company is
liable for purchasing the goods and services redeemed by members.
REVENUE RECOGNITION
The Company earns revenues from the sale of MyPoints points to corporate
advertisers that use these points for Internet-based promotional campaigns which
award members for certain actions desired by corporate advertisers. In
connection with the sale of the MyPoints points, the Company is responsible for
redeeming the points upon the member's request. The Company recognizes revenues
when the MyPoints points are redeemed by the MyPoints members.
TECHNOLOGY COSTS
Product development costs and enhancements to existing products are charged
to operations as incurred. Software development costs are required to be
capitalized when a product's technological feasibility has been established by
completion of a working model of the product and ending when a product is
available for general release to customers. To date, completion of a working
model of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any software development
costs since such costs have not been significant. Product development costs,
along with other technology related costs, are reported as technology costs in
the Company's statements of operations.
BUSINESS RISK AND CONCENTRATION OF CREDIT RISK
The Company has a limited operating history and its prospects are subject
to the risks, expenses and uncertainties frequently encountered by companies in
the new and rapidly evolving markets for Internet products and services. These
risks include the failure to develop and extend the Company's online service
brands, the rejection of the Company's services by Web consumers and/or
advertisers, the inability of the Company to maintain and increase the levels of
traffic on its online services, as well as other risks and uncertainties.
Failure to successfully address these risks may have a material adverse impact
on the Company's operations and financial position.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and accounts receivable. The Company deposits its cash with one major financial
institution and such deposits do not exceed insured amounts. The Company's
F-30
<PAGE> 95
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
customers range from large corporations to relatively small organizations. The
Company does not require collateral for accounts receivable. The Company
evaluates each customer's credit worthiness and establishes allowances as
necessary.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. Under APB No. 25, compensation expense
is based on the difference, if any, on the date of the grant, between the fair
value of the Company's stock and the exercise price of options to purchase that
stock.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS No.
131 establishes standards for the way companies report information about
operating segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for year
ended December 31, 1998. The Company has determined that it does not have any
separately reportable business segments as of December 31, 1998.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") No. 98-1, Software for Internal Use, which
provides guidance on accounting for the cost of computer software developed or
obtained for internal use. SOP No. 98-1 is effective for financial statements
for fiscal years beginning after December 15, 1998. The Company does not expect
that the adoption of SOP No. 98-1 will have a material impact on its financial
statements.
F-31
<PAGE> 96
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997
----
<S> <C>
Computer equipment.......................................... $321
Furniture and fixtures...................................... 7
Computer software........................................... 335
----
663
Accumulated depreciation and amortization................... (96)
----
$567
====
</TABLE>
NOTE 6 -- NOTES PAYABLE
During 1997, DMT provided funding to the Company of approximately
$4,056,000 through a non-interest bearing note payable. The Company recognized
imputed interest expense on the note payable based on the prime rate plus 1.0%
(9.5% as of December 31, 1997). The note payable and related accrued interest
were transferred to MNet as of March 31, 1998 in connection with its formation.
Upon the formation of MNet, $5,000,000 of the note payable balance then
outstanding and the related accrued interest of $229,550 were transferred to
MNet and converted by DMT to a capital interest in MNet (see Note 2).
The Company had notes payable to an officer of $60,000 as of December 31,
1997. Borrowings under the notes payable bore interest at 7.0% and were repaid
in April 1998.
Interest expense was $0 and $116,400 in 1996 and 1997, respectively.
NOTE 7 -- CAPITAL STRUCTURE
COMMON STOCK
Upon formation in June 1996, the Company was authorized to issue 1,000,000
shares of no par value common stock. The Company issued 1,000 shares of common
stock in connection with its initial capitalization. Pursuant to the unanimous
consent of the stockholders on June 17, 1997, the authorized shares of common
stock were increased to 6,000,000 and the Company declared a 2000-for-one stock
split effective July 1, 1997.
COMMON STOCK OPTIONS
On November 17, 1997, the Company adopted the MotivationNet, Inc. 1997
Incentive Stock Option Plan (the "Plan"). As of December 31, 1997, the Company
had reserved 200,000 shares of common stock for issuance under the Plan.
Effective August 12, 1998 the Board of Directors increased the common stock
reserved for the Plan from 200,000 shares to 650,000 shares. Pursuant to the
Plan provisions, grant prices of options issued under the Plan can be no less
than the fair market value of the Company's common stock as of the date of
grant, the options vest at a rate of no less than 20% per year and the term of
the options can be no more than seven years from the date of grant. During 1997,
the Company granted 140,100 shares under the Plan, with one-third of the options
originally vesting as of
F-32
<PAGE> 97
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
January 1, 1998, 1999 and 2000. In connection with the formation of MNet (see
Note 2), these options became fully vested.
Pursuant to an employment agreement, an executive of the Company was
granted options to purchase 0.5% of the shares outstanding as each of the
following dates: May 7, 1997, December 31, 1997, June 30, 1998 and December 31,
1998. The aggregate option price for such shares was fixed at $12,500. The
employment agreement was amended in August 1998 to the allow executive to
purchase 180,000 shares for the $12,500, upon which the executive exercised such
options.
The Company accounts for stock-based compensation in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for employee stock options is
measured as the excess, if any, of the fair market value the Company's common
stock at the date of grant over the amount the employee must pay to acquired. In
connection with certain stock option grants during the year ended December 31,
1997, the Company recognized unearned compensation, which is being amortized
over the service period for which the options were granted. The unearned
compensation as of December 31, 1997 is reported as component of shareholders'
deficiency.
Following is a summary of incentive stock option activity for the year
ended December 31, 1997. There was no activity in the Plan prior to January 1,
1997.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OUTSTANDING EXERCISE
SHARES PRICE
----------- --------
<S> <C> <C>
Outstanding as of December 31, 1996....................... -- --
Granted................................................. 140,100 $1.00
Exercised............................................... -- --
Canceled................................................ (15,000) 1.00
------- -----
Outstanding as of December 31, 1997....................... 125,100 $1.00
======= =====
Options vested as of December 31, 1997.................... -- --
======= =====
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
AT DECEMBER 31, 1997 AT DECEMBER 31, 1997
------------------------------------------ ---------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDINGS LIFE (YEARS) PRICE VESTED PRICE
-------------- ------------ ------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
$1.00 125,100 6.83 $1.00 -- --
------- ---- ----- -- --
</TABLE>
The weighted average fair value of options granted in 1997 was $0.73.
F-33
<PAGE> 98
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Had compensation cost for the Company's Plan been determined based on fair
value at the grant date consistent with the method prescribed by SFAS 123, the
impact on the Company's net loss would have been increased to the pro forma
amounts below (in thousands):
<TABLE>
<CAPTION>
1996 1997
----- -------
<S> <C> <C>
Net loss as reported.................................. $(212) $(4,079)
Net loss -- pro forma................................. -- $(4,087)
</TABLE>
The fair value of employee stock option grants has been estimated on the
date of grant using the minimum value model with the following weighted average
assumptions used for grants in 1997:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Risk-free interest rate..................................... 5.72%
Expected life............................................... 5 years
Dividends................................................... --
</TABLE>
NOTE 8 -- SAVINGS PLAN
In November 1997 the Company established the MotivationNet, Inc. 401-K Plan
(the "Savings Plan"), which covers substantially all employees. Under the
Savings Plan, employees are permitted to contribute up to 15.0% of their gross
compensation, subject to limitations of the Internal Revenue Code. The Company
does not make matching contributions to the Savings Plan.
NOTE 9 -- LEASES
The Company leases office space and equipment under noncancelable operating
leases with various expiration dates through 1999. Under the terms of office
space lease, the Company is responsible for certain real estate taxes and other
operating costs. The Company's rent expense was $16,000 and $46,000 in 1996 and
1997, respectively.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
DECEMBER 31, LEASES
------------ ---------
<S> <C>
1998........................................................ $65
1999........................................................ 24
---
Total minimum lease payments...................... $89
===
</TABLE>
NOTE 10 -- INCOME TAXES
As of December 31, 1997, the Company has net operating loss carryforwards
of approximately $161,000 for federal income tax reporting purposes. The net
operating loss carryforwards expire in 2011.
The difference between the income tax benefit at the federal statutory rate
and the Company's effective tax rate is due primarily to recognition of a full
valuation allowance to offset the net deferred tax assets.
F-34
<PAGE> 99
ENHANCED RESPONSE TECHNOLOGIES, INC.
(FORMERLY MOTIVATIONNET, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The estimated tax effect of significant temporary differences and
carryforwards that give rise to deferred income tax assets as of December 31,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Net operating loss carryforwards............................ $ 64
Non-deducted research and experimentation costs............. 1,475
Accrued expenses............................................ 110
Deferred compensation....................................... 39
Non-deducted start-up costs................................. 20
-------
Gross deferred tax assets................................... 1,708
Valuation allowance......................................... (1,708)
-------
Net deferred tax asset...................................... $ --
=======
</TABLE>
The Company has recorded a valuation allowance against the net deferred tax
assets due the Company operating at a net loss since inception and due to
uncertainties surrounding their realization.
NOTE 11 -- CONTINGENCIES
The Company is the subject of various claims and actions in the ordinary
course of its business. All such matters are subject to uncertainties that are
not predictable with assurance. However, it is management's opinion that the
disposition of such matters will not have a material impact on the Company's
financial position, results of operations or cash flows.
NOTE 12 -- SUBSEQUENT EVENTS
On November 30, 1998, the shareholders of the Company reached an agreement
to sell the Company to MyPoints.com, Inc. (formerly Intellipost Corporation).
F-35
<PAGE> 100
DESCRIPTION OF GRAPHICS
FRONT-COVER GATE FOLD
MyPoints logo with flow chart of our Web pages illustrating aspects of
member interaction including joining the program, and opportunities to earn and
redeem points.
INSIDE FRONT COVER:
MyPoints logo with logos of rewards providers above two half-circle flow
charts illustrating MyPoints online Loyalty Solutions and Online Direct
Marketing Solutions.
INSIDE BACK COVER
MyPoints logo with Web pages representative of co-branding of the MyPoints
rewards program.
<PAGE> 101
LOGO
<PAGE> 102
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all fees and expenses payable by
MyPoints.com in connection with the registration of the common stock hereunder.
All of the amounts shown are estimates except for the SEC registration fee, NASD
filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
-------------
<S> <C>
SEC Registration Fee........................................ $ 19,182.00
NASD Filing Fee............................................. 7,400.00
Nasdaq National Market Listing Fee.......................... 90,000.00
Printing and Engraving Expenses............................. 200,000.00
Legal Fees and Expenses..................................... 300,000.00
Accounting Fees and Expenses................................ 250,000.00
Transfer Agent and Registrar Fees and Expenses.............. 25,000.00
Blue Sky fees and expenses.................................. 10,000.00
Miscellaneous Expenses...................................... 98,418.00
-------------
Total............................................. $1,000,000.00
=============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our certificate of incorporation and our bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General Corporation
Law. We have also entered into agreements with our directors and executive
officers that require MyPoints.com among other things to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors and executive officers to the fullest extent permitted by Delaware
law. We have also purchased directors and officers liability insurance, which
provides coverage against certain liabilities including liabilities under the
Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Since our formation in November 1996, we have issued and sold the
following unregistered securities:
(1) In November 1996, we issued and sold an aggregate of 2,500,000
shares of common stock to the founding officers and directors of
MyPoints.com and to certain other individuals for an aggregate purchase
price of $2,500.00.
(2) Since our inception, we have granted options to purchase 3,073,498
shares of common stock to employees, directors and consultants under our
1996 and 1999 stock plans at exercise prices ranging from $0.05 to $5.00
per share. Of the 3,073,498 shares granted, 2,623,091 remain outstanding,
112,924 shares of common stock have been purchased pursuant to exercises of
stock options and 337,483 shares have been canceled and returned to the
1996 and 1999 stock plans.
II-1
<PAGE> 103
(3) In November and December 1996, we sold an aggregate of 3,000,000
shares of Series A preferred stock at a price of $0.50 per share to a total
of four investors.
(4) In March of 1998, we sold an aggregate of 500,000 shares of Series
B preferred stock at a price of $1.00 per share to one institutional
investor.
(5) Between October 1997 and April 1998, we sold an aggregate of
2,926,666 shares of Series C preferred stock at a price of $1.50 per share
to a total of 19 investors. On May 1, 1998, in conjunction with entering an
equipment lease, we issued a warrant for the purchase of 10,000 shares of
Series C preferred stock to Phoenix Leasing Inc. at an exercise price of
$1.50.
(6) In November 1998, we issued 3,600,481 shares of common stock
pursuant to our acquisition transactions with Experian.
(7) In November 1998, we sold an aggregate of 3,961,649 shares of
Series D preferred stock at a price of $2.06 per share and warrants for the
purchase of 1,374,028 shares of Series D preferred stock with an exercise
price of $2.06 per share to a total of 23 investors.
(8) In March 1999, we entered into a binding commitment to sell an
aggregate of 2,000,000 shares of Series E preferred stock at a price of
$5.00 per share to a total of 41 investors, all of whom have entered into
binding agreements to purchase such shares. All of these investors
qualified as "accredited investors" under Securities and Exchange
Commission Rule 501.
.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in such transactions. All
recipients had adequate access, through their relationship with MyPoints.com, to
information about us.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement
3.1(a) Amended and Restated Certificate of Incorporation, as
currently in effect
3.1(b)* Certificate of Incorporation to be filed upon completion of
the offering
3.2(a) Bylaws of the registrant as currently in effect
3.2(b)* Bylaws of the registrant as in effect upon completion of the
offering
4.1 Form of Lock-Up Agreements
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1* Amended and Restated Investors Rights Agreement dated March
30, 1999
</TABLE>
II-2
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
10.2 1996 Stock Plan and forms of agreements thereunder
10.3 1999 Stock Plan and forms of agreements thereunder
10.4* 1999 Employee Stock Purchase Plan
10.5 Form of Director and Executive Officer Indemnification
Agreement
10.6 Representative form of Stock Purchase Warrant
10.7 Lease between the registrant and Louis N. Haas dated
November 15, 1996 for office space located at 565 Commercial
Street, San Francisco, California, and addenda thereto
10.8* Lease dated March 18, 1999 between registrant and
TA/Western, L.L.C. for office space located at 1375 E.
Woodfield Road, Suite 520, Schaumburg, Illinois
10.9 Lease dated January 22, 1998 between MotivationNet, Inc. and
The Mutual Life Insurance Company of New York for office
space located at 1375 E. Woodfield Road, Suite 540,
Schaumburg, Illinois
10.10 Agreement and Plan of Merger dated November 30, 1998 among
the registrant, IPOST Acquisition Subsidiary, Inc. and
Enhanced Response Technologies, Inc.
10.11 Interest Purchase Agreement dated November 30, 1998 among
registrant, Direct Marketing Technology, Inc. and Brigar
Computer Services, Inc.
10.12 Asset Purchase Agreement dated November 30, 1998 between
registrant and Metromail Corporation
10.13 License Agreement dated November 30, 1998 between registrant
and Direct Marketing Technologies, Inc.
10.14 Services Agreement dated November 30, 1998 between
registrant and Direct Marketing Technologies, Inc.
10.15 Business Loan Agreement dated January 27, 1997 between
registrant and Silicon Valley Bank and related promissory
notes
10.16 Master Equipment Lease Agreement dated May 1, 1998 between
registrant and Phoenix Leasing Incorporated
10.17* Patent License Agreement dated March 30, 1999 between
registrant and Netcentives, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants
23.3* Consent of Counsel (included in exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
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-3
<PAGE> 105
ITEM 17. UNDERTAKINGS
Insofar as indemnification by MyPoints.com for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of MyPoints.com, we have 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 MyPoints.com of expenses incurred or paid by a director, officer
or controlling person of MyPoints.com in the successful defense of any action,
suit or proceeding) is asserted by a director, officer or controlling person in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
MyPoints.com is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
We hereby undertake that:
(a) We will provide to the underwriters at the closing as 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.
(b) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form
of prospectus filed by MyPoints.com pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(c) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
MyPoints.com has duly caused this Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Francisco, State of California, on the 31st day of March, 1999.
MYPOINTS.COM, INC.
By: /s/ STEVEN M. MARKOWITZ
---------------------------------------
Steven M. Markowitz
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Steven M. Markowitz and Mario M. Rosati
and each of them, his attorneys-in-fact, each with the power of substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same Offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-1 has been signed by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ STEVEN M. MARKOWITZ Chief Executive Officer and March 31, 1999
- ------------------------------------------------ Chairman of the Board (Principal
Steven M. Markowitz Executive Officer)
/s/ LAYTON S. HAN Vice President, Finance (Principal March 31, 1999
- ------------------------------------------------ Financial and Accounting Officer)
Layton S. Han
/s/ ROBERT C. HOYLER President and Chief March 31, 1999
- ------------------------------------------------ Operating Officer, Director
Robert C. Hoyler
/s/ HOWARD L. MORGAN Director March 31, 1999
- ------------------------------------------------
Howard L. Morgan
/s/ THOMAS NEWKIRK Director March 31, 1999
- ------------------------------------------------
Thomas Newkirk
</TABLE>
II-5
<PAGE> 107
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ LAWRENCE E. PHILLIPS Director March 31, 1999
- ------------------------------------------------
Lawrence E. Phillips
/s/ MARIO M. ROSATI Director March 31, 1999
- ------------------------------------------------
Mario M. Rosati
/s/ LESTER WUNDERMAN Director March 31, 1999
- ------------------------------------------------
Lester Wunderman
</TABLE>
II-6
<PAGE> 108
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE
AT BALANCE AT
BEGINNING END OF
DESCRIPTION OF YEAR ADDITIONS DEDUCTIONS YEAR
----------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts for the years ended:
December 31, 1997.................................... -- -- -- --
December 31, 1998.................................... -- 60 -- 60
</TABLE>
S-1
<PAGE> 109
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- ------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement
3.1(a) Amended and Restated Certificate of Incorporation, as
currently in effect
3.1(b)* Certificate of Incorporation to be filed upon completion of
the offering
3.2(a) Bylaws of the registrant as currently in effect
3.2(b)* Bylaws of the registrant as in effect upon completion of the
offering
4.1 Form of Lock-Up Agreements
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1* Amended and Restated Investors Rights Agreement dated March
30, 1999
10.2 1996 Stock Plan and forms of agreements thereunder
10.3 1999 Stock Plan and forms of agreements thereunder
10.4* 1999 Employee Stock Purchase Plan
10.5 Form of Director and Executive Officer Indemnification
Agreement
10.6 Representative form of Stock Purchase Warrant
10.7 Lease between the registrant and Louis N. Haas dated
November 15, 1996 for office space located at 565 Commercial
Street, San Francisco, California, and addenda thereto
10.8* Lease dated March 18, 1999 between registrant and
TA/Western, L.L.C. for office space located at 1375 E.
Woodfield Road, Suite 520, Schaumburg, Illinois
10.9 Lease dated January 22, 1998 between MotivationNet, Inc. and
The Mutual Life Insurance Company of New York for office
space located at 1375 E. Woodfield Road, Suite 540,
Schaumburg, Illinois
10.10 Agreement and Plan of Merger dated November 30, 1998 among
the registrant, IPOST Acquisition Subsidiary, Inc. and
Enhanced Response Technologies, Inc.
10.11 Interest Purchase Agreement dated November 30, 1998 among
registrant, Direct Marketing Technology, Inc. and Brigar
Computer Services, Inc.
10.12 Asset Purchase Agreement dated November 30, 1998 between
registrant and Metromail Corporation
10.13 License Agreement dated November 30, 1998 between registrant
and Direct Marketing Technologies, Inc.
10.14 Services Agreement dated November 30, 1998 between
registrant and Direct Marketing Technologies, Inc.
10.15 Business Loan Agreement dated January 27, 1997 between
registrant and Silicon Valley Bank and related promissory
notes
10.16 Master Equipment Lease Agreement dated May 1, 1998 between
registrant and Phoenix Leasing Incorporated
10.17* Patent License Agreement dated March 30, 1999 between
registrant and Netcentives, Inc.
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- ------------------------------------------------------------
<S> <C>
23.3* Consent of Counsel (included in exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1(a)
RESTATED CERTIFICATE OF INCORPORATION
OF
INTELLIPOST CORPORATION
A DELAWARE CORPORATION
Intellipost Corporation, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
A. The name of the corporation is Intellipost Corporation. The
corporation was originally incorporated under the same name and the original
Certificate of Incorporation of the corporation was filed with the Delaware
Secretary of State on November 7, 1996.
B. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation of this corporation.
C. The text of the Certificate of Incorporation is hereby amended and
restated in its entirety to read as follows:
ONE. The name of this corporation is Intellipost Corporation (the
"Corporation").
TWO. The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Zip Code 19801. The name of its registered
agent at such address is The Corporation Trust Company.
THREE. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
FOUR. The Corporation is authorized to issue two classes of capital
stock: Preferred Stock, $0.001 par value per share, and Common Stock, $0.001 par
value per share. The total number of shares of Common Stock which the
Corporation shall have the authority to issue is Forty Million (40,000,000). The
total number of shares of Preferred Stock the Corporation shall have the
authority to issue is Thirteen Million Five Hundred Thousand (13,500,000) shares
of which Four Million (4,000,000) are designated Series A Preferred Stock, One
Million (1,000,000) are designated Series B Preferred Stock, Three Million
(3,000,000) are designated Series C Preferred Stock and Five Million Five
Hunderd Thousand (5,500,000) are designated as Series D Preferred Stock.
<PAGE> 2
The corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of the Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Preferred Stock. If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, the corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
The relative powers, preferences, special rights, qualifications,
limitations and restrictions granted to or imposed on the respective classes of
the shares of capital stock or the holders thereof are as follows:
1. Dividends.
a. Dividends on Series D Preferred Stock. The holders of the
Series D Preferred Stock shall be entitled to receive, when, as and if declared
by the board of directors (except as otherwise provided herein), out of any
funds legally available therefor, cumulative dividends at an annual rate of
seven percent (7%) per share of the "Original Issue Price" of the Series D
Preferred Stock per annum on each outstanding share of Series D Preferred Stock.
The Original Issue Price of the Series D Preferred Stock shall be $2.06 (as
adjusted for any stock dividend, stock splits, recapitalization, reorganizations
and other similar transactions), respectively. Dividends on the Series D
Preferred Stock shall be payable in preference and prior to any payment of any
dividend on the other series of Preferred Stock and Common Stock.
b. Dividends on Other Series of Preferred Stock. The holders of
the other series of Preferred Stock shall be entitled to receive, when, as and
if declared by the board of directors (except as otherwise provided herein), out
of any funds legally available therefor, dividends at an annual rate of six
percent (6%) per share of the "Original Issue Price" per annum on each
outstanding share of Preferred Stock. The Original Issue Price of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock shall be
$0.50, $1.00 and $1.50 (as adjusted for any stock dividend, stock splits,
recapitalization, reorganizations and other similar transactions), respectively.
Dividends on the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall be payable in preference and prior to any payment of any
dividend on the Common Stock.
c. General. After dividends have been paid in accordance with
Sections 1(a) and 1(b), holders of Preferred Stock and Common Stock shall be
entitled to receive, when, as and if declared by the board of directors, out of
any funds legally available therefor, dividends; provided, however, that no
dividend or distribution shall be declared or paid on any shares of Common Stock
or Preferred Stock unless at the same time an equivalent dividend or
distribution is declared or paid on all outstanding shares of Common Stock and
Preferred Stock, and provided further that any dividend or distribution on
Preferred Stock shall be payable at the same rate per share as would be payable
on the shares of Common Stock which the holder of Preferred Stock would be
entitled to
-2-
<PAGE> 3
receive if he had converted the shares of Preferred Stock into Common Stock
immediately prior to the record date of such distribution. "Distribution" in
this Section 1 means the transfer of cash or property without consideration,
whether by way of dividend or otherwise or the purchase or redemption of shares
of the Corporation for cash or property (except the purchase of shares of Common
Stock from employees, directors or consultants pursuant to restricted stock
purchase agreements). The right to dividends on shares of Common Stock and
Preferred Stock shall be non-cumulative and no right shall accrue to holders of
Common Stock or Preferred Stock by reason of the fact that dividends on said
shares are not declared in any prior period. Notwithstanding the prior sentence,
in the event of a liquidation as described in Section 2 below, the holders of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
in addition to the liquidation preference provided for therein, shall also be
entitled to receive a cumulative dividend accrued at an annual rate of 6% of the
Original Issue Price per share; and the holders of Series D Preferred Stock, in
addition to the liquidation preference provided for therein, shall also be
entitled to receive a cumulative dividend accrued at an annual rate of 7% of the
Original Issue Price per share.
2. Liquidation Preference. In the event of any liquidation, dissolution,
or winding up of the Corporation, either voluntary or involuntary, distributions
to the stockholders of the Corporation shall be made in the following manner:
a. Series D Preferred Stock Preference. The holders of Series D
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the other series of Preferred Stock and Common Stock by reason of
their ownership of such shares, an amount equal to the Original Issue Price for
each share of Series D Preferred Stock plus an amount equal to all accrued or
declared but unpaid dividends per share of Series D Preferred Stock with respect
to such liquidation, dissolution or winding up. If the assets and funds thus
distributed among the holders of the Series D Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed among the holders of the Series
D Preferred Stock in proportion to the aggregate liquidation preference of the
shares of Series D Preferred Stock then held by them.
b. Other Series Preferred Stock Preference. The holders of the
other series of Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership of
such shares, an amount equal to the Original Issue Price for each share of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
plus an amount equal to all accrued or declared but unpaid dividends per share
of Preferred Stock with respect to such liquidation, dissolution or winding up.
If the assets and funds thus distributed among the holders of the Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed among the
holders of the Series A, Series B and Series C Preferred Stock in proportion to
the aggregate liquidation preference of the shares of Preferred Stock then held
by them.
-3-
<PAGE> 4
c. Remaining Assets. If the assets of the Corporation available
for distribution to the Corporation's stockholders exceed the aggregate amount
payable to the holders of the Preferred Stock pursuant to Sections 2(a) and 2(b)
hereof (such assets being hereafter referred to as the "Remaining Assets"), then
after the payments required by Sections 2(a) and 2(b) shall have been made or
irrevocably set apart, such Remaining Assets shall be distributed pro rata among
the holders of Common Stock on a per share basis.
d. Reorganization or Merger. A merger or reorganization of the
Corporation with or into any other corporation or corporations or a sale of all
or substantially all of the assets or outstanding stock of the Corporation, in
which transaction the Corporation's stockholders immediately prior to such
transaction own immediately after such transaction less than 50% of the equity
securities of the surviving corporation or its parent, shall be deemed to be a
liquidation within the meaning of this Section 2 and the proceeds payable in
such transaction shall be divided among the stockholders in accordance with this
Section 2; provided that the holders of Preferred Stock and Common Stock shall
be paid in cash or in securities received or in a combination thereof (which
combination shall be in the same proportions as the consideration received in
the transaction). Any securities to be delivered to the holders of the Preferred
Stock and Common Stock upon a merger, reorganization or sale of substantially
all of the assets of the Corporation shall be valued as follows:
(i) If traded on a securities exchange, the value shall
be deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three (3) business days prior to the
closing;
(ii) If actively traded over-the counter, the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) business days prior to the closing; and
(iii) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of not less than a majority of the outstanding
shares of Preferred Stock, provided that if the Corporation and the holders of a
majority of the outstanding shares of Preferred Stock are unable to reach
agreement, then by independent appraisal by an investment banker hired and paid
by the Corporation, but acceptable to the holders of a majority of the
outstanding shares of Preferred Stock.
3. [RESERVED]
4. Voting Rights.
a. Preferred Stock. Except as otherwise provided herein or
required by law, the holder of each share of Preferred Stock shall be entitled
to vote on all matters and shall be entitled to the number of votes equal to the
number of shares of Common Stock into which each share of Preferred Stock could
be converted pursuant to Section 5 hereof at the record date for the
determination of the stockholders entitled to vote on such matters or, if no
such record date is established, at the date such vote is taken. Except as
otherwise provided herein or required by law,
-4-
<PAGE> 5
the Preferred Stock shall have voting rights and powers equal to the voting
rights and powers of the Common Stock. Fractional votes shall not, however, be
permitted and any fractional voting rights resulting from the above formula
shall be rounded to the nearest whole number (with one-half rounded upward to
one).
b. Election of Directors. The holders of Series D Preferred
Stock, voting as a separate class, shall elect one (1) member of the
corporation's board of directors. The holders of Preferred Stock, voting as a
separate class, shall elect one (1) member of the corporation's board of
directors. The holders of Common Stock, voting as a separate class, shall elect
two (2) members of the corporation's board of directors. The holders of Common
Stock and Preferred Stock, voting together as a single class, shall elect the
remaining directors. In the case of any vacancy in the office of a director
elected by a specific class or series of capital stock, a successor shall be
elected to hold office for the unexpired term of such director by the
affirmative vote of a majority of the shares of such class or series given at a
special meeting of such stockholders duly called or by an action by written
consent for that purpose. Any director who shall have been elected by a
specified group of stockholders may be removed during the aforesaid term of
office, either for or without cause, by, and only by, the affirmative vote of
the holders of a majority of the shares of such class or series, given at a
special meeting of such stockholders duly called or by an action by written
consent for that purpose and any such vacancy thereby created may be filled by
the vote of the holders of a majority of the shares of such series or class of
capital stock represented at such meeting or in such consent.
c. Common Stock. Each holder of shares of Common Stock shall be
entitled to one vote for each share thereof held.
d. Election by Ballot. The election of directors need not be by
written ballot unless the Bylaws of the corporation shall so provide.
5. Conversion. The holders of the Preferred Stock have conversion rights
as follows (the "Conversion Rights"):
a. Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for the Preferred Stock, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing the Issuance Price (as hereinafter
defined) by the Conversion Price, determined as hereinafter provided, in effect
at the time of the conversion (the "Conversion Rate") and multiplying such share
by the Conversion Rate. The Issuance Price for Series A Preferred Stock, Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall
be $0.50, $1.00, $1.50 and $2.06 per share, respectively. The price at which
shares of Common Stock shall be deliverable upon conversion (the "Conversion
Price") for Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall initially be $0.50, $1.00,
$1.50 and $2.06 per share of Common Stock, respectively. Such initial Conversion
Price shall be subject to adjustment as hereinafter provided.
-5-
<PAGE> 6
b. Automatic Conversion. Each share of each series of Preferred
Stock shall automatically be converted into shares of Common Stock at the then
effective Conversion Rate of such series immediately prior to the closing of the
first firmly underwritten public offering of Common Stock of the Corporation
that is pursuant to a registration statement filed with, and declared effective
by, the Securities and Exchange Commission (or any other federal agency at the
time administering the Securities Act of 1933, as amended (the "Act")) under the
Act, covering the offer and sale of Common Stock to the public at a public
offering price (prior to the underwriter commissions and expenses) equal to or
exceeding five dollars ($5.00) per share of Common Stock (appropriately adjusted
for stock splits, stock dividends, recapitalization, reorganizations or other
similar transactions) and at an aggregate offering price (before deduction for
underwriter commissions and expenses) of not less than $10,000,000) or at any
time upon the affirmative election of the holders of at least a majority of the
outstanding shares of Preferred Stock. Upon such automatic conversion, any
accrued and unpaid dividends shall be paid in accordance with the provisions of
Section 5(c). In the event of the automatic conversion of the Preferred Stock
upon a public offering as aforesaid, the person(s) entitled to receive the
Common Stock issuable upon such conversion of Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such sale of securities. Notwithstanding the foregoing provisions of
this Section 5(b), no automatic conversion of the Preferred Stock shall be
effected unless and until such conversion will not violate any laws, rules,
regulations, orders or other legal requirements of any governing body (such as,
without limitation, compliance with the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended) and such automatic conversion shall be held in abeyance
pending compliance with any such requirements, provided that the holders of
Preferred Stock will use their best efforts to comply with such requirements.
c. Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into full shares of Common Stock and to
receive certificates therefor, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Preferred Stock, and shall give written notice to the
Corporation at such office that such holder elects to convert the same;
provided, however, that in the event of an automatic conversion pursuant to
Section 5(b), the outstanding shares of Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent, and provided further that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Preferred Stock are either delivered to the Corporation or its
transfer agent as provided above, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after such delivery, or such
agreement and indemnification in the case of a lost certificate, issue and
deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which the holder shall
be entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Thereupon,
-6-
<PAGE> 7
the Corporation shall promptly pay in cash or, to the extent sufficient funds
are not then legally available therefor, in Common Stock (at the Common Stock's
fair market value determined by the Board of Directors as of the date of such
conversion), any accrued and unpaid dividends on the shares of Preferred Stock
being converted. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted, or in the case of automatic conversion on the
date of closing of the offering or the date on which the holders of at least a
majority of the outstanding shares of Preferred Stock make the election referred
to in Section 5(b) hereof and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on such
date.
d. Fractional Shares. In lieu of any fractional shares to which
the holder of Preferred Stock would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective Conversion
Price. Whether or not fractional shares are issuable upon such conversion shall
be determined on the basis of the total number of shares of Preferred Stock of
each holder at the time converting into Common Stock and the number of shares of
Common Stock issuable upon such aggregate conversion.
e. Adjustment of Conversion Price. The Conversion Price of each
series of Preferred Stock shall be subject to adjustment from time to time as
follows:
(i)If the Corporation shall issue (or, pursuant to
Subsections 5(e)(i)(b)(3) hereof, shall be deemed to have issued) any Common
Stock other than "Excluded Stock" (as defined below) for a consideration per
share less than the Conversion Price for any series of Preferred Stock in effect
immediately prior to the issuance of such Common Stock (excluding stock
dividends, subdivisions, split-ups, combinations, dividends or recapitalizations
which are covered by Subsections 5(e)(iii), (iv), (v) and (vi)), the Conversion
Price for such series of Preferred Stock in effect immediately after each such
issuance shall forthwith (except as provided in this Section 5(e)) be adjusted
to a price equal to the quotient obtained by dividing:
a. an amount equal to the sum of
(x) the total number of shares of Common
Stock outstanding (including any shares of Common Stock issuable upon conversion
of such series of Preferred Stock, or deemed to have been issued pursuant to
subdivision (3) of this clause (i) and to clause (ii) below) immediately prior
to such issuance multiplied by the Conversion Price for such series of Preferred
Stock in effect immediately prior to such issuance, plus
(y) the consideration received by the
Corporation upon such issuance, by
b. the total number of shares of Common Stock
outstanding immediately prior to such issuance of Common Stock (including any
shares of Common Stock issuable upon conversion of such series of Preferred
Stock or deemed to have been issued pursuant
-7-
<PAGE> 8
to subdivision (3) of this clause (i) and to clause (ii) below) plus the number
of shares of Common Stock actually issued in the transaction which resulted in
the adjustment pursuant to this Subsection 5(e)(i).
Notwithstanding the above, prior to
November 12, 2001 if the Corporation issues or sells, or is deemed to have
issued or sold, any shares of its Common Stock (other than Excluded Stock) for
consideration per share less than the Series D Conversion Price in effect
immediately prior to the time of such issuance or sale, then immediately upon
such issuance, the Series D Conversion Price will be reduced to the price paid
per share in such issuance.
For the purposes of any adjustment of the
Conversion Price for any series of Preferred Stock pursuant to this clause (i),
the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock
for cash, the consideration shall be deemed to be the amount of cash paid
therefor after deducting any discounts or commissions paid or incurred by the
Corporation in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock
for a consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as mutually determined by
the Corporation and the holders of not less than a majority of the outstanding
shares of Preferred Stock, provided that if the Corporation and the holders of a
majority of the outstanding shares of Preferred Stock are unable to reach
agreement, then by independent appraisal by an investment banker hired and paid
by the Corporation, but acceptable to the holders of a majority of the
outstanding shares of Preferred Stock.
(3) In the case of the issuance of (i) options
to purchase or rights to subscribe for Common Stock (other than Excluded Stock),
(ii) securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock), or (iii) options to purchase or rights to subscribe
for such convertible or exchangeable securities:
(A) the aggregate maximum number of
shares of Common Stock deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subdivisions (1) and (2)
above), if any, received by the Corporation upon the issuance of such options or
rights plus the minimum purchase price provided in such options or rights for
the Common Stock covered thereby;
(B) the aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange for any
such convertible or exchangeable securities, or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options or rights were
issued and for a consideration equal to the consideration received by the
Corporation for any such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued
-8-
<PAGE> 9
dividends), plus the additional minimum consideration, if any, to be received by
the Corporation upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each case to be
determined in the manner provided in subdivisions (1) and (2) above);
(C) on any change in the number of
shares of Common Stock deliverable upon exercise of any such options or rights
or conversion of or exchange for such convertible or exchangeable securities, or
on any change in the minimum purchase price of such options, rights or
securities, other than a change resulting from the antidilution provisions of
such options, rights or securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have obtained had the adjustment
made upon (x) the issuance of such options, rights or securities not exercised,
converted or exchanged prior to such change or (y) the options or rights related
to such securities not converted or exchanged prior to such change, as the case
may be, been made upon the basis of such change; and
(D) on the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price shall forthwith be readjusted to
such Conversion Price as would have obtained had the adjustment made upon the
issuance of such options, rights, convertible or exchangeable securities or
options or rights relate to such convertible or exchangeable securities, as the
case may be, been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such convertible or exchangeable
securities or upon the exercise of the options or rights related to such
convertible or exchangeable securities, as the case may be.
(ii) "Excluded Stock" shall mean:
(A) all shares of Common Stock and Preferred
Stock issued and outstanding on the date this certificate is filed with the
Delaware Secretary of State, and all shares of Common Stock issuable upon
conversion of such Preferred Stock; and
(B) all shares of Common Stock or other
securities hereafter issued to officers, directors, consultants and employees of
the Corporation pursuant to plans and arrangements approved by the board of
directors, including the approval of at least one director elected by the
holders of Preferred Stock; and
(C) all shares of Common Stock or other
securities hereafter issued or issuable to strategic partners, lessors, lenders
or licensors to the Corporation upon approval by the board of directors,
including the approval of at least one director elected by the holders of
Preferred Stock.
-9-
<PAGE> 10
All outstanding shares of Excluded Stock
(including shares issuable upon conversion of the Preferred Stock) shall be
deemed to be outstanding for all purposes of the computations of Subsections
5(e)(i) above.
(iii) If the number of shares of Common Stock
outstanding at any time after the date hereof is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, on the date such payment is made or such change is
effective, the Conversion Price of each series of Preferred Stock shall be
appropriately decreased so that the number of shares of Common Stock issuable on
conversion of any shares of each series of Preferred Stock shall be increased in
proportion to such increase of outstanding shares.
(iv) If the number of shares of Common Stock outstanding
at any time after the date hereof is decreased by a combination of the
outstanding shares of Common Stock, then, on the effective date of such
combination, the Conversion Price of each series of Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of any shares of each series of Preferred Stock shall be decreased in
proportion to such decrease in outstanding shares.
(v) In case the Corporation shall declare a cash
dividend upon its Common Stock payable otherwise than out of retained earnings
or shall distribute to holders of its Common Stock shares of its capital stock
(other than Common Stock), stock or other securities of other persons, evidences
of indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or rights (excluding options to purchase and rights
to subscribe for Common Stock or other securities of the Corporation convertible
into or exchangeable for Common Stock), then, in each such case, the holders of
shares of Preferred Stock shall, concurrent with the distribution to holders of
Common Stock, receive a like distribution based upon the number of shares of
Common Stock into which Preferred Stock is then convertible.
(vi) In case, at any time after the date hereof, of any
capital reorganization, or any reclassification of the stock of the Corporation
(other than as a result of a stock dividend or subdivision, split-up or
combination of shares), or the consolidation or merger of the Corporation with
or into another person (other than a consolidation or merger in which the
Corporation is the continuing entity and which does not result in any change in
the Common Stock), the shares of Preferred Stock shall, after such
reorganization, reclassification, consolidation, merger, sale or other
disposition, be convertible into the kind and number of shares of stock or other
securities or property of the Corporation or otherwise to which such holder
would have been entitled if immediately prior to such reorganization,
reclassification, consolidation, merger, sale or other disposition such holder
had converted its shares of Preferred Stock into Common Stock. The provisions of
this clause (vi) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other dispositions.
(vii) All calculations under this Section 5 shall be
made to the nearest cent or to the nearest one hundredth (1/100) of a share, as
the case may be.
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<PAGE> 11
f. Minimal Adjustments. No adjustment in the Conversion Price
for any series of Preferred Stock need be made if such adjustment would result
in a change in the Conversion Price of less than $0.01. Any adjustment of less
than $0.01 which is not made shall be carried forward and shall be made at the
time of and together with any subsequent adjustment which, on a cumulative
basis, amounts to an adjustment of $0.01 or more in the Conversion Price.
g. No Impairment. The Corporation will not through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of each series of Preferred Stock against
impairment. This provision shall not restrict the Corporation's right to amend
its Certificate of Incorporation with the requisite shareholder consent.
h. Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Rate for any series of Preferred
Stock pursuant to this Section 5, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to each holder of such series of Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon written request at any time of any holder of any series of Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (i) all such adjustments and readjustments, (ii) the Conversion
Rate at the time in effect, and (iii) the number of shares of Common Stock and
the amount, if any, of other property which at the time would be received upon
the conversion of such holder's shares of Preferred Stock.
i. Notices of Record Date and Proposed Liquidation Distribution.
In the event of any taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property or to receive
any other right, the Corporation shall mail to each holder of Preferred Stock at
least thirty (30) days prior to such record date, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend or
distribution or right, and the amount and character of such dividend,
distribution or right. In the event of a liquidation distribution pursuant to
Section 2 hereof, the Corporation shall mail to each holder of Preferred Stock
at least thirty (30) days prior to the date of such distribution a notice (i)
certifying as to (x) the anticipated aggregate proceeds available for
distribution to holders of Preferred Stock and Common Stock, (y) the amount
expected to be distributed pursuant to Section 2 in respect of each share of
each outstanding series of Preferred Stock and each share of Common Stock and
(z) the amount expected to be distributed pursuant to Section 2 in respect of
each share of each outstanding series of Preferred Stock if the holder of each
such share of Preferred Stock converted such share of Preferred Stock into
Common Stock immediately prior to the liquidation distribution and (ii) stating
that in connection with such liquidation distribution the holders of shares
-11-
<PAGE> 12
of each series of Preferred Stock may prior to such liquidation distribution
convert their shares of such series of Preferred Stock into Common Stock at the
applicable Conversion Rate for such series.
j. Notices. Any notice required by the provisions of this
Section 5 to be given to the holder of shares of the Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
Corporation's books.
k. Payment of Taxes. The Corporation will pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
with respect to the issue or delivery of shares of Common Stock upon conversion
of shares of Preferred Stock, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which shares of Preferred Stock so
converted were registered.
6. Covenants.
a. Preferred Stock. In addition to any other rights provided by
law, so long as 500,000 shares of Preferred Stock shall be outstanding, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the outstanding shares of
Preferred Stock (voting or consenting as a separate class);
(i) Certificate and Bylaws. Amend or repeal any
provision of, or add any provision to, this Corporation's Certificate of
Incorporation or Bylaws if such action would adversely alter or change the
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, such shares of Preferred Stock;
(ii) Section 305. Do any act or thing which would result
in taxation of the holders of Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any successor provision of such Code as
such provision may be amended);
(iii) Authorized Shares. Increase or decrease the
authorized number of shares of Common or Preferred Stock;
(iv) Dividends; Stock Splits. Pay or declare any
dividend or distribution on any shares of the Corporation's capital stock
(except on the Preferred Stock in accordance with its terms) or declare any
stock splits or reverse stock splits on any shares of capital stock of the
Corporation;
(v) Senior Securities. Make any authorization or any
designation, whether by reclassification or otherwise, of any new class or
series of stock or any other securities convertible into equity securities of
the Corporation ranking on a parity with or senior to the existing Preferred
Stock in right of redemption, liquidation preference, voting or dividends or any
increase in the authorized or designated number of any such new class or series;
-12-
<PAGE> 13
(vi) Distribution. Any redemption, repurchase, payment
of dividends or other distributions with respect to Common Stock (except for
acquisitions of Common Stock by the Corporation pursuant to agreements which
permit the Corporation to repurchase such shares upon termination of services to
the Corporation or in exercise of the Corporation's right of first refusal upon
a proposed transfer);
(vii) Reorganization or Merger. Any agreement by the
Corporation or its stockholders regarding a reorganization, merger, sale of all
or substantially all of the Corporation's assets, or similar transactions as
described in Section 2(d);
(viii) Dividend. Any action that results in the payment
or declaration of a dividend on any shares of Common Stock or Preferred Stock;
(ix) Liquidation. Any voluntary dissolution or
liquidation of the Corporation; or
(x) Directors. Any increase or decrease in the
authorized number of members of the Corporation's Board of Directors.
b. Series D Preferred Stock. In addition to any other rights
provided by law, so long as shares of Series D Preferred Stock shall be
outstanding, this Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of not less than a majority of the
outstanding shares of Series D Preferred Stock (voting or consenting as a
separate class);
(i) Certificate and Bylaws. Amend or repeal any
provision of, or add any provision to, this Corporation's Certificate of
Incorporation or Bylaws if such action would adversely alter or change the
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, such shares of Series D Preferred Stock;
(ii) Authorized Shares. Increase or decrease the
authorized number of shares of Common or Preferred Stock;
(iii) Senior Securities. Make any authorization or any
designation, whether by reclassification or otherwise, of any new class or
series of stock or any other securities convertible into equity securities of
the Corporation ranking on a parity with or senior to the Series D Preferred
Stock in right of redemption, liquidation preference, voting or dividends or any
increase in the authorized or designated number of any such new class or series;
7. No Reissuance of Preferred Stock. No share or shares of Preferred
Stock acquired by the Corporation by reason of purchase, conversion or otherwise
shall be reissued.
FIVE. The Corporation is to have perpetual existence.
-13-
<PAGE> 14
SIX. In furtherance and not in limitation of the powers conferred by
statute and except as otherwise provided herein, the Board of Directors is
expressly authorized to make, alter, amend or repeal the Bylaws of the
Corporation.
SEVEN. The number of directors which constitute the whole Board of
Directors of the Corporation shall be as specified in the Bylaws of the
Corporation.
EIGHT. Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
NINE. To the fullest extent permitted by the Delaware General
Corporation Law, a director of the Corporation shall not be person-ally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Neither any amendment nor repeal of this Article
NINE, nor the adoption of any provision of this Certificate of Incorporation
inconsistent with this Article NINE, shall eliminate or reduce the effect of
this Article NINE in respect of any matter occur-ring, or any cause of action,
suit or claim that, but for this Article NINE, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
TEN. Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
ELEVEN. The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate, in the manner now or
hereafter prescribed herein and by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TWELVE.(a) The Corporation shall indemnify each of the Corporation's
directors and officers in each and every situation where, under Section 145 of
the General Corporation Law of the State of Delaware, as amended from time to
time ("Section 145"), the Corporation is permitted or empowered to make such
indemnification, and to the fullest extent permitted by law. The Corporation
may, in the sole discretion of the Board of Directors of the Corporation,
indemnify any other person who may be indemnified pursuant to Section 145 to the
extent the Board of Directors deems advisable, as permitted by Section 145. The
Corporation shall promptly make or cause to be made any determination required
to be made pursuant to Section 145.
(b) No person shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, provided, however, that the foregoing shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware
or (iv) for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of the State of Delaware is subsequently
amended to further eliminate or limit the liability of a director, then a
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<PAGE> 15
director of the Corporation, in addition to the circumstances in which a
director is not personally liable as set forth in the preceding sentence, shall
not be liable to the fullest extent permitted by the amended General Corporation
Law of the State of Delaware. For purposes of this Article, "fiduciary duty as a
director" shall include any fiduciary duty arising out of serving at the
Corporation's request as a director of another corporation, partnership, joint
venture or other enterprise, and "personal liability to the Corporation or its
stockholders" shall include any liability to such other corporation,
partnership, joint venture, trust or other enterprise, and any liability to the
Corporation in its capacity as a security holder, joint venturer, partner,
beneficiary, creditor or investor of or in any such other corporation,
partnership, joint venture, trust or other enterprise.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Steven M. Markowitz, its President, and attested by Mario M. Rosati,
its Secretary, this 11th day of November, 1998.
INTELLIPOST CORPORATION
By: /s/ Steven M. Markowitz
---------------------------------
Steven M. Markowitz, Chairman and
CEO
ATTEST:
/s/ Mario M. Rosati
- ---------------------------------
Mario M. Rosati, Secretary
-16-
<PAGE> 1
EXHIBIT 3.2(a)
BYLAWS
OF
INTELLIPOST CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
CORPORATE OFFICES.......................................................-1-
1.1 REGISTERED OFFICE..............................................-1-
1.2 OTHER OFFICES..................................................-1-
ARTICLE II
MEETINGS OF STOCKHOLDERS................................................-1-
2.1 PLACE OF MEETINGS..............................................-1-
2.2 ANNUAL MEETING.................................................-1-
2.3 SPECIAL MEETING................................................-2-
2.4 NOTICE OF STOCKHOLDERS' MEETINGS...............................-2-
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE...................-2-
2.6 QUORUM.........................................................-2-
2.7 ADJOURNED MEETING NOTICE.......................................-2-
2.8 VOTING.........................................................-3-
2.9 WAIVER OF NOTICE...............................................-3-
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING........-3-
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS....-4-
2.12 PROXIES........................................................-4-
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE..........................-5-
ARTICLE III
DIRECTORS...............................................................-5-
3.1 POWERS.........................................................-5-
3.2 NUMBER OF DIRECTORS............................................-5-
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS........-5-
3.4 RESIGNATION AND VACANCIES......................................-5-
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.......................-6-
3.6 FIRST MEETINGS.................................................-6-
3.7 REGULAR MEETINGS...............................................-6-
3.8 SPECIAL MEETINGS; NOTICE.......................................-7-
3.9 QUORUM.........................................................-7-
3.10 WAIVER OF NOTICE...............................................-7-
3.11 ADJOURNED MEETING; NOTICE......................................-8-
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING..............-8-
3.13 FEES AND COMPENSATION OF DIRECTORS.............................-8-
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
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<S> <C>
3.14 APPROVAL OF LOANS TO OFFICERS..................................-8-
3.15 REMOVAL OF DIRECTORS...........................................-8-
ARTICLE IV
COMMITTEES..............................................................-9-
4.1 COMMITTEES OF DIRECTORS........................................-9-
4.2 COMMITTEE MINUTES..............................................-9-
4.3 MEETINGS AND ACTION OF COMMITTEES..............................-9-
ARTICLE V
OFFICERS...............................................................-10-
5.1 OFFICERS......................................................-10-
5.2 ELECTION OF OFFICERS..........................................-10-
5.3 SUBORDINATE OFFICERS..........................................-10-
5.4 REMOVAL AND RESIGNATION OF OFFICERS...........................-10-
5.5 VACANCIES IN OFFICES..........................................-11-
5.6 CHAIRMAN OF THE BOARD.........................................-11-
5.7 PRESIDENT.....................................................-11-
5.8 VICE PRESIDENT................................................-11-
5.9 SECRETARY.....................................................-11-
5.10 TREASURER.....................................................-12-
5.11 ASSISTANT SECRETARY...........................................-12-
5.12 ASSISTANT TREASURER...........................................-12-
5.13 AUTHORITY AND DUTIES OF OFFICERS..............................-13-
ARTICLE VI
INDEMNITY..............................................................-13-
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.....................-13-
6.2 INDEMNIFICATION OF OTHERS.....................................-13-
6.3 INSURANCE.....................................................-14-
ARTICLE VII
RECORDS AND REPORTS....................................................-14-
7.1 MAINTENANCE AND INSPECTION OF RECORDS.........................-14-
7.2 INSPECTION BY DIRECTORS.......................................-15-
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.3 ANNUAL STATEMENT TO STOCKHOLDERS..............................-15-
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS................-15-
ARTICLE VIII
GENERAL MATTERS........................................................-15-
8.1 CHECKS........................................................-15-
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS..............-15-
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES........................-16-
8.4 SPECIAL DESIGNATION ON CERTIFICATES...........................-16-
8.5 LOST CERTIFICATES.............................................-17-
8.6 CONSTRUCTION; DEFINITIONS.....................................-17-
8.7 DIVIDENDS.....................................................-17-
8.8 FISCAL YEAR...................................................-17-
8.9 SEAL..........................................................-17-
8.10 TRANSFER OF STOCK.............................................-18-
8.11 STOCK TRANSFER AGREEMENTS.....................................-18-
8.12 REGISTERED STOCKHOLDERS.......................................-18-
ARTICLE IX
AMENDMENTS.............................................................-18-
ARTICLE X
DISSOLUTION............................................................-18-
ARTICLE XI
CUSTODIAN..............................................................-19-
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES...................-19-
11.2 DUTIES OF CUSTODIAN...........................................-20-
</TABLE>
-iii-
<PAGE> 5
BYLAWS
OF
INTELLIPOST CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be in the City of
Wilmington, County of New Castle, State of Delaware. The name of the registered
agent of the corporation at such location is The Corporation Trust Company.
1.2 OTHER OFFICES
The board of directors may at any time establish other offices at any
place or places where the corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of stockholders shall be held each year on a date and
at a time designated by the board of directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the second
Tuesday of May in each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected and any
other proper business may be transacted.
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<PAGE> 6
2.3 SPECIAL MEETING
A SPECIAL MEETING OF THE STOCKHOLDERS MAY BE CALLED, AT ANY TIME
FOR ANY PURPOSE OR PURPOSES, BY THE BOARD OF DIRECTORS OR BY
SUCH PERSON OR PERSONS AS MAY BE AUTHORIZED BY THE CERTIFICATE
OF INCORPORATION OR THE BYLAWS.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS
All notices of meetings with stockholders shall be in writing and shall
be sent or otherwise given in accordance with Section 2.5 of these bylaws not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. The notice shall specify
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.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders, if mailed, is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation. An
affidavit of the secretary or an assistant secretary or of the transfer agent of
the corporation that the notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein.
2.6 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 or by the certificate of
incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally noticed.
2.7 ADJOURNED MEETING NOTICE
When a meeting is adjourned to another time or place, unless these
bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more
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than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.8 VOTING
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 217 and 218 of the General Corporation Law
of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners
of stock and to voting trusts and other voting agreements).
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the certificate of incorporation, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
At a stockholders' meeting at which directors are to be elected, or at
elections held under special circumstances, a stockholder shall be entitled to
cumulate votes (i.e., cast for any candidate a number of votes greater than the
number of votes which such stockholder normally is entitled to cast). Each
holder of stock, or of any class or classes or of a series or series thereof,
who elects to cumulate votes shall be entitled to as many votes as equals the
number of votes which (absent this provision as to cumulative voting) he would
be entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected by him, and he may
cast all of such votes for a single director or may distribute them among the
number to be voted for, or for any two or more of them, as he may see fit.
2.9 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation or these bylaws.
2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise provided in the certificate of incorporation, any
action required by this chapter to be taken at any annual or special meeting of
stockholders of a corporation, or any action that 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 in writing, setting forth the
action so taken, is signed by the holders of outstanding stock having not less
than the minimum number of
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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.
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. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof,
or entitled to express consent to corporate action in writing without a meeting,
or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix, in advance, a record date, which shall
not be more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action.
If the board of directors does not so fix a record date:
(i) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed.
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
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.
2.12 PROXIES
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 a written proxy, signed by
the stockholder and filed with the secretary of the corporation, but
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no such proxy shall be voted or acted upon after three (3) years from its date,
unless the proxy provides for a longer period. A proxy shall be deemed signed if
the stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney-in-fact. The revocability of a proxy that states on its
face that it is irrevocable shall be governed by the provisions of Section
212(c) of the General Corporation Law of Delaware.
2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE
The officer who has charge of the stock ledger of a 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 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 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.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware and
any limitations in the certificate of incorporation or these bylaws relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The exact number of directors of the corporation shall be seven (7)
until changed, within the limits specified above, by a bylaw amending this
Section 3.2, duly adopted by the board of directors or by the stockholders. The
indefinite number of directors may be changed, or a definite number may be fixed
without provision for an indefinite number, by a duly adopted amendment to the
certificate of incorporation or by an amendment to this bylaw duly adopted by
the vote or written consent of the holders of a majority of the stock issued and
outstanding and entitled to vote or by resolution of the board of directors.
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No reduction of the authorized number of directors shall have the effect
of removing any director before that director's term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS
Except as provided in Section 3.4 of these bylaws, directors shall be
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Directors need not be stock holders unless so required by the
certificate of incorporation or these bylaws, wherein other qualifications for
directors may be prescribed. Each director, including a director elected to fill
a vacancy, shall hold office until his successor is elected and qualified or
until his earlier resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES
Any director may resign at any time upon written notice to the
corporation. When one or more directors so resigns and the resignation is
effective at a future date, a majority of the directors then in office,
including those who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or resignations
shall become effec tive, and each director so chosen shall hold office as
provided in this section in the filling of other vacancies.
Unless otherwise provided in the certificate of incorporation or these
bylaws:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
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If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten (10) percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office as aforesaid,
which election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
The board of directors of the corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
Unless otherwise restricted by the certificate of incorporation or these
bylaws, members of the board of directors, or any committee designated by the
board of directors, may participate in a meeting of the board of directors, or
any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be held
at such time and place as shall be fixed by the vote of the stockholders at the
annual meeting and no notice of such meeting shall be necessary to the newly
elected directors in order legally to constitute the meeting, provided a quorum
shall be present. In the event of the failure of the stockholders to fix the
time or place of such first meeting of the newly elected board of directors, or
in the event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 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.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at
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that director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telegram, it shall be delivered
personally or by telephone or to the telegraph company at least forty-eight (48)
hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. The notice need not
specify the purpose or the place of the meeting, if the meeting is to be held at
the principal executive office of the corporation.
3.9 QUORUM
At all meetings of the board of directors, a majority of the authorized
number of directors 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 statute or by the certificate of
incorporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present.
3.10 WAIVER OF NOTICE
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the certificate of incorporation or
these bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the certificate of
incorporation or these bylaws.
3.11 ADJOURNED MEETING; NOTICE
If a quorum is not present at any meeting of the board of directors,
then the directors present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum is
present.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Unless otherwise restricted by the certificate of incorporation or these
bylaws, 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
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be, consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the board or committee.
3.13 FEES AND COMPENSATION OF DIRECTORS
Unless otherwise restricted by the certificate of incorporation or these
bylaws, the board of directors shall have the authority to fix the compensation
of directors.
3.14 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
3.15 REMOVAL OF DIRECTORS
Unless otherwise restricted by statute, and as provided for in the
certificate of incorporation or these bylaws, 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.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of such director's term of
office.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist of
one or more of the directors of the corpo ration. The board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of
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directors or in the bylaws of the corporation, 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 that may require it; but no such
committee shall have the power or authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation Law
of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, (iv)
recommend to the stockholders a dissolution of the corporation or a revocation
of a dissolution, or (v) amend the bylaws of the corporation; and, unless the
board resolution establishing the committee, the bylaws or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the General
Corporation Law of Delaware.
4.2 COMMITTEE MINUTES
Each committee shall keep regular minutes of its meetings and report the
same to the board of directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these bylaws, Section
3.5 (place of meetings and meetings by telephone), Section 3.7 (regular
meetings), Section 3.8 (special meetings and notice), Section 3.9 (quorum),
Section 3.10 (waiver of notice), Section 3.11 (adjournment and notice of
adjournment), and Section 3.12 (action without a meeting), with such changes in
the context of those bylaws as are necessary to substitute the committee and its
members for the board of directors and its members; provided, however, that the
time of regular meetings of committees may also be called by resolution of the
board of directors and that notice of special meetings of committees shall also
be given to all alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
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ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a president, one or more vice
presidents, a secretary, and a treasurer. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more
assistant vice presidents, assistant secretaries, assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these bylaws. Any number of offices may be held by the same
person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
bylaws, shall be chosen by the board of directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or empower the president to appoint,
such other officers and agents as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the board of directors at any regular or
special meeting of the board or, except in the case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
Any vacancy occurring in any office of the corporation shall be filled
by the board of directors.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to
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time be assigned to him by the board of directors or as may be prescribed by
these bylaws. If there is no president, then the chairman of the board shall
also be the chief executive officer of the corporation and shall have the powers
and duties prescribed in Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the board
of directors to the chairman of the board, if there be such an officer, the
president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENT
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
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 have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of directors, committees
of directors, and shareholders. The minutes shall show the time and place of
each meeting, whether regular or special (and, if special, how authorized and
the notice given), the names of those present at directors' meetings or
committee meetings, the number of shares present or represented at shareholders'
meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolu tion of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seal of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
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5.10 TREASURER
The treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The treasurer shall deposit all money and other valuables in the name
and to the credit of the corporation with such depositaries 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, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the board of
directors or these bylaws.
5.11 ASSISTANT SECRETARY
The assistant secretary, or, if there is more than one, the assistant
secretaries in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election)
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 or the stockholders may from time to time prescribe.
5.12 ASSISTANT TREASURER
The assistant treasurer, or, if there is more than one, the assistant
treasurers, in the order determined by the stockholders or board of directors
(or if there be no such determination, then in the order of their election),
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 or the stockholders may from time to time prescribe.
5.13 AUTHORITY AND DUTIES OF OFFICERS
In addition to the foregoing authority and duties, all officers of the
corporation shall respectively have such authority and perform such duties in
the management of the business of the corporation as may be designated from time
to time by the board of directors or the stockholders.
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ARTICLE VI
INDEMNITY
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner permitted
by the General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the corporation. For purposes of this Section 6.1, a "director" or
"officer" of the corporation includes any person (i) who is or was a director or
officer of the corporation, (ii) who is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director or officer of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of Delaware, to indemnify each of its
employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another 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 the General Corporation Law of Delaware.
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ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep a record of
its shareholders listing their names and addresses and the number and class of
shares held by each shareholder, a copy of these bylaws as amended to date,
accounting books, and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of a 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 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 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.
7.2 INSPECTION BY DIRECTORS
Any director shall have the right to examine the corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his position as a director. The Court of Chancery
is hereby vested with the exclusive jurisdiction to determine whether a director
is entitled to the inspection sought. The Court may summarily order the
corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
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7.3 ANNUAL STATEMENT TO STOCKHOLDERS
The board of directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the corporation.
7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the
treasurer, the secretary or assistant secretary of this corporation, or any
other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 CHECKS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of a corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
corporation.
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Notwithstanding the adoption of such a resolution by the board of directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares 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 vice-president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of such
corporation representing the number of shares registered in certificate form.
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 has 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.
The corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the corporation shall issue to represent
such class or series of stock a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal represen tative, to give the corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate or uncertificated shares.
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8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS
The directors of the corporation, subject to any restrictions contained
in the certificate of incorporation, may declare and pay dividends upon the
shares of its capital stock pursuant to the General Corporation Law of Delaware.
Dividends may be paid in cash, in property, or in shares of the corporation's
capital stock.
The directors of the corporation may set apart out of any of the funds
of the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not be
limited to equalizing dividends, repairing or maintaining any property of the
corporation, and meeting contingencies.
8.8 FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors and may be changed by the board of directors.
8.9 SEAL
The corporation may adopt a corporate seal, which shall be adopted and
which may be altered by the board of directors, and may use the same by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
8.10 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, assignation or authority to 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 in its books.
8.11 STOCK TRANSFER AGREEMENTS
The corporation shall have power to enter into and perform any agreement
with any number of shareholders of any one or more classes of stock of the
corporation to restrict the transfer of shares of stock of the corporation of
any one or more classes owned by such stockholders in any manner not prohibited
by the General Corporation Law of Delaware.
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8.12 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, shall be entitled to hold liable for calls and
assessments the 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 another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The original or other bylaws of the corporation may be adopted, amended
or repealed by the stockholders entitled to vote; provided, however, that the
corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation should be dissolved, the
board, after the adoption of a resolution to that effect by a majority of the
whole board at any meeting called for that purpose, shall cause notice to be
mailed to each stockholder entitled to vote thereon of the adoption of the
resolution and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the outstanding stock of the corporation entitled
to vote thereon votes for the proposed dissolution, then a certificate stating
that the dissolution has been authorized in accordance with the provisions of
Section 275 of the General Corporation Law of Delaware and setting forth the
names and residences of the directors and officers shall be executed,
acknowledged, and filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such certificate's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution consent
in writing, either in person or by duly authorized attorney, to a dissolution,
no meeting of directors or stockholders shall
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be necessary. The consent shall be filed and shall become effective in
accordance with Section 103 of the General Corporation Law of Delaware. Upon
such consent's becoming effective in accordance with Section 103 of the General
Corporation Law of Delaware, the corporation shall be dissolved. If the consent
is signed by an attorney, then the original power of attorney or a photocopy
thereof shall be attached to and filed with the consent. The consent filed with
the Secretary of State shall have attached to it the affidavit of the secretary
or some other officer of the corporation stating that the consent has been
signed by or on behalf of all the stockholders entitled to vote on a
dissolution; in addition, there shall be attached to the consent a certification
by the secretary or some other officer of the corporation setting forth the
names and residences of the directors and officers of the corporation.
ARTICLE XI
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may appoint
one or more persons to be custodians and, if the corporation is insolvent, to be
receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has failed
within a reasonable time to take steps to dissolve, liquidate or distribute its
assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
INTELLIPOST CORPORATION
Adoption by Incorporator
The undersigned person appointed in the Certificate of Incorporation to
act as the Incorporator of Intellipost Corporation hereby adopts the foregoing
bylaws, comprising twenty-one (21) pages, as the Bylaws of the corporation.
Executed this 7th day of November 1996.
/s/ Adam D. Levy
--------------------------------
Adam D. Levy, Incorporator
Certificate by Secretary of Adoption by Incorporator
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of Intellipost Corporation and that the
foregoing Bylaws, comprising twenty-one (21) pages, were adopted as the Bylaws
of the corporation on November 7, 1996, by the person appointed in the
Certificate of Incorporation to act as the Incorporator of the corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand and
affixed the corporate seal this 7th day of November 1996.
/s/ Mario M. Rosati
-------------------------------
Mario M. Rosati, Secretary
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EXHIBIT 4.1
LOCK-UP AGREEMENT
March 8, 1999
BancBoston Robertson Stephens Inc.
Bear Stearns & Company, Inc.
Salomon Smith Barney, Inc.
Wit Capital Corporation
As Representatives of the Several Underwriters
c/o BancBoston Robertson Stephens
555 California Street
San Francisco, CA 94104
Ladies and Gentlemen:
The undersigned understands that you, as representatives of the several
underwriters (the "UNDERWRITERS"), propose to enter into an Underwriting
Agreement (the "UNDERWRITING AGREEMENT") with MyPoints.com, Inc. (the
"COMPANY"), providing for the initial public offering (the "PUBLIC OFFERING") by
the Underwriters, including yourselves, of shares of the Common Stock, par value
$0.001, of the Company (the "COMMON STOCK"), pursuant to the Company's
Registration Statement on Form S-1 to be filed with the Securities and Exchange
Commission on or about March 31, 1999 (the "REGISTRATION STATEMENT").
In consideration of the Underwriters' agreement to purchase and make the
Public Offering of the Common Stock, and for other good and valuable
consideration, receipt of which is hereby acknowledged, the undersigned hereby
agrees, for a period of 180 days after the effective date of the Registration
Statement (the "LOCK-UP PERIOD"), not to offer to sell, contract to sell or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "DISPOSITION") any shares of Common Stock, any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable for shares of Common Stock (collectively, "SECURITIES"),
now owned or hereafter acquired directly by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree to be bound by this Lock-Up Agreement, (ii) as a distribution to
limited partners or shareholders of the undersigned, provided that the
distributees thereof agree in writing to be bound by the terms of this Lock-Up
Agreement or (iii) with the prior written consent of BancBoston Robertson
Stephens. The foregoing restriction is expressly agreed to preclude the holder
of the Securities from engaging in any hedging or other transaction which is
designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-Up Period even if such
<PAGE> 2
Securities would be disposed of by someone other than the undersigned. Such
prohibited hedging or other transactions would include without limitation any
short sale (whether or not against the box) or any purchase, sale or grant of
any right (including without limitation any put or call option) with respect to
any Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities.
Furthermore, the undersigned hereby agrees and consents to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by the undersigned except in compliance with
this Lock-Up Agreement. In the event that the Registration Statement shall not
have been declared effective on or before July 15, 1999 this Lock-Up Agreement
shall be of no further force or effect.
Very truly yours,
------------------------------------
(signature)
Name:
-------------------------------
Address:
----------------------------
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EXHIBIT 10.2
INTELLIPOST CORPORATION
1996 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
as shall be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors appointed by
the Board in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Intellipost Corporation, a Delaware
corporation.
(h) "Consultant" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services to
such entity.
(i) "Director" means a member of the Board of Directors of the
Company.
(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be
<PAGE> 2
an Employee in the case of (i) any leave of absence approved by the Company or
(ii) transfers between locations of the Company or between the Company, its
Parent, any Subsidiary, or any successor. For purposes of Incentive Stock
Options, no such leave may exceed ninety days, unless reemployment upon
expiration of such leave is guaranteed by statute or contract. If reemployment
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held by
the Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination;
or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(n) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(o) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the
Plan.
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<PAGE> 3
(r) "Option Agreement" means a written or electronic agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(s) "Option Exchange Program" means a program whereby
outstanding Options are exchanged for Options with a lower exercise price.
(t) "Optioned Stock" means the Common Stock subject to an
Option or a Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1999 Stock Plan.
(x) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(y) "Service Provider" means an Employee, Director or
Consultant.
(z) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(aa) "Stock Purchase Right" means a right to purchase Common
Stock pursuant to Section 11 below.
(bb) "Subsidiary" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be subject to
option and sold under the Plan is 935,833 Shares. The Shares may be authorized
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted
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<PAGE> 4
Stock are repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Administrator. The Plan shall be administered by the Board
or a Committee appointed by the Board, which Committee shall be constituted to
comply with Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options
and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered
by each such award granted hereunder;
(iv) to approve forms of agreement for use under the
Plan;
(v) to determine the terms and conditions, of any
Option or Stock Purchase Right granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options or Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right or the Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(e) instead of
Common Stock;
(vii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
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<PAGE> 5
(x) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan
and awards granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon any Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
such relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
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8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
upon exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.
(B) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a Service Provider who, at the
time of grant of such Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant.
(B) granted to any other Service Provider, the
per Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant to
a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
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<PAGE> 7
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms hereof at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Except in the case of Options granted to
Officers, Directors and Consultants, Options shall become exercisable at a rate
of no less than 20% per year over five (5) years from the date the Options are
granted. Unless the Administrator provides otherwise, vesting of Options granted
hereunder to Officers and Directors shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares thereafter available, both for purposes of the Plan and
for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement (of at
least thirty (30) days) to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for three (3) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such
Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement (of at least six (6) months) to the extent the Option is vested
on the date of termination (but in no event later than the expiration of the
term of such Option
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<PAGE> 8
as set forth in the Option Agreement). In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's termination. If, on the date of termination, the
Optionee is not vested as to his or her entire Option, the Shares covered by the
unvested portion of the Option shall revert to the Plan. If, after termination,
the Optionee does not exercise his or her Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (of at least six (6) months) to the extent that the
Option is vested on the date of death (but in no event later than the expiration
of the term of such Option as set forth in the Option Agreement) by the
Optionee's estate or by a person who acquires the right to exercise the Option
by bequest or inheritance. In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, at the time of death, the Optionee is not vested
as to the entire Option, the Shares covered by the unvested portion of the
Option shall immediately revert to the Plan. If the Option is not so exercised
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time within
which such person must accept such offer. The terms of the offer shall comply in
all respects with Section 260.140.42 of Title 10 of the California Code of
Regulations. The offer shall be accepted by execution of a Restricted Stock
purchase agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by
-8-
<PAGE> 9
cancellation of any indebtedness of the purchaser to the Company. The repurchase
option shall lapse at such rate as the Administrator may determine. Except with
respect to Shares purchased by Officers, Directors and Consultants, the
repurchase option shall in no case lapse at a rate of less than 20% per year
over five (5) years from the date of purchase.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. 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 of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option or Stock Purchase Right shall
terminate immediately prior to the consummation of such proposed action.
(c) Merger. In the event of a merger, sale or reorganization
of the Company with or into any other corporation or corporations or a sale of
all or substantially all of the assets
-9-
<PAGE> 10
or outstanding stock of the Company, in which transaction the Company's
stockholders immediately prior to such transaction own immediately after such
transaction less than 50% of the equity securities of the surviving corporation
or its parent, all Options that have not been terminated in accordance with the
Stock Option Agreement that will become vested within 18 months of the closing
date of such merger, sale or reorganization will be accelerated. In the event of
a merger of the Company with or into another corporation, each outstanding
Option or Stock Purchase Right may be assumed or an equivalent option or right
may be substituted by such successor corporation or a parent or subsidiary of
such successor corporation. If, in such event, an Option or Stock Purchase Right
is not assumed or substituted, the Option or Stock Purchase Right shall
terminate as of the date of the closing of the merger. For the purposes of this
paragraph, the Option or Stock Purchase Right shall be considered assumed if,
following the merger, the Option or Stock Purchase Right confers the right to
purchase or receive, for each Share of Optioned Stock subject to the Option or
Stock Purchase Right immediately prior to the merger, the consideration (whether
stock, cash, or other securities or property) received in the merger by holders
of Common Stock for each Share held on the effective date of the transaction
(and if the holders are offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding Shares). If
such consideration received in the merger is not solely common stock of the
successor corporation or its Parent, the Administrator may, with the consent of
the successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger.
13. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Service Provider to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to
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<PAGE> 11
exercise the powers granted to it hereunder with respect to Options granted
under the Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise
of an Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
16. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
17. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
19. Information to Optionees and Purchasers. The Company shall provide
to each Optionee and to each individual who acquires Shares pursuant to the
Plan, not less frequently than annually during the period such Optionee or
purchaser has one or more Options or Stock Purchase Rights outstanding, and, in
the case of an individual who acquires Shares pursuant to the Plan, during the
period such individual owns such Shares, copies of annual financial statements.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
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<PAGE> 12
INTELLIPOST CORPORATION
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option Agreement.
XX. NOTICE OF STOCK OPTION GRANT
- ----------
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
<TABLE>
<S> <C>
Date of Grant
Vesting Commencement Date
----------
Exercise Price per Share
Total Number of Shares Granted
----------
Total Exercise Price $
----------
Type of Option: Incentive Stock Option
-----
Nonstatutory Stock Option
-----
Term/Expiration Date: Ten years from the Date of Grant
</TABLE>
Vesting Schedule:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
25% of the Shares subject to the Option shall vest upon the vesting
commencement date set forth above, and an additional 1/48th of the Shares
subject to the Option shall vest each month thereafter, providing that the
Optionee remains an employee of the corporation at the end of such period.
<PAGE> 13
INTELLIPOST CORPORATION
1996 STOCK OPTION PLAN
OPTION AGREEMENT
1. Grant of Option. Intellipost Corporation (the "Company"), hereby grants
to the Optionee (the "Optionee") named in the Notice of Grant, an option (the
"Option") to purchase the total number of shares of Common Stock (the "Shares")
set forth in the Notice of Grant, at the exercise price per share set forth in
the Notice of Grant (the "Exercise Price") subject to the terms, definitions and
provisions of the 1996 Stock Option Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Option
Agreement.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term in
accordance with the Vesting Schedule set out in the Notice of Grant and with the
provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) This Option may not be exercised for a fraction of a
Share.
(b) In the event of Optionee's death, disability or other
termination of the Optionee's Continuous Status as an Employee Or Consultant,
the exercisability of the Option is governed by Sections 6, 7 and 8 below,
subject to the limitation contained in subsection 2(i)(c).
(c) In no event may this Option be exercised after the
date of expiration of the term of this Option as set forth in the Notice of
Grant.
(ii) Method of Exercise. This Option shall be exercisable by
written notice (in the form attached as Exhibit A) which shall state the
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised, and such other representations and agreements as to
the holder's investment intent with respect to such shares of Common Stock as
may be required by the Company pursuant to the provisions of the Plan. Such
written notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company. The written notice shall
be accompanied by payment of the Exercise Price. This Option shall be deemed to
be exercised upon receipt by the Company of such written notice accompanied by
the Exercise Price.
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<PAGE> 14
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange or national market system upon which the
Common Stock is then listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on which
the Option is exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable pursuant
to the exercise of this Option have not been registered under the Securities Act
of 1933, as amended, at the time this Option is exercised, Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as Exhibit B.
4. Method of Payment. Payment of the Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company
which (A) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by the Optionee for more than six (6) months on the date
of surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) to the extent authorized by the Company, delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price.
5. Restrictions on Exercise. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Termination of Relationship. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option
-3-
<PAGE> 15
at the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
7. Disability of Optionee. Notwithstanding the provisions of Section 6
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her Disability, Optionee may, but
only within twelve (12) months from the date of such termination (and in no
event later than the expiration date of the term of such Option as set forth in
the Notice of Grant) exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee is not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
8. Death of Optionee. In the event of termination of Optionee's Continuous
Status as an Employee or Consultant as a result of the death of Optionee, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 10 below), by Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, but
only to the extent the Optionee could exercise the Option at the date of death.
9. Non-Transferability of Option. This Option may not be transferred in any
manner otherwise than by will or by the laws of descent or distribution and may
be exercised during the lifetime of Optionee only by Optionee. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
10. Term of Option. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) stockholders shall apply to
this Option.
11. Tax Consequences. Set forth below is a brief summary as of the date of
this Option of some of the federal tax consequences of exercise of this Option
and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of an ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
-4-
<PAGE> 16
(ii) Exercise of an NSO. There may be a regular federal income tax
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an Employee, the Company will be
required to withhold from Optionee's compensation or collect from Optionee and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(iii) Disposition of Shares. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal income tax purposes. In the
case of an ISO, if Shares transferred pursuant to the Option are held for at
least one year after exercise and are disposed of at least two years after the
Date of Grant, any gain realized on disposition of the Shares will also be
treated as long-term capital gain for federal income tax purposes. If Shares
purchased under an ISO are disposed of within such one-year period or within two
years after the Date of Grant, any gain realized on such disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the difference between the Exercise Price and the lesser of (1) the Fair
Market Value of the Shares on the date of exercise, or (2) the sale price of the
Shares.
(iv) Notice of Disqualifying Disposition of ISO Shares. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
INTELLIPOST CORPORATION
By: _____________________________
-5-
<PAGE> 17
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1996 STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has reviewed
the Plan and this Option in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option and fully understands all
provisions of the Option. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon
any questions arising under the Plan or this Option. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
Dated:
-------------------- ---------------------------
Residence Address:
---------------------------
---------------------------
-6-
<PAGE> 18
EXHIBIT A
INTELLIPOST CORPORATION
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Intellipost Corporation
565 Commercial Street
San Francisco, CA 94111
1. Exercise of Option. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Intellipost Corporation
(the "Company") under and pursuant to the 1996 Stock Option Plan, as amended
(the "Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated
________, 19__ (the "Stock Option Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Stock Option Agreement and agrees
to abide by and be bound by their terms and conditions.
3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan.
Optionee shall enjoy rights as a stockholder until such time as Optionee
disposes of the Shares or the Company and/or its assignee(s) exercises the Right
of First Refusal hereunder. Upon such exercise, Optionee shall have no further
rights as a holder of the Shares so purchased except the right to receive
payment for the Shares so purchased in accordance with the provisions of this
Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the
Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. Company's Right of First Refusal. Before any Shares held by Optionee or
any transferee (either being sometimes referred to herein as the "Holder") may
be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
<PAGE> 19
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee (the "Proposed Transferee"); (iii)
the number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price (the "Purchase Price") for
the Shares purchased by the Company or its assignee(s) under this Section shall
be the Offered Price. If the Offered Price includes consideration other than
cash, the cash equivalent value of the non-cash consideration shall be
determined by the Administrator in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash, by check, by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section, then the Holder
may sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the
contrary contained in this Section notwithstanding, the transfer of any or all
of the Shares during the Optionee's lifetime or on the Optionee's death by will
or intestacy to the Optionee's immediate family or a trust for the benefit of
the Optionee's immediate family shall be exempt from the provisions of this
Section. "Immediate Family" as used herein shall mean spouse, lineal descendant
or antecedent, father, mother, brother or sister. In such case, the transferee
or other
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<PAGE> 20
recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate upon the closing of the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
5. Tax Consultation. Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares
together with any other legends that may be required by state or federal
securities laws at the time of the issuance of the Shares:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR THE ISSUER OF THE SHARES (THE "ISSUER") HAS RECEIVED AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
WITH THE ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR
ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND
THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THE SHARES REPRESENTED HEREBY.
(b) Stop-Transfer Notices. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop
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<PAGE> 21
transfer" instructions to its transfer agent, if any, and that, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights under
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Administrator of the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Administrator shall be final
and binding on the Company and on Optionee.
9. Governing Law; Severability. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Optionee herewith delivers to the Company the full
Exercise Price for the Shares.
13. Entire Agreement. The Plan, the Notice of Grant, and the Stock Option
Agreement are incorporated herein by reference. This Agreement, the Plan, the
Notice of Grant, the Stock
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<PAGE> 22
Option Agreement and the Investment Representation Statement (if applicable)
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Optionee with respect
to the subject matter hereof.
Submitted by: Accepted by:
Intellipost Corporation
- ------------------------------ By:
Signature ------------------------------
Address: Title:
--------------------------
- ------------------------------ 565 Commercial Street, 2nd Floor
- ------------------------------ San Francisco, CA 94111-3031
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<PAGE> 23
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : Intellipost Corporation
SECURITY : Common Stock
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities constitute
"restricted securities" under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Optionee's
investment intent as expressed herein. In this connection, Optionee understands
that, in the view of the Securities and Exchange Commission, the statutory basis
for such exemption may be unavailable if Optionee's representation was
predicated solely upon a present intention to hold these Securities for the
minimum capital gains period specified under tax statutes, for a deferred sale,
for or until an increase or decrease in the market price of the Securities, or
for a period of one year or any other fixed period in the future. Optionee
further understands that the Securities must be held indefinitely unless they
are subsequently registered under the Securities Act or an exemption from such
registration is available. Optionee further acknowledges and understands that
the Company is under no obligation to register the Securities. Optionee
understands that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel
satisfactory to the Company and any other legend required under then applicable
state or federal securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly from the
issuer thereof, in a non-public offering subject to the
<PAGE> 24
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Exchange Act); and, in the case of an affiliate, (2)
the availability of certain public information about the Company, (3) the amount
of Securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), and (4) the timely filing of a Form 144,
if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the Company or any
representative of the underwriters (the "Managing Underwriter") in connection
with any registration of the offering of any securities of the Company under the
Securities Act, Optionee shall not sell or otherwise transfer any Shares or
other securities of the Company during the 180-day period (or such longer period
of time as may be requested in writing by the Managing Underwriter and agreed to
in writing by the Company) (the "Market Standoff Period") following the
effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall only apply to the
first registration statement of the Company to become effective under the
Securities Act which include securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
(e) Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A under the Securities Act, or some
other registration exemption will be required; and that, notwithstanding the
fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rules 144 or 701 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such
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<PAGE> 25
transactions do so at their own risk. Optionee understands that no assurances
can be given that any such other registration exemption will be available in
such event.
------------------------------
Date:
------------------------
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<PAGE> 1
EXHIBIT 10.3
INTELLIPOST CORPORATION
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and
Consultants and to promote the success of the Company's business. Options
granted under the Plan may be Incentive Stock Options or Nonstatutory Stock
Options, as determined by the Administrator at the time of grant. Stock Purchase
Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
as shall be administering the Plan in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options or Stock Purchase Rights are
granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors appointed by
the Board in accordance with Section 4 hereof.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Intellipost Corporation, a Delaware
corporation.
(h) "Consultant" means any person who is engaged by the
Company or any Parent or Subsidiary to render consulting or advisory services to
such entity.
(i) "Director" means a member of the Board of Directors of the
Company.
(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers
<PAGE> 2
between locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. For purposes of Incentive Stock Options, no such
leave may exceed ninety days, unless reemployment upon expiration of such leave
is guaranteed by statute or contract. If reemployment upon expiration of a leave
of absence approved by the Company is not so guaranteed, on the 181st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market,
its Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock on the last market trading day prior to the day of determination;
or
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Administrator.
(n) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
(o) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(q) "Option" means a stock option granted pursuant to the
Plan.
(r) "Option Agreement" means a written or electronic agreement
between the Company and an Optionee evidencing the terms and conditions of an
individual Option grant. The Option Agreement is subject to the terms and
conditions of the Plan.
(s) "Option Exchange Program" means a program whereby
outstanding Options are exchanged for Options with a lower exercise price.
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<PAGE> 3
(t) "Optioned Stock" means the Common Stock subject to an
Option or a Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 1999 Stock Plan.
(x) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 11 below.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(z) "Section 16(b)" means Section 16(b) of the Exchange Act.
(aa) "Service Provider" means an Employee, Director or
Consultant.
(bb) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 below.
(cc) "Stock Purchase Right" means a right to purchase Common
Stock pursuant to Section 11 below.
(dd) "Subsidiary" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares that may be subject to
option and sold under the Plan is 2,966,962 Shares. The Shares may be authorized
but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated). However, Shares that have actually been issued under the Plan,
upon exercise of either an Option or Stock Purchase Right, shall not be returned
to the Plan and shall not become available for future distribution under the
Plan, except that if Shares of Restricted Stock are repurchased by the Company
at their original purchase price, such Shares shall become available for future
grant under the Plan.
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<PAGE> 4
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation,, within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors,, within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and, in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine the number of Shares to be
covered by each such award granted hereunder;
(iv) to approve forms of agreement for use under
the Plan;
(v) to determine the terms and conditions, of any
Option or Stock Purchase Right granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options or Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right or the Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine;
(vi) to determine whether and under what
circumstances an Option may be settled in cash under subsection 9(e) instead of
Common Stock;
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<PAGE> 5
(vii) to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option has declined since the date the Option was granted;
(viii) to initiate an Option Exchange Program;
(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(x) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by Optionees
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon any Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall it
interfere in any way with his or her right or the Company's right to terminate
such relationship at any time, with or without cause.
(d) The following limitations shall apply to grants of
Options:
(i) No Service Provider shall be granted, in any
fiscal year of the Company, Options to purchase more than 500,000 Shares.
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<PAGE> 6
(ii) In connection with his or her initial service,
a Service Provider may be granted Options to purchase up to an additional
500,000 Shares which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 12.
(iv) If an Option is cancelled in the same fiscal
year of the Company in which it was granted (other than in connection with a
transaction described in Section 12), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant or such shorter term as may be provided
in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
upon exercise of an Option shall be such price as is determined by the
Administrator, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of
grant of such Option, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the exercise price shall be no less than 110% of the Fair Market Value per Share
on the date of grant.
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option,
the per Share exercise price shall be determined by the Administrator. In the
case of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
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<PAGE> 7
(iii) Notwithstanding the foregoing, Options may be
granted with a per Share exercise price other than as required above pursuant to
a merger or other corporate transaction.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) consideration received by the Company
under a cashless exercise program implemented by the Company in connection with
the Plan, or (6) any combination of the foregoing methods of payment. In making
its determination as to the type of consideration to accept, the Administrator
shall consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms hereof at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder to Officers and Directors shall be tolled
during any unpaid leave of absence. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Shares, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares thereafter available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, such Optionee may exercise his or her
Option within such period of time as is specified in the Option Agreement to the
extent that the Option is vested on the date of termination (but in no event
later than the expiration of the term of the Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain
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<PAGE> 8
exercisable for three (3) months following the Optionee's termination. If, on
the date of termination, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement to the extent that the Option is vested on the date of
death (but in no event later than the expiration of the term of such Option as
set forth in the Option Agreement) by the Optionee's estate or by a person who
acquires the right to exercise the Option by bequest or inheritance. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to the entire Option, the
Shares covered by the unvested portion of the Option shall immediately revert to
the Plan. If the Option is not so exercised within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Non-Transferability of Options and Stock Purchase Rights. The
Options and Stock Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically of the terms, conditions and
restrictions related to the offer, including the number of Shares that such
person shall be entitled to purchase, the price to be paid, and the time within
which such person must accept such offer. The offer shall be
-8-
<PAGE> 9
accepted by execution of a Restricted Stock purchase agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have rights equivalent to those of a shareholder
and shall be a shareholder when his or her purchase is entered upon the records
of the duly authorized transfer agent of the Company. No adjustment shall be
made for a dividend or other right for which the record date is prior to the
date the Stock Purchase Right is exercised, except as provided in Section 12 of
the Plan.
12. Adjustments Upon Changes in Capitalization, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. 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 of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the extent
it has not been previously exercised, the Option or Stock Purchase Right shall
terminate immediately prior to the consummation of such proposed action.
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<PAGE> 10
(c) Merger. In the event of a merger, sale or reorganization
of the Company with or into any other corporation or corporations or a sale of
all or substantially all of the assets or outstanding stock of the Company, in
which transaction the Company's stockholders immediately prior to such
transaction own immediately after such transaction less than 50% of the equity
securities of the surviving corporation or its parent, all Options that have not
been terminated in accordance with the Stock Option Agreement that will become
vested within 18 months of the closing date of such merger, sale or
reorganization will be accelerated. In the event of a merger of the Company with
or into another corporation, each outstanding Option or Stock Purchase Right may
be assumed or an equivalent option or right may be substituted by such successor
corporation or a parent or subsidiary of such successor corporation. If, in such
event, an Option or Stock Purchase Right is not assumed or substituted, the
Option or Stock Purchase Right shall terminate as of the date of the closing of
the merger. For the purposes of this paragraph, the Option or Stock Purchase
Right shall be considered assumed if, following the merger, the Option or Stock
Purchase Right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock Purchase Right immediately prior
to the merger, the consideration (whether stock, cash, or other securities or
property) received in the merger by holders of Common Stock for each Share held
on the effective date of the transaction (and if the holders are offered a
choice of consideration, the type of consideration chosen by the holders of a
majority of the outstanding Shares). If such consideration received in the
merger is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger.
13. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
14. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Administrator. Notice
of the determination shall be given to each Service Provider to whom an Option
or Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
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<PAGE> 11
(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise
of an Option, the Administrator may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under Applicable Laws.
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<PAGE> 12
INTELLIPOST CORPORATION
1999 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the 1999 Stock
Plan shall have the same defined meanings in this Stock Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
NAME
--------
The undersigned Optionee has been granted an Option to purchase Common
Stock of the Company, subject to the terms and conditions of the Plan and this
Option Agreement, as follows:
<TABLE>
<S> <C>
Date of Grant
Vesting Commencement Date ________VCD~
Exercise Price per Share
Total Number of Shares Granted ________Number of shares~
Total Exercise Price ________Total price~
Type of Option: Incentive Stock Option
________
________ Nonstatutory Stock Option
Term/Expiration Date:
</TABLE>
Vesting Schedule:
This Option shall be exercisable, in whole or in part, according to the
following vesting schedule:
25% of the Shares subject to the Option shall vest as of the Vesting
Commencement Date, and 1/48 of the Shares subject to the Option shall vest each
month thereafter, subject to Optionee's continuing to be a Service Provider on
such dates.
<PAGE> 13
Termination Period:
This Option shall be exercisable for one month after Optionee ceases to
be a Service Provider. Upon Optionee's death or Disability, this Option may be
exercised for one year after Optionee ceases to be a Service Provider. In no
event may Optionee exercise this Option after the Term/Expiration Date as
provided above.
II. AGREEMENT
1. Grant of Option. The Plan Administrator of the Company hereby grants
to the Optionee named in the Notice of Grant (the "Optionee"), an option (the
"Option") to purchase the number of Shares set forth in the Notice of Grant, at
the exercise price per Share set forth in the Notice of Grant (the "Exercise
Price"), and subject to the terms and conditions of the Plan, which is
incorporated herein by reference. Subject to Section 14(c) of the Plan, in the
event of a conflict between the terms and conditions of the Plan and this Option
Agreement, the terms and conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option as
defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds
the $100,000 rule of Code Section 422(d), this Option shall be treated as a
Nonstatutory Stock Option ("NSO").
2. Exercise of Option.
(a) Right to Exercise. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant and
with the applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option shall be exercisable by
delivery of an exercise notice in the form attached as Exhibit A (the "Exercise
Notice") which shall state the election to exercise the Option, the number of
Shares with respect to which the Option is being exercised, and such other
representations and agreements as may be required by the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all
Exercised Shares. This Option shall be deemed to be exercised upon receipt by
the Company of such fully executed Exercise Notice accompanied by the aggregate
Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares have not been
registered under the Securities Act of 1933, as amended, at the time this Option
is exercised, the Optionee shall, if required by the Company, concurrently with
the exercise of all or any portion of this Option, deliver
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<PAGE> 14
to the Company his or her Investment Representation Statement in the form
attached hereto as Exhibit B and shall read the applicable rules of the
Commissioner of Corporations attached to such Investment Representation
Statement.
4. Lock-Up Period. Optionee hereby agrees that, if so requested by the
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the aggregate Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash or check;
(b) consideration received by the Company under a formal cashless
exercise program adopted by the Company in connection with the Plan; or
(c) surrender of other Shares which, (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
6. Restrictions on Exercise. This Option may not be exercised until
such time as the Plan has been approved by the shareholders of the Company, or
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any Applicable
Law.
7. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. Term of Option. This Option may be exercised only within the term
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
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<PAGE> 15
9. Tax Consequences. Set forth below is a brief summary as of the date
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of NSO. There may be a regular federal income tax
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an Employee or a former Employee, the
Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount in cash
equal to a percentage of this compensation income at the time of exercise, and
may refuse to honor the exercise and refuse to deliver Shares if such
withholding amounts are not delivered at the time of exercise.
(b) Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are
held for at least one year, any gain realized on disposition of the Shares will
be treated as long-term capital gain for federal income tax purposes. In the
case of an ISO, if Shares transferred pursuant to the Option are held for at
least one year after exercise and of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal income tax purposes. If Shares purchased under an ISO
are disposed of within one year after exercise or two years after the Date of
Grant, any gain realized on such disposition will be treated as compensation
income (taxable at ordinary income rates) to the extent of the difference
between the Exercise Price and the lesser of (1) the Fair Market Value of the
Shares on the date of exercise, or (2) the sale price of the Shares. Any
additional gain will be taxed as capital gain, short-term or long-term depending
on the period that the ISO Shares were held.
(d) Notice of Disqualifying Disposition of ISO Shares. If the Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
10. Entire Agreement; Governing Law. The Plan is incorporated herein by
reference. The Plan and this Option Agreement constitute the entire agreement of
the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely
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<PAGE> 16
to the Optionee's interest except by means of a writing signed by the Company
and Optionee. This agreement is governed by the internal substantive laws but
not the choice of law rules of California.
11. No Guarantee of Continued Service. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR
WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that
he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
OPTIONEE INTELLIPOST CORPORATION
- ---------------------------------- ----------------------------------
Signature By
- ---------------------------------- ----------------------------------
Print Name Title
- ----------------------------------
- ----------------------------------
Residence Address
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<PAGE> 17
EXHIBIT A
1999 STOCK PLAN
EXERCISE NOTICE
Intellipost Corporation
565 Commercial Street, 2nd Floor
San Francisco, CA 94111-3031
1. Exercise of Option. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Intellipost Corporation
(the "Company") under and pursuant to the 1999 Stock Plan (the "Plan") and the
Stock Option Agreement dated ________, 19__ (the "Option Agreement").
2. Delivery of Payment. Purchaser herewith delivers to the Company the
full purchase price of the Shares, as set forth in the Option Agreement.
3. Representations of Optionee. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance of the Shares (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company), no right to vote or receive dividends
or any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares shall be issued to
the Optionee as soon as practicable after the Option is exercised. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date of issuance except as provided in Section 12 of the Plan.
5. Company's Right of First Refusal. Before any Shares held by Optionee
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred (including transfer by gift or operation of
law), the Company or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section (the
"Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
<PAGE> 18
(b) Exercise of Right of First Refusal. At any time within thirty
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice, that any such sale or
other transfer is effected in accordance with any applicable securities laws and
that the Proposed Transferee agrees in writing that the provisions of this
Section shall continue to apply to the Shares in the hands of such Proposed
Transferee. If the Shares described in the Notice are not transferred to the
Proposed Transferee within such period, a new Notice shall be given to the
Company, and the Company and/or its assignees shall again be offered the Right
of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as used herein shall mean spouse, lineal descendant or
antecedent, father, mother, brother or sister. In such case, the transferee or
other recipient shall receive and hold the Shares so transferred subject to the
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First
Refusal shall terminate as to any Shares upon the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
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<PAGE> 19
6. Tax Consultation. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
7. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by the Company or by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COMPANY
COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL
HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE
EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF
FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES.
Optionee understands that transfer of the Shares may be
restricted by Section 260.141.11 of the Rules of the California Corporations
Commissioner, a copy of which is attached to Exhibit B, the Investment
Representation Statement.
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<PAGE> 20
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Exercise Notice or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
8. Successors and Assigns. The Company may assign any of its rights
under this Exercise Notice to single or multiple assignees, and this Exercise
Notice shall inure to the benefit of the successors and assigns of the Company.
Subject to the restrictions on transfer herein set forth, this Exercise Notice
shall be binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.
9. Interpretation. Any dispute regarding the interpretation of this
Exercise Notice shall be submitted by Optionee or by the Company forthwith to
the Administrator which shall review such dispute at its next regular meeting.
The resolution of such a dispute by the Administrator shall be final and binding
on all parties.
10. Governing Law; Severability. This Exercise Notice is governed by
the internal substantive laws but not the choice of law rules, of California.
11. Entire Agreement. The Plan and Option Agreement are incorporated
herein by reference. This Exercise Notice, the Plan, the Option Agreement and
the Investment Representation Statement constitute the entire agreement of the
parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee.
Submitted by: Accepted by:
OPTIONEE INTELLIPOST CORPORATION
- ---------------------------------- ----------------------------------
Signature By
- ---------------------------------- ----------------------------------
Print Name Title
Address: Address:
- ---------------------------------- ----------------------------------
- ---------------------------------- ----------------------------------
----------------------------------
Date Received
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<PAGE> 21
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE: ________Name
COMPANY: INTELLIPOST CORPORATION
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Securities. Optionee
is acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to the Optionee,
the exercise will be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter (or
such
<PAGE> 22
longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), and (4) the timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the
time of grant of the Option, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two years, the satisfaction of the
conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.
(d) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that any
such other registration exemption will be available in such event.
(e) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee:
----------------------------------
Date: , 19
-------------------- ----
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<PAGE> 23
ATTACHMENT 1
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer.
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall
cause a copy of this section to be delivered to each issuee or transferee of
such security at the time the certificate evidencing the security is delivered
to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate
a sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102
of the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the knowledge of
the broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other
lien given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113 or 25121 of the Code, of the securities to be transferred, provided that
no order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112
or 25113 of the Code, provided that no order under Section 25140 or subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another state; or
<PAGE> 24
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to
such a restriction on transfer, whether upon initial issuance or upon any
transfer thereof, shall bear on their face a legend, prominently stamped or
printed thereon in capital letters of not less than 10-point size, reading as
follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE> 1
EXHIBIT 10.5
MYPOINTS.COM, INC.
FORM OF
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as of
__________, 1999 by and between MyPoints.com, Inc., a Delaware corporation (the
"Company"), and ___________ ("Indemnitee").
WHEREAS, effective as of the date hereof, MyPoints.com, Inc., a
California corporation, is reincorporating into Delaware;
WHEREAS, the Company desires to attract and retain the services of
highly qualified individuals, such as Indemnitee, to serve the Company and its
related entities;
WHEREAS, in order to induce Indemnitee to continue to provide services
to the Company, the Company wishes to provide for the indemnification of, and
the advancement of expenses to, Indemnitee to the maximum extent permitted by
law;
WHEREAS, the Company and Indemnitee recognize the continued difficulty
in obtaining liability insurance for the Company's directors, officers,
employees, agents and fiduciaries, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting directors, officers,
employees, agents and fiduciaries to expensive litigation risks at the same time
as the availability and coverage of liability insurance has been severely
limited; and
WHEREAS, in connection with the Company's reincorporation, the Company
and Indemnitee desire to continue to have in place the additional protection
provided by an indemnification agreement, with such changes as are required to
conform the existing agreement to Delaware law and to provide indemnification
and advancement of expenses to the Indemnitee to the maximum extent permitted by
Delaware law;
WHEREAS, in view of the considerations set forth above, the Company
desires that Indemnitee shall be indemnified and advanced expenses by the
Company as set forth herein;
NOW, THEREFORE, the Company and Indemnitee hereby agree as set forth
below.
1. Certain Definitions.
<PAGE> 2
a. "Change in Control" shall mean, and shall be deemed to have
occurred if, on or after the date of this Agreement, (i) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportions as their ownership of stock of the Company, becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 50% of the total
voting power represented by the Company's then outstanding Voting Securities,
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Company and
any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
(iii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation other than a merger or consolidation which
would result in the Voting Securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving entity) at least 80% of
the total voting power represented by the Voting Securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or (iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of (in one transaction or a series of related transactions) all
or substantially all of the Company's assets.
b. "Claim" shall mean with respect to a Covered Event: any
threatened, pending or completed action, suit, proceeding or alternative dispute
resolution mechanism, or any hearing, inquiry or investigation that Indemnitee
in good faith believes might lead to the institution of any such action, suit,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other.
c. References to the "Company" shall include, in addition to
MyPoints.com, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which MyPoints.com, Inc.
(or any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
d. "Covered Event" shall mean any event or occurrence related to
the fact that Indemnitee is or was a director, officer, employee, agent or
fiduciary of the Company, or any
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<PAGE> 3
subsidiary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action or inaction on the part of Indemnitee while serving in such capacity.
e. "Expenses" shall mean any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participating in
(including on appeal), or preparing to defend, to be a witness in or to
participate in, any action, suit, proceeding, alternative dispute resolution
mechanism, hearing, inquiry or investigation), judgments, fines, penalties and
amounts paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) of any Claim and any
federal, state, local or foreign taxes imposed on the Indemnitee as a result of
the actual or deemed receipt of any payments under this Agreement.
f. "Expense Advance" shall mean a payment to Indemnitee pursuant
to Section 3 of Expenses in advance of the settlement of or final judgement in
any action, suit, proceeding or alternative dispute resolution mechanism,
hearing, inquiry or investigation which constitutes a Claim.
g. "Independent Legal Counsel" shall mean an attorney or firm of
attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other Indemnitees under similar
indemnity agreements).
h. References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, officer,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in the interest of the participants and beneficiaries of an employee benefit
plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
i. "Reviewing Party" shall mean, subject to the provisions of
Section 2(d), any person or body appointed by the Board of Directors in
accordance with applicable law to review the Company's obligations hereunder and
under applicable law, which may include a member or members of the Company's
Board of Directors, Independent Legal Counsel or any other person or body not a
party to the particular Claim for which Indemnitee is seeking indemnification.
j. "Section" refers to a section of this Agreement unless
otherwise indicated.
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<PAGE> 4
k. "Voting Securities" shall mean any securities of the Company
that vote generally in the election of directors.
2. Indemnification.
a. Indemnification of Expenses. Subject to the provisions of
Section 2(b) below, the Company shall indemnify Indemnitee for Expenses to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any Claim (whether by reason of or arising in
part out of a Covered Event), including all interest, assessments and other
charges paid or payable in connection with or in respect of such Expenses.
b. Review of Indemnification Obligations. Notwithstanding the
foregoing, in the event any Reviewing Party shall have determined (in a written
opinion, in any case in which Independent Legal Counsel is the Reviewing Party)
that Indemnitee is not entitled to be indemnified hereunder under applicable
law, (i) the Company shall have no further obligation under Section 2(a) to make
any payments to Indemnitee not made prior to such determination by such
Reviewing Party, and (ii) the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all Expenses
theretofore paid to Indemnitee to which Indemnitee is not entitled hereunder
under applicable law; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that Indemnitee is entitled to be indemnified hereunder
under applicable law, any determination made by any Reviewing Party that
Indemnitee is not entitled to be indemnified hereunder under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expenses theretofore paid in indemnifying Indemnitee until a
final judicial determination is made with respect thereto (as to which all
rights of appeal therefrom have been exhausted or lapsed). Indemnitee's
obligation to reimburse the Company for any Expenses shall be unsecured and no
interest shall be charged thereon.
c. Indemnitee Rights on Unfavorable Determination; Binding
Effect. If any Reviewing Party determines that Indemnitee substantively is not
entitled to be indemnified hereunder in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation seeking an initial
determination by the court or challenging any such determination by such
Reviewing Party or any aspect thereof, including the legal or factual bases
therefor, and, subject to the provisions of Section 15, the Company hereby
consents to service of process and to appear in any such proceeding. Absent such
litigation, any determination by any Reviewing Party shall be conclusive and
binding on the Company and Indemnitee.
d. Selection of Reviewing Party; Change in Control. If there has
not been a Change in Control, any Reviewing Party shall be selected by the Board
of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's Board
of Directors who were directors immediately prior to such Change in Control),
any Reviewing Party with respect to all matters thereafter arising concerning
the rights
-4-
<PAGE> 5
of Indemnitee to indemnification of Expenses under this Agreement or any other
agreement or under the Company's Certificate of Incorporation or Bylaws as now
or hereafter in effect, or under any other applicable law, if desired by
Indemnitee, shall be Independent Legal Counsel selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
entitled to be indemnified hereunder under applicable law and the Company agrees
to abide by such opinion. The Company agrees to pay the reasonable fees of the
Independent Legal Counsel referred to above and to indemnify fully such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto. Notwithstanding any other provision of this Agreement, the
Company shall not be required to pay Expenses of more than one Independent Legal
Counsel in connection with all matters concerning a single Indemnitee, and such
Independent Legal Counsel shall be the Independent Legal Counsel for any or all
other Indemnitees unless (i) the employment of separate counsel by one or more
Indemnitees has been previously authorized by the Company in writing, or (ii) an
Indemnitee shall have provided to the Company a written statement that such
Indemnitee has reasonably concluded that there may be a conflict of interest
between such Indemnitee and the other Indemnitees with respect to the matters
arising under this Agreement.
e. Mandatory Payment of Expenses. Notwithstanding any other
provision of this Agreement other than Section 10 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
Claim, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
3. Expense Advances.
a. Obligation to Make Expense Advances. Upon receipt of a
written undertaking by or on behalf of the Indemnitee to repay such amounts if
it shall ultimately be determined that the Indemnitee is not entitled to be
indemnified therefore by the Company hereunder under applicable law, the Company
shall make Expense Advances to Indemnitee.
b. Form of Undertaking. Any obligation to repay any Expense
Advances hereunder pursuant to a written undertaking by the Indemnitee shall be
unsecured and no interest shall be charged thereon.
c. Determination of Reasonable Expense Advances. The parties
agree that for the purposes of any Expense Advance for which Indemnitee has made
written demand to the Company in accordance with this Agreement, all Expenses
included in such Expense Advance that are certified by affidavit of Indemnitee's
counsel as being reasonable shall be presumed conclusively to be reasonable.
4. Procedures for Indemnification and Expense Advances.
-5-
<PAGE> 6
a. Timing of Payments. All payments of Expenses (including
without limitation Expense Advances) by the Company to the Indemnitee pursuant
to this Agreement shall be made to the fullest extent permitted by law as soon
as practicable after written demand by Indemnitee therefor is presented to the
Company, but in no event later than thirty (30) business days after such written
demand by Indemnitee is presented to the Company, except in the case of Expense
Advances, which shall be made no later than ten (10) business days after such
written demand by Indemnitee is presented to the Company.
b. Notice/Cooperation by Indemnitee. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified or Indemnitee's
right to receive Expense Advances under this Agreement, give the Company notice
in writing as soon as practicable of any Claim made against Indemnitee for which
indemnification will or could be sought under this Agreement. Notice to the
Company shall be directed to the Chief Executive Officer of the Company at the
address shown on the signature page of this Agreement (or such other address as
the Company shall designate in writing to Indemnitee). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
c. No Presumptions; Burden of Proof. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by this
Agreement or applicable law. In addition, neither the failure of any Reviewing
Party to have made a determination as to whether Indemnitee has met any
particular standard of conduct or had any particular belief, nor an actual
determination by any Reviewing Party that Indemnitee has not met such standard
of conduct or did not have such belief, prior to the commencement of legal
proceedings by Indemnitee to secure a judicial determination that Indemnitee
should be indemnified under this Agreement under applicable law, shall be a
defense to Indemnitee's claim or create a presumption that Indemnitee has not
met any particular standard of conduct or did not have any particular belief. In
connection with any determination by any Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder under applicable
law, the burden of proof shall be on the Company to establish that Indemnitee is
not so entitled.
d. Notice to Insurers. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 4(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of the Indemnitee, all amounts payable as a result of such Claim in
accordance with the terms of such policies.
e. Selection of Counsel. In the event the Company shall be
obligated hereunder to provide indemnification for or make any Expense Advances
with respect to the Expenses of any
-6-
<PAGE> 7
Claim, the Company, if appropriate, shall be entitled to assume the defense of
such Claim with counsel approved by Indemnitee (which approval shall not be
unreasonably withheld) upon the delivery to Indemnitee of written notice of the
Company's election to do so. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees or
expenses of separate counsel subsequently retained by or on behalf of Indemnitee
with respect to the same Claim; provided that, (i) Indemnitee shall have the
right to employ Indemnitee's separate counsel in any such Claim at Indemnitee's
expense and (ii) if (A) the employment of separate counsel by Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not
continue to retain such counsel to defend such Claim, then the fees and expenses
of Indemnitee's separate counsel shall be Expenses for which Indemnitee may
receive indemnification or Expense Advances hereunder.
5. Additional Indemnification Rights; Nonexclusivity.
a. Scope. The Company hereby agrees to indemnify the Indemnitee
to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by the other provisions of this
Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or
by statute. In the event of any change after the date of this Agreement in any
applicable law, statute or rule which expands the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change. In the event of any change in any applicable law, statute or rule which
narrows the right of a Delaware corporation to indemnify a member of its board
of directors or an officer, employee, agent or fiduciary, such change, to the
extent not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder except as set forth in Section 10(a) hereof.
b. Nonexclusivity. The indemnification and the payment of
Expense Advances provided by this Agreement shall be in addition to any rights
to which Indemnitee may be entitled under the Company's Certificate of
Incorporation, its Bylaws, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Delaware,
or otherwise. The indemnification and the payment of Expense Advances provided
under this Agreement shall continue as to Indemnitee for any action taken or not
taken while serving in an indemnified capacity even though subsequent thereto
Indemnitee may have ceased to serve in such capacity.
6. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, provision of the Company's Certificate of
Incorporation, Bylaws or otherwise) of the amounts otherwise payable hereunder.
-7-
<PAGE> 8
7. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee is entitled.
8. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's right under public policy to indemnify Indemnitee.
9. Liability Insurance. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are provided to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
10. Exceptions. Notwithstanding any other provision of this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement:
a. Excluded Actions or Omissions. To indemnify or make Expense
Advances to Indemnitee with respect to Claims arising out of acts, omissions or
transactions for which Indemnitee is prohibited from receiving indemnification
under applicable law.
b. Claims Initiated by Indemnitee. To indemnify or make Expense
Advances to Indemnitee with respect to Claims initiated or brought voluntarily
by Indemnitee and not by way of defense, counterclaim or crossclaim, except (i)
with respect to actions or proceedings brought to establish or enforce a right
to indemnification under this Agreement or any other agreement or insurance
policy or under the Company's Certificate of Incorporation or Bylaws now or
hereafter in effect relating to Claims for Covered Events, (ii) in specific
cases if the Board of Directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise required under Section 145 of the Delaware General
Corporation Law, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, Expense Advances, or insurance recovery, as
the case may be.
c. Lack of Good Faith. To indemnify Indemnitee for any Expenses
incurred by the Indemnitee with respect to any action instituted (i) by
Indemnitee to enforce or interpret this Agreement, if a court having
jurisdiction over such action determines as provided in Section 13 that each of
the material assertions made by the Indemnitee as a basis for such action was
not made in good faith or was frivolous, or (ii) by or in the name of the
Company to enforce or interpret this
-8-
<PAGE> 9
Agreement, if a court having jurisdiction over such action determines as
provided in Section 13 that each of the material defenses asserted by Indemnitee
in such action was made in bad faith or was frivolous.
d. Claims Under Section 16(b). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns (including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), spouses, heirs and
personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect, and whether by purchase, merger,
consolidation or otherwise) to all, substantially all, or a substantial part, of
the business or assets of the Company, by written agreement in form and
substance satisfactory to Indemnitee, expressly to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. This Agreement
shall continue in effect regardless of whether Indemnitee continues to serve as
a director, officer, employee, agent or fiduciary (as applicable) of the Company
or of any other enterprise at the Company's request.
13. Expenses Incurred in Action Relating to Enforcement or
Interpretation. In the event that any action is instituted by Indemnitee under
this Agreement or under any liability insurance policies maintained by the
Company to enforce or interpret any of the terms hereof or thereof, Indemnitee
shall be entitled to be indemnified for all Expenses incurred by Indemnitee with
respect to such action (including without limitation attorneys' fees),
regardless of whether Indemnitee is ultimately successful in such action, unless
as a part of such action a court having jurisdiction over such action makes a
final judicial determination (as to which all rights of appeal therefrom have
been exhausted or lapsed) that each of the material assertions made by
Indemnitee as a basis for such action was not made in good faith or was
frivolous; provided, however, that until such final judicial determination is
made, Indemnitee shall be entitled under Section 3 to receive payment of Expense
Advances hereunder with respect to such action. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
indemnified for all Expenses incurred by Indemnitee in defense of such action
(including without limitation costs and expenses incurred with respect to
Indemnitee's counterclaims and cross-claims made in such action), unless as a
part of such action a court having jurisdiction over such action makes a final
judicial determination (as to which all rights of appeal therefrom have been
exhausted or lapsed) that each of the material defenses asserted by Indemnitee
in such action was made in bad faith or was frivolous; provided, however, that
until such
-9-
<PAGE> 10
final judicial determination is made, Indemnitee shall be entitled under Section
3 to receive payment of Expense Advances hereunder with respect to such action.
14. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two year period; provided, however, that if any shorter
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
15. Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and signed for by the party addressed, on the date of such
delivery, or (ii) if mailed by domestic certified or registered mail with
postage prepaid, on the third business day after the date postmarked. Addresses
for notice to either party are as shown on the signature page of this Agreement,
or as subsequently modified by written notice.
16. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
17. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including without limitation each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
18. Choice of Law. This Agreement, and all rights, remedies,
liabilities, powers and duties of the parties to this Agreement, shall be
governed by and construed in accordance with the laws of the State of Delaware
as applied to contracts between Delaware residents entered into and to be
performed entirely in the State of Delaware without regard to principles of
conflicts of laws.
19. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
-10-
<PAGE> 11
20. Amendment and Termination. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless it is in writing
signed by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed to be or shall constitute a waiver of any other
provisions hereof (whether or not similar), nor shall such waiver constitute a
continuing waiver.
21. Integration and Entire Agreement. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. No Construction as Employment Agreement. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries or affiliated entities.
-11-
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
MYPOINTS.COM, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address:
AGREED TO AND ACCEPTED
INDEMNITEE:
-----------------------------------------
(Signature)
-----------------------------------------
Name
-----------------------------------------
Address
-----------------------------------------
<PAGE> 1
EXHIBIT 10.6
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF.
NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
No. W-[number]
STOCK PURCHASE WARRANT
To Purchase Shares of Series D Preferred Stock of
INTELLIPOST CORPORATION
THIS CERTIFIES that, [name] ("Investor"), is entitled, upon the terms
and subject to the conditions hereinafter set forth, at any time from the date
of this Warrant and on or prior to November [date], 2003, but not thereafter, to
subscribe for and purchase, from INTELLIPOST CORPORATION, a Delaware corporation
(the "Company"), [number of warrants] shares of Series D Preferred Stock. The
purchase price of one share of Series D Preferred Stock issuable under this
Warrant shall be $2.06. The purchase price and the number of shares for which
the Warrant is exercisable shall be subject to adjustment as provided herein.
1. Exercise of Warrant.
(a) General. Unless earlier terminated under Section 8, the
purchase rights represented by this Warrant are exercisable by Investor, in
whole or in part, at any time after three months from the date hereof and before
the close of business on November [date], 2003 by the surrender of this Warrant
and the Notice of Exercise annexed hereto duly executed at the office of the
Company, in San Francisco, California (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder hereof
at the address of such holder appearing on the books of the Company), and upon
payment of the purchase price of the shares of Series D Preferred Stock thereby
purchased (by cash or by check or bank draft payable to the order of the Company
in an amount equal to the purchase price of the shares thereby purchased);
whereupon the holder of this Warrant shall be entitled to receive a certificate
for the number of shares of Series D Preferred Stock so purchased. The Company
agrees that if at the time of the surrender of this Warrant and purchase of the
shares, the holder hereof shall be entitled to exercise this Warrant, and the
shares so purchased shall be and be deemed to be issued to such holder as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been exercised as aforesaid.
Certificates for shares purchased hereunder shall be delivered to the
holder hereof within a reasonable time after the date on which this Warrant
shall have been exercised as aforesaid.
<PAGE> 2
The Company covenants that all shares of Series D Preferred Stock which
may be issued upon the exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant, be fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).
Certificates for shares of Series D Preferred Stock purchased hereunder
shall be delivered to the holder hereof within a reasonable time after the date
on which this Warrant shall have been exercised as aforesaid.
The Company covenants that all shares of Series D Preferred Stock which
may be issued upon the exercise of rights represented by this Warrant will, upon
exercise of the rights represented by this Warrant, be fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).
(b) Net Exercise. If, at the time of exercise of this Warrant,
the Fair Market Value (as defined below) of one share of the Company's Series D
Preferred Stock is greater than the per share purchase price of this Warrant, in
lieu of exercising this Warrant for cash, the holder may elect to receive shares
equal to the value (as determined below) of this Warrant (or the portion thereof
being canceled) by surrender of this Warrant at the principal office of the
Company together with notice of such election and the properly endorsed Notice
of Exercise in which event the Company shall issue to the holder a number of
shares of Series D Preferred Stock computed using the following formula:
X = Y(A-B)
-----
A
Where
X = the number of shares of
Series D Preferred Stock to
be issued to the holder
Y = the number of shares of
Series D Preferred Stock
purchasable under the
Warrant or, if only a
portion of the Warrant is
being exercised, the
portion of the Warrant
being canceled (at the date
of such calculation)
A = the Fair Market Value of
one share of the Company's
Series D Preferred Stock
(at the date of such
calculation)
STOCK PURCHASE WARRANT
-2-
<PAGE> 3
B = per share purchase price
of this Warrant (as
adjusted to the date of
such calculation)
For purposes of the above calculation, Fair Market Value of one share of
Series D Preferred Stock shall be determined by the Company's Board of Directors
in good faith; provided, however, that in the event the Company makes an initial
public offering of its Common Stock the Fair Market Value per share of Series D
Preferred Stock shall be the average of the high and low price of the Company's
publicly traded stock on the date the request for net exercise is submitted to
the Company.
3. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon the exercise of
this Warrant, an amount equal to such fraction multiplied by the then current
price at which each share may be purchased hereunder shall be paid in cash to
the holder of this Warrant.
4. Charges, Taxes and Expenses. Issuance of certificates for shares of
Series D Preferred Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant.
5. No Rights as Stockholders. This Warrant does not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company
prior to the exercise thereof.
6. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by
the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
7. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
8. Early Termination and Dilution.
(a) Early Termination on Merger, etc. If at any time the Company
proposes to merge with or into any other corporation, effect a reorganization,
or sell or convey all or substantially all of its assets to any other entity in
a transaction in which the
STOCK PURCHASE WARRANT
-3-
<PAGE> 4
stockholders of the Company immediately before the transaction own immediately
after the transaction less than a majority of the outstanding voting securities
of the surviving entity (or its parent), then the Company shall give Investor
thirty (30) days notice of the proposed effective date of the transaction and,
if the Warrant has not been exercised by the effective date of the transaction,
the Warrant shall terminate.
(b) Reclassification, etc. If the Company at any time shall, by
subdivision, combination or reclassification of securities or otherwise, change
any of the securities to which purchase rights under this Warrant exist into the
same or a different number of securities of any class or classes, this Warrant
shall thereafter be to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities which
were subject to the purchase rights under this Warrant immediately prior to such
subdivision, combination, reclassification or other change. If shares of the
Company's Series D Preferred Stock are subdivided or combined into a greater or
smaller number of shares of Series D Preferred Stock, the purchase price under
this Warrant shall be proportionately reduced in case of subdivision of shares
or proportionately increased in the case of combination of shares, in both cases
by the ratio which the total number of shares of Series D Preferred Stock to be
outstanding immediately after such event bears to the total number of shares of
Series D Preferred Stock outstanding immediately prior to such event.
(c) Cash Distributions. No adjustment on account of cash
dividends or interest on the Company's Series D Preferred Stock or other
securities purchasable hereunder will be made to the purchase price under this
Warrant.
(d) Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Series D Preferred Stock a sufficient number of shares to provide for
the issuance of Series D Preferred Stock upon the exercise of any purchase
rights under this Warrant. The Company further covenants that its issuance of
this Warrant shall constitute full authority to its officers who are charged
with the duty of executing stock certificates to execute and issue the necessary
certificates for shares of the Company's Series D Preferred Stock upon the
exercise of the purchase rights under this Warrant.
9. Miscellaneous.
(a) Issue Date. The provisions of this Warrant shall be
construed and shall be given effect in all respect as if it had been issued and
delivered by the Company on the date hereof. This Warrant shall be binding upon
any successors or assigns of the Company. This Warrant shall constitute a
contract under the laws of the State of California and for all purposes shall be
construed in accordance with and governed by the laws of said state.
STOCK PURCHASE WARRANT
-4-
<PAGE> 5
(b) Restrictions. The holder hereof acknowledges that the Series
D Preferred Stock acquired upon the exercise of this Warrant may have
restrictions upon its resale imposed by state and federal securities laws.
(c) Waivers and Amendments. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Assignment and Transferability. This Warrant may be assigned
or transferred by Investor only to affiliates and/or employees of Investor with
the prior written approval of the Company.
IN WITNESS WHEREOF, INTELLIPOST CORPORATION has caused this Warrant to
be executed by its officers thereunto duly authorized.
Dated: _______________, 1998
INTELLIPOST CORPORATION
By:
---------------------------------
Steven M. Markowitz
Title:
------------------------------
STOCK PURCHASE WARRANT
-5-
<PAGE> 6
NOTICE OF EXERCISE
To:___________________________________
(1) The undersigned hereby elects to purchase __________ shares of
Series D Preferred Stock of Intellipost Corporation pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price in full,
together with all applicable transfer taxes, if any.
(2) Please issue a certificate or certificates representing said shares
of Series D Preferred Stock in the name of the undersigned as is specified
below:
_________________________
(Name)
_________________________
(Address)
(3) The undersigned represents that the aforesaid shares of Series D
Preferred Stock are being acquired for the account of the undersigned for
investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of
distributing or reselling such shares.
__________________________________ ____________________________________
(Date) (Signature)
<PAGE> 1
EXHIBIT 10.7
565 COMMERCIAL STREET
OFFICE LEASE AGREEMENT
entered into by and between
LOUIS N. HAAS, As Attorney In-Fact, Landlord
and
INTELLIPOST CORPORATION, a Delaware corporation, Tenant
for the
SECOND FLOOR
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ATRICLE 1 DEFINITIONS .................................................. 1
1.1 Lease Date .................................................. 1
1.2 Landlord ..................................................... 1
1.3 Tenant ....................................................... 1
1.4 Building ..................................................... 1
1.5 Lease Premises ............................................... 1
1.6 Rentable Area of Premises .................................... 1
1.7 Common Area .................................................. 1
1.8 Lease ........................................................ 1
1.9 Lease Term ................................................... 1
1.10 Term Commencement Date ....................................... 1
1.11 Expiration Date .............................................. 1
1.12 Base Rent .................................................... 2
1.13 Tenant's Percentage Share .................................... 2
1.14 Security Deposit ............................................. 2
1.15 Tenant's Permitted Use ....................................... 2
1.16 Business Hours ............................................... 2
1.17 Landlord's Address for Notices ............................... 2
1.18 Tenant's Address for Notices ................................. 2
1.19 Tenant's Address for Notices (Before Tenant Takes Possession of
Premises) .................................................... 2
1.20 Landlord's and Tenant's Broker, If Any ....................... 2
1.21 Prepaid Rent ................................................. 2
1.22 Property Manager ............................................. 2
ARTICLE 2 PREMISES...................................................... 3
2.1 Lease of Premises ............................................ 3
2.2 Acceptance of Premises ....................................... 3
2.3 Rentable Area of the Premises ................................ 3
ARTICLE 3 TERM ......................................................... 3
3.1 Term ......................................................... 3
3.2 Determination of Term Commencement Date ...................... 3
3.3 Option to Extend ............................................. 3
3.4 Term ......................................................... 4
ARTICLE 4 BASE RENT .................................................... 4
4.1 Payment of Base Rent ......................................... 4
ARTICLE 5 ADDITIONAL CHARGES; OPERATING EXPENSES AND APPLICABLE
TAXES......................................................... 4
5.1 Payment of Additional Charges; Operating Expenses and
Applicable Taxes.............................................. 4
5.2 Definitions .................................................. 5
(A) "Base Year" .............................................. 5
(B) "Applicable Taxes" ....................................... 5
(C) "Operating Expenses" ..................................... 5
5.3 Adjustment Procedure: Estimate ............................... 6
5.4 View of Landlord's Statement ................................. 6
5.5 Late Charge; Interest ........................................ 7
ARTICLE 6 ADDITIONAL TAXES ............................................. 7
6.1 Reimbursement ................................................ 7
ARTICLE 7 SECURITY DEPOSIT ..............................................7
ARTICLE 8 USE OF PREMISES .............................................. 8
8.1 Tenant's Permitted Use ....................................... 8
8.2 Compliance With Laws and Other Requirements .................. 8
8.3 Hazardous Material ........................................... 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 9 UTILITIES AND SERVICE ........................................ 10
9.1 Building Services ............................................ 10
9.2 Interruption of Services ..................................... 11
ARTICLE 10 MAINTENANCE AND REPAIRS ...................................... 11
10.1 Landlord Repairs ............................................. 11
10.2 Tenant Repairs ............................................... 11
10.3 Request for Repairs .......................................... 12
10.4 Tenant Damages ............................................... 12
10.5 Landlord's Rights ............................................ 12
ARTICLE 11 ALTERATIONS ADDITIONS AND IMPROVEMENTS ....................... 12
11.1 Landlord's Consent; Conditions ............................... 12
11.2 Performance of Alterations Work .............................. 12
11.3 Liens ........................................................ 12
11.4 Lease Termination ............................................ 13
ARTICLE 12 INDEMINIFICATION ............................................. 13
12.1 Waiver of Liability .......................................... 13
12.2 Indemnification .............................................. 13
12.3 Survival ..................................................... 13
ARTICLE 13 INSURANCE .................................................... 14
13.1 Property Insurance ........................................... 14
13.2 Liability Insurance .......................................... 14
13.3 Workers Compensation Insurance ............................... 14
13.4 Policy Requirements .......................................... 14
13.5 Waiver of Subrogation ........................................ 15
13.6 Failure of Insure ............................................ 15
ARTICLE 14 DAMAGE OR DESTRUCTION ........................................ 15
14.1 Landlord's Restoration ....................................... 15
14.2 Rent Abatement ............................................... 15
14.3 Tenant's Restoration ......................................... 15
14.4 Waiver of Right to Terminate ................................. 15
14.5 Damage During Last Twenty-Four (24) Months ................... 16
ARTICLE 15 CONDEMNATION ................................................. 16
15.1 Taking ....................................................... 16
15.2 Award ........................................................ 16
15.3 Temporary Taking ............................................. 16
ARTICLE 16 ASSIGNMENT AND SUBLETTING .................................... 16
16.1 Restriction .................................................. 16
16.2 Notice to Landlord ........................................... 16
16.3 Landlord's Recapture Rights .................................. 17
16.4 Landlord's Consent: Standard ................................. 17
16.5 Additional Rent .............................................. 17
16.6 Landlord's Costs ............................................. 17
16.7 Continuing Liability of Tenant ............................... 17
16.8 Non-Waiver ................................................... 18
ARTICLE 17 DEFAULT AND REMEDIES ......................................... 18
17.1 Events of Default by Tenant .................................. 18
17.2 Landlord's Right to Terminate Upon Tenant Default ............ 18
17.3 Landlord's Right to Continue Lease Upon Tenant Default ....... 19
17.4 Right of Landlord to Perform ................................. 19
17.5 Default Under Other Lease .................................... 19
17.6 Non-Waiver ................................................... 19
17.7 Cumulative Remedies ......................................... 20
17.8 Default by Landlord .......................................... 20
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 18 ATTORNEY'S FEES: COSTS OF SUIT ................................ 20
18.1 Attorneys' Fees ............................................... 20
18.2 Indemnification ............................................... 20
ARTICLE 19 SUBORDINATION AND ATTORNMENT .................................. 20
19.1 Subordination ................................................. 20
19.2 Attornment .................................................... 20
19.3 Mortgage and Ground Lessor Protection ......................... 21
ARTICLE 20 QUIET ENJOYMENT ............................................... 21
ARTICLE 21 RULES AND REGULATION .......................................... 21
ARTICLE 22 ESTOPPEL CERTIFICATES ......................................... 21
ARTICLE 23 ENTRY BY LANDLORD ............................................. 22
ARTICLE 24 LANDLORD'S LEASE UNDERTAKING-
EXCULPATION FROM PERSONAL LIABILITY
TRANSFER OF LANDLORD'S INTEREST .............................. 22
24.1 Landlord's Lease Undertaking ................................. 22
24.2 Transfer of Landlord's Interest ............................... 22
ARTICLE 25 HOLDOVER TENANCY .............................................. 23
ARTICLE 26 NOTICES ....................................................... 23
ARTICLE 27 MISCELLANEOUS ................................................. 23
27.1 Entire Agreement .............................................. 23
27.2 Amendments .................................................... 23
27.3 Successors .................................................... 23
27.4 Force Majeure ................................................. 23
27.5 Survival of Obligations ....................................... 24
27.6 Light and Air ................................................. 24
27.7 Governing Law ................................................. 24
27.8 Severability .................................................. 24
27.9 Captions ..................................................... 24
27.10 Interpretation ................................................ 24
27.11 Independent Covenants ......................................... 24
27.12 Number and Gender ............................................. 24
27.13 Time is of the Essence ........................................ 24
27.14 Joint and Several Liability ................................... 24
27.15 Exhibits ...................................................... 24
27.16 Offer of Lease ................................................ 24
27.17 No Counterclaim; Choice of Laws ............................... 24
27.18 Rights Reserved by Landlord ................................... 24
27.19 No Other Broker or Agent ...................................... 25
27.20 Compliance .................................................... 25
27.21 Delay in Enforcement .......................................... 25
27.22 No Waiver by Acceptance of Payment ............................ 25
27.23 Qualification and Authority ................................... 25
27.24 Landlord Rights to Change Property ............................ 26
27.25 Landlord's Improvements Work .................................. 26
27.26 Right of First Negotiation .................................... 26
</TABLE>
iii
<PAGE> 5
SECOND FLOOR OFFICE LEASE
565 COMMERCIAL STREET, SAN FRANCISCO, CA
THIS LEASE ("Lease"), dated as of November 15, 1996, is made and
entered into by and between LOUIS N. HAAS, not individually, but as
attorney-in-fact for: Jack Burgess, Phillip A. Wiseman; Louis N. Haas
Professional Corporation; Melvin K. Najarian Professional Corporation; David E.
Bunim and Tehan Bunim; Haas & Najarian (a California general partnership); June
Kraft; Donald A. Friend (as Trustee of the Donald A. Friend 1982 Revocable
Trust), Fee Owners of 565 Commercial Street, San Francisco, California
(hereafter collectively referred to as 'Landlord" without regard to number or
gender) and INTELLIPOST CORPORATION, a Delaware corporation ("Tenant") upon the
following terms and conditions.
ARTICLE 1
DEFINITIONS
Unless the context otherwise specifies or requires, the following terms
shall have the following meaning:
1.1 Lease Date. November 15, 1996.
1.2 Landlord. 'Landlord" means Louis N. Haas, as Attorney-In-Fact.
1.3 Tenant. "Tenant" means Intellipost Corporation, a California
corporation.
1.4 Building. The term "Building" shall mean 565 Commercial Street, San
Francisco, California.
1.5 Leased Premises. The term "Leased Premises" shall mean the second
floor of the Building, as cross-hatched on Exhibit A attached hereto and made a
part hereof.
1.6 Rentable Area of the Premises. The term "Rentable Area of the
Premises" shall mean approximately 3,939 square feet, which Landlord and Tenant
stipulate to be the Rental Area of
the Premises.
1.7 Common areas. The term "Common Areas" shell mean all areas within
the Building not reserved for the exclusive use of the Landlord, Tenant, or any
other tenant, including the areas on individual floors devoted to corridors,
fire vestibules, elevator foyers, lobbies, electric and telephone closets,
restrooms, mechanical rooms, janitor closets and other similar facilities for
the benefit of all tenants (or invitees) on the particular floor, parking
facilities, if any, walkways and landscaped areas. Landlord retains the right to
make changes in boundaries and in facilities, and to grant exclusive rights over
certain Common Areas. Landlord retains the right to the use, and licensing of
the use of, the exterior walls and roof of the Building.
1.8 Lease. The term "Lease" shall mean this Lease document and any
Exhibits and Addenda attached hereto now or in the future.
1.9 Lease Term. The term "Lease Term" shall mean the period between the
Commencement Date and the Expiration Date (as such terms are hereinafter
defined), unless sooner terminated or extended as otherwise provided in this
Lease. The Lease Term is for three (3) years.
1.10 Term Commencement Date. Subject to adjustment as provided in
Article 3, the Term Commencement Date shall mean November 15, 1996.
1.11 Expiration Date. The term "Expiration Date" shall mean November
30, 1999.
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<PAGE> 6
1.12 Base Rent. Subject to adjustment as provided in Article 4, the
term "Base Rent" shall mean:
<TABLE>
<CAPTION>
ANNUAL
MONTHLY ANNUAL BASE RENT
MONTH(S) YEAR(S) BASE RENT BASE RENT PER SQ. FOOT
-------- ------- --------- --------- ------------
<S> <C> <C> <C> <C>
1-36 1, 2 & 3 $4,760.00 $57,120.00 $14.50
</TABLE>
1.13 Tenant's Percentage Share. The term "Tenant's Percentage Share"
shall mean 28.56% with respect to Property Taxes and Operating Expenses (as such
terms are hereinafter defined) and with respect to Tenant's law compliance
obligations under Paragraph 8.2(B) of this Lease.
1.14 Security Deposit. The term "Security Deposit" shall mean Four
Thousand Seven Hundred Sixty Dollars ($4,760.00), payable upon execution of this
Lease.
1.15 Tenant's Permitted Use. The term "Tenant's Permitted Use" shall
mean general office use and no other use.
1.16 Business Hours. The term "Business Hours" shall mean the hours of
8:00 a.m. to 6:00 p.m,, Monday through Friday, and 8:00 a.m. to 1:00 p.m.,
Saturdays (federal and state holidays excepted). The term "Business Hours" means
when the exterior door to the Building is kept unlocked. Tenant will
nevertheless, have twenty-four (24) hours access to the Premises. Landlord will
provide Tenant with a key to the exterior door to the Building and one elevator
key permitting elevator service to the second floor.
1.17 Landlord's Address for Notices. The term "Landlord's Address for
Notices" shall mean: c/o Haas & Najarian, 456 Montgomery Street, 16th Floor, San
Francisco, California 94104, Attention: Robert C. Nicholas, Esq., telephone
(415) 788-6330, facsimile (415) 391-0555, with copy to Brad Colton at the
address noted in Paragraph 1.20 below.
1.18 Tenant's Address for Notices. The term "Tenant's Address for
Notices" shall mean 565 Commercial Street, 2nd Floor, San Francisco, California,
Attn: President.
1.19 Tenant's Address for Notices (Before Tenant Takes Possession of
Premises). Tenant's address for Notices before tenant takes possession of
Premises shall mean 1531 Shattuck Avenue, Berkeley, California 94709-1511, Attn:
President.
1.20 Landlord's and Tenant's Broker, if Any. The term "Landlord's
Broker" shall mean Brad Colton, Colton Commercial, Embarcadero West, 275 Battery
Street, Suite 950, San Francisco, California 9411, and the term "Tenant's
Broker" shall mean Darin R. Bosch, CB Commercial, Embarcadero Center West, 275
Battery Street, Suite 1300, San Francisco, California 94111.
1.21 Prepaid Rent The term "Prepaid Rent" shall mean $33,320.00,
representing Base Rent for the first seven (7) months of the Lease Term,
1.22 Property Manager. The term "Property Manager" shall mean Colton
Commercial at the address listed in Paragraph 1.21 above.
THE FOREGOING DEFINITIONS ARE HEREBY INCORPORATED INTO AND MADE A PART
OF THIS LEASE. EACH REFERENCE IN THIS LEASE TO ANY OF THE DEFINITIONS
SHALL MEAN THE INFORMATION SET FORTH ABOVE. IN THE EVENT OF A CONFLICT
BETWEEN ANY OF THE DEFINITIONS AND THE LEASE, THE LEASE SHALL CONTROL.
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<PAGE> 7
ARTICLE 2
PREMISES
2.1 Lease of Premises. Landlord hereby leases the Premises to Tenant,
and Tenant hereby leases the Premises from Landlord, upon all of the terms,
covenants and conditions contained in this Lease. On the Commencement Date
described herein, Landlord shall deliver the Premises to Tenant "AS IS" and
Tenant accepts the Premises in its present condition and acknowledges that
Landlord has no responsibility or obligation to make any tenant improvements
whatsoever, except for the work described in Paragraph 27.25.
2.2 Acceptance of Premises. Tenant acknowledges that Landlord has not
made any representation or warranty with respect to the condition of the
Premises or the Building or with respect to the suitability or fitness of either
for the conduct of Tenant's Permitted Use or for any other purpose.
2.3 Rentable Area of the Premises. The 3,939 square feet referred to in
Paragraph 1.6 of the Lease reflects Landlord's good faith estimate of the
approximate rentable area of the Premises based upon information supplied to
Landlord by its architect. Landlord has not performed an independent calculation
of the rentable area of the Premises and, therefore, cannot warrant or represent
that the square footage is 100% accurate. The square footage was determined by
applying a modified BOMA method of calculating square footage. Accordingly,
should the actual square footage be greater or less than the square footage
stated in Paragraph 1.6. Landlord and Tenant agree that The rent shall remain
the same.
ARTICLE 3
TERM
3.1 Term. Except as otherwise provided in this Lease, the Lease Term
shall be for the period described in Paragraph 1.9 of this Lease, commencing on
the Commencement Date described in Paragraph 1.10 of this Lease and ending on
the Expiration Date described in Paragraph 1.11 of this Lease; provided,
however, that, if, for any reason, Landlord is unable to deliver possession of
the Premises on the date described in Paragraph 1.10 of this Lease, Landlord
shall not be liable for any damage caused thereby, nor shall the Lease be void
or voidable, but, rather, the Lease Term shall commence upon, and the
Commencement Date shall be, the date that possession of the Premises is so
tendered to Tenant (except for Tenant-caused delays which shall not be deemed to
delay commencement of the Lease Term), and the Expiration Date described in
Paragraph 1.11 of this Lease shall be extended by an equal number of days.
3.2 Determination of Term Commencement Date. The dates upon which the
Initial Term commences and terminates pursuant to this Article 3 are herein
coiled the "Term Commencement Date" and the "Term Expiration Date,"
respectively. If the Term Commencement Date occurs on other than the first day
of the month, the Base Rent and any additional charges shall be prorated
according to the ratio that the number of the days of the month within the Term
bears to the total number of days in the month, and such amounts shall be paid
on the Term Commencement Date. As soon as practicable after the Term
Commencement Date is determined in accordance with this Lease, Landlord and
Tenant shall execute and deliver to each other an agreement confirming the Term
Commencement Date; provided, however, failure by the parties to execute and
deliver such agreement shall not affect determination of the Term Commencement
Date.
3.3 Option to Extend. Provided Tenant is not in default under this
Lease either on the date of exercise or at the end of the Term, Tenant shall
have an option to extend the Term of this Lease for one additional period of
three (3) years (the "Optional Term") on the expiration of the Initial Term,
upon the same terms and conditions as contained herein for the Initial Term,
except that the Base Rent to be paid by Tenant to Landlord for the Optional Term
shall be the then fair market rental value of the Premises to be determined as
set forth below. The option shall be exercised by written nonce setting forth
Tenant's election to exercise the option and must be delivered to Landlord not
less than ninety (90) days prior to the expiration of the Initial Term.
(A) Following Tenant's exercise of the option hereunder, Landlord
and Tenant shall negotiate for not more than thirty (30) days to agree on the
fair rental value of the Premises. If
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<PAGE> 8
the parties are unable to agree, then within ten (10) days after the expiration
of such 30-day period, each party at its cost and by giving notice to the other
party, shall appoint M.A.I.-licensed appraiser with at least five (5) years
continuous full-time appraisal experience in the geographical area in which the
Premises are located, to appraise and determine the fair rental value. If a
party does not appoint an M.A.I.-licensed appraiser within ten (10) days after
the other party has given notice of the name of its M.A.I.-licensed appraiser,
the single M.A.I.-licensed appraiser appointed shall be the sole appraiser and
shall appraise and determine the fair rental value.
(B) If the two M.A.I.-licensed appraisers are so appointed by the
parties, they shall meet promptly and attempt to appraise and determine the fair
rental value. If they are unable to agree within ten (10) days after the second
M.A.I.-licensed appraiser has been appointed, they shall together select a third
M.A.I.-licensed appraiser meeting the qualifications stated in (A) above within
ten (10) days after the last date the two M.A.I. appraisers are given to
appraise and determine the fair rental value. If the two M.A.I.-licensed
appraisers are unable to agree on the third M.A.I.-licensed appraiser, either of
the parties, by ten (10) days written notice to the other party, may apply to
the presiding judge of the Superior Court for the City and County of San
Francisco for the selection of a third such M.A.I.-licensed appraiser, who shall
be a person who has not previously acted in any capacity for either party. Each
of the parties shall bear one-half (1/2) of the cost of appointing the third
M.A.I.-licensed appraiser, however selected.
(C) Within ten (10) days after the selection of the third
M.A.I.-licensed appraiser, each M.A.I.-licensed appraiser shall prepare its
determination of the fair rental value. The determination farthest from the
other two shall be eliminated, and the fair rental value for purposes hereof
shall be the average of the remaining two determinations. Each party shall pay
the fees and expenses of the M.A.I.-licensed appraiser appointed by such party
and fifty percent (50%) of the fees and expenses of the third M.A.I.-licensed
appraiser, if any. In no event shall the fair market rental value be less than
the Base Rent paid by Tenant during the last year of the Lease Term.
3.4 Term. The term of this Lease (the "Term") shall consist of the
Initial Term and the Optional Term, if any.
ARTICLE 4
BASE RENT
4.1 Payment; of Base Rent. Tenant shall initially pay to Landlord the
Base Rent in the amount specified in Paragraph 1.12 in the Definitions section.
Base Rent shall be payable to Landlord, at the address specified in the
Definitions section or such other place as Landlord may from time to time
designate, in equal monthly installments, prorated as to any partial month. All
Base Rent shall be payable, without notice, in advance on the first day of each
calendar month during the Term, without any deduction, offset, abatement or
diminution whatsoever, except that the Base Rent for the first seven (7) months
of the Term shall be paid upon execution of this Lease. Tenant's prepayment of
the Base Rent for the first seven (7) months is consideration for: (i) Tenant's
unwillingness to provide Landlord with personal guarantees of its shareholders;
(ii) Landlord's agreement to perform the improvement work specified in Paragraph
27.25; and (iii) Landlord's agreement to pay the commissions to Tenant's Broker
following. the mutual execution of this Lease by Tenant and Landlord.
Accordingly, in the event Tenant is in default of this Lease, Tenant waives any
and all right, interest or claim to the Prepaid Rent, as the parties agree that
such amount is intended to reimburse Landlord for the costs set forth in the
immediately preceding sentence, without prejudice to Landlord's remedies
elsewhere in this Lease or under the law.
ARTICLE 5
ADDITIONAL, CHARGES: OPERATING EXPENSES AND APPLICABLE TAXES
5.1 Payment of Additional Charges: Operating Expenses and Applicable
Taxes. In addition to the Base Rent, Tenant shall pay to Landlord Tenant's
Percentage Share of such Operating Expenses and Applicable Taxes (collectively,
the "Additional Charges") to the extent such Additional Charges exceed the
amount of Operating Expenses and Applicable Taxes payable with respect to the
Base Year. All Additional Charges shall be payable to the Landlord at the
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<PAGE> 9
same time and place when the Base Rent is payable without any deduction, offset,
abatement or diminution whatsoever, and shall be deemed Rent for all purposes.
Landlord shall have the same remedies for a default in the payment of Additional
Charges as for a default in the payment of the Base Rent.
5.2 Definitions. As used herein,
(A) "Base Year" shall mean the calendar year 1997.
(B) "Applicable Taxes" shall mean all taxes, assessments and
charges levied on or with respect to the Building, the Real Property, or any
personal property of Landlord used exclusively in the operation thereof and
payable by Landlord. Applicable Taxes shall include, without limitation, all
general real property taxes and general and special assessments; assessments for
transit. police, fire, housing, other governmental services, or purported
benefits to the Building; service payments in lieu of taxes; and any tax, fee or
excise on the rent payable under any lease, that are now or hereafter levied on
or assessed against Landlord by, or payable by Landlord as a result of, the
requirements of the United States of America, the State of California, or any
political subdivision, public corporation, district or other political or public
entity, and shall also include any other tax, fee or other excise, however
described, that may be levied or assessed as a substitute for, or as an addition
to, in whole or in part,, any other taxes. Applicable Taxes shall not include
franchise, transfer, inheritance or capital stock taxes or income taxes measured
by the net income of Landlord from all sources, unless, due to a change in the
method of taxation, any of such Taxes are levied or assessed against Landlord as
a substitute for, in whole or in part, any other tax which would otherwise
constitute an Applicable Tax. Applicable Taxes shall also include reasonable
legal fees, costs and disbursements incurred in connection with proceedings to
contest, determine or reduce Applicable Taxes. Notwithstanding anything to the
contrary in this Lease. in the event that any Applicable Taxes are payable, or
may at the option of the taxpayer he paid in installments, such Applicable Taxes
shall be deemed to have been paid in installments over the longest possible
term, regardless of the method of actual payment by Landlord, ant Tenant's share
of such Applicable Taxes shall only include those installments which would
become due and payable during the Term.
(C) "Operating Expenses" shall mean all costs, fees,
disbursements and expenses paid or incurred by or on behalf of Landlord in the
operation, ownership, maintenance, insurance, management, replacement and repair
of the Building (excluding Applicable Taxes) including without limitation:
(i) Premiums for property, earthquake, casuals,
liability, rent interruption or other types of insurance carried by Landlord.
(ii) Salaries, wages and other amounts paid or
payable to personnel including the Building manager, superintendent, operation
and maintenance staff, and other employees of Landlord involved in the
maintenance and operation of the Building, including contributions and premiums
towards fringe benefits, unemployment, disability and worker's compensation
insurance, pension plan contributions and similar premiums and contributions and
the total charges of any independent contractors or property managers engaged in
the operation, repair, care, maintenance and cleaning of any portion of the
Building.
(iii) Cleaning expenses, including without limitation
janitorial services, window cleaning, and garbage and refuse removal.
(iv) Landscaping expenses, including without
limitation irrigating, trimming, fertilizing, and replacing plants.
(v) Heating, ventilating, air conditioning and
steam/utilities expenses, including fuel, gas, electricity, water, sewer,
telephone, and other services.
(vi) Subject to the provisions of Paragraph 5.2(C)
(x) below, the cost of maintaining, operating, repairing and replacing
components of equipment or machinery, including without limitation heating,
refrigeration, ventilation, electrical, plumbing, mechanical, elevator,.
escalator, sprinklers, fire, life safety, security and energy management
systems, including service contracts, maintenance contracts, supplies and parts.
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<PAGE> 10
(vii) Other items of repair or maintenance of
elements of the Building.
(viii) The cost of the rental of any machinery or
equipment and the cost of supplies used in the maintenance and operation of the
Building.
(ix) Audit fees and the cost of accounting services
incurred in the preparation of statements referred to in this Lease and
financial statements, and in the computation of the rents and charges payable by
tenants of the Building.
(x) The costs of improvements, repairs, or
replacements to the Building or the equipment or machinery used in connection
with the Building if the capital improvement is made after the date of this
Lease and is intended to reduce Operating Expenses; provided, however, any such
costs which are properly charged to a capital account shall not be included in
Operating Expenses in a single year but shall instead be amortized over their
useful lives, as determined by the Landlord in accordance with generally
accepted accounting principles, and only the annual amortization amount shall be
included in the Operating Expenses for a particular year.
(xi) Legal fees and expenses, including, but not
limited to, such expenses that relate to seeking or obtaining reductions in or
refunds of Property Taxes, or components thereof.
5.3 Adjustment Procedure: Estimates. The Additional Charges specified
in Paragraph 5.1 shall be determined and paid as follows:
(A) During each calendar year subsequent to the Base Year,
Landlord shall give Tenant written notice of its estimate of any increased
amounts payable under Paragraph 5.1 for that calendar year. On or before the
first day of each calendar month during the calendar year, Tenant shall pay to
Landlord one-twelfth (1/12th) of such estimated amounts; provided, however,
that, not more often than quarterly, Landlord may, by written notice to Tenant,
revise its estimate for such year, and subsequent payments by Tenant for such
year shall be based upon such revised estimate.
(B) Within ninety (90) days after the close of each calendar year
or as soon thereafter as is practicable, Landlord shall deliver to Tenant a
statement of that year's actual Applicable Taxes and Operating Expenses, as
determined and certified by Landlord (the "Landlord's Statement") and such
Landlord's Statement shall be binding upon Landlord and Tenant, except as
provided in Paragraph 5.4 below. If the amount of the actual Tax and Operating
Expenses is more than the estimated payments for such calendar year made by
Tenant, Tenant shall pay the deficiency to Landlord upon receipt of Landlord's
Statement. If the amount of the actual Tax and Operating Expenses is less than
the estimated payments for such calendar year made by Tenant, any excess shall
be credited against Rent (as hereinafter defined) next payable by Tenant under
this Lease or, if the Lease Term has expired, any excess shall be paid to
Tenant. No delay in providing the statement described in this subparagraph (B)
shall act as a waiver of Landlord's right to payment under Paragraph 5.1.
(C) If this Lease shall terminate on a day other than the end of
a calendar year, the amount of the Tax and Operating Expense Adjustment to be
paid pursuant to Paragraph 5.1 that is applicable to the calendar year in which
such termination occurs shall be prorated on the basis of the number of days
from January 1 of the calendar year to the termination date bears to 365. The
termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to Paragraph 5.1 to be performed after such termination.
5.4 View of Landlord's Statement. Provided that Tenant is not then in
default under this Lease and provided further that Tenant strictly complies with
the provisions of this Article 5, Tenant shall have the right, once each
calendar year, to reasonably review supporting data for any portion of a
Landlord's Statement that Tenant claims is incorrect, in accordance with the
following procedure:
(A) Tenant shall, within thirty (30) business days after any
such Landlord's Statement is delivered, deliver a written notice to Landlord
specifying the portions of the Landlord's Statement that are claimed to be
incorrect, and Tenant shall simultaneously pay to Landlord all amounts due from
Tenant to Landlord as specified in the Landlord's Statement. Except as expressly
set forth in subsection (C) below, in no event shall Tenant be entitled to
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<PAGE> 11
withhold, deduct, or offset any monetary obligation of Tenant to Landlord under
the Lease (including without limitation, Tenant's obligation to make all
payments of Base Rent and all payments of Tenant's Tax and Operating Expense
Adjustment) pending the completion of and regardless of the results of any
review of records under this paragraph. The right of Tenant under this paragraph
may only be exercised once for any Landlord's Statement, and if Tenant fails to
meet any of the above conditions as a prerequisite to the exercise of such
right, the right of Tenant under this paragraph for a particular Landlord's
Statement shall be deemed waived.
(B) Tenant acknowledges that Landlord maintains its records for
the Building at Landlord's attorneys' offices and Tenant agrees that any review
of records under this section shall be at the sole expense of Tenant. Tenant
acknowledges and agrees that any records reviewed under this paragraph
constitute confidential information of Landlord, which shall not be disclosed to
anyone other than the accountants performing the review and the principals of
Tenant who receive the results of the review. The disclosure of such information
to any other person, whether or not caused by the conduct of Tenant, shall
constitute a material breach of this Lease.
(C) Any errors disclosed by the review shall be promptly
corrected by Landlord, provided, however, that if Landlord disagrees with any
such claimed errors, Landlord shall have the right to cause another review to be
made by an independent firm of certified public accountants of national
standing. In the event that the results of the review of records [taking into
account, if applicable, the results of any additional review caused by Landlord]
reveal that Tenant has overpaid obligations for a preceding period, the amount
of such overpayment shall be credited against Tenant's subsequent installment
obligations to pay the estimated Tax and Operating Expense Adjustment. In the
event that such results show that Tenant has underpaid its obligations for a
preceding period, Tenant shall be liable for Landlord's accounting fees, and the
amount of such underpayment shall be paid by Tenant to Landlord with the next
succeeding installment obligation of estimated Tax and Operating Expense
Adjustment.
5.5 Late Charge. Other remedies for non-payment of Rent
notwithstanding, if any installment of Monthly Base Rent or any other sum due
from Tenant shall not be received by Landlord within ten (10) days after such
amount shall be due, Tenant shall pay to Landlord an additional sum equal to
five percent (5%) of the amount overdue as a late charge. The parties agree that
(a) such late charge represents a fair and reasonable estimate of the costs
Landlord will incur in processing each delinquent payment by Tenant and, (b)
that such late charge shall be paid to Landlord as liquidated damages for each
delinquent payment.
ARTICLE 6
ADDITIONAL TAXES
6.1 Reimbursement. Tenant shall reimburse Landlord upon demand for any
and all taxes required to be paid by Landlord (subject to the same exclusions
provided for in Paragraph 5.2{B) in connection with Applicable Taxes), whether
or not now customary or within the contemplation of the parties hereto, when:
(A) Said taxes are measured by or reasonably attributable to
the cost or value of Tenants' equipment, furniture, fixtures and other personal
property located in the Premises or by the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, regardless of whether
title to such improvements shall be vested in Tenant or Landlord;
The portion of any taxes payable by Tenant pursuant to this
paragraph and other tenants of the Building pursuant to similar provisions in
their leases shall be excluded from Applicable Taxes for purposes of computing
Tenant's Tax Share thereof.
ARTICLE 7
SECURITY DEPOSIT
Upon the execution of this Lease, Tenant shall deposit with Landlord
the Security Deposit described in Paragraph 1.14 above. The Security Deposit is
made by Tenant to secure the
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<PAGE> 12
faithful performance of all the terms, covenants and conditions of this Lease to
be performed by Tenant. If Tenant shall default with respect to any covenant or
provision hereof, Landlord may use, apply or retain all or any portion of the
Security Deposit to cure such default or to compensate Landlord for any loss or
damage which Landlord may suffer thereby. If Landlord so uses or applies all or
any portion of the Security Deposit, Tenant shall immediately upon written
demand deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to the full amount hereinabove stated. Landlord shall not be
required to keep the Security Deposit separate from its general accounts and
Tenant shall not be entitled to interest on the Security Deposit. Within thirty
(30) days after the expiration of the Lease Term and the vacation of the
Premises by Tenant, the Security Deposit, or such part as has not been applied
to cure the default, shall be returned to Tenant.
ARTICLE 8
USE OF PREMISES
8.1 Tenant's Permitted Use. Tenant shall use the Premises only for
Tenant's Permitted Use as set forth in Paragraph 1.15 above and shall not use or
permit the Premises to be used for any other purpose. Tenant shall, at its sole
cost and expense, obtain all governmental licenses and permits required to allow
Tenant to conduct Tenant's Permitted Use.
8.2 Compliance With Laws and Other Requirements.
(A) Tenant shall not use the Premises, or permit the Premises to
be used, in any manner which: (a) violates any law, ordinance, regulation or
directive of any governmental authority having jurisdiction, including without
limitation any Certificate of Occupancy, or any covenant, condition or
restriction affecting the Building or the Premises; (b) causes or is reasonably
likely to cause damage to the Building or the Premises: c) violates a
requirement or condition of any fire and extended insurance policy covering the
Building and/or the Premises, or increases the cost of such policy; (d)
constitutes or is reasonably likely to constitute a nuisance, annoyance or
inconvenience to other tenants or occupants of the Building or interferes with
the use and occupancy of any portion of the Building for other tenants or
occupants; (e) impairs or is reasonably likely to impair the proper maintenance,
operation or repair of the Building or its equipment, facilities or systems; (f)
interferes with, or is reasonably likely to interfere with, the transmission or
reception of microwave, television, radio, telephone. or other communication
signals by antennae or other facilities located in the Building; or (g) violates
the Rules and Regulations described in Article 21.
(B) In addition to any other amounts payable by Tenant to
Landlord hereunder, Tenant shall pay to Landlord, as and when billed by Tenant
and as additional rent, Tenant's Percentage Share of the cost of any
improvements, capital expenditures, repairs or replacements to the Building, or
any equipment or machinery used in connection with the Building, if any such
item is required under governmental laws, regulations, ordinances, or
interpretations thereof, which were not applicable to the Building at the time
the Building was constructed; provided, however, that any such costs which are
properly charged to a capital account shall not be payable in a single year but
shall instead by amortized over their useful lives, as determined by the
Landlord in accordance with generally acceptable accounting principles, and only
the annual amortization amount (prorated based on the number of days of the
Lease term in the calendar year) shall be payable by the Tenant with respect to
any calendar year.
(C) Compliance With ADA Requirements. Without limiting the
generality of the foregoing, Tenant shall promptly comply with all requirements
of the Americans with Disabilities Act and the regulations promulgated
thereunder in effect from time to time ("ADA Requirements").
Tenant shall have exclusive responsibility for
compliance with ADA Requirements pertaining to the interior of the Premises,
including for the design and construction of the access thereto and egress
therefrom. Landlord shall have responsibility for compliance with ADA
Requirements which affect the common areas of the Building, subject to Tenant's
obligation to pay for its share of the expense of such compliance pursuant to
Article 5 of this Lease. Tenant shall comply promptly with any direction of any
governmental authority having jurisdiction which imposes any duty upon Tenant or
Landlord with respect to the Premises or with respect to the use or occupation
thereof, and Tenant agrees to furnish Landlord with a copy of
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any such direction promptly after receipt of the same. In addition. Tenant shall
comply with any reasonable plan adopted by Landlord which is designed to fulfill
the requirements of any Laws, including ADA Requirements.
Should compliance by Tenant with this Paragraph
require Landlord's consent pursuant to Article 11, Tenant shall promptly seek
such consent, provide the assurances and documents required by said Article and,
following receipt of such consent, promptly comply with the provisions of such
Article and this Paragraph.
If Tenant fails to comply as required in this
Paragraph, after notice to Tenant, Landlord may comply or cause compliance, in
which case Tenant shall reimburse Landlord upon demand for Landlord's costs
incurred in connection therewith.
8.3 Hazardous Materials.
(A) No Hazardous Materials, as defined herein, shall he Handled,
as also defined herein, upon, about, above or beneath the Premises or any
portion of the Building by or on behalf of Tenant, its subtenants or its
assignees, or their respective contractors, clients, officers, directors,
employees, agents, or invitees. Any such Hazardous Materials so Handled shall be
known as Tenant's Hazardous Materials. Notwithstanding the foregoing, normal
quantities of those Hazardous Materials customarily used in the conduct of
general administrative and executive office activities (e.g., copier fluids and
cleaning supplies; may be used and stored at the Premises without Landlord's
prior written consent, but only in compliance with all applicable Environmental
Laws, as defined herein.
(B) Notwithstanding the obligation of Tenant to indemnify
Landlord pursuant to this Lease, Tenant shall, at its sole cost and expense,
promptly take all actions required by any federal, state or local governmental
agency or political subdivision. or necessary for Landlord to make full economic
use of the Premises or any portion of the Building, which requirements or
necessity arises from the Handling of Tenant's Hazardous Materials upon, about,
above or beneath the Premises or any portion of the Building. Such actions shall
include, but not be limited to, the investigation of the environmental condition
of the Premises or any portion of the Building, the preparation of any
feasibility studies or reports and the performance of any cleanup, remedial,
removal or restoration work. Tenant shall take all actions necessary to restore
the Premises or any portion of the Building to the condition required under
applicable Environmental Laws. Tenant shall nevertheless obtain Landlord's
written approval prior to undertaking any actions required by this Section,
which approval shall not be unreasonably withheld so long as such actions would
not potentially have a material adverse long-term or short-term effect on the
Premises or any portion of the Building.
(C) "Environmental Laws" means and includes all new and hereafter
existing statutes, laws, ordinances, codes, regulations, rules, rulings, orders.
decrees, directives, policies and requirements by any federal, state or local
governmental authority regulating, relating to, or imposing liability or
standards of conduct concerning public health and safety or the environment.
(D) "Hazardous Materials" means: (a) any material or substance:
(i) which is defined or becomes defined as a "hazardous substance," "hazardous
waste." "infectious waste," "chemical mixture or substance," or "air pollutant"
under Environmental Laws; (ii) containing petroleum, crude oil or any fraction
thereof which is liquid at standard conditions of temperature and pressure;
(iii) containing polychlorinated biphenyls (PCB's); (iv) containing asbestos;
(v) which is radioactive; or (b) any other pollutant or contaminant or
hazardous, toxic, flammable or dangerous chemical, waste, material or substance,
as all such terms are used in their broadest sense, and defined, regulated or
become regulated by Environmental Laws, or which cause a nuisance upon or waste
to the Premises or any portion of the Building.
(E) "Handle," "Handled," or "Handling" shall mean any
installation, handling, generation, storage, treatment, use, disposal,
discharge, release, manufacture, refinement, presence, migration, emission,
abatement, removal, transportation. or any other activity of any type in
connection with or involving Hazardous Materials.
(F) Tenant and Tenant's officers and directors agree to protect,
indemnify, hold harmless and defend Landlord and any mortgagee or ground lessor,
and each of their respective partners, directors, officers, agents and
employees, successors and assigns, regardless of any
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negligence imputed to Landlord as owner of the real property involved in an
injury, from and against any and all environmental damages which arise from: (i)
the Handling of any Tenant's Hazardous Materials, as defined pursuant to
Paragraph 8.3 or (ii) the breach of any of tee provisions of this Lease. For the
purpose of this Lease, "environmental damages" shall mean (a) all claims,
judgments, damages, penalties, fines, costs, liabilities, and losses (including
without limitation, diminution in the value of the Premises or any portion of
the Building, damages for the loss of or restriction on use of rentable or
usable space or of any amenity of the Premises or any portion of the Building,
and from any adverse impact of Landlord's marketing of space); (b) all
reasonable sums paid for settlement of claims, attorneys' fees, consultants'
fees and experts' fees; and (c) all costs incurred by Landlord in connection
with investigation or remediation relating to the Handling of Tenant's Hazardous
Materials required by Environmental Laws, To the extent that Landlord is
strictly liable under any Environmental Laws. Tenant's obligation to Landlord
and the other indemnities under the foregoing indemnification shall likewise be
without regard to fault on Tenant's part with respect to the violation of any
Environmental Law which results in liability to the indemnitee. Tenant's
obligations and liabilities pursuant to this Paragraph 8.3 shall survive the
expiration or earlier termination of this Lease.
ARTICLE 9
UTILITIES AND SERVICES
9.1 Building Services. Landlord agrees to furnish or cause to be
furnished to the Premises the following utilities and services, subject to the
conditions and standards set forth herein:
(A) Non-attended automatic elevator service.
(B) During Business Hours, Monday through Friday, such air
conditioning, heating and ventilation as are reasonably required for the
comfortable use and occupancy of the Premises; provided, however, that if Tenant
shall require heating, ventilation or air conditioning in excess of that which
Landlord shall be required to provide hereunder, Landlord may provide such
additional heating, ventilation or air conditioning at such rates and upon such
additional conditions as shall be determined by Landlord from time to time.
(C) At all reasonable times, electric current as required for
building standard lighting and fractional horsepower office machines; provided,
however, that: (i) without Landlord's consent, Tenant shall not install, or
permit the installation, in the Premises of any computers, word processors,
electronic date processing equipment or other type of equipment or machines
which will increase Tenant's use of electric current in excess of that which
Landlord is obligated to provide hereunder (provided, however, that the
foregoing shall not preclude the use of personal computers or similar office
equipment); (ii) if Tenant shall require electric current which may disrupt the
provision of electrical service to other tenants, Landlord may condition its
consent upon Tenant's payment of the cost of installing and providing any
additional facilities required to furnish such excess power to the Premises and
upon the installation in the Premises of electric current meters to measure the
amount of electric current consumed, in which latter event Tenant shall pay for
the cost of such meter(s) and the cost of installation, maintenance and repair
thereof, as well as for all excess electric current consumed at the rates
charged by the applicable local public utility, plus a reasonable amount to
cover the additional expenses incurred by Landlord in keeping account of the
electric current so consumed; and (iii) if Tenant's increased electrical
requirements will materially affect the temperature level in the Premises or the
Building, Landlord's consent may be conditioned upon Tenant's requirement to pay
such amounts as will be incurred by Landlord to install and operate any
machinery or equipment necessary to restore the temperature level to that
otherwise required to be provided by Landlord, including but not limited to the
cost of modifications to the air conditioning system. Landlord shall not, in any
way, be liable or responsible to Tenant for any loss or damage or expense which
Tenant may incur or sustain if, for any reasons beyond Landlord's control,
either the quantity or character of electric service is changed or is no longer
available or suitable for Tenant's requirements. Tenant covenants that at all
times its use of electric current shall never exceed the capacity of the
feeders, risers or electrical installations of the Building. If submetering of
electricity in the Building will not be permitted under future laws or
regulations, the Rent will then be equitably and periodically adjusted to
include an additional payment to Landlord reflecting the cost to Landlord for
furnishing electricity to Tenant in the Premises.
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(D) Water for drinking and rest room purposes.
(E) Reasonable janitorial and cleaning services, provided that
the Premises-are used exclusively for office purposes and are kept reasonably in
order by Tenant. If the Premises are not used exclusively as offices or if the
Tenant elects and Landlord consents, the Premises shall be kept clean and in
order by Tenant, at Tenant's expense, to the satisfaction of Landlord and by
persons approved by Landlord; and, in all events, Tenant shall pay to Landlord
the cost of removal of Tenant's refuse and rubbish, to the extent that the same
exceeds the refuse and rubbish attendant to normal office usage.
Any amounts which Tenant is required to pay to Landlord pursuant to
this Paragraph 9.1 shall be payable upon demand by Landlord and shall constitute
additional rent.
9.2 Interruption of Services. Landlord shall not be liable for any
failure to furnish, stoppage of, or interruption in furnishing any of the
services or utilities described in Paragraph 9.1, when such failure is caused by
accident, breakage, repairs, strikes, lockouts, labor disputes, labor
disturbances, governmental regulation, civil disturbances, acts of war,
moratorium or other governmental action, or any other cause beyond Landlord's
reasonable control, and, in such event, Tenant shall not be entitled to any
damages nor shall any failure or interruption abate or suspend Tenant's
obligation to pay Base Rent and additional rent required under this Lease or
constitute or be construed as a constructive or other eviction of Tenant.
Further, in the event any governmental authority or public utility promulgates
or revises any law, ordinance, rule or regulation, or issues mandatory controls
or voluntary controls relating to the use or conservation of energy, water, gas,
light or electricity, the reduction of automobile or other emissions, or the
provision of any other utility or service, Landlord may take any reasonably
appropriate action to comply with such law, ordinance, rule, regulation,
mandatory control or voluntary guideline without affecting Tenant's obligations
hereunder.
ARTICLE 10
MAINTENANCE AND REPAIRS
10.1 Landlord Repairs. Landlord shall not be required to make any
improvements, replacements or repairs of any kind or character to the Premises
during the Term of this Lease except as are set forth in this Section. Landlord
shall maintain only the roof, foundation, parking (if any) and Common Areas, and
the structural soundness of the exterior walls. Landlord's cost of maintaining
and repairing the items set forth in this Section are subject to the additional
Rent provisions in Article 5. Landlord shall not be liable to Tenant, except as
expressly provided in this Lease, for any damage or inconvenience, and Tenant
shall not be entitled to any damages nor to any abatement or reduction of Rent
by reason of any repairs, alterations or additions made by Landlord under this
Lease. Except for Landlord's obligations under this Paragraph, it is intended by
the parties that Landlord shall have no obligation, in any manner whatsoever, to
repair and maintain the Premises, nor the Building located thereon, nor the
equipment therein, whether structural or non-structural, all of which
obligations are intended to be Tenant's obligations under this Lease. Tenant
expressly waives the benefit of any statute now or hereinafter in effect which
would otherwise afford Tenant the right to make repairs at Landlord's expense or
to terminate this Lease because of Landlord's failure to keep the Premises in
good order, condition and repair.
10.2 Tenant Repairs. Tenant, at its own cost and expense, shall
maintain the Premises in a first-class condition (except for the items that are
the responsibility of Landlord under Paragraph 10.1). Without limiting the
generality of the foregoing, Tenant shall maintain and keep in good repair
(including replacement when necessary): (a) the interior of the Premises,
including walls, floors and ceilings; (b) all windows and doors, including
frames, glass, skylights, molding and hardware; (c) all wires and plumbing
within the Premises which serve the Premises {as distinguished from those
serving the Building generally); (d) all signs. air conditioning and heating
equipment, mechanical doors and other mechanical equipment situated on or in the
Premises or serving the Premises (as distinguished from those serving the
Property generally); and (e) those utility facilities that are not Landlord's
responsibility hereunder. Tenant shall further make all other repairs to the
Premises made necessary by Tenant's failure to comply with its obligations under
this Section. All fixtures installed by Tenant shall be new or shall have been
completely and recently reconditioned.
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10.3 Request for Repairs. All requests for repairs or maintenance that
are the responsibility of the Landlord pursuant to any provision of this Lease
must be made in writing to Landlord at the address in Paragraph 1.17.
10.4 Tenant Damages. Tenant shall not allow any damage to be committed
on any portion of the Premises or Property, and at the termination of this
Lease, by lapse of time or otherwise, Tenant shall deliver the Premises to
Landlord in as good condition as existed at the Commencement Date of this Lease,
ordinary wear and tear excepted. The cost and expense of any repairs necessary
to restore the condition of the Premises shall be borne by Tenant.
Notwithstanding anything to the contrary contained herein, Tenant shall leave
all electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and other power systems upon the Premises in good
operating condition. In the event Tenant fails to perform Tenant's obligations
of repairs and maintenance under this Section, Landlord may at its option, but
shall not be required to, enter upon the Premises after ten (10) days prior
written notice to Tenant (except in case of an emergency, in which case no
notice shall be required), to perform such obligations on Tenant's behalf and to
place the Premises in good order, condition and repair, and Tenant shall pay the
cost thereof, together with any interest thereon at the maximum rate then
allowed by law, as Additional Rent to Landlord.
10.5 Landlord's Rights. Landlord and its contractors shall have the
right, at all reasonable times, to enter upon the Premises to make any repairs
to the Premises or the Building reasonably required or deemed reasonably
necessary by Landlord and to erect such equipment, including scaffolding, as is
reasonably necessary to effect such repairs.
ARTICLE 11
ALTERATIONS, ADDITIONS AND IMPROVEMENTS
11.1 Landlord's Consent; Conditions. Tenant shall not make or permit to
be made any alterations, additions, or improvements in or to the Premises
("Alterations") without the prior written consent of Landlord. Landlord may
impose as a condition to such consent such requirements as Landlord in its sole
discretion deems necessary or desirable including without limitation: Tenant's
submission to Landlord, for Landlord's prior written approval, of all plans and
specifications relating to the Alterations; Landlord's prior written approval of
the time or times when the Alterations are to be performed; Landlord's prior
written approval of the contractors and subcontractors performing work in
connection with the Alterations: Tenant's receipt of all necessary permits and
approvals from all governmental authorities having jurisdiction prior to the
construction of the Alterations; Tenant's written notice of whether the
Alterations include the Handling of any Hazardous Materials, pursuant to Article
8; Tenant's delivery to Landlord of such bonds and insurance as Landlord shall
reasonably require; and Tenant's payment to Landlord of all costs and expenses
incurred by Landlord because of Tenant's Alterations, including but not limited
to costs incurred in reviewing the plans and specifications for, and the
progress of, the Alterations.
11.2 Performance of Alterations Work. All work relating to the
Alterations shall be performed in compliance with the plans and specifications
approved by Landlord, all applicable laws, ordinances, rules, regulations and
directives of all governmental authorities having jurisdiction (including
without limitation Title 24 of the California Administrative Code) and the
requirements of all carriers of insurance on the Premises and the Building, the
Board of Underwriters, Fire Rating Bureau, or similar organization. All work
shall be performed in a diligent, first class manner and so as not to
unreasonably interfere with any other tenants or occupants of the Building. All
costs incurred by Landlord relating to the Alterations shall be payable to
Landlord by Tenant as additional rent upon demand.
11.3 Liens. Tenant shall pay when due all costs for work performed and
materials supplied to the Premises. Tenant shall keep Landlord, the Premises and
the Building free from all liens, stop notices and violation notices relating to
the Alterations or any other work performed for, materials furnished to or
obligations incurred by Tenant and Tenant shall protect, indemnify, hold
harmless and defend Landlord, the Premises and the Building of and from any and
all loss, cost, damage, liability and expense, including attorneys' fees,
arising out of or related to any. such liens or notices. Further, Tenant shall
give Landlord not less than seven (7) business days prior written notice before
commencing any Alterations in or about the Premises to permit Landlord to post
appropriate notices of nonresponsibility. Tenant shall secure, at Tenant's sole
expense, a
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completion and lien indemnity bond satisfactory to Landlord for such work, and
during the progress of such work, Tenant shall, upon Landlord's request, furnish
Landlord with sworn contractor's statements and lien waivers covering all work
theretofore performed. Tenant shall satisfy or otherwise discharge all liens,
stop notices or other claims or encumbrances within ten (10) days after Landlord
notifies Tenant in writing that any such lien, stop notice, claim or encumbrance
has been flied. If Tenant fails to pay and remove such lien, claim or
encumbrance within such ten {10) days. Landlord, at its election, may pay and
satisfy the same and in such event the sums so paid by Landlord, with interest
from the date of payment at the rate set forth in Paragraph 5.5 hereof for
amounts owed Landlord by Tenant shall be deemed to be additional rent due and
payable by Tenant at once without notice or demand.
11.4 Lease Termination. Except as provided in this section, upon
termination of this Lease Tenant shall surrender the Premises to Landlord in the
same condition as when received, subject to reasonable wear and tear. All
Alterations shall become a part of the Premises and shall become the property of
Landlord upon the expiration or earlier termination of this Lease, unless
Landlord shall, by written notice given to Tenant, require Tenant to remove some
or all of Tenant's Alterations, in which event Tenant shall promptly remove the
designated Alterations and shall promptly repair any resulting damage, all at
Tenant's sole expense. All business and trade fixtures, machinery and equipment,
furniture, movable partitions and items of personal property owned by Tenant or
installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant; upon the expiration or sooner termination of this Lease,
Tenant shall, at its sole expense, remove all such items and repair any damage
to the Premises or the Building caused by such removal. If Tenant fails to
remove any such items or repair such damage promptly after the expiration or
sooner termination of the Lease, Landlord may, but need not, do so with no
liability to Tenant, and Tenant shall pay Landlord the cost thereof upon demand.
ARTICLE 12
INDEMNIFICATION
12.1 Waiver of Liability. Landlord shall not be liable for and Tenant
hereby waives all claims against Landlord: for damage to any property or injury,
illness or death of any person in, upon, or about the Premises, the Building
and/or the Real Property arising at any time and from any cause whatsoever other
than damages directly caused solely by the gross negligence or wilful misconduct
of Landlord or its employees or agents. Without limiting. the generality of the
foregoing, Landlord shall not be liable for any damage or damages of any nature
whatsoever to persons or property caused by explosion, fire, theft or breakage,
by sprinkler, drainage or plumbing systems, by failure for any cause to supply
adequate drainage, by the interruption of any public utility or service, by
steam, gas, water, rain or other substances leaking, issuing or flowing into any
part of the Premises, by natural occurrence, acts of a public enemy, riot,
strike, insurrection, war, court order, requisition or order of governmental
body or authority, or for any damage or inconvenience which may arise through
repair, maintenance or alteration of any part of the Building, or by anything
done or omitted to be done by any tenant, occupant or person in the Building. In
addition, Landlord shall not be liable for any loss or damage for which Tenant
is required to insure, nor for any loss or damage resulting from any
construction, alterations or repair by Landlord or by others.
12.2 Indemnification. Tenant shall defend, indemnify and hold harmless
Landlord and Landlord's employees and agents and the Lessor under any ground or
underlying leases against and from any and all claims, suits, proceedings,
orders, actions, losses, costs, damages, expenses, fines, penalties, judgments
and other liabilities (including without limitation court costs and reasonable
attorneys' fees) incurred in connection with or arising from: (a) any default by
Tenant in the observance or performance of any of the terms, covenants or
conditions of this Lease to be observed or performed by Tenant, including
without limitation the provisions of Article 8; (b) the use, possession or
occupancy or manner of use or occupancy of the Premises by Tenant or any person
claiming by, through or under Tenant; or (c) any injury to persons or property
sustained in or about the Premises; or (d) any act or omission of Tenant or any
persons claiming by, or of their employees, contractors, agents, invitees or
licensees in, on or about the Premises or the Real Property, either prior to,
during, or after the expiration of the Term, including, without limitation, any
act or omission in the making or performance of any Alterations.
12.3 Survival. The provisions of this Article 12 shall survive the
expiration or sooner termination of this Lease.
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ARTICLE 13
INSURANCE
13.1 Property Insurance.
(A) At all times during the Lease Term, Tenant shall procure and
maintain, at its sole expense, "all-risk" property insurance, in an amount not
less than one hundred percent (100%) of the replacement cost covering (a) all
leasehold improvements in and to the Premises which are made at the expense of
Tenant; and (b) Tenant's trade figures, equipment and other personal property
from time to time situated in the Premises. The proceeds of such insurance shall
be used for the repair or replacement of the property so insured, except that if
not so applied or if this Lease is terminated following a casualty, the proceeds
applicable to the leasehold improvements shall be paid to Landlord and the
proceeds applicable to Tenant's personal property shall be paid to Tenant.
(B) At all times during the Lease Term, Tenant shall procure and
maintain business interruption insurance in such amount as will reimburse Tenant
for direct or indirect loss of earnings attributable to oil perils insured
against in Paragraph 12.2.
13.2 Liability Insurance.
(A) At all times during the Lease Term, Tenant shall procure and
maintain, at its sole expense, general liability insurance applying to the use
and occupancy of the Premises and the business operated by Tenant. Such
insurance shall have a minimum combined single limit of liability of at least
$1,000,000 per occurrence and a general aggregate limit of $2,000,000. All such
policies shall be written to apply to all bodily injury, property damage,
personal injury losses and shall be endorsed to include Landlord and its agents,
beneficiaries, partners, employees, and any deed of trust holder or mortgagee of
Landlord or any ground lessor as additional insureds. Such liability insurance
shall be primary and not excess or contributing to any other insurance as may be
available to the additional insureds.
(B) Prior to the sale, storage, use or giving away of alcoholic
beverages on or from the Premises by Tenant or another person, Tenant, at its
own expense, shall obtain a policy or policies of insurance issued by a
responsible insurance company and in a form acceptable to Landlord saving
harmless and protecting Landlord and the Premises against any and all damages,
claims, liens, judgments. expenses and costs arising under any present or future
law, statute, or ordinance of the State of California or other governmental
authority having jurisdiction of the Premises, by reason of any storage, sale,
use or giving away of alcoholic beverages on or from the Premises. Such policy
or policies of insurance shall have a minimum combined single limit of $1
million per occurrence and shall apply to bodily injury, fatal or nonfatal;
injury to means of support: and injury to property of any person. Such policy or
policies of insurance shall name the Landlord and its agents, beneficiaries,
partners, employees and any mortgagee of Landlord or any ground lessor of
Landlord as additional insureds.
13.3 Workers' Compensation Insurance. At all times during the Lease
Term, Tenant shall procure and maintain Workers' Compensation Insurance in
accordance with the laws of the State of California, and Employer's Liability
insurance with a limit not less than'$1,000,000 Bodily Injury Each Accident;
$1,000,000 Bodily Injury By Disease - Each Person; and $1,000,000 Bodily Injury
to Disease - Policy Limit.
13.4 Policy Requirements. All insurance required to be maintained by
Tenant shall be issued by insurance companies authorized to do insurance
business in the State of California and rated not less than A-VII in Best's
Insurance Guide. A certificate of insurance (or, at Landlord's option, copies of
the applicable policies) evidencing the insurance required under this Article
shall be delivered to Landlord prior to the Commencement Date. No such policy
shall be subject to cancellation or modification without thirty (30) days prior
written notice to Landlord and to any deed of trust holder, mortgagee or ground
lessor designated by Landlord to Tenant. Tenant shall furnish Landlord with a
replacement certificate with respect to any insurance not less than thirty (30)
days prior to the expiration of the current policy. Tenant shall have the right
to provide the insurance required by this Article pursuant to blanket policies,
but only if such blanket policies expressly provide coverage to the Premises and
the Landlord as required by this Lease.
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13.5 Waiver of Subrogation. Each party hereby waives any right of
recovery against the other for injury or loss due to hazards covered by
insurance, to the extent of the injury or loss covered thereby. Any policy of
insurance to be provided by Tenant pursuant to this Article shall contain a
clause denying the insurer any right of subrogation against Landlord.
13.6 Failure to Insure. If Tenant fails to maintain any insurance which
Tenant is required to maintain pursuant to this Article, Tenant shall be liable
to Landlord for any loss or cost resulting from such failure to maintain.
Landlord shall have the right in its sole discretion, to procure and maintain
such insurance which Tenant is required to maintain hereunder and the cost
thereof shall be deemed additional rent due and payable by Tenant. Tenant may
not self-insure against any risks required to be covered by insurance without
Landlord's prior written consent.
ARTICLE 14
DAMAGE OR DESTRUCTION
14.1 Landlord's Restoration. Tenant shall promptly notify Landlord of
any damage to the Premises resulting from fire or any other casualty. Subject to
the remaining provision of this Article 14, if the Premises or the Building are
damaged by fire or other casualty insured against by Landlord's fire and all
risk, coverage insurance policy, and sufficient proceeds (apart from any
applicable deductible) are made available to Landlord to fully cover the cost of
repair, Landlord shall promptly undertake such repairs, so long as such repairs
can, in Landlord's opinion, be made within one hundred-eighty (180) days after
the date of such damage: in such event, this Lease shall remain in full force
and effect. If (a) such repairs cannot, in Landlord's opinion, be made within
one hundred eighty (180) days after the date of such damage, or (b) insufficient
proceeds are made available to Landlord to fully cover the cost of repair, or of
the casualty is not covered by Landlord's insurance policies, then Landlord may
elect, by written, notice to Tenant given within thirty (30) days after the date
of such damage, to either restore or repair such damage. in which event this
Lease shall continue in full force and effect, or terminate this Lease as of a
date specified in such notice, which date shall not be less than thirty (30) nor
more than sixty (60) days after the date such notice is given. In calculating
the cost of repair, Landlord shall be entitled to take into account the cost of
bringing the damaged, destroyed or remaining portions of the Premises and the
Building into compliance with any then-applicable building codes, governmental
regulations and Laws (including ADA Requirements;
14.2 Rent Abatement. If such fire or other casualty shall have damaged
the Premises, and if such damage is not the result of the negligence or willful
misconduct of Tenant or any persons claiming by, through or under Tenant or any
of their employees, agents, contractors, invitees or licensees, then during the
period a portion of the Premises is rendered unusable by such damage Tenant
shall be entitled to a reduction in the Base Rent and Additional Charges in the
proportion that the rentable area of the Premises rendered unusable as a result
of such damage bears to the total rentable area of the Premises. If any damage
to the Premises is due to the negligence or willful misconduct of Tenant or any
of the other parties described in the preceding sentence, then there shall be no
abatement of the Base Rent or Additional Charges by reason of such damages,
unless Landlord is reimbursed for such abatement of the Base Rent or Additional
Charges pursuant to any rental insurance policies that Landlord may, in its sole
discretion, elect to carry.
14.3 Tenant's Restoration. Notwithstanding any other provision of this
Lease, Landlord shall not be required to repair any injury or damage to or to
make any repairs to or replacements of any Alterations or any other improvements
installed in the Premises by Tenant, other than Building Standard Work, and
Tenant shall, at Tenant's sole cost and expense, repair and restore all
Non-Building Standard Work and such Alterations and improvements in the same
condition as existed prior to such event. Except as provided in Paragraph 14.2.
Tenant shall not be entitled to any compensation or damages from Landlord for
damage to any Non-Building Standard Work, Alterations, or Tenant's Property, for
loss of use of the Premises or any part thereof, for any damage to or
interference with Tenant's business, loss of profits, or for any disturbance to
Tenant caused by any casualty or the restoration of the Premises following such
casualty.
14.4 Waiver of Right to Terminate. The provisions of this Lease,
including this Article 14, constitute an express agreement between Landlord and
Tenant with respect to any and all damage to, or destruction of, all or any part
of the Premises, the Building or any other portion of the Real Property, and any
statute or regulation of the State of California, including, without limitation,
Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any
rights
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or obligations concerning damage or destruction in the absence of an express
agreement between the parties and any other statute or regulation, now or
hereafter in effect, shall have no application to this Lease or any damage or
destruction to all or any part of the Premises, the Building or any other
portion of the Real Property. Tenant hereby specifically waives all rights to
terminate this Lease under said Civil Code sections or any similar provisions of
law.
14.5 Damage During Last Twenty-Four (24) Months. If the Building or the
Premises are damaged to any extent curing the test six (6) months of the Term.
Landlord may elect to terminate this Lease as provided in Paragraph 14.1.
ARTICLE 15
CONDEMNATION
15.1 Taking. If the entire Premises or so much of the Premises as to
render the balance unusable by Tenant shall be taken by condemnation, sale in
lieu of condemnation or in any other manner for any public or quasi-public
purpose (collectively "Condemnation"), this Lease shall terminate on the date
that title or possession to the Premises is taken by the condemning authority,
whichever is earlier.
15.2 Award. In the event of any Condemnation, the entire award for such
taking shall belong to Landlord, except that Tenant shall be entitled to
independently pursue a separate award relating to the loss of, or damage to,
Tenant's personal property and trade fixtures and Tenant's moving costs directly
associated with the taking. Tenant shall have no claim against Landlord or the
award for the value of any unexpired term of this Lease or otherwise.
15.3 Temporary Taking. No temporary taking of the Premises shall
terminate this Lease or entitle Tenant to any abatement of the Rent payable to
Landlord under this Lease; provided, further, that any award for such temporary
taking shall belong to Tenant to the extent that the award applies to any time
period during the Lease Term and to Landlord to the extent that the award
applies to any time period outside the Lease Term.
ARTICLE 16
ASSIGNMENT AND SUBLETTING
16.1 Restriction. Without the prior written consent of Landlord, Tenant
shall not, either voluntarily or by operation of law, assign, encumber, or
otherwise transfer this Lease or any interest herein, or sublet the Premises or
any part thereof, or permit the Premises to be occupied by anyone other than
Tenant or Tenant's employees. An assignment, subletting or other action in
violation of the foregoing. shall be void and, at Landlord's option, snail
constitute a material breach of this Lease. For purposes of this Section, an
assignment shall include any transfer of any interest in this Lease or the
Premises by Tenant pursuant to a merger, division, consolidation or liquidation,
or pursuant to a change in ownership of Tenant involving a transfer of voting
control in Tenant (whether by transfer of partnership interests, corporate stock
or otherwise). Notwithstanding anything contained in this Article to the
contrary, Tenant expressly covenants and agrees not to enter into any lease,
sublease, license, concession or other agreement for use, occupancy or
utilization of the Premises which provides for rental or other payment for such
use, occupancy or utilization based in whole or in part on the net income or
profits derived by any person from the property leased, used, occupied or
utilized (other than an amount based on a fixed percentage or percentages of
receipts or sales), and that any such purported lease, sublease, license,
concession or other agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession, use, occupancy or
utilization of any part of the Premises.
16.2 Notice to Landlord. If Tenant desires to assign this Lease or any
interest herein, or to sublet all or any part of the Premises, then at least ten
(10) business days prior to the effective date of the proposed assignment or
subletting, Tenant shall submit to Landlord in connection with Tenant's request
for Landlord's consent:
(A) A statement containing (i) the name and address of the
proposed assignee or subtenant; (ii) such financial information with respect to
the proposed assignee or subtenant as
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<PAGE> 21
Landlord shall reasonably require; (iii) the type of use proposed for the
Premises; and (iv) all of the principal terms of the proposed assignment or
subletting; and
(B) Four (4) originals of the assignment or sublease on a form
approved by Landlord and four (4) originals of the Landlord's Consent to
Sublease or Assignment and Assumption of Lease and Consent.
16.3 Landlord's Recapture Rights. At any time within ten (10) business
days after Landlord's receipt of all but not less than all) of the information
and documents described in Paragraph 16.2 above, Landlord may, at its option by
written notice to Tenant, elect to: (a) sublease the Premises or the portion
thereof proposed to be sublet by Tenant upon the same terms as those offered to
the proposed subtenant; (b) take an assignment of the Lease upon the same terms
as those offered to the proposed assignee; or (c) terminate the Lease in its
entirety or as to the portion of the Premises proposed to be assigned or sublet,
with a proportionate adjustment in the Rent payable hereunder if the Lease is
terminated as to less than all of the Premises. If Landlord does not exercise
any of the options described in the preceding sentence, then, during the
above-described ten (10) business day period, Landlord shall either consent or
deny its consent to the proposed assignment or subletting.
Notwithstanding Landlord's right to recapture all or a portion of the
Premises as provided in this Paragraph 16.3, Landlord shall not exercise its
right of recapture where Tenant enters into an arrangement to share space, if
such space-sharing arrangement meets the following conditions: (i) the
provisions of Paragraphs 16.1, 16.2, 16.4, 16.5, and 16.7 are otherwise complied
with, (ii) the entire area which Tenant so shares is less than 2,000 square
feet, (iii) the term of the proposed space-sharing arrangement is no longer than
the lesser of one (1) year or the then remainder of the term of this Lease as of
the proposed Effective Date of the proposed space-sharing, and {iv) the proposed
shared area should not be physically separated or demised within the Premises
then under ease to Tenant.
16.4 Landlord's Consent: Standards. Landlord's consent shall not be
unreasonably withheld; but, in addition to any other grounds for denial,
Landlord's consent shall be deemed reasonably withheld if, in Landlord's good
faith judgment: (i) the proposed assignee or subtenant does not have the
financial strength to perform its obligations under this Lease or any proposed
sublease; (ii) the business and operations of the proposed assignee or subtenant
are not of comparable quality to the business and operations being conducted by
other tenants in the Building; (iii) the proposed assignee or subtenant intends
to use any part of the Premises for a purpose not permitted under this Lease;
(iv) either the proposed assignee or subtenant, or any person which directly or
indirectly controls, is controlled by, or is under common control with the
proposed assignee or subtenant occupies space in the Building, or is negotiating
with Landlord to lease space in the Building; (v) the proposed assignee or
subtenant is disreputable; or (vi) the use of the Premises or the Building by
the proposed assignee or subtenant would, in Landlord's reasonable judgment,
significantly increase the pedestrian traffic in and out of the Building or
would require any alterations to the Building to comply with applicable laws.
16.5 Additional Rent. If Landlord consents to any such assignment or
subletting, fifty percent (50%) of all sums or other economic consideration
received by Tenant in connection with such assignment or subletting, less
related broker's commissions, remodelling and other costs of Tenant, whether
denominated as rent or otherwise, which exceeds in the aggregate, the total sum
which Tenant is obligated to pay Landlord under this Lease (prorated to reflect
obligations allocable to less than all of the Premises under a sublease) shall
be paid to Landlord as additional rent under the Lease without affecting or
reducing any other obligation of Tenant hereunder.
16.6 Landlord's Costs. If Tenant shall assign this Lease or snail
sublet all or any part of the Premises or shall request the consent of Landlord
to any assignment, subletting or other act, Tenant shall pay to Landlord as
additional rent Landlord's costs related thereto, including Landlord's
reasonable attorneys' fees and a minimum fee to Landlord of Five Hundred Dollars
($500.00).
16.7 Continuing Liability of Tenant. Notwithstanding any assignment or
sublease, Tenant shall remain as fully and primarily liable for the payment of
Rent and for the performance of all other obligations of Tenant contained in
this Lease to the same extent as if the assignment or sublease had not occurred;
provided, however, that any act or omission of any assignee or subtenant, other
than Landlord, that violates the terms of this Lease shall be deemed a violation
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<PAGE> 22
of this Lease by Tenant, including any acts or omissions committee by any
assignee or subtenant during any Holdover period following the termination of
this Lease, whether with or without Landlord's consent.
16.8 Non-Waiver. The consent by Landlord to any assignment or
subletting shall not relieve Tenant, or any person claiming through or by
Tenant, of the obligation to obtain the consent of Landlord, pursuant to this
Article, to any further assignment or subletting. In the event of an assignment
or subletting, Landlord may collect rent from the assignee or the subtenant
without waiving any rights hereunder and collection of the rent from a person
other than Tenant shall not be deemed a waiver of any of Landlord's rights under
this Article, an acceptance of assignee or subtenant as Tenant, or a release of
Tenant from the performance of Tenant's obligations under this Lease.
ARTICLE 17
DEFAULT AND REMEDIES
17.1 Events of Default by Tenant. The occurrence of any of the
following shall constitute a material default and breach of this Lease by
Tenant:
(A) The failure by Tenant to pay Base Rent or make any other
payment required to be made by Tenant hereunder as and when due.
(B) The abandonment of the Premises by Tenant for fourteen (14)
consecutive days (without the payment of Rent).
(C) The failure by Tenant to observe or perform any other
provision of this Lease to be observed or performed by Tenant, other than those
described in Article 16 above, if such failure continues for ten (10) days after
written notice thereof by Landlord to Tenant: provided, however, that if the
nature of the default is such that it cannot be cured within the ten (10) day
period, no default shall exist if Tenant commences the curing of the default
within the ten (10) day period and thereafter diligently prosecutes the same to
completion. The ten (10) day notice described herein shall be in lieu of, and
not in addition to, any notice required under Section 1161 of the California
Code of Civil Procedure or any other law now or hereafter in effect requiring
that notice of default be given prior to the commencement of an unlawful
detainer or other legal proceeding.
(D) The making by Tenant of any general assignment for the
benefit of creditors, the filing by or against Tenant of a petition under any
federal or state bankruptcy or insolvency laws (unless, in the case of a
petition filed against Tenant, the same is dismissed within thirty (30) days
after filing); the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets at the Premises or Tenant's interest in
this Lease or the Premises, when possession is not restored to Tenant within
thirty (30) days; or the attachment, execution or other seizure of substantially
all of Tenant's assets located at the Premises or Tenant's interest in this
Lease or the Premises, if such seizure is not discharged within thirty (30)
days.
17.2 Landlord's Right to Terminate Upon Tenant Default. In the event of
any default by Tenant as provided in Paragraph 17.1 above, Landlord shall have
the right to terminate this Lease and recover possession of the Premises by
giving written notice to Tenant of Landlord's election to terminate this Lease,
in which event Landlord shall be entitled to receive from Tenant:
(A) The worth at the time of award of any unpaid Rent which had
been earned at the time of such termination; plus
(B) The worth at the time of award of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss Tenant proves could have been
reasonably avoided; plus
(C) The worth at the time of award of the amount by which the
unpaid Rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; plus
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<PAGE> 23
(D) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom; and
(E) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by applicable
law.
As used in subparagraphs (A) and {B) above, "worth at the time of
award" shall be the then highest lawful rate, but event to exceed one percent
(1%) per annum plus the rate established by the Federal Reserve Bank of San
Francisco on advances made to member banks under Sections 13 and 13a of the
Federal Reserve Act ("discount rate") prevailing on the date of execution of
this Lease by Landlord. As used in paragraph (C) above. "worth at the time of
award" shall be computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus one percent
(1%).
17.3 Landlord's Right To Continue Lease Upon Tenant Default. In the
event of a breach of this Lease and abandonment of the Premises by Tenant, if
Landlord does not elect to terminate this Lease as provided it, Paragraph 17.2
above, Landlord may from time to time, without terminating this Lease, enforce
all of its rights and remedies under this Lease. Without limiting the foregoing,
Landlord has the remedy described in California Civil Code Section 1951.4
(Landlord may continue this Lease in effect after Tenant's breach and
abandonment and recover Rent as it becomes due. if Tenant has the right to
sublet or assign. subject only to reasonable limitations). To the fullest extent
permitted by law, the proceeds of any reletting shall be applied first to pay to
Landlord all costs and expenses of such reletting (including without limitation,
costs and expenses of retaking or repossessing the Premises, removing persons
and property therefrom, securing new tenants, including expenses for
redecoration, alterations and other costs in connection with preparing the
Premises for new tenant, and if Landlord shall maintain and operate the
Premises. the costs thereof) and receivers' fees incurred in connection with the
appointment of and performance once by a receiver to protect the Premises and
Landlord's interest under this Lease and any necessary or reasonable
alterations; second to the payment of any indebtedness of Tenant to Landlord
other than Rent due and unpaid hereunder; third, to the payment of Rent due and
unpaid hereunder; and the residue, if any. shall be held by Landlord and.
applied in payment of other or future obligations of Tenant to Landlord as the
same may become due and payable, and Tenant shall not be entitled to receive any
portion of such revenue.
17.4 Right of Landlord to Perform. All covenants and agreements to be
performed by Tenant under this Lease snail be performed by Tenant at Tenant's
sole cost and expense. If Tenant shall fail to pay any sum of money, other than
Rent, required to be paid by it hereunder or shall fail to perform any other act
on its part to be performed hereunder, Landlord may, but shall not be obligated
to, make any payment or perform any such other act on Tenant's part to be made
or performed, without waiving or releasing Tenant of its obligations under this
Lease. Any sums so paid by Landlord and all necessary incidental costs, together
with interest thereon at the lesser of the maximum rate permitted by law if any
or twelve percent (12%) per annum from the date of such payment, snail be
payable to Landlord as additional rent on demand and Landlord shall have the
same rights and remedies in the event of nonpayment as in the case of default by
Tenant in the payment of Rent.
17.5 Default Under Other Leases. If the term of any lease, other than
this Lease, heretofore or hereafter made by Tenant for any space in the Building
shall be terminated or terminable after the making of this Lease because of any
default by Tenant under such other lease, such fact shall empower Landlord, at
Landlord's sole option. to terminate this Lease by notice to Tenant or to
exercise any of the rights or remedies set forth in Paragraph 17.2.
17.6 Non-Waiver. Nothing in this Article shall be deemed to affect
Landlord's rights to indemnification for liability or liabilities arising prior
to termination of this Lease for personal injury or property damages under the
indemnification clause or clauses contained in this Lease. No acceptance by
Landlord of a lesser sum than the Rent then due shad be deemed to be other than
on account of the earliest installment of such rent due, nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such installment or pursue any other remedy in the Lease provided.
The delivery of keys to any employee of Landlord or to Landlord's agent or any
employee thereof shall not operate as a termination of this Lease or a surrender
of the Premises.
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<PAGE> 24
17.7 Cumulative Remedies. The specific remedies to which Landlord may
resort under the terms of the Lease are cumulative and are not intended to be
exclusive of any other remedies or means of redress to which it may be lawfully
entitled in case of any breach or threatened breach by Tenant of any provisions
of the Lease. In addition to the other remedies provided in the Lease, Landlord
shall be entitled to a restraint by injunction of the violation or attempted or
threatened violation of any of the covenants, conditions or provisions of the
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.
17.8 Default by Landlord, Landlord's failure to perform or observe any
of its obligations under this Lease shall constitute a default by Landlord under
this Lease only if such failure shall continue for a period of thirty (30) days
(or the additional time, if any, that is reasonably necessary promptly and
diligently to cure the failure) after Landlord receives written notice from
Tenant specifying the default. The notice shall give in reasonable detail the
nature and extent of the failure and shall identify the Lease provision(s)
containing the obligation(s). In no event shall Tenant have the right to
terminate this Lease as a result of Landlord's default.
ARTICLE 18
ATTORNEYS' FEES: COSTS OF SUIT
18.1 Attorneys' Fees. If either Landlord or Tenant shall commence any
action or other proceeding against the other arising out of, or relating to,
this Lease or the Premises, the prevailing party shall be entitled to recover
from the losing party, in addition to any other relief, its actual attorneys'
fees irrespective of whether or not the action or other proceeding is prosecuted
to judgment and irrespective of any court schedule of reasonable attorneys'
fees. In addition, Tenant shall reimburse Landlord, upon demand, for all
reasonable attorneys' fees incurred in collecting Rent or otherwise seeking
enforcement against Tenant, its sublessees and assigns, of Tenant's obligations
under this Lease.
18.2 Indemnification Should Landlord be made a party to any litigation
instituted by Tenant against a party other than Landlord, or by a third party
against Tenant, Tenant shall indemnify, hold harmless and defend Landlord from
any and all loss. cost, liability, damage or expense incurred by Landlord,
including attorneys' fees, in connection with the litigation.
ARTICLE 19
SUBORDINATION AND ATTORNMENT
19.1 Subordination. This Lease, and the rights of Tenant hereunder, are
and shall be subordinate to the interests of (i) all present and future ground
leases and master leases of all or any part of the Building; (ii) present and
future mortgages and deeds of trust encumbering all or any part of the Building;
(iii) all past and future advances made under any such mortgages or deeds of
trust; and (iv) all renewals, modifications, replacements and extensions of any
such ground leases, master leases, mortgages and deeds of trust; provided,
however, that any lessor under any such ground lease or master lease or any
mortgagee or beneficiary under any such mortgage or deed of trust shall have the
right to elect, by written notice given to Tenant, to have this Lease made
superior in whole or in part to any such ground lease, master lease, mortgage or
deed of trust. Upon demand, Tenant shall execute, acknowledge and deliver any
instruments reasonably requested by Landlord or any such lessor, mortgagee or
beneficiary to effect the purposes of this Paragraph 19.1. Such instruments may
contain, among other things, provisions to the effect that such lessor,
mortgagee or beneficiary (hereafter, for the purposes of this Paragraph 19.1, a
"Successor Landlord") shall (i) not be liable for any act or omission of
Landlord or its predecessors, if any, prior to the date of such Successor
Landlord's succession to Landlord's interest under this Lease: (ii) not be
subject to any offsets or defenses which Tenant might have been able to assert
against Landlord or its predecessors, if any, prior to the date of such
Successor Landlord's succession to Landlord's interest under this Lease; (iii)
not be liable for the return of any security deposit under the Lease unless the
same shall have actually been deposited with such Successor Landlord; and (iv)
be entitled to receive notice of any Landlord default under this Lease plus a
reasonable opportunity to cure such default prior to Tenant having any right or
ability to terminate this Lease as a result of such Landlord default.
19.2 Attornment. If requested to do so, Tenant shall attorn to and
recognize as Tenant's landlord under this Lease any superior lessor, superior
mortgagee or other purchaser or person
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<PAGE> 25
taking title to the Building by reason of the termination of any superior lease
or the foreclosure of any superior mortgage or deed of trust, and Tenant shall,
upon demand, execute any documents reasonably requested by any such person to
evidence the attornment described in this Section.
19.3 Mortgage and Ground Lessor Protection. Tenant agrees to give any
holder of any mortgage and any ground lessor, by registered or certified mail, a
copy of any notice of default served upon the Landlord by Tenant, provided that
prior to such notice Tenant has been notified in writing (by way of service on
Tenant of a copy of Assignment of Rents and Leases, or otherwise) of the address
of such mortgage holder or ground lessor thereafter the "Notified Party").
Tenant further agrees that if Landlord shall have failed to cure such default
within twenty (20) days after such notice to Landlord (or if such default cannot
be cured or corrected within that time, then such additional time as may be
necessary if Landlord has commenced within such twenty (20) days and is
diligently pursuing the remedies or steps necessary to cure or correct such
default), then the Notified Party shall have an additional thirty (30) days
within which to cure or correct such default (or if such default cannot be cured
or corrected within that time, then such additional time as may be necessary if
the Notified Party has commenced within such thirty (30) days and is diligently
pursuing the remedies or steps necessary to cure or correct such default). Until
the time allowed, as aforesaid, for the Notified Party to cure such default has
expired without cure, Tenant shall nave no right to, and shall not, terminate
this Lease on account of Landlord's default.
ARTICLE 20
QUIET ENJOYMENT
Provided that Tenant is not in default hereunder, Tenant shad have and
peaceably enjoy the Premises during the Lease Term, subject to all of the terms
and conditions contained in this Lease.
ARTICLE 21
RULES AND REGULATIONS
The Rules and Regulations attached hereto as Exhibit B are hereby
incorporated by reference herein and made a part hereof. Tenant shall abide by,
and faithfully observe and comply with the Rules and Regulations and any
reasonable and nondiscriminatory amendments, modifications and/or additions
thereto as may hereafter be adopted and published by written notice to tenants
by Landlord for the safety care, security, good order and/or cleanliness of the
Premises and/or the Building. Landlord shall not be liable to Tenant for any
violation of such rules and regulations by any other tenant or occupant of the
Building.
ARTICLE 22
ESTOPPEL CERTIFICATES
Tenant agrees at any time and from time to time upon not less than ten
(10) business days' prior written notice from Landlord to execute, acknowledge
and deliver to Landlord a statement in writing addressed and certifying to
Landlord, or to the holder or assignee of any existing or prospective mortgage
encumbering the Building or any part thereof (hereafter a "Mortgagee"), or to
the lessor, or existing or prospective assignee of the lessor's position, under
any existing or prospective ground lease of the land underlying the Building
(hereafter a "Ground Lessor ), or to any prospective purchaser of the land,
improvements or both comprising the Building, that this Lease is unmodified and
in full force and effect (or if there have been modifications, that the same is
in full force and effect as modified and stating the modifications); that Tenant
has accepted possession of the Premises, which are acceptable in all respects,
and that any improvements required by the terms of this Lease to be made by
Landlord have bean completed to the satisfaction of Tenant; that Tenant is in
full occupancy of the Premises; that no rent other than Prepaid Rent has been
paid more than 30 days in advance; that the first month's Base Rent has been
paid; that Tenant is entitled to no free rent or other concessions except as
stated in this Lease; that Tenant has not been notified of any previous
assignment of Landlord's or any predecessor landlord's interest under this
Lease; the dates to which Base Rent, additional rent and other charges have been
paid; that Tenant, as of the date of such certificate, has no charge, lien or
claim of setoff under this Lease or otherwise against Base Rent, additional rent
or other
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<PAGE> 26
charges due or to become due under this Lease; and that Landlord is not in
default in performance of any covenant, agreement or condition contained in this
Lease or any other matter relating to this Lease or the Premises or, if so,
specifying each such default. In addition, in the event that such certificate is
being given to any Mortgagee or Ground Lessor, such statement may contain any
other provisions customarily required by such Mortgagee or Ground Lessor
including, without limitation, an agreement on the part of Tenant to furnish to
such Mortgagee or Ground Lessor, as applicable, written notice of any Landlord
default and a reasonable opportunity for such Mortgagee or Ground Lessor to cure
such default prior to Tenant being able to terminate this Lease. Any such
statement delivered pursuant to this Section may be relied upon by Landlord or
any Mortgagee, Ground Lessor or prospective purchaser to whom it is addressed
and such statement, if required by its addressee, may so specifically state.
ARTICLE 23
ENTRY BY LANDLORD
Landlord may enter the Premises at all reasonable times to: inspect the
same; exhibit the same to prospective purchasers, lenders or tenants; determine
whether Tenant is complying with all of its obligations under this Lease; supply
janitorial and other services to be provided by Landlord to Tenant under this
Lease; post notices of non-responsibility; and make repairs or improvements in
or to the Building or the Premises; provided, however, that all such work shall
be done as promptly as reasonably possible and so as to cause as little
interference to Tenant as reasonably possible. Tenant hereby waives any claim
for damages for any injury or inconvenience to, or interference with, Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises or any other
less occasioned by such entry. Landlord shall at all times have and retain a key
with which to unlock all of the doors in, on or about the Premises (excluding
Tenant's vaults, safes and similar areas designated by Tenant in writing in
advance; and Landlord shall have the right to use any and all means by which
Landlord may deem proper to open such doors to obtain entry to the Premises, and
any entry to the Premises obtained by Landlord by any such means, or otherwise,
shall not under any circumstances be deemed or construed to be a forcible or
unlawful entry into or a detainer of the Premises or an eviction, actual or
constructive, of Tenant from any part of the Premises. Such entry by Landlord
shall not act as a termination of Tenant's duties under this Lease. If Landlord
shall be required to obtain entry by means other than a key provided by Tenant,
the cost of such entry shall be payable by Tenant to Landlord as additional
rent.
ARTICLE 24
LANDLORD'S LEASE UNDERTAKINGS -
EXCULPATION FROM PERSONAL LIABILITY:
TRANSFER OF LANDLORD'S INTEREST
24.1 Landlord's Lease Undertaking. Notwithstanding anything to the
contrary contained in this Lease or in any exhibits, Riders or addenda hereto
attached {collectively the "Lease Documents"), it is expressly understood and
agreed by and between the parties hereto that: (a) the recourse of Tenant or its
successors or assigns against Landlord with respect to the alleged breach by or
on the part of Landlord of any representation, warranty, covenant, undertaking
or agreement contained in any of the Lease Documents (collectively, "Landlord's
Lease Undertakings") shall extend only to Landlord's interest in the real estate
of which the Premises demised under the Lease Documents are a part ("Landlord's
Real Estate") and not to any other assets of Landlord or its beneficiaries; and
(b) except to the extent of Landlord's interest in Landlord's Real Estate, no
personal liability or personal responsibility of any sort with respect to any of
Landlord's Lease Undertakings or any alleged breach thereof is assumed by, or
shall at any time be asserted or enforceable against, Landlord, the individual
fee owners of the Building, or against any of their respective directors,
officers, employees, agents, constituent partners, beneficiaries, trustees or
representatives.
24.2 Transfer of Landlord's Interest. Landlord and each successor to
Landlord shall be fully released from the performance of Landlord's obligations
subsequent to their transfer of Landlord's interest in the Building. Landlord
shall not be liable for any obligation hereunder after a transfer of its
interest in the Building.
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<PAGE> 27
ARTICLE 25
HOLDOVER TENANCY
If Tenant holds possession of the Premises after the expiration or
termination of the Lease Term, by lapse of time or otherwise, Tenant shall
become a tenant at sufferance upon all of the terms contained herein, except as
to Lease Term and Rent. During such holdover period, Tenant shall pay to
Landlord a monthly rental equivalent to one hundred fifty percent (150%) of the
Rent payable by Tenant to Landlord with respect to the last month of the Lease
Term. The monthly rent payable for such holdover period shall in no event be
construed as a penalty or as liquidated damages for such retention of
possession. Without limiting the foregoing, Tenant hereby agrees to indemnify,
defend and hold harmless Landlord, its beneficiary, and their respective agents,
contractors and employees, from and against any and all claims, liabilities,
actions, losses, damages (including without limitation, direct, indirect,
incidental and consequential) and expenses (including, without limitation, court
costs and reasonable attorneys' fees) asserted against or sustained by any such
party and arising from or by reason of such retention of possession, which
obligations shall survive the expiration of termination of the Lease Term. If
Tenant has assigned this Lease or subleased all or a portion of the Premises,
Tenant shall be liable for the payment of all Rent and other charges due under
this Lease during any holding over by Tenant's assignee or any transfer of
Tenant's assignee whether such holding over was with or without the consent of
Tenant.
ARTICLE 26
NOTICES
All notices which Landlord or Tenant may be required, or may desire, to
serve on the other may be served, as an alternative to personal service, by
mailing the same by registered or certified mail, postage prepaid, addressed to
the Landlord at the address for Landlord set forth in Paragraph 1.17 above and
to Tenant at the address for Tenant set forth in Paragraph 1.18 or 1.19 above,
as applicable, or addressed to such other address or as addresses as either
Landlord or Tenant may from time to time designate to the other in writing. Any
notice shall be deemed to have been served at the Time the same was posted.
ARTICLE 27
MISCELLANEOUS
27.1 Entire Agreement. This Lease contains all of the agreements and
understandings relating to the leasing of the Premises and the obligations of
Landlord and Tenant in connection with such leasing. Landlord has not made, and
Tenant is not relying upon, any warranties, or representations, promises or
statements made by Landlord or any agent of Landlord, except as expressly set
forth herein. This Lease supersedes any and all prior agreements and
understandings between Landlord and Tenant and alone expresses the agreement of
the parties.
27.2 Amendments. This Lease shall not be amended, changed or modified
in any way unless in writing executed by Landlord and Tenant. Landlord shall not
have waived or released any of its rights hereunder unless in writing and
executed by the Landlord.
27.3 Successors. Except as expressly provided herein, this Lease and
the obligations of Landlord and Tenant contained herein shall bind and benefit
the successors and assigns of the parties hereto.
27.4 Force Majeure. Landlord shall incur no liability to Tenant with
respect to, and shall not be responsible for any failure to perform, any of
Landlord's obligations hereunder if such failure is caused by reason of strike,
other labor trouble, governmental rule, regulations, ordinance, statute or
interpretation, or by fire, earthquake, civil commotion, or failure or
disruption of utility services, or any and all other causes reasonably beyond
control of Landlord. The amount of time for Landlord to perform any of
Landlord's obligations shall be extended by the amount of time Landlord is
delayed in performing such obligation by reason of such force majeure
occurrence.
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<PAGE> 28
27.5 Survival of Obligations. Any obligations of Tenant accruing prior
to the expiration of the Lease shall survive the termination of the Lease, and
Tenant shall promptly perform all such obligations whether or not this Lease has
expired.
27.6 Light and Air. No diminution or shutting off of any light, air or
view by any structure now or hereafter erected shall in any manner affect this
Lease or the obligations of Tenant hereunder, or increase any of the obligations
of Landlord hereunder.
27.7 Governing Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
27.8 Severability. In the event any provision of this Lease is found to
be unenforceable, the remainder of this Lease shall not be affected, and any
provision found to be invalid shall be enforceable to the extent permitted by
law. The parties agree that in the event two different interpretations may be
given to any provision hereunder, one of which will render the provision
unenforceable, and one of which will render the provision enforceable the
interpretation rendering the provision enforceable shall be adopted.
27.9 Captions. All captions, headings, titles, numerical references and
computer highlighting are for convenience only and shall have no effect on the
interpretation of this Lease.
27.10 Interpretation. Tenant acknowledges that it has read and reviewed
this Lease and that it has had the opportunity to confer with counsel in the
negotiation of this Lease. Accordingly, this Lease shall be construed neither
for nor against Landlord or Tenant, but shall be given a fair and reasonable
interpretation in accordance with the meaning of its terms and the intent of the
parties.
27.11 Independent Covenants. Each covenant, agreement, obligation or
other provision of this Lease to be performed by Tenant are separate and
independent covenants of Tenant, and not dependent on any other provision of the
Lease.
27.12 Number and Gender. All terms and words used in this Lease,
regardless of the number or gender in which they are used, shall be deemed to
include the appropriate number and gender, as the context may require.
27.13 Time is of the Essence. Time is of the essence of this Lease and
the performance of all obligations hereunder.
27.14 Joint and Several Liability If Tenant comprises more than one
person or entity, or if this Lease is guaranteed by any party, all such persons
shall be jointly and severally liable for payment of rents and the performance
of Tenant's obligations hereunder.
27.15 Exhibits. Exhibit A (Outline of Premises) and Exhibit B (Building
Rules and Regulations) are incorporated into this Lease by reference and mace a
part hereof.
27.16 Offer to Lease The submission of this Lease to Tenant or its
broker or other agent, does not constitute an offer to Tenant to lease the
Premises. This Lease shall have no force and effect until it is executed and
delivered by Tenant to Landlord and executed by Landlord; .
27.17 No Counterclaim; Choice of Laws. It is mutually agreed that in
the event Landlord commences any summary proceeding for non-payment of Rent,
Tenant will not interpose any counterclaim of whatever nature or description in
any such proceeding. In addition, Tenant hereby submits to local' jurisdiction
in the State of California and agrees that any action by Tenant against Landlord
shall be instituted in the State of California and that Landlord shall have
personal jurisdiction over Tenant for any action brought by Landlord against
Tenant in the State of California.
27.18 Rights Reserved by Landlord. Landlord reserves the following
rights exercisable without notice (except as otherwise expressly provided to the
contrary of this Lease) and without being deemed an eviction or disturbance of
Tenant's use or possession of the Premises or giving rise to any claim for
set-off or abatement of Rent: (i) to change the name or street address of the
Building; (ii) to install, affix and maintain all signs on the exterior and/or
interior of the Building;
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<PAGE> 29
(iii) to designate and/or approve prior to installation, all types of signs.
window shades, blinds, drapes, awnings or other similar items, and all internal
lighting that ,may be visible from the exterior of the Premises; (iv) to display
the Premises and/or the Building to mortgagees, prospective mortgagees,
prospective purchasers and ground lessors at reasonable hours upon reasonable
advance notice to Tenant; (v) to change the arrangement of entrances, doors,
corridors, elevators and/or stairs in the Building, provided no such change
shall materially adversely affect access to the Premises; (vi) to grant any
party the exclusive right to conduct any business or render any service in the
Building, provided such exclusive right shall not operate to prohibit Tenant
from using, the Premises for the purposes permitted under this Lease; (vii) to
prohibit the placement of vending or dispensing machines of any kind in or about
the Premises other than for use by Tenant's employees; (viii) to prohibit the
placement of video or other electronic games in the Premises; (ix) to have
access for Landlord and other tenants of the Building to any mail chutes and
boxes located in or on the Premises according to the rules of the United States
Post Office and to discontinue any mail chute business in the Building; (x) to
close the Building after normal business hours, except that Tenant and its
employees and invitees shall be entitled to admission at all times under such
rules and regulations as Landlord prescribes for security purposes; (xi) to
install, operate and maintain security systems which monitor, by close circuit
television or otherwise, all persons entering or leaving the Building; (xii) to
install and maintain pipes, ducts, conduits, wires and structural elements
located in the Premises which serve other parts or other tenants of the
Building; and (xiii) to retain at all times master keys or pass keys to the
Premises.
27.19 No Other Broker or Agent. Landlord and Tenant hereby warrant to
each other that they have had no dealings with any real estate broker or agent
in connection with the negotiation of this Lease, excepting only the real estate
brokers or agents specified in the Basic Lease Information, and that they know
of no other real estate broker or agent who is entitled to a commission in
connection, with this Lease. Each party shall defend indemnify and hold the
other party harmless from and against all claims, actions, loss, cost, damage,
expense and liability (including without limitation reasonable attorneys' fees
and court costs) with respect to any leasing commission or equivalent
compensation alleged to be owing on account of the indemnifying party's dealings
with any real estate broker or agent other than that specified herein.
27.20 Compliance. Tenant shall faithfully observe and comply with the
Rules and Regulations set forth in Exhibit B, attached hereto and made a part of
this Lease. The Rules and Regulations may be modified by Landlord from time to
time in writing. Landlord shall not be responsible to Tenant for the
nonperformance of any of said Rules end Regulations by or otherwise with respect
to the acts or omissions of any other tenants or occupants of the Building.
27.21 Delay in Enforcement. Any failure of either party to insist upon
the strict performance of any term, covenant or condition of this Lease, any
failure of either party to exercise any of its rights or remedies hereunder and
any acceptance of the keys to or possession of the Premises by Landlord prior to
the end of the Term shall not constitute a waiver or a modification of any term,
covenant or condition of this Lease. Waiver by either party of the breach of any
term, covenant or condition of this Lease may be only by an express writing and
shall not be deemed to be a waiver of such term, covenant or condition or of a
subsequent breach of such term, covenant or condition.
27.22 No Waiver by Acceptance of Payment;. If Tenant pays any money to
Landlord after the termination of this Lease or after Landlord has delivered to
Tenant any notice (other than a demand for payment of money) Landlord's
acceptance of such payment shall not reinstate, continue, or extend the Term or
negate the effect of such notice on Tenant. After the service of notice or the
commencement of a suit or other final judgment granting Landlord possession of
the Premises, Landlord may receive and collect any rent or other sums due under
the terms of this Lease or otherwise exercise Landlord's rights and remedies
hereunder and the payment of such sums, whether as rent or otherwise, shall not
waive said notice or in any manner affect any pending suit or judgment
previously obtained.
27.23 Qualification and Authority. if Tenant is a corporation or
partnership, each individual executing this Lease on behalf of Tenant hereby
represents and warrants that Tenant is a duly formed and existing entity
qualified to do business in California, Tenant has full right and authority to
execute and deliver this Lease and each person signing on behalf of Tenant is
authorized to do so.
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<PAGE> 30
27.24 Landlord Rights to Change Property. Landlord shall have the right
at any time to change the name of the Building, to increase the size of the Real
Property by adding additional real property thereto, to construct other
buildings or improvements on any portion of the Real Property, to change the
location and/or character of or to make alterations or additions to the Real
Property. Tenant shall not use the Building's name for any purpose other than as
a part of its business address. Any use of such name in the designation of
Tenant's business shall constitute a default under this Lease.
27.25 Landlord's Improvement; Work. Prior to the Term Commencement
Date, Landlord, at its sole cost and expense, shall paint the Premises, as
necessary, and replace the existing carpeting with new carpeting of the same
quality. Landlord shall insure that all heating, ventilating and
air-conditioning equipment, electrical and building systems in the Premises are
in good working order upon the Term Commencement Date.
27.26 Right of First Negotiation. Subject to any existing rights of
expansion, right of first refusal, first negotiation or first offer held by
tenants of the Building as of the date of this Lease, and subject to the rights
of any present tenants of such space to renew or extend the terms of their
respective Leases, Tenant shall have a right of first negotiation with respect
to the third floor of the Building (the "Negotiation Space"). If such
Negotiation Space becomes available for lease, Landlord shall deliver to Tenant
written notice stating the exact location, configuration and rentable area of
the Negotiation Space and the date upon which it is expected to become
available. Tenant shall have fifteen (15) days thereafter to deliver to Landlord
written notice (the "Negotiation Notice") exercising Tenant's right of first
negotiation with respect to the Negotiation Space. The failure of Tenant to
deliver the Negotiation Notice within. in such fifteen (15) day period shall be
deemed failure by Tenant to exercise the right herein granted and thereafter
Landlord shall be free to lease the Negotiation Space to another tenant upon any
terms and conditions without regard to Tenant. Upon receipt of the Negotiation
Notice. Tenant and Landlord shall thereafter negotiate in good faith for a
period of twenty (20) business days with respect to the Base Rent for the
Negotiation Space. If Tenant and Landlord cannot agree on the Base Rent within
such twenty (20) business days, then Tenant's right to extend the Premises to
include the Negotiation Space shall terminate and Landlord shall be free to
lease the Negotiation Space to another tenant upon any terms and conditions
without regard to Tenant. Neither party shall have The right to have a court or
other third party determine the Base Rent for the Negotiation Space. If Landlord
and Tenant agree on the Base Rent for the Negotiation Space within such time
period, then Landlord and Tenant shall promptly execute an Amendment to this
Lease, and, on the date on which the Negotiation Space becomes available, the
Premises shall be expanded to include the Negotiation Space. Notwithstanding the
foregoing, if Tenant is in default on the date of giving the Negotiation Notice,
Tenant shall have no right to so expand the Premises; or if Tenant is in default
on the date the Premises are to be expanded, the Premises shall not be so
expanded. Upon the expansion of the Premises, Tenant's percentage share shall be
increased to reflect the rentable area of the Negotiation Space. The term of the
Lease with respect to the Negotiation Space shall be conterminous with the
Premises.
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<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.
LANDLORD: TENANTS:
LOUIS N. HAAS, As Attorney-In-Fact INTELLIPOST CORPORATION, a Delaware
corporation
By: /s/ Louis N. Haas By: /s/ Steven M. Markowitz
-------------------------------- ------------------------------------
Its: PRESIDENT
-----------------------------------
Witness: By: /s/ [Signature Illegible]
---------------------------
Title:
------------------------
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<PAGE> 32
EXHIBIT A
[FLOOR PLAN]
<PAGE> 33
FIRST ADDENDUM TO LEASE
THIS FIRST ADDENDUM TO LEASE (this "Addendum') is made by and between
LOUIS N. HAAS, as Attorney-in-Fact ("Landlord"), and INTELLIPOST CORPORATION, a
Delaware corporation ("Tenant"), to be a part of that certain Second Floor
Office Lease of even date herewith between Landlord and Tenant (the "Lease")
concerning approximately 3,939 square feet of space (the "Premises") located at
565 Commercial Street, San Francisco, California (the "Project"). Landlord and
Tenant agree that, notwithstanding anything to the contrary in the Lease. the
Lease is hereby modified and supplemented as set forth below.
1. Term Commencement Data. The Lease shall commence on the later of (i)
December 1, 1996 or, (ii) the date by which all of the following have occurred:
(a) Landlord has delivered possession of the Premises to Tenant in broom clean
condition and as otherwise provided in the Lease: and (b) Landlord has obtained
all approvals and permits from appropriate governmental authorities required for
the legal occupancy of the Premises for Tenant's intended use. If the Term
Commencement Date has not occurred for any reason whatsoever on or before
December 31, 1996, then. in addition to Tenant's other rights or remedies,
Tenant may terminate the Lease by written notice to Land1ord. whereupon any
monies previously paid by Tenant to Landlord shall be reimbursed to Tenant and
each releases the other from liability under the Lease.
2. Condition. Landlord warrants and represents that to its best
knowledge, without any duty of inquiry, as of the Term Commencement Date. the
Premises, the Building and the Project comply with all applicable laws, rules,
relations. codes, ordinances, underwriter's requirements, covenants, conditions
and restrictions ("Laws"), the Premises will be in good and clean operating
condition and repair, and the electrical, mechanical, HVAC, plumbing, sewer,
elevator and other systems serving the Premises. the Building and the Project
will be in good operating condition and repair.
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<PAGE> 34
3. Additional Charges. Tenant shall have no obligation to pay any
amount of Additional Charges for the Base Year. If any Additional Charges for
the Base Year are not based upon a fully-leased and occupied Building and
Project, then such amounts shall be increased to reflect a fully-leased and
occupied Building and Project. In addition, "Operating Expenses" shall not
include, and Tenant shall in no event have an?' obligation to perform or to pay
directly, or to reimburse Landlord for, all or any portion of the following
repairs, maintenance, improvements, replacements, premiums, claims, losses,
fees, charges, costs and expenses (collectively, "Costs"): (a) Costs occasioned
by the act. omission or violation of any Law by Landlord, any other occupant of
the Building or the Project or their respective agents, employees or
contractors; (b) Costs occasioned by fire, acts of God. or other casualties or
by the exercise of the power of eminent domain: (c) Costs to correct any
construction defect in the Premises, the Building or the Project or to comply
with any Law by Landlord, any other occupant of the Building or the Project or
their respective agents, employees or contractors: (d) Costs of any renovation,
improvement, painting or redecorating of any portion of the Building or the
Project not made available for Tenant's use: (e) Costs incurred in connection
with negotiations or disputes with any other occupant of the Building or the
Project and Costs arising from the violation by Landlord or any occupant of the
Building or the Project (other than Tenant) of the terms and conditions of any
lease or other agreement: (f) insurance Costs for coverage not customarily paid
by tenants of similar projects in the vicinity. of the Premises. increases in
insurance Costs caused by the activities of any other occupant of the Building
or the Project, insurance deductibles and coinsurance payments; (g) Costs
incurred in connection with the presence of any Hazardous Material, except to
the extent caused by the release or emission of the Hazardous Material in
question by Tenant; (h) Costs incurred on debt, mortgages and ground leases; (i)
Costs in the nature of depreciation. amortization or other expense reserves; and
(k) Costs to repair, replace, restore or maintain the structural portions of the
Building.
4. Compliance with Laws. Tenant shall not be required to comply with or
cause the Premises, the Building or the Project to comply with any Laws unless
such compliance is necessitated due to Tenant's particular use or alteration of
the Premises.
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<PAGE> 35
5. Environmental. To the best knowledge of Landlord. without any duty
of inquiry, (i) no Hazardous Material is present in the Building or on the
Project or the sail, surface water or groundwater thereof, (ii) no underground
storage tanks are present on the Project, and (iii) no action, proceeding or
claim is pending or threatened regarding the Project concerning any Hazardous
Material or pursuant to any Environmental Law. Under no circumstance shall
Tenant be liable for, and Landlord shall indemnify., defend and hold harmless
Tenant, its agents, contractors, stockholders, directors, successors,
representatives and assigns from and against, all losses, costs, claims,
liabilities and damages (including attorneys' and consultants' fees) of every
type and nature, directly or indirectly arising out of or in connection with any
Hazardous Material present at any time on or about the Project, or the soil,
air, improvements. groundwater or surface water thereof. or the violation of any
Laws, relating to any such Hazardous Material, except to the extent that any of
the foregoing actually results from the release or emission of Hazard Material
on or about the Premises during the term of the Lease by Tenant or its agents or
employees in violation of applicable Environmental Laws.
6. Maintenance and Repairs. Landlord shall perform and construct, and
Tenant shall have no responsibility to perform or construct, any repair,
maintenance or improvements: (i) necessitated by the acts or omissions of
Landlord or any other occupant of the Building or the Project, or their
respective agents, employees or contractors. (ii) occasioned by fire, acts of
God or other casualty. or by the exercise of the power of eminent domain, (iii)
required as a consequence of any violation of any Laws or construction defects
in the Premises or the Building as of the Term Commencement Date, (iv) which
could be treated as a capital expenditure under generally accepted accounting
principles, (v) to the heating, ventilating, air conditioning, electrical,
mechanical, water, sewer and plumbing systems not situated in the Premises, and
(vi) to any portion of the Building or the Project outside the demising walls of
the Premises.
7. Alterations. Tenant may construct nonstructural alterations to the
Premises without Landlord's prior approval, if the cost of any alteration
project does not exceed $5,000.
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<PAGE> 36
Tenant's trade fixtures. furniture, equipment and other personal property
installed in the Premises ("Tenant's Property") shall at all times be Tenant's
property, and Tenant may remove Tenant's Property. from the Premises at any time
and from time to time, provided that Tenant repairs all damage caused by such
removal.
8. Surrender. Tenant's obligations with respect to the surrender of the
Premises shall be fulfilled if Tenant surrenders possession of the Premises in
the condition existing at the Term Commencement Date, excepting ordinary. wear
and tear. acts of God, casualties, condemnation, and Hazardous Materials (other
than those released or emitted by Tenant in or about the Premises).
9. Insurance and Indemnification. Landlord shall maintain, at
Landlord's sole expense, "all risk' property insurance insuring against risk of
loss or damage to the Building and the Project for the full replacement cost
thereof. Landlord shall not be released from, and shall indemnify, defend.
protect and hold harmless Tenant and Tenant's agents and employees from, all
losses, damages, liabilities, judgments, actions, claims. attorneys' fees.
consultants' fees, payments, costs and expenses arising from the negligence or
willful misconduct of Landlord or its agents. contractors, licensees or
invitees, Landlord's violation of any Law, or a breach of Landlord's obligations
or representations under the Lease. The parties hereto' release each other and
their respective agents, employees, successors, assignees and subtenants from
all liability for injury to any person or damage to any property that is caused
by or results from a risk which is actually insured against. which is re
required to be insured against under the Lease, or which would normally be
covered by the standard form of full replacement value "all risk" property
insurance, without regard to the negligence or willful misconduct of the person
or entity so released.
10. Damage: Condemnation: the Premises are condemned or damaged by any
peril and Landlord does not elect to terminate the Lease or is not entitled to
terminate the Lease pursuant to its terms, then Tenant shall have the option to
terminate the Lease if the Premises cannot be, or are not in fact, fully
restored by Landlord to their prior condition
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<PAGE> 37
within sixty (60) days after the condemnation or damage. Whenever Rent and
Additional Charges are to be abated under the Lease, all Rent and Additional
Charges shall be equitably abated based upon the extent to which Tenant's use of
the Premises is diminished.
11. Assignment and Subletting. Tenant may, without Landlord's prior
written consent, sublet the Premises or assign the Lease to (i) a subsidiary,
affiliate, division or corporation controlling, controlled by or under common
control with Tenant; or (ii) a successor corporation related to Tenant by
merger, consolidation. nonbankruptcy reorganization, or government action. For
purposes of the Lease. a sale or transfer of Tenant's capital stock. including
without limitation, a transfer in connection with the merger, consolidation or
nonbankruptcy reorganization of Tenant and any sale through any private or
public offering, shall not be deemed an assignment, subletting or any other
transfer of the Lease or the Premises.
12. Default and Late Charge. Tenant shall not be deemed to be in
default, nor shall any late charge be imposed, on account of Tenant's failure to
(i) pay money to Landlord. unless Tenant's failure to pay continues for five (5)
days after Tenant receives written notice pursuant to Article 26 of the Lease of
such delinquency, or (ii) perform any other covenant of the Lease, other than
the payment of money to Landlord, unless such failure continues for fifteen (15)
days after Tenant receives written notice pursuant to Article 26 of the Lease;
provided, however, that if the nature of the default is such that it cannot be
reasonably cured within the fifteen (15) day period, no default shall exist if
Tenant commences the curing of the default within the fifteen day period and
thereafter diligently prosecutes the same to completion. The five and fifteen
day notice periods described herein shall be in lieu of, and not in addition to,
any notice required under Section 1161 of the California Code of Civil Procedure
or any other law now or hereafter in effect requiring that notice of default be
given prior to the commencement of an unlawful detainer or other legal
proceeding.
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<PAGE> 38
13. Subordination The subordination of Tenant's rights and interest
under the Lease to any ground lease, master lease, mortgage or deed of trust
shall be contingent upon Tenant's having received from any such ground or master
lessor. mortgagee or beneficiary of any deed of trust a written recognition
agreement in form reasonably 'satisfactory to Tenant providing that Tenant's
fights and interest shall not be disturbed in the event of any termination of
any such ground or master lease or foreclosure of any such mortgage or deed of
trust and confirming that Tenant shall receive all of the rights and services
provided for under the Lease.
14. Rights Reserved by Landlord: Rules. Landlord shall not exercise any
rights under Sections 1.7, 27.18 or 27.24 of the Lease, if such exercise would
unreasonably interfere with Tenant's use of the Premises or materially increase
the obligations or decrease the rights of Tenant under the Lease. Landlord shall
use its best efforts to minimize any disruption to Tenant. Tenant shall not be
required to comply with any rule or regulation unless the same applies
non-discriminatorily to all occupants of the Building and the Project, does not
unreasonably interfere with Tenant's use of the Premises, and does not
materially increase the obligations or decrease the rights of Tenant under the
Lease.
15. Approvals. Whenever the Lease requires an approval, consent,
designation, determination, selection or judgment by either Landlord or Tenant,
such approval, consent, designation, determination, selection or judgment and
any conditions imposed thereby shall be reasonable and shall not be unreasonably
withheld or delayed and. in exercising any right or remedy hereunder. each party
shall at all times act reasonably and in good faith.
16. Reasonable Expenditures. Any expenditure by a party. permitted or
required under the Lease, for which such party is entitled to demand and does
demand reimbursement from the other party shall be limited to the fair market
value of the goods and services involved, shall be reasonably incurred, and
shall be substantiated by documentary evidence available for inspection and
review by the other party. or its representative during normal business hours.
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<PAGE> 39
17. Effect of Addendum. All terms with initial capital letters used
herein as defined in terms shall have the meanings ascribed to them in the Lease
unless specifically-defined herein. In the event of any inconsistency between
this Addendum and the Lease, the terms of this Addendum shall prevail. As used
herein. the term "Lease" shall mean the Lease. this Addendum and all riders,
exhibits, rules. regulations referred in the Lease or this Addendum.
LANDLORD: TENANT:
INTELLIPOST CORPORATION,
a Delaware corporation
/s/ LOUIS N. HAAS
- --------------------------------
LOUIS N. HAAS, Attorney-in-Fact
By /s/ Steven M. Markowitz
--------------------------------------
Name Steven M. Markowitz
-------------------------------------
Its President 11/20/96
--------------------------------------
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<PAGE> 40
SECOND ADDENDUM TO LEASE
THIS SECOND ADDENDUM TO LEASE (this "Second Addendum") is made and
entered into as of January 21, 1998 (the "Effective Date") by and between LOUIS
N. HAAS, as Attorney In-Fact ("Landlord") and INTELLIPOST CORPORATION
("Tenant").
RECITALS
A. Landlord and Tenant entered into that certain Office Lease Agreement
dated as of November 15, 1996, as amended by the First Addendum of the same date
(collectively, the "Lease"), whereby Landlord leased to Tenant and Tenant leased
from Landlord approximately 3,939 square feet of space on the second floor (the
"Premises") at 565 Commercial Street., San Francisco, California (the
"Building").
B. Landlord and Tenant now desire to amend the Lease to include an
additional 3,939 square feet of space on the fourth floor of the Premises (the
"Expansion Space"), pursuant to the terms and conditions contained herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and the
mutual covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant hereby agree as follows:
1. Defined Terms. All initially-capitalized terms used herein shall
have the same meanings as are ascribed to them in the Lease unless expressly
otherwise defined in this Second Addendum.
2. Expansion Space. The term "Expansion Space" shall mean the fourth
floor of the Building, as cross-hatched on Exhibit A attached hereto and made a
part hereof.
3. Rentable Area of the Expansion Space. Landlord and Tenant hereby
stipulate that the rentable area of the Expansion Space is 3,939 square feet.
4. Expansion Space Lease Term. The Lease Term for the Expansion Space
shall mean the period between the Commencement Date and the Expiration Date, as
such terms arc defined in paragraphs 5 and 6 below, unless sooner terminated or
extended under the Lease.
5. Expansion Space Commencement Date. The Commencement Date for the
Expansion Space shall mean February 1, 1998.
<PAGE> 41
6. Expansion Space Exaltation Date. The Expiration Date for the
Expansion Space shall mean November 30, 1999.
7. Expansion Space Base Rent. Subject to adjustment as provided in
Article V of the Lease, as amended by this Second Addendum, the Base Rent for
the Expansion Space shall mean:
<TABLE>
<CAPTION>
EXPANSION SPACE ANNUAL BASE RENT
LEASE TERM MONTHLY BASE RENT ANNUAL BASE RENT PER SQUARE FOOT
- --------------- ----------------- ---------------- ---------------
<S> <C> <C> <C>
February 1, 1998
through $8,534.50 $102,414.00 $26.00
November 30, 1999
</TABLE>
8. Tenant's Percentage Share for the Expansion Space. Tenant's
Percentage Share for the Expansion Space shall mean 28.56% with respect to
Property Taxes and Operating Expenses (as such terms are defined in the Lease),
and with respect to Tenant's Law Compliance Obligations under paragraph 8.2(b)
of the Lease.
9. Expansion Space Security Deposit. Tenant shall pay Landlord a
Security Deposit in the amount of $8,534.50 for the Expansion Space, payable
upon execution of this Second Addendum.
10. Expansion Space Pre-Paid Rent. Tenant shall pay Landlord pre-paid
Base Rent in the amount of $8,534.50, representing the Base Rent for the month
of February, 1998, payable upon execution of this Second Addendum.
11. Tenant Improvements. Landlord, at Landlord's sole cost and expense,
shall professionally clean and repair the carpeting and touch up the walls in
the Expansion Space on an as needed basis prior to Tenant moving in.
12. Signage. Tenant shall have the right to place additional signage in
the lobby of the Building with the prior consent of Landlord, which consent
shall not be unreasonably withheld. in addition, Tenant shall have the right to
install one exterior sign, subject to Landlord's prior written approval, which
will not be unreasonably withheld, and subject to any and all restrictions and
requirements imposed by the City and/or County of San Francisco or any other
governmental authorities. Tenant shall remove any signage installed hereunder at
the termination of its tenancy and restore the premises affected by the signage
to the condition existing prior to the installation.
2
<PAGE> 42
13. Additional Charges: Operating Expenses and Applicable Taxes.
Article V of the Lease, with respect to the Expansion Space, is hereby modified
as follows: Section 5.2(a) shall read: "Base Year" shall mean the Calendar Year
1998.
14. Expense Stop for Gas and Electricity. For gas and electricity
supplied to the Expansion Space, Landlord shall pay the first $500 per month
(the "Cap"), and Tenant shall pay all gas and electricity charges in excess of
the Cap.
15. Equipment. Tenant shall have the right to use the equipment and
fixtures, if any, presently located in the Expansion Space in their "AS IS"
condition. Landlord makes no representation or warranty concerning the condition
of said equipment and fixtures, and Tenant agrees to indemnify, defend and hold
harmless Landlord from and against any and all costs, damages, liability, and
expenses (including reasonable attorneys fees) arising from Tenant's use of said
equipment and fixtures. Tenant shall maintain said equipment and fixtures at its
own cost and expense.
16. Tenant's Broker or Agent. Tenant hereby warrants that it has had no
dealings with any real estate broker or agent in connection with the negotiation
of this Second Addendum except Darin R. Bosch of CB Commercial Real Estate
Group, Inc. ("CB Commercial"), and Landlord warrants that he has had no dealings
with any real estate broker or agent except Brad Colton of Colton Commercial.
Each party shall defend, indemnify and the hold the other party harmless from
and against all claims, actions, loss, cost, damage, expense and liability
(including without limitation reasonable attorneys fees and court costs), with
respect to any leasing commission or equivalent compensation alleged to be owing
on account of the indemnifying party dealings with any real estate broker or
agent other than that specified herein.
17. Paragraph 27.25 of the Lease. Paragraph 27.25 of the Lease shall
not apply to the Expansion Space.
18. Applicability of the Lease. Except as modified herein, all of the
terms and conditions of the Lease shall apply to the Expansion Space and the
references in the Lease to the Premises shall also include the Expansion Space.
19. Miscellaneous. a) Except as modified in this Second Addendum, the
Lease shall be unmodified and shall remain in full force and effect; b) the
provisions this Second Addendum shall bind and inure to the benefit of the
heirs, representatives, successors and permitted assigns of the parties hereto;
c) this Second Addendum may be executed as several counterparts, each of which
shall be deemed an original, but all or which shall constitute one and the same
Agreement.
3
<PAGE> 43
IN WITNESS WHEREOF, this Second Addendum has been executed as of the
day and year first written above.
"Landlord" "Tenant"
INTELLIPOST CORPORATION,
a Delaware corporation
/s/ LOUIS N. HAAS
- --------------------------------------
LOUIS N. HAAS, not individually but as
Attorney In-Fact
By: /s/ Layton S. Han
---------------------------------
Its: President CFO
By: /s/ Stephanie Sakai-Chang
---------------------------------
Its: General Counsel
4
<PAGE> 1
EXHIBIT 10.9
TENANT : MOTIVATION NET INC.
PROPERTY:
WOODFIELD FINANCIAL CENTRE
1375 EAST WOODFIELD ROAD
SCHAUMBURG, ILLINOIS 60173
SUITE 540
PREMISES RENTABLE SQUARE FOOTAGE: 1,954
TENANT PROPORTIONATE SHARE : 1.07%
TERM OF LEASE (3 YEARS)
COMMENCEMENT DATE: APRIL 1, 1998
TERMINATION DATE: MARCH 31, 2001
SECURITY DEPOSIT : $20,000.00
DATE OF LEASE: JANUARY 22, 1998
OFFICE LEASE
BETWEEN
THE MUTUAL LIFE INSURANCE COMPANY OF NEW YORK
LANDLORD,
AND
MOTIVATION NET INC.
TENANT
MKS: January 22, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1. Base Rent ................................................................. 1
2. Additional Rent ........................................................... 1
3. Security Deposit ........................................................... 5
4. Use of Premises ............................................................ 6
5. Services................................................................... 7
6. Condition and Care of Premises ............................................ 9
7. Return of Premises ......................................................... 9
8. Holding Over .............................................................. 10
9. Rules and Regulations .................................................... 10
10. Rights Reserved to Landlord ............................................... 12
11. Alterations ............................................................... 12
12. Assignment and Subletting ................................................. 13
13. Waiver of Certain Claims; Indemnity by Tenant ............................ 15
14. Damage or Destruction by Casualty ......................................... 15
15. Eminent Domain ............................................................ 18
16. Default: Landlord's Rights and Remedies .................................. 20
17. Subordination ............................................................. 18
18. Mortgagee and Ground Lessor Protection .................................... 20
19. Default Under Other Leases ................................................ 20
20. Insurance ................................................................. 20
21. Nonwaiver ................................................................. 21
22. Estoppel Certificate ..................................................... 21
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
23. Tenant-Corporation or Partnership ............................................ 22
24. Real State Brokers ........................................................... 22
25. Notices ...................................................................... 22
26. Miscellaneous ................................................................ 23
27. Delivery of Possession ..................................................... 24
28. Substitution of Premises ................................................... 24
29. Signs ....................................................................... 24
30. Landlord ..................................................................... 25
31. Title and Covenant Against Liens ............................................ 25
32. Exculpatory Provisions ....................................................... 25
33. Financial Statements ......................................................... 26
34. Premises Improvement ........................................................ 26
35. Condition to Lease ........................................................... 26
Exhibit A - Description of Premises
Exhibit B - Base Rent
Exhibit C - Rules and Regulations
</TABLE>
ii
<PAGE> 4
OFFICE LEASE
THIS OFFICE LEASE, made as of January 22, 1998, WITNESSETH: THE MUTUAL
LIFE INSURANCE COMPANY OF NEW YORK (herein called "Landlord"), hereby leases to
MOTIVATION NET INC. (herein called "Tenant"), and Tenant hereby accepts the
premises as outlined on the floor plan attached hereto as Exhibit A known as
suite 540 (herein called "Premises" in the building located at 1375 East
Woodfield Road, Schaumburg, Illinois 60173 (herein called "Building"), for a
term (herein called "Term") of three (3) years commencing (the "Commencement
Date") on April 1, 1998 and ending on March 31, 2001, unless sooner terminated
as provided herein, paying as rent therefor the sums hereinafter provided,
without any setoff, abatement, counterclaim or deduction whatsoever, except as
set forth below.
IN CONSIDERATION THEREOF, THE PARTIES HERETO COVENANT AND AGREE:
1. BASE RENT. Tenant shall pay an annual base rent (herein called "Base
Rent") to Landlord for the Premises which Base Rent shall be payable in equal
monthly installments (herein called 'Monthly Base Rent"), in advance on the
first day of each calendar month of the Term in the amounts set forth in, and in
accordance with the provisions of. Exhibit B. attached hereto and incorporated
herein by this reference thereto. If the Term shall begin on any date except the
first day, or shall end on any day except the last day of a calendar month, Base
Rent shall be payable at a per diem rate based on the then current monthly
payment.
Base Rent, Additional Rent (as hereinafter defined), and all other
amounts becoming due from Tenant to Landlord hereunder (herein collectively
called the "Rent") shall be paid in lawful money of the United States to
Landlord at the office of Landlord, or as otherwise designated from time to time
by written notice from Landlord to Tenant. Concurrently with the execution
hereof and at Landlord's request, Tenant shall pay Landlord Monthly Base Rent
for the first full calendar month of the Term.
Landlord may authorize Tenant to take possession of all or any part of
the Premises prior to the beginning of the Term. If Tenant does take possession
pursuant to authority so given. all of the covenants and conditions of this
lease shall apply to and shall control such pre-Term occupancy. Rent for such
pre-Term occupancy shall be paid upon occupancy and on the first day of each
calendar month thereafter at the rate set forth in Sections 1 and 2 hereof, If
the Premises are occupied for a fractional month. Rent shall be prorated on a
per diem basis for such fractional month. The payment of Rent hereunder is
independent of each and every oilier covenant and agreement contained in this
lease.
2. ADDITIONAL RENT. In addition to Base Rent, Tenant shall also pay
Additional Rent (as hereinafter defined) in accordance with the following
provisions:
(a) DEFINITIONS. As used in this lease,
(i) "Expenses" shall mean and include all expense, costs,
fees and disbursements paid or incurred by or on
behalf of Landlord for owning, managing, operating,
maintaining and repairing the "Real Property"
(hereinafter defined) and the personal property used
in conjunction therewith (said Real Property aria
personalty being herein collectively called the
"Project"'), including (without limitation): the cost
of electricity. steam, water, gas. fuel. heating.
lighting, air conditioning; window cleaning;
insurance, including but not limited to, fire,
extended coverage, liability, workmen's compensation,
elevator, or any other insurance carried by
<PAGE> 5
Landlord and applicable to the Project; painting;
uniforms; management fees; supplies, sundries, sales
or use taxes on supplies or services; cost of wages
and salaries of all persons engaged in the operation,
administration, maintenance and repair of the
Project; and fringe benefits, including social
security taxes, unemployment insurance taxes. cost
for providing coverage for disability benefits, cost
of any pensions, hospitalization, welfare or
retirement plans, or any other similar or like
expenses incurred under the provisions of any
collective bargaining agreement, or any other cost or
expense which Landlord pays or incurs to provide
benefits for employees so engaged in the operation,'
administration, maintenance and repair of the
Project; the charges of any independent contractor
who, under contract with Landlord or its
representatives, does any of the work of operating,
maintaining or repairing of the Project; legal and
accounting expenses, including, but not to be limited
to, such expenses as relate to seeking or obtaining
reductions in and refunds of real estate taxes; any
costs or expenses allocated to the Project under
easement agreements, service or operating agreements,
declarations, covenants or other instruments
providing for sharing of facilities or payment for
services; or any other expense or charge, whether or
not hereinbefore mentioned, which would be considered
as an expense of owning, managing, operating,
maintaining or repairing the Project. Expenses shall
not include costs or other items included within the
meaning of the term "'Taxes" (as hereinafter
defined), costs of alterations of the premises of
tenants of the Building, costs of capital
improvements to the Real Property, depreciation
charges, interest and principal payments on
mortgages, ground rental payments, and real estate
brokerage and leasing commissions, except as
hereinafter otherwise provided. Notwithstanding
anything contained in this clause (i) of Section 2(a)
to the contrary.
(A) The cost of any capital improvements to
the Real Property made after the date of this lease
which are intended to reduce Expenses or enhance the
safety of the Real Property or which are required
under any governmental laws, regulations, or
ordinances applicable to the Real Property, whether
or not in effect at the date this lease was executed.
amortized over such reasonable period as Landlord
shall determine, together with interest on the
unamortized cost of any such improvement (at the
prevailing loan rate available to Landlord on the
date the cost of such improvement was incurred) shall
be included in Expenses.
(B) If the Building is not at least
ninety-five percent (95%) occupied by tenants during
all or a portion of any year, or if during all or a
portion of any year landlord is not furnishing to any
tenant or tenants any particular service, the cost of
which, if furnished by Landlord, would be included in
Expenses, then Landlord may elect to make an
appropriate adjustment for such year of components of
Expenses and the amounts thereof which may vary
depending upon the occupancy level of the Building or
with the number of tenants using the service, such
that the amount of such variable components of
Expenses which would have been incurred if the
Building had been folly occupied during the entire
year or Landlord had furnished such service at
Landlord's expense to all existing Tenants for the
entire year shall be deemed costs and expenses paid
or incurred by Landlord and included in Expenses for
such year.
2
<PAGE> 6
(ii) "Taxes" shall mean real estate taxes, assessments
(whether they be general or special), sewer rents,
rates and charges, transit taxes, taxes based upon
the receipt of rent, and any other federal, state or
local governmental charge, genera[, special, ordinary
or extraordinary (but not including income or
franchise taxes, capital stock, inheritance, estate,
gift, or any other taxes imposed upon or measured by
Landlord's income or profits, unless the same shall
be imposed in lieu of real estate taxes or other ad
valorem taxes), which may now or hereafter be levied,
assessed or imposed against the Building or the land
on which the Building is located (the "Land"), or
both. The Building and the Land are herein
collectively. called the "Real Property".
Notwithstanding anything contained in this clause
(ii) of Section 2(a) to the contrary.
(A) If at any time during the Term of this
lease the method of taxation then prevailing shall be
altered so that any new tax, assessment, levy,
imposition or charge or any part thereof shall be
imposed upon Landlord in place or partly in place of
any such Taxes, or contemplated increase therein, and
shall be measured by or be based in whole or in part
upon the Real Property or the rents or other income
therefrom, then all such new taxes, assessments,
levies, impositions or charges or part thereof, to
the extent that they are so measured or based, shall
be included in Taxes levied, assessed or imposed
against the Real Property to the extent that such
items would be payable if the Real Property were the
only property of Landlord subject thereto and the
income received by Landlord from the Real Property
were the only income of Landlord.
(B) Notwithstanding the year with respect to
which any such taxes or assessments are levied, (i)
in the case of special taxes or assessments which may
be payable in installments, the amount of each
installment, plus any interest payable thereon, paid
during a calendar year shall be included in Taxes for
that year and (ii) if any taxes or assessments
payable during any calendar year shall be computed
with respect to a period in excess of twelve calendar
months, then taxes or assessments applicable to the
excess period shall be included in Taxes for that
yeas'. Except as provided in the preceding sentence,
all references to Taxes "for" a particular year shall
be deemed to refer, at Landlord's option, to: (i)
Taxes levied, assessed or imposed for such year
without regard to when such Taxes are payable, or
(ii) Taxes paid or payable for such year, without
regard to when such Taxes are levied, assessed or
imposed, so long as Landlord throughout the Term
consistently applies the chosen method of determining
Taxes.
(C) Taxes shall also include any personal
property taxes (attributable to the calendar year in
which paid) imposed upon ,the. furniture, fixtures,
machinery, equipment, apparatus, systems and
appurtenances used in connection with the Real
Property or Project or the operation thereof.
(D) If the Building is not at least
ninety-five percent (95%) occupied by tenants during
all or n portion of any year. then Landlord may elect
to make
3
<PAGE> 7
an appropriate adjustment for such year of components
of Taxes which may vary depending upon the occupancy
level of the Building such that the amount of such
Taxes which would have been incurred if the Building
had been fully occupied during the entire year shall
also be deemed taxes levied or assessed against the
Real Property and included in Taxes for such year.
(iii) "Rentable Area of the Building" shall be decreed to be
182,295 square feet. If, during the Term of this lease, the
actual Rentable Area of the Building is increased or decreased
as a result of adding space to the Building or removing space
from the Building, Landlord may change the Rentable Area of
the Building and Tenant's Proportionate Share by written
notice to Tenant.
(iv) "Rentable Area of the Premises" shall be deemed to be
1,954 square feet.
(v) "Tenant's Proportionate Share" shall mean 1.07 % which is
the percentage obtained by dividing the Rentable Area of the
Premises by the Rentable Area of the Building.
(vi) "Additional Rent" shall mean Tenant's Proportionate Share
of Taxes and Expenses.
(b) COMPUTATION OF ADDITIONAL RENT. Tenant shall pay Tenant's
Proportionate Share of Taxes and Expenses.
(c) PAYMENTS OF ADDITIONAL RENT; PROJECTIONS. Tenant shall make
payments on account of its Additional Rent with respect to each year
effective as of the first day of each calendar year (the "Adjustment
Date") as follows:
(i) Landlord may, prior to each Adjustment Data or from
time to time during the year, deliver to Tenant a
written notice or notices ('Projection Notice")
setting forth (A) Landlord's reasonable estimates,
forecasts or projections (collectively, the
"Projections") of Taxes and Expenses with respect to
such year. and (B) Tenant's Proportionate Share of
Taxes and Expenses with respect to such year based
upon the Projections.
(ii) Until such time as Landlord furnishes a Projection
Notice with respect to any year, Tenant shall pay to
Landlord a monthly installment of Additional Rent (at
the time of and together with each payment of Monthly
Base Rent) equal to the latest monthly installment of
Additional Rent. On or before the first-day of the
next calendar month following Landlord's service of a
Projection Notice, and on or before the first day of
each month thereafter, Tenant shall pay to Landlord
one-twelfth (1/12) of Tenant's Proportionate Share of
Taxes and Expenses shown in the Projection Notice.
Within fifteen (15) days following Landlord's Service
of a Projection Notice. Tenant shall also pay
Landlord lump sum equal to the monthly Tenant's
Proportionate Share of Taxes and Expenses shown in
the Pro- jection Notice for January to and including
the month(s) in which the Projection Notice was sent
(the "Gap Period") less tile sum of any previous
payments of Additional Rent made during such Gap
Period.
4
<PAGE> 8
(d) READJUSTMENTS. At any time and from time to tithe
following the end of each year (and after Landlord shall have
determined the actual amounts or' Taxes and Expenses to be used in
calculating Tenant's Proportionate Share of Taxes and Expenses with
respect to such year) if the actual Tenant's Proportionate Share of
Taxes and Expenses owed for such year exceeds the Additional Rent paid
by Tenant during such year, then Tenant shall, within thirty (30) days
after the date of Landlord's statement, pay to Landlord an amount equal
to such excess. If the Additional Rent paid by Tenant during such year
exceeds the actual Tenant's Proportionate Share of Taxes and Expenses
owed for such year, then Landlord shall credit such excess to Rent
payable after the date of Landlord's statement until such excess has
been exhausted. If this lease shall expire prior to full application of
such excess, Landlord shall pay to Tenant the balance thereof not
theretofore applied against Rent and not reasonably required for
payment of Additional Rent for the year in which the lease expires. No
interest or penalties shall accrue on any amounts which Landlord is
obligated to credit or pay to Tenant by reason of this Section 2(d).
Unless Tenant shall take written exception to any item within thirty
(30) days after the furnishing of Landlord's statement, Landlord's
statement shall be considered as final and accepted by Tenant.
(e) PRORATION AND SURVIVAL. With respect to any year which
does not fall entirely within the Term, Tenant shall be obligated to
pay as Additional Rent for such year only a pro rata share of
Additional Rent as hereinabove determined, based upon the number of
days of the Term falling within the year., Following expiration or
termination of this lease, Tenant shall pay any Additional Rent due to
Landlord within fifteen (15) days after the date of Landlord's
statement sent to Tenant. Without limitation on other obligations of
Tenant which shall survive the expiration or termination of this lease,
the obligations of Tenant to pay Additional Rent provided for in this
Section 2 shall survive the expiration or termination of this lease.
(f) NO DECREASE IN BASE RENT. In no event shall any Additional
Rent result in a decrease of the Base Rent payable hereunder as set
forth in Section 1 hereof.
3. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of
$20,000.00 as security for the full and faithful performance of every provision
of this lease to be performed by Tenant and every obligation of Tenant owing
Landlord, If Tenant defaults with respect to any obligation owing Landlord
and/or any provision of this lease, including, but not limited to, the
provisions relating to the payment of Rent, Landlord may use. apply or retain
all or any part of this security deposit for the payment of any Rent and any
other sum in default, or for the payment of any other amount which Landlord may
spend or become obligated to spend by reason of Tenant's default or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default. If any portion of said deposit is to be used or
applied, Tenant shall within five (5) days after written demand therefor deposit
cash with Landlord in an amount sufficient to restore the security deposit pound
sterlingo its original amount and Tenant's failure to do so shall be a material
breach of this lease. Tenant may not elect to apply any portion of the security
deposit toward the payment of Rent or other charges payable by Tenant under this
lease. Landlord shall not be required to keep this security deposit separate
from its general funds and Tenant shall not he entitled to interest on such
deposit. If Tenant shall fully and faithfully perform every obligation of Tenant
owing Landlord and every provision of this lease to be performed by Tenant it,
the security deposit or any balance thereof shall be returned to Tenant (or at
Landlord's option to the last assignee of Tenant's interest hereunder) within
thirty (30) days after the expiration of the lease Term axed Tenant's vacation
of the Premises, Tenant hereby agrees not to look to any mortgagee as mortgagee,
mortgagee in possession, or successor in title to the Bull(ling for
accountability for any security deposit required by Landlord hereunder, unless
said sums have actually been received by said mortgagee or successor in title as
security for Tenant's
5
<PAGE> 9
performance of this lease. In connection with a purchase of the Building, the
security deposit shall be deemed to have been actually received by the purchaser
to the extent same received a credit therefor on any so called "closing"
statement or the like. Landlord may deliver the funds deposited hereunder by
Tenant to the purchaser of Landlord's interest in the Building, in the event
that such interest is sold, or credit same on any closing statement, and
thereupon Landlord shall be discharged from any further liability with respect
to such security deposit.
4. USE OF PREMISES. Tenant shall use and occupy the Premises for
general office purposes, and for no other use or purpose. Tenant shall not use
or occupy the Premises or permit the use or occupancy of the Premises for any
purpose or in any manner which (i) is unlawful or in violation of any applicable
legal or governmental requirement, ordinance or rule: (ii) may be dangerous to
persons or property: (iii) may invalidate or increase the amount of premiums for
any policy of insurance affecting the Project, and if any additional amounts of
insurance premiums are so incurred, Tenant shall pay to Landlord the additional
amounts on demand; or (iv) may create a nuisance, disturb any other tenant of
the Building or injure the reputation of the Building.
Tenant shall not cause or permit any Hazardous Material (as defined
below) to be brought upon, kept. or used in or about the Premises or the Project
by Tenant, its agents. employees, contractors. or invitees, without the prior
written consent of Landlord (which Landlord shall not unreasonably withhold as
long as Tenant demonstrates to Landlord's reasonable satisfaction that such
Hazardous Material is necessary or useful to Tenant's business and will at all
times be used, kept, stored and disposed of in a manner that complies at all
times with all laws regulating any such Hazardous Material so brought upon or
used or kept in or about the Premises and/or the Project and such storage will
not create an undue risk to oilier tenants of the Building, giving consideration
to the nature of the Building). If Tenant breaches the obligations stated in the
preceding sentence, or if the presence of Hazardous Material on the Premises or
the Project caused or permitted by Tenant results in contamination of the
Premises or tile Project, or if contamination of the Premises or the Project, by
Hazardous Material otherwise occurs for which Tenant is legally liable to
Landlord for damage resulting therefrom, then Tenant shall indemnify. defend and
hold Landlord harmless from any and all claims. judgments, damages, penalties,
fines, costs, liabilities. or losses (including, without limitation. diminution
in value of the Premises or the Project, damages for the loss or restriction on
use of rentable or usable space or of any amenity of the Premises or the
Project, damages arising from any adverse impact on marketing of space in the
Building, and sums paid in settlement of claims, attorneys' Fees, consultant
fees and expert fees) which arise during or after the term of this lease as a
result of such contamination. This indemnification of Landlord by Tenant
includes, without Limitation, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial. removal or
restoration work required by any federal, state, or local governmental agency or
political subdivision because of Hazardous Material present in, on, or about the
Premises or the Project or in file soil or ground water on or under the Premises
or the Project. Without limiting the foregoing,if the presence of any Hazardous
Material in. on or about the Premises or the Project caused or permitted by
Tenant results in any contamination of the Premises or the Project, Tenant shall
promptly take all actions at its expense as are necessary to return the Premises
or the Project to the condition existing prior to the introduction of any such
Hazardous Material thereto; provided that Landlord's approval of such actions
shall first be obtained, which approval shall not be unreasonably withheld so
long as such actions would not potentially have any material (as determined by
Landlord) adverse long-term or short-term effect on the Premises or the Project
or exposes Landlord to any liability therefor and such actions are undertaken in
accordance with all applicable laws. rules and regulations and accepted industry
practices.
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"Hazardous Material" is used in this lease in its broadest sense and
shall mean any asbestos, petroleum based products, pesticides, paints and
solvents, polychlorinated biphenyl, lead, cyanide, DDT, acids, ammonium
compounds and other chemical products and any substance or material defined or
designated as hazardous or toxic substance, or other similar term, by any
federal, state or local environmental statute, regulation, or ordinance
affecting the Premises or the Project presently in effect or that may be
promulgated in the future, as such statutes, regulations and ordinances may be
amended from time to time, including but not limited to the statutes listed
below: '
Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901
et seq.
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, 40 U.S.C. Section 1801 et seq.
Clean Air Act, 42 U.S.C. Sections 7401-7626.
Water Pollution Control Act (Clean Water Act of 1977), 33 U.S.C.
Section 1251 et seq.
Insecticide, Fungicide, and Rodenticide Act (Pesticide Act of 1987), 7
U.S.C..Section 135 et seq.
Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.
Safe Drinking Water Act, 42 U.$.C. Section 300(f) et seq.
National Environmental Policy Act (NEPA) 42 U.S.C. Section 4321 et seq.
Refuse Act of 1899, 33 U.S.C. Section 407 et seq.
5. SERVICES. Landlord shall furnish the following services, which shall
all be deemed Expenses (except to the extent to be paid entirely by Tenant, as
hereinafter provided):
(a) Heat and air conditioning to provide a temperature condition
required for comfortable occupancy of the Premises for general office purposes
under normal business operations, daily from 8:00 A.M. to 6:00 P.M. and
Saturdays from 8:00 A.M. to 1:00 P.M.. Sundays and holidays excepted ("Building
Standard Hours").
(b) Electricity and gas to the Premises and the building in which the
Premises is located to meters furnished by the local utility companies. Tenant
shall make all arrangements with the local utility companies to obtain service
at Tenant's sole cost and expense, and no such disconnection of gas or
electricity service shall result in any liability of Landlord to Tenant or be
deemed to be an eviction or a disturbance of Tenant's use of the Premises.
(c) Janitor service in and about that portion of the Premises to be
used for general office purposes, Saturdays, Sundays and holidays excepted, in
accordance with other buildings of the same class located in the general area of
the Building.
(d) Passenger elevator service in common with Landlord and other
tenants, and freight elevator service in common with Landlord and other tenants
during Building Standard Hours. Landlord, however.
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shall provide limited passenger elevator service during non Building Standard
Hours. Freight elevator service shall be subject to scheduling and charges by
Landlord.
(e) Cold water for drinking, lavatory and toilet purposes and hot water
for lavatory purposes, in restrooms at locations designated by Landlord, in
common with other tenants of the Building. Tenant shall pay Landlord Additional
Rent at rates fixed by Landlord for water furnished for sinks or restrooms
within the Premises or for any other purpose. Tenant shall not waste or permit
the waste of water.
(f) Landlord shall not be obligated to famish any services other 'than
those services specified or to furnish such services at times other than as
specified. If Landlord agrees to provide extra or additional services, Tenant
shall, for such extra or additional services, pay 120% of Landlord's actual coat
reasonably incurred in providing them, such amount to be considered Additional
Rent hereunder. All charges for such extra or additional services shall be due
and payable at the same time as the installment of Base Rent with which they are
billed, or if billed separately, shall be due and payable within ten (10) days
after such billing. Any such billings for extra or additional services shall
include an itemization of the extra or additional services rendered, and the
charge for each such service.
It is acknowledged and agreed that Tenant shall apply to the applicable
utility company or municipality for gas, electricity, telephone and all other
utility services required by Tenant for use in Premises, and Tenant shall be
responsible for the connection and installation of same. In the event that any
such utilities are provided to Tenant in common with other tenants in the
Building and not metered directly to Tenant, Tenant agrees to pay Landlord for
such utility usage based upon Landlord's allocation of such utility usage among
such tenants, including Tenant. In the event Tenant fails to pay any utility
bill within forty-five (45) days after the due date, Landlord may but shall not
be obligated to pay such bills (without any duty to investigate the validity
thereof), in which event Tenant shall immediately reimburse Landlord for the
amount paid by Landlord plus interest at the default interest rate set forth in
this lease.
Failure by Tenant to promptly pay Landlord's proper charges for water,
electricity or other services shall give Landlord, upon not less than thirty
(30) days' notice, the right to discontinue furnishing the services, and no such
discontinuance shall be deemed an eviction or disturbance of Tenant's use of the
Premises or render Landlord liable for damages or relieve Tenant from
performance of Tenant's obligations under this lease.
Tenant agrees that Landlord and its agents shall not be [table in
damages, by abatement of Rent or otherwise, for failure to furnish or delay in
furnishing any service or failure to perform or delay in performing any other
obligation required to be performed by Landlord under this lease or by operation
of law, when such failure or delay is occasioned, in whole or in part, by
repairs, renewals or improvements, by any strike. lockout or other labor
trouble, by inability to secure electricity, gas, water, .or other fuel at the
Building after reasonable effort so to do, by any accident or casualty
whatsoever, by the act or default of Tenant or other parties, or by any cause
beyond the reasonable control of Landlord; and such failures or delays, or the
nonexistence of any utility, whether occasioned by Landlord or some third party,
shall never be deemed to constitute an eviction or disturbance of Tenant's use
and possession of the Premises or relieve Tenant from paying Rent or performing
any of its obligations under this lease.
Tenant agrees to cooperate fully, at all times with Landlord in abiding
by all reasonable regulations and requirements which Landlord may prescribe for
the proper functioning and protection of all utilities and services reasonably
necessary for the operation of the Premises and the Building. Landlord,
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throughout the term of this lease, shall have free access to any and all
mechanical installations. and Tenant agrees that there shall be no construction
or partitions or other obstructions which might interfere with moving of the
servicing equipment of Landlord to or from the enclosures containing said
installations, Tenant further agrees that neither Tenant nor its servants,
employees, agents, visitors, licensees or contractors shall at any time tamper
with, adjust or otherwise in any manner affect Landlord's mechanical
installations.
6. CONDITION AND CARE OF PREMISES. Tenant's taking possession of the
Premises or any portion thereof shall be conclusive evidence against Tenant that
the portion of the Premises taken possession of was then in good order and
satisfactory condition. No promises of Landlord to alter, remodel, improve,
repair, decorate or clean the Premises or any part thereof have been made, and
no representation respecting the condition of the Premises, the Building or the
Land, has been made to Tenant by or on behalf of Landlord except to the extent
expressly set forth herein (and except to such extent, Tenant is taking the
Premises in its "as is" condition). Tenant agrees that blinds, shades, drapes or
other forms of window coverings and treatments shall not be placed in, on or
about the outside windows in fine Premises, except to the extent that the
character, shape, color, material and make thereof is expressly approved by
Landlord. This lease does not grant any rights to light or air over or about the
property of Landlord. Except for any damage resulting from any act of Landlord
or its employees and agents, and subject to the provisions of Section 14 hereof,
Tenant shall at its own expense keep the Premises in good repair and tenantable
condition and shall promptly and adequately (i) repair all damage to the
Premises caused by Tenant or any of its employees, agents or invitees, including
replacing or repairing all damaged or broken glass. fixtures and appurtenances
resulting from any such damage, and (ii) maintain and, to the extent necessary,
alter the Premises in accordance and compliance with all applicable governmental
laws and regulations both currently existing and hereinafter enacted. with any
such work to the Premises to be performed, under the supervision and with the
approval of Landlord and within any reasonable period of time specified by
Landlord. If Tenant does not do so promptly and adequately, Landlord may, but
need not, make such repairs and replacements and Tenant shall pay Landlord the
cost thereof on demand.
7. RETURN OF PREMISES. At the termination of this lease by lapse of
time or otherwise or upon termination of Tenant's right of possession without
terminating this lease, Tenant shall surrender possession of the Premises to
Landlord and deliver all keys to the Premises to Landlord and make known to
Landlord the combination of all locks of vaults then remaining in the Premises.
and shall (subject to the following paragraph) return the Premises and all
equipment and fixtures of Landlord therein to Landlord in as good condition as
when Tenant originally took possession, ordinary wear. loss or damage by [ire or
other insured casualty. damage resulting from the act of Landlord or its
employees and agents, and alterations made with Landlord's consent excepted,
failing which Landlord may restore the Premises and such equipment and fixtures
to such condition and Tenant shall pay the cost thereof to Landlord on demand.
All installations, additions. partitions. hardware, light fixtures,
non-trade fixtures and improvements, temporary or permanent. except movable
furniture and equipment belonging to Tenant. in or upon tile Premises. whether
placed there by Tenant or Landlord. shall be Landlord's property and shall
remain upon the Premises. all without compensation. allowance or credit to
Tenant; provided. however, that if prior to such termination or within ten (10)
days thereafter Landlord so directs by notice. Tenant, at Tenant's sole cost and
expense. shall promptly remove such of the installations. additions. partitions,
hardware, light fixtures, non-trade fixtures and improvements placed in the
Premises by Tenant as designated in such notice and repair any damage to the
Premises caused by such removal. failing which Landlord may remove the same and
repair the Premises and Tenant shall pay the cost thereof to Landlord
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on demand.
Tenant shall leave in place any floor covering without compensation to
Tenant. Tenant shall also remove Tenant's furniture, machinery, safe, trade
fixtures and other items of movable personal property of every kind and
description from the Premises prior to the end of the Term or ten (10) days
following termination of this lease or Tenant's right of possession, whichever
might be earlier, failing which Landlord may do so and thereupon the provisions
of Section 16(c) shall apply.
All obligations of Tenant hereunder shall survive the expiration of the
Term or sooner termination of this lease.
8. HOLDING OVER. Tenant shall pay Landlord for each day Tenant retains
possession of the Premises or any part thereof after termination of this lease,
by lapse of time or otherwise, an amount which is double the amount of Rent for
a day (computed on a year of 360 days) based on the annual rate of Base Rent and
Additional Rent applicable under Sections 1 and 2 to the period in which such
possession occurs (and if such possession occurs following the full Term of this
lease, double the annual Base Rent Additional Rent applicable in the last year
of this lease), and Tenant shall also pay all damage, consequential as well as
direct, sustained by Landlord' by reason of such retention. If Landlord gives.
written notice to Tenant of Landlord's election thereof such holding over shall
constitute a renewal of this lease for one year at a market rate determined by
Landlord, but acceptance by Landlord of rent after such termination shall not of
itself constitute a renewal. Nothing in this Section contained, however, shall
be construed or operate as a waiver of Landlord's right of re-entry or any other
right of Landlord.
9. RULES AND REGULATIONS. Tenant agrees to observe the rights reserved
to Landlord contained in Section 10 hereof and agree, for itself, its employees,
agents, clients, customers, invitees and guests, to comply with the rules and
regulations set forth in Exhibit C attached to this lease and by this reference
incorporated herein and such other rules and regulations as shall be adopted by
Landlord pursuant to Section 10(m) of this lease.
Any violation by Tenant of any of the rules and regulations contained
in Exhibit C attached to this lease or other Section of this lease, or as may
hereafter be adopted by Landlord pursuant to Section 10(m) of this lease, may be
restrained: but whether or not so restrained, Tenant acknowledges and agrees
that it shall be and remain liable for all damages, loss, costs and expense
resulting from any violation by Tenant of any of said rules and regulations.
Nothing in this lease contained shall be construed to impose upon Landlord any
duty or obligation to enforce said rules and regulations, or the terms,
covenants and conditions of any other lease against any other tenant or any
other persons, and Landlord and its beneficiaries shall not be liable to Tenant
for violation of the same by any other tenant, its employees, agents, invitees,
or by any other person.
10. RIGHTS RESERVED TO LANDLORD. Landlord reserves the following
rights, exercisable without notice and without liability to Tenant for damage or
injury to property, person or business and without effecting an eviction or
disturbance of Tenant's use or possession or giving rise to any claim for setoff
or abatement of rent or affecting any of Tenant's obligations under this lease:
(a) To change the name or street address of the Building.
(b) To install and maintain signs on the exterior and interior of the
Building, and to prescribe
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<PAGE> 14
the location and style of the suite number and identification sign or lettering
for the Premises occupied by Tenant.
(c) To designate the character. shape, color, material and make of all
window coverings and treatments on all outside windows in the Premises.
(d) To retain at all times, and to use in appropriate instances, pass
keys to the Premises.
(e) To grant to anyone the right to conduct any business or render any
service in the Building, whether or not it is the same as or similar to the use
expressly permitted to Tenant by Section 4.
(f) To exhibit the Premises at reasonable hours.
(g) To decorate, remodel, repair, alter or otherwise prepare the
Premises for reoccupancy at any time after Tenant vacates or abandons the
Premises.
(h) To have access for Landlord and other tenants or occupants of the
Building to all mail chutes according to the rules of the United States Postal
Service.
(i) To enter the Premises at reasonable hours for reasonable purposes,
including the posting of notices of nonresponsibility. inspection and supplying
janitor service or other services to be provided to Tenant hereunder.
(j) To require all persons entering or leaving the Building during such
hours as Landlord may from time to time reasonably determine to identify
themselves to security personnel by registration or otherwise, and to establish
their fight to enter or leave. Landlord shall not be liable in damages for any
error with respect to admission to or eviction or exclusion from the Building of
any person. In case of fire, invasion. insurrection, mob, riot, civil disorder,
public excitement or other commotion, or threat thereof, Landlord reserves the
right to limit or prevent access to the Building during the continuance of the
same, shut down elevator service, activate elevator emergency controls, or
otherwise take such action or preventive measures deemed necessary by Landlord
for the safety of the tenants or other occupants of the Building or the
protection of the Building and the property in the Building. Tenant agrees to
cooperate in any reasonable safety program developed by Landlord.
(k) To control and prevent access to common areas and other areas.
(l) Provided that reasonable access to the Premises shall be maintained
and the business of Tenant shall not be interfered with unreasonably, to
relocate. enlarge. reduce or change corridors, exits, entrances in or to the
Building and to decorate and to make repairs, alterations, additions and
improvements, structural or otherwise, in or to the Building or any part
thereof, and any adjacent building, !and, street or alley, including for the
purpose of connection with or entrance into or use of the Building in
conjunction with any adjoining or adjacent building or buildings, now existing
or hereafter constructed, and may for such purposes erect scaffolding and other
structures reasonably required by the character of the work to be performed, and
during such operations may enter upon the Premises and take into and upon or
through any part of the Building, including the Premises, all materials that may
be required to make such repairs. alterations, improvements. or additions, and
in that connection Landlord may temporarily close public entry ways, other
public spaces, stairways or corridors and interrupt or temporarily suspend any
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<PAGE> 15
services or facilities agreed to be furnished by Landlord, all without the same
constituting an eviction of Tenant in whole or in part and without abatement of
rent by reason of loss or interruption of the business of Tenant or otherwise
and without in any manner rendering Landlord liable for damages or relieving
Tenant from performance of Tenant's obligation under this lease; Landlord may at
its option make any repairs, alterations, improvements and additions in and
about the Building and the Premises during ordinary business hours and, if
Tenant desires to have such work done during other than business hours, Tenant
shall pay all overtime and additional expenses resulting therefrom.
(m) From time to time to make and adopt such reasonable rules and
regulations, in addition to or other than or by way of amendment or modification
of the rules and regulations contained in Exhibit C attached to this lease or
other Sections of this lease, for the protection and welfare of the Building and
its tenants and occupants, as Landlord may determine, and Tenant agrees to abide
by all such rules and regulations.
11. ALTERATIONS.
(a) Without Landlord's prior written consent, Tenant shall not make or
cause to be made any decorating, exterior, structural, electrical, plumbing;
ventilation, air conditioning .or other type of alterations, improvements,
additions, changes or repairs in or to the Premises or the Building. As a
condition to granting its consent, Landlord may impose reasonable requirements
in addition to any set forth in this lease, including, without limitation,
requirements as to the manner and time for the performance of any such work and
the type and amount of insurance and bonds Tenant must acquire and maintain in
connection therewith. In addition, at Landlord's option, Landlord shall have the
right: to approve the contractors or mechanics performing the work; to approve
all plans and specifications relating to the work; to review the work of
Tenant's architects, engineers, contractors or mechanics and to control any
construction or other activities being undertaken within the Building, with
Landlord to be reimbursed on demand of same for any costs incurred in connection
with such review or control; and to require correction of the work in instances
in which materials or workmanship is defective or not in accordance with plans
or specifications previously approved by Landlord. Landlord's approval of any
plans and specifications shall create no responsibility on the part of Landlord
for the completeness, design, sufficiency or compliance with all laws,
ordinances. regulations, rules and requirements of governmental entities having
jurisdiction. Tenant shall deliver to Landlord for Landlord's files, at Tenant's
sole cost and expense, complete copies of all final working drawings and plans
and specifications. Except as expressly provided herein, all alterations,
improvements, additions, changes or repairs shall be provided by and paid for by
Tenant at its sole expense, but shall become the property of Landlord and shall
be surrendered with the Premises upon termination of this lease; provided,
however, that Landlord may, by written notice to Tenant as provided in Section 7
of this lease, require Tenant, at Tenant's sole cost and expense, to remove any
or all improvements, alterations, additions or fixtures installed or made by
Tenant on or to the Premises and to repair any damages to the Premises caused by
such removal.
(b) All work in connection with any alterations. improvements, changes,
additions or repairs in the Premises or the Building made by or for the benefit
of Tenant shall be performed in full compliance with all laws. ordinances,
regulations, rules and requirements of all governmental entities having
jurisdiction and in full compliance with all insurance rules, orders,
directions, regulations and requirements. and Tenant shall be responsible for
all such compliance. If there is now or if there shall be installed in the
Building it sprinkler system. and if any fire rating bureau or any similar body
having jurisdiction or any governmental authority having jurisdiction requires
or recommends that any changes, modifications.
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alterations. additional sprinkler heads or other equipment be made or supplied
by reason of Tenant's business or the improvements it has added or the location
of partitions, trade fixtures or other contents of the Premises, or if any such
changes, modifications, alterations, additions or other equipment become
necessary to prevent imposition of a penalty or charge against the full
allowance for a sprinkler system in the fire insurance rate as fixed by said
bureau or by any fire insurance company, Tenant shall, at its own cost, promptly
make and supply all such changes, modifications, alterations, additional
sprinkler heads or other equipment.
(c) Before work is commenced as provided in this Section 11, Tenant
shall give Landlord at least fifteen (15) days' written notice. Landlord shall
be entitled to enter the Premises during regular hours to post a notice of
non-responsibility. Tenant shall secure, at Tenant's own cost, payment and
performance bonds, satisfactory to Landlord, for said work, and during the
progress of the work, Tenant shall at its sole cost and expense, upon Landlord's
request, famish Landlord with sworn contractor's statements and lien waivers
covering all work theretofore performed, together with such endorsements to
Landlord's title insurance policy as Landlord may require. Any mechanic's liens
for work claimed to have been performed for, or materials claimed to have been
furnished to, Landlord or Tenant shall be discharged by Tenant, at Tenant's sole
expense as provided in Section 31. Tenant agrees to indemnify, hold harmless and
defend Landlord from any loss, cost, damage or expense, including attorney's
fees, arising out of any. such lien claim or out of any other claim relating to
work done or materials supplied to the Premises at Tenant's request or on
Tenant's behalf.
12. ASSIGNMENT AND SUBLETTING.
(a) Without Landlord's prior written consent, which Landlord may
withhold in its sole and absolute discretion, Tenant shall not (i) mortgage,
pledge, hypothecate or encumber or subject to or permit to exist upon or be
subjected to any lien or charge, this lease or any interest under it, (ii) allow
to exist or occur any transfer of or lien upon this lease or Tenant's interest
herein by operation of law, or (iii) permit the use or occupancy of the Premises
or any part thereof for any purpose not provided for under Section 4 of this
lease or by anyone other than Tenant and Tenant's employees. Without Landlord's
prior written consent which consent shall not be unreasonably withheld, Tenant
shall not (i) assign its interest in this lease, or (ii) sublet, in whole or in
pan, the Premises. In no event shall this lease be assigned or assignable by
voluntary or involuntary bankruptcy proceedings or otherwise, and in no event
shall this lease or any rights or privileges hereunder be an asset of Tenant
under any bankruptcy, insolvency or reorganization proceedings.
(b) Tenant shall, by notice in writing, advise Landlord of its
intention from, on and after a stated date (which shall not be less than sixty
(60) days after the date of Tenant's notice) to assign this lease or sublet any
part or all of the Premises for the balance or any part of the Term, and,. in
such event, Landlord shall have the right, to be exercised by giving written
notice to Tenant within thirty (30) days after receipt of Tenant's notice, to
recapture the space described in Tenant's notice and such recapture notice
shall, if given, terminate this lease with respect to the space therein
described as of the date stated in Tenant's notice. Tenant's notice shall state
the name and address of the proposed subtenant or assignee and a true and
complete copy of the proposed sublease or assignment shall be delivered to
Landlord with said notice. If Tenant's notice shall cover all of the space
hereby demised, and if Landlord shall give the aforesaid recapture notice with
respect thereto, the Term of this lease shall expire and end on the date stated
in Tenant's notice as fully and completely as if that date had been herein
definitely fixed for the expiration of the Term. If, however, this lease be
terminated pursuant to the foregoing with respect to less
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<PAGE> 17
than the entire Premises, the Rent and Tenant's Proportionate Share as defined
herein shall be adjusted by Landlord on the basis of the number of rentable
square feet retained by Tenant, and this lease as so amended shall continue
thereafter in full force and effect. If Landlord, upon receiving Tenant's notice
with respect to any such space, shall not exercise its right to terminate as
aforesaid, Landlord will not unreasonably withhold its consent to Tenant's
assignment or subletting the space covered by its notice: provided, however,
that in addition to other circumstances under which Landlord's consent may be
withheld (whether similar or dissimilar to the following reasons), Tenant agrees
that the withholding by Landlord of its consent to Tenant's assignment or
subletting the space covered by its notice will not be deemed "unreasonable" if
(i) the proposed assignee or subtenant is disreputable or otherwise not in
keeping with the nature or class of tenants in the Building, (ii) the proposed
assignee or subtenant is not sufficiently financially responsible, or in
Landlord's reasonable opinion will not in the future be sufficiently financially
responsible, to perform its obligations under the !ease or its sublease, (iii)
the use of the Premises by the proposed assignee or subtenant would, in
Landlord's reasonable judgment, significantly increase the pedestrian traffic in
and out of the Building or would require Landlord to perform any alterations to
the Building to comply with applicable building code requirements or other laws,
(iv) there is in existence at the time of such notice any sublease of the
Premises or prior assignments of this lease, (v) there is at the time of such
notice, any uncured default by Tenant pursuant to this lease; or, (vi) at the
time of such notice, Tenant is not in occupancy of the Premises.
(c) Tenant agrees that all advertising by Tenant or on Tenant's behalf
with respect to the leasing of space in the Building must be approved in writing
by Landlord prior to publication.
(d) If Tenant, having first obtained Landlord's consent in accordance
with the foregoing provision of this Section, shall assign this lease or sublet
the Premises, or any part thereof, at a rental or for other monetary
consideration in excess of the Rent or pro rata portion thereof due and payable
by Tenant under this lease. then Tenant shall pay to Landlord, as additional
rent (1) on the first day of each month during the term of any sublease,
one-half (%) of the excess of all rent and other consideration due from the
subtenant for such month over the Rent then payable to Landlord pursuant to the
provisions of this lease for said month (or if only a portion of the Premises is
being sublet, the excess of all rent and other consideration due from the
subtenant for such month over the portion of the Rent then payable to Landlord
pursuant to the provisions of this lease for said month which is allocable on a
square footage basis to the space sublet) and (2) immediately upon receipt
thereof, one-half (1/2) of any other rent or consideration received by Tenant
from such assignment or subletting.
(e) If Tenant is a corporation, (other than a corporation whose stock
is traded through a national or regional exchange or over-the-counter), any
transaction or series of transactions (including, without limitation, any
dissolution, merger, consolidation or other reorganization of Tenant, or any
issuance, sale, gift, transfer or redemption of any capital stock of Tenant,
whether voluntary, involuntary or by operation of law, or any combination of any
of the foregoing transactions) resulting in the transfer of control of Tenant,
other than by reason of death, shall be deemed to be transfer of Tenant's
interest under this lease for the purpose of Section 12(a). If Tenant is a
partnership, any transaction or series of transactions (including, without
limitation, any withdrawal or admittance of a partner or any change in any
partner's interest in Tenant, whether voluntary, involuntary or by operation of
law, or any combination of any of the foregoing transactions) resulting in the
transfer of control of Tenant, other than by reason of death, shall be deemed to
be a transfer of Tenant's interest under this lease for the purposes of Section
12(a). The term "control" as used in this Section 12(e) means tire power to
directly or indirectly direct or cause the direction of tile management or
policies or Tenant. If Tenant is a corporation, a change
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<PAGE> 18
or series of changes in ownership of stock which would result in direct or
indirect change in ownership by the stockholders or an affiliated group of
stockholders of less than fifty percent (50%) of the outstanding stock as of the
date of the execution and delivery of this lease or which are effected through a
recognized stock exchange to stockholders not acting in concert to obtain
control shall not be considered a change of control.
(f) Consent by Landlord to any assignment, subletting, use or
occupancy, or transfer shall not operate to relieve Tenant from any covenant or
obligation hereunder, except to the extent, if any, expressly provided for in
such consent, or be deemed to be a consent to or relieve Tenant from obtaining
Landlord's consent to any subsequent assignment, transfer, lien, charge,
subletting, use or occupancy. Tenant shall pay all of Landlord's costs, charges'
and expenses, including attorney's fees incurred in connection with any
assignment or sublease requested or made by Tenant.
13. WAIVER OF CERTAIN CLAIMS; INDEMNITY BY TENANT.
(a) To the extent not expressly prohibited by law, Landlord and Tenant
each releases and waives any and all claims for, and rights to recover, damages
against and from the other, and the other's respective agents, partners,
shareholders, officers, directors (and, in the case of claims. by Tenant, any
trustee ("Trustee") holding legal title to the Real Property if same is held in
trust) and employees (collectively, the "Released Parties"), for loss, damage or
destruction to any of its property (including the Premises, the Building and
their contents), the elements of which are insured against or which would have
been insured against had such party suffering such loss, damage or destruction
maintained the property or physical damage insurance policies required under
Section 20 hereof. In no event shall this clause be deemed, construed or
asserted (i) to affect or limit any claims or rights against any Released
Parties other than the right to recover damages for loss, damage or destruction
to property, or (ii) to benefit any third party other than the Released Parties.
(b) To the extent not expressly prohibited by law, Tenant (the
"Indemnitor") agrees to hold harmless and indemnify Landlord and Landlord's
agents, partners, shareholders, officers, directors, Trustee, and employees
(collectively, the "Indemnitees") from any losses, damages, judgments, claims,
expenses, costs and liabilities imposed upon or incurred by or asserted against
the Indemnitees, including reasonable attorney's fees and expenses, for death or
injury that may arise from or be caused directly or indirectly by any negligent
act of omission or commission of any willful misconduct of the Indemnitor or any
of the Indemnitor's respective agents, partners, or employees. Such third
parties shall not be deemed third party beneficiaries of this agreement. In case
any action, suit or proceeding is brought against any of the Indemnitees by
reason of any such act of the Indemnitor or any of the Indemnitor's respective
agents, partners or employees, then the Indemnitor will, at the Indemnitor's
expense and at the option of said Indemnitees, by counsel approved by said
Indemnitees, resist and defend such action, suit or proceeding.
(c) Subject to the provisions of Section 13(a) to the extent permitted
by law, no agreement of Tenant in this Section 13 shall be deemed to exempt
Landlord from liability or damages for injury to persons or damage to propen3,
caused by or resulting from the willful negligence Of Landlord, its agents,
servants or employees. in the operation or maintenance of the Premises or
Building.
14. DAMAGE OR DESTRUCTION BY CASUALTY. if the Premises or any part of
the Building shall be damaged by fire or other casualty and if such damage does
not render all or a "substantial portion" (as
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determined by Landlord) of the Premises or the Building untenantable, then
Landlord shall proceed to repair and restore the Premises with reasonable
promptness, subject to reasonable delays for insurance adjustments and delays
caused by matters beyond Landlord's control. If any such damage renders all or a
substantial portion of the Premises or the Building untenantable, Landlord
shall, with reasonable promptness after the occurrence of such damage, estimate
the length of time that will be required to substantially complete the repair
and restoration of such damage and shall by notice advise Tenant of such
estimate. If it is so estimated that the amount of time required to
substantially complete such repair and restoration will exceed one hundred
eighty (180) days from the date such damage occurred, then either Landlord or
Tenant (but as to Tenant, only if all or a substantial portion Of the Premises
are rendered untenantable) shall have the right to terminate this lease as of
the data of such damage upon giving notice to the other at any time within
twenty (20) days after Landlord gives Tenant the notice containing said estimate
(it being understood that Landlord may, if it elects to do so, also give such
notice of termination together with the notice containing-said estimate). Unless
this lease is terminated as provided in the preceding sentence, Landlord shall
proceed with reasonable promptness to repair and restore the Premise, subject to
reasonable delays for insurance adjustments and delays caused by matters beyond
Landlord's control, and also subject to zoning laws and building codes then in
effect. Landlord shall have no liability to Tenant. and Tenant shall not be
entitled to terminate this lease if such repairs and restoration are not in fact
completed within the time period estimated by Landlord, as aforesaid, or within
said one hundred. eighty (180) days, so long as Landlord shall proceed with
reasonable diligence to complete such repairs and restoration, Notwithstanding
anything to the contrary herein set forth, (a) landlord shall have no duty
pursuant to this Section 14 to repair or restore any portion of the alterations,
additions or improvements made by Tenant in the Premises or to expend for any
repair or restoration amounts in excess of insurance proceeds paid to Landlord
and available for repair or restoration, and (b) Tenant shall not have the right
to terminate this lease pursuant to this Section 14 if the damage or destruction
was caused by the act or neglect of Tenant, its agents, partners or employees.
In the event any such fire or casualty damage not caused by the act or
neglect of Tenant, its agents, partners or employees. renders the Premises
untenantable and Tenant is not occupying the Premises, and if this lease shall
not be terminated pursuant to the foregoing provisions of this Section 14 by
reason of such damage. then Rent shall abate during the period beginning with
the date of such damage and ending with the date when Landlord completes its
repair and restoration. Such abatement shall be in an amount bearing the same
ratio to the total amount of Rent for such period as the portion of the Premises
not ready for occupancy from time to time bears to the entire Premises. In the
event of termination of this lease pursuant to this Section 14. Rent shall be
apportioned on a per diem basis and be paid to the date of the fire or casualty.
15. EMINENT DOMAIN. If all or a substantial portion of the Building, or
any part thereof which includes all or a substantial portion of the Premises,
shall be taken or condemned by any competent authority for any public or
quasi-public use or purpose, the Term of this lease shall end upon and not
before the date when the possession of the part so taken shall be required for
such use or purpose, and without apportionment of the award to or for the
benefit of Tenant. If any condemnation proceeding shall be instituted in which
it is sought to take or damage any part of the Building, the taking of which
would, in Landlord's opinion, prevent the economical operation of the Building,
or if the grade of any street or alley adjacent to the Building is changed by
any competent authority, and such taking, damage or change of grade makes it
necessary or desirable to remodel the Building to conform to the taking, damage
or changed grade, Landlord shall have the right to terminate this lease upon not
less than ninety (90) days' notice prior to the date of termination designated
in the notice. In either of the events above referred to,
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Rent at the then current rate shall be apportioned as of the date of the
termination. No money or other consideration shall be payable by Landlord to
Tenant for the right of termination, and Tenant shall have no right to share in
the condemnation award, whether for a partial or total taking, for loss of
Tenant's leasehold or improvements, or in any judgment for damages caused by the
change of grade.
16. Default: Landlord's Rights and Remedies.
(a) If default shall be made in the payment of the Rent or any
installment thereof or any other sum required to be paid by Tenant under the
terms of any other agreement between Landlord and Tenant, or if a default
involves a hazardous condition and is not cured by Tenant immediately upon
written notice to Tenant, or if the interest of Tenant in this lease shall be
levied or under execution or other legal peon, or if any voluntary petition in
bankruptcy or for corporate reorganization or any similar relief shall be filed
by Tenant, or if any involuntary petition in bankruptcy shall be filed against
Tenant under any federal Or state bankruptcy or insolvency act and shall not
have been dismissed within thirty (30) days from the filing thereof, or if a
receiver shall be appointed for Tenant or any of the property of Tenant by any
court and such receiver shall not have been dismissed within thirty (30) days
from the date of his appointment, or if Tenant shall make an assignment for the
benefit of creditors, or if Tenant shall admit in writing Tenant's inability to
meet Tenant's debts as they mature, or if Tenant shall abandon or vacate the.
Premises during the Term, or if default shall be made in the observance or
performance of any of the other covenants or conditions in this lease which
Tenant is required to observe and perform and such non-monetary default shall
continue for ten (10) days after written notice to Tenant, then Landlord may
treat the occurrence of any one or more of the foregoing events as a breach of
this lease, and thereupon at its option may, with or without notice or demand of
any kind to Tenant or any other person, have any one or more of the following
described remedies (any of which may be pursued by Landlord in its own name or
by and in the name of the beneficiaries of Landlord or the agent of such
beneficiaries) in addition to all other rights and remedies provided at law or
in equity or elsewhere herein:
(i) Landlord may terminate this lease and the Term created hereby,
in which event Landlord may forthwith repossess the Premises
and be entitled to recover forthwith as damages a sum of money
equal to the value of the Rent provided to be paid by Tenant
for the balance of the original Term, less the rental value of
the Premises for said period ("Rental Value"), and plus any
other sum of money and damages owed by Tenant to Landlord.
Should the Rental Value exceed the value of the Rent provided
to be paid by Tenant for the balance of the original Term of
this lease, Landlord shall have no obligation to pay to
Tenant. the excess or any part thereof.
(ii) Landlord may terminate Tenant's right of possession and may.
repossess the Premises by forcible entry and detainer suit. by
taking peaceful possession or otherwise, without terminating
this lease, in which event Landlord may, but shall be under no
obligation to, relet the same for !he account of Tenant, for
such rent and upon such terms as shall be satisfactory to
Landlord. For the purpose of such reletting, Landlord is
authorized to decorate or to make any repairs. If Landlord
shall fail to relet the Premises, Tenant shall pay to Landlord
as damages a sum equal to the amount of the Rent reserved in
this lease for the balance of its original Term. If the
Premises are relet and a sufficient sum shall not be realized
from such reletting after paying all of the costs and expenses
of such decorations.
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repairs, changes, alterations and additions and the other
expenses of such reletting and of the collection of the rent
accruing therefrom to equal or exceed the Rent provided for in
this lease for the balance of its original Term, Tenant shall
satisfy and pay such deficiency upon demand therefor from time
to time. Tenant agrees that Landlord may file suit to recover
any sums falling due under the terms of this Section 16 from
time to time and that no suit or recovery of any portion due
Landlord hereunder shall be any defense to any subsequent
action brought for any amount theretofore reduced to judgment
in favor of Landlord.
(b) If Landlord exercises either of the remedies provided for in
subparagraphs (i) and (ii) of the foregoing Section 16(a), Tenant 'shall
surrender possession and vacate the Premises immediately and deliver possession
thereof to landlord, and Landlord may then or at any time thereafter re-enter
and take complete and peaceful possession of the Premises, with or without
process of law, full and complete license so to do being hereby granted to
Landlord, and Landlord may remove all occupants and property therefrom, without
being deemed in any manner guilty of trespass, eviction or forcible entry and
detainer and without relinquishing Landlord's right to Rent or any other right
given to Landlord hereunder or by operation of law.
(c) All property removed from the Premises by Landlord pursuant to any
provisions of this lease or of law may be handled, removed or stored by Landlord
at the cost and expense of Tenant, and Landlord shall in no event be responsible
for the value, preservation or safekeeping thereof. Tenant shall pay Landlord
for all expenses incurred by Landlord in such removal and storage charges
against such property so long as the same shall be in Landlord's possession or
Under Landlord's control. All property not removed from the Premises or retaken
from storage by Tenant within thirty (30) days after the end of the Term,
however terminated, shall, at Landlord's election, be conclusively deemed to
have been conveyed by Tenant to Landlord as by bill of sale without further
payment or credit by Landlord to Tenant.
(d) Tenant shall pay all of Landlord's costs, charges and expenses,
including court costs and attorneys' fees, incurred in enforcing Tenant's
obligations under this lease or incurred by Landlord in any litigation,
negotiation or transactions in which Tenant causes Landlord, without Landlord's
fault, to become involved or concerned.
(e) In the event that Tenant shall file for protection under any
chapter of the Bankruptcy Code now or hereafter in effect, or a
trustee-in-bankruptcy shall be appointed for Tenant. Landlord and Tenant agree,
to the extent permitted by law, to request that file debtor-in-possession or
trustee-in-bankruptcy, if one is appointed. shall assume or reject this lease
within sixty (60) days thereafter.
17. Subordination.
(a) Landlord may have heretofore or may hereafter encumber with a
mortgage or trust deed the Real Property or any interest therein, and may have
heretofore and may hereafter sell and lease back the Land, or any part of the
Real Property, and may have heretofore or may hereafter encumber the leasehold
estate under such lease with a mortgage or trust deed. (Any such mortgage or
trust deed is herein called a "Mortgage" and fire holder of any such mortgage or
the beneficiary under any such trust deed is herein called a "Mortgagee". Any
such lease of the underlying land is herein called a "Ground Lease", and the
lessor under any such lease is herein called a "Ground Lessor". Any Mortgage
which is a first lien against the Building. the Land, the Real Property. the
leasehold estate under a Ground Lease or any interest
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therein is herein called a "First Mortgage" and the holder or beneficiary of any
First Mortgage is herein called a "First Mortgagee".)
(b) If requested by a Mortgagee or Ground Lessor, Tenant will either
(i) subordinate its interest in this lease to said Mortgage or Ground Lease, and
to any and all advances made thereunder and to the interest thereon, and to all
renewals, replacements, supplements, amendments, modifications and extensions
thereof, or (ii) make certain of Tenant's rights and interest in this lease
superior thereto: and Tenant will promptly execute and deliver such agreement or
agreements as may be reasonably required by such Mortgagee 6r Ground Lessor;
provided however, Tenant covenants it will not subordinate thin lease to any
Mortgage other than a First Mortgage without the prior written consent of the
First Mortgagee.
(c) It is further agreed that (i) if any Mortgage shall be foreclosed,
or if any Ground Least be terminated, (A) the liability of the Mortgagee or
purchaser at such foreclosure sale or the liability of a subsequent owner
designated as Landlord under this lease shall exist only so long as such
Mortgagee, purchaser or owner is the owner of the Building, Land or Real
Property, and such liability shall not continue or survive after further
transfer of ownership; (B) the Mortgagee or Ground Lessor or their successors or
assigns that succeeds to the interest of Landlord in the Building or the Land,
or acquires the right to possession of the Building or the Land, shall not be
(1) liable for any act or omission of the party. named above (or any successor
in title thereto) as Landlord, under this lease; (2) liable for the performance
of Landlord's covenants pursuant to the provisions of thin lease which arise and
accrue prior to such entity succeeding to the interest of Landlord (or any
successor in title thereto) under thin lease or acquiring such right to
possession; (3) subject to any offsets or defenses which Tenant may have at any
time against Landlord(or any successor in title thereto); (4) bound by any Rent
which Tenant may have paid previously for more than one (1) month: (5) liable
for the performance of any covenant of Landlord under this lease which is
capable of performance only by the original Landlord (or any successor in title
thereto); and (C) upon request of the Mortgagee, if the Mortgage shall be
foreclosed, Tenant will attorn, as Tenant under this lease, to the purchaser at
any foreclosure sale under any Mortgage or upon request of the Ground Lessor, if
any Ground Lease shall be terminated, Tenant will attorn as Tenant under this
lease to the Ground Lessor, and Tenant will execute such instruments as may be
necessary or appropriate to evidence such attornment; and (ii) this lease may
not be modified or amended so as to reduce the Rent or shorten the Term, or so
as to adversely affect in any other respect to any material extent the rights of
Landlord, nor shall this lease be canceled or surrendered, without the prior
written consent, in each instance, of the First Mortgagee or any Ground Lessor.
(d) Should any prospective First Mortgagee or Ground Lessor require a
modification or modifications of this lease, which modification or modifications
will not cause an increased cost or expense to Tenant or in any other way
materially and adversely change the rights and obligations of Tenant hereunder,
in the reasonable judgment of Tenant, then and in such event. Tenant agrees that
this lease may be so modified and agrees to execute whatever documents are
required therefor and deliver the same to Landlord within ten (10) days
following the request therefor. Should any prospective Mortgagee or Ground
Lessor require execution of a short form of lease for recording (containing,
among other customary provisions, the names of the parties, a description of the
Premises and the Term of. this lease), Tenant agrees to execute such short form
of lease and deliver the same to Landlord within fen (10) days following the
request therefor.
(e) If Tenant fails within ten (10) days after written demand therefor
to execute and deliver any instruments as may be necessary or proper to
effectuate any of the covenants of Tenant set forth above
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in this Section 17, Tenant hereby makes. constitutes and irrevocably appoints
any one of Landlord or its beneficiaries as its attorney-in-fact (such power of
attorney being coupled with an interest) to execute and deliver any such
instruments for and in the name of Tenant.
18. MORTGAGEE AND GROUND LESSOR PROTECTION. Tenant agrees to give any
First Mortgagee and any Ground Lessor, by registered or certified mail, a copy
of any notice or claim of default served upon Landlord by Tenant, provided that
prior to such notice Tenant has been notified in writing Coy way of service on
Tenant of a copy of an assignment of Landlord's interests in leases, or
otherwise) Of the address of such First Mortgagee or Ground Lessor (hereinafter
the "Notified Party"). Tenant further agrees that if Landlord shall have failed
to cure such default within twenty (20) days after such notice to Landlord (or
if such default cannot be cured or corrected within that time, then such
additional time as may be necessary if Landlord has commenced within such twenty
(20) days and is diligently pursuing the remedies or steps necessary to cure or
correct such default), then the Notified Party shall have an additional thirty
(30) days within which to cure or correct such default (or if such default
cannot be cured or corrected within that time, then such additional time as may
be necessary if such Notified Party has commenced within such thirty (30) days
and is diligently pursuing the remedies or steps necessary to cure or correct
such default, including the time necessary to obtain possession if possession is
necessary to cure or correct such default) before Tenant may exercise any right
or remedy which it may have on account of any such default of Landlord.
19. DEFAULT UNDER OTHER LEASES. If the term of any lease, other than
this lease, heretofore or hereafter made by Tenant for any space in the Building
shall be terminated or terminable after the making of this lease because of any
default by Tenant under such other lease, such fact shall empower Landlord, at
Landlord's sole option, to terminate this lease by notice to Tenant or to
exercise any of the rights or remedies set forth in Section 16.
20. INSURANCE.
(a) At all times during the Term of this lease, Tenant shall at its
sole cost and expense maintain in full force and effect insurance protecting
Tenant and Landlord (and Landlord's beneficiaries, if Landlord is ever a land
trust), and their respective agents. and any other parties designated by
Landlord from time to time, with terms, coverages and in companies at all times
satisfactory to Landlord as follows:
(i) Commercial General Liability Insurance against claims for
personal injury, death or property damage occurring in connection with the use
and occupancy of the Premises. including contractual liability insuring the
indemnification provisions contained in this lease, naming Landlord, and
Landlord's mortgagee, principals and principals' beneficiaries, and the
management of the Building, as additional insureds, such insurance to afford
protection to the limit of not less than Two Million Dollars ($2,000,000.00) for
each occurrence and annual aggregate.
(ii) Workers Compensation Insurance, as required to meet rite
applicable laws of the state in which the Building is located, and Employers
Liability Insurance.
(iii) At all times when any work is in process in connection
with any change or alteration being made by Tenant, Tenant shall require all
contractors and subcontractors to maintain the insurance described in (i) and
(ii). Landlord and Landlord's mortgagee, principals and principals'
beneficiaries and the management of the Building will be added as additional
insureds to such policies. and evidence of same
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shall be delivered to Landlord.
(iv) Property insurance on an "all risk" basis (including
sprinkler leakage, if applicable) for the full replacement cost of all
additions, improvements and alterations to the Premises and of all office
equipment, furniture, trade fixtures, merchandise and all other items of
Tenant's property on the Premise, Tenant agrees to have such insurance policies
endorsed to provide for a waiver of subrogation against Landlord by the
insurance carrier.
Tenant shall, prior to the commencement of the Term hereof and prior to
the expiration of any policy, furnish Landlord certificates evidencing that all
required insurance is in force and providing that such insurance may not be
canceled or changed without at least thirty (30) days' prior written notice to
Landlord and Tenant (unless such cancellation is due to nonpayment of premiums,
in which event ten (10) days' prior notice shall be provided).
(b) Tenant shall comply with all applicable laws and ordinances, all
orders and decrees of court and all requirements of other governmental authority
and shall not directly or indirectly make any use of the Premises which may
thereby be prohibited or be dangerous to person or property or which may
jeopardize any insurance coverage, or may increase the cost of insurance or
require additional insurance coverage.
(c) Landlord and Tenant hereby waive all claims of recovery from the
other party for loss or damage to any of its property to the extent of any
recovery collectible under valid and collectible property insurance policies.
21. NONWAIVER. No waiver of any condition expressed in this lease shall
be implied by any neglect of Landlord to enforce any remedy on account of the
violation of such condition whether or not such violation be continued or
repeated subsequently, and no express waiver shall affect any condition other
than the one specified in such waiver and that one only for the time and in the
manner specifically stated. Without limiting the provisions of Section 8, it is
agreed that no receipt of moneys by Landlord from Tenant after the termination
in any way of the Term or of Tenant's right of possession hereunder or after the
giving of any notice shall reinstate, continue or extend the Term or affect any
notice given to Tenant prior to the receipt of such moneys. It is also agreed
that after the service of notice or commencement of a suit' or after final
judgment for possession of the Premises, Landlord may receive and collect any
moneys due, and the payment of said moneys shall not waive or affect said
notice, suit or judgment.
22. ESTOPPEL CERTIFICATE. Tenant agrees that from time to time upon
written request by Landlord, or the holder of any Mortgage or any ground lessor,
Tenant (or any permitted assignee, subtenant or other occupant of the Premises
claiming by, through or under Tenant) will deliver to Landlord or to the holder
of any Mortgage or ground lessor or contract purchaser of an interest in
Landlord or in the Building, within ten (10) days after such written request
shall have been served upon Tenant, a statement in writing signed by Tenant,
addressed to such person or persons as Landlord shall request, certifying (a)
that this lease is unmodified and in full force and effect (or if there have
been modifications, that the lease as modified is in full force and effect and
identifying the modifications); (b) the date upon which Tenant began paying Rent
and the dates to which the Rent and other charges have been paid, (c) the: date
upon which the Term shall end. (d) that Landlord is not in default trader any
provision of this lease, or, if in default, the nature thereof in detail; (e)
that the Premises have been completed in accordance with
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the terms hereof and Tenant is in occupancy and paying Rent on a current basis
with no rental offsets or claims; (f) that there has been no prepayment of Rent
other than that provided for in the lease; (g) the amount of any security
deposit made by Tenant or Tenant-successor, (h) that there are no actions,
whether voluntary or otherwise, pending against Tenant under the bankruptcy laws
of the United States or any State thereof, and (i) such other matters as may be
required by Landlord, holder of a Mortgage, ground lessor or contract purchaser.
If Tenant fails within ten (10) days after written demand therefor to execute
and deliver any instrument as may be necessary or proper to effectuate any of
the covenants of Tenant set forth above in this Section 22, Tenant hereby makes,
constitutes and irrevocably appoints Landlord as. its attorney-in-fact (such
power of attorney being coupled with an interest) to execute and deliver any
such instrument for and in the name of Tenant. Without limitation to the
foregoing, if Tenant fails within said ten (10) period to execute and deliver
said certification as may be necessary or proper to effectuate any of the
covenants of Tenant set forth above in this Section 22, Tenant shall be deemed
to have irrevocably agreed to all of the statements therein contained.
23. TENANT-CORPORATION OR PARTNERSHIP. In case Tenant is a corporation,
Tenant (a) represents and warrants that this lease has been duly authorized,
executed and delivered by and on behalf of Tenant and constitutes the valid and
binding. agreement of Tenant in accordance with the terms hereof and (b) if
Landlord so requests, it shall deliver to Landlord or its agent, concurrently
with the delivery of this lease executed by Tenant, certified resolutions of the
board of directors (and shareholders, if required) authorizing Tenant's
execution and delivery of this lease and the performance of Tenant's obligations
hereunder. In case Tenant is a partnership, Tenant represents and warrants that
all of the persons who are general or managing partners in said partnership have
executed this lease on behalf of Tenant, or that this lease has been executed
and delivered pursuant to and in conformity with a valid and effective
authorization therefor by all of the general or managing partners of such
partnership, and is and constitutes the valid and binding agreement of the
partnership and each and every partner therein in accordance with its terms.
Also, it is agreed that each and every present and future general partner in
Tenant shall be and remain at all times jointly and severally liable hereunder
and that the death, resignation or withdrawal of any partner shall not release
the liability of such partner under the terms of this lease unless and until
Landlord shall have consented in writing to such release, Landlord being under
no obligation to so consent.
24. REAL ESTATE BROKERS. Tenant represents that Tenant has directly
dealt with and only with CB Commercial Real Estate Group (whose commission. if
any, shall be paid by Landlord pursuant to separate agreement) and JD Partners
(whose commission, if any, shall be paid by CB Commercial Real Estate Group from
any commission it may receive from Landlord) as brokers in connection with this
lease and agrees to indemnify and hold Landlord harmless from all damages,
liability and expense (including reasonable attorneys' fees) arising from any
claims or demands of any other broker or brokers or finders for any commission
alleged to be due such broker or brokers or finders in connection with its
participating in the negotiation with Tenant of this lease.
25. NOTICES. All notices to or demands upon Landlord or Tenant desired
or required to be given under any of the provisions hereof shall be in writing.
Any notices or demands from Landlord to Tenant shall be deemed to have been
given if a copy thereof has been personally delivered to Tenant or Tenant's
agent (including without limitation delivery by messenger or courier. with
evidence of receipt) or mailed by United States registered or certified mail,
return receipt requested, addressed to Tenant at the address of the Premises
after 'Tenant's occupancy of the Premises. If Tenant is a corporations. any
notices or demands from Landlord to Tenant also shall be deemed to have been
given if a copy thereof is mailed
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by United States registered or certified mail, return receipt requested, to
Tenant's registered agent in Illinois. Any notices or demands from Landlord to
Tenant may be signed by Landlord, its beneficiaries, the managing agent for the
Building or any agent of any of them. Any notices or demands from Tenant to
Landlord shall be deemed to have been given if a copy thereof has been
personally delivered to Landlord or the managing agent of the Building
(including without limitation delivery by messenger or courier, with evidence of
receipt) or mailed by United States registered or certified. mail, return
receipt requested, to Landlord in care of the Manager of the Building at the
Building's on site management office, 1375 E. Woodfield Road, Schaumburg,
Illinois 60173, with a copy to MONY Real Estate Investment Management, 1333
Butterfield Road, Suite 400, Downers Grove, Illinois 60515. Landlord, its
beneficiaries, or the managing agent of the Building may, upon notice to Tenant,
change either the address for, or the party who shall receive, notices or
demands from Tenant to Landlord on Landlord's behalf. All notices to or demands
upon Landlord or Tenant mailed by registered or certified mail, return receipt
requested, shall be deemed served at the time the same were posted.
26. MISCELLANEOUS.
(a) Each provision of this lease shall extend to and shall bind and
inure to the benefit not only of Landlord and Tenant, but also their respective
heirs, legal representatives, successors and assigns, but this provision shall
not operate to permit any transfer, assignment, mortgage, encumbrance, lien,
charge, or subletting contrary to the provisions of Section 12.
(b) All of the agreements of Landlord and Tenant with respect to the
Premises are contained in this lease; and no modification, waiver or amendment
of this lease or of any of its conditions or provisions shall be binding upon
Landlord unless in writing signed by Landlord.
(c) Submission of this instrument for examination shall not constitute
a reservation of or option for the Premises or in any manner bind Landlord and
no lease or obligation on Landlord shall arise until this instrument is signed
and delivered by Landlord and Tenant; provided, however, the execution and
delivery by Tenant of this lease to Landlord or the agent of Landlord's
beneficiary shall constitute an irrevocable offer by Tenant to lease the
Premises on the terms and conditions herein contained, which offer may not be
revoked for thirty (30) days after such delivery.
(d) The word "Tenant" whenever used herein shall be construed to mean
Tenants or any one or more of them in all cases where there is more than one
Tenant; and the necessary grammatical changes required to make the provisions
hereof apply either to corporations or other organizations, partnerships or
other entities, or individuals, shall in all cases be assumed as though in each
case fully expressed. In all cases where there is more than one Tenant, the
liability of each shall be joint and several.
(e) Clauses, plats, and riders, if any, signed by Landlord and Tenant
and endorsed on or affixed to this lease are part hereof and in the event of
variation or discrepancy the duplicate original hereof, including such clauses,
plats and riders, if any, held by Landlord shall control.
(f) The headings of Sections are for convenience only and do not limit,
expand or construe the contents of the Sections.
(g) Landlord's title is and always shall be paramount to the title of
Tenant, and nothing in this lease contained shall empower Tenant to do any act
which can. shall or may encumber the title of
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Landlord.
(h) Time is of the essence of this lease and of each and all provisions
thereof.
(i) All amounts (including, without limitation, Base Rent and
Additional Rent) owed by Tenant to Landlord pursuant to any provision of this
lease shall not be deemed a loan but shall bear interest from the date due until
paid at the annual rate equal to three percentage points in excess of the rate
of interest announced from time to time by The First National Bank of Chicago at
Chicago, Illinois, or any successor thereto, as its corporate base rate,
changing as and when said corporate base rate changes. unless a lesser rate
shall then be the maximum rate permissible by law with respect thereto, in which
event said lesser rate shall be charged.
(j) The invalidity of any provision of this lease shall not impair or
affect in any manner the validity, enforceability or effect of the rest of this
lease.
(k) All understandings and agreements, oral or written, heretofore made
between the parties hereto are merged in this lease, which alone fully and
completely expresses the agreement between Landlord (and its beneficiary and
their agents) and Tenant.
27. DELIVERY OF POSSESSION. If Landlord shall be unable to give
possession of the Premises on the date of the commencement of the Term for any
reason, Landlord shall not be subject to any liability for failure to give
possession. Under such circumstances the Rent reserved and covenanted to be paid
herein shall not commence until the Premises are available for occupancy, and no
such failure to give possession on the date of commencement of the Term shall
affect the validity of this lease or the obligations of Tenant hereunder.
Provided, however, if the Premises are not delivered to Tenant on the
Commencement Date as stated on page one of this lease, the Commencement Date and
the stated expiration date as set forth on page one of this lease shall be
adjusted so as to accord the parties hereto with the term they would have had if
the Premises had been delivered on the original Commencement Date. In accordance
therewith, and in such event, Landlord and Tenant shall execute an amendment to
this lease reflecting the new commencement date and the new expiration date.
28. SUBSTITUTION OF PREMISES. At any time hereafter, Landlord may
substitute for the Premises other premises (herein called "The New Premises")
provided that the New Premises shall be similar to the Premises in area and use
for Tenant's purposes and shall be located in the Building. If Tenant is already
in occupancy of the Premises, then in addition, Landlord shall pay the expense
of Tenant for moving from the Premises to the New Premises and for improving the
New Premises so that alley are substantially similar to the Premises; such move
shall be made during evenings, weekends, or otherwise so as to incur the least
inconvenience to Tenant; and landlord shall first give Tenant at least thirty
(30) days notice before: making such change. If Landlord shall exercise its
right hereunder, the New Premises shall thereafter be deemed for the purposes of
this lease as the Premises.
29. SIGNS. No signs shall be installed on the exterior of. or adjacent
to, the Premises or the Building. All signs which are erected in or on the
interior of the Premises shall be in accordance with the building standard
designated by Landlord and subject to Landlord's prior written approval. The
installation and maintenance of any and all signs by or on behalf of Tenant
shall be in full compliance with all applicable laws. ordinances, regulations,
rules anti orders of any governmental authority having jurisdiction, and Tenant
shall obtain all necessary licenses and permits in connection therewith. Tenant
shall install
24
<PAGE> 28
and promptly repair, maintain and service all such signs in accordance with
proper techniques and procedures. and shall indemnify, hold harmless and defend
Landlord from all loss, cost, damage or expense, including attorney's fees,
arising out of any claim relating to the installation, existence, operation,
maintenance, repair, removal or condition of any such sign. On or before the
termination of this lease, Tenant shall, at its sole expense, remove all such
signs in a manner satisfactory to Landlord and shall immediately repair, at
Tenant's sole expense, any injury or damage caused by removal. All costs and
expenses relating to all such signs shall be borne solely by Tenant.
30. LANDLORD. The term "Landlord" as used in this lease means only the
owner or owners at the time being of landlord's interest in the Building and the
Land so that in the event of any assignment conveyance or sale, once or
successively, of Landlord's interest in the Land and Building, or any assignment
of this lease by Landlord, said Landlord making such sale, conveyance or
assignment shall be and hereby is entirely freed and relieved of all covenants
and obligations of Landlord hereunder accruing after such conveyance, sale or
assignment, and Tenant agrees to look solely to such purchaser, grantee or
assignee with respect thereto. This lease shall not be affected by any such
conveyance, assignment or sale, and Tenant agrees to attorn to the purchaser,
grantee or assignee.
31. TITLE AND COVENANT AGAINST LIENS. Landlord's title is and always
shall be paramount to the title of Tenant and nothing in this lease contained
shall empower Tenant to do any act which can, shall or may encumber the title of
Landlord. Tenant covenants and agrees not to suffer or permit any lien of
mechanics or materialmen to be placed upon or against the Real Property any
portion thereof including the Premises or against Tenant's leasehold interest in
the Premises and, in case of any such lien attaching, to immediately pay and
remove same. Tenant has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever, whether created by act of Tenant, operation
of law or otherwise, to attach to or be placed upon the Real Property, Land,
Building or Premises, and any and all liens and encumbrances created by Tenant
shall attach only to Tenant's interest in the Premises. If any such liens
created, caused or permitted by Tenant so attach and Tenant fails to pay and
remove same within ten (10) days, Landlord, at its election, may pay and satisfy
the same and in such event the sums so paid by Landlord, shall be due and
payable by Tenant upon demand, with interest from the date of payment at the
rate set forth in Section 26(i) hereof for amounts owed Landlord by Tenant.
32. EXCULPATORY PROVISIONS. The liability of any Landlord under this
lease or any amendment to this lease, or any instrument or document executed in
connection with this lease, shall be limited to and enforceable solely against
the assets of such Landlord constituting an interest in the Land or Building
(including, where Landlord is a trustee of a land trust, the subject matter of
the trust) and not other assets of such Landlord. Assets of a Landlord which is
a partnership do not include the assets of the partners of such Landlord, and
negative capital account of a partner in a partnership which is a Landlord and
an obligation of a partner to contribute capital to the partnership which is
Landlord shall not be deemed to be assets of the partnership which is Landlord.
No directors, officers, employees or shareholders of any corporation which is
Landlord shall have any personal liability arising from or in connection with
this lease. At any time during which Landlord is trustee of a land trust. all of
the representations, warranties, covenants and conditions to be performed by it
under this lease or any documents or instruments executed in connection with
this lease are undertaken solely as trustee, as aforesaid, and not individually.
and no personal liability shall be asserted or be enforceable against it or any
of the beneficiaries under said trust agreement by reason of any of the
representations, warranties. covenants or conditions contained its this lease or
any documents or instruments executed in connection with this lease.
25
<PAGE> 29
33. FINANCIAL STATEMENTS. Tenant shall deliver to Landlord, upon
Landlord's request, from time to time, current financial statements of Tenant,
including without limits, ion, net worth statements and statements of profit and
loss. Landlord shall use its reasonable efforts to keep the financial statements
confidential, provided that the foregoing shall not prohibit Landlord from
showing same to: (i) its employees, (ii) agents, including the managing and
leasing agents of the Building, (iii) prospective purchasers of the Building,
and (iv) existing, future and/or prospective lenders of Landlord.
34. PREMISES IMPROVEMENTS. (a) Landlord shall promptly following
the full execution of this lease, at a cost to Landlord not to exceed $1,000,00,
install kitchen cabinets above the kitchen counter, Except as provided in the
immediately prior sentence, Tenant is taking the Premise in its "as is"
condition.
(b) Tenant shall have the right, subject to the terms and
provisions of this lease, including without limitation the terms and
provisions-of Section 11 Alterations, to install at its sole cost and expense, a
dishwasher in the Premise.
35. CONDITION TO LEASE. This lease is conditioned on Landlord
securing possession of the Premises and entering into a termination agreement,
in form and substance satisfactory to Landlord, with the current tenant to the
Premises. In the event that Landlord has not secured possession of the Premises
and entered into a termination agreement in form and substance satisfactory to
Landlord, prior to the end of business on February 28, 1998, this lease shall be
null and void, and Tenant shall have no claim against Landlord or to the
Premise.
IN WITNESS WHEREOF, the parties have caused this lease to be
executed on the date first above written.
LANDLORD:
THE MUTUAL LIFE INSURANCE COMPANY
OF NEW YORK, A NEW YORK MUTUAL LIFE INSURANCE COMPANY
BY:
-----------------------------
NAME:
---------------------------
ITS: DATE:
---------------------------- ------------------
TENANT:
MOTIVATION NET INC.
BY: /s/ ROBERT C. HOYLER
---------------------------
ITS: CEO
---------------------------
NAME: Robert C. Hoyler DATE: 4/3/98
--------------------------- ------
26
<PAGE> 30
EXHIBIT A
DESCRIPTION OF PREMISES
[FLOOR PLAN]
<PAGE> 31
EXHIBIT B
BASE RENT
<TABLE>
<CAPTION>
Lease Year Square Base Rent Annual Base Monthly Base
Footage per. sq. ft. Rent Rent
- --------------------------------- ------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
April 1, 1998 to March 31, 1999 1,954 $12.00 $23,448.00 $1,954.00
April 1, 1999 to March 31, 2000 1,954 $12.50 $24,425.00 $2,035.42
April 1, 2000 to March 31, 2001 1,954 $13.00 $25,402.00 $2,116.83
</TABLE>
B1
<PAGE> 32
EXHIBIT C
RULES AND REGULATIONS
ATTACHED TO AND MADE A PART OF THE LEASE
The following Rules and Regulations shall be in effect at the Building. Landlord
reserves the right to adopt reasonable modifications and additions hereto. In
the case of any conflict between these regulations and the Lease, the Lease
shall be controlling.
1. Except with the prior written consent of Landlord, no tenant shall
conduct any retail sales in or from the Premises, or any business other
than that specifically provided for in the Lease.
2. Landlord reserves the right to prohibit personal goods and services
vendors from access to the Building except upon such reasonable terms
and conditions, including but not limited to a provision for insurance
coverage, as are related to the safety, care and cleanliness of the
Building, the preservation of good order thereon, and the relief of any
financial or other burden on Landlord occasioned by the presence of
such vendors or the sale by them of personal goods or services to a
tenant or its employees. If reasonably necessary for the accomplishment
of these purposes, Landlord may exclude a particular vendor entirely or
limit the number of vendors who may be present at any one time in the
Building. The term "personal goods or services vendors" means persons
who periodically enter the Building of which the Premises are a part
for the purpose of selling goods or services to a tenant, other than
goods or services which are used by a tenant only for the purpose of
conducting its business on the Premises. "Personal goods or services"
include, but are not limited to, drinking water and other beverages,
food, barbering services, and shoeshining services.
3. The sidewalks, halls, passages, elevators and stairways shall not be
obstructed by any tenant or used by it for any purpose other than for
ingress to and egress from their respective Premises. The halls,
passages, entrances, elevators, stairways, balconies, janitorial
closets, and roof are not for the use of the general public, and
Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of
Landlord shall be prejudicial to the safety, character, reputation and
interests of the Building and its tenants, provided that nothing herein
contained shall be construed to prevent such access to persons with
whom Tenant normally deals only for the purpose of conducting its
business on the Premises (such as clients, customers, office suppliers
and equipment vendors, and the like) unless such persons are engaged in
illegal activities. No tenant and no employees of any tenant shall go
upon the roof of the Building without the written consent of Landlord.
4. The sashes, sash doors, windows, glass lights, and any lights or
skylights that reflect or admit light into the halls or edict places of
the Building shall not be covered or obstructed. The toilet rooms,
water and wash closets and other water apparatus shall not be used for
any purpose other than that for which they were constructed, and no
foreign substance of any kind whatsoever shall be thrown therein, and
the expense of any breakage, stoppage or damage, resulting from the
violation of this rule shall be borne by the tenant who, or whose
clerks, agents. employees, or visitors, shall have caused it.
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<PAGE> 33
5. No sign, advertisement or notice visible from the exterior of the
Premises or Building shall be inscribed, painted or affixed by Tenant
on any part of the Building or the Premises without the prior written
consent of Landlord. If Landlord shall have given such consent at any
time, whether before or after the execution of this Lease, such consent
shall in no way operate as a waiver or release of any of the provisions
hereof or of this Lease, and shall be deemed to relate only to the
particular sign, advertisement or notice so consented to by Landlord
and shall not be construed as dispensing with the necessity of
obtaining the specific written consent of Landlord with respect to each
and every such sign, advertisement or notice other than the particular
sign, advertisement or notice, as the case may be, so consented to by
Landlord.
6. In order to maintain the outward professional appearance of the
Building, all window coverings to be installed at the Premised shall be
subject to Landlord's prior reasonable approval. If Landlord, by a
notice in writing to Tenant, shall object to any curtain, blind, shade
or screen attached to, or hung in, or used in connection with, any
window or door of the Premises, such use of such curtain, blind, shade
or screen shall be forthwith discontinued by Tenant. No awnings shall
be permitted on any part of the Premises.
7. Tenant shall not do or permit anything to be done in the Premises, or
bring .or keep anything therein, which shall in any way increase the
rate of fire insurance on the Building, or on the property kept
therein, or obstruct or interfere with the rights of other tenants, or
in any way injure or annoy them; or conflict with the regulations of
the Fire Department or the fire laws, or with any insurance policy upon
the Building, or any part thereof, or with any mica and ordinances
established by the Board of Health or other governmental authority.
8. No safes or other objects larger or heavier than the freight elevators
of the Building are limited to carry shall be brought into or installed
in the Premises. Landlord shall have the power to prescribe tile
weight, method of installation and position of such safes or other
objects. The moving of safes shall occur only between such hours as may
be designated by, and only upon previous notice to, the manager of the
Building, and the persons employed to move safes in or out of the
Building must be acceptable to Landlord. No freight. furniture or bulky
matter of any description shall be received into the Building or
carried into the elevators except during hours and in a manner approved
by Landlord.
9. Landlord shall clean the Premises as provided in the Lease, and except
with the written consent of Landlord, no person or persons other than
those approved by Landlord will be permitted to enter the Building for
such purpose, but Tenant shall not cause unnecessary labor by reason of
Tenant's carelessness and indifference in the preservation of good
order and cleanliness.
10. No tenant shall sweep or throw or permit to be swept or thrown from the
Premises any dirt or other substance into any of the corridors or halls
or elevators, or out of the doors or windows or stairways of the
Building, and Tenant shall not use, keep or permit to be used or kept
any foul or noxious gas or substance in the Premises, or permit or
suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason
of noise, odors and/or vibrations, or interfere in any way with other
tenants or those having business therein, nor shall any animals or
birds be kept in or about the Building. Smoking or carrying lighted
cigars or cigarettes in the elevators of the Building is prohibited.
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<PAGE> 34
11. Except for the use of microwave ovens and coffee makers for Tenant's
personal use. no cooking shall be done or permitted by Tenant on the
Premises, nor shall the Building be used for lodging,
12. Tenant shall not use or keep in the Building any kerosene, gasoline, or
inflammable fluid or any other illuminating material, or use any method
of heating other than that supplied by Landlord.
13. If Tenant desires telephone or telegraph connections, Landlord will
direct electricians as to where and how the wires are to be introduced.
No boring or cutting for wires or other otherwise shall be made without
directions from Landlord.
14. Each tenant, upon the termination of its tenancy, shall deliver to
Landlord all the keys of offices. rooms and toilet rooms, and security
access card/keys which shall have been furnished such tenant or which
such tenant shall have had made, and in the event of loss of any keys
so furnished, shall pay Landlord therefor.
15. No Tenant shall lay linoleum or other similar floor covering so that
the same shall be affixed to the floor of the Premises m any manner
except by a paste, or other material which may easily be removed with
water, the use of cement or Other similar adhesive materials, being
expressly prohibited. The method of affixing any such linoleum or other
similar floor covering to the floor, as well as the method of affixing
carpets or rugs to the Premises shall be subject to reasonable approval
by Landlord. The expense of repairing any damage resulting from a
violation of this rule shall be borne by Tenant by whom, or by those
agents, clerics, employees or visitors, the damage shall have been
caused.
16. No furniture, packages or merchandise will be received in the Building
or carried up or down in the elevators. except between such Building
hours and in such elevators as shall be designated by Landlord.
17. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 5:00 p.m. and 8:00 a.m. access to the Building or to the
halls, corridors, elevators or stairways in the Building, or to the
Premises may be refused unless the person seeking access is known to
the building watchman, if any, in charge and has a pass or is properly
identified. Landlord shall in no ease be liable for damages for the
admission to or exclusion from the Building of any person whom Landlord
has the right to exclude under Rule 3 above. In case of invasion, mob,
riot, public excitement. or other commotion, Landlord reserves the
right but shall not be obligated to prevent access to the Building
during the continuance of the same by closing the doors or otherwise,
for the safety of the tenants and protection of property in the
Building.
18. Tenant shall see that the windows and doors of the Premises are closed
and securely locked before leaving the Building and Tenant shall
exercise extraordinary care and caution that all water faucets or water
apparatus are entirely shut off before Tenant or Tenant's employees
leave the Building, and that all electricity, gas or air shall likewise
be carefully shut off, so as to prevent waste or damage, and for any
default or carelessness Tenant shall make good all injuries sustained
by other tenants or occupants of the Building or Landlord.
19. Tenant shall not alter any lock or install a new or additional lock or
any bolt on any door of the Premises without prior written consent of
Landlord, If Landlord shall give its consent. Tenant
C3
<PAGE> 35
shall in each case furnish Landlord with a key for any such lock.
20. Tenant shall not install equipment, such as but not limited to
electronic tabulating or computer equipment, requiring electrical or air
conditioning service in excess of those to be provided by Landlord under
the Lease.
21. No bicycle, or shopping can, or other vehicle or any animal shall be
brought into the Premises or the halls, corridors, elevators or any part
of the Building by Tenant.
22. Landlord shall have the right to prohibit use of the name of the
Building or Project or any other publicity by Tenant which in Landlord's
opinion tends to impair the reputation of the Building or Project or
their desirability for other tenants, and upon written notice from
Landlord, Tenant will refrain from or discontinue such publicity.
23. Tenant shall not erect any aerial or antenna on the roof or exterior
walls of the Premises, Building, or Project without the prior written
consent of Landlord.
C4
<PAGE> 1
EXHIBIT 10.10
AGREEMENT AND PLAN OF MERGER
AMONG
INTELLIPOST CORPORATION
IPOST ACQUISITION SUBSIDIARY, INC.
AND
ENHANCED RESPONSE TECHNOLOGIES, INC.
DATED AS OF NOVEMBER 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - THE MERGER.............................................................1
SECTION 1.1 The Merger....................................................1
SECTION 1.2 Closing.......................................................1
SECTION 1.3 Effective Time................................................2
SECTION 1.4 Effects of the Merger.........................................2
SECTION 1.5 Article of Incorporation and Bylaws...........................2
SECTION 1.6 Directors.....................................................2
SECTION 1.7 Officers......................................................2
ARTICLE II - EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.....................................2
SECTION 2.1 Effect on Capital Stock.......................................2
SECTION 2.2 Exchange of Certificates......................................3
ARTICLE III - REPRESENTATIONS AND WARRANTIES.......................................5
SECTION 3.1 Representations and Warranties of the Company and
Principal Shareholders......................................5
SECTION 3.2 Representations and Warranties of the Company................11
SECTION 3.3 Representations and Warranties of Parent and Sub.............13
SECTION 3.4 Representations and Warranties of Shareholders...............18
SECTION 3.5 Representation of the Company and Principal Shareholders
regarding MotivationNet LLC ("MNET")..............................18
ARTICLE IV - COVENANTS RELATING TO CONDUCT OF BUSINESS............................22
SECTION 4.1 Conduct of Business by Parent and the Company................22
SECTION 4.2 No Solicitation..............................................25
ARTICLE V - ADDITIONAL AGREEMENTS.................................................27
SECTION 5.1 Access to Information; Confidentiality.......................27
SECTION 5.2 Reasonable Efforts; Notification.............................28
SECTION 5.3 Stock Options and Other Employee Benefits....................29
SECTION 5.4 Fees and Expenses............................................30
SECTION 5.5 Public Announcements.........................................30
SECTION 5.6 Tax Treatment................................................30
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VI - CONDITIONS PRECEDENT.................................................30
SECTION 6.1 Conditions to Each Party's Obligation to
Effect the Merger............................................30
SECTION 6.2 Conditions to Obligations of Parent and Sub..................30
SECTION 6.3 Conditions to Obligation of the Company......................31
ARTICLE VII - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES..............32
SECTION 7.1 Survival of Representations..................................32
SECTION 7.2 Agreement of Principal Shareholders
and Shareholders to Indemnify................................32
SECTION 7.3 Notice of Losses.............................................33
SECTION 7.4 Third Party Claims...........................................33
SECTION 7.5 No Recourse Against Company..................................34
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER..................................34
SECTION 8.1 Termination..................................................34
SECTION 8.2 Effect of Termination........................................35
SECTION 8.3 Amendment....................................................35
SECTION 8.4 Extension; Waiver............................................36
ARTICLE IX - GENERAL PROVISIONS...................................................36
SECTION 9.1 Nonsurvival of Representations and Warranties................36
SECTION 9.2 Notices......................................................36
SECTION 9.3 Definitions..................................................37
SECTION 9.4 Interpretation...............................................37
SECTION 9.5 Counterparts.................................................38
SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries...............38
SECTION 9.7 Governing Law................................................38
SECTION 9.8 Assignment...................................................38
SECTION 9.9 Enforcement..................................................38
SECTION 9.10 Severability................................................38
</TABLE>
EXHIBIT A NON-COMPETITION AGREEMENTS
EXHIBIT B CONSULTING AGREEMENT
EXHIBIT C PARENT DISCLOSURE SCHEDULE
-ii-
<PAGE> 4
INDEX OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
3.1(a) Organization, Standing and Corporate Power
3.1(b) Subsidiaries
3.1(c) Capital Structure
3.1(d) Authority; Noncontravention
3.1(e) Absence of Certain Changes or Events
3.1(f) Litigation
3.1(g) Compliance with Laws
3.1(i) Absence of Changes in Benefit Plans
3.1(j) Taxes
3.1(k) Title to Properties
3.1(l) Intellectual Property
3.1(o) Brokers
3.1(p) Equipment and Other Personal Property Leases
3.2(a) Contracts
3.4(a) Ownership of the Common Shares
3.5(a) Organization of MNET
3.5(b) MNET Capital Structure
3.5(d) Authority
3.5(e) MNET Financial Statements and Intercompany Debt
3.5(f) No Undisclosed Liabilities
3.5(g) No Changes
3.5(h) Taxes and Other Returns and Reports
3.5(i) Restrictions of Business Activities
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
3.5(j) Intellectual Property
3.5(k) Interested Party Transactions
3.5(l) Compliance with Laws
3.5(m) Litigation
3.5(n) Brokers' and Finders' Fees: Third Party Expenses
3.5(o) Sale of MNET Interests
4.1(b) Conduct of Business by the Company
5.3(b) Individuals Parent will Issue Options to
</TABLE>
-iv-
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 30, 1998, among
INTELLIPOST CORPORATION, a Delaware corporation ("Parent"), IPOST ACQUISITION
SUBSIDIARY, INC., an Illinois corporation and a wholly owned subsidiary of
Parent ("Sub"), ENHANCED RESPONSE TECHNOLOGIES, an Illinois corporation (the
"Company") and the shareholders of the Company, (each a "Shareholder" and
collectively, the "Shareholders", of which Robert Hoyler and Craig Muller are
"Principal Shareholders").
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company, and Shareholders and Parent, acting as the sole stockholder of Sub,
have approved the merger of Sub with and into the Company (the "Merger"), upon
the terms and subject to the conditions set forth in this Agreement, whereby
each issued and outstanding share of common stock, no par value per share, of
the Company ("Company Common Stock"), other than Company Common Stock owned by
Parent, Sub or the Company, will be converted into common stock, par value $.001
per share, of Parent ("Parent Common Stock");
WHEREAS, Parent, Sub, the Principal Shareholders and the Company desire
to make certain representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various conditions to the
Merger;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Illinois Business
Corporation Act (the "BCA"), Sub shall be merged with and into the Company at
the Effective Time (as defined in Section 1.3). Following the Merger, the
separate corporate existence of Sub shall cease and the Company shall continue
as the surviving corporation (the "Surviving Corporation") and shall succeed to
and assume all the rights and obligations of Sub in accordance with the BCA. At
the election of Parent, any direct or indirect wholly owned subsidiary (as
defined in Section 8.3) of Parent may be substituted for Sub as a constituent
corporation in the Merger. In such event, the parties hereto agree to execute an
appropriate amendment to this Agreement in order to reflect such substitution.
SECTION 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which shall be no
later than the second business day after
<PAGE> 7
satisfaction or waiver of the conditions set forth in Article VI (as such date
may be extended, but not for more than 30 days, by the Company, in its sole
discretion) (the "Closing Date"), at the offices of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304,
unless another date or place is agreed to in writing by the parties hereto.
SECTION 1.3 Effective Time. Subject to the provisions of this Agreement,
as soon as practicable on or after the Closing Date, the parties shall file with
the Illinois Secretary of State an "Articles of Merger, Consolidation or
Exchange (the "Articles of Merger") executed in accordance with the relevant
provisions of the BCA. The Merger shall become effective at such time as the
Certificate of Merger is issued by the Illinois Secretary of State (the time the
Merger becomes effective being the "Effective Time").
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the BCA.
SECTION 1.5 Article of Incorporation and Bylaws.
(a) The Articles of Incorporation of Sub, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law, except that the name of the Surviving Corporation
in such Articles of Incorporation will be changed to be Enhanced Response
Technologies, Inc.
(b) The Bylaws of Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable law.
SECTION 1.6 Directors. The directors of Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 1.7 Officers. The officers of the Company immediately prior to
the Effective Time shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 Effect on Capital Stock. At the Effective Time, by virtue
of the Merger and without any action on the part of the holder of any shares of
Company Common Stock or any shares of capital stock of Sub:
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(a) Capital Stock of Sub. Each issued and outstanding share of
capital stock of Sub shall be converted into and become one validly issued,
fully paid and nonassessable share of common stock, par value $.001 per share,
of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each
share of Company Common Stock that is owned by the Company shall automatically
be canceled and retired and shall cease to exist, and no Parent Common Stock or
other consideration shall be delivered in exchange therefor.
(c) Conversion of Company Common Stock. Subject to Section
2.2(e), each issued and outstanding share of Company Common Stock (other than
shares to be canceled in accordance with Section 2.1(b)) shall be converted into
0.6445 (such fraction, as it may be adjusted pursuant to the final sentence of
this Section 2.1(c), being referred to as the "Exchange Ratio") of a fully paid
and nonassessable share of Parent Common Stock. As of the Effective Time, all
such shares of Company Common Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate which immediately prior to the Effective Time represented any
such shares of Company Common Stock shall cease to have any rights with respect
thereto, except the right to receive certificates representing the number of
fully paid and nonassessable shares of Parent Common Stock into which such
shares of Company Common Stock were converted at the Effective Time and any cash
in lieu of fractional shares of Parent Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance with
Section 2.2, without interest. Notwithstanding the foregoing, if between the
date of this Agreement and the Effective Time the outstanding shares of Parent
Common Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination, exchange of shares or any similar
transaction or if Parent pays an extraordinary dividend or makes an
extraordinary distribution, the Exchange Ratio shall be appropriately adjusted
to reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination, exchange or other similar transaction or extraordinary
dividend or distribution.
SECTION 2.2 Exchange of Certificates.
(a) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, Parent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates") whose shares
were converted into Parent Common Stock pursuant to Section 2.1(c), (i) a letter
of transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Parent and shall be in customary form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by Parent, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock which such
holder has the right to receive pursuant to the provisions of this Article II
after taking into account all the shares of Company Common Stock then held by
such holder under all
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such Certificates so surrendered, cash in lieu of fractional shares of Parent
Common Stock to which such holder is entitled pursuant to Section 2.2(d) and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(b), and the Certificate so surrendered shall forthwith be canceled.
In the event of a transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, a certificate representing
the proper number of shares of Parent Common Stock may be issued to a person
other than the person in whose name the Certificate so surrendered is
registered, if, upon presentation to Parent, such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such issuance shall pay any transfer or other taxes required by reason of the
issuance of shares of Parent Common Stock to a person other than the registered
holder of such Certificate or establish to the satisfaction of Parent that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 2.2(a), each Certificate shall be deemed at any time after the
Effective Time to represent only the shares of Parent Common Stock into which
the shares of Company Common Stock represented thereby were converted at the
Effective Time, and the right to receive cash in lieu of any fractional shares
of Parent Common Stock as contemplated by Section 2.2(d) and any dividends or
other distributions to which such holder is entitled pursuant to Section 2.2(b).
No interest will be paid or will accrue on any cash payable pursuant to Sections
2.2(b) or 2.2(d).
(b) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.2(d) until the holder of record of
such Certificate shall surrender such Certificate. Following surrender of any
such Certificate, there shall be paid to the record holder of the certificate
representing whole shares of Parent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share of Parent Common Stock to which such
holder is entitled pursuant to Section 2.2(d) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and a payment
date subsequent to such surrender payable with respect to such whole shares of
Parent Common Stock.
(c) No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued pursuant to this Article II (and any cash
paid pursuant to Section 2.2(b) or 2.2(d)) shall be deemed to have been issued
and paid in full satisfaction of all rights pertaining to such shares of Company
Common Stock, subject, however, to the Surviving Corporation's obligation to pay
any dividends or make any other distributions with a record date prior to the
Effective Time which may have been declared or made by the Company on such
shares of Company Common Stock in accordance with the terms of this Agreement or
prior to the date of this Agreement and which remain unpaid at the Effective
Time, and there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of the shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
Parent for any reason, they shall be canceled and exchanged as provided in this
Article II.
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(d) No Fractional Shares.
(i) No certificates or scrip representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of Parent.
(ii) Notwithstanding any other provision of this
Agreement, each holder of shares of Company Common Stock exchanged pursuant to
the Merger who would otherwise have been entitled to receive a fraction of a
share of Parent Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount, less the amount of any withholding taxes which may be
required thereon, equal to such fraction of a share of Parent Common Stock
multiplied by $0.25.
(e) No Liability. None of Parent, Sub or the Company shall be
liable to any person in respect of any shares of Parent Common Stock (or
dividends or distributions with respect thereto) or cash in each case properly
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(f) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, Parent
will issue and pay in exchange for such lost, stolen or destroyed Certificate
(i) a certificate representing the shares of Parent Common Stock into which the
shares of Company Common Stock represented by such Certificate were converted
pursuant to Section 2.1, and (ii) any cash in lieu of fractional shares, and
unpaid dividends and distributions on such shares of Parent Common Stock,
pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of the Company and
Principal Shareholders. Except as set forth on the disclosure schedule delivered
by the Company to Parent prior to the execution of this Agreement (the "Company
Disclosure Schedule"), the Company and the Principal Shareholders, jointly and
severally, represent and warrant to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. The Company and
each of its subsidiaries (as defined in Section 8.3) is a corporation or other
legal entity duly organized, validly existing and in good standing (with respect
to jurisdictions that recognize such concept) under the laws of the jurisdiction
of its incorporation or organization and has all requisite corporate power and
authority to carry on its business as now being conducted. The Company and each
of its subsidiaries is duly qualified or licensed to do business and is in good
standing (with respect to jurisdictions that recognize
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such concept) in each jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be so
qualified or licensed individually or in the aggregate would not have a material
adverse effect (as defined in Section 8.3) on the Company. The Company has
delivered to Parent complete and correct copies of its Certificate of
Incorporation and Bylaws, in each case as amended to the date hereof.
(b) Subsidiaries. The Company has no subsidiaries and does not
own as of the date hereof, directly or indirectly, beneficially or of record,
any shares of capital stock or other equity security of any other entity or any
other similar investment in any other entity.
(c) Capital Structure. The authorized capital stock of the
Company consists of 6,000,000 shares of Company Common Stock. At the close of
business on November 13, 1998 (i) 2,228,000 shares of Company Common Stock were
issued and outstanding, (ii) no shares of Company Common Stock were held by the
Company in its treasury, (iii) 625,000 shares of Company Common Stock were
subject to issuance pursuant to outstanding options to purchase shares of
Company Common Stock. Except as set forth above at the close of business on
November 13, 1998, no shares of capital stock or other voting securities of the
Company were issued, reserved for issuance or outstanding. All outstanding
shares of capital stock of the Company are, and all shares which may be issued
pursuant to Company Options will be, when issued in accordance with the terms
thereof, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights. There are no bonds, debentures, notes or other
indebtedness of the Company outstanding having the right to vote (or convertible
into securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above there are no securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company is a party, or by which it is
bound, obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of the Company or obligating the Company to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking. As of the date of this Agreement, there are not any
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any shares of capital stock or other securities of the
Company. As of the date of this Agreement, and except as contemplated by this
Agreement, there are no shareholder agreements, voting trusts or other
agreements or understandings to which the Company is a party or by which it is
bound relating to the voting of any shares of capital stock of the Company. All
of the outstanding capital stock of the Company's subsidiaries is owned by the
Company, directly or indirectly, free and clear of any Lien (as defined in
Section 3.1(d)) or any other limitation or restriction (including any
restriction on the right to vote or sell the same, except as may be provided as
a matter of law). There are no securities of the Company or its subsidiaries
convertible into or exchangeable for, no options or other rights to acquire from
the Company or its subsidiaries, and no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the issuance
or sale, directly or indirectly, of, any capital stock or other ownership
interests in, or any other equity securities of, any subsidiary of the Company.
As of the date of this Agreement, there are no outstanding contractual
obligations of the Company or its subsidiaries to repurchase, redeem or
otherwise acquire any outstanding shares of capital stock or other ownership
interests in any subsidiary of the Company.
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(d) Authority; Noncontravention. The Company has the requisite
corporate power and authority to enter into this Agreement and, subject to the
adoption and approval of this Agreement and the approval of the Merger by the
holders of a majority of the shares of Company Common Stock to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of this
Agreement and the Merger, to approval and adoption of this Agreement and
approval of the Merger by the holders of a majority of the shares of Company
Common Stock outstanding on the record date for the Shareholders Meeting. This
Agreement has been duly executed and delivered by the Company and, assuming the
due authorization, execution, and delivery of this Agreement by Parent and Sub,
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as enforcement thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium and similar
laws, both state and federal, affecting the enforcement of creditors' rights or
remedies in general as from time to time in effect or (ii) the exercise by
courts of equity powers. The execution and delivery of this Agreement by the
Company do not, and the consummation by the Company of the transactions
contemplated by this Agreement and compliance by the Company with the provisions
of this Agreement will not, materially conflict with, or result in any violation
of, or material default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any pledge, adverse claim, lien, charge, encumbrance or security interest of
any kind or nature whatsoever (collectively, "Liens") in or upon any of the
properties or assets of the Company under any provision of (i) the Articles of
Incorporation or Bylaws of the Company, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or its properties or
assets and to which the Company is a party as of the date of this Agreement or
(iii) subject to the governmental filings and other matters referred to in the
following sentence, any (A) statute, law, ordinance, rule or regulation
applicable to the Company or (B) judgment, order or decree applicable to the
Company or its properties or assets, other than, in the case of clause (ii) and
clause (iii)(A), any such conflicts, violations, defaults, rights, losses or
Liens that individually or in the aggregate would not (x) have a material
adverse effect on the Company, (y) impair in any material respect the ability of
the Company to perform its obligations under this Agreement, or (z) prevent or
materially delay the consummation of any of the transactions contemplated by
this Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, any third party, including any
federal, state or local government or any court, administrative agency or
commission or other governmental authority or agency, domestic or foreign (a
"Governmental Entity"), is required to be made or obtained by the Company at or
before the Effective Time in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated by this Agreement, except for (1) the filing of the Articles of
Merger with the Illinois Secretary of State and appropriate documents with the
relevant authorities of other states in which the Company is qualified to do
business, and (2) such other consents, approvals, orders, authorizations,
registrations, declarations and filings, which if not obtained or made, would
not, individually or in the aggregate, have a material adverse effect on the
Company or prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement.
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(e) Absence of Certain Changes or Events. Between September 30,
1998 and the date of this Agreement, there has not occurred (i) any material
adverse change in the Company, (ii) any material change by the Company in its
accounting methods, principles or practices except as required by concurrent
changes in generally accepted accounting principles, (iii) any material
reevaluation by the Company of any of its assets, including, without limitation,
writing down the value of capitalized inventory or writing off notes or accounts
receivable other than in the ordinary course, or (iv) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any of the Company's capital stock.
(f) Litigation. There is no suit, action or proceeding pending,
and no person has overtly threatened in a writing delivered to the Company to
commence any suit, action or proceeding, against or affecting the Company or any
of its subsidiaries that would, individually or in the aggregate, have a
material adverse effect on the Company, nor is there any judgment, decree,
injunction, or order of any Governmental Entity or arbitrator outstanding
against, or, to the knowledge of the Company, pending investigation by any
Governmental Entity involving, the Company or any of its subsidiaries that
individually or in the aggregate would have a material adverse effect on the
Company.
(g) Compliance with Laws. The Company and each of its
subsidiaries is in compliance with all applicable statutes, laws, ordinances,
regulations, rules, judgments, decrees and orders of any Governmental Entity
(collectively, "Legal Provisions") applicable to their business or operations,
except for instances of possible noncompliance that, individually or in the
aggregate, would not have a material adverse effect on the Company or prevent or
materially delay the consummation of the Merger. The Company and each of its
subsidiaries has in effect all federal, state, local and foreign governmental
approvals, authorizations, certificates, filings, franchises, licenses, notices,
permits and rights ("Permits"), necessary for them to own, lease or operate
their properties and assets and to carry on their business substantially as now
conducted, and there currently exists no default under, or violation of, any
such Permit, except for the lack of Permits and for defaults under, or
violations of, Permits which lack, default or violation individually or in the
aggregate would not have a material adverse effect on the Company. The Company
has not received any written notice or other written communication from any
Governmental Entity alleging any violation of any Legal Provision by the Company
(except for (A) notices of violations which have been cured or corrected in all
material respects (B) notices which have been rescinded or withdrawn, and (C)
notices which would not have a material adverse effect on the Company).
(h) Labor Matters. As of the date of this Agreement, there are
no collective bargaining agreements or other labor union agreements to which the
Company or any of its subsidiaries is a party, or by which they are bound. The
Company and each of its subsidiaries are in compliance with all federal, state
and local laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not engaged in any unfair
labor practice except where the failure to comply, or the engaging in such
practice, would not have a material adverse effect on the Company. As of the
date of this Agreement, there is no unfair labor practice complaint against the
Company or any of its subsidiaries pending, and no person has overtly threatened
in a writing delivered to the Company to commence any unfair labor practices
complaint before the National Labor Relations Board or the United States
Department of Labor. There is no labor strike, slowdown or stoppage in
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progress, and no person has overtly threatened in a writing delivered to the
Company to commence any strike, slowdown or stoppage, against or involving the
Company or any of its subsidiaries. No written agreement restricts the Company
or any of its subsidiaries from relocating, closing or terminating any of its
operations or facilities. Neither the Company nor any of its subsidiaries has,
in the past three years, experienced any labor strike, slowdown or stoppage.
(i) Absence of Changes in Benefit Plans. As of the date of this
Agreement, there has not been any adoption or amendment in any material respect
by the Company or any of its subsidiaries of any collective bargaining agreement
or any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding providing benefits for which
the Company or any of its subsidiaries will be responsible to any current or
former employee, officer or director of the Company (collectively, "Benefit
Plans"). As of the date of this Agreement, there exist no employment,
consulting, severance, termination or indemnification agreements, arrangements
or understandings between the Company and any current or former employee,
officer or director of the Company, which is either currently effective or will
become effective at the Closing Date.
(j) Taxes. Except as set forth on the Company Disclosure
Schedule, as of the date of this Agreement, the Company has filed all tax
returns and reports required to be filed by it and has paid all taxes that are
shown on such tax returns as due and payable. As of the date of this Agreement,
no material deficiencies for any taxes have been proposed, asserted or assessed
against the Company, nor is there, to the knowledge of the Company or the
Principal Shareholders after reasonable inquiry, any reasonable basis for the
assertion of any such deficiency. No requests for waivers of the time to assess
any such taxes are pending as of the date of this Agreement. No material special
charges, penalties, fines, liens, or similar encumbrances are owed by or pending
against the Company with respect to payment of or failure to pay any taxes. The
Company is not a party to any executory agreements extending the period for
assessment or collection of any taxes. Proper amounts have been withheld by the
Company from employee compensation payments for all periods in compliance with
the tax withholding provisions of applicable federal and state laws, except
where the failure to withhold proper amounts would not have a material adverse
effect on the Company. The Company has not taken any action nor does it have any
knowledge of any fact or circumstance that is reasonably likely to prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code. As used in this Agreement, "taxes" shall include all Federal,
state, local and foreign income, property, sales, excise and other taxes,
tariffs or governmental charges of any nature whatsoever.
(k) Title to Properties.
(i) The Company and each of its subsidiaries has good
title to, or valid leasehold interests in, all its material properties and
assets except for such as are no longer used or useful in the conduct of its
businesses or as have been disposed of in the ordinary course of business and
except for defects in title, easements, restrictive covenants and other
encumbrances that individually or in the aggregate would not materially
interfere with the ability of the Company and its subsidiaries to conduct their
business as currently conducted. All such material assets and properties, other
than assets and
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<PAGE> 15
properties in which the Company or any of its subsidiaries has a leasehold
interest, are free and clear of all Liens except for Liens that (A) are created
or arise in the ordinary course of business, (B) are created, arise or exist
under or in connection with any of the contracts or other matters referred to in
the Company Disclosure Schedule, (C) relate to any taxes or other governmental
charges or levies that are not yet due and payable, (D) relate to, or are
created, arise or exist in connection with, any legal proceeding that is being
contested in good faith, or (E) individually or in the aggregate would not
materially interfere with the ability of the Company and each of its
subsidiaries to conduct their business as currently conducted ("Company
Permitted Liens").
(ii) The Company and each of its subsidiaries are in
compliance in all material respects with the terms of all material leases to
which they are a party and under which they are in occupancy, and all such
leases are in full force and effect except where the failure to be in compliance
or the failure to be in full force and effect would not have a material adverse
effect on the Company. As of the date of this Agreement, the Company and/or one
or more of its subsidiaries enjoys peaceful and undisturbed possession under all
such material leases, except for failures to do so that would not individually
or in the aggregate have a material adverse effect on the Company.
(l) Intellectual Property. Except as otherwise set forth on the
Company Disclosure Schedule, the Company owns, or is validly licensed or
otherwise has the right to use, all patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, service marks, service mark
rights, copyrights and other proprietary intellectual property rights and
computer programs (collectively, "Intellectual Property Rights") which are
material to the conduct of the business of the Company and its subsidiaries
taken as a whole. As of the date of this Agreement, no suits, actions or
proceedings are pending, and no person has overtly threatened in a writing
delivered to the Company to commence any suit, action or proceeding, alleging
that the Company or any of its subsidiaries is infringing the rights of any
person with regard to any Intellectual Property Right, except for suits, actions
or proceedings which, individually or in the aggregate, would not have a
material adverse effect on the Company. To the knowledge of the Company, no
person is infringing the rights of the Company or any of its subsidiaries with
respect to any Intellectual Property Right, except for infringements which
individually or in the aggregate, would not have a material adverse effect on
the Company. Neither the Company nor any of its subsidiaries is licensing, or
otherwise granting, to any third party, any rights in or to any Intellectual
Property Rights which would have a material adverse effect on the Company.
(m) Voting Requirements. The affirmative vote of the holders of
a majority of the shares of Company Common Stock outstanding as of the record
date for the Stockholders Meeting is the only vote of the holders of any class
or series of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated by this Agreement.
(n) State Takeover Statutes. The Board of Directors of the
Company has approved the Merger and this Agreement and such approval is
sufficient to render inapplicable to the Merger and this Agreement the
provisions of Section S.H.A. 805 ILCS 5/11 et. seq. of the BCA to the extent, if
any, such SECTION 1s applicable to the Merger and this Agreement To the best of
the Company's knowledge, no other state takeover statute or similar statute or
regulation applies to or purports to apply to the Merger or this Agreement.
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(o) Brokers. Except as set forth on the Company Disclosure
Schedule, no broker, investment banker, financial advisor or other person is
entitled to any broker's, finder's or financial advisor's fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
(p) Equipment and Other Personal Property Leases. All of the
material items of equipment and personal property leased by the Company or any
of its subsidiaries from any third party is currently used by the Company and/or
one or more of its subsidiaries in the ordinary course of their businesses. All
leases in effect as of the date of this Agreement pursuant to which the Company
leases material items of equipment or other material items of personal property
are valid, subsisting and in full force and effect, and neither the Company nor
any other party thereto is in default of any of its obligations under any of
such leases, except for defaults and failures to be valid, subsisting and in
full force and effect which would not have a material adverse effect on the
Company. No consent to the consummation of the transactions contemplated by this
Agreement is required from the lessors under such leases except for any such
consent the failure to obtain which would not have a material adverse effect on
the Company.
SECTION 3.2 Representations and Warranties of the Company. Except as set
forth on the Company Disclosure Schedule, the Company represents and warrants to
Parent and Sub as follows:
(a) Contracts. Neither the Company nor any of its subsidiaries
is in violation of or in default under (nor does there exist any condition which
upon the passage of time or the giving of notice or both would cause such a
violation of or default under) any lease, permit, concession, franchise, license
or any other contract, agreement, arrangement or understanding to which any of
them is a party or by which any of their properties or assets is bound, except
for violations or defaults that individually or in the aggregate would not have
a material adverse effect on the Company.
(b) ERISA Compliance.
(i) Each Benefit Plan has been administered in
accordance with its terms, and the Company and all the Benefit Plans are all in
compliance with applicable provisions of ERISA and the Code, except where the
failure to so administer the Benefit Plans or to so comply would not have a
material adverse effect on the Company.
(ii) Neither the Company nor any person or entity that,
together with the Company, is treated as a single employer under Section 414(b),
(c), (m) or (o) of the Code (the Company and each such other person or entity, a
"Commonly Controlled Entity") has maintained, contributed or been obligated to
contribute to any Benefit Plan that is subject to Title IV of ERISA; and neither
the Company nor any Commonly Controlled Entity is obligated to make any
contribution, other than discretionary contributions, to any Benefit Plan.
(iii) With respect to any Benefit Plan that is an
"employee welfare benefit plan," (as defined in Section 3(l) of ERISA) there are
no agreements, written or oral, that would prevent any such plan (including any
such plan covering retirees or other former employees) from being
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<PAGE> 17
amended or terminated without material adverse effect on the Company on or at
any time after the Effective Time.
(iv) Neither the Company nor any of its subsidiaries
contributes to or has any material liability to the Pension Benefit Guaranty
Corporation or any other person, plan or entity under or with respect to (A) a
pension plan subject to Title IV of ERISA or Section 412 of the Code, or (B) a
multiemployer pension plan, as defined in Section 3(37) of ERISA. Neither the
Company nor any of its subsidiaries maintains an employee welfare benefit plan
providing health or medical benefits for retired employees.
(v) No employee welfare benefit plan of the Company or
any of its subsidiaries provides for continuing benefits or coverage after
termination or retirement from employment, except with respect to any "group
health plan" as defined in Section 4980B(g) of the Code and Section 607 of
ERISA. With respect to any Benefit Plan which is a "group health plan," as so
defined, the Company warrants that in all "qualified events" (including those
resulting from the Merger) occurring prior to or on the Closing Date, the
Company has or will offer to its eligible employees and their "qualified
beneficiaries" the opportunity to elect continuation coverage under Section 602
of ERISA to the extent required by ERISA Sections 601-607 and will provide that
coverage, if elected, at no expense to Parent.
(vi) There is no Benefit Plan covering any employee or
former employee of the Company or any of its subsidiaries that, individually or
collectively, could give rise to the payment of an amount that would not be
deductible pursuant to the terms of Sections 280G or 162 of the Code.
(vii) Neither the Company nor any entity under common
control with the Company has ever participated in or withdrawn from a
multi-employer plan as defined in Section 4001(a)(3) of Title IV of ERISA, and
neither the Company nor any of its subsidiaries has incurred or owes any
liability as a result of any partial or complete withdrawal by any employer from
such a multi-employer plan as described under Sections 4201, 4203, or 4205 of
ERISA.
(viii) No executive officer of the Company or, to the
Company's knowledge, other employee of the Company or any of its subsidiaries is
obligated under any agreement or judgment that would conflict with such
employee's obligation to use his best efforts to promote the interests of the
Company or would conflict with the Company's business as conducted or proposed
to be conducted. No executive officer of the Company or, to the Company's
knowledge, other employee of the Company or any of its subsidiaries is, by
virtue of his or her employment by the Company or any of its subsidiaries, in
material violation of the terms of any employment agreement or any other
agreement relating to such employee's relationship with any previous employer
and no litigation is pending, and no person has overtly threatened in a writing
delivered to the Company to commence any litigation, against the Company with
regard thereto.
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<PAGE> 18
(ix) Schedule 3.2(b)(ix) to the Company Disclosure
Schedule lists all Company Options outstanding as of the date of this Agreement,
showing for each such option: (1) the number of shares issuable under each
option grant, and (2) the exercise price thereof.
(x) No employee of the Company will be entitled to any
additional compensation or benefits or any acceleration of the time of payment
or vesting of any compensation or benefits under any Benefit Plan as a result of
the transactions contemplated by this Agreement except as described in the
Company Option Plans.
(xi) The deduction of any amount payable pursuant to the
terms of the Benefit Plans will not be subject to disallowance under Section
162(m) of the Code.
SECTION 3.3 Representations and Warranties of Parent and Sub. Except as
set forth on the disclosure schedule delivered by Parent to the Company prior to
the execution of this Agreement (the "Parent Disclosure Schedule"), Parent
represents and warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent
and Sub is a corporation duly organized, validly existing and in good standing
under the laws of Delaware and Illinois, respectively, and has all requisite
corporate power and authority to carry on its business as now being conducted.
Each of Parent and Sub is duly qualified or licensed to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be so
qualified or licensed individually or in the aggregate would not have a material
adverse effect on Parent. Parent has delivered to the Company complete and
correct copies of its Certificate of Incorporation and Bylaws and the
Certificate of Incorporation and Bylaws of Sub, in each case as amended to the
date hereof.
(b) Subsidiaries. Parent has no subsidiaries and does not own as
of the date hereof, directly or indirectly, beneficially or of record, any
shares of capital stock or other equity security of any other entity or any
other similar investment in any other entity.
(c) Capital Structure. The authorized stock of Parent consists
of 40,000,000 shares of Common Stock, $0.001 par value, and 10,100,000 shares of
Preferred Stock, $0.001 par value, of which 4,000,000 shares have been
designated Series A Preferred Stock, 1,000,000 shares have been designated
Series B Preferred Stock, 3,000,000 shares have been designated Series C
Preferred Stock, 5,000,000 have been designed as Series D Preferred Stock.
2,596,666 shares of Common Stock, 3,000,000 shares of Series A Preferred Stock,
500,000 shares of Series B Preferred Stock, 2,926,666 shares of Series C
Preferred Stock, warrants to purchase 10,000 shares of Series C Preferred Stock,
and 1,228,642 shares of Series D Preferred Stock shall be issued and outstanding
prior to the Closing Date. All such shares have been duly authorized, and all
such issued and outstanding shares have been validly issued, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. As of the date
hereof, Buyer has reserved 2,000,000 shares of Common Stock for issuance under
its stock option and stock purchase plans and 614,321 shares of Series D
Preferred Stock for issuance upon exercise of outstanding warrants.
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<PAGE> 19
(d) Authority; Noncontravention. Parent and Sub have the
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by Parent and Sub and the consummation by Parent and
Sub of the transactions contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of Parent and Sub. This Agreement
has been duly executed and delivered by Parent and Sub, and, assuming the due
authorization, execution, and delivery of this Agreement by the Company,
constitutes a valid and binding obligation of Parent and Sub, enforceable
against Parent and Sub in accordance with its terms, except as enforcement
thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium
and similar laws, both state and federal, affecting the enforcement of
creditors' rights or remedies in general as from time to time in effect or (ii)
the exercise by courts of equity powers. The execution and delivery of this
Agreement by Parent and Sub do not, and the consummation by Parent and Sub of
the transactions contemplated by this Agreement and compliance by Parent and Sub
with the provisions of this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of Parent or any of its
subsidiaries under any provision of (i) the Certificate of Incorporation or
Bylaws of Parent or Sub, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to Parent or Sub or their respective properties
or assets and to which Parent or Sub is a party as of the date of this Agreement
or (iii) subject to the governmental filings and other matters referred to in
the following sentence, any (A) statute, law, ordinance, rule or regulation
applicable to Parent or Sub or (B) judgment, order or decree applicable to
Parent, Sub or their respective properties or assets, other than, in the case of
clause (ii) and clause (iii)(A), any such conflicts, violations, defaults,
rights, losses or Liens that individually or in the aggregate would not (x) have
a material adverse effect on Parent, (y) impair in any material respect the
ability of Parent and Sub to perform their respective obligations under this
Agreement or (z) prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to be made or obtained by Parent or Sub at or before the
Effective Time in connection with the execution and delivery of this Agreement
(and, in the case of Parent, the Stockholder Agreements) by Parent and Sub or
the consummation by Parent and Sub of the transactions contemplated by this
Agreement (and, in the case of Parent, those contemplated by the Stockholder
Agreements), except for (1) the filing of the Certificate of Merger with the
Illinois Secretary of State and appropriate documents with the relevant
authorities of other states in which Parent is qualified to do business and (2)
such other consents, approvals, orders, authorizations, registrations,
declarations and filings, which if not obtained or made, would not, individually
or in the aggregate, have a material adverse effect on Parent or prevent or
materially delay the consummation of any of the transactions contemplated by
this Agreement.
(e) Absence of Certain Changes or Events. Between September 30,
1998 and the date of this Agreement, there has not occurred (i) any material
adverse change in Parent, (ii) any material change by Parent in its accounting
methods, principles or practices except as required by concurrent changes in
generally accepted accounting principles, (iii) any material reevaluation by
Parent of any of its assets, including, without limitation, writing down the
value of capitalized inventory or writing off
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<PAGE> 20
notes or accounts receivable other than in the ordinary course, (iv) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of Parent's capital
stock.
(f) Litigation. There is no suit, action or proceeding pending,
and no person has overtly threatened in a writing delivered to Parent to
commence any suit, action or proceeding, against or affecting Parent or any of
its subsidiaries that would, individually or in the aggregate, have a material
adverse effect on Parent, nor is there any judgment, decree, injunction, or
order of any Governmental Entity or arbitrator outstanding against, or, to the
knowledge of Parent, pending investigation by any Governmental Entity involving,
Parent or any of its subsidiaries that individually or in the aggregate would
have a material adverse effect on Parent.
(g) Contracts. Neither Parent nor any of its subsidiaries is in
violation of or in default under (nor does there exist any condition which upon
the passage of time or the giving of notice or both would cause such a violation
of or default under) any lease, permit, concession, franchise, license or any
other contract, agreement, arrangement or understanding to which any of them is
a party or by which any of their properties or assets is bound, except for
violations or defaults that individually or in the aggregate would not have a
material adverse effect on Parent.
(h) Compliance with Laws.
(i) Parent and each of its subsidiaries is in compliance
with all Legal Provisions applicable to their business or operations, except for
instances of possible noncompliance that, individually or in the aggregate,
would not have a material adverse effect on Parent or prevent or materially
delay the consummation of the Merger. Parent and each of its subsidiaries has in
effect all Permits, necessary for them to own, lease or operate their properties
and assets and to carry on their business substantially as now conducted, and
there currently exists no default under, or violation of, any such Permit,
except for the lack of Permits and for defaults under, or violations of, Permits
which lack, default or violation individually or in the aggregate would not have
a material adverse effect on Parent. As of the date of this Agreement, Parent
has not received any written notice or other written communication from any
Governmental Entity alleging any violation of any Legal Provision by Parent
(except for (A) notices of violations which have been cured or corrected in all
material respects, (B) notices which have been rescinded or withdrawn, and (C)
notices which would not have a material adverse effect on Parent).
(i) Labor Matters. As of the date of this Agreement, there are
no collective bargaining agreements or other labor union agreements to which
Parent or any of its subsidiaries is a party, or by which they are bound. Parent
and each of its subsidiaries are in compliance with all federal, state and local
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, and are not engaged in any unfair labor practice
except where the failure to comply, or the engaging in such practice, would not
have a material adverse effect on Parent. As of the date of this Agreement,
there is no unfair labor practice complaint against Parent or any of its
subsidiaries pending, and no person has overtly threatened in a writing
delivered to Parent to commence and unfair labor practices complaint before the
National Labor Relations Board or the United States
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<PAGE> 21
Department of Labor. There is no labor strike, slowdown or stoppage in progress,
and no person has overtly threatened in a writing delivered to Parent to
commence any strike, slowdown or stoppage against or involving Parent or any of
its subsidiaries. No written agreement restricts Parent or any of its
subsidiaries from relocating, closing or terminating any of its operations or
facilities. Neither Parent nor any of its subsidiaries has, in the past three
years, experienced any labor strike, slowdown or stoppage.
(j) Absence of Changes in Benefit Plans. As of the date of this
Agreement, there has not been any adoption or amendment in any material respect
by Parent or any of its subsidiaries of any collective bargaining agreement or
any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding providing benefits for which
Parent or any of its subsidiaries will be responsible to any current or former
employee, officer or director of Parent (collectively, "Parent Benefit Plans").
(k) Taxes. As of the date of this Agreement, Parent has filed
all tax returns and reports required to be filed by it and has paid all taxes
that are shown on such tax returns as due and payable. As of the date of this
Agreement, no material deficiencies for any taxes have been proposed, asserted
or assessed against Parent, nor is there, to the knowledge of Parent after
reasonable inquiry, any reasonable basis for the assertion of any such
deficiency. No requests for waivers of the time to assess any such taxes are
pending as of the date of this Agreement. No material special charges,
penalties, fines, liens, or similar encumbrances are owed by or pending against
Parent with respect to payment of or failure to pay any taxes. Parent is not a
party to any executory agreements extending the period for assessment or
collection of any taxes. Proper amounts have been withheld by Parent from
employee compensation payments for all periods in compliance with the tax
withholding provisions of applicable federal and state laws, except where the
failure to withhold proper amounts would not have a material adverse effect on
Parent. Parent has not taken any action nor does it have any knowledge of any
fact or circumstance that is reasonably likely to prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code.
(l) Title to Properties.
(i) Parent and each of its subsidiaries has good title
to, or valid leasehold interests in, all its material properties and assets
except for such as are no longer used or useful in the conduct of its businesses
or as have been disposed of in the ordinary course of business and except for
defects in title, easements, restrictive covenants and other encumbrances that
individually or in the aggregate would not materially interfere with the ability
of Parent and its subsidiaries to conduct their business as currently conducted.
All such material assets and properties, other than assets and properties in
which Parent or any of its subsidiaries has a leasehold interest, are free and
clear of all Liens except for Liens that (A) are created or arise in the
ordinary course of business, (B) are created, arise or exist under or in
connection with any of the contracts or other matters referred to in the Parent
Disclosure Schedule, (C) relate to any taxes or other governmental charges or
levies that are not yet due and payable, (D) relate to, or are created, arise or
exist in connection with, any legal proceeding that is being contested in good
faith, or (E) individually or in the aggregate would not materially interfere
with the
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<PAGE> 22
ability of Parent and each of its subsidiaries to conduct their business as
currently conducted ("Parent Permitted Liens").
(ii) Parent and each of its subsidiaries are in
compliance in all material respects with the terms of all material leases to
which it is a party and under which they are in occupancy, and all such leases
are in full force and effect, except where the failure to be in compliance or
the failure to be in full force and effect would not have a material adverse
effect on Parent. As of the date of this Agreement, Parent and/or one or more of
its subsidiaries enjoys peaceful and undisturbed possession under all such
material leases, except for failures to do so that would not individually or in
the aggregate have a material adverse effect on Parent.
(m) Intellectual Property. Parent owns, or is validly licensed
or otherwise has the right to use all Parent Intellectual Property Rights which
are material to the conduct of the business of Parent and its subsidiaries taken
as a whole. As of the date of this Agreement, no suits, actions or proceedings
are pending, and no person has overtly threatened in a writing delivered to
Parent since January 1, 1997 to commence any suit, action or proceeding,
alleging that Parent or any of its subsidiaries is infringing the rights of any
person with regard to any Intellectual Property Right, except for suits, actions
or proceedings which, individually or in the aggregate, would not have a
material adverse effect on Parent. To the knowledge of Parent, no person is
infringing the rights of Parent or any of its subsidiaries with respect to any
Intellectual Property Right, except for infringements which individually or in
the aggregate, would not have a material adverse effect on Parent. Neither
Parent nor any of its subsidiaries is licensing, or otherwise granting, to any
third party, any rights in or to any Intellectual Property Rights which would
have a material adverse effect on Parent.
(n) Voting Requirements. Assuming the accuracy of the
representations and warranties of the Company, no vote of or other action by the
holders of Parent's Common Stock (or securities convertible into Parent's Common
Stock) is required in connection with the execution, delivery or performance of
this Agreement or the consummation by Parent of any of the transactions
contemplated hereby.
(o) Brokers. No broker, investment banker, financial advisor or
other person is entitled to any broker's, finder's or financial advisor's fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent.
(p) Interim Operations of Sub. Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
(q) Parent Common Stock. The Parent Common Stock to be issued in
connection with the Merger (including the Parent Common Stock to be issued in
accordance with Article II and the options to purchase Parent Common Stock to be
issued in accordance with Section 5.3(b)) has been duly authorized by all
necessary corporate action, and when issued in accordance with this Agreement,
will be validly issued, fully paid and nonassessable and not subject to
preemptive rights.
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<PAGE> 23
SECTION 3.4 Representations and Warranties of Shareholders. Each
Shareholder hereby severally represents and warrants to Parent and Sub, as to
itself, as follows:
(a) Ownership of the Common Shares. Such Shareholder is the sole
and beneficial owner of the respective Company Shares as set forth opposite such
Shareholder's name in Schedule 3.4, and such Company Shares is owned free and
clear of all liens, encumbrances, charges, security interests, claims and
assessments, and is subject to no restrictions with respect to transferability.
(b) Offering. Such Shareholder has not offered its Company
Shares for sale to any person other than the Parent and Sub.
(c) No Conflict. Such Shareholder's execution, delivery and
performance of this Agreement and the consummation by it of the transactions
contemplated hereby will not, with or without the giving of notice of the lapse
of time, or both, (i) violate any provision of law, rule or regulation, foreign
or domestic, (ii) violate any order, judgement or decree applicable to such
Shareholder, or (iii) violate any contract, agreement or arrangement to which
such Shareholder is a party or by which such Shareholder is bound. No consent,
approval or authorization of, or exemption by, or filing with, any governmental
authority or third party is required to be obtained by such Shareholder in
connection with the execution, delivery and performance by such Shareholder of
this Agreement or the taking of any other action contemplated hereby.
SECTION 3.5 Representation of the Company and Principal Shareholders
regarding MotivationNet LLC ("MNET"). Except as set forth in the disclosure
schedule delivered by the Company to Parent prior to the execution of this
Agreement (the "Company Disclosure Schedule"), the Company and the Principal
Shareholders, jointly and severally, represent to Parent with regard to MNET as
follows:
(a) Organization of MNET. To the knowledge of Company and the
Principal Shareholders and except as provided in Schedule 3.5(a), MNET is duly
qualified to do business as now being conducted and is in good standing in each
jurisdiction in which the failure to be so qualified would have a material
adverse effect on the business, assets (including intangible assets), financial
condition, results of operations or prospects of MNET (hereinafter referred to
as a "MATERIAL ADVERSE EFFECT").
(b) MNET Capital Structure. The authorized membership interest
of MNET is 34% owned by Enhanced Response Technologies, Inc ("ERT") and 66%
owned by Direct Marketing Technology, Inc. ("DMT"). Except as provided in
Schedule 3.5(b), ERT has good and valid title to its 34% interest in MNET, free
and clear of any liens, claims, charges, pledges, security interests, options,
or other legal or equitable encumbrances.
(c) Subsidiaries. MNET has never had any subsidiaries and does
not own any shares of capital stock or any interest in, or controls, directly or
indirectly, any other corporation, partnership, association, joint venture or
other business entity.
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<PAGE> 24
(d) Authority. To the knowledge of Company and the Principal
Shareholders and except as set forth on Schedule 3.5(d), the execution and
delivery of this Agreement by the Seller and MNET does not, and, as of the
Closing Date, the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (any
such event, a "CONFLICT") any provision of the Articles of Organization,
Operating Agreement or Bylaws (or comparable organizational document) of MNET.
(e) MNET Financial Statements and Intercompany Debt. Except as
provided in Schedule 3.5(e), MNET has provided a statement of operations and a
balance sheet to DMT as of October 31, 1998 (collectively, the "MNET
FINANCIALS"). The MNET Financials as provided by MNET to DMT are accurate and
correct in all material respects and have been prepared in accordance with GAAP,
applied on a basis consistent throughout the periods indicated and consistent
with each other. The MNET Financials present fairly the financial condition and
operating results of MNET as of the dates and during the periods indicated
therein. The MNET Financials have been prepared in good faith in accordance with
the books and records of MNET and consistent with the accounting policies and
procedures employed by MNET in prior periods.
(f) No Undisclosed Liabilities. Except as set forth in Schedule
3.5(f), MNET has no liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with GAAP), which individually or in the
aggregate, (i) has not been reflected on the face of the balance sheets provided
to DMT by MNET, or (ii) has not arisen in the ordinary course of the business of
MNET since August 31, 1998, consistent with past practices.
(g) No Changes. To the knowledge of ERT and the Principal
Shareholders, and except as set forth in Schedule 3.5(g), since September 30,
1998, there has not been, occurred or arisen, as of the date hereof, any:
(i) transaction by MNET except in the ordinary course of
business as conducted on that date and consistent with past practices;
(ii) amendment or change to the Operating Agreement or
Bylaws (or comparable organizational document) of MNET;
(iii) capital expenditure or commitment of MNET;
(iv) destruction of, damage to or loss of any material
assets, business or customer of MNET (whether or not covered by insurance);
(v) increase in the salary or other compensation payable
or to become payable by MNET to any of the 10 most highly paid employees of
MNET, or the declaration, payment or commitment or obligation of any kind for
the payment by MNET, of a bonus or other additional salary
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<PAGE> 25
or compensation to any such person (other than annual increases consistent with
past practice not exceeding in any one case more than 10% of annual base
salary);
(vi) sale, lease, license or other disposition of any of
the assets or properties of MNET, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(vii) loan by MNET to any person or entity, incurring by
MNET of any indebtedness, guaranteeing by MNET of any indebtedness, issuance or
sale of any debt securities of MNET or guaranteeing of any debt securities of
others by MNET, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(viii) waiver or release of any material right or claim
of MNET, including any material write-off or other compromise, outside the
ordinary course of business, of any account receivable;
(ix) the commencement of any lawsuit or notice or threat
of commencement of any material lawsuit or proceeding against or investigation
of MNET or its affairs;
(x) notice of any claim of ownership by a third party of
MNET Intellectual Property Rights or of infringement by MNET of any third
party's copyright, patent, trade mark, service mark, trade secret or other
proprietary right ("INTELLECTUAL PROPERTY");
(xi) material change in pricing set or charged by MNET
to its customers or in pricing or royalties set or charged by persons who have
licensed Intellectual Property to MNET;
(xii) any event or condition of any character that has
or could be reasonably expected to have a Material Adverse Effect on MNET, or
(xiii) negotiation or agreement by MNET or any officer
or employees thereof to do any of the things described in the preceding clauses
(a) through (m) (other than negotiations with DMT, and Buyer and its
representatives regarding the transactions contemplated by this Agreement).
(h) Tax and Other Returns and Reports. Except as provided in
Schedule 3.5(h), MNET as of the Closing Date will have paid or withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other employment related taxes required to be withheld.
(i) Restrictions on Business Activities. Except as provided in
Schedule 3.5(i), there is no agreement (noncompete or otherwise), commitment,
judgment, injunction, order or decree (except for government policies applicable
to all companies engaged in the business in which MNET is engaged) to which MNET
is a party or otherwise binding upon MNET which has or reasonably could be
expected to have the effect of prohibiting or impairing any business practice
MNET, any acquisition of property (tangible or intangible) by MNET or the
conduct of business by MNET. Except as provided in Schedule 3.5(i), all
statutory and other licenses, consents, permits and authorities necessary or
desirable
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<PAGE> 26
for the carrying on of the business of MNET as now carried on have been obtained
and are valid and subsisting and all conditions applicable to any such license,
consent (including any planning consent) permit or authority have been complied
with and none of such licenses, consents, permits or authorities have been
breached or is likely to be suspended, canceled, refused or revoked.
(j) Intellectual Property.
(i) All Intellectual Property owned by MNET will have
been transferred to DMT, or its affiliate, prior to the Closing Date.
(ii) Prior to transfer to DMT, except as provided in
Schedule 3.50), no claims with respect to the MNET Intellectual Property Rights
were asserted or were, to the knowledge of ERT, threatened by any person, nor
are there any valid grounds for any bonafide claims (i) to the effect that the
manufacture, sale, licensing or use of any of the products of MNET infringes on
any copyright, patent, trade mark, service mark, trade secret or other
proprietary right, (ii) against the use by MNET of any trademarks, service
marks, trade names, trade secrets, copyrights, maskworks, patents, technology,
know-how or computer software programs and applications used in such MNET's
business as currently conducted or as proposed to be conducted, or (iii)
challenging the ownership by MNET, validity or effectiveness of any of the MNET
Intellectual Property Rights.
(k) Interested Party Transactions. Except as set forth on
Schedule 3.5(k), no officer, director, member, stockholder or shareholder of
MNET (nor any ancestor, sibling, descendant or spouse of any of such persons, or
any trust, partnership or corporation in which any of such persons has or has
had an interest), has or has had, directly or indirectly, (i) a material
interest in any entity which furnished or sold, or furnishes or sells, services
or products that MNET furnishes or sells, or proposes to furnish or sell, or
(ii) a material economic interest in any entity that purchases from or sells or
furnishes to MNET, any goods or services; provided, that ownership of no more
than one percent (1%) of the outstanding voting stock of a publicly traded
corporation will not be deemed a "material economic interest in any entity" for
purposes of this Section 3.5(k).
(l) Compliance with Laws. To the knowledge of ERT, MNET has
complied in all material respects with, is not in material violation of, and has
not received any notices of violation with respect to, any foreign, federal,
state or local statute, law, regulation or directive.
(m) Litigation . Except as set forth in Schedule 3.5(m), there
is no action, suit or proceeding of any nature pending or to ERT's knowledge
threatened against MNET, its properties or any of its officers or directors, in
their respective capacities as such. Except as set forth in Schedule 3.5(m), to
the knowledge of the ERT, there is no investigation pending or threatened
against MNET, its properties or any of its officers or directors by or before
any Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of MNET to manufacture, offer or sell any of its
products or services in the present manner or style thereof.
(n) Brokers' and Finders' Fees, Third Party Expenses. Except as
provided in Schedule 3.5(n), MNET has not incurred, nor will MNET incur,
directly or indirectly, any liability for
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brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
(o) Sale of MNET Interests. ERT is the beneficial owner of a 34%
interest in MNET. Except as provided in Schedule 3.5(o), said 34% interest is
owned free and clear of all liens, claims, charges, pledges, security interests,
options, or other legal and equitable encumbrances. Prior to the Closing Date
said 34% interest will be transferred to DMT or its affiliate.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.1 Conduct of Business by Parent and the Company.
(a) Conduct of Business by Parent. During the period from the
date of this Agreement to the Effective Time and except (i) to the extent the
Company shall otherwise consent in writing (which consent will not be
unreasonably withheld), (ii) as set forth in the Parent Disclosure Schedule or
(iii) as contemplated or permitted by or not inconsistent with this Agreement,
Parent shall carry on its businesses in the ordinary course consistent with the
manner as heretofore conducted and, to the extent consistent therewith, use
reasonable efforts to preserve intact its current business organization, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with it. Without limiting the generality of the
foregoing, except as set forth in the Parent Disclosure Schedule or as
contemplated or permitted by or not inconsistent with this Agreement, during the
period from the date of this Agreement to the Effective Time, Parent shall not,
without the written consent of the Company (which consent will not be
unreasonably withheld):
(i) (x) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock, (y) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or (z) purchase, redeem or otherwise acquire
any shares of capital stock of Parent or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) amend its Restated Certificate of Incorporation or
Bylaws;
(iii) issue, deliver, sell, pledge or otherwise encumber
any shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than in the ordinary
course of business and consistent with past practice pursuant to stock option
plans, employee stock purchase plans and convertible indebtedness in effect as
of the date of this Agreement);
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(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner (including through any of its subsidiaries), any business or
any corporation, partnership, joint venture, association or other business
organization or division thereof, except that this Section 4.1(a)(iv) shall not
prohibit Parent from effecting an acquisition of any other business if (A) such
acquisition would not materially affect the ability of Parent to, or materially
delay Parent's ability to, complete the transactions contemplated by this
Agreement, and (B) such acquisition would involve the issuance by Parent of
equity securities and, when considered together with all other acquisitions
effected by Parent, would not involve the issuance of more than 1,000,000 shares
of Parent's capital stock or securities convertible into or exercisable for more
than 1,000,000 shares of Parent's capital stock;
(v) sell, lease, license, mortgage or otherwise encumber
or subject to any Lien or otherwise dispose of any substantial part of its (or
any of its subsidiaries') material properties, assets or business, except sales
made in the ordinary course of business and except for subjecting any of its
properties to Parent Permitted Liens;
(vi) make any material payments outside the ordinary
course of business for purposes of settling any dispute;
(vii) allow Parent or any of its subsidiaries, or any
significant portion of their respective businesses or assets, to be acquired (by
merger, tender offer, purchase or otherwise);
(viii) enter into (directly or through any subsidiary)
any transaction that is extraordinary in nature or magnitude (when compared to
the transactions historically entered into by Parent); or
(ix) authorize any of, or commit or agree to take any
of, the foregoing actions.
(b) Conduct of Business by the Company. During the period from
the date of this Agreement to the Effective Time and except (i) to the extent
Parent shall otherwise consent in writing (which consent will not be
unreasonably withheld), (ii) as set forth in the Company Disclosure Schedule or
(iii) as contemplated or permitted by or not inconsistent with this Agreement,
the Company shall carry on its businesses in the ordinary course consistent with
the manner as heretofore conducted and, to the extent consistent therewith, use
reasonable efforts to preserve intact its current business organization, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers, licensors, licensees, distributors and
others having business dealings with it. Without limiting the generality of the
foregoing, except as set forth in the Company Disclosure Schedule or as
contemplated or permitted by or not inconsistent with this Agreement, during the
period from the date of this Agreement to the Effective Time, the Company shall
not, without the written consent of Parent (which consent will not be
unreasonably withheld):
(i) (x) declare, set aside or pay any dividends on, or
make any other distributions in respect of, any of its capital stock, (y) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for
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shares of its capital stock, or (z) purchase, redeem or otherwise acquire any
shares of capital stock of the Company or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(ii) amend its Articles of Incorporation or Bylaws;
(iii) issue, deliver, sell, pledge or otherwise encumber
any shares of its capital stock, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities (other than the issuance of
shares of Company Common Stock upon the exercise of Company Options outstanding
on the date of this Agreement in accordance with the present terms of such
Company Options and the issuance of shares of Company Common Stock upon the
exercise of Company Options granted after the date of this Agreement as
permitted by this Agreement (the "Company Option Plans");
(iv) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner (including through any of its subsidiaries), any business or
any corporation, partnership, joint venture, association or other business
organization or division thereof or (y) any asset except in the ordinary course
of business;
(v) sell, lease, license, mortgage or otherwise encumber
or subject to any Lien or otherwise dispose of any of its (or any of its
subsidiaries') material properties, assets, or business except sales made in the
ordinary course of business and except for subjecting any of its properties or
assets to Company Permitted Liens;
(vi) (y) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person (other than a subsidiary of
the Company), issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company, guarantee any debt securities of
another person (other than a subsidiary of the Company), enter into any "keep
well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for (i) short-term borrowings incurred in the ordinary
course of business consistent with past practice, (ii) borrowings pursuant to
existing credit facilities in the ordinary course of business or pursuant to any
modifications, renewals or replacements of such credit facilities or (z) make
any loans, advances or capital contributions to, or investments in, any other
person other than a subsidiary of the Company, and other than advances to
employees in the ordinary course of business consistent with past practice;
(vii) make or agree to make any new capital expenditure
or expenditures which are outside the ordinary course of business or
inconsistent with past practice;
(viii) make any material payments outside the ordinary
course of business for purposes of settling any dispute;
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(ix) except in the ordinary course of business, modify,
amend or terminate any material contract or agreement to which the Company is a
party or waive, release or assign any material rights or claims thereunder;
(x) except as required to comply with applicable law and
except for actions which do not materially increase the Company's compensation
expense or benefits to employees taken as a whole, (A) adopt, enter into,
terminate or amend any Benefit Plan or other arrangement for the benefit or
welfare of any director, officer or current or former employee, (B) increase in
any manner the compensation or fringe benefits of, or pay any bonus to, any
director, officer or employee (except for normal increases of cash compensation
or cash bonuses in the ordinary course of business consistent with past
practice), (C) pay any benefit not provided for under any Benefit Plan, (D)
except as permitted in clause (B), grant any awards under any bonus, incentive,
performance or other compensation plan or arrangement or Benefit Plan (including
the grant of stock options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock or the removal of existing
restrictions in any Benefit Plans or agreements or awards made thereunder) or
(E) except as permitted in clauses (A) through (D), take any action to fund or
in any other way secure the payment of compensation or benefits under any
employee plan, agreement, contract or arrangement or Benefit Plan;
(xi) form any subsidiary of the Company;
(xii) allow any of its subsidiaries, or any significant
portion of their respective businesses or assets, to be acquired (by merger,
tender offer, purchase or otherwise);
(xiii) enter into (directly or through any subsidiary)
any transaction that is extraordinary in nature or magnitude (when compared to
the transactions historically entered into by the Company); or
(xiv) authorize any of, or commit or agree to take any
of, the foregoing actions.
(c) Certain Tax Matters. From the date hereof until the
Effective Time, (i) each of the Company and Parent will file all tax returns and
reports ("Post-Signing Returns") required to be filed by it; (ii) each of the
Company and Parent will timely pay all taxes due and payable with respect to
such Post-Signing Returns that are so filed; (iii) each of the Company and
Parent will promptly notify the other of any action, suit, proceeding, claim or
audit (collectively, "Actions") pending against or with respect to such party in
respect of any tax where there is a reasonable possibility of a determination or
decision which would have a material adverse effect on the other party 's tax
liabilities or tax attributes, and the Company will not settle or compromise any
such Action without Parent's consent; and (iv) each of the Company and Parent
will not make any material tax election without the consent of the other (which
consent will not be unreasonably withheld).
SECTION 4.2 No Solicitation.
(a) The Company shall not, nor shall it authorize or instruct
any of its officers, directors or employees or any investment banker, attorney
or other advisor or representative retained by
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it to, directly or indirectly, (i) solicit, initiate or knowingly encourage the
submission of any Takeover Proposal (as hereinafter defined) by any person
(other than Parent or its affiliates or representatives) or (ii) participate in
any discussions or negotiations regarding, or furnish to any person any
non-public information with respect to, or take any other action intended or
reasonably expected to facilitate the making of any inquiry or proposal to the
Company that constitutes, or may reasonably be expected to lead to, any Takeover
Proposal by any person (other than Parent or its affiliates or their respective
representatives); provided, however, that notwithstanding anything to the
contrary contained in this Section 4.2(a) or elsewhere in this Agreement, if, at
any time prior to receipt of the Stockholder Approval, the Board of Directors of
the Company determines in good faith, after consultation with outside counsel,
that failure to do so would create a substantial risk of liability for breach of
its fiduciary duties to the Company's stockholders under applicable law, the
Company may, in response to a Takeover Proposal that was unsolicited or that did
not otherwise result from a breach of this Section 4.2(a), and subject to
compliance with Section 4.2(c), (x) furnish nonpublic information with respect
to the Company and its subsidiaries to any person pursuant to a customary and
reasonable confidentiality agreement and (y) participate in discussions and
negotiations regarding such Takeover Proposal. Without limiting the foregoing,
it is understood that any violation of the restrictions set forth in the
preceding sentence by any officer, director or employee of the Company or any
investment banker, attorney or other advisor or representative of the Company,
acting on behalf of and with the authorization of the Company, shall be deemed
to be a breach of this Section 4.2(a) by the Company. For purposes of this
Agreement, "Takeover Proposal" means any proposal or offer from any person
(other than Parent or its affiliates or their respective representatives) for
any acquisition by such person of a substantial amount of assets of the Company
(other than an acquisition of assets of the Company in the ordinary course of
business or as permitted under the terms of this Agreement) having a fair market
value (as determined by the Board of Directors of the Company in good faith) in
excess of 25% of the fair market value of all the assets of the Company and its
subsidiaries immediately prior to such acquisition or more than a 25% interest
in the total voting securities of the Company or any tender offer or exchange
offer that if consummated would result in any person beneficially owning 25% or
more of any class of equity securities of the Company or any merger,
consolidation, or business combination of the Company with any unaffiliated
third party, other than the transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 4.2, neither
the Board of Directors of the Company nor any committee thereof shall (i)
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Parent or Sub, the approval or recommendation by such Board of Directors or any
such committee of this Agreement or the Merger, (ii) approve or recommend any
Takeover Proposal or (iii) cause the Company to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement with
respect to any Takeover Proposal. Notwithstanding the foregoing or anything else
contained in this Agreement, prior to the adoption and approval of this
Agreement and the approval of the Merger by the holders of a majority of the
shares of Company Common Stock outstanding on the record date for the
Stockholders Meeting, the Board of Directors of the Company, to the extent it
determines in good faith, after consultation with outside counsel, that failure
to do so would create a substantial risk of liability for breach of its
fiduciary duties to the Company's stockholders under applicable law, may (1)
withdraw or modify its approval or recommendation of this Agreement or the
Merger and/or (2) approve or recommend any Takeover Proposal.
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(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 4.2, the Company promptly shall advise
Parent orally and in writing of any request to the Company for nonpublic
information which the Company reasonably believes could lead to a Takeover
Proposal or of any Takeover Proposal submitted to the Company, or any inquiry
directed to the Company with respect to or which the Company reasonably believes
could lead to any Takeover Proposal, the material terms and conditions of such
request, Takeover Proposal or inquiry, and the identity of the person making any
such Takeover Proposal or inquiry. The Company will keep Parent informed in all
material respects of the status and details (including amendments or proposed
amendments) of any such Takeover Proposal or inquiry.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 Access to Information; Confidentiality. The Company shall
afford to Parent, and to Parent's officers, employees, accountants, counsel,
financial advisors and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time or the termination
of this Agreement to all its properties, books, contracts, commitments,
personnel and records and, during such period, the Company shall furnish
promptly to Parent (a) a copy of each report, schedule, registration statement
and other document filed by it during such period pursuant to the requirements
of Federal or state securities laws and (b) all other information concerning its
business, properties and personnel as Parent may reasonably request; provided,
however, that (i) Parent shall not contact, and Parent shall ensure that none of
its officers, employees, accountants, counsel, financial advisors or other
representatives contacts, any employee of the Company or any of its subsidiaries
without the prior authorization of the Company's Chief Executive Officer, Chief
Operating Officer or Chief Financial Officer, and (ii) Parent shall ensure that
none of its employees, accountants, counsel, financial advisors or other
representatives interferes with or otherwise disrupts the business or operations
of the Company while exercising the rights provided under this Section 5.1.
Parent shall afford to the Company, and to the Company's officers, employees,
accountants, counsel, financial advisors and other representatives, reasonable
access during normal business hours during the period prior to the Effective
Time or the termination of this Agreement to all its properties, books,
contracts, commitments, personnel and records and, during such period, Parent
shall furnish promptly to the Company (a) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of Federal or state securities laws and (b) all
other information concerning its business, properties and personnel as the
Company may reasonably request; provided, however, that (i) the Company shall
not contact, and the Company shall ensure that none of its officers, employees,
accountants, counsel, financial advisors or other representatives contacts, any
employee of Parent or any of its subsidiaries without the prior authorization of
Parent's Chief Executive Officer, Chief Operating Officer or Chief Financial
Officer, and (ii) the Company shall ensure that none of its employees,
accountants, counsel, financial advisors or other representatives interferes
with or otherwise disrupts the business or operations of Parent while exercising
the rights provided under this Section 5.1. Parent and Company will each hold,
and will cause their respective officers, employees, accountants, counsel,
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financial advisors and other representatives and affiliates to hold, any and all
information received from the other party, directly or indirectly, in
confidence. The parties have entered into a non-disclosure agreement and all
discussions and information exchanged in the course of this Merger have been
subject to the terms and conditions set forth therein.
SECTION 5.2 Reasonable Efforts; Notification.
(a Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement, including (i) the obtaining of all necessary actions or nonactions,
waivers, consents and approvals from Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities, if any) and the taking of all reasonable steps as may be necessary to
avoid an action or proceeding by any Governmental Entity, (ii) the obtaining of
all necessary consents, approvals or waivers from third parties (other than
consents, approval or waivers, the failure to obtain which would not have a
material adverse effect on the Company or Parent, as the case may be), (iii) the
defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement; provided, however, that
notwithstanding anything to the contrary contained in this Section 5.2 or
elsewhere in this Agreement, the Company shall not be required to take any
action or do any thing if the Board of Directors of the Company determines in
good faith, after consultation with outside counsel, that the taking of such
action or the doing of such thing would create a substantial risk of liability
for breach of its fiduciary duties to the Company's stockholders under
applicable law. In connection with and without limiting the foregoing, the
Company and its Board of Directors shall, if any state takeover statute or
similar statute or regulation is or becomes applicable to the Merger or this
Agreement, use all reasonable efforts to ensure that the Merger may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and this Agreement.
(b The Company shall give prompt notice to Parent of (i) any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate such that the condition set forth in Section 6.2(a) would
not be satisfied as a result thereof, or (ii) the failure by it to comply with
or satisfy in any material respect any covenant or agreement to be complied with
or satisfied by it under this Agreement such that the condition set forth in
Section 6.2(b) would not be satisfied as a result thereof; provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement. Parent shall give prompt notice to the Company
of (i) any representation or warranty made by it contained in this Agreement
becoming untrue or inaccurate such that the condition set forth in Section
6.3(a) would not be satisfied as a result thereof or (ii) the failure by it to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under
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this Agreement such that the condition set forth in Section 6.3(b) would not be
satisfied as a result thereof; provided, however, that no such notification
shall affect the representations, warranties, covenants or agreements of the
parties or the conditions to the obligations of the parties under this
Agreement.
SECTION 5.3 Stock Options and Other Employee Benefits.
(a) Subject to Section 5.3(b), Parent and the Company shall take
all actions necessary to terminate all outstanding options under the Company
Option Plans.
(b The Company shall cause to be delivered to Parent, prior to
the Effective Time, a list specifying those individuals with respect to which
Parent is to issue options to purchase shares of Parent Common Stock pursuant to
this Section 5.3(b) as of the Effective Time (the "Specified Options"). As of
the Effective Time, Parent shall issue, with respect to each Specified Option,
in the name of the holder thereof, an option to purchase the number of shares of
Parent Common Stock listed for each respective individual on Schedule 5.3(b).
(c) All Company Option Plans shall terminate as of the Effective
Time, and the Company shall ensure that following the Effective Time no holder
of a Company Option or any participant in any Company Option Plan shall have any
right thereunder to acquire any capital stock of the Company.
(d) Parent shall ensure that all employees of the Company and
all employees of each of the Company's subsidiaries are allowed and are eligible
to participate in Parent's employee benefit plans after the Effective Time, to
the same extent as if they were employees of Parent. Without limiting the
generality of the foregoing, (i) to the extent that any employee of the Company
or any of the Company's subsidiaries becomes eligible to participate in any
employee benefit plan of Parent after the Effective Time, Parent, the Surviving
Corporation and their subsidiaries shall credit such employee's service with the
Company or its subsidiaries, to the same extent as such service was credited
under the similar employee benefit plans of the Company and its subsidiaries
immediately prior to the Effective Time, for purposes of determining eligibility
to participate in and vesting under, and for purposes of calculating the
benefits under, such employee benefit plan of Parent, and (ii) to the extent
permitted by such employee benefit plan of Parent and applicable law, Parent,
the Surviving Corporation and its subsidiaries shall waive any pre-existing
condition limitations, waiting periods or similar limitations under such
employee benefit plan of Parent and shall provide each such employee with credit
for any co-payments previously made and any deductibles previously satisfied.
(e) Parent shall reserve sufficient shares of Parent Common
Stock for issuance with respect to the employee benefit plans referred to in
this Section 5.3.
(f) This Section 5.3 will survive the consummation of the Merger
and the Effective Time, is intended to benefit and may be enforced by each of
the persons who participate in any of the employee benefit plans referred to in
this Section 5.3, and will be binding on all successors and assigns of Parent
and the Surviving Corporation.
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SECTION 5.4 Fees and Expenses.
(a) All fees and expenses incurred in connection with the
Merger, this Agreement and the transactions contemplated by this Agreement shall
be paid by the party incurring such fees or expenses, whether or not the Merger
is consummated.
SECTION 5.5 Public Announcements. Parent and Sub, on the one hand, and
the Company, on the other hand, will consult with each other before issuing, and
to the extent reasonably practicable, give each other the opportunity to review
and comment upon, any press release or other public statements with respect to
the transactions contemplated by this Agreement, including the Merger, and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to any listing agreement with any national securities
exchange or national securities quotation system. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement shall be in the form heretofore agreed to by the parties.
SECTION 5.6 Tax Treatment. Each of Parent and the Company shall not
(before or after the Effective Time) take any action and shall not (before or
after the Effective Time) fail to take any action which action or failure to act
would prevent, or would be reasonably likely to prevent, the Merger from
qualifying as a reorganization within the meaning of Section 368(a) of the Code,
and each shall use reasonable efforts to obtain the opinions of counsel referred
to in Sections 6.2(d) and 6.3(d), respectively.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been
approved and adopted by the affirmative vote of the holders of a majority of the
shares of Company Common Stock outstanding as of the record date for the
Stockholders Meeting.
(b) No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order issued by any U.S.
federal or state court of competent jurisdiction or other material legal
restraint or prohibition issued or promulgated by a U.S. federal or state
Governmental Entity preventing the consummation of the Merger shall be in
effect.
SECTION 6.2 Conditions to Obligations of Parent and Sub. The obligations
of Parent and Sub to effect the Merger are further subject to the following
conditions:
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(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement (excluding any
representation or warranty that refers specifically to "the date of this
Agreement," "the date hereof" or any other date other than the Closing Date)
shall be accurate in all material respects as of the Closing Date as if made on
and as of the Closing Date (it being understood that, for purposes of
determining the accuracy of such representations and warranties as of the
Closing Date, (i) any inaccuracy that does not have a material adverse effect on
the Company shall be disregarded, (ii) any inaccuracy that results from or
relates to general business, economic or industry conditions shall be
disregarded, and (iii) any inaccuracy that results from or relates to the taking
of any action contemplated or permitted by this Agreement or the announcement or
pendency of the Merger shall be disregarded).
(b) Performance of Obligations of the Company. The Company shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date.
(c) Noncompetition Agreement. At or before the Effective Time,
the Company and the Principal Shareholders shall have executed a Noncompetition
Agreement in substantially the form attached hereto as Exhibit A.
SECTION 6.3 Conditions to Obligation of the Company. The obligation of
the Company to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Sub set forth in this Agreement (excluding any
representation or warranty that refers specifically to "the date of this
Agreement," "the date hereof" or any other date other than the Closing Date)
shall be accurate in all material respects as of the Closing Date as if made on
and as of the Closing Date (it being understood that, for purposes of
determining the accuracy of such representations and warranties as of the
Closing Date, (i) any inaccuracy that does not have a material adverse effect on
Parent or Sub shall be disregarded, (ii) any inaccuracy that results from or
relates to general business, economic or industry conditions shall be
disregarded, and (iii) any inaccuracy that results from or relates to the taking
of any action contemplated or permitted or the announcement or pendency of the
Merger by this Agreement shall be disregarded).
(b) Performance of Obligations of Parent and Sub. Parent and Sub
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date.
(c) Parent Financing. Parent shall have completed the sale of at
least $2,500,000 of its Series D Preferred Stock (or other equity securities).
(d) Board Representation. Concurrent with the Closing, Parent
shall take all necessary action to elect Robert Hoyler to the Parent's Board of
Directors.
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES
SECTION 7.1 Survival of Representations. All of Company's, Principal
Shareholders' and the Shareholders' representations and warranties made herein
or pursuant hereto shall be deemed made on and as of the Effective Time as
though such representations and warranties were made on and as of such date, and
all such representations and warranties shall survive the Effective Time and any
investigation, audit or inspection at any time made by or on behalf of any party
hereto, as follows: (a) unless otherwise specified below, representations and
warranties shall survive for a period of one year after the Effective Time; (b)
representations, warranties and covenants for matters relating to title to the
capital stock of Company shall continue in full force and effect in perpetuity.
Notwithstanding anything herein to the contrary, any representation or warranty
which is the subject of a claim which is asserted in writing reasonably and in
good faith prior to the expiration of the applicable period set forth above
shall survive with respect to such claim or dispute until the final resolution
thereof.
SECTION 7.2 Agreement of Principal Shareholders and Shareholders to
Indemnify. The Principal Shareholders hereby jointly and severally, and each of
the Shareholders other than the Principal Shareholders hereby individually,
agree to indemnify, defend and hold harmless Parent, Sub and their officers,
directors, employees, agents and representatives (collectively, the "Indemnified
Persons") from and against and in respect of all demands, losses, claims,
actions or causes of action, assessments, damages, liabilities, costs and
expenses, including, without limitation, interest, penalties and reasonable
attorneys' fees and disbursements, excluding any lost profits, lost revenue or
opportunity costs (collectively, "Losses") resulting from, imposed upon or
incurred by the Indemnified Persons, directly or indirectly, by reason of or
resulting from any misrepresentation or breach of any representation or
warranty, given or made by (i) in the case of the Principal Shareholders or
Company, in Section 3.1 and Section 3.4 of this Agreement, and (ii) in the case
of the Shareholders, in Section 3.4 of this Agreement.
(a) the liabilities or obligations of the Principal Shareholders
and Shareholders arising out of this Article VII shall commence only following
the incidence of Losses (incurred by any and all Indemnified Persons) of either
$100,000 in the aggregate or $50,000 for any single incidence;
(b) the aggregate indemnification provided by each of the
Principal Shareholders and Shareholders pursuant to this Article VII shall not
exceed the aggregate consideration received by such Principal Shareholder
pursuant to Article I;
(c) the sole remedy of the Indemnified Persons against the
Principal Shareholders and Shareholders for breach or inaccuracy of or any
failure to comply with the provisions of this Agreement is a claim for
indemnification pursuant to this Article VII;
(d) notwithstanding the foregoing, nothing herein shall limit an
Indemnified Person's remedies in the event of fraud or intentional deception on
the part of Company or any Principal
-32-
<PAGE> 38
Shareholder or Shareholder with respect to any of the obligations of Company,
Principal Shareholders or Shareholders under this Agreement.
SECTION 7.3 Notice of Losses.
(a) If an Indemnified Person believes that it has suffered or is
likely to suffer any Losses against which it is indemnified pursuant hereto, it
shall notify the Principal Shareholders promptly in writing describing such
Losses, the amount thereof, if known, and the method of computation of such
Losses, all with reasonable particularity and containing a reference to the
provisions of this Agreement in respect of which such Losses have occurred. If
any action at law or suit in equity is instituted by or against a third party
with respect to which any Indemnified Person intends to claim any liability or
expense as Losses under this Article VII, any such Indemnified Person shall
promptly notify the Shareholders of such action or suit. The failure of any
Indemnified Person to give notice as provided herein shall not relieve any
Shareholder of his respective obligations under this Article VII unless such
failure results in actual detriment to such Shareholder, and only to the extent
of such detriment.
(b) In calculating any Losses (i) there shall be no reduction
for any tax benefits with respect to any Losses; and (ii) there shall be no
increase for taxes imposed upon the receipt of any indemnity payment with
respect to any Losses.
(c) The amount to which an Indemnitee shall be entitled under
this Article VII shall be determined (i) by written agreement between the
Indemnified Person and the Shareholders; or (ii) if the Indemnified Person, the
Principal Shareholders and the Shareholders are unable to agree as to any claim
for indemnification hereunder within sixty (60) days, such claim may be referred
to arbitration by either party in accordance with the provisions of Section 7.6
hereof.
SECTION 7.4 Third Party Claims. If a third party asserts a Claim against
any Indemnified Person, the Indemnified Person shall promptly give notice of
such Claim in accordance with Section 7.3 above. The Principal Shareholders
and/or Shareholders shall be entitled to assume the defense of such Claim,
including the employment of counsel reasonably satisfactory to the Indemnified
Person; provided, however, that, in the event that the Indemnified Person
reasonably determines in good faith that such Indemnified Person's interests
with respect to such Claim cannot appropriately be represented by the
Shareholders, such Indemnified Person shall have the right to assume control of
the defense of such Claim and to have such Indemnified Person's reasonable
expenses reimbursed promptly with respect to such Claim. In addition, in the
event that the Principal Shareholders and Shareholders, within a reasonable time
after notice of any such Claim, fail to defend any Indemnified Person, such
Indemnified Person (upon further notice to the Principal Shareholders and
Shareholders) shall have the right to undertake the defense of such Claim for
the account of the Principal Shareholders and Shareholders and to have such
Indemnified Person's reasonable expenses reimbursed promptly with respect to
such Claim. Regardless of which party is controlling the defense of any Claim,
no settlement of such Claim may be agreed to without the written consent of each
of the Indemnified Person, which consent shall not be unreasonably withheld. The
controlling party shall deliver, or cause to be delivered, to the other parties
copies of all correspondence, pleadings, motions, briefs, appeals or other
written
-33-
<PAGE> 39
statements relating to or submitted in connection with the defense of any such
Claim, and timely notices of any hearing or other court proceeding relating to
such Claim.
SECTION 7.5 No Recourse Against Company. The Principal Shareholders and
Shareholders hereby irrevocably waive any and all right to recourse against the
Company with respect to any misrepresentation or breach of any representation,
warranty or indemnity, given or made by the Principal Shareholders and
Shareholders or the Company in this Agreement and any document, certificate and
agreement entered into or delivered pursuant hereto. The Principal Shareholders
and Shareholders shall not be entitled to contribution from, subrogation to or
recovery against the Company with respect to any liability of the Principal
Shareholders and Shareholders or the Company that may arise under or pursuant to
this Agreement or the transactions contemplated hereby.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated, and the
Merger contemplated hereby may be abandoned, at any time prior to the Effective
Time, whether before or after approval of matters presented in connection with
the Merger by the stockholders of the Company:
(a) by mutual written consent of Parent, Sub and the Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated by
December 31, 1998 for any reason; provided, however, that the right to terminate
this Agreement under this Section 8.1(b)(i) shall not be available to any party
whose action or failure to act has been a principal cause of or resulted in the
failure of the Merger to occur on or before such date if such action or failure
to act constitutes a wilful and material breach of this Agreement;
(ii) if any temporary restraining order, preliminary or
permanent injunction or other order issued by any U.S. federal or state court of
competent jurisdiction or other material legal restraint or prohibition issued
or promulgated by a U.S. federal or state Governmental Entity having any of the
effects set forth in Section 6.1(b) shall be in effect and shall have become
final and nonappealable;
(iii) if (A) the Company's stockholders shall have taken
a final vote on a proposal to approve and adopt this Agreement and to approve
the Merger, and (B) the adoption and approval of this Agreement and the approval
of the Merger by the holders of a majority of the shares of Company Common Stock
shall not have been obtained; or
-34-
<PAGE> 40
(iv) if (A) the Board of Directors of the Company or any
committee thereof shall have withheld, withdrawn or modified in a manner adverse
to Parent its approval or recommendation of the Merger or (B) the Board of
Directors of the Company shall have resolved to take any of the foregoing
actions;
(c) by the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any such representation or warranty of Parent shall have become
inaccurate, in either case such that the conditions set forth in Section 6.3(a)
or Section 6.3(b), as the case may be, would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have become
inaccurate; provided, that if such inaccuracy in Parent's representations and
warranties or breach by Parent is curable by Parent, then (i) the Company may
not terminate this Agreement under this Section 8.1(c) with respect to a
particular breach or inaccuracy prior to or during the 45-day period commencing
upon delivery by the Company of written notice to Parent describing such breach
or inaccuracy, provided Parent continues to exercise reasonable efforts to cure
such breach or inaccuracy and (ii) the Company may not, in any event, terminate
this Agreement under this Section 8.1(c) if such inaccuracy or breach shall have
been cured in all material respects; and, provided further that the Company may
not terminate this Agreement pursuant to this Section 8.1(c) if it shall have
wilfully and materially breached this Agreement; or
(d) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any such representation or warranty of the Company shall have become
inaccurate, in either case such that the conditions set forth in Section 6.2(a)
or Section 6.2(b), as the case may be, would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have become
inaccurate; provided, that if such inaccuracy in the Company's representations
and warranties or breach by the Company is curable by the Company, then (i)
Parent may not terminate this Agreement under this Section 8.1(d) with respect
to a particular breach or inaccuracy prior to or during the 45-day period
commencing upon delivery by Parent of written notice to the Company describing
such breach or inaccuracy, provided the Company continues to exercise reasonable
efforts to cure such breach or inaccuracy and (ii) Parent may not, in any event,
terminate this Agreement under this Section 8.1(d) if such inaccuracy or breach
shall have been cured in all material respects; and, provided further that
Parent may not terminate this Agreement pursuant to this Section 8.1(d) if it
shall have wilfully and materially breached this Agreement.
SECTION 8.2 Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Sub or the Company, except to the extent
that such termination results from the wilful and material breach by a party of
any of its representations, warranties, covenants or agreements set forth in
this Agreement.
SECTION 8.3 Amendment. This Agreement may be amended by the parties
hereto at any time before or after any required approval of matters presented in
connection with the Merger by the stockholders of the Company; provided,
however, that after any such approval, there shall be made no amendment that by
law requires further approval by such stockholders without the further approval
of
-35-
<PAGE> 41
such stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time,
any party may to the extent legally allowed (a) extend the time for the
performance of any of the obligations or other acts of the other parties, (b)
waive any inaccuracies in the representations and warranties made to such party
pursuant to this Agreement or in any document delivered pursuant hereto or (c)
subject to the proviso of Section 8.3, waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Nonsurvival of Representations and Warranties. None of the
representations or warranties contained in this Agreement or in any certificate
or instrument delivered pursuant hereto shall survive the Effective Time. This
Section 9.1 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed given if
delivered personally or sent by overnight courier (providing proof of delivery)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
if to Parent or Sub, to:
Intellipost Corporation
545 Commercial Street, 2nd Floor
San Francisco, CA 94111
Attention: Layton Han
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Attention: Mario Rosati
if to the Company, to:
-36-
<PAGE> 42
Enhanced Response Technologies, Inc.
1375 East Woodfield Road #520
Schaumberg, IL 60173
Attention: Robert Hoyler
847-969-8150 (Phone)
847-969-8164 (Fax)
with a copy to:
Craig S. Stevens, Esq.
2215 York Road, Suite 550
Oak Brook, IL 60523
630-472-3415 (Phone)
630-472-0048 (Fax)
SECTION 9.3 Definitions. For purposes of this Agreement:
an "affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
an "agreement," "arrangement," "contract," "commitment," "plan,"
"purchase order," "understanding" or "undertaking" when used in this Agreement
shall mean a legally binding, written agreement, arrangement, contract,
commitment, plan, purchase order, understanding or undertaking, as the case may
be;
"material adverse change" or "material adverse effect" means,
when used in connection with the Company or Parent, any change or effect that is
materially adverse to the business, financial condition or results of operations
of either the Company and its subsidiaries or Parent and its subsidiaries, taken
as a whole, as the case may be;
"person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person;
SECTION 9.4 Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
-37-
<PAGE> 43
SECTION 9.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement constitute the entire agreement, and supersede all prior agreements
and understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and are not intended to confer upon any person
other than the parties any rights or remedies.
SECTION 9.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties, except that Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to Parent or to any direct or indirect wholly owned subsidiary of
Parent, but no such assignment shall relieve Sub of any of its obligations
hereunder. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
SECTION 9.9 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in any Delaware state court, this being in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any court of the United States located in the State of
Delaware or of any Delaware state court in the event any dispute arises out of
this Agreement or the transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or the transactions contemplated by
this Agreement in any court other than a court of the United States located in
the State of Delaware or a Delaware state court.
SECTION 9.10 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
-38-
<PAGE> 44
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
INTELLIPOST CORPORATION
By /s/ Steven M. Markowitz
---------------------------------
Name: Steven M. Markowitz
Title: CEO
IPOST ACQUISITION SUBSIDIARY, INC.
By /s/ Steven M. Markowitz
---------------------------------
Name: Steve M. Markowitz
Title: CEO
ENHANCED RESPONSE TECHNOLOGIES, INC.
By /s/ Craig Muller
---------------------------------
Name: Craig Muller
Title: President
-39-
<PAGE> 1
EXHIBIT 10.11
INTEREST PURCHASE AGREEMENT
AMONG
INTELLIPOST CORPORATION
DIRECT MARKETING TECHNOLOGY, INC.
AND
BRIGAR COMPUTER SERVICES, INC.
DATED AS OF NOVEMBER 30, 1998
<PAGE> 2
INDEX OF EXHIBITS AND ANNEXES
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
Exhibit A Amended and Restated Investor Rights Agreement
Exhibit B Amended and Restated Co-Sale Agreement
Exhibit C Amended and Restated Voting Agreement
</TABLE>
<PAGE> 3
INDEX OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
2.2 MNET Capital Structure
2.4 MNET Financials
2.5 Brokers' and Finders' Fees; Third Party Expenses
2.13 Sale of MNET Interests
Buyers' Schedule
</TABLE>
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - PURCHASE AND SALE OF INTERESTS.....................................................-2-
1.1 Sale of Interests......................................................................-2-
1.2 Closing.........................................................................-2-
1.3 Purchase Price and Payment......................................................-2-
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SELLERS.........................................-2-
2.1 Organization of MNET............................................................-2-
2.2 MNET Capital Structure..........................................................-3-
2.3 Authority.......................................................................-3-
2.4 MNET Financial Statements.......................................................-3-
2.5 Brokers' and Finders' Fees; Third Party Expenses................................-4-
2.6 Experience......................................................................-4-
2.7 Investment......................................................................-4-
2.8 Rule 144........................................................................-4-
2.9 Rule 144A......................................................................-4-
2.10 No Public Market................................................................-5-
2.11 Access to Data..................................................................-5-
2.12 Legends.........................................................................-5-
2.13 Sale of MNET Interests..........................................................-5-
2.14 Representations Complete........................................................-5-
2.15 Schedules Cumulative............................................................-6-
2.16 Knowledge of Sellers Defined....................................................-6-
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF BUYER..........................................-6-
3.1 Organization and Standing; Certificate and Bylaws...............................-6-
3.2 Corporate Power.................................................................-6-
3.3 Capitalization..................................................................-6-
3.4 Subsidiaries....................................................................-7-
3.5 Authorization...................................................................-7-
3.6 Changes.........................................................................-7-
3.7 Liabilities.....................................................................-8-
3.8 Title to Properties and Assets..................................................-8-
3.9 Patents, Trademarks.............................................................-8-
3.10 Compliance with Other Instruments, None Burdensome..............................-9-
3.11 Litigation.....................................................................-10-
3.12 Employees. ...................................................................-10-
</TABLE>
-i-
<PAGE> 5
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C>
3.13 Registration Rights............................................................-10-
3.14 Governmental Consents..........................................................-10-
3.15 Securities Law Exemption.......................................................-10-
3.16 Agreements: Action.............................................................-11-
3.17 Brokers or Finders; Other Offers...............................................-12-
3.18 Indemnification of Officers and Directors......................................-12-
3.19 Qualified Small Business.......................................................-12-
3.20 Compliance with Laws; Permits..................................................-12-
3.21 Tax Returns, Payments and Elections............................................-13-
3.22 Title to Property and Assets...................................................-13-
3.23 Obligations of Management......................................................-13-
3.24 Minute Books...................................................................-13-
3.25 Environmental and Safety Laws..................................................-13-
3.26 Section 83(b) Elections........................................................-13-
3.27 Real Property Holding Corporation..............................................-14-
3.28 Investment Company Act.........................................................-14-
3.29 Employee Benefit Plan..........................................................-14-
3.30 Prohibited Payments............................................................-14-
3.31 Manufacturing and Marketing Rights.............................................-14-
3.32 Insurance......................................................................-14-
3.33 Disclosure.....................................................................-14-
ARTICLE IV - CONDUCT PRIOR TO THE CLOSING.....................................................-14-
4.1 No Solicitation................................................................-14-
4.2 No Encumbrance.................................................................-15-
4.3 Conduct of Buyer...............................................................-15-
ARTICLE V - ADDITIONAL AGREEMENTS.............................................................-16-
5.1 Access to Information..........................................................-16-
5.2 Expenses.......................................................................-16-
5.3 Notification of Certain Matters................................................-16-
5.4 Board of Directors.............................................................-16-
5.5 Standstill.....................................................................-16-
5.6 Non-Competition................................................................-17-
5.7 Additional Documents and Further Assurances....................................-17-
</TABLE>
-ii-
<PAGE> 6
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C>
ARTICLE VI - CONDITIONS TO THE CLOSING........................................................-17-
6.1 Conditions to Obligations of Sellers...........................................-17-
6.2 Conditions to the Obligations of Buyer.........................................-18-
ARTICLE VII - SURVIVAL; INDEMNIFICATION; ESCROW...............................................-19-
7.1 Survival and Limitations of Claims.............................................-19-
7.2 Indemnification................................................................-19-
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER..............................................-20-
8.1 Termination....................................................................-20-
8.2 Effect of Termination..........................................................-21-
8.3 Amendment......................................................................-21-
8.4 Extension; Waiver..............................................................-21-
ARTICLE IX - GENERAL PROVISIONS...............................................................-22-
9.1 Notices........................................................................-22-
9.2 Interpretation.................................................................-23-
9.3 Counterparts...................................................................-23-
9.4 Entire Agreement; Assignment...................................................-23-
9.5 Severability...................................................................-23-
9.6 Other Remedies.................................................................-23-
9.7 Governing Law..................................................................-24-
9.8 Rules of Construction..........................................................-24-
9.9 Specific Performance...........................................................-24-
</TABLE>
-iii-
<PAGE> 7
INTEREST PURCHASE AGREEMENT
This INTEREST PURCHASE AGREEMENT (this "AGREEMENT") is made and entered
into as of November 30, 1998 by and between Intellipost Corporation, a Delaware
corporation ("BUYER") and Direct Marketing Technology, Inc., an Illinois
corporation ("DMT") and Brigar Computer Services, Inc., a New York corporation
("BCS") (collectively the "SELLERS").
RECITALS
A. The Boards of Directors of each of Buyer and Sellers believe it is in
the best interests of each company and their respective stockholders or
shareholders that Buyer acquire MNET through the acquisition of all of the
issued and outstanding interests of MNET together with all outstanding options
and other rights to acquire or receive any interests of MNET (together, the
"MNET INTERESTS") in furtherance thereof, have approved the transactions
contemplated hereby.
B. Sellers are the owner of and have good and valid title to all
outstanding interests of MNET, free and clear of any legal or equitable
encumbrances.
C. Subject to the terms and conditions of this Agreement, Buyer will
purchase and Sellers will sell all of the MNET Interests all in consideration
for shares of the Series D Preferred Stock to purchase Series D Preferred Stock
and Common Stock of Buyer ("BUYER STOCK").
D. Concurrently with the execution of this Agreement, and as a condition
and inducement to Buyer's willingness to enter into this Agreement, Sellers
shall enter into a Amended and Restated Investor Rights Agreement, Amended and
Restated Co-Sale Agreement and Amended and Restated Voting Agreement in
substantially the form attached hereto as Exhibit A, Exhibit B and Exhibit C
(the "INVESTOR AGREEMENTS").
E. Buyer and Sellers desire to make certain representations and
warranties and other agreements in connection with the purchase and sale of the
MNET Interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
and intending to be legally bound hereby, the parties agree as follows:
<PAGE> 8
ARTICLE I
PURCHASE AND SALE OF INTERESTS
1.1 Sale of Interests. At the Closing (as defined in Section 1.2 hereof)
and subject to and upon the terms and conditions of this Agreement, DMT will
sell, transfer, convey and deliver to Buyer and Buyer will purchase and acquire
from DMT, good and valid title to 66% of the MNET Interests, free and clear of
any liens, claims, charges, pledges, security interests, options, or other legal
or equitable encumbrances. At the Closing, BCS will sell, transfer, convey and
deliver to Buyer all right, title and interest in and to the remaining 34% of
the MNET Interests assigned to BCS by Enhanced Response Technologies, Inc.
("ERT") At the Closing, Sellers will deliver to Buyer duly executed instruments
of transfer and assignment of the MNET Interests sufficient to vest in Buyer the
interests in the MNET Interests in accordance with the terms of this Agreement,
and MNET will become a wholly-owned subsidiary of Buyer. At the Closing, Buyer
shall deliver to DMT the Stock Consideration together with all certificates,
instruments of transfer and documents sufficient to transfer all right title and
interest to the Stock Consideration to DMT.
1.2 Closing. Unless this Agreement is earlier terminated pursuant to
Section 8.1 hereof, the closing of the purchase and sale of the MNET Interests
(the "CLOSING") will take place as promptly as practicable, but no later than
two (2) business days, following satisfaction or waiver of the conditions set
forth in Article VI hereof, at the offices of Wilson Sonsini Goodrich & Rosati,
650 Page Mill Road, Palo Alto, California, unless another place or time is
agreed to by Buyer and Sellers. The date upon which the Closing actually occurs
is herein referred to as the "CLOSING DATE."
1.3 Purchase Price and Payment.
(a) The aggregate purchase price to be paid by Buyer to Sellers
for the MNET Interests will be a number of shares of Buyer Stock (the "STOCK
CONSIDERATION") equal to 1,213,592 shares of Buyer Series D Preferred Stock and
2,164,535 shares of Buyer Common Stock. At the Closing, Buyer will deliver to
Sellers certificates representing the Stock Consideration.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers hereby represent and warrant to Buyer (unless such
representation and warranty is expressly given as to one of the Sellers or
another), subject to such exceptions (referencing the appropriate section
number) as are specifically disclosed in the disclosure letter, dated as of the
date hereof, supplied by Sellers to Buyer (the "SELLERS SCHEDULES") and such
other disclosures that are made pursuant to Section 2.26 therein, as follows:
2.1 Organization of MNET. MNET is a limited liability company duly
organized, validly existing and in good standing under the laws of California.
MNET has the corporate power
-2-
<PAGE> 9
to own its properties and to carry on its business as now being conducted.
California is the only jurisdiction that Sellers are aware of in which MNET is
qualified to do business. Seller has delivered to Buyer a true and correct copy
of the Operating Agreement or comparable organizational documents of MNET, each
as amended to date, which Operating Agreement is attached to Schedule 2.1.
2.2 MNET Capital Structure.
(a) The authorized membership interest of MNET consists solely
of 100% Percentage Interest, of which 100% interests are issued and outstanding.
Except as provided in Schedule 2.2, DMT represents that it has good and valid
title to 66% of MNET's Interest, free and clear of any liens, claims, charges,
pledges, security interests, options, or other legal or equitable encumbrances.
Except as provided in Schedule 2.2, BCS represents that it has been assigned
ERT's 34% MNET Interest. All outstanding interests of MNET are duly authorized,
validly issued, fully paid and non-assessable and, as to DMT's 66% Interest not
subject to preemptive rights in favor of third parties created by statute, the
Operating Agreement or any agreement to which either MNET or DMT is a party or
by which it is bound. Except as provided in Schedule 2.2, there are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which is a party or by which it is bound obligating DMT to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any of its interests of MNET, or obligating DMT to
grant, issue or enter into any such option, warrant, call, right, commitment or
agreement. Except as provided in Schedule 2.2, as a result of the purchase and
sale of the MNET Interests as contemplated hereby, Buyer will be the sole
beneficial owner of all DMT's outstanding interests of MNET and all rights to
acquire or receive such interests of MNET and will be the sole beneficial owner
of all MNET Interests transferred to BCS by ERT.
2.3 Authority. Sellers have all requisite power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Sellers. The Boards of Directors of Sellers
have approved this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Sellers and constitutes
the valid and binding obligation of each Seller, enforceable in accordance with
its terms. Except as set forth on Schedule 2.3, to Sellers' knowledge the
execution and delivery of this Agreement by the Sellers does not, and, as of the
Closing Date, the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (any
such event, a "CONFLICT") any provision of the Articles of Organization,
Operating Agreement or Bylaws (or comparable organizational document) of the
Sellers or MNET.
2.4 MNET Financial Statements.
(a) Schedule 2.4 sets forth MNET's unaudited balance sheet as of
October 31, 1998 (the "BALANCE SHEET") and the related unaudited statement of
income (collectively, the "MNET
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FINANCIALS"). Except as provided in Schedule 2.4, DMT represents that the MNET
Financials are accurate and correct in all material respects based on the books
and records provided by MNET to DMT and have been prepared on a basis consistent
throughout the periods indicated and consistent with each other. Except as
provided in Schedule 2.4, DMT represents that the MNET Financials present fairly
the financial condition and operating results of MNET as of the dates and during
the periods indicated therein based on the books and records provided by MNET.
Except as provided in Schedule 2.4, DMT represents that the MNET Financials have
been prepared in good faith in accordance with the books and records of MNET and
consistent with the accounting policies and procedures employed by MNET in prior
periods.
2.5 Brokers' and Finders' Fees; Third Party Expenses. Except as set
forth on Schedule 2.5, to Sellers' knowledge MNET has not incurred, nor will
MNET incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or any similar charges in connection with this Agreement
or any transaction contemplated hereby.
2.6 Experience. DMT has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Buyer so that it is capable of evaluating the merits and risks of its
investment in the Buyer and has the capacity to protect its own interests.
2.7 Investment. DMT is acquiring the Stock Consideration for investment
for its own account, not as a nominee or agent, and not with the view to, or for
resale in connection with, any distribution thereof. Sellers understand that
Stock Consideration has not been, and will not be, registered under the
Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
such Sellers' representations as expressed herein.
2.8 Rule 144. DMT acknowledge that the Stock Consideration must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from such registration is available. The Sellers are aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions, including, among other things, the existence of a public
market for the Shares, the availability of certain current public information
about the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being effected through
a "broker's transaction" or in transactions directly with a "market maker" and
the number of shares being sold during any three-month period not exceeding
specified limitations.
2.9 Rule 144A. The Sellers acknowledge that they are familiar with the
provisions of Rule 144A promulgated under the Securities Act, which permits
resales of securities acquired in a non-public offering to certain qualified
institutional buyers, subject to the satisfaction of certain conditions. The
Sellers understand that the conditions under Rule 144A include, among other
things, the right of the Sellers and subsequent transferees of the Sellers to
obtain from the Buyer certain
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information about the Buyer, if the Buyer has not been required to file periodic
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
2.10 No Public Market. The Sellers understand that no public market now
exists for any of the securities issued by the Buyer and that the Buyer has made
no assurances that a public market will ever exist for the Buyer's securities.
2.11 Access to Data. The Sellers have had an opportunity to discuss the
Buyer's business, management and financial affairs with the Buyer's management
and has also had an opportunity to ask questions of the Buyer's officers, which
questions were answered to its satisfaction. The foregoing does not limit or
modify the representations and warranties of Buyer made in Article III hereof or
the right of Seller to rely thereon.
2.12 Legends.
It is understood that the certificates evidencing the Stock
Consideration issued to the Sellers may bear one or all of the following
legends:
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE
OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT OF 1933."
(b) Any legend required by the laws of the State of Delaware or
the State of California, including any legend required by the California
Department of Corporations.
2.13 Sale of MNET Interests. Except as provided on Schedule 2.13, DMT is
the beneficial owner of 66% of the MNET Interests free and clear of all liens,
claims, charges, pledges, security interests, options, or other legal and
equitable encumbrances, and are subject to no restrictions with respect to
transferability, except for such governmental approvals as are set forth in the
Seller Schedules. DMT has not offered the MNET Interests for sale to any person
other than Buyer. The sale and delivery of DMT's MNET Interests to Buyer
pursuant to the terms hereof will vest in Buyer legal and valid title to its
MNET Interests free and clear of all liens, encumbrances or other defects of
title other than those created by Buyer. BCS is the beneficial owner of the 34%
Interest in MNET assigned to it by ERT. The sale and delivery of BCS's MNET
Interests will vest in Buyer all right, title and interest in and to the MNET
Interests that were assigned to BCS by ERT. BCS has not offered the MNET
Interests assigned to it to any person other than Buyer.
2.14 Representations Complete. DMT represents that none of the
representations or warranties made by DMT, nor any statement made in any
Schedule or certificate furnished by DMT pursuant to this Agreement contains or
will contain at the Closing Date, any untrue statement of a material fact, or
omits or will omit at the Closing Date to state any material fact necessary in
order to
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make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
2.15 Schedules Cumulative. Any item contained on any schedule shall be
deemed disclosed on any other schedule where applicable.
2.16 Knowledge of Sellers Defined. Where Sellers have given a
representation or warranty based on the knowledge of the Sellers, such knowledge
shall be limited to the actual knowledge of either Thomas Newkirk or Carla
Nelson as of the date of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Except as set forth on the Buyer's Schedule, Buyer represents and
warrants to Seller as follows:
3.1 Organization and Standing; Certificate and Bylaws. The Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware. The Buyer has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as presently conducted and as proposed to be conducted. The Buyer is
qualified to do business as a foreign corporation in the State of California.
The Buyer is not qualified to do business as a foreign corporation in any other
jurisdiction and the failure to be so qualified will not have a material adverse
effect on the Buyer's business as now conducted or as proposed to be conducted.
3.2 Corporate Power. The Buyer has all requisite legal and corporate
power to execute and deliver this Agreement, to sell and issue the Stock
Consideration hereunder and to carry out and perform its obligations under the
terms of this Agreement, the Investor Agreements.
3.3 Capitalization. The authorized capital stock of the Buyer consists
of 40,000,000 shares of Common Stock, $0.001 par value, and 13,000,000 shares of
Preferred Stock, $0.001 par value, of which 4,000,000 shares have been
designated Series A Preferred Stock, 1,000,000 shares have been designated
Series B Preferred Stock, 3,000,000 shares have been designated Series C
Preferred Stock and 5,000,000 have been designated as Series D Preferred Stock.
2,596,666 shares of Common Stock, 3,000,000 shares of Series A Preferred Stock,
500,000 shares of Series B Preferred Stock, 2,926,666 shares of Series C
Preferred Stock, warrants to purchase 10,000 shares of Series C Preferred Stock,
1,228,642 shares of Series D Preferred Stock and warrants to purchase 614,321
shares of Series D Stock shall be issued and outstanding prior to the Closing
Date. All issued and outstanding shares of the Buyer's capital stock shall have
been duly authorized and validly issued, shall be fully paid and nonassessable,
and shall be issued in compliance with applicable federal and state securities
laws. Except for (i) the conversion privileges of the Series D Preferred Stock
to be issued under this Agreement, (ii) 2,000,000 shares of Common Stock
reserved for
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issuance to the Buyer's employees, directors or consultants and (iii) the rights
provided in Section 2 of the Amended and Restated Investor Rights Agreement
dated hereof, a form of which is attached hereto as Exhibit A, there are no
other outstanding shares of capital stock or outstanding rights of first
refusal, preemptive rights or other rights, options, warrants, conversion
rights, or other agreements either directly or indirectly for the purchase or
acquisition from the Buyer of any shares of its capital stock.
3.4 Subsidiaries. The Buyer has no subsidiaries or affiliated companies
and does not otherwise own or control, directly or indirectly, any equity
interest in any corporation, association or business entity.
3.5 Authorization. All corporate action on the part of the Buyer, its
officers, directors and stockholders necessary for the authorization, execution,
delivery and performance by the Buyer of this Agreement and the Investor
Agreements, the authorization, issuance, sale and delivery of the Stock
Consideration and the performance of all of the Buyer's obligations hereunder
and thereunder has been taken or will be taken prior to the Closing. This
Agreement, and the Investor Agreements, when executed and delivered by the
Buyer, each shall constitute a valid and legally binding obligation of the Buyer
enforceable in accordance with its respective terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies. The Stock Consideration, when issued in compliance with the
provisions of this Agreement, will be validly issued, fully paid and
nonassessable, and the Preferred Shares will have the rights, preferences and
privileges described in the Buyer's Certificate of Incorporation; and the Stock
Consideration will be free of any liens or encumbrances, other than any liens or
encumbrances created by or imposed upon the holders; provided, however, that the
Stock Consideration may be subject to restrictions on transfer under applicable
securities laws as set forth herein.
3.6 Changes. Since August 31, 1998, there has not been:
(a) Any change in the assets, liabilities, financial condition
or operations of the Buyer, other than changes in the ordinary course of
business, or any other event or condition of any character, any of which
individually or in the aggregate has had or is expected to have a material
adverse effect on such assets, liabilities, financial condition or operations of
the Buyer;
(b) Any resignation or termination of any key officers of the
Buyer; and the Buyer, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any change in the contingent obligations of the Buyer except
by way of guaranty or endorsement for collection in ordinary course of business
indemnity;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Buyer;
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(e) Any direct or indirect loans made by the Buyer to or any
material change in any compensation arrangement or agreement with, any
stockholder, employee, officer or director of the Buyer, other than advances
made in the ordinary course of business;
(f) Any declaration or payment of any dividend or other
distribution of the assets of the Buyer;
(g) Any debt, obligation or liability incurred, assumed or
guaranteed by the Buyer, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business; or any waiver by the
Buyer of a valuable right or of a material debt owed to it;
(h) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(i) Any change in any material agreement to which the Buyer is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Buyer, including compensation agreements with the Buyer's employees; or
(j) Any labor organization activity.
3.7 Liabilities. The Buyer has no liabilities and, to the best of its
knowledge, knows of no contingent liabilities, except current liabilities
incurred in the ordinary course of business subsequent to August 31, 1998 which
have not been, either in any individual case or in the aggregate, materially
adverse.
3.8 Title to Properties and Assets. The Buyer has good and marketable
title to its properties and assets, and has good title to all its leasehold
interests, in each case subject to no mortgage, pledge, lien, lease, loan,
encumbrance or charge, except (i) the lien of current taxes not yet due and
payable, and (ii) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the Buyer's operations, and which have not arisen otherwise than in the
ordinary course of business. With respect to property it leases, the Buyer is in
compliance with such leases in all material respects.
3.9 Patents, Trademarks. Set forth in the Buyer's Schedule is a list and
brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Buyer, or
of which the Buyer is a licensor or licensee or in which the Buyer has any
right, and in each case a brief description of the nature of such rights. The
Buyer, to the best of its knowledge after reasonable investigation, represents
and warrants as follows:
(a) The Buyer has sufficient title and ownership of all patents,
patent applications, licenses, trademarks, service marks, trade names,
inventions, franchises, copyrights,
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<PAGE> 15
trade secrets, information and other proprietary rights necessary for the
operation of its business as now conducted and as proposed to be conducted with
no known infringement of the rights of others.
(b) There are no outstanding options, licenses, or agreements of
any kind related to the foregoing, nor is the Buyer bound by or a party to any
options, licenses or agreements with respect to the patents, patent
applications, licenses, trade marks, service marks, trade names, inventions,
franchises, copyrights, trade secrets, information, proprietary rights and
processes of any other person or entity.
(c) The Buyer has not received any written or oral communication
alleging that the Buyer has violated, or by conducting its business as proposed,
would violate any of the patents, trademarks, service marks, trade names,
copyrights, trade secrets or other proprietary rights of any other person or
entity.
(d) The Buyer is not aware that any of the Buyer's employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of the
employee's best efforts to promote the interests of the Buyer or that would
conflict with the Buyer's business as proposed to be conducted.
(e) Neither the execution nor delivery of this Agreement, nor
the operation of the Buyer's business by the employees of the Buyer, nor the
conduct of the Buyer's business as proposed, will conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default under,
any contract, covenant or instrument under which any of such employees is now
obligated.
(f) The Buyer does not and will not, to the best of the Buyer's
knowledge, need to utilize inventions, trade secrets or proprietary information
of any of its employees made prior to their employment by the Buyer, except for
inventions, trade secrets or proprietary information that have been assigned to
the Buyer.
3.10 Compliance with Other Instruments, None Burdensome. The Buyer is
not in violation of any term of its Certificate of Incorporation or Bylaws, any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
judgment, decree, order or, to the best of its knowledge, any statute, rule or
regulation applicable to the Buyer. The execution, delivery, and performance of
and compliance with this Agreement and the Investor Agreements and the
consummation of the transactions contemplated hereby and thereby, have not
resulted and will not result in any such violation, or be in conflict with or
constitute a default under any such term, or result in the creation of any lien,
mortgage, pledge, encumbrance or charge upon any of the properties or assets of
the Buyer or the suspension, revocation, impairment, forfeiture or nonrenewal of
any permit license, authorization or approval applicable to the Buyer, its
business, its operations or any of its assets or properties; and there is no
such violation or default which materially or adversely affects the Buyer's
business or any of its properties or assets.
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<PAGE> 16
3.11 Litigation.
(a) There are no actions, suits, proceedings or investigations
pending against the Buyer or any of its properties before any court or
governmental agency (nor, to the best of the Buyer's knowledge, is there any
reasonable basis therefor or threat thereof). The Buyer is not a party or
subject to the provisions of any order, writ, injunction, judgment, or decree of
any court or governmental agency or instrumentality. There is no action, suit,
proceeding, or investigation by the Buyer currently pending or that the Buyer
intends to initiate.
(b) The Buyer has not admitted in writing its inability to pay
its debts generally as they become due, filed or consented to the filing against
it of a petition in bankruptcy or a petition to take advantage of any insolvency
act, made any assignment for the benefit of creditors, consented to the
appointment of a receiver for itself or for any part of its property, or had a
petition in bankruptcy filed against it, been adjudicated a bankrupt, or filed a
petition or answer seeking reorganization or arrangement under the federal
bankruptcy laws or any other law or statute of the United States of America or
any other jurisdiction.
3.12 Employees. The Buyer does not have any employment contracts,
deferred compensation agreements or bonus, incentive or profit sharing plans,
either currently in effect or proposed, except an incentive stock plan adopted
by the Buyer's Board of Directors covering the sale of up to 2,000,000 shares of
Common Stock to employees, consultants and directors. The Buyer has no
collective bargaining agreements with any of its employees and there is no labor
union organizing activity pending or threatened with respect to the Buyer. Each
former and current employee, officer and consultant of the Buyer has executed a
Proprietary Information Agreement and no person has listed a "Prior Invention"
on Exhibit A thereto.
3.13 Registration Rights. Except as provided in this Agreement or the
Amended and Restated Investor Rights Agreement, the Buyer is not under any
contractual obligation to register any of its presently outstanding securities
or any of its securities which may hereafter be issued.
3.14 Governmental Consents. No consent, approval or authorization of or
designation, declaration or filing with any governmental authority on the part
of the Buyer is required in connection with the valid execution and delivery of
this Agreement or the Investment Agreements, or the offer, sale or issuance of
the Stock Consideration, or the consummation of any other transaction
contemplated hereby, except qualification (or taking such action as may be
necessary to secure an exemption from qualification, if available) of the offer
and sale of the Stock Consideration under the California Corporate Securities
Law of 1968, as amended and other applicable Blue Sky laws, which filings and
qualifications, if required, will be accomplished in a timely manner.
3.15 Securities Law Exemption. Subject to the accuracy of the Investors'
representations in Section 2 of this Agreement, the offer, sale and issuance of
the Stock Consideration constitute transactions exempt from the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended (the
"1933 Act" or the "Act"), and have been registered or qualified (or are
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exempt from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws.
3.16 Agreements: Action. Set forth in the Buyer's Schedule is a list of
all material agreements entered into by the Buyer.
(1) Except for agreements explicitly contemplated hereby, there
are no agreements, understandings or proposed transactions between the Buyer and
any of its officers, directors, affiliates, or any affiliate thereof.
(a) Except as set forth in the Buyer's Schedule, the
Buyer and, to the Buyer's knowledge after having made due inquiry, its officers,
directors or stockholders of the Buyer or any members of their immediate
families (the "Managing Employees") have no interest (other than as holders of
securities of a publicly-traded company), either directly or indirectly, in any
entity, including without limitation thereto, any corporation, partnership,
joint venture, proprietorship, firm, licensee, business or association (whether
as an employee, officer, director, stockholder, agent, independent contractor,
security holder, creditor, consultant or otherwise) that presently (i) provides
any services or designs, produces and/or sells any products or product lines, or
engages in any activity which is the same, similar to or competitive with any
activity or business in which it is now engaged; (ii) is a supplier, customer,
creditor, or has an existing contractual relationship with any of its Managing
Employees; (iii) has any direct or indirect interest in any asset or property,
real or personal, tangible, or intangible, of the Buyer or any property, real or
personal, tangible or intangible, that is necessary or desirable for the conduct
of its business.
(b) No Managing Employees are, directly or indirectly,
interested in any material contract with the Buyer (other than such contracts as
relate to any such person's ownership of capital stock or other securities of
the Buyer). The Buyer is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation.
(c) There are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Buyer is a party or to its knowledge by which it is bound
which may involve (i) obligations (contingent or otherwise) of, or payments to,
the Buyer in excess of $50,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Buyer (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Buyer's products or services, or (iv)
indemnification by the Buyer with respect to infringements of proprietary rights
(other than indemnification obligations arising from purchase or sale agreements
entered into in the ordinary course of business).
(d) The Buyer has not (i) declared or paid any
dividends, or authorized or made any distribution upon or with respect to any
class or series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities individually in excess of $50,000 or, in the
case of indebtedness and/or liabilities individually less than $50,000, in
excess of $100,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel
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expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or
rights other than the sale of its inventory in the ordinary course of business.
(e) For the purposes of subsections (c) and (d) above,
all indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Buyer has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual minimum
dollar amounts of such subsections.
(f) The Buyer has not engaged in the past three (3)
months in any discussion (i) with any representative of any corporation or
corporations regarding the consolidation or merger of the Buyer with or into any
such corporation or corporations, (ii) with any corporation, partnership,
association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the Buyer
or a transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of the Buyer is disposed of, or (iii)
regarding any other form of acquisition, liquidation, dissolution or winding up
of the Buyer.
3.17 Brokers or Finders; Other Offers. The Buyer has not incurred, and
will not incur, directly or indirectly, as a result of any action taken by or on
behalf of the Buyer, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or the
transactions contemplated hereby.
3.18 Indemnification of Officers and Directors. The Buyer has provisions
in its Certificate or its Bylaws for the indemnification of its officers and
directors to the full extent permitted by law.
3.19 Qualified Small Business. The Buyer qualifies as a "Qualified Small
Business" as defined in Section 1202(d) of the Internal Revenue Code of 1986, as
amended (the "Code").
3.20 Compliance with Laws; Permits. To its knowledge, the Buyer is not
in violation of any applicable statute, rule, regulation, order or restriction
of any domestic or foreign government or any instrumentality or agency thereof
in respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Buyer. No
governmental orders, permissions, consents, approvals or authorizations are
required to be obtained and no registrations or declarations are required to be
filed in connection with the execution and delivery of this Agreement or the
Investor Agreements and the issuance of the Shares or the Conversion Shares,
except such as has been duly and validly obtained or filed, or with respect to
any filings that must be made after the Closing, as will be filed in a timely
manner. The Buyer has all franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects or financial condition of the Buyer and believes it can
obtain, without undue burden or expense, any similar authority for the conduct
of its business as planned to be conducted.
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3.21 Tax Returns, Payments and Elections. The Buyer has filed all tax
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Buyer has paid all taxes and other
assessments due, except those contested by it in good faith which are listed in
the Buyer's Schedule. The provision for taxes of the Buyer as shown in the
Balance Sheet is adequate for taxes due or accrued as of the date thereof. The
Buyer has not elected pursuant to the Internal Revenue Code of 1986, as amended
(the "Code"), to be treated as a Subchapter S corporation or a collapsible
corporation pursuant to Section 341(f) or Section 1362(a) of the Code, nor has
it made any other elections pursuant to the Code (other than elections which
relate solely to methods of accounting, depreciation or amortization) which
would have a material effect on the Buyer, its financial condition, its business
as presently conducted or proposed to be conducted or any of its properties or
material assets. The Buyer has properly withheld or collected from each payment
made to each of its employees, the amount of all taxes, including, but not
limited to, Federal income taxes, Federal Insurance Contribution Act taxes and
federal Unemployment Tax Act taxes required to be withheld or collected
therefrom and has paid the same to the proper tax receiving officers or
authorized depositories. There is no tax lien imposed by any governmental body
outstanding against the assets, properties or business of the Buyer.
3.22 Title to Property and Assets. The Buyer owns its property and
assets free and clear of all mortgages, liens, loans and encumbrances, except
such encumbrances and liens which arise in the ordinary course of business and
do not materially impair the Buyer's ownership or use of such property or
assets. With respect to the property and assets it leases, the Buyer is in
compliance with such leases and, to its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances.
3.23 Obligations of Management. Each officer of the Buyer is currently
devoting his full-time to the conduct of the business of the Buyer. The Buyer is
not aware of any officer or key employee or the Buyer planning to work less than
full-time at the Buyer in the future.
3.24 Minute Books. The minute books of the Buyer provided to the
Investor's counsel contain a complete summary of all meetings of directors and
stockholders since the time of incorporation.
3.25 Environmental and Safety Laws. To its knowledge, the Buyer is not
in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
3.26 Section 83(b) Elections. To the Buyer's knowledge, all elections
and notices permitted by Section 83(b) of the Internal Revenue Code and
analogous provisions of applicable state tax laws have been timely filed by all
employees who have purchased shares of the Buyer's common stock under agreements
that provide for the vesting of such shares.
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<PAGE> 20
3.27 Real Property Holding Corporation. The Buyer is not a real property
holding corporation within the meaning of Internal Revenue Code Section
897(c)(2) and any regulations promulgated thereunder.
3.28 Investment Company Act. The Buyer is not an "investment company",
or a company "controlled" by an "investment", within the meaning of the
Investment Company Act of 1940, as amended.
3.29 Employee Benefit Plan. The Buyer does not have or otherwise
contributes to or participates in any employee benefit or other plan which is
covered by or subject to ERISA.
3.30 Prohibited Payments. Neither the Buyer nor any of its officers,
directors, employees or agents has made any payment of funds of the Buyer
prohibited by law and no funds of the Buyer have been set aside to be used for
any payment prohibited by law.
3.31 Manufacturing and Marketing Rights. The Buyer has not granted
rights to manufacture, produce, assemble, license, market or sell its products
to any other person and is not bound by any agreement that affects the Buyer's
exclusive right to develop, manufacture, assemble, distribute or market or sell
its products.
3.32 Insurance. The Buyer has fire and casualty insurance policies with
coverage customary for companies similarly situated to the Buyer.
3.33 Disclosure. None of the representations or warranties made by the
Buyer in this Agreement or the Investor Agreements and no information in the
Exhibits hereto or otherwise furnished to the Investors contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading. There
is no fact known to the Buyer which materially adversely affects or in the
future may (so far as the Buyer can now reasonably foresee) have a material
adverse effect or impair the ability of the Buyer to perform its obligations
under this Agreement and the Investor Agreements which has not been set forth or
reflected in this Agreement, the Investor Agreements or in the other documents,
certificates and instruments referred to herein and delivered to the Investors
by or on behalf of the Buyer on or prior to the date hereof in connection with
the transactions contemplated by this Agreement or the Investor Agreements.
ARTICLE IV
CONDUCT PRIOR TO THE CLOSING
4.1 No Solicitation. Until the earlier of the Closing Date or the date
of termination of this Agreement, Sellers will not (nor will the Sellers permit
(to the extent they are legally able to do so) MNET or any of the Sellers' or
MNET's respective officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Buyer
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<PAGE> 21
and its designees: (a) solicit, conduct discussions with or engage in
negotiations with any person, relating to the possible acquisition of MNET
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), or any portion of the capital stock or assets of MNET (other than
sales of inventory or products in the ordinary course of business or the
transfer of Assets to DMT), (b) provide information with respect to MNET to any
person, other than Buyer, relating to the possible acquisition of MNET (whether
by way of merger, purchase of capital stock, purchase of assets or otherwise),
or any portion of the capital stock or assets of MNET (other than sales of
inventory or products in the ordinary course of business), (c) enter into an
agreement with any person, other than Buyer, providing for the acquisition of
MNET (whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), or any portion of the capital stock or assets of MNET (other than
sales of inventory or products in the ordinary course of business or the
transfer of Assets to DMT) or (d) make or authorize any statement,
recommendation or solicitation in support of any possible acquisition of MNET
(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), or any portion of the capital stock or assets of MNET (other than
sales of inventory or products in the ordinary course of business), by any
person, other than by Buyer. In addition to the foregoing, if the Seller or MNET
receives prior to the Closing Date or the termination of this Agreement any
offer or proposal relating to any of the above, the Seller will immediately
notify Buyer thereof, including information as to the identity of the offeror or
the party making any such offer or proposal and the specific terms of such offer
or proposal, as the case may be, and such other information related thereto as
Buyer may reasonably request.
4.2 No Encumbrance. Until the earlier of the Closing Date or the date of
termination of this Agreement, the Sellers will not (nor will the Sellers permit
(to the extent they are legally able to do so) MNET or any of the Sellers' or
MNET's respective officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any action which could in any way and at any time
impair Sellers' good and valid title to all shares of the MNET Interests being
transferred hereunder or could cause or lead to the creation of any lien, claim,
charge, pledge, security interest, option, or other legal or equitable
encumbrance with regard to any share or shares of the MNET Interests.
4.3 Conduct of Buyer. Until the earlier of the Closing Date or the date
of termination of this Agreement, Buyer will not issue shares of its capital
stock for below fair value (other than pursuant to employee stock plans, and
other than contracts and arrangements that exist as of the date of this
Agreement. In addition, Buyer agrees to conduct its business in compliance with
prudent business practices.
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<PAGE> 22
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Access to Information.
(a) Sellers will cause MNET to afford Buyer and its accountants,
counsel and other representatives, reasonable access during normal business
hours during the period prior to the Closing Date to (a) all of MNET's
properties, books, contracts, commitments and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of MNET as may reasonably be requested.
(b) Buyer will afford Seller and its accountants, counsel and
other representatives, reasonable access during normal business hours during the
period prior to the Closing Date to (a) all of its properties, books, contracts,
commitments and records, and (b) all other information concerning the business,
properties and personnel (subject to restrictions imposed by applicable law) of
it as may reasonably be requested. No information or knowledge obtained in any
investigation pursuant to this Section 5.1 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the transactions contemplated hereby.
5.2 Expenses. Whether or not the purchase and sale of the MNET Interests
contemplated hereby are consummated, all fees and expenses incurred in
connection hereby including, without limitation, all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties
incurred by a party in connection with the negotiation and effectuation of the
terms and conditions of this Agreement and the transactions contemplated hereby,
will be the obligation of the respective party incurring such fees and expenses.
5.3 Notification of Certain Matters. Seller will give prompt notice to
Buyer, and Buyer will give prompt notice to Seller, of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of Seller or Buyer, respectively,
contained in this Agreement to be untrue or inaccurate at or prior to the
Closing Date and (ii) any failure of the Seller, MNET or Buyer, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.4 will not limit or otherwise affect
any remedies available to the party receiving such notice.
5.4 Board of Directors. Following the Closing, Buyer will increase the
size of its Board of Directors to a total of seven seats and will appoint a
representative designated by Sellers to fill one of the newly created seats.
5.5 Standstill. Except as provided in this Agreement or the Investor
Agreements, DMT will not, without the prior consent of Buyer, purchase, offer or
contract to purchase, acquire any option to purchase, or otherwise acquire
"beneficial ownership" (as defined in Rule 13d-3 under the
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<PAGE> 23
Exchange Act) of any shares of Buyer Stock if immediately following such
purchase or other acquisition Seller would be the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act) of 25% or more of the then-outstanding
Common Stock of Buyer.
5.6 Non-Competition. As a material inducement to Buyer to consummate the
transactions contemplated hereby, DMT agrees that, for two years following the
Closing Date, it will not directly participate or engage in any business that
directly competes with the business conducted by Buyer as of the Closing Date (a
"COMPETITIVE BUSINESS") in any country in which Buyer operates or sells its
products or services, nor will it hire any employee or former employee MNET. The
operation of any incentive based program by DMT or its affiliates in connection
with their businesses or the acquisition of, or consolidation, merger or joint
venture with, any third party that competes with Buyer, shall not be deemed a
"Competitive Business" hereunder. If any restriction set forth in this Section
5.8 is held to be unreasonable or unenforceable, then Seller agrees and hereby
submits to the reduction and limitation of such restriction to such area or
period as shall be deemed reasonable and enforceable. Seller agrees that the
covenants provided for above, including the term and the geographical area
encompassed therein, are necessary and reasonable in order to protect Buyer in
the conduct of the business of MNET and the utilization of their respective
assets, tangible and intangible, including goodwill. It is expressly agreed
between Buyer and Seller that monetary damages may not be adequate to compensate
Buyer for any breach by Seller of the covenants and agreements set forth above.
Accordingly, Seller agrees and acknowledges that any such violation or
threatened violation may cause irreparable injury to Buyer and that, in addition
to any other remedies which may be available, Buyer shall be entitled to seek
injunctive relief against the threatened breach of these covenants or the
continuation of any such breach by Seller.
5.7 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, will execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby. In addition, after the Closing, to the extent
that Seller has business relationships with suppliers and/or customers of MNET,
following the Closing, Seller will timely satisfy all obligations to such
parties and otherwise carry on its relationships with such parties in a
businesslike and commercially reasonable manner.
ARTICLE VI
CONDITIONS TO THE CLOSING
6.1 Conditions to Obligations of Sellers. The obligations of Sellers to
consummate the transactions contemplated by this Agreement will be subject to
the satisfaction at or prior to the Closing of each of the following conditions,
any of which (except Section 6.1(e)) may be waived by Seller:
(a) Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement will be true and correct in all
material respects on and as of the Closing, except for changes contemplated by
this Agreement and except for those representations
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<PAGE> 24
and warranties which address matters only as of a particular date (which will
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date; and the Seller will have received a
certificate to such effect signed on behalf of Buyer by a duly authorized
officer of Buyer;
(b) Agreements and Covenants. Buyer will have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and Seller will have received a certificate to such effect signed
by a duly authorized officer of Buyer;
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the purchase and sale of the MNET
Interests contemplated hereby will be in effect.
(d) Material Adverse Change. There will not have occurred any
material adverse change in the business, assets (including intangible assets)
financial condition, results of operations or prospects of Buyer since the date
of this Agreement.
(e) Stock Consideration to Comprise 19.9%. The Stock
Consideration to be issued to Seller pursuant the terms of this Agreement shall
comprise at least 19.9% of the shares of fully diluted Buyer Capital Stock
issued and outstanding as of the date hereof (including (i) all vested and
unvested options previously granted to employees, consultants and directors;
(ii) all stock and warrants previously issued or to be issued in connection with
a $2,500,000 equity financing identified in Section 6.1(f) below and (iii) not
including stock and warrants issued or to be issued in connection with the
equity financing for amounts invested in excess of $2,500,000).
(f) Investment in Buyer. The Buyer shall have raised a minimum
of $2,500,000 through the sale of its equity securities and shall have deposited
the proceeds of such sale of securities in a veritable account or shall
otherwise provide proof of receipt of such funds.
6.2 Conditions to the Obligations of Buyer. The obligations of Buyer to
consummate the transactions contemplated by this Agreement will be subject to
the satisfaction at or prior to the Closing of each of the following conditions,
any of which may be waived , in writing, exclusively by Buyer:
(a) Representations and Warranties. The representations and
warranties of the Seller contained in this Agreement will be true and correct in
all material respects on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which will remain
true and correct as of such date), with the same force and effect as if made on
and as of the Closing Date; and Buyer will have received a certificate to such
effect signed on behalf of the Seller by a duly authorized officer of the
Seller;
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<PAGE> 25
(b) Agreements and Covenants. Seller will have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the Closing
Date, and Buyer will have received a certificate to such effect signed by a duly
authorized officer of Seller;
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the purchase and sale of the MNET
Interests contemplated hereby will be in effect.
(d) Material Adverse Change. There will not have occurred any
material adverse change in the business, assets (including intangible assets)
financial condition, results of operations or prospects of MNET since the date
of this Agreement.
ARTICLE VII
SURVIVAL; INDEMNIFICATION; ESCROW
7.1 Survival and Limitations of Claims. The representations and
warranties of the parties contained herein will survive the Closing until the
first anniversary of the Closing Date. Notwithstanding the first sentence of
this Section 7.1, and without limiting the generality thereof, any
representation or warranty, covenant or agreement in respect of which indemnity
may be sought under any section of this Agreement will survive the time at which
it would otherwise terminate pursuant to this Agreement, if notice of the breach
of the representation or warranty, covenant or agreement giving rise to such
indemnity shall have been given to the party against whom such indemnity may be
sought, prior to such time. In the event that Seller is obligated to indemnify
Buyer pursuant to Section 7.2 hereof, Buyer shall not be entitled to claim
indemnity from Seller unless the amount of Losses (as defined below in Section
7.2(a)) is in excess of $50,000, in which case, Buyer shall be entitled to claim
against Seller the entire amount of the Losses; in no event shall Seller's
indemnification obligation hereunder exceed the value of 66% of the Stock
Consideration as of the Closing Date, which indemnification obligation may be
satisfied with the Stock Consideration or any portion thereof. In the event that
Buyer breaches any representation or warranty causing damage or loss to Seller,
Seller shall not be entitled to claim the amount of any such damage or loss from
Buyer unless the amount of Losses (as defined below in section 7.2(b)) in excess
of $50,000, in which case, Seller shall be entitled to claim against Buyer the
entire amount of Losses.
7.2 Indemnification.
(a) Seller Indemnity. DMT will indemnify Buyer against and agree
to hold harmless from any and all damage, loss, liability, claim, obligation of
any nature whatsoever and expense (including without limitation, reasonable
expenses of investigation and reasonable attorneys' fees and expenses) ("LOSS")
incurred by Buyer arising out of any
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<PAGE> 26
breach of any representation or warranty, covenant or other agreement of DMT
contained or incorporated by reference herein.
(b) Buyer Indemnity: Buyer will indemnify Seller against and
agree to hold harmless from any and all damage, loss, liability, claim,
obligation of any nature whatsoever and expense (including without limitation,
reasonable expenses of investigation and reasonable attorneys' fees and
expenses) ("LOSS") incurred by Seller arising out of any breach of any
representation or warranty, covenant or other agreement of Buyer contained or
incorporated by reference herein.
(c) If seeking indemnification pursuant to Section 7.2, the
indemnified party will give prompt notice to the indemnifying party of the
assertion of any claim, or the commencement of any action or proceeding, in
respect of which indemnity may be sought hereunder. The indemnified party will
have the right in its sole discretion to control the defense of and settle any
such claim; provided, however, that except with the consent of the indemnifying
party, no settlement of any such claim will alone be determinative of the amount
of any indemnity hereunder. In the event that the indemnifying party has
consented to any such settlement, the indemnifying party will have no power or
authority to object under any provision of this Article VII to the amount (but
not the right to indemnification in the first place) of any indemnification
claim by Buyer with respect to such settlement. The indemnifying party will be
entitled, at its expense, to participate in such defense. No investigation by
the indemnified party at or prior to the Closing will relieve the indemnifying
party of any liability hereunder.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
may be terminated and the transactions contemplated hereby abandoned at any time
prior to the Closing Date:
(a) by mutual consent of Buyer and Seller;
(b) by Buyer or Seller if: (i) the Closing Date has not occurred
by December 31, 1998 (provided that the right to terminate this Agreement under
this clause 8.1(b)(i) will not be available to any party whose willful failure
to fulfill any obligation hereunder has been the cause of, or resulted in, the
failure of the Closing Date to occur on or before such date); (ii) there shall
be an order of a federal or state court in effect preventing consummation of the
purchase and sale of the MNET Interests contemplated hereby; or (iii) there
shall be any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the purchase and sale of the MNET Interests contemplated
hereby by any Governmental Entity that would make consummation of the purchase
and sale of the MNET Interests contemplated hereby illegal;
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(c) by Buyer if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the transactions contemplated hereby by any Governmental Entity, which would:
(i) prohibit Buyer's or MNET's ownership or operation of all or a portion of the
business of MNET or (ii) compel Buyer or MNET to dispose of or hold separate all
or a portion of the business or assets of Buyer or MNET as a result of the
transactions contemplated hereby;
(d) by Buyer if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Seller and (i) such breach has not been cured within five (5) business days
after written notice to Seller (provided that, no cure period will be required
for a breach which by its nature cannot be cured), and (ii) as a result of such
breach the conditions set forth in Section 6.2(a) or 6.2(b), as the case may be,
would not then be satisfied;
(e) by Seller if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the transactions contemplated hereby by any Governmental Entity,
which would: (i) prohibit Seller's ownership or operation of all or a portion of
its business or (ii) compel Seller to dispose of or hold separate all or a
portion of its business or assets as a result of the transactions contemplated
hereby;
(f) by Seller if it is not in material breach of its obligations
under this Agreement and there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of Buyer
and (i) such breach has not been cured within five (5) business days after
written notice to Buyer (provided that, no cure period will be required for a
breach which by its nature cannot be cured), and (ii) as a result of such breach
the conditions set forth in Section 6.1(a) or 6.1(b), as the case may be, would
not then be satisfied.
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement will forthwith become void and there
will be no liability or obligation on the part of Buyer, Seller or MNET, or
their respective officers, directors or stockholders or shareholders, provided
that each party will remain liable for any breaches of this Agreement prior to
its termination; and provided further that, the provisions of Sections 5.2 and
5.3 of this Agreement will remain in full force and effect and survive any
termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at
any time, but any such amendment shall be valid only by execution of an
instrument in writing signed on behalf of Buyer and Seller.
8.4 Extension; Waiver. At any time prior to the Closing Date, Buyer, on
the one hand, and Seller on the other, on the other, may, to the extent legally
allowed, (i) extend the time for the
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performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver will be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder will be in
writing and will be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Buyer, to:
Intellipost Corporation
565 Commercial Street
San Francisco, CA
Attention: Chief Financial Officer
Telecopy No.: (415) 676-3700
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Mario M. Rosati, Esq.
Telecopy No.: (415) 496-4082
(b) if to Sellers, to:
Direct Marketing Technology, Inc.
955 American Lane
Schaumburg, Illinois
Attn: President
Telecopy:
and
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<PAGE> 29
Brigar Computer Services, Inc.
c/o Direct Marketing Technology, Inc.
see above
with a copy to:
Experian Information Solutions, Inc.
505 City Parkway West
Orange, California 92868
Attn: General Counsel
Telecopy: (714) 938-2513
9.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
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9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of California for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process. Each party hereto hereby
submits to the exclusive jurisdiction of the federal and state courts of the
State of California in respect of any legal action or proceeding arising out of
or relating to this Agreement.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 Specific Performance. The parties hereto agree that irreparable
damage could occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties will be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, including, but not limited to
Sections 5.8, 5.9 and 5.10 hereof, in any court of the United States or any
state having jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity.
[The remainder of this page intentionally left blank.]
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IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be
signed by their duly authorized respective officers, all as of the date first
written above.
INTELLIPOST CORPORATION
By /s/ Steven M. Markowitz
---------------------------------
Name: Steven M. Markowitz
Title:
DIRECT MARKETING TECHNOLOGY, INC.
By /s/ Thomas Newkirk
---------------------------------
Name:
Title:
BRIGAR COMPUTER SERVICES, INC.
By /s/ Thomas Newkirk
---------------------------------
Name:
Title:
INTEREST PURCHASE AGREEMENT
<PAGE> 1
EXHIBIT 10.12
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
INTELLIPOST CORPORATION
AND
METROMAIL CORPORATION
DATED AS OF NOVEMBER 30, 1998
<PAGE> 2
INDEX OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
1.1(a) Assets
1.1(a)(ii) Patents, etc.
1.1(a)(iii) Software Products
1.1(a)(vi) Inventory
1.1(b) Assumed Liabilities
2.2 Governmental and Third Party Consents
2.3 No Changes
2.4 Restrictions on Business Activities
2.5 Liens on Property
2.6 Intellectual Property
2.7 Agreements, Contracts and Commitments
2.8 Litigation
</TABLE>
ASSET PURCHASE AGREEMENT
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - THE ACQUISITION....................................................................-1-
1.1 Purchase of Assets..............................................................-1-
1.2 Consideration...................................................................-2-
1.3 Transfer of Customers...........................................................-3-
1.4 Closing.........................................................................-3-
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF SELLER..........................................-4-
2.1 Organization of Seller..........................................................-4-
2.2 Authority; Consents.............................................................-4-
2.3 No Changes......................................................................-5-
2.4 Restrictions on Business Activities.............................................-5-
2.5 Title of Properties; Absence of Liens and Encumbrances..........................-5-
2.6 Intellectual Property...........................................................-6-
2.7 Agreements, Contracts and Commitments...........................................-6-
2.8 Litigation......................................................................-7-
2.9 Complete Copies of Materials....................................................-7-
2.10 Representations Complete........................................................-7-
2.11 Only Representations............................................................-7-
2.12 Knowledge of Seller Defined.....................................................-7-
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF BUYER..........................................-7-
3.1 Organization, Standing and Power................................................-7-
3.2 Authority.......................................................................-8-
3.3 No Knowledge of Breach of Representation or Warranty of Seller..................-8-
3.4 DV2U Website....................................................................-8-
ARTICLE IV - ADDITIONAL AGREEMENTS.............................................................-8-
4.1 Confidentiality.................................................................-8-
4.2 Expenses........................................................................-8-
4.3 Public Disclosure...............................................................-8-
4.4 Consents........................................................................-9-
4.5 Best Efforts....................................................................-9-
4.6 Notification of Certain Matters.................................................-9-
4.7 Additional Documents and Further Assurances.....................................-9-
4.8 Tax Returns.....................................................................-9-
4.9 Bulk Sales.....................................................................-10-
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<S> <C>
ARTICLE V - CONDITIONS TO THE ACQUISITION.....................................................-10-
5.1 Conditions to Obligations of Each Party to Effect the Acquisition..............-10-
5.2 Additional Conditions to Obligations of Seller.................................-10-
5.3 Additional Conditions to the Obligations of Buyer..............................-11-
ARTICLE VI - TERMINATION, AMENDMENT AND WAIVER................................................-12-
6.1 Termination....................................................................-12-
6.2 Effect of Termination..........................................................-12-
6.3 Amendment......................................................................-13-
6.4 Extension; Waiver..............................................................-13-
ARTICLE VII - GENERAL PROVISIONS..............................................................-13-
7.1 Survival of Representations and Warranties Limitation of Claims................-13-
7.2 Notices........................................................................-13-
7.3 Interpretation.................................................................-14-
7.4 Counterparts...................................................................-14-
7.5 Entire Agreement...............................................................-14-
7.6 Severability...................................................................-14-
7.7 Other Remedies.................................................................-15-
7.8 Governing Law..................................................................-15-
7.9 Rules of Construction..........................................................-15-
</TABLE>
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<PAGE> 5
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "AGREEMENT") is made and entered into
as of November 30, 1998 by and between Intellipost Corporation, a Delaware
corporation ("BUYER") and Metromail Corporation, a Delaware corporation
("SELLER").
RECITALS
A. The Boards of Directors of each of Seller and Buyer believe it is in
the best interests of each company and their respective shareholders that Buyer
acquire certain of the assets of, and assume certain of the liabilities of
Seller (the "ACQUISITION") related to the Direct Value to You product line.
B. Seller's Direct Value to You is an Internet sponsorship product
engaged in the business of developing consumer information through sponsored
offers on a website (the "Business").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE ACQUISITION
1.1 Purchase of Assets.
(a) Purchase and Sale of Assets. On the terms and subject to the
conditions set forth in this Agreement, Seller will sell, convey, transfer,
assign and deliver to Buyer and Buyer will purchase and acquire from Seller on
the Closing Date (as defined in SECTION 1.4), all of Seller's right, title and
interest in and to all of the assets and properties of Seller related to the
Direct Value to You Product Line and set forth on SCHEDULE 1.1(A) (collectively
the "ASSETS") free and clear of all liens, pledges, charges, claims, security
interests or other encumbrances of any sort (collectively, "LIENS").
(b) Assumption of Liabilities. Buyer shall not assume any
liabilities or obligations of Seller except for those liabilities and
obligations which Buyer expressly assumes pursuant to this Section 1.1(b).
Without limiting the foregoing, it is expressly agreed that Buyer shall not
assume any liabilities for employment, income, sales, property or other taxes
incurred or accrued by Seller as of the Closing Date, except as provided in
Section 1.2(c). Seller will indemnify and hold Buyer harmless from and against
any and all losses, costs, expenses, claims, liabilities, deficiencies,
judgments and damages incurred or suffered by Buyer or any of its affiliates
related to or arising out of any liabilities or obligations of Seller, except
for those liabilities or obligations
<PAGE> 6
expressly assumed by Buyer in this Section 1.1(b). At the Closing Buyer shall
assume the following obligations and liabilities of Seller (collectively, the
"ASSUMED LIABILITIES"): (A) all obligations and liabilities of Seller under the
Contracts described in SCHEDULE 2.7 to the extent such contracts are assigned
and transferred to Buyer at the Closing and (B) those obligations and
liabilities of Seller set forth in SCHEDULE 1.1(B) hereto, and (C) Seller's
obligations arising from the restrictions on the use of consumer lists developed
from the Business relating to exclusions or preferences for the method of
delivery of offers or solicitations to consumers. Buyer expressly is not
assuming any obligations or liabilities, whether accrued, absolute, contingent,
matured, unmatured or other, of Seller except for the Assumed Liabilities.
(c) Risk of Loss. In the event any of the Assets are unavailable
for delivery to Buyer on the Closing Date as a result of risks for which such
Assets were insured by Seller, Buyer may at its option elect (i) to require
Seller to deliver to Buyer assignments of such Seller's rights under its
insurance policies, if any, applicable to such Assets and to close on that
basis, or (ii) to not close due to the failure of a condition to closing if the
amount of the loss reasonably can be expected to be in excess of $50,000. Seller
hereby agrees to make such assignment of rights if Buyer so elects.
1.2 Consideration.
(a) Consideration for Assets. On the terms and subject to the
conditions set forth in this Agreement (including, without limitation, the
provisions of Section 7.1 hereof), as full payment for the transfer of the
Assets by Seller to Buyer, Buyer shall pay to Seller the Purchase Price. The
"PURCHASE PRICE" shall be equal to $400,000 in cash to be payable over time in
quarterly increments with each increment equal to 75% of the net revenues
received by Buyer from offline list sales of all of Buyer's databases during
such quarter. As used herein, "net revenues" shall be defined as total sales of
offline lists less actual expenses directly related to the sale of the offline
lists. As used herein, "offline list sales" shall be defined as any sales of
lists, for any purpose from any database owned or controlled by Buyer sold to
any third party where such lists are used by such third party for marketing,
modeling or promotion delivered by means other than Internet, including, without
limitation, telephone and U.S. mail. In the event that the entire Purchase Price
is not paid in full within thirty (30) months of the Closing Date, the remaining
amount of the Purchase Price shall be due and payable within ninety (90) days.
Buyer will provide a report to Seller and payment within 30 days of the end of
each quarter. Such report shall list the amount of offline list sales from all
of Buyer's databases, and the amount payable to Seller hereunder. Seller shall
have the right to audit Buyer's books and records relating to such sales and net
revenues from such sales on five (5) business days notice until the Purchase
Price is paid in full.
(b) Allocation of Purchase Price. Within 45 days following the
Closing Buyer shall prepare and deliver to Seller (subject to Seller's approval)
an allocation of the Purchase Price plus any other consideration properly
allocable among the Assets (the "ALLOCATION"). The parties agree that all tax
returns and reports (including Internal Revenue Service ("IRS") Form 8594) and
all financial statements shall be prepared in a manner consistent with (and the
parties shall not otherwise
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<PAGE> 7
take a position inconsistent with) the Allocation unless required by the IRS or
state taxing authority. The Allocation shall be prepared in a manner consistent
with Section 1060 of the Internal Revenue Code of 1986, as amended (the "CODE"),
and the income tax regulations promulgated thereunder.
(c) Transfer Taxes. Buyer shall pay and promptly discharge when
due the entire amount of any and all sales and use tax ("SALES TAXES") imposed
or levied by reason of the sale of the Assets to Buyer. The parties shall
cooperate with each other to the extent reasonably requested and legally
permitted to minimize any such Sales Taxes.
1.3 Transfer of Customers.
(a) Transfer of Customers.
(i) Intent. It is the intent of parties hereto that all
of the Assets and all of Seller's backlog, if any, relating to the Assets be
transferred to Buyer. Accordingly, all parties agree to use their best efforts
to facilitate such transfer of customers as soon as possible.
(ii) Purchase Order Data. Seller shall provide or make
available to Buyer, upon request (A) a list of all outstanding written customer
orders, purchase orders and other customer commitments from Seller's current
customers, (B) the names of all customers (the "CURRENT CUSTOMERS") and (C) such
other information as is (AA) relevant to profitability on such items, (BB)
available to Seller without incurring undue effort or expense and (CC) requested
by Buyer.
(iii) Transfer of Orders; Assignments. Prior to the
Closing, Seller and Buyer agree to cooperate with each other in conducting joint
contacts with the Current Customers (as appropriate) for the purpose of
attempting to obtain such customers' consent to transfer orders from Seller to
Buyer (or to issue new orders to Buyer for the same or similar items) and to
assign Seller's rights and benefits under the Contracts to Buyer as of the
Closing.
(iv) Assumption of Obligation. To the extent that an
order is transferred or assigned to Buyer or that Buyer accepts a new purchase
order from a Current Customer, Buyer agrees to assume and perform all
obligations thereunder and to use reasonable efforts to fill the order in
accordance with its terms.
(v) Restrictions on Use of Database. Buyer agrees to
abide by all restrictions requested by consumers who are listed in the database
of Internet consumers transferred with the Assets, including all restrictions on
the method by which such consumers may be contacted for marketing purposes.
1.4 Closing.
(a) Closing. Unless this Agreement is earlier terminated
pursuant to Section 6.1, the closing of the transactions contemplated by this
Agreement (the "CLOSING") shall be held at the
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<PAGE> 8
offices of Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA
94304, at 10:00 a.m. on the date which is two business days following
satisfaction or waiver of the last of the conditions to Closing as set forth in
Article V hereof, or on such other time and/or date as the parties agree (the
actual date on which the Closing occurs is referred to herein as the "CLOSING
DATE").
(b) Delivery. At the Closing:
(i) Buyer shall deliver to Seller an instrument of
assumption of liabilities by which Buyer shall assume the Assumed Liabilities as
of the Closing;
(ii) Seller shall deliver to Buyer all bills of sale,
endorsements, assignments, consents to assignments to the extent obtained and
other instruments and documents as Buyer may reasonably request to sell, convey,
assign, transfer and deliver to Buyer good title to all the Assets free and
clear of any and all Liens; and
(iii) Seller and Buyer shall deliver or cause to be
delivered to one another such other instruments and documents necessary or
appropriate to evidence the due execution, delivery and performance of this
Agreement.
(c) Taking of Necessary Action; Further Action. If, at any time
after the Closing Date, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest Buyer with full right, title and
possession to all Assets, the officers and directors of Seller are fully
authorized in the name Seller or otherwise to take, and will take, all such
lawful and necessary and/or desirable action as Buyer shall reasonably request.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer, subject to such exceptions as
are specifically disclosed in the disclosure letter supplied by Seller to Buyer
(the "SELLER SCHEDULES") and dated as of the date hereof, as follows:
2.1 Organization of Seller. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Seller has the corporate power to own its property and to carry on its business
as now being conducted and as proposed to be conducted.
2.2 Authority; Consents. Seller has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Seller. This Agreement has been
duly executed and delivered by Seller and constitutes the valid and binding
obligation of Seller, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy and similar laws and general
principles of equity. Except as set forth on SCHEDULE 2.2, the execution
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<PAGE> 9
and delivery of this Agreement by Seller does not, and, as of the Closing, the
consummation of the transactions contemplated hereby will not, materially
conflict with, or result in any material violation of, or material default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (any such event, a "CONFLICT") (i) any provision of the Articles
of Incorporation or Bylaws of Seller or (ii) except for any contracts or other
agreements that are not assignable without consent, any mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Assets.
2.3 No Changes. Except as set forth in SCHEDULE 2.3, since September 1,
1998 there has not been, occurred or arisen any:
(a) destruction of, damage to or loss of any Assets of Seller
(whether or not covered by insurance) that constitutes a Material Adverse
Effect;
(b) acquisition, sale or transfer of any Asset except in the
ordinary course of business as conducted on that date;
(c) notice of or, to the best knowledge of Seller, threat of
commencement of any lawsuit or proceeding against or investigation of Seller
with respect to the Assets;
(d) notice of any claim of ownership by a third party of
Seller's Assets;
(e) any event or condition of any character that has or could be
reasonably expected to have a Material Adverse Effect; or
(f) negotiation or agreement by Seller or any officer or
employees thereof to do any of the things described in the preceding clauses (a)
through (e) (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement).
2.4 Restrictions on Business Activities. Except as provided in SCHEDULE
2.4, there is no agreement, commitment, judgment, injunction, order or decree
binding upon Seller or the Assets which has or could reasonably be expected to
have the effect of prohibiting or impairing the continued use by Buyer of the
Assets following the Closing.
2.5 Title of Properties; Absence of Liens and Encumbrances. Seller has
good and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of the Assets, free and clear of any Liens, except
as reflected in SCHEDULE 2.5. Seller has full corporate right and corporate
power to (and at the Closing will) sell, convey, assign, transfer and deliver to
Buyer good title to all the Assets which it purports to own, free and clear of
all Liens, except (i) for the Assumed Liabilities, (ii) for statutory liens for
taxes not yet due, and (iii) as reflected in SCHEDULE 2.5.
2.6 Intellectual Property.
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<PAGE> 10
(a) Seller owns a valid right or license to use the Intellectual
Property listed on Schedule 1.1(a)(ii) (the "Intellectual Property") being used
or held for use to conduct the Business, and the conduct of the Business
currently and in the past, to the knowledge of Seller, does not conflict with
and has not conflicted with valid intellectual property rights of others. All
Intellectual Property owned by Seller is so owned free and clear of all Liens
and no other person, including without limitation any present or former
employee, officer or director of Seller, has any right whatsoever therein. To
Sellers' knowledge, neither Seller nor any present or former employee thereof
has violated or, by conducting the Business in the ordinary course would
violate, any of the intellectual property rights of any other person or entity.
Seller does not have any obligation to compensate any person or entity for the
use of any Intellectual Property, except for any Intellectual Property licensed
by Seller which requires a license fee, nor has Seller granted to any person or
entity any license, option or other rights to use in any manner any of the
Intellectual Property, whether requiring the payment of royalties or not. No
former or current employee of Seller has any right whatsoever to any
Intellectual Property.
(b) Except as provided in Schedule 2.6, Seller has all right,
title and interest in and to the software products and the software technology
and related documentation included in the Assets as identified on Schedule
1.1(a)(iii) (the "SOFTWARE"). Except as provided in Schedule 2.6, no person or
entity other than Seller owns any right, title or interest in the Software
including, without limitation, any right to manufacture, use, copy, distribute
or sublicense any object code or source code thereof. Except as provided in
Schedule 2.6, (i) the Software is not subject to any Liens, (ii) Seller has not
been notified of or served with pending or, to Seller's knowledge, threatened
challenge of infringement of the rights of others, nor to the knowledge of
Seller is there any basis for a challenge of infringement of any such rights of
others, and (iii) the Software is freely transferable and assignable to Buyer
and will not be rendered invalid or adversely affected in any way by virtue of
the execution, delivery and performance of this Agreement.
22.7 Agreements, Contracts and Commitments. Set forth on SCHEDULE 2.7 is
a list of all agreements, contracts and commitments, written or oral, to which
Seller is a party or by which it is bound that relate to the Business or the
Assets being transferred. Those agreements, contracts and commitments that are
assignable without the consent of the other party shall be assigned, and Seller
shall assist Buyer in obtaining consent where required.
Except for such (i) breaches, violations and defaults, (ii) alleged
breaches, violations and defaults, and (iii) events that would constitute a
breach, violation or default with the lapse of time, giving of notice, or both,
noted in SCHEDULE 2.7 and those which reasonably would not be expected to have a
Material Adverse Effect, Seller has not breached, violated or defaulted under,
or received notice that it has breached, violated or defaulted under, any of the
terms or conditions of any Contract. Each Contract is in full force and effect
and, except as otherwise disclosed in SCHEDULE 2.7, is not subject to any
default thereunder of which Seller has knowledge by any party obligated to
Seller pursuant thereto. Seller will provide reasonable assistance to Buyer in
obtaining all necessary consents, waivers and approvals of parties to any
Contract as are required to assign all rights and benefits thereunder to Buyer
as of the Closing.
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<PAGE> 11
2.8 Litigation. Except as set forth in SCHEDULE 2.8, Seller has not been
notified of or served with any action, suit or proceeding of any nature or, to
Seller's knowledge, threatened against Seller with respect to the Assets or the
Business, nor, to the knowledge of Seller, is there any basis therefor. SCHEDULE
2.8 sets forth, with respect to any pending or threatened action, suit,
proceeding or investigation, the forum, the parties thereto, the subject matter
thereof and the amount of damages claimed or other remedy requested.
2.9 Complete Copies of Materials. Seller has delivered or made available
true and complete copies of each document (or summaries of same) that has been
requested by Buyer or its counsel.
2.10 Representations Complete. None of the representations or warranties
made by Seller (as modified by Seller Schedules), nor any statement made in any
Exhibit or certificate furnished by Seller pursuant to this Agreement, contains
or will contain at the Closing Date, any untrue statement of a material fact, or
omits or will omit at the Closing Date to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading. There is no fact, circumstance
or condition of any kind or nature whatsoever known to Seller which reasonably
would be expected to have a Material Adverse Effect which has not been set forth
in this Agreement, except those facts concerning general economic, legislative,
regulatory or other matters such as may generally impact all businesses of the
type operated by Seller.
2.11 Only Representations. Other than as set forth in this Agreement,
the Exhibits and Schedules hereto, Seller makes no representations or warranties
to Buyer.
2.12 Knowledge of Seller Defined. Where Seller has given a
representation or warranty based on Seller's knowledge, such knowledge shall be
limited to the actual knowledge of Thomas Newkirk or other employees of Seller
who have been directly involved in the Business as of the date of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
3.1 Organization, Standing and Power. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has the corporate power to own its properties and to carry on
its business as now being conducted and is duly qualified to do business and is
in good standing in each jurisdiction in which the failure to be so qualified
would have a material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.
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<PAGE> 12
3.2 Authority. Buyer has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes the valid and binding obligation of Buyer,
enforceable in accordance with its terms except as such enforceability may be
limited by bankruptcy or similar laws and general principles of equity.
3.3 No Knowledge of Breach of Representation or Warranty of Seller.
Buyer is not aware of any facts, circumstances or conditions that would render
any of the representations and warranties of Seller inaccurate, untrue or false,
or any facts, circumstances or conditions that have been omitted that are
necessary to make the facts disclosed not misleading.
3.4 DV2U Website. Buyer will have the existing DV2U website operational
such that consumers may visit the site to register for sweepstakes currently
offered on the site. Such obligation shall terminate on December 31, 1999.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation in connection with
this transaction, or pursuant to the negotiation and execution of this Agreement
or the effectuation of the transactions contemplated hereby, confidential;
provided, however, that the foregoing shall not apply to information or
knowledge which (a) a party can demonstrate was already lawfully in its
possession prior to the disclosure thereof by the other party, (b) is generally
known to the public and did not become so known through any violation of law or
this Agreement, (c) became known to the public through no fault of such party,
(d) is later lawfully acquired by such party from other sources, (e) is required
to be disclosed by order of court or government agency with subpoena powers or
(f) which is disclosed in the course of any litigation between any of the
parties hereto.
4.2 Expenses. Whether or not the Acquisition is consummated, all fees
and expenses incurred in connection with the Acquisition including, without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party
in connection with the negotiation and effectuation of the terms and conditions
of this Agreement and the transactions contemplated hereby, shall be the
obligation of the respective party incurring such fees and expenses.
4.3 Public Disclosure. Unless otherwise required by law, prior to the
Closing Date, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Buyer and Seller prior to release, provided that such approval shall
not be unreasonably withheld, subject, in the case of Buyer, to Buyer's
obligation to comply with applicable securities laws.
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<PAGE> 13
4.4 Consents. Seller shall provide reasonable assistance to Buyer to
obtain all necessary consents, waivers and approvals under any of the Contracts
as may be required in connection with the Acquisition so as to transfer to Buyer
all rights of Seller thereunder.
4.5 Best Efforts. Subject to the terms and conditions provided in this
Agreement and to the fiduciary duties of the board of directors of Seller under
applicable law as advised by outside counsel, each of the parties hereto shall
use its best efforts to take promptly, or cause to be taken, all actions, and to
do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations: to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and to remove
any injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that Buyer shall not be required to agree to any
divestiture by Buyer or any of Buyer's subsidiaries or affiliates of shares of
capital stock or of any business, assets or property of Buyer or its
subsidiaries or affiliates, or the imposition of any material limitation on the
ability of any of them to conduct their businesses or to own or exercise control
of such assets (including without limitation the Assets), properties and stock.
4.6 Notification of Certain Matters. Seller shall give prompt notice to
Buyer, and Buyer shall give prompt notice to Seller, of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of Seller and Buyer, respectively,
contained in this Agreement to be untrue or inaccurate at or prior to the
Closing Date and (ii) any failure of Seller or Buyer, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.7 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
4.7 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may reasonably be
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
4.8 Tax Returns. Seller shall be responsible for and pay when due (i)
all of Seller's Taxes attributable to or levied or imposed upon the Assets
relating or pertaining to the period (or that portion of any period) ending on
or prior to the Closing Date and (ii) all Taxes attributable to, levied or
imposed upon, or incurred in connection with the Seller's business operations.
Seller shall continue to timely file within the time period for filing, or any
extension granted with respect thereto, all of Seller's Tax Returns required to
be filed in connection with the Assets and any portion of any such Tax Returns
connected therewith shall be true and correct and completed in accordance with
applicable laws. Buyer shall be responsible and pay when due all Taxes
attributable to or levied or imposed upon the Assets relating or pertaining to
the period (or that portion of any period) after the Closing Date
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<PAGE> 14
4.9 Bulk Sales. Buyer hereby agrees to waive the requirement, if any,
that Seller comply with any bulk transfer law which may be applicable to the
transactions contemplated by this Agreement; provided, that Seller agrees to
indemnify and hold harmless Buyer with respect to any noncompliance with such
laws and Buyer's waiver with respect thereto.
ARTICLE V
CONDITIONS TO THE ACQUISITION
5.1 Conditions to Obligations of Each Party to Effect the Acquisition.
The respective obligations of each party to this Agreement to effect the
Acquisition shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions:
(a) Corporate Approvals. This Agreement and the Acquisition
shall have been approved and adopted by the requisite vote of the Board of
Directors and/or stockholders of Buyer and Seller.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Acquisition shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Acquisition, which makes the consummation of the Acquisition illegal.
(c) If required, Articles of Transfer in compliance with laws of
the State of Illinois and/or Delaware shall have been duly executed by Buyer and
Seller.
5.2 Additional Conditions to Obligations of Seller. The obligations of
Seller to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively by Seller:
(a) Representations, Warranties and Covenants. The
representations and warranties of Buyer in this Agreement shall be true and
correct on and as of the Closing Date as though such representations and
warranties were made on and as of such time and Buyer shall have performed and
complied with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by it as of the Closing Date.
(b) Certificate of Buyer. Seller shall have been provided with a
certificate duly executed on behalf of Buyer to the effect that, as of the
Closing Date:
(i) all representations and warranties made by Buyer in
this Agreement are true and complete; and
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(ii) all covenants, obligations and conditions of this
Agreement to be performed by Buyer on or before such date have been so
performed.
(c) Investment in Buyer. Buyer shall have raised a minimum of
$2,500,000 through the sale of its equity securities.
5.3 Additional Conditions to the Obligations of Buyer. The obligations
of Buyer to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Buyer:
(a) Representations, Warranties and Covenants. The
representations and warranties of Seller in this Agreement shall be true and
correct on and as of the Closing Date as though such representations and
warranties were made on and as of such time and Seller shall have performed and
complied with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by it as of the Closing Date.
(b) Certificate of Seller. Buyer shall have been provided with a
certificate executed on behalf of Seller to the effect that, as of the Closing
Date:
(i) all representations and warranties made by Seller in
this Agreement are true and complete; and
(ii) all covenants, obligations and conditions of this
Agreement to be performed by Seller on or before such date have been so
performed.
(c) Claims. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or the Business or the
Assets of Seller.
(d) No Injunctions or Restraints on Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or provision challenging Buyer's proposed acquisition of the Assets,
or limiting or restricting Buyer's conduct or operation of the Business (or its
own business) following the Acquisition shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending.
(e) No Material Adverse Changes. There shall not have occurred
any material adverse change in the Assets.
(f) Third Party Rights. No third party shall have any right of
any nature whatsoever (including, without limitation, any right to receive
royalty payments) in respect of any of
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<PAGE> 16
the Assets, except rights to use Products pursuant to licenses granted by Seller
in the ordinary course of business.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.1 Termination. Except as provided in Section 6.2 below, this Agreement
may be terminated and the Acquisition abandoned at any time prior to the Closing
Date:
(a) by mutual consent of Seller and Buyer;
(b) by Buyer or Seller if: (i) the Closing has not occurred by
December 31, 1998; (ii) there shall be a final nonappealable order of a federal
or state court in effect preventing consummation of the Acquisition; or (iii)
there shall be any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Acquisition by any Governmental Entity that
would make consummation of the Acquisition illegal;
(c) by Buyer if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Acquisition by any Governmental Entity, which would: (i) prohibit Buyer's
ownership or operation of all or a portion of the Business or the Assets or (ii)
compel Buyer to dispose of or hold separate all or a portion of the Business or
the Assets or other businesses or assets of Buyer as a result of the
Acquisition;
(d) by Buyer if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
Seller and such breach has not been cured within five (5) business days after
written notice to Seller (provided that, no cure period shall be required for a
breach which by its nature cannot be cured);
(e) by Seller if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of Buyer
and such breach has not been cured within five (5) business days after written
notice to Buyer (provided that, no cure period shall be required for a breach
which by its nature cannot be cured).
6.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 6.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Buyer or Seller, or their
respective officers, directors or shareholders, provided that each party shall
remain liable for any breaches of this Agreement prior to its termination; and
provided further that, the provisions of Section 4.2 of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
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6.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
6.4 Extension; Waiver. At any time prior to the Closing Date, Buyer on
the one hand, and Seller, on the other, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE VII
GENERAL PROVISIONS
7.1 Survival of Representations and Warranties Limitation of Claims. The
representations and warranties of Seller set forth in this Agreement (as
modified by Seller Schedules) or in any instrument delivered pursuant to this
Agreement shall survive the Acquisition and continue for one (1) year. The
representations and warranties of Buyer in this Agreement or in any instrument
delivered pursuant to this Agreement shall not survive the Acquisition. Seller's
liability hereunder shall be limited to the amount of the Purchase Price
actually paid by Buyer hereunder as of the date of any liability.
7.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via telecopy (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Buyer, to:
Intellipost Corporation
565 Commercial Street
San Francisco, CA
Attention: Chief Financial Officer
Telecopy No.: (415) 676-3700
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Mario M. Rosati, Esq.
Telecopy No.: (415) 496-4082
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(b) if to Seller, to:
Metromail Corporation
360 E. 22nd St.
Lombard, Illinois
Attn: Chairman
with a copy to:
Experian Information Solutions, Inc.
505 City Parkway West, 10th Fl.
Orange, CA 92868
Attn: General Counsel
Telecopy No: (714) 938-2513
7.3 Interpretation. When a reference is made in this Agreement to
Schedules or Exhibits, such reference shall be to a Schedule or Exhibit to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
7.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
7.5 Entire Agreement. This Agreement, and the Schedules and Exhibits
hereto, (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof; (b) are not intended to confer upon any other person any rights or
remedies hereunder, unless expressly provided otherwise; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
7.6 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
7.7 Other Remedies. Except as otherwise provided herein or in the any
and all remedies herein expressly conferred upon a party will be deemed
cumulative with and not exclusive of any
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<PAGE> 19
other remedy conferred hereby, or by law or equity upon such party, and the
exercise by a party of any one remedy will not preclude the exercise of any
other remedy.
7.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
7.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
[The remainder of this page intentionally left blank.]
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<PAGE> 20
IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be
signed by their duly authorized respective officers, all as of the date first
written above.
INTELLIPOST CORPORATION
By /s/ Steven M. Markowitz
---------------------------------
Name: Steven M. Markowitz
Title:
METROMAIL CORPORATION
By /s/ Thomas Gasparini
---------------------------------
Name:
Title:
ASSET PURCHASE AGREEMENT
<PAGE> 1
EXHIBIT 10.13
LICENSE AGREEMENT
This Agreement is made by and between Direct Marketing Technology, Inc. ("DMT")
and Intellipost Corporation ("IPOST") on this 30th day of November, 1998 for the
licensing by IPOST from DMT of certain software and related media,
documentation, manuals, materials, information patents, patent applications,
specifications and other Intellectual Property (the "Licensed Property")
required for the operation of the MyPoints(R) Program ("Program") being acquired
by IPOST.
WHEREAS, DMT has acquired the Licensed Property by virtue of an assignment from
MotivationNet, LLC ("MNET");
WHEREAS, IPOST is acquiring a 100% interest in MNET, along with a 100% interest
in Enhanced Response Technologies, Inc. ("ERT"), including ERT's wholly owned
subsidiary MyPoints.Com, LLC which owns and operates the Program (the
"Transaction");
WHEREAS, IPOST, in connection with the Transaction, wishes to obtain an
exclusive license for the Licensed Property for purposes of operating the
Program.
NOW, THEREFORE, there being adequate consideration for the undertaking herein
set forth, DMT hereby grants IPOST a license for the Licensed Property in
accordance with the terms and conditions set forth below:
1. LICENSE. For and in consideration of royalty payments provided for
herein, DMT hereby grants to IPOST, including its subsidiaries,
affiliates and all their successors, and IPOST hereby accepts from DMT,
an exclusive (subject to any existing licenses granted by MNET or
MyPoints.com LLC in the ordinary course of business), limited license to
use the Licensed Property under the terms and conditions set forth in
this Agreement. IPOST acknowledges and agrees that the Licensed Property
is proprietary to DMT and that this Agreement grants IPOST no title or
right of ownership in the Licensed Property, except as provided herein.
IPOST is hereby authorized to:
a. use the Licensed Property in all lawful ways necessary for the
operation of the Program or any successor thereto, and any
similar "private label" programs where the liability for points
or awards issued resides with IPOST, whether such programs are
on-line and/or off-line;
b. use the Licensed Property with regard to any program similar to
the Program operated outside the United States, under the name
MyPoints(R) or otherwise;
c. sublicense those portions of the Licensed Property required by
web sites to participate in the Program, subject to the
requirement that each such web site must execute a MyPoints(R)
Program Agreement with an attached Software License Agreement
with terms that are acceptable to DMT;
d. modify the Licensed Property and/or merge it into another
program for use in IPOST's computer system (subject to the
allowable uses herein); and
<PAGE> 2
e. make copies of the Licensed Property and documentation, for
internal business use, for the operation of the Program and as
required under allowable sublicenses all as specified in 1.a.,
b. and c. above.
2. ROYALTIES. IPOST shall pay to DMT a royalty for the license of the
Licensed Property in the amount of $4,200,000 (the "Royalty"), which
shall be paid based on the greater of $35,000.00 per month, or 3% of
IPOST's monthly revenues generated from the Licensed Property or any
modifications, enhancements or "new versions" (as defined below) of the
Licensed Property (the "Revenue"). Royalty payments shall be deferred
for 90 days from the date of this Agreement. IPOST shall provide DMT a
monthly report showing all IPOST Revenue within 20 days of the end of
each calendar month, along with the Royalty payment for that month. DMT
shall have the right to audit the books and records of IPOST at any time
upon 5 business days' notice.
3. PURCHASE OPTION. IPOST, at its sole option, and if it is not in breach
of this Agreement, may purchase all ownership rights in the Licensed
Property at the completion of the license Term (as hereinafter defined)
for a purchase price of one dollar. During the license Term, IPOST shall
also have the option to purchase all ownership rights in the Licensed
Property for the then remaining portion of the Royalty that has not been
paid (the "Remaining Balance"), discounted to a present value using a
discount rate of the Prime Interest rate (as published in the Wall
Street Journal) ("Prime") plus 2% (the "Prepayment Amount"). Upon
purchasing the Licensed Property under this paragraph 3 or paragraph 4
below, IPOST shall also receive all rights and interests of DMT in and
to all patents and patent applications associated therewith. DMT shall,
at IPOST's cost execute any and all documents reasonably required by
IPOST of the assignment or transfer of said rights and interests to
IPOST.
4. MANDATORY PURCHASE OF LICENSED PROPERTY. IPOST shall purchase all
ownership rights in the Licensed Property if, during the Term of the
license, IPOST completes an initial public offering of stock ("IPO").
The purchase price in such event shall be the then existing Prepayment
Amount as calculated pursuant to paragraph 3 above. Such purchase price
may be payable at IPOST's option either in cash or in unrestricted and
fully registered IPOST shares issued in connection with such IPO,
calculated based on the lowest price such shares are issued in
connection with the IPO.
5. LICENSE BACK TO DMT. In the event that IPOST exercises any of its
options to purchase all ownership rights in the Licensed Property as
provided in either paragraph 3 or 4 above, IPOST shall provide to DMT a
license back of the Licensed Property, as it exists at the time of
IPOST's purchase and as further developed, modified or enhanced over
time, at a fair market value royalty rate for comparably sized programs,
for DMT's and its affiliates own business uses, including, without
limitation, DMT's affiliate's home shopping business (where IPOST, or
its successor, is the operator). However, any business uses that DMT or
its affiliates shall make of the Licensed Property shall not directly
compete with any of the uses by IPOST authorized under this Agreement,
and DMT shall not have the right to sell, license or transfer the
Licensed Property to third parties.
2
<PAGE> 3
6. DMT'S RETAINED OWNERSHIP AND USE. During the Term hereof, DMT shall
retain any and all title and ownership rights in and to the Licensed
Property as originally licensed to IPOST hereunder. All subsequent
modifications and/or enhancements of the Licensed Property made by IPOST
shall be owned by IPOST. Notwithstanding anything herein to the
contrary, DMT shall have the ability to use the Licensed Property and
any modifications and enhancements made by IPOST royalty free for any of
its own business uses (including any of DMT's affiliate's home shopping
business enterprises) so long as such uses do not directly compete with
IPOST's allowable uses of the Licensed Property as provided herein, and
DMT shall not have the right to sell, license or transfer the Licensed
Property to third parties.
7. INCLUSION OF COPYRIGHT NOTICE. IPOST agrees to reproduce and include the
copyright notice, if any, on any copy, modification or portion merged
into another program.
8. TERM. The license granted under this Agreement shall commence upon the
date this Agreement is executed and shall continue for a period of one
hundred twenty-three (123) months (the "Term").
9. TERMINATION REQUIREMENTS. Upon termination of this Agreement IPOST shall
(unless it exercises its purchase option), within 30 days of said
termination, return to DMT, or destroy, the Licensed Property together
with all copies, modifications, and merged portions in any form. If
IPOST chooses to destroy the Licensed Property, and all copies,
modifications, and merged portions thereof, it shall certify to DMT in
writing that the destruction has taken place and that IPOST no longer
has in its possession, nor has it transferred to the possession of
anyone else, the Licensed Property or any media containing same or any
portion thereof
10. NEW VERSION. DMT agrees to provide IPOST with one copy of the latest
available version of the Licensed Property at no cost to IPOST. If DMT
develops and implements any new version of the Licensed Property during
the term of this Agreement, DMT shall provide IPOST, at no charge, with
a copy of the new version as soon as it is available. "New version"
shall mean that the Licensed Property has been significantly modified,
enhanced and extended through the addition of substantial new
capabilities. If IPOST develops a "new version" of the Licensed
Property, IPOST shall provide a copy to DMT immediately. IPOST shall, in
any event, provide DMT a copy of the Licensed Property then currently in
use by IPOST on a monthly basis, including any enhancements, changes or
modifications made by IPOST.
11. WARRANTIES.
a. DMT warrants that it has acquired whatever ownership rights MNET
had in and to the Licensed Property from MNET in connection with
the Transaction.
b. DMT warrants that, to its knowledge, the Licensed Property
licensed for the purposes set forth herein contains no
authorization codes, computer viruses or other contaminants,
including any codes or instructions that can modify, damage or
disable IPOST's computer systems.
3
<PAGE> 4
c. IPOST represents and warrants that it has been provided with all
materials, documents, schematics, source code and literature
that it has requested regarding the Licensed Property in
connection with the Transaction, and has determined that the
Licensed Property, as it exists upon assignment to DMT in
connection with the Transaction, is sufficient for its needs and
accepts the Licensed Property "as is".
12. DISCLAIMER OF WARRANTIES. THE FOREGOING WARRANTIES ARE THE ONLY
WARRANTIES DMT HAS GIVEN TO IPOST WITH RESPECT TO LICENSED PROPERTY
BEING LICENSED HEREIN. SUCH WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE. DMT
EXPRESSLY DOES NOT WARRANT OR REPRESENT THAT THE LICENSED PROPERTY DOES
NOT OR WILL NOT INFRINGE OR OTHERWISE VIOLATE ANY PATENT, TRADEMARK,
COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHTS (COLLECTIVELY THE
"INTELLECTUAL PROPERTY RIGHTS") OF ANY THIRD PARTY, AND DMT SHALL BE
UNDER NO OBLIGATION TO INSURE THAT THE LICENSED PROPERTY DOES NOT OR
WILL NOT INFRINGE ON ANY SUCH INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD
PARTY, OR THAT IPOST SHALL HAVE CONTINUED RIGHTS TO USE THE LICENSED
PROPERTY THROUGHOUT THE TERM OF THIS LICENSE.
13. LIMITATIONS OF LIABILITIES. DMT'S ENTIRE LIABILITY WITH RESPECT TO THE
LICENSED PROPERTY SHALL BE LIMITED TO THE AMOUNT PAID BY IPOST PURSUANT
TO THIS LICENSE AGREEMENT FOR THE SIX MONTH PERIOD PRIOR TO ANY SUCH
LIABILITY BEING CLAIMED BY IPOST. UNDER NO CIRCUMSTANCES SHALL DMT BE
LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, EXPENSES, LOST PROFITS,
LOST SAVINGS, OR OTHER DAMAGES ARISING OUT OF THE USE OF, OR INABILITY
TO USE, THE LICENSED PROPERTY, OR THE BREACH OF ANY EXPRESS OR IMPLIED
WARRANTY, EVEN IF DMT HAS BEEN ADVISED OF THE POSSIBILITY OF THOSE
DAMAGES. No action, regardless of form, arising out of any transaction
under this Agreement, may be brought by either party more than one year
after the injured party has actual knowledge of the occurrence which
gives rise to the cause of such action.
14. INDEMNIFICATION. IPOST agrees to defend, indemnify and hold harmless DMT
and its officers, directors, employees, agents, representatives, and
affiliates (collectively the "DMT Parties") from and against any claim,
demand, action, cause of action, loss or damage that in any way arises
out of or relates to a claim that the Licensed Property violates or
infringes upon the Intellectual Property Rights of any third party.
IPOST shall not be required to indemnify DMT as provided for herein for
any claim that arises out of DMT's or its affiliates' use of the
Licensed Property as allowed pursuant to this License. IPOST will have
the right in its sole discretion to control the defense of and settle
any such claim, provided that any such settlement provides for a full
release of the DMT Parties. If any such settlement shall not provide for
a full release of the DMT Parties, IPOST shall first receive the DMT
Parties' written consent to such settlement. In the event that IPOST
settles any such claim, IPOST will have no power or authority to object
under any
4
<PAGE> 5
provision of this Section 14 to any indemnification claim by DMT with
respect to such settlement. The DMT Parties will be entitled, at their
expense, to participate in such defense.
15. NONDISCLOSURE. IPOST agrees that it shall treat DMT's Confidential
Information with the same degree of care it treats confidential
information of its own which it does not wish to disclose to the public.
For the purposes of this Agreement, "Confidential Information" shall
mean the Licensed Property and related documentation, manuals
information and specifications and information of DMT so identified as
"confidential" by DMT. It shall not include (i) information in the
public domain or which comes into the public domain other than through
breach hereof by IPOST, (ii) information in IPOST's possession prior to
disclosure to it by DMT, or (iii) information disclosed to IPOST by a
third party who is not under a similar obligation to DMT. IPOST shall
have the right to disclose such Confidential Information as it is
obligated to disclose by order of a court of law or administrative body
which has the legal authority to order such disclosure. However, before
any such disclosure IPOST shall notify DMT of the order to disclose to
allow DMT the opportunity to bring action to protect its Confidential
Information.
16. GOVERNING LAW. This Agreement shall be construed according to, and the
rights of the parties shall be governed under, the laws of the State of
California.
17. NOTICES. Notices required hereunder shall be sent by facsimile or by
Certified Mail, Return Receipt Requested, postage prepaid and, if sent
by mail, shall be deemed received five days after the date of deposit in
the U.S. Mail.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties in connection with the licensing of the Licensed
Property.
19. WAIVER, AMENDMENT OR MODIFICATION. Any waiver, amendment or modification
of any provision of this Agreement, or any right, power or remedy
hereunder shall not be effective unless made in writing, and signed by
the party against whom enforcement of such waiver, amendment or
modification is sought. No failure or delay by either party in
exercising any right, power or remedy with respect to any of its rights,
obligations or powers hereunder shall operate as a waiver thereof, or a
waiver of any other provision of this Agreement.
20. SUCCESSORS AND ASSIGNS. All the terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties
hereto and their successors and assigns and legal representatives. IPOST
shall have the right to assign this Agreement to any of its subsidiaries
or affiliates, and shall have the right to assign its rights to the use
of the Software Program pursuant to the provisions of Section 1.c.
above. Except as provided for herein, IPOST shall not assign this
Agreement, nor any right granted hereunder, in whole or in part, without
DMT's prior written consent, which consent shall not be unreasonably
withheld.
21. SEVERABILITY. If any provision of this Agreement, or the application of
any provision of this Agreement, shall be held by any court or tribunal
of competent jurisdiction to be
5
<PAGE> 6
contrary to law, unenforceable or otherwise illegal, the remaining
provisions of this Agreement shall continue in full force and effect.
22. SURVIVAL. The provisions of Sections 11, 12, 13, and 14 shall survive
termination of this License for any reason.
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6
<PAGE> 7
IN WITNESS WHEREOF, DMT and IPOST have caused this Agreement to be executed by
their duly authorized representatives.
Direct Marketing Technology, Inc. Intellipost, Inc. ("IPOST")
By: /s/ Thomas Newkirk By: /s/ Steven M. Markowitz
--------------------------------- --------------------------------------
Title: Title:
------------------------------ -----------------------------------
7
<PAGE> 1
EXHIBIT 10.14
SERVICE AGREEMENT
This Agreement is entered into this 30th day of November, 1998, by and
between Intellipost Corporation ("IPOST") and Direct Marketing Technology, Inc.
("DMT").
WHEREAS, IPOST and DMT and Enhanced Response Technologies, Inc. ("ERT")
have all entered into agreements whereby IPOST will acquire 100% of
MotivationNet, LLC ("MNET") from DMT and ERT and 100% of the stock of ERT (the
"Transaction"); and,
WHEREAS, as an inducement for DMT to enter the Transaction, IPOST has
agreed to utilize DMT and its affiliates to provide certain services and
products to IPOST in connection with its business operations, and to encourage
its customers to utilize DMT and its affiliates for services that its customers
may need;
NOW, THEREFORE, IPOST and DMT agree as follows:
1. DMT hereby agrees to perform either by itself or through an affiliate
all Data Services that it or its affiliates provide (in the aggregate
hereinafter referred to as the "Services") required by IPOST for the
operation and administration of the MyPoints(R) Program ("Program") and
other business services operated by IPOST.
a. For the purposes of this Agreement, Services shall include, but
not be limited to: (i) provision of consumer or business credit
reports or information necessary for IPOST's business, (ii)
provision of marketing or demographic data for database
enhancement or fist services or any other lawful use, (iii)
service bureau services, including list processing services or
other information append services; or (iv) any other data
products or services provided by DMT or its affiliates.
During the term of this Agreement, and subject to DMT being able to
provide all Services required by IPOST in accordance with the terms and
conditions set forth in this Agreement and at those charges specified
below, IPOST agrees to use DMT as its sole and exclusive source for all
Services IPOST may need.
2. DMT will charge IPOST and IPOST agrees to pay DMT during the term of
this Agreement DMT's current normal price for such Services. DMT agrees
that the "current normal price" charged to IPOST for Services will be
the lowest price it charges to its other customers who are utilizing DMT
for Services at similar volumes and processing frequency as those
requested by IPOST. DMT will invoice IPOST on a monthly basis for all
charges for the previous month. All such invoices shall be due net 30
days. If IPOST is able to receive the Services from another vendor at
lower prices than those offered by DMT, IPOST shall notify DMT of such
circumstance, and DMT shall be entitled to meet such price. If DMT does
not meet such price, IPOST may obtain the Services for which DMT did not
meet the superior price from another vendor. All other terms of this
Agreement shall remain in effect for all other Services.
<PAGE> 2
3. The initial Term of this Agreement shall be for two years from the date
first set forth above and shall continue from year to year thereafter
until terminated by either party as set forth below.
a. Following the initial Term of this Agreement either party shall
have the right to terminate this Agreement at the end of an
Agreement Term by giving the other party notice of intent to
terminate at least 90 days prior to the end of the respective
Term.
b. In the event of a material breach hereof, the non-breaching
party shall have the right to terminate this Agreement upon
thirty (30) days' written notice to the breaching party, unless
said breach is cured to the satisfaction of the non-breaching
party during said thirty (30) day period.
c. DMT may terminate this Agreement on thirty (60) days' written
notice if, in DMT's reasonable business judgment, privacy
regulations or concerns make IPOST's use of demographic data
provided hereunder unlawful or untenable.
4. DMT agrees to provide all Services and other services specified
hereunder to IPOST in a timely and professional manner. DMT will at all
times have adequate numbers of qualified and trained personnel and
adequate systems resources (including hardware and software) in place to
meet IPOST's Services requirements as they may change from time to time.
a. DMT agrees to exercise professional care and competence in the
performance of Services for IPOST hereunder. DMT shall apply
those principles, practices, procedures and standards of care
that are accepted and applied by other competent providers of
similar services.
b. DMT's liability to IPOST, regardless of whether such liability
is based upon breach of contract, tort, strict liability, breach
of warranties, failure of essential purpose or otherwise, under
this Agreement or with respect to the Services, shall be limited
to the amount of fees (includes all fees provided for in
Sections 2.a above) paid to DMT by IPOST hereunder for the
services alleged to give rise to such liability. The limitation
of liability provided for in this section 4b shall not apply to
any willful breach of any provision of this Agreement.
c. Neither party shall be liable to the other party for
consequential, incidental, indirect, punitive or special damages
(including loss of profits, business or goodwill), regardless of
whether such liability is based on breach of contract, tort,
strict liability, breach of warranties, failure of essential
purpose or otherwise, even if advised of the likelihood of such
damages.
d. Except as otherwise specifically stated herein, DMT makes no
warranties or representations, of any nature, whether express or
implied including, but not limited to, warranties of
merchantability or fitness for a particular purpose.
5. POST and DMT each hereby authorize the other to act as its
representative for the limited purpose of offering the products and
services of the other to third parties; however, neither
2
<PAGE> 3
party shall have the right to bind the other with regard to any specific
transaction without the approval of the other party being first
obtained. The specific products and services to be offered, and any fees
to be paid in connection with sales arising from such representation,
shall be determined in writing between the parties from time to time
during the term of this Agreement.
6. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been given on
the date of service if served personally on, or faxed to, the party to
whom notice is to be given, or on the fifth day after mailing, if mailed
to the party to whom service is to be given, by first class mail,
registered or certified, postage prepaid, and properly addressed.
7. Failure of either party to perform hereunder shall not be construed as a
breach of this Agreement if such failure to perform is caused by riot,
war, or hostilities between nations, embargoes, government orders,
regulations, laws, ordinances or rulings, acts of God, fire, accidents,
strikes, or other contingencies beyond the reasonable control of the
non-performing party. The non-performing party shall give prompt written
notice to the other party of the reason for its failure to perform and
the extent and duration of its inability to perform and the period of
performance and term of this Agreement shall be extended to the extent
of any such delay and neither party shall incur any liability to the
other party as a result of such delay or suspension. Upon cessation of
such situation, the non-performing party shall resume performing
hereunder. However, in the event the non-performing party shall be
unable to perform for a period of sixty (60) days or more, the other
party shall have the right to terminate this Agreement upon ten (10)
days' written notice to the non-performing party.
8. Each party agrees that it shall treat the Confidential Information of
the other with the same degree of care it treats confidential
information of its own which it does not wish to disclose to the public.
For the purposes of this Agreement, "Confidential Information" shall
mean the product information and specifications, databases, information
content, program software and related documentation, manuals information
and specifications, financial and marketing information of the
disclosing party so identified as "confidential" by said party. It shall
not include (i) information in the public domain or which comes into the
public domain other than through breach hereof by the receiving party,
(ii) information in the receiving party's possession prior to disclosure
to it by the disclosing party, or (iii) information disclosed to the
receiving party by a third party who is not under a similar obligation
to the disclosing party. The receiving party shall have the right to
disclose such Confidential Information as it is obligated to disclose by
order of a court of law or administrative body which has the legal
authority to order such disclosure. However, before any such disclosure
the receiving party shall notify the disclosing party of the order to
disclose to allow the disclosing party the opportunity to bring action
to protect its Confidential Information.
9. If any portion of this Agreement is held to be void, invalid, or
otherwise unenforceable, in whole or in part, the remaining portions of
this Agreement shall remain in effect.
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<PAGE> 4
10. No amendment or modification to this Agreement shall be valid or binding
upon the parties unless such amendment or modification shall be in
writing and duly executed by authorized representatives of both parties.
11. Neither party shall assign this Agreement, or its rights or obligations
hereunder, without the written permission of the other first obtained,
except that either party shall have the right to assign this Agreement
to a parent, subsidiary or affiliate.
12. This Agreement shall be governed under the laws of the State of
California.
13. This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes any and all other
prior understandings and agreements, oral or written, between the
parties with respect to the subject matter hereof.
[Remainder of page intentionally left blank]
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective representatives as of the date first set
forth above.
INTELLIPOST, INC. ("IPOST")
By: /s/ Steven M. Markowitz
--------------------------------------
Its:
-------------------------------------
DIRECT MARKETING TECHNOLOGY, INC. ("DMT")
By: /s/ Thomas Newkirk
--------------------------------------
Its:
-------------------------------------
5
<PAGE> 1
EXHIBIT 10.15
BUSINESS LOAN AGREEMENT
Borrower: Intellipost Corporation Lender: Silicon Valley Bank
565 Commercial Street, Second Floor 3003 Tasman Drive
San Francisco, CA 94111 Santa Clara, CA 95054
THIS BUSINESS LOAN AGREEMENT between Intellipost Corporation
("Borrower") and Silicon Valley Bank ("Lender") is made and executed on the
following terms and conditions. Borrower has received prior commercial loans
from Lender or has applied to Lender for a commercial loan or loans and other
financial accommodations, Including those which may be described on any exhibit
or schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to In this Agreement Individually as the "Loan"
and collectively as the "Loans." Borrower understands and agrees that: (a) In
granting, renewing, or extending any Loan, Lender is relying upon Borrowers
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole Judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of January 27, 1997, and
shall continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
Borrower. The word "Borrower" means Intellipost Corporation. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Collateral. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether granted
now or in the future. and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt,lien, charge,
lien or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created by
law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT,"
Grantor. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes indebtedness
now existing or hereinafter arising, or incurred, including, ,without
limitation, the Indebtedness evidenced by the Note, including, all principal and
interest, together with all other indebtedness and costs and expenses for which
Borrower is responsible under this Agreement or under any of the Related
Documents.
Lender. The word "Lender" means Silicon Valley Bank, its successors and
assigns.
Loan. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced, including
without limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as any substitute, replacement or refinancing note or notes
therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and
security interests securing Indebtedness owned by Borrower to Lender; (b)liens
for taxes, assessments, or similar charges either not yet due or being contested
in good faith; (c) liens of materialmen, mechanics,warehousemen, or carriers, or
other like liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (d) purchase money liens or purchase
money security interests upon or in any property acquired or held by Borrower in
the ordinary course of business to secure indebtedness outstanding on the date
of this Agreement or permitted to be incurred under the paragraph of this
Agreement titled "indebtedness and Liens"; (e) liens and security interests
which, as of the date of this Agreement, have been disclosed to and approved by
the Lender in writing; and (f) those liens and security interests which in the
aggregate constitute an immaterial and insignificant monetary amount with
respect to the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form of a
lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, Factor's lien, equipment trust, conditional sale, trust receipt,
lien or title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether created by
law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
01-27-1997 BUSINESS LOAN AGREEMENT
Page 2 (Continued)
<PAGE> 2
Loan Documents. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence of
insurance as required below; and (e) any other documents required under this
Agreement or by Lender or its counsel.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents, and such other authorizations and other documents and
instruments as Lender or its counsel, in their sole discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California and is
validly existing and in good standing in all states in which Borrower is doing
business. Borrower has the full power and authority to own its properties and to
transact the business in which it is presently engaged or presently proposes to
engage. Borrower also is duly qualified as a foreign corporation and is in good
standing in all states in which the failure to so qualify would have a material
adverse effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related. Documents by Borrower, to the extent to be
executed,delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not conflict
with, result in a violation of, or constitute a default under (a) any provision
of its articles of incorporation or organization, or by laws, or any agreement
or other instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of the
date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered will
constitute, legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not presently
due and payable, Borrower owns and has good title to all of Borrower's
properties free and clear of all Security Interests, and has not executed any
security documents or financing statements relating to such properties. All of
Borrower's properties are titled in Borrower's legal name, and Borrower has not
used, or filed a financing statement under, any other name for at least the last
five (5) years.
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in this
Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA,"
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.,
Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety
Code, Section 25100, et seq., or other applicable state or Federal laws, rules,
or regulations adopted pursuant to any of the foregoing. Except as disclosed to
and acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has been
no use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on, under,
about or from any of the properties. (b) Borrower has no knowledge of, or reason
to believe that there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous waste or
substance on, under, about or from the properties by any prior owners or
occupants of any of the properties, or (ii) any actual or threatened litigation
or claims of any kind by any person relating to such matters. (c) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any of
the properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with all
applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances described
above. Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any inspections
or tests made by Lender shall be at Borrower's expense and for Lender's purposes
only and shall not be construed to create any responsibility or liability on the
part of Lender to Borrower or to any other person. The representations and
warranties contained herein are based on Borrower's due diligence in
investigating the properties for hazardous waste and hazardous substances.
Borrower hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable for cleanup or
other costs under any such laws, and (b) agrees to indemnify and hold harmless
Lender against any and all claims, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer resulting
from a breach of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
occurring prior to Borrower's ownership or interest in the properties, whether
or not the same was or should have been known to Borrower. The provisions of
this section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or expiration of
this Agreement and shall not be affected by Lender's acquisition of any interest
in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid taxes)
against Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or properties,
other than litigation, claims, or other events, if any, that have been disclosed
to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be tiled, have been filed, and all
taxes, assessments and other governmental charges have been paid in full, except
those presently being or to be contested by Borrower in good faith in the
ordinary course of business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or affecting any
of the Collateral directly or indirectly securing repayment of Borrower's Loan
and Note, that would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note and all of
the Related Documents are binding upon Borrower as well as upon Borrower's
successors representatives and assigns, and are legally
01-27-1997 BUSINESS LOAN AGREEMENT
Page 3 (Continued)
<PAGE> 3
enforceable in accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor Prohibited
Transaction (as defined in ERISA) has occurred with respect to any such plan,
(ii) Borrower has not withdrawn from any such plan or initiated steps to do so,
(iii) no steps have been taken to terminate any such plan, and ('iv) there are
no unfunded liabilities other than those previously disclosed to Lender in
writing.
Investment Company Act. Borrower is not an "investment company" or a
company "controlled" by an "investment company", within the meaning of the
investment Company Act of 1940, as amended.
Public Utility Holding Company Act. Borrower is not a "holding company",
or a "subsidiary company" of a "holding company", or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Regulations G, T and U. Borrower is not engaged principally, or as one
of its important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulations G, T
and U of the Board of Governors of the Federal Reserve System).
Location of Borrower's Offices and Records. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more than one
place of business, is located at 565 commercial Street, Second Floor, San
Francisco, CA 94111. Unless Borrower has designated otherwise in writing this
location is also the office or offices where Borrower keeps its records
concerning the Collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all information
hereafter furnished by or on behalf of Borrower to Lender will be, true and
accurate in every material respect on the date as of which such information is
dated or certified; and none of such information is or will be incomplete by
omitting to state any material fact necessary to make such information not
misleading.
Claims and Defenses. There are no defenses or counter claims, offsets or
other adverse claims, demands or actions of any kind, personal or otherwise,
that Borrower, Grantor, or any Guarantor could assert with respect to the .Note,
Loan, Indebtedness, this Agreement. or the Related Documents.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower. Borrower
further agrees that the foregoing representations and warranties shall be
continuing in nature and shall remain in full force and effect until such time
as Borrower's Indebtedness shall be paid in full, or until this Agreement shall
be terminated in the manner provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing _and all
threatened litigation, claims, investigations, administrative proceedings Or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis, and
permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in
no event later than ninety(90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited by a
certified public accountant satisfactory to Lender, and, as soon as available,
but in no event later than thirty (30) days after the end of each month,
Borrower's balance sheet and profit and loss statement for the period ended,
prepared and certified as correct to the best knowledge and belief by Borrower's
chief financial officer or other officer or person acceptable to Lender. All
financial reports required to be provided under this Agreement shall be prepared
in accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and payables,
inventory schedules, budgets, forecasts, tax returns, and other reports with
respect to Borrower's financial condition and business operations as Lender may
request from time to time.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request of
Lender, will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that coverages
will not be cancelled or diminished without at least ten(10)days' prior written
notice to Lender. Each insurance policy also shall include an endorsement
providing that coverage in favor of Lender will not be impaired in any way by
any act, omission or default of Borrower or any other person. In connection with
all policies covering assets in which Lender holds or is offered a security
interest for the Loans, Borrower will provide Lender with such loss payable or
other endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender. reports on
each existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer;, (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of which
insurance has been obtained, and the manner of determining those values; and (f)
the expiration date of the policy. In addition, upon request of Lender (however
not more often than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value or
replacement cost of any Collateral. The cost of such appraisal shall be paid by
Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection with
any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income, or profits, prior to the date on which
penalties would attach, and all lawful claims that, if unpaid, might become a
lien or charge upon any of Borrower's properties, income, or profits. Provided
however, Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the same shall
be contested in good faith by appropriate proceedings, and (b) Borrower shall
have established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with generally
accepted accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies, liens and
claims and will authorize the appropriate governmental official to deliver to
Lender at any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or profits.
01-27-1997 BUSINESS LOAN AGREEMENT
Page 4 (Continued)
<PAGE> 4
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of any
event which constitutes an Event of Default under this Agreement or under any of
the Related Documents.
Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the present executive
and management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a reasonable
and prudent manner and in compliance with all applicable federal, state and
municipal laws, ordinances, rules and regulations respecting its properties,
charters, businesses and operations, including without limitation, compliance
with the Americans With Disabilities Act and with all minimum funding standards
and other requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
Environmental Studies. Promptly conduct and complete, at Borrower's
expense, all such investigations, studies, samplings and testings as may be
requested by Lender or any governmental authority relative to any substance
defined as toxic or a hazardous substance under any applicable federal, state,
or local law, rule, regulation, order or directive, or any waste or by-product
thereof, at or affecting any property or any facility owned, leased or used by
Borrower.
Inspection. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records and
to make copies and memoranda of Borrower's books, accounts, and records. If
Borrower now or at any time hereafter maintains any records (including without
limitation computer generated records and computer software programs for the
generation of such records) in the possession of a third party, Borrower, upon
request of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any records
it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide
Lender monthly within thirty (30) days and at the time of each disbursement of
Loan proceeds with a certificate executed by Borrower's chief financial officer,
or other officer or person acceptable to Lender, certifying that the
representations and warranties set forth in this Agreement are true and correct
as of the date of the certificate and further certifying that, as of the date of
the certificate, no Event of Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a result
of an intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless such
environmental activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter or other communication from any governmental agency or
instrumentality concerning any intentional or unintentional action or omission
on Borrower's part in connection with any environmental activity whether or not
there is damage to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to perfect
all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender.
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including capital
leases, (b) except as allowed as a Permitted Lien, sell,transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except
to Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b)cease operations, liquidate, merge, transfer, acquire or consolidate with any
other entity, change ownership, change its name, dissolve or transferor sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock),provided, however
that notwithstanding the foregoing, but only so long as no Event of Default has
occurred and is continuing or would result from the payment of dividends, if
Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue
Code of 1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the shareholders
to pay income taxes and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from their status as
Shareholders of a Subchapter S Corporation because of their ownership of shares
of stock of Borrower, or (d) purchase or retire any of Borrower's
outstanding shares or alter or amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other enterprise
or entity, or (c) incur any obligation as surety or guarantor other than in the
ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
DEFAULT RATE. Following an Event of Default, including failure to pay upon final
maturity, Lender, at its option, may do one or both of the following:(i)
increase the variable interest rate on the Note to five (5) percentage points
over the otherwise effective interest rate, and (ii) add any unpaid
accrued interest to the principal and such sum shall bear interest therefrom
until paid in full.
LOAN ADVANCES. Lender, in its discretion, will make Loans to Borrower, in
amounts determined by Lender, up to the amounts defined and permitted in this
Agreement and the Related Documents, including, but not limited to the Note or
Notes executed by Borrower (the_ "Credit Limit"). Borrower is responsible for
monitoring the total amount of Loans and Indebtedness outstanding from time to
time, and Borrower shall not permit the same, at any time, to exceed the Credit
Limit. If, at any time, the total of all outstanding Loans and Indebtedness
exceed the Credit Limit, Borrower shall immediately pay the amount of the excess
to Lender, without notice or demand.
FINANCIAL COVENANTS. Borrower shall maintain, on a monthly basis, a minimum
liquidity Coverage ratio of 5.00 to 1.00 through period ending February 28, 1997
and increasing to 6.00 to 1.00 each month ending thereafter. Borrower shall be
in receipt of no less than $500,000.00 in additional Equity by January 31, 1997
and no less than $1,00,000.00 in additional equity by March 31, 1997. If
Borrower does not receive the additional$1,000,000.00 in equity by March
31,1997. Borrower shall pledge to Lender a Silicon Valley Bank Certificate of
Deposit of not less than the current outstanding principal balance of the Note,
to secure the Note. Furthermore, beginning with the period ending June 30, 1997,
Borrower shall achieve a monthly minimum Adjusted Profitability of $1.00, after
taxes. Liquidity Coverage is defined as cash plus cash equivalents plus 50% of
net accounts receivable, divided by outstandings under the Note. Adjusted
Profitability is defined as monthly net income plus bonus points payable
expense.
01-27-1997 BUSINESS LOAN AGREEMENT
Page 5 (Continued)
<PAGE> 5
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when
due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained in
this Agreement or in any of the Related Documents, or failure of Borrower to
comply with or to perform any other term, obligation, covenant or condition
contained in any other agreement between Lender and Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's properly or Borrower's or
any Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at any
time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at any
time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver for
any part of Borrower's property, any assignment for the benefit of creditors,
any type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help, repossession
or any other method, by any creditor of Borrower, any creditor of any Grantor
against any collateral securing the Indebtedness, or by any governmental agency.
This includes a garnishment, attachment, or levy on or of any of Borrower's
deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability under
any Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If the Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will Terminate (including any obligation to make
Loan Advances or disbursements) and, at Lender's option, all indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency"subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedies shall not exclude pursuit of any
other Remedy, and an election to make expenditures or to take action to perform
an obligation of Borrower or of any Grantor shall not affect Lender's right to
Declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted
by Lender In the State of California. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the Jurisdiction of the courts of Santa Clara
County, the State of California. Lender and Borrower hereby waive the right to
any Jury trial In any action, proceeding, or counterclaim brought by either
Lender or Borrower against the other. This Agreement shall be governed by and
construed In accordance with the laws of the State of California.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower shall
mean each and every Borrower. This means that each of the Borrowers signing
below is responsible for all obligations in this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation interests
in the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever, to any One or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and Borrower
hereby waives any rights to privacy it may have with respect to such matters.
Borrower additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such participation
interests. Borrower also agrees that the purchasers of any such participation
interests will be considered as the absolute owners of such interests in the
Loans and will have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower further
waives all rights of offset or counterclaim that It may have now or later
against Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or insolvency
of any holder of any interest in the Loans. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have against
Lender.
Borrower Information. Borrower consents to the release of information on
or about Borrower by Lender in accordance with any court order, law or
regulation and in response to credit inquiries concerning Borrower.
Non-Liability of Lender. The relationship between Borrower and Lender is
a debtor and creditor relationship and not fiduciary in nature, nor is the
relationship to be construed as creating any partnership or joint venture
between Lender and Borrower. Borrower is exercising its own judgment with
respect to Borrower's business. All information supplied to Lender is for
Lender's protection only and no other party is entitled to rely on such
information. There is no duty for Lender to review, inspect, supervise, or
inform Borrower of any matter with respect to Borrower's business. Lender and
Borrower intend that Lender may reasonably rely on all information supplied by
Borrower to Lender, together with all representations and warranties given by
Borrower to Lender, without investigation or confirmation by Lender and that any
investigation or failure to investigate will not diminish Lender's right to so
rely.
Notice of Lender's Breach. Borrower must notify Lender in writing of any
breach of this Agreement or the Related Documents by Lender and any other-claim.
cause of action or offset against Lender within thirty 30 days after the
occurrence of such breach or after accrual of such claim, cause of action or
offset. Borrower waives any claim. cause of action or offset for which notice is
not given in accordance with this paragraph.
01-27-1997 BUSINESS LOAN AGREEMENT
Page 6 (Continued)
<PAGE> 6
Lender is entitled to rely on any failure to give such notice.
Borrower Indemnification. Borrower shall indemnity and hold Lender
harmless from and against all claims, costs, expenses, losses, damages, and
liabilities of any kind, including but not limited to attorneys' fees and
expenses, arising out of any matter relating directly or indirectly to the
Indebtedness, whether resulting from internal disputes of the Borrower, disputes
between Borrower and any Guarantor, or whether involving any third parties, or
out of any other matter whatsoever related to this Agreement or the Related
Documents, but excluding any claim or liability which arises as a direct result
of Lender's gross negligence or willful misconduct. This indemnity shall survive
lull repayment and satisfaction of the Indebtedness and termination of this
Agreement.
Counterparts. This Agreement may be executed in multiple counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts, taken together, shall constitute one and the same Agreement.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in connection
with the preparation, execution, enforcement, modification and collection of
this Agreement or connection with the Loans made pursuant to this Agreement.
Lender may pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses, whether or not there is a lawsuit, including attorneys' fees for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, arid any anticipated post-judgment collection services.
Borrower also will pay any court costs, in addition to all other sums provided
by law.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above. Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Borrower, notice to any Borrower will
constitute notice to all Borrowers. For notice purposes, Borrower will keep
Lender informed at all times of Borrower's current address(es).
Severability. If a court of competent jurisdiction finds any provision
of this Agreement-to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Agreement in all
other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of
any provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as used
herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to the
benefit of Lender, its successors and assigns. Borrower shall not, however, have
the right to assign its rights under this Agreement or any interest therein,
without the prior written consent of Lender.
Survival. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument delivered
by Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery to
Lender of the Related Documents, regardless of any investigation made by Lender
or Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of
this Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with that provision or any other provision
of this Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor shall constitute a waiver
of any of Lender's fights or of any obligations of Borrower or of any Grantor as
to any future transactions. Whenever the consent of Lender is required under
this Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent in subsequent instances where such consent is
required, and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
JANUARY 27, 1997.
BORROWER:
Intellipost Corporation
By: /s/ Layton S. Han
---------------------------
Name: Layton S. Han
Title: CFO
LENDER:
Silicon Valley Bank
By: Authorized Officer
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3..22 & (c) 1997 CFI Pro Services,
Inc. All rights reserved. [CA-C40 F3..22 INTELLI..LN G5.OVL]
01-27-1997 PROMISSORY NOTE
Page 2 (Continued)
<PAGE> 7
PROMISSORY NOTE
================================================================================
BORROWER: INTELLIPOST CORPORATION LENDER: SILICON VALLEY BANK
565 COMMERCIAL STREET, SECOND FLOOR 3003 TASMAN DRIVE
SAN FRANCISCO, CA 94111 SANTA CLARA, CA 95054
================================================================================
PRINCIPAL AMOUNT: $100,000.00
INITIAL RATE: 9.750%
DATE OF NOTE: JANUARY 27, 1997
PROMISE TO PAY. Intellipost Corporation ("Borrower") promises to pay to
Silicon Valley Bank ("Lender"), or order, in lawful money of the United States
of America, the principal amount of One Hundred Thousand & 00/100 Dollars
($100,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan in accordance with the following
payment schedule:
The Draw Period shall begin as of this date and shall end on June 30,
1997 (the "Draw Period"). Borrower will pay regular monthly payments of
all accrued unpaid interest due as of each payment date, beginning
February 28, 1997 and all subsequent interest payments will be due on
the last day of each month thereafter. The outstanding principal balance
on June 30, 1997 will be payable in twenty four (24) even payments of
principal plus interest, beginning July 31, 1997 and all subsequent
principal and interest payments will be due on the last day of each
month thereafter. The final payment, due on June 30, 1999, will be for
all outstanding principal plus all accrued interest not yet paid.
Interest on this Note is computed on a 365/360 simple interest basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
change from time to time based on changes in an index which is Lender's Prime
Rate (the "Index"). This is the rate Lender charges, or would charge, on 90-day
unsecured loans to the most creditworthy corporate customers. This rate may or
may not be the lowest rate available from Lender at any given time. Lender will
tell Borrower the current index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each time the prime rate is
adjusted by Silicon Valley Bank. THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE
INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE
AT A RATE OF 1.500 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL
RATE OF 9.750% PER ANNUM. NOTICE: Under no circumstances will the interest rate
on this Note be more than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the date of the loan and will not be subject to
refund upon early payment (whether voluntary or as a result of default), except
as otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due.
DEFAULT. Borrower will be in default if any of the following happens:
(a) Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately due,
without notice, and then Borrower will pay that amount. Upon Borrower's failure
to pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note to 6.500
percentage points over the index. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Borrower also
will pay any court costs, in addition to all other sums provided by law. THIS
NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF
CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF SANTA CLARA COUNTY, THE STATE OF
CALIFORNIA. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY
ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST
THE OTHER. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA.
LINE OF CREDIT. This Note evidences a straight line of credit through
the draw period. Once the total amount of principal has been advanced, Borrower
is not entitled to further loan advances. Advances under this Note, as well as
directions for payment from Borrower's accounts, may be requested orally or in
writing by Borrower or by an authorized person. Lender may, but need not,
require that all oral requests be confirmed in writing. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instructions of
an authorized person or (b) credited to any of Borrower's accounts with Lender.
The unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such guarantor's
guarantee of this Note or any other loan with Lender; or (d) Borrower has
applied funds provided pursuant to this Note for purposes other than those
authorized by Lender.
BUSINESS LOAN AGREEMENT. This Note is governed by all the terms and
conditions of the Business Loan Agreement of even date herewith, between
Borrower and Lender, as such agreement may be amended from time to time, which
Business Loan Agreement is incorporated herein by this reference.
PAYMENT OF LOAN FEE. Borrower shall pay to Lender a fee in the amount of
One Thousand and 00/100 Dollars ($1,000.00) plus all out-of-pocket expenses.
REQUEST TO DEBIT ACCOUNTS. Borrower will regularly deposit funds
received from its business activities in accounts maintained by Borrower at
Silicon Valley Bank. Borrower hereby requests and authorizes Lender to debit any
of Borrower's accounts with Lender, including, without limitation, Account
Number 00330042163 for payments of principal and interest due on the loan and
any other obligations owing from Borrower to Lender. Lender will notify Borrower
of all debits which Lender makes against Borrower's accounts. Any such debits
against Borrower's accounts in no way shall be deemed a set-off.
ADVANCE RATE. At any time from the date hereof through the end of the
Draw Period, Borrower may request a maximum of five (5) advances (each an
"Advance" and collectively, the "Advances") from Lender in an aggregate amount
not to exceed the principal amount of the Note. To evidence the Advances,
Borrower shall deliver to Lender, at the time of each Advance request, an
invoice for the equipment to be purchased. The Advances shall only be used to
purchase equipment and shall not exceed eighty percent (80%) of the invoice
amount approved by Lender, excluding taxes, shipping and installation expense.
Software and leasehold improvements may, however, comprise up to twenty five
percent 25% of the principal amount of the Note.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed by
law, waive any applicable statute of limitations, presentment, demand for
payment, protest and notice of dishonor. Upon any change in the terms of this
Note, and unless otherwise expressly stated in writing, no party who signs this
Note, whether as maker, guarantor, accommodation maker or endorser, shall be
released from liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan, or release any party or
guarantor or collateral; or impair, fall to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE NOTE.
BORROWER:
Intellipost Corporation
By: /s/ Layton S. Han
-----------------------------------
Name: Layton S. Han
Title: CFO
Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.22a
(c) 1997 CFI Pro Services, Inc. All rights reserved. [CA-D20 INTELLI.LN G5.OVL]
COMMERCIAL SECURITY AGREEMENT
Borrower: Intellipost Corporation Lender: Silicon Valley Bank
565 Commercial Street, Second Floor 3003 Tasman Drive
San Francisco, CA 94111 Santa Clara, CA 95O54
THIS COMMERCIAL SECURITY AGREEMENT is entered Into between Intellipost
Corporation (referred to below as "Grantor"); and Silicon Valley Bank (referred
to below as "Lender"). For valuable consideration, Grantor grants to Lender a
security Interest In the Collateral to secure the Indebtedness and agrees that
Lender shall have the rights stated In this Agreement with respect to the
Collateral, in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when
used in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this commercial Security Agreement may be amended or modified from
time to time, together with all exhibits and schedules attached to this
commercial Security Agreement from time to time.
Collateral. The word "collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:
Inventory, Chattel Paper, Accounts, Equipment, General Intangibles,
Instruments, Documents, Deposit Accounts, Contract Rights, and Fixtures.
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of *any of the property described in
this Collateral section.
(c) All accounts, genera] intangibles, instruments, rents,
monies, payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property described in this
Collateral section.
(e) All records and data relating to any of the property
described in this Collateral section, whether in the form of a writing,
photograph, microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software required to
utilize, create, maintain, and process any such records or data on electronic
media.
Event of Default. The 'words "Event of Default" mesh and include without
limitation any of the Events of Default set forth below in the section titled
"Events of Default."
Grantor. The word "Grantor" means Intellipost Corporation, its
successors and assigns.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
Indebtedness. The word "indebtedness" means indebtedness now existing or
hereinafter arising, or incurred, including, without limitation, the
Indebtedness evidenced by the Note, including, all principal and interest,
together with all other indebtedness and costs and expenses for which Borrower
is responsible under this Agreement or under any of the Related Documents.
Lender. The word "Lender" means Silicon Valley Bank, its successors and
assigns.
Note. The word "Note" means the notes, credit agreements, or letters of
credit in any principal amount from Borrower to Lender, together with all
renewals of, modifications of, substitutions of, refinancings of, consolidations
of, and replacements of the notes, letters of credit or credit agreements.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds of
trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantors right, title and interest in and to Grantor's accounts
with Lender (whether checking, savings, or some other account), including all
accounts held jointly with someone else and all accounts Grantor may open in the
future, excluding, however, all IRA and Keogh accounts, and all trust accounts
for which the grant of a security interest would be prohibited by law. Grantor
authorizes Lender, to the extent permitted by applicable law, to charge or
setoff all Indebtedness against any and all such accounts, and, at Lenders
option, to administratively freeze all such accounts to allow Lender to protect
Lenders charge and setoff rights provided in this paragraph.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as
follows:
Perfection of Security Interest. Grantor agrees to execute such
financing statements and to take whatever other actions are requested by Lender
to perfect and continue Lender's security interest in the Collateral. 'Upon
request of Lender, Grantor will deliver to Lender any and all of the documents
evidencing or constituting the Collateral, and Grantor will note Lender's
interest upon any and all c. chattel paper if not delivered to Lender for
possession by Lender. Grantor hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to perfect
or to continue the security interest granted in this Agreement. Lender may at
any time, and without further authorization from Grantor, file a carbon,
photographic or other reproduction of any financing statement or of this
Agreement for use as a financing statement. Grantor will reimburse Lender for
all expenses for the perfection and the continuation of the perfection of
Lender's security interest in the collateral. Grantor promptly will notify
Lender before any change in Grantors name including any change to the assumed
business names of Grantor.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a party,
and its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is enforceable
01-27-1997 COMMERCIAL SECURITY AGREEMENT
Page 2 (Continued)
<PAGE> 8
in accordance with its terms, is genuine, and complies with applicable laws
(concerning form, content and manner of preparation and execution, and all
persons appearing to be obligated on the Collateral have authority and capacity
to contract and are in fact obligated as they appear to be on the Collateral.
Location of the Collateral. Grantor, upon request of Lender, will
deliver to Lender in form satisfactory to Lender a schedule of real properties
and Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor;, (b) all real property being rented or leased by Grantor;, (c) all
storage facilities owned, rented, leased, or being used by Grantor;, and (d) all
other properties where Collateral is or may be located. Except in the ordinary
course of its business, Grantor shall not remove the Collateral from its
existing locations without the prior written consent of Lender.
Removal of Collateral. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at such
other locations as are acceptable to Lender. Except in the ordinary course of
its business, including the sales of inventory, Grantor shall not remove the
Collateral from its existing locations without the prior written consent of
Lender. To the extent that the Collateral consists of vehicles, or other titled
property, Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the State of
California, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not sell,
offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor
is not in default under this Agreement, Grantor may sell inventory, but only in
the ordinary course of its business and only to buyers who qualify as a buyer in
the ordinary course of business. A sale in the ordinary course of Grantor's
business does not include a transfer in partial or total satisfaction of a debt
or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise
permit the Collateral to be subject to any lien, security interest, encumbrance,
or charge, other than the security interest provided for in this Agreement,
without the prior written consent of Lender. This includes security interests
even if junior in right to the security interests granted under this Agreement.
Unless waived by Lender, all proceeds from any disposition of the Collateral
(for whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement shall not
constitute consent by Lender to any sale or other disposition. Upon receipt,
Grantor shall immediately deliver any such proceeds to Lender.
Title. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and encumbrances
except for the lien of this Agreement. No financing statement covering any of
the Collateral is on file in any public office other than those which reflect
the security interest created by this Agreement or to which Lender has
specifically consented. Grantor shall defend Lender's rights in the Collateral
against the claims and demands of all other persons.
Collateral Schedules and Locations. Insofar as the Collateral consists
of inventory, Grantor shall deliver to Lender, as often as Lender shall require,
such lists, descriptions, and designations of such Collateral as Lender may
require to identify the nature, extent, and location of such Collateral. Such
information shall be submitted for Grantor and each of its subsidiaries or
related companies.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit or
permit damage to or destruction of the Collateral or any part of the Collateral.
Lender and its designated representatives and agents shall have the right at all
reasonable times to examine, inspect, and audit the Collateral wherever located.
Grantor shall immediately notify Lender of all cases involving the return,
rejection, repossession, loss or damage of or to any Collateral; of any request
for credit or adjustment or of any other dispute arising with respect to the
Collateral; and generally of all happenings and events affecting the Collateral
or the value or the amount of the Collateral.
Taxes, Assessments and Liens. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness, or
upon any of the other Related Documents. Grantor may with hold any such payment
or may elect to contest any lien if Grantor is in good faith conducting an
appropriate proceeding to contest the obligation to pay and so long as Lender's
interest in the Collateral is not jeopardized in Lender's sole opinion. If the
Collateral is subjected to a lien which is not discharged within fifteen (15)
days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond
or other security satisfactory to Lender in an amount adequate to provide for
the discharge of the lien plus any interest, costs, attorneys' fees or other
charges that could accrue as a result of foreclosure or sale of the Collateral.
In any contest Grantor shall defend itself and Lender and shall satisfy any
final adverse judgment before enforcement against the Collateral. Grantor shall
name Lender as an additional oblige under any surety bond furnished in the
contest proceedings.
Compliance With Governmental Requirements. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in good
faith any such law, ordinance or regulation and withhold compliance during any
proceeding, including appropriate appeals, so long as Lender's interest in the
Collateral, in Lender's opinion, is not jeopardized.
Hazardous Substances. Grantor represents and warrants that the
Collateral never has been, and never will be so long as this Agreement remains a
lien on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended, 42
U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5
through 7.7 of Division 20 of the California Health and Safety Code, Section
25100, et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereat and asbestos. The representations
and warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances. Grantor hereby
(a) releases and waives any future claims against Lender for indemnity or
contribution in the event Grantor becomes liable for cleanup or other costs
under any such laws, and (b) agrees to indemnify and hold harmless Lender
against any and all claims and losses resulting from a breach of this provision
of this Agreement. This obligation to indemnify shall survive the payment of the
Indebtedness and the satisfaction of this Agreement.
Maintenance of Casualty Insurance. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with respect
to the Collateral, in form, amounts, coverages and basis reasonably acceptable
to Lender and issued by a company or companies reasonably acceptable to Lender.
Grantor, upon request of Lender, will deliver to Lender from time to time the
policies or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at least
ten (10) days' prior written notice to Lender and not including any disclaimer
of the insurer's liability for failure to give such a notice. Each insurance
policy also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Grantor or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require. If
Grantor at any time fails to obtain or maintain any insurance as required under
this Agreement, Lender may (but shall not be obligated to) obtain such insurance
as Lender deems appropriate, including if it so chooses "single interest
insurance," which will cover only Lender's interest in the Collateral.
01-27-1997 COMMERCIAL SECURITY AGREEMENT
Page 3 (Continued)
<PAGE> 9
Application of Insurance Proceeds. Grantor shall promptly notify Lender
of any loss or damage to the Collateral Lender may make proof of loss if Grantor
falls to do so within fifteen (15) days of the casualty. All proceeds of any
insurance on the Collateral, including accrued proceeds thereon, shall be held
by Lender as part of the Collateral. If Lender consents 10 repair or replacement
of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of
expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost
or repair or restoration. If Lender does not consent to repair or replacement of
the Collateral, Lender shall retain a sufficient amount of the proceeds to pay
all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds
which have not been .disbursed within six (6) months after their receipt and
which Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
Insurance Reserves. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created by
monthly payments from Grantor of a sum estimated by Lender to be sufficient to
produce, at least fifteen (15) days before the premium due date, amounts at
least equal to the insurance premiums to be paid. If fifteen (15) days before
payment is due, the reserve funds are insufficient, Grantor shall upon demand
pay any deficiency to Lender. The reserve funds shall be held by Lender as a
general deposit and shall constitute a non-interest-bearing account which Lender
may satisfy by payment of the insurance premiums required to be paid by Grantor
as they become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance premiums
required to be paid by Grantor. The responsibility for the payment of premiums
shall remain Grantor's sole responsibility.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the property
insured; (e) the then current value on the basis of which insurance has been
obtained and the manner of determining that value; and (f) the expiration date
of the policy. In addition, Grantor shall upon request by Lender (however not
more often than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be ended upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Grantor to make any payment when due
on the Indebtedness.
Other Defaults. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
Default In Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's or
any Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the Note or
the Related Documents is false or misleading in any material respect, either now
or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver for any
part of Grantor's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help, repossession
or any other method, by any creditor of Grantor or by any governmental agency
against the Collateral or any other collateral securing the Indebtedness. This
includes a garnishment of any of Grantor's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent.
Adverse Change. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
Assemble Collateral. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. Lender may require Grantor to assemble the
Collateral and make it available to Lender at place to be designated by Lender.
Lender also shall have full power to enter upon the property of Grantor to take
possession of and remove the Collateral. If the Collateral contains other goods
not covered by this Agreement at the time of repossession, Grantor agrees Lender
may take such other goods, provided that Lender makes reasonable efforts to
return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in Its own
name or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value or
01-27-1997 COMMERCIAL SECURITY AGREEMENT
Page 4 (Continued)
is of a type customarily sold on a recognized market, Lender will give Grantor
reasonable notice of the lime after which any private sale or any other intended
disposition of the Collateral is to be made. The requirements of reasonable
notice shall be met if such notice is given at least ten (10) days, or such
lesser lime as required by state law, before the time of the sale or
disposition. All expenses relating to the disposition of the Collateral,
including without limitation the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment of a
receiver, (a) Lender may have a receiver appointed as a matter of right, (b) the
receiver may be an employee of Lender and may serve without bond, and (c) all
fees of the receiver and his or her attorney shall become part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any Collateral
into its own name or that of its nominee and receive the payments, rents,
income, and revenues therefrom and hold the same as security for the
Indebtedness or apply it to payment of the Indebtedness in such order of
preference as Lender may determine. Insofar as the Collateral consists of
accounts, general intangibles, insurance policies, instruments, chattel paper,
choses in action, or similar property, Lender may demand, collect, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as
Lender may determine, whether or not Indebtedness or Collateral is then due. For
these purposes, Lender may, on behalf of and in the name of Grantor, receive,
open and dispose of mall addressed to Grantor, change any address to which mail
and payments are to be sent; and endorse notes, checks, drafts, money orders,
documents of title, instruments and items pertaining to payment, shipment, or
storage of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
Obtain Deficiency. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any deficiency
remaining on the Indebtedness due to Lender after application of all amounts
received from. the exercise of the rights provided in this Agreement. Grantor
shall be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
Other Rights and Remedies. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code, as
may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law, in
equity, or otherwise.
Cumulative Remedies. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other writing,
shall be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy, and
an election to make expenditures or to take action to perform an obligation of
Grantor under this Agreement, after Grantor's failure to perform, shall not
effect Lender's right to declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Grantor agrees upon
Lender's request to submit to the jurisdiction of the courts of Santa Clara
County, the State of California. Lender and Grantor hereby waive the right to
any jury trial in any action, proceeding, or counterclaim brought by either
Lender or Grantor against the other. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement. Lender
may pay someone else to help enforce this Agreement, and Grantor shall pay the
costs and expenses of such enforcement. Costs and expenses include Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (and including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Grantor also shall pay all court
costs and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Notices. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mall, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above. Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the purpose
of the notice is to change the party's address. To the extent permitted by
applicable law, if there is more than one Grantor, notice to any Grantor will
constitute notice to all Grantors. or notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover all
sums of money or other properly which may now or hereafter become due, owing or
payable from the Collateral; (b) to execute, sign and endorse any and all
claims, instruments, receipts, checks, drafts or warrants issued in payment for
the Collateral; (c) to settle or compromise any and all claims arising under the
Collateral, and, in the place and stead of Grantor, to execute and deliver its
release and settlement for the claim; and (d) to file any claim or claims or to
take any action or institute or take part in any proceedings, either in Its own
name or in the name of Grantor, or otherwise, which in the discretion of Lender
may seem to be necessary or advisable. This power is given as security for the
Indebtedness, and the authority hereby conferred is and shall be irrevocable and
shall remain in full force and effect until renounced by Lender.
Preference Payments. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the Indebtedness
and, at Lender's option, shall be payable by Borrower as provided above in the
"EXPENDITURES BY LENDER" paragraph.
Severability. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Agreement in all
other respects shall remain valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure to
the benefit of the parties, their successors and assigns.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No delay
or omission on the part of Lender in exercising any right shall operate as a
waiver of such right or any other right. A waiver by Lender of a provision of
this Agreement shall not prejudice or constitute a waiver of Lender's right
otherwise to demand strict compliance with
01-27-1997 COMMERCIAL SECURITY AGREEMENT
Page 5 (Continued)
<PAGE> 10
that provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Grantor, shall constitute a
waiver of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Agreement. the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the sole
discretion of Lender.
Waiver of Co-obligor's Rights. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waives, disclaims and relinquishes all
claims against such other person which Borrower has or would otherwise have by
virtue of payment of the Indebtedness or any part thereof, specifically
including but not limited to all rights of indemnity, contribution or
exoneration.
ADDITIONAL PROVISION. If any Law is passed in which Lender must comply, Borrower
shall fully cooperate with Lender in complying such law and accordingly, shall
reimburse Lender for all costs and expenses in complying with such law.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JANUARY 27,
1997.
GRANTOR:
Intellipost Corporation
By: /s/ Layton S. Han
-----------------------------
Name: Layton S. Han
Title: CFO
<PAGE> 11
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement (this "IP Agreement") is
made as of the 27th day of January, 1997 by and between Intellipost Corporation
("Grantor"), and Silicon Valley Bank, a California banking corporation
("Lender").
RECITALS
A. Lender has agreed to make advances of money and to extend certain
financial accommodations to Grantor (the "Loans"), pursuant to a Business Loan
Agreement dated January 27, 1997 (the "Loan Agreement") and Grantor desired to
borrow such funds from Lender. The Loan is or will be evidenced by one or more
promissory notes (a "Note" or, collectively, the "Notes") and is or will be
secured in part pursuant to the terms of a Commercial Security Agreement dated
January 27, 1997 (the "Security Agreement"). Lender is willing to make such
Loans to Grantor, but only upon the condition, among others, that Grantor shall
grant to Lender a security interest in certain Copyrights Trademarks, Patents,
and Mask Works to secure the obligations of Grantor under the Loan Agreement.
Defined terms used but not defined herein shall have the same meanings as in
the Loan Agreement and Security Agreement.
B. Pursuant to the terms of the Security Agreement, Grantor has granted
to Lender a security interest in all of Grantor's right title and interest,
whether presently existing or hereafter acquired in, to and under all of the
Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged and intending to be legally bound, as collateral security
for the prompt and complete payment when due of Grantor's Indebtedness under
the Loan Agreement, Grantor hereby represents, warrants, covenants and agrees
as follows:
1. Grant of Security Interest. As collateral security for the prompt and
complete payment and performance of all of Grantor's present or future
Indebtedness, obligations and liabilities to Lender, Grantor hereby grants a
security interest in all of Grantor's right, title and interest in, to and
under its Intellectual Property Collateral (all of which shall collectively be
called the "Intellectual Property Collateral"), including, without limitation,
the following:
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or
held, including without limitation those set forth on Exhibit A attached hereto
(collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Grantor now
or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections including,
without limitation, improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including without limitation
the patents and patent applications set forth on Exhibit B attached hereto
(collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections,
and the entire goodwill of the business of Grantor
1
<PAGE> 12
connected with and symbolized by such trademarks, including without limitation
those set forth on Exhibit C attached hereto (collectively, the "Trademarks")
(f) All mask works or similar rights available for the protection of
semiconductor chips, now owned or hereafter acquired, including, without
limitation those set forth on Exhibit D attached hereto (collectively, the
"Mask Works");
(g) Any and all claims for damages by way of past, present and
future infringements of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use or
infringement of the intellectual property rights identified above;
(h) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks, or Mask Works and all license fees and royalties arising
from such use to the extent permitted by such license or rights; and
(i) All amendments, extensions, renewals and extensions of any of
the Copyrights, Trademarks, Patents, or Mask Works; and
(j) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
2. Authorization and Request. Grantor authorizes and requests that the
Register of Copyrights and the Commissioner or Patents and Trademarks record
this IP Agreement.
3. Covenants and Warranties. Grantor represents, warrants, covenants and
agrees as follows:
(a) Grantor is now the sole owner of the Intellectual Property
Collateral, except for non-exclusive licenses granted by Grantor to its
customers in the ordinary course of business.
(b) Performance of this IP Agreement does not conflict with or
result in a breach of any IP Agreement to which Grantor is bound, except to the
extent that certain intellectual property agreements prohibit the assignment of
the rights thereunder to a third party without the licensor's or other party's
consent and this IP Agreement constitutes a security interest.
(c) During the term of this IP Agreement, Grantor will not transfer
or otherwise encumber any interest in the Intellectual Property Collateral,
except for non-exclusive licenses granted by Grantor in the ordinary course of
business or as set forth in this IP Agreement;
(d) To its knowledge, each of the Patents is valid and enforceable,
and no part of the Intellectual Property Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property Collateral violates the rights of any third party;
(e) Grantor shall promptly advise Lender of any material adverse
change in the composition of the Collateral, including but not limited to any
subsequent ownership right of the Grantor in or to any Trademark, Patent,
Copyright, or Mask Work specified in this IP Agreement;
(f) Grantor shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents, Copyrights, and Mask Works, (ii) use
its best efforts to detect infringements of the Trademarks, Patents, Copyrights
and Mask Works and promptly advise Lender in writing of material infringements
detected and (iii) not allow any Trademarks, Patents, Copyrights, or Mask Works
to be abandoned, forfeited or dedicated to the public without the written
consent of Lender, which shall not be unreasonably withheld, unless Grantor
determines that reasonable business practices suggest that abandonment is
appropriate.
2
<PAGE> 13
(g) Grantor shall promptly register the most recent version of any of
Grantor's Copyrights, if not so already registered, and shall, from time to
time, execute and file such other instruments, and take such further actions as
Lender may reasonably request from time to time to perfect or continue the
perfection of Lender's interest in the Intellectual Property Collateral;
(h) This IP Agreement creates, and in the case of other acquired
Intellectual Property Collateral, this IP Agreement will create at the time
Grantor first has rights in such after acquired Intellectual Property
Collateral, in favor of Lender a valid and perfected first priority security
interest in the Intellectual Property Collateral in the United States securing
the payment and performance of the obligations evidenced by the Note and the
Loan Agreement upon making the filings referred to in clause (i) below;
(i) To its knowledge, except for, and upon, the filing with the United
States Patent and Trademark office with respect to the Patents and Trademarks
and the Register of Copyrights with respect to the Copyrights and Mask Works
necessary to perfect the security interests created hereunder and except as has
been already made or obtained, no authorization, approval or other action by,
and no notice to or filing with, any U.S. governmental authority of U.S.
regulatory body is required either (i) for the grant by Grantor of the security
interest granted hereby or for the execution, delivery or performance of this IP
Agreement by Grantor in the U.S. or (ii) for the perfection in the United States
or the exercise by Lender of its rights and remedies thereunder;
(j) All information heretofore, herein or hereafter supplied to Lender
by or on behalf of Grantor with respect to the Intellectual Property Collateral
is accurate and complete in all material respects.
(k) Grantor shall not enter into any agreement that would materially
impair or conflict with Grantor's obligations hereunder without Lender's proper
written consent, which consent shall not be unreasonably withheld. Grantor
shall not permit the inclusion in any material contract to which it becomes a
party of any provisions that could or might in any way prevent the creation of
a security interest in Grantor's rights and interest in any property included
within the definition of the Intellectual Property Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest
in such contracts.
(l) Upon any executive officer of Grantor obtaining actual knowledge
thereof, Grantor will promptly notify Lender in writing of any event that
materially adversely affects the value of any material Intellectual Property
Collateral, the ability of Grantor to dispose of any material Intellectual
Property Collateral of the rights and remedies of Lender in relation thereto,
including the levy of any legal process against any of the Intellectual
Property Collateral.
4. Lender's Rights. Lender shall have the right, but not the obligation,
to take, at Grantor's sole expense, any actions that Grantor is required under
this IP Agreement to take but which Grantor fails to take, after fifteen (15)
days' notice to Grantor. Grantor shall reimburse and indemnify Lender for all
reasonable expenses incurred in the reasonable exercise of its rights under
this section 4.
5. Inspection of Rights. Grantor hereby grants to Lender and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable hours upon prior reasonable written notice to
Grantor, and any of Grantor's plants and facilities that manufacture, install
or store products (or that have done so during the prior six-month period) that
are sold utilizing any of the Intellectual Property Collateral, and to inspect
the products and quality control records relating thereto upon reasonable
written notice to Grantor and as often as may be reasonably requested, but not
more than one (1) in every six (6) months; provided, however, nothing herein
shall entitle Lender access to Grantor's trade secrets and other proprietary
information.
3
<PAGE> 14
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Grantor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make,
execute, acknowledge and deliver, and file and record in the proper filing and
recording places in the United States, all such instruments, including
appropriate financing and continuation statements and collateral agreements and
filings with the United States Patent and Trademarks Office and the Register of
Copyrights, and take all such action as may reasonably be deemed necessary or
advisable, or as requested by Lender, to perfect Lender's security interest in
all Copyrights, Patents, Trademarks, and Mask Works and otherwise to carry out
the intent and purposes of this IP Agreement, or for assuring and confirming to
Lender the grant or perfection of a security interest in all Intellectual
Property Collateral.
(b) Grantor hereby irrevocably appoints Lender as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in
the name of Grantor, Lender or otherwise, from time to time in Lender's
discretion, upon Grantor's failure or inability to do so, to take any action
and to execute any instrument which Lender may deem necessary or advisable to
accomplish the purposes of this IP Agreement, including:
(i) To modify, in its sole discretion, this IP Agreement
without first obtaining Grantor's approval of or signature to such modification
by amending Exhibit A, Exhibit B, Exhibit C, and Exhibit D hereof, as
appropriate, to include reference to any right, title or interest in any
Copyrights, Patents, Trademarks or Mask Works acquired by Grantor after the
execution hereof or to delete any reference to any right, title or interest in
any Copyrights, Patents, Trademarks, or Mask Works in which Grantor no longer
has or claims any right, title or interest; and
(ii) To file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Intellectual Property Collateral without the signature of Grantor where
permitted by law.
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under this IP Agreement:
(a) An Event of Default occurs under the Loan Agreement, the Note;
or any document from Grantor to Lender; or
(b) Grantor breaches any warranty or agreement made by Grantor in
this IP Agreement.
8. Remedies. Upon the occurrence and continuance of an Event of Default,
Lender shall have the right to exercise all the remedies of a secured party
under the California Uniform Commercial Code, including without limitation the
right to require Grantor to assemble the Intellectual Property Collateral and
any tangible property in which Lender has a security interest and to make it
available to Lender at a place designated by Lender. Lender shall have a
nonexclusive, royalty free license to use the Copyrights, Patents, Trademarks,
and Mask Works to the extent reasonably necessary to permit Lender to exercise
its rights and remedies upon the occurrence of an Event of Default. Grantor
will pay any expenses (including reasonable attorney's fees) incurred by Lender
in connection with the exercise of any of Lender's rights hereunder, including
without limitation any expense incurred in disposing of the Intellectual
Property Collateral. All of Lender's rights and remedies with respect to the
Intellectual Property Collateral shall be cumulative.
4
<PAGE> 15
9. Indemnity. Grantor agrees to defend, indemnify and hold harmless
Lender and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this IP Agreement, and (b) all
losses or expenses in any way suffered, incurred, or paid by Lender as a result
of or in any way arising out of, following or consequential to transactions
between Lender and Grantor, whether under this IP Agreement or otherwise
(including without limitation, reasonable attorneys fees and reasonable
expenses), except for losses arising from or out of Lender's gross negligence or
willful misconduct.
10. Reassignment. At such time as Grantor shall completely satisfy all of
the obligations secured hereunder, Lender shall execute and deliver to Grantor
all deed, assignments, and other instruments as may be necessary or proper to
reinvest in Grantor full title to the property assigned hereunder, subject to
any disposition thereof which may have been made by Lender pursuant hereto.
11. Course of Dealing. No course of dealing, nor any failure to exercise,
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
12. Attorneys' Fees. If any action relating to this IP Agreement is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys fees, costs and disbursements.
13. Amendments. This IP Agreement may be amended only by a written
instrument signed by both parties hereto.
14. Counterparts. This IP Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. California Law and Jurisdiction. This IP Agreement shall be governed
by the laws of the State of California, without regard for choice of law
provisions. Grantor and Lender consent to the nonexclusive jurisdiction of any
state or federal court located in Santa Clara County, California.
16. Confidentiality. In handling any confidential information, Lender
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this IP
Agreement except that the disclosure of this information may be made (i) to the
affiliates of the Lender, (ii) to prospective transferee or purchasers of an
interest in the obligations secured hereby, provided that they have entered into
comparable confidentiality agreement in favor of Grantor and have deliver a copy
to Grantor, (iii) as required by law, regulation, rule or order, subpoena
judicial order or similar order and (iv) as may be required in connection with
the examination, audit or similar investigation of Lender.
IN WITNESS WHEREOF, the parties hereto have executed this IP Agreement on
the day and year first above written.
ADDRESS OF GRANTOR: GRANTOR:
565 Commercial Street, 2nd Floor INTELLIPOST CORPORATION
San Francisco, CA 94111
By: /s/ LAYTON S. HAN
------------------------------------
Name: Layton S. Han
----------------------------------
Title: CFO
---------------------------------
5
<PAGE> 16
Exhibit "A" attached to that certain Intellectual Property Security Agreement
dated January 27, 1997.
EXHIBIT "A"
COPYRIGHTS
SCHEDULE A - ISSUED COPYRIGHTS
<TABLE>
<CAPTION>
COPYRIGHT REGISTRATION DATE OF
DESCRIPTION NUMBER ISSUANCE
- ----------- ------------ --------
<S> <C> <C>
</TABLE>
SCHEDULE B - PENDING COPYRIGHT APPLICATIONS
<TABLE>
<CAPTION>
FIRST DATE
OF PUBLIC
COPYRIGHT APPLICATION DATE OF DATE OF
DESCRIPTION NUMBER FILING CREATION DISTRIBUTION
- ----------- ------------ ---------------- ------------
<S> <C> <C> <C>
</TABLE>
SCHEDULE C - UNREGISTERED COPYRIGHTS (Where No Copyright Application is Pending)
<TABLE>
<CAPTION>
DATE AND
RECORDATION
NUMBER OF
IP AGREEMENT
TO OWNER OF
ORIGINAL GRANTOR (IF
AUTHOR ORIGINAL AUTHOR
OR OWNER OR OWNER OF
FIRST DATE OF COPYRIGHT COPYRIGHT IS
COPYRIGHT DATE OF OF (IF DIFFERENT DIFFERENT FROM
DESCRIPTION CREATION DISTRIBUTION FROM GRANTOR) FROM GRANTOR)
- ----------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
</TABLE>
6
<PAGE> 17
Exhibit "B" attached to that certain Intellectual Property Security Agreement
dated January 27, 1997.
EXHIBIT "B"
PATENTS
<TABLE>
<CAPTION>
PATENT
DESCRIPTION DOCKET NO. COUNTRY SERIAL NO. FILING DATE STATUS
- ----------- ---------- ------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C>
</TABLE>
7
<PAGE> 18
Exhibit "C" attached to that certain Intellectual Property Security Agreement
dated January 27, 1997.
EXHIBIT "C"
TRADEMARKS
<TABLE>
<CAPTION>
TRADEMARK
DESCRIPTION COUNTRY SERIAL NO. REG. NO. STATUS
- ----------- ------- ---------- -------- ------
<S> <C> <C> <C> <C>
</TABLE>
8
<PAGE> 19
Exhibit "D" attached to that certain intellectual Property Security Agreement
dated January 27, 1997.
EXHIBIT "D"
MASK WORKS
<TABLE>
<CAPTION>
MASK WORK
DESCRIPTION COUNTRY SERIAL NO. REG. NO. STATUS
- ----------- ------- ---------- -------- ------
<S> <C> <C> <C> <C>
</TABLE>
9
<PAGE> 20
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
This financing Statement is presented for filing and will remain effective, with
certain exceptions, for five years from the date of filing, pursuant to Section
9403 of the California Uniform Commercial Code.
- --------------------------------------------------------------------------------
1. DEBTOR 1A. SOCIAL SECURITY OR
FEDERAL TAX NO.
INTELLIPOST CORPORATION
- --------------------------------------------------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
565 COMMERCIAL STREET, SECOND FLOOR SAN FRANCISCO, CA 94111
- --------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR 2A. SOCIAL SECURITY OR
FEDERAL TAX NO.
- --------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- --------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES 3A. FEDERAL TAX NUMBER
- --------------------------------------------------------------------------------
4. SECURED PARTY 44. FEDERAL TAX NO.
SILICON VALLEY BANK 94-2875288
3003 TASMAN DRIVE
SANTA CLARA, CA 95054
- --------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY 5A. FEDERAL TAX NO.
- --------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following type of property:
Inventory, Chattel Paper, Accounts, Equipment, General Intangibles,
Instruments, Documents, Deposit Accounts, Contract Rights, and Fixtures.;
whether any of the foregoing is owned now or acquired later; all accessions,
additions, replacements, and substitutions relating to any of the foregoing;
all records of any kind relating to any of the foregoing; all proceeds relating
to any of the foregoing (including insurance, general intangibles and accounts
proceeds).
- --------------------------------------------------------------------------------
7A. [X] PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN
ARE ALSO COVERED ACCORDANCE WITH INSTRUCTION 5(a) ITEM:
[ ] (1) [ ](2) [ ](3) [ ](4)
- --------------------------------------------------------------------------------
8. [ ] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC
SECTION 9105(1)(n)
- --------------------------------------------------------------------------------
9. DATE: 01-27-1997 C 10. THIS SPACE FOR USE OF
O FILING OFFICER (DATE,
- - /s/ LAYTON S. HAN D TIME, FILE NUMBER AND
SIGNATURE(S) OF DEBTOR(S) E FILING OFFICER)
- ------------------------------------------------------
INTELLIPOST CORPORATION
- --------------------------------------------------- 1
- --------------------------------------------------- 2
3
- -
SIGNATURE(S) OF SECURED PARTY(IES) 4
- ---------------------------------------------------
SILICON VALLEY BANK 5
=================================================== 6
11. Return copy to:
7
SILICON VALLEY BANK
3003 TASMAN DRIVE 8
SANTA CLARA, CA 95054
9
0
===================================================
(4) FILE COPY-DEBTOR
================================================================================
<PAGE> 21
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
This financing Statement is presented for filing and will remain effective, with
certain exceptions, for five years from the date of filing, pursuant to Section
9403 of the California Uniform Commercial Code.
- --------------------------------------------------------------------------------
1. DEBTOR 1A. SOCIAL SECURITY OR
FEDERAL TAX NO.
INTELLIPOST CORPORATION
- --------------------------------------------------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
565 COMMERCIAL STREET, SECOND FLOOR SAN FRANCISCO, CA 94111
- --------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR 2A. SOCIAL SECURITY OR
FEDERAL TAX NO.
- --------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- --------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES 3A. FEDERAL TAX NUMBER
- --------------------------------------------------------------------------------
4. SECURED PARTY 44. FEDERAL TAX NO.
SILICON VALLEY BANK 94-2875288
3003 TASMAN DRIVE
SANTA CLARA, CA 95054
- --------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY 5A. FEDERAL TAX NO.
- --------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following type of property:
Inventory, Chattel Paper, Accounts, Equipment, General Intangibles,
Instruments, Documents, Deposit Accounts, Contract Rights, and Fixtures.;
whether any of the foregoing is owned now or acquired later; all accessions,
additions, replacements, and substitutions relating to any of the foregoing;
all records of any kind relating to any of the foregoing; all proceeds relating
to any of the foregoing (including insurance, general intangibles and accounts
proceeds).
- --------------------------------------------------------------------------------
7A. [X] PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN
ARE ALSO COVERED ACCORDANCE WITH INSTRUCTION 5(a) ITEM:
[ ] (1) [ ](2) [ ](3) [ ](4)
- --------------------------------------------------------------------------------
8. [ ] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC
SECTION 9105(1)(n)
- --------------------------------------------------------------------------------
9. DATE: 01-27-1997 C 10. THIS SPACE FOR USE OF
- - /s/ LAYTON S. HAN O FILING OFFICER (DATE,
- ----------------------------------------------- D TIME, FILE NUMBER AND
SIGNATURE(S) OF DEBTOR(S) E FILING OFFICER)
- ------------------------------------------------------
INTELLIPOST CORPORATION
- --------------------------------------------------- 1
- --------------------------------------------------- 2
3
- - /s/ LAYTON S. HAN
SIGNATURE(S) OF SECURED PARTY(IES) 4
- ---------------------------------------------------
SILICON VALLEY BANK 5
=================================================== 6
11. Return copy to:
7
SILICON VALLEY BANK
3003 TASMAN DRIVE 8
SANTA CLARA, CA 95054
9
0
===================================================
(3) FILE COPY-SECURED PARTY
================================================================================
<PAGE> 22
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
This financing Statement is presented for filing and will remain effective, with
certain exceptions, for five years from the date of filing, pursuant to Section
9403 of the California Uniform Commercial Code.
- --------------------------------------------------------------------------------
1. DEBTOR 1A. SOCIAL SECURITY OR
FEDERAL TAX NO.
INTELLIPOST CORPORATION
- --------------------------------------------------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
565 COMMERCIAL STREET, SECOND FLOOR SAN FRANCISCO, CA 94111
- --------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR 2A. SOCIAL SECURITY OR
FEDERAL TAX NO.
- --------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- --------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES 3A. FEDERAL TAX NUMBER
- --------------------------------------------------------------------------------
4. SECURED PARTY 44. FEDERAL TAX NO.
SILICON VALLEY BANK 94-2875288
3003 TASMAN DRIVE
SANTA CLARA, CA 95054
- --------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY 5A. FEDERAL TAX NO.
- --------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following type of property:
Inventory, Chattel Paper, Accounts, Equipment, General Intangibles,
Instruments, Documents, Deposit Accounts, Contract Rights, and Fixtures.;
whether any of the foregoing is owned now or acquired later; all accessions,
additions, replacements, and substitutions relating to any of the foregoing;
all records of any kind relating to any of the foregoing; all proceeds relating
to any of the foregoing (including insurance, general intangibles and accounts
proceeds).
- --------------------------------------------------------------------------------
7A. [X] PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN
ARE ALSO COVERED ACCORDANCE WITH INSTRUCTION 5(a) ITEM:
[ ] (1) [ ](2) [ ](3) [ ](4)
- --------------------------------------------------------------------------------
8. [ ] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC
SECTION 9105(1)(n)
- --------------------------------------------------------------------------------
9. DATE: 01-27-1997 C 10. THIS SPACE FOR USE OF
O FILING OFFICER (DATE,
- - /s/ LAYTON S. HAN D TIME, FILE NUMBER AND
SIGNATURE(S) OF DEBTOR(S) E FILING OFFICER)
- ------------------------------------------------------
INTELLIPOST CORPORATION
- --------------------------------------------------- 1
- --------------------------------------------------- 2
3
- -
SIGNATURE(S) OF SECURED PARTY(IES) 4
- ---------------------------------------------------
SILICON VALLEY BANK 5
=================================================== 6
11. Return copy to:
7
SILICON VALLEY BANK
3003 TASMAN DRIVE 8
SANTA CLARA, CA 95054
9
0
===================================================
Filing Officer is requested to note file number,
date and hour of filing of this copy, and return to
the above party.
(2) ACKNOWLEDGEMENT COPY
================================================================================
<PAGE> 23
STATE OF CALIFORNIA
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
This financing Statement is presented for filing and will remain effective, with
certain exceptions, for five years from the date of filing, pursuant to Section
9403 of the California Uniform Commercial Code.
- --------------------------------------------------------------------------------
1. DEBTOR 1A. SOCIAL SECURITY OR
FEDERAL TAX NO.
INTELLIPOST CORPORATION
- --------------------------------------------------------------------------------
1B. MAILING ADDRESS 1C. CITY, STATE 1D. ZIP CODE
565 COMMERCIAL STREET, SECOND FLOOR SAN FRANCISCO, CA 94111
- --------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR 2A. SOCIAL SECURITY OR
FEDERAL TAX NO.
- --------------------------------------------------------------------------------
2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE
- --------------------------------------------------------------------------------
3. DEBTOR'S TRADE NAMES OR STYLES 3A. FEDERAL TAX NUMBER
- --------------------------------------------------------------------------------
4. SECURED PARTY 44. FEDERAL TAX NO.
SILICON VALLEY BANK 94-2875288
3003 TASMAN DRIVE
SANTA CLARA, CA 95054
- --------------------------------------------------------------------------------
5. ASSIGNEE OF SECURED PARTY 5A. FEDERAL TAX NO.
- --------------------------------------------------------------------------------
6. This FINANCING STATEMENT covers the following type of property:
Inventory, Chattel Paper, Accounts, Equipment, General Intangibles,
Instruments, Documents, Deposit Accounts, Contract Rights, and Fixtures.;
whether any of the foregoing is owned now or acquired later; all accessions,
additions, replacements, and substitutions relating to any of the foregoing;
all records of any kind relating to any of the foregoing; all proceeds relating
to any of the foregoing (including insurance, general intangibles and accounts
proceeds).
- --------------------------------------------------------------------------------
7A. [X] PRODUCTS OF COLLATERAL 7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN
ARE ALSO COVERED ACCORDANCE WITH INSTRUCTION 5(a) ITEM:
[ ] (1) [ ](2) [ ](3) [ ](4)
- --------------------------------------------------------------------------------
8. [ ] DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH UCC
SECTION 9105(1)(n)
- --------------------------------------------------------------------------------
9. DATE: 01-27-1997 C 10. THIS SPACE FOR USE OF
O FILING OFFICER (DATE,
- - /s/ LAYTON S. HAN D TIME, FILE NUMBER AND
SIGNATURE(S) OF DEBTOR(S) E FILING OFFICER)
- ------------------------------------------------------
INTELLIPOST CORPORATION
- --------------------------------------------------- 1
- --------------------------------------------------- 2
3
- -
SIGNATURE(S) OF SECURED PARTY(IES) 4
- ---------------------------------------------------
SILICON VALLEY BANK 5
=================================================== 6
11. Return copy to:
7
SILICON VALLEY BANK
3003 TASMAN DRIVE 8
SANTA CLARA, CA 95054
9
0
===================================================
(1) FILING OFFICER COPY
================================================================================
<PAGE> 24
DISBURSEMENT REQUEST AND AUTHORIZATION
===============================================================================
Borrower: INTELLIPOST CORPORATION
665 Commercial Street, Second Floor
San Francisco, CA 94111
Lender: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
===============================================================================
LOAN TYPE. This is a Variable Rate (0.500% over SILICON VALLEY BANK PRIME RATE,
making an initial rate of 9.000%). Generic Payment Stream Loan to a Corporation
for $400,000.00.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:
[ ] Personal, Family, or Household Purposes or Personal Investment.
[X] Business (including Real Estate investment).
SPECIFIC PURPOSE. The specific purpose of this loan is: equipment finance.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $400,000.00 as follows:
Amount paid to Borrower directly: $400,000.00
$400,000.00 Deposited to Account #________
-----------
Note Principal: $400,000.00
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash $2,000.00
-----------
Total Charges Paid in Cash: $2,000.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL
CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER.
THIS AUTHORIZATION IS DATED JANUARY 9, 1998.
BORROWER:
INTELLIPOST CORPORATION
By: /s/ LAYTON S. HAN
-----------------------------------
Name: Layton S. Han Title: CFO
--------------- ------
===============================================================================
<PAGE> 25
ADDENDUM TO COLLATERAL ASSIGNMENT
PATENT MORTGAGE, AND SECURITY AGREEMENT
This Addendum to Collateral Assignment, Patent Mortgage, and Security
Agreement is executed pursuant to, and is an addendum to, a Collateral
Assignment, Patent Mortgage, and Security Agreement dated January 27, 1997.
This Addendum to Collateral Assignment, Patent Mortgage, and Security Agreement
is presented for recordation as constructive notice that Intellipost
Corporation ("Assignor") with its principal office at 565 Commercial Street,
Second Floor, San Francisco, CA 94111, the owner of the intellectual property
identified in the exhibits attached hereto, has granted to SILICON VALLEY BANK
("Assignee"), with its principal office at 3003 Tasman Drive, Santa Clara, CA
95054, a security interest in the intellectual property, and the exclusive
rights comprised in the intellectual property, to secure payment of a debt.
IN WITNESS WHEREOF, Assignor has executed this Addendum to Collateral
Assignment, Patent Mortgage and Security Agreement as of January 9, 1998.
INTELLIPOST CORPORATION
By: /s/ LAYTON S. HAN
------------------------------
Name: LAYTON S. HAN
----------------------------
Title: CFO
---------------------------
<PAGE> 26
ALL PURPOSE ACKNOWLEDGEMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C>
State of California CAPACITY CLAIMED BY
County of San Francisco SIGNER
[X] INDIVIDUAL(S)
[X] CORPORATE OFFICER
ON 1-21-98 before me, OFFICER(S)
Cassie M Khuu, personally appeared ----------------
Layton S. Han, ( ) OR - ( ) proved to me on the TITLE(S)
basis of satisfactory evidence to be the person [ ] PARTNER(S)
whose name is/are subscribed to within instrument and [ ] ATTORNEY-IN-FACT
acknowledged to me that he executed the same in his [ ] TRUSTEES(S)
authorized capacity, and that by his signature on the [ ] SUBSCRIBING WITNESS
instrument the person, or the entity upon behalf of [ ] GUARDIAN/CONSERVATOR
which the person acted, executed the instrument. [ ] OTHER
Witness my hand and official seal. SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
--------------------------------
--------------------------------
/s/ CASSIE M. KHUU INTELLIPOST CORPORATION
- -------------------------------- --------------------------------
SIGNATURE OF NOTARY
- --------------------------------------------------------------------------------------------
</TABLE>
- ------------------------------
[SEAL] CASSIE M. KHUU
Commission #1077517
Notary Public - California
San Francisco County
My Comm. Expires Nov. 12, 1999
- ------------------------------
<PAGE> 27
Exhibit "A" attached to that certain Addendum to Collateral Assignment, Patent
Mortgage and Security Agreement dated January 9, 1998.
EXHIBIT "A"
COPYRIGHTS
SCHEDULE A - ISSUED COPYRIGHTS
COPYRIGHT REGISTRATION DATE OF
DESCRIPTION NUMBER ISSUANCE
- ----------- ----------- ---------
SCHEDULE B - PENDING COPYRIGHT APPLICATIONS
- --------------------------------------------
FIRST DATE
COPYRIGHT APPLICATION DATE OF DATE OF OF PUBLIC
DESCRIPTION NUMBER FILING CREATION DISTRIBUTION
- ------------ ----------- -------- ---------- ------------
SCHEDULE C - UNREGISTERED COPYRIGHTS (Where No Copyright Application is Pending)
- --------------------------------------------------------------------------------
DESCRIPTION CREATION DISTRIBUTION FROM ASSIGNOR ASSIGNOR
- ----------- -------- -------------------------- --------
<PAGE> 28
Exhibit "B" attached to that certain Addendum to Collateral Assignment, Patent
Mortgage and Security Agreement dated January 9, 1998.
EXHIBIT "B"
PATENTS
<PAGE> 29
Exhibit "C" attached to that certain Addendum to Collateral Assignment, Patent
Mortgage and Security Agreement dated January 9, 1998.
EXHIBIT "C"
TRADEMARKS
<TABLE>
<CAPTION>
TRADEMARK
DESCRIPTION COUNTRY SERIAL NO. REG. NO STATUS
- ----------- ------- ---------- ------- ------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
TRADEMARK COUNTRY SERIAL NO. REGIS. NO. STATUS
<S> <C> <C> <C> <C>
BONUSMAIL USA 75/253,511 In publication, 1-17-97
REW@RDS USA 75/253,510 In publication, 1-17-97
INTELLIPOST USA 75/253,508 In publication, 1-17-97
SPECIALLY TARGETED ADVERTISING RECIPIENT USA 75/253,512 Filed 3-7-97, waiting publication
DIRECTRONIC USA 75/253,509 Filed 3-7-97, waiting publication
MAGICWORD USA 75/253,513 Filed 3-7-97, waiting publication
INTELLIPOST CORPORATION (logo) USA 75/278,060 Filed 4-21-97, waiting publication
BONUSMAIL (logo) USA 75/277,505 Filed 4-21-97, waiting publication
</TABLE>
<PAGE> 31
[LOGO]
SILICON VALLEY BANK
PRO FORMA INVOICE FOR LOAN CHARGES
BORROWER: Intellipost Corporation
LOAN OFFICER: John China
DATE: January 9, 1998
Loan Fee $2,000.00
TOTAL FEE DUE $2,000.00
------------- =========
Please indicate the method of payment:
( ) A check for the total amount is attached.
(x) Debit DDA # 3300042163 for the total amount.
( ) Loan proceeds.
/s/ LAYTON S. HAN
- -------------------------------------------
Authorized Signer Date
- -------------------------------------------
Silicon Valley Bank Date
Account Officer's Signature
<PAGE> 1
Exhibit 10.16
MASTER EQUIPMENT LEASE AGREEMENT NO. 0148
THIS MASTER EQUIPMENT LEASE AGREEMENT NO. 0148 (the "Lease") is dated as of May
1, 1998 between PHOENIX LEASING INCORPORATED, a California corporation
("Lessor") and INTELLIPOST CORPORATION, a California corporation and INTELLIPOST
CORPORATION, a Delaware corporation (jointly and severally, "Lessee" and
separately, each a "Co-Lessee").
RECITALS
Lessor desires to lease to Lessee, and Lessee desires to lease from Lessor, the
equipment, machinery, fixture, other items and intangibles including, but not
limited to high end computers, peripherals, workstations, servers, routers,
hubs, RAID, office equipment and furniture, and certain custom use equipment,
installation and delivery costs, purchase tax, toolings, sore and items
generally considered fungible or expendable ("Soft Costs") and all substitutions
and replacements of and additions, improve, accessions and accumulations
thereto, together with all rents, issues, income, profits and proceeds therefrom
which is described on the schedule attached hereto or any subsequently-executed
schedule entered into by Lessor and Lessee and which incorporates this Lease by
reference (herein called "Equipment"). Any such schedules shall hereinafter
individually be referred to as a "Schedule" and collectively be referred to as
the "Schedules."
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
Lessor hereby leases the Equipment to Lessee upon the following terms and
conditions:
SECTION 1. TERM OF AGREEMENT. The term of this Lease begins on the date set
forth above and shall continue thereafter and be in effect so long as and at any
time any Schedule entered into pursuant to this Lease is in effect. The Base
Term and rent payable with respect to each leased item of Equipment shall be as
set forth in and as stated in the respective Schedule(s). The terms of each
Schedule hereto are subject to all conditions and provisions of this Lease as it
may at any time be amended. Each Schedule shall constitute a separate and
independent lease and contractual obligation of Lessee and shall incorporate the
terms and conditions of this Lease and any additional provisions contained in
such Schedule. In the event of a conflict between the terms and conditions of
this Lease and any additional provisions of such Schedule, the additional
provisions of such Schedule shall prevail with respect to such Schedule only.
SECTION 2. NON-CANCELLABLE LEASE. This Lease and any Schedule cannot be
cancelled or terminated except as expressly provided herein. This Lease (which
includes any Schedule which incorporates the terms and conditions of this Lease)
constitutes a net lease and Lessee agrees that its obligations to pay all rent
and other sums payable hereunder (and under any Schedule) and the rights of
Lessor and assignee in and to such rent and other sums, are absolute and
unconditional and are not subject to any abatement, reduction, setoff defense,
counterclaim or recoupment due or alleged to be due to, or by reason of, any
past, present or future claims which Lessee may have against Lessor, any
assignee, the manufacturer or seller of the Equipment, or against any person for
any reason whatsoever.
SECTION 3. LESSOR COMMITMENT. Subject to the terms and conditions of this Lease
and so long as no Event of Default or event which with the giving of notice or
passage of time, or both, could become an Event of Default has occurred and is
continuing, Lessor agrees to lease to Lessee the groups of Equipment described
on each Schedule, subject to the following conditions: (a) that in no event
shall Lessor be obligated to lease Equipment to Lessee hereunder where the
aggregate purchase price of all Equipment leased to Lessee hereunder would
exceed $250,000 ("Commitment") of which amount Lessor may purchase Soft Costs
for lease to Lessee
1
<PAGE> 2
MASTER EQUIPMENT LEASE AGREEMENT
having an aggregate purchase price not exceeding an amount equal to 20% of the
utilized Commitment; (b) the amount of Equipment purchased by Lessor at any one
time shall be at least equal to $25,000 except for a final advance which may be
less than $25,000; (c) Lessor shall not be obligated to purchase Equipment
hereunder after January 31, 1999; (d) all Lease documentation required by Lessor
has been executed by Lessee or provided by Lessee no later than April 20, 1998;
(e) the equipment described on the Schedule is acceptable to Lessor; (f) with
respect to each funding, Lessee has provided to Lessor each of the closing
documents and other items described in Exhibit A hereto (which documents shall
be in form and substance acceptable to Lessor) and which list may be modified
for each subsequent funding; (g) there is no material adverse change in Lessee's
condition, financial or otherwise, that would materially impair the ability of
Lessee to meet its payment and other obligations under this Lease, a ("Material
Adverse Effect"), as reasonably determined by Lessor, and Lessee so certifies,
from (yy) the date of the most recent financial statements delivered by Lessee
to Lessor prior to execution of this Lease, to (zz) the date of the proposed
lease of the Equipment; (h) Lessee is performing substantially in accordance
with its business plan referred to as "Plan 1998/1999" fax dated 1/26/98, viable
through 12/31/99, as may be amended from time to time in form and substance
acceptable to Lessor ("Business Plan"); (i) Lessor or its agent has inspected
and placed identification labels on the Equipment; (j) Lessee shall offer to
Lessor, on an exclusive basis, all lease transactions for equipment contemplated
by Lessee until expiration of all Schedules; however if Lessor declines to
finance any such transaction or Lessee and Lessor cannot agree upon terms, then
Lessee shall be free to seek such financing from any other third party; (k)
Lessor has received in form and substance acceptable to Lessor Lessee's interim
financial statements signed by a financial officer of Lessee; and (1) prior to
the first funding hereunder, Lessor has received evidence satisfactory to Lessor
of Lessee's $3,046,087 cash position as of 11/30/97.
SECTION 4. NO WARRANTIES BY LESSOR. (a) Lessee has selected both (i) the
Equipment and (ii) the suppliers (herein called "Vendor") from whom Lessor is to
purchase the Equipment. LESSOR MAKES NO WARRANTY EXPRESS OR IMPLIED AS TO ANY
MATTER WHATSOEVER, INCLUDING THE CON- DITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, ITS COMPLIANCE WITH
ANY APPLICABLE GOVERNMENTAL REQUIREMENTS AND ITS NON-INFRINGEMENT OF ANY PATENTS
OR OTHER RIGHTS, AND AS TO LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS" AND WITH
ALL FAULTS. (b) If the Equipment is not properly installed, does not operate as
represented or warranted by Vendor or is unsatisfactory for any reason, Lessee
shall make any claim on account thereof solely against Vendor and shall,
nevertheless, pay Lessor all rent payable under this Lease, Lessee hereby
waiving any such claims as against Lessor. Lessor hereby agrees to assign to
Lessee solely for the purpose of making .and prosecuting any said claim, to the
extent assignable, all of the rights which Lessor has against Vendor for breach
of warranty or other representation respecting the Equipment. Lessor shall have
no responsibility for delay or failure to fill the order. (c) Lessee understands
and agrees that neither the Vendor nor any salesman or other agent of the Vendor
is an agent of Lessor. No salesman or agent of Vendor is authorized to waive or
alter any term or condition of this Lease, and no representations as to the
Equipment or any other matter by the Vendor shall in any way affect Lessee's
duty to pay the rent and perform its other obligations as set forth in this
Lease. (d) Lessee hereby requests Lessor to purchase Equipment from Vendor and
to lease Equipment to Lessee on the terms and conditions of the Lease set forth
herein. (e) Lessee hereby authorizes Lessor to insert in this Lease and each
Schedule hereto the serial numbers and other identification data of the
Equipment when determined by Lessor.
SECTION 5. LESSEE'S REPRESENTATIONS AND WARRANTIES. Each Co-Lessee represents
and warrants that (a) it is in good standing under the laws of the state of its
formation, and duly qualified to do business, and will remain duly qualified
during the term of this Lease, in each state where necessary to carry on its
present business and operations including the jurisdictions where the Equipment
will be located, as specified on each Schedule hereto except where failure to be
so qualified would not have a Material Adverse Effect; (b)
2
<PAGE> 3
it has full authority to execute and deliver this Lease and perform the terms
hereof, and this Lease has been duly authorized and constitutes valid and
binding obligations of Co-Lessee enforceable in accordance with its terms; (c)
this Lease will not contravene any law, regulation or judgment affecting
Co-Lessee or result in any breach of any agreement or other instrument binding
on Co-Lessee; (d) no consent of Co-Lessee's shareholders, members or managers or
partners, as applicable, or holder of any indebtedness, or filing with, or
approval of, any governmental agency or commission, is a condition to the
performance of the terms hereof; (e) there is no action or proceeding pending or
threatened against Co-Lessee before any court or administrative agency which
might result in a Material Adverse Effect on the business, financial condition
or operations of Co-Lessee; (f) no deed of trust, mortgage or third party
interest arising through Co-Lessee will attach to the Equipment or the Lease;
(g) the Equipment will remain at all times under applicable law, removable
personal property, free and clear of any lien or encumbrance in favor of
Co-Lessee or any other person, notwithstanding the manner in which the Equipment
may be attached to any real property; (h) all credit, financial and any other
information submitted to Lessor herewith or any other time is true and correct
in all material respects; and (i) Co-Lessee has provided, or will provide if
requested, Lessee's tax identification number.
SECTION 6. EQUIPMENT ORDERING. Lessee shall be responsible for all packing,
rigging, transportation and installation charges for the Equipment and Lessor
may separately invoice Lessee for such charges. Lessee has selected the
Equipment itself and shall arrange for delivery of Equipment so that it can be
accepted in accordance with Section 7 hereof. Lessee hereby agrees to indemnify
and hold Lessor harmless from any claims, liabilities, costs and expenses,
including reasonable attorneys' fees, incurred by Lessor arising out of any
purchase orders or assignments executed by Lessor with respect to any Equipment
or services relating thereto.
SECTION 7. LESSEE ACCEPTANCE. Lessee shall return to Lessor the signed and dated
Acceptance Notice attached to each Schedule hereto (a) acknowledging the
Equipment has been received, installed and is ready for use and (b) accepting it
as satisfactory in all respects for the purposes of this Lease. Lessor is
authorized to fill in the Rent Start Date on each Schedule in accordance with
the foregoing.
SECTION 8. LOCATION; INSPECTION; LABELS. The Equipment shall be delivered to and
shall not be removed from the Equipment "Location" shown on each Schedule
without Lessor's prior written consent (such consent not to be unreasonably
withheld), which Location shall in all events be within the United States.
Lessor shall have the fight to inspect the Equipment including records relating
thereto, and Lessee's books and records at any time (upon reasonable
notification) during regular business hours, such books and records to be
maintained in accordance with generally accepted accounting principles. Lessee
shall be responsible for all labor, material and freight charges incurred in
connection with any removal or relocation of such Equipment which is requested
by the Lessee and consented to by Lessor, as well as for any charges due to the
installation or moving of the Equipment. The rental payments shall continue
during any period in which the Equipment is in transit during a relocation.
Lessor or its agent shall mark and label the Equipment, which labels (to be
provided by Lessor) shall state the Equipment is owned by Lessor, and Lessee
shall keep such labels on the Equipment as labeled by Lessor or its agent.
SECTION 9. EQUIPMENT MAINTENANCE. (a) General. Lessee will locate or base each
item of Equipment where designated in the Acceptance Notice and will reasonably
permit Lessor to inspect such item of Equipment and its maintenance records.
Lessee will at its sole expense comply with all applicable laws, rules,
regulations, requirements and orders with respect to the use, maintenance,
repair, condition, storage and operation of each item of Equipment. Except as
required herein (or other than in conformity with the manufacturer's warranty
and/or functional improvements), Lessee will not make any addition or
improvement to any item of Equipment that is not readily removable without
causing material damage to any item or impairing its original
3
<PAGE> 4
value or utility. Any addition or improvement that is so required or cannot be
so removed will immediately become the property of Lessor. (b) Service and
Repair. With respect to computer equipment, other than personal computers,
Lessee has entered into, and will maintain in effect, vendor's standard
maintenance contract or another contract satisfactory to Lessor for a period
equal to the term of each Schedule and extensions thereto which provides for the
maintenance of the Equipment in good condition and working order and repairs and
replacement of parts thereof, all in accordance with the terms of such
maintenance contract. Lessee shall have such computer equipment certified for
the vendor's standard maintenance agreement before Lessor acquires any interest
in the Equipment as provided in this Lease. With respect to any other Equipment,
Lessee will, at its sole expense, maintain and service, and repair any damage
to, each item of Equipment in a manner consistent with prudent industry practice
and Lessee's own practice so that such item of Equipment is at all times (I) in
the same condition as when delivered to Lessee, except for ordinary wear and
tear, (ii) in good operating order for the function intended by its
manufacturer's warranties and recommendations.
SECTION 10. LOSS OR DAMAGE. Lessee assumes the entire risk of loss to the
Equipment through use, operation or otherwise. Lessee hereby indemnifies and
holds harmless Lessor from and against all claims, loss of rental payments,
costs, damages, and expenses relating to or resulting from any loss, damage or
destruction of the Equipment, any such occurrence being hereinafter called a
"Casualty Occurrence." No Casualty Occurrence shall relieve Lessee from the
obligation to pay rent or from any other obligation under the Lease. Within
thirty (30) days after such Casualty Occurrence, Lessee shall either (a) repair
the Equipment, returning it to good operating condition; or Co) replace the
Equipment with identical equipment in good condition and repair, the title to
which shall vest in Lessor and which thereafter shall be subject to the terms of
this Lease; or (c) pay to Lessor (I) on the first rental payment date following
the Casualty Occurrence, or, if there is no such rental payment date, no later
than thirty (30) days after such Casualty Occurrence, any unpaid accrued amounts
relating to such Equipment due Lessor under this Lease up to the date of the
Casualty Occurrence, and (ii) upon the earlier of (A) the receipt of insurance
proceeds with respect to such Casualty Occurrence, or (B) within thirty (30)
days of such Casualty Occurrence, a sum equal to the Casualty Value as set forth
in the Casualty Value table attached to each Schedule hereto for such Equipment;
provided, however, nothing set forth in this sentence shall be deemed to relieve
Lessee of the obligation to continue to pay scheduled rental payments as they
relate to the Equipment that was the subject of the Casualty Occurrence as such
payments become due and payable prior to the date that the Casualty Value with
respect thereto is paid to Lessor in accordance with this section nor shall any
provision of this sentence be deemed to provide that Lessee's obligation to pay
the Casualty Value shall be limited to the amount of the insurance proceeds that
Lessee receives. Upon the making of such payment, the term of this Lease as to
each unit of Equipment with respect to which the Casualty Value was paid shall
terminate.
SECTION 11. GENERAL INDEMNITY. Lessee will protect, indemnify and save harmless
Lessor and any assignees on an after-tax basis from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including reasonable attorneys' fees and expenses), imposed upon or incurred by
or asserted against Lessor or any assignee of Lessor by Lessee or any third
party by reason of the occurrence or existence (or alleged occurrence or
existence) of any act or event relating to or caused by the Equipment or its
purchase, acceptance, possession, use, maintenance or transportation, including
but not limited to, consequential or special damages of any kind, or any failure
on the part of Lessee to perform or comply with any of the terms of this Lease,
claims for latent or other defects, claims for patent, trademark or copyright
infringement and claims for personal injury, death or property damage, including
those based on Lessor's negligence or strict liability in tort and excluding
only that based on Lessor's gross negligence or willful misconduct. In the event
that any action, suit or proceeding is brought against Lessor by reason of any
such occurrence, Lessee, upon request of Lessor, will at Lessee's expense resist
and defend such action, suit or proceeding or cause the same to be resisted and
defended by counsel designated and approved by Lessor. Lessee's obligations
under this Section 11 shall survive the expiration of this Lease with respect to
acts or events occurring or alleged to have occurred prior to
4
<PAGE> 5
the return of the Equipment to Lessor at the end of the Lease term.
SECTION 12. INSURANCE. Lessee at its expense shall keep the Equipment insured
for the entire term and any extensions of this Lease against all risks of
physical loss for at least the replacement value of such Equipment and in no
event for less than the amount payable following a Casualty Occurrence (as
provided in Section 10) and shah provide for a loss payable endorsement to
Lessor and/or any assignee of Lessor. Lessee shall maintain commercial general
liability insurance, including products liability and completed operations
coverage, with respect to loss or damage for personal injury, death or property
damage in an amount not less than $2,000,000 in the aggregate, naming Lessor
and/or Lessor's assignee as additional insured. If such insurance is provided on
a claims made basis, such insurance shall include a five (5) year extended claim
reporting period. Such insurance shall contain insurer's agreement to give
thirty (30) days' advance written notice to Lessor before cancellation or
material change of any policy of insurance. Lessee will provide Lessor and any
assignee of Lessor with a certificate of insurance from the insurer evidencing
Lessor's or such assignee's interest in the policy of insurance. Such insurance
shall cover any Casualty Occurrence to any unit of Equipment. Notwithstanding
anything in Section 10 or this Section 12 to the contrary, this Lease and
Lessee's obligations hereunder and under each Schedule shall remain in full
force and effect with respect to any unit of Equipment which is not subject to a
Casualty Occurrence. If Lessee fails to provide or maintain insurance as
required herein, Lessor shall have the right, but shall not be obligated to
obtain such insurance. In that event, Lessee shall pay to Lessor the cost
thereof.
SECTION 13. TAXES. Lessee agrees to report the Equipment as equipment leased
from Lessor and not as equipment owned by Lessee on Lessee's personal property
tax return. Promptly upon receipt of an invoice from Lessor, Lessee agrees to
reimburse Lessor for (or pay directly if instructed by Lessor), and agrees to
indemnify and hold Lessor harmless from, all fees (including, but not limited
to, license, documentation, recording and registration fees), and all sales,
use, gross receipts, personal property, occupational, value added or other
taxes, levies, imposts, duties, assessments, charges, or withholdings of any
nature whatsoever, together with any penalties, fines, additions to tax, or
interest thereon (all of the foregoing being hereafter referred to as
"Impositions") except same as may be attributable to Lessor's income, arising at
any time prior to or during the term of this Lease, or upon termination or early
termination of this Lease and levied or imposed upon Lessor directly or
otherwise by any Federal, state or local government in the United States or by
any foreign country or foreign or international taxing authority upon or with
respect to (a) the Equipment, (b) the exportation, importation, registration,
purchase, ownership, delivery, leasing, possession, use, operation, storage,
maintenance, repair, return, sale, transfer of title, or other disposition
thereof, (c) the rentals, receipts, or earnings arising from the Equipment, or
any disposition of the rights to such rentals, receipts, or earnings, (d) any
payment pursuant to this Lease, and (e) this Lease or the transaction or any
part thereof. Lessee's obligations under this Section 13 shall survive the
expiration of this Lease with respect to acts or events occurring or alleged to
have occurred prior to the return of the Equipment to Lessor at the end of the
Lease term
SECTION 14. METHOD AND PLACE OF PAYMENT. Lessee shall pay to Lessor, at its
office at the address specified in the Schedules, or such other address as
Lessor specifies in writing, all amounts payable to it in respect of the
Schedules.
SECTION 15. SURRENDER OF EQUIPMENT. If required by the terms of this Lease or
any Schedule, Lessee will forthwith surrender the Equipment to Lessor delivered
in as good order and condition as originally delivered, reasonable wear and tear
exempted. Lessor may, at its sole option, arrange for removal and transportation
of the Equipment provided that Lessee's obligations under Sections 10, 11 and 12
shall not be released. Lessee shall bear all expenses of delivering (which
include, but are not limited to, the de-installation, insurance, packaging and
transportation of) the Equipment to Lessor's location or other location within
the United
5
<PAGE> 6
States as Lessor reasonably request. Notwithstanding Lessee's surrender and/or
delivery of the Equipment and/or Lessor's removal of the Equipment, all
obligations of Lessee under this Lease, including rental payments, shall remain
in full force and effect until Lessee delivers the Equipment to Lessor.
SECTION 16. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any payment required
of Lessee hero is unpaid and as long as any obligations of Lessee under this
Lease remain outstanding, Lessee will: (a) duly pay all governmental taxes and
assessments at the time they become due and payable; Co) comply with all
applicable governmental laws, rules and regulations relating to the business and
the Equipment; (c) maintain Lessor's ownership interest in the Equipment; (d)
furnish Lessor with its annual audited financial statements within one hundred
twenty (120) days following the end of Lessee's fiscal year, unaudited quarterly
financial statements within forty-five (45) days after the end of each fiscal
quarter, and within thirty (30) days of the end of each month a financial
statement for that month prepared by Lessee, including all financial information
given to Lessee's Board of Directors, and including an income statement and
balance sheet, all of which shall be certified by an officer of Lessee as true
and correct and shall be prepared in accordance with generally accepted
accounting principles consistently applied, and such other information as Lessor
may reasonably request; (e) promptly (but in no event more than five (5) days
after the occurrence of such event) notify Lessor of any Material Adverse Effect
regarding Lessee's financial condition during the commitment period and of the
occurrence of any Event of Default; and (f) take all steps deemed by Lessor
reasonable or advisable to validate Lessor's ownership of the Equipment.
SECTION 17. ASSIGNMENT. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD, LESSEE SHALL NOT (a) ASSIGN, TRANSFER,
PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE, ANY SCHEDULES, THE
EQUIPMENT, OR ANY INTEREST THEREIN, OR (b) SUBLET OR LEND EQUIPMENT OR PERMIT IT
TO BE USED BY ANYONE OTHER THAN LESSEE OR LESSEE'S EMPLOYEES, OR (c) MERGE INTO,
CONSOLIDATE WITH OR CONVEY OR TRANSFER ITS PROPERTIES SUBSTANTIALLY AS AN
ENTIRETY TO ANY OTHER PERSON OR ENTITY EXCEPT TO A SUCCESSOR IN INTEREST TO ALL
OR SUBSTANTIALLY ALL OF THE BUSINESS OF LESSEE; PROVIDED, HOWEVER, THAT, THE
FINANCIAL CONDITION OF SUCH SUCCESSOR IS GREATER THAN OR EQUAL TO THAT OF
LESSEE, AS DETERMINED IN GOOD FAITH BY LESSOR, AND THE SUCCESSOR'S BUSINESS AND
ITS MAJOR INVESTORS ARE REASONABLY ACCEPTABLE TO LESSOR. LESSOR MAY ASSIGN THIS
LEASE AND ANY SCHEDULES OR GRANT A SECURITY INTEREST IN ANY OR ALL EQUIPMENT, OR
BOTH, IN WHOLE OR IN PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT
NOTICE TO LESSEE. If Lessee is given notice of such assignment it agrees to
acknowledge receipt thereof in writing and Lessee shall execute such additional
documentation as Lessor's assignee and/or secured party shall reasonably
require. Each such assignee and/or secured party shall have all of the rights,
but (except as provided in this Section 17) none of the obligations, of Lessor
under this Least, unless such assignee or secured party expressly agrees to
assume such obligations in writing. Lessee shall not assert against any assignee
and/or secured party any defense, counterclaim or offset that Lessee may have
against Lessor. Notwithstanding any such assignment, and providing no Event of
Default has occurred and is continuing, Lessor, or its assignees, secured
parties, or their agents or assigns, shall not interfere with Lessee's right to
quietly enjoy use of Equipment subject to the terms and conditions of this
Lease. Subject to the foregoing, this Lease inures to the benefit of and is
binding upon the successors and assignees of the parties hereto. Lessee
acknowledges that any such assignment by Lessor will not materially change
Lessee's duties or obligations under the Lease or increase any burden of risk on
Lessee.
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<PAGE> 7
SECTION 18. DEFAULT. (a) Events of Default. Any of the following events or
conditions shall constitute an "Event of Default" hereunder. (i) Any Co-Lessee's
failure to pay any monies due to Lessor hereunder or under any Schedule beyond
the tenth (10th) day after the same is due; (ii) any Co-Lessee's failure to
comply with its obligations under Section 12 or Section 17; (iii) Any
representation or warranty of any Co-Lessee made in this Lease or the Schedules
or in any other agreements, statement or certificate furnished to Lessor in
connection with this Lease or the Schedules shall prove to have been incorrect
in any material respect when made or given; (iv) any Co-Lessee's failure to
comply with or perform any term, covenant, condition, warranty or representation
of this Lease or any Schedule hereto or under any other agreement between Lessee
and Lessor or under any lease or mortgage of real property covering the location
of Equipment if such failure to comply or perform is not cured by any Co-Lessee
within thirty (30) days after Lessee knows of the non-compliance or
nonperformance or notice from Lessor, (v) seizure of the Equipment under legal
process; (vi) the filing by or against any Co-Lessee or any guarantor under any
guaranty executed in connection with this Lease ("Guarantor") of a petition for
reorganization or liquidation under the Bankruptcy Code or any amendment thereto
or under any other insolvency law providing for the relief of debtors; (vii) the
voluntary or involuntary making of an assignment of a substantial portion of its
assets by any Co-Lessee, or by any Guarantor, for the benefit of its creditors,
the appointment of a receiver or trustee for any Co-Lessee or any Guarantor for
any of any Co-Lessee's or Guarantor's assets, the institution by or against any
Co-Lessee or any Guarantor of any formal or informal proceeding for dissolution,
liquidation, settlement of claims against or winding up of the affairs of any
Co-Lessee or any Guarantor, provided that in the case of all such involuntary
proceedings, same are not dismissed within sixty (60) days after commencement;
or (viii) other than as allowed under Section 17 or as otherwise allowed under
any guaranty executed by Guarantor in connection with this Lease, the making by
any Co-Lessee or any Guarantor of a transfer of all or a material portion of any
Co-Lessee's or Guarantor's assets or inventory not in the ordinary course of
business.
(b) Remedies. If any Event of Default has occurred, Lessor may in its
sole discretion exercise one or more of the following remedies with respect to
any or all of the Equipment (i) Lessor may proceed by appropriate court action
or actions either at law or in equity to enforce performance by Co-Lessee, of
the applicable covenants of this Lease, or to recover damages therefor; (ii) any
Co Lessee will, without demand, on the next rent payment date following the
Event of Default, pay to Lessor as liquidated damages which the parties agree
are fair and reasonable undo' the circumstances existing at the time this Lease
is entered into, and not as a penalty, an amount equal to the Casualty Value of
the Equipment set forth in the Casualty Value Table attached to such Equipment's
Schedule together with any rent or other amounts past due and owing by Lessee
hereunder; (iii) Lessor may, without notice to or demand upon any Co-Lessee; (A)
Take possession of the Equipment and lease or sell the same or any portion
thereof, for such period, amount, and to such entity as Lessor shall elect. The
proceeds of such lease or sale will be applied by Lessor (1) first, to pay all
costs and expenses, including reasonable legal fees and disbursements, incurred
by Lessor as a result of the default and the exercise of its remedies with
respect thereto, (2) second, to pay Lessor an amount equal to any unpaid rent or
other amounts past due and payable plus the Casualty Value, to the extent not
previously paid by any Co-Lessee, and (3) third, to reimburse any Co-Lessee for
the Casualty Value to the extent previously paid. Any surplus remaining
thereafter will be retained by Lessor, (B) Take possession of the Equipment and
hold and keep idle the same or any portion thereof.
Each Co-Lessee agrees to pay all reasonable out-of-pocket costs of Lessor
incurred in enforcement of this Lease, the Schedules or any instrument or
agreement required under this Lease, including but not limited to reasonable
outside counsel legal fees and litigation expenses and reasonable fees of
collection agencies ("Remedy Expenses"). At Lessor's request, any Co-Lessee
shall assemble the Equipment and make it available to Lessor at such reasonable
location as Lessor may designate. Each Co-Lessee waives any right it may have to
redeem the Equipment.
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<PAGE> 8
No delay or omission of Lessor, in exercising any right or power arising from
any Event of Default shall prevent Lessor from exercising that right or power if
the Event of Default continues. No waiver of an Event of Default, whether full
or partial, by Lessor or such holder shall be taken to extend to any subsequent
Event of Default, or to impair the rights of Lessor in respect of any damages
suffered as a result of the Event of Default. The giving, taking or enforcement
of any other or additional security, Equipment or guaranty for the payment or
discharge of the Lease obligations and performance of the obligations shall in
no way operate to prejudice, waive or affect Lessor's ownership interest created
under this Lease or any rights, powers or remedies exercised hereunder or
thereunder. Lessor shall not be required first to repossess the Equipment prior
to bringing an action against Lessee for sums owed to Lessor under this Lease or
under any Schedule.
SECTION 19. LATE PAYMENTS. Lessee shall pay to Lessor an amount equal to the
lesser of 8% of any payment owed Lender by Borrower which is not paid when due
(taking into account applicable grace periods), for every month such payment to
not paid when due, but in no event an amount greater than the highest rate
permitted by applicable law. If such amounts have not been received by Lessor at
Lessor's place of business or by Lessor's designated agent by the date such
amounts are due under this Lease, Lessor shall bill Lessee for such charges.
Lessee acknowledges that invoices for rentals due hereunder or under the
Schedules are sent by Lessor for Lessee's convenience only. Lessee's non-receipt
of an invoice will not relieve Lessee of its obligation to make rent payments
hereunder or under the Schedules.
SECTION 20. LESSOR'S EXPENSE. Lessee shall pay Lessor all reasonable costs and
reasonable expenses including reasonable attorney's fees and the fees of
collection agencies, incurred by Lessor (a) in enforcing any of the terms,
conditions or provisions hereof and related to the exercise of its remedies, and
Co) in connection with any bankruptcy or post-judgment proceeding, whether or
not suit is filed and, in each and every action, suit or proceeding, including
any and all appeals and petitions therefrom.
SECTION 21. PAYMENTS BY LESSOR. If Lessee shall fail to make any payment or
perform any act required hereunder (including, but not limited to, maintenance
of any insurance required by Section 12), then Lessor may, but shall not be
required to, after such notice to Lessee as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Lessee. Lessee will upon demand reimburse Lender for all
sums paid and all costs and expenses incurred in connection with the performance
of any such act.
SECTION 22. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall be and remain
personal property of Lessor, and Lessee shall have no right, title or interest
therein or thereto except as expressly set forth in this Lease, notwithstanding
the manner in which it may be attached or affixed to real property, and upon
termination or expiration of the Lease term, Lessee shall have the duty and
Lessor shall have the right to remove the Equipment from the premises where the
same be located whether or not affixed or attached to the real property or any
building, at the cost and expense of Lessee.
SECTION 23. ALTERATIONS; ATTACHMENTS. Other than in conformity with the
manufacturer's warranty and/or functional improvements, no alterations or
attachments shall be made to the Equipment without Lessor's prior written
consent, which shall not be given for changes that will affect the reliability
and utility of the Equipment or which cannot be removed without damage to the
Equipment, or which in any way affect the value of the Equipment for purposes of
resale or re-lease. All attachments and improvements to the Equipment which are
not readily removable without causing material damage to the Equipment or
impairing its original value or utility shall be deemed to be "Equipment" for
purposes of the Lease, and all right, title and interest therein shall
immediately vest in Lessor.
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<PAGE> 9
SECTION 24. FINANCING STATEMENT. Lessee will execute all financing statements
pursuant to the Uniform Commercial Code and all such other documents reasonably
requested by Lessor to protect Lessor's interests hereunder. Lessee authorizes
Lessor to file financing statements signed only by Lessor (where such
authorization is permitted by law) at all places where Lessor deems necessary.
SECTION 25. MISCELLANEOUS. (a) Each Co-Lessee shall provide Lessor with such
corporate resolutions, financial statements and other documents as Lessor shall
request from tune to time. Co) Each Co-Lessee represents that the Equipment is
being leased hereunder for business purposes. (c) Time is of the essence with
respect to this Lease. (d) Each Co-Lessee shall keep its books and records in
accordance with generally accepted accounting principles and practices
consistently applied and shall deliver to Lessor its annual audited financial
statements, unaudited monthly financial statements to include any financial
information given to each Co-Lessee's Board of Directors, and signed by an
officer of such Co-Lessee and such other unaudited financial statements as may
be reasonably requested by Lessor. (e) Any action by any Co-Lessee against
Lessor for any default by Lessor under this Lease, including breach of warranty
or indemnity, shall be commenced within one (1) year after any such cause of
action accrues. (f) Each Co-Lessee will notify Lessor at least 30 days prior to
changing its name, principal place of business or chief executive office, (g)
The obligations of each Co-Lessee hereunder shall survive the expiration or
earlier termination of this Lease and the Schedules until all such obligations
of each Co- Lessee to Lessor have been met and all liabilities of each Co-Lessee
to Lessor or any assignee have been paid in full. (h) Each Co-Lessee hereby
appoints Lessor (and each of Lessor's officers or employees designated by
Lessor) with full power of substitution by Lessor, as each Co-Lessee's attorney,
with power to execute and deliver on each Co-Lessee's behalf, financing
statements and other documents necessary to perfect and/or give notice of
Lessor's ownership of any of the Equipment.
SECTION 26. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service and shall be directed, as the
case may be, to Lessor at 2401 Kerner Boulevard, San Rafael, California 94901,
Attention: Asset Management and to Lessee at 565 Commercial Street, 2nd Floor,
San Francisco, California 94111, Attention: Layton Han, CFO.
SECTION 27. ENTIRE AGREEMENT. Lessee acknowledges that Lessee has read this
Lease, understands it and agrees to be bound by its terms, and further agrees
that the Lease and each Schedule constitute the entire agreement between Lessor
and Lessee with respect to the subject matter hereof and supersedes all previous
agreements, promises, or representations. The terms and conditions hereof shall
prevail notwithstanding any variance with the terms of any purchase order
submitted by the Lessee with respect to any Equipment covered hereby.
SECTION 28. AMENDMENT. This Lease may not be changed, altered or modified except
by an instrument in writing signed by an officer of the Lessor and the Lessee.
SECTION 29. WAIVER. Any failure of Lessor to require strict performance by
Lessee or any waiver by Lessor of any provision herein shall not be construed as
a consent or waiver of any other breach of the same or any other provision.
SECTION 30. SEVERABILITY. If any provision of this Lease or a Schedule is held
invalid, such invalidity shall not affect any other provisions hereof or
thereof.
SECTION 31. JURISDICTION AND WAIVER OF JURY TRIAL. This Lease shall be deemed to
have been negotiated, entered into and performed in the State of California and
it is understood and agreed that the
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<PAGE> 10
validity of this Lease and of any of its terms and provisions, as well as the
rights and duties of the parties to this Lease, shall be construed pursuant to
and in accordance with the laws of the State of California, without giving
effect to conflicts of law principles. It is agreed that exclusive jurisdiction
and venue for any legal action between the parties arising out of this Lease
shah be in the Superior Court for Marin County, California, or, in cases where
Federal diversity jurisdiction is available, in the United States District Court
for the Northern District of California situated in San Francisco. LESSEE, TO
THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN
ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS LEASE, ANY SCHEDULE, OR ANY
AGREEMENT EXECUTED IN CONNECTION HEREWITH.
SECTION 32. NATURE OF TRANSACTION. Lessor makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
SECTION 33. SECURITY INTEREST. (a) One executed copy of the Lease will be marked
"Original" and all other counterparts will be duplicates. To the extent, if any,
that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction) no security
interest in the Lease may be created in any documents other than the "Original."
(b) There shall be only one original of each Schedule and it shall be marked
"Original," and all other counterparts will be duplicates. To the extent, if
any, that any Schedule(s) to this Lease constitutes chattel paper (or as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in any Schedule(s) may be created in any
documents other than the "Original."
SECTION 34. SUSPENSION OF LESSOR'S OBLIGATIONS. The obligations of Lessor
hereunder will be suspended to the extent that Lessor is hindered or prevented
from complying therewith because of labor disturbances, including but not
limited to strikes and lockouts, acts of God, fires, storms, accidents,
industrial unrest, acts of war, insurrection, riot or civil disorder, any order,
decree, law, failure of the manufacturer to deliver any item of Equipment,
governmental regulations or interfere , or any cause whatsoever not within the
sole and exclusive control of Lessor.
SECTION 35. SOFTWARE. For the term of this Lease, and so long as no Event of
Default has occurred and is continuing, Lessor hereby assigns to Lessee all of
Lessor's rights under any license agreement executed by Lessor in connection
with the Equipment (except for any right of Lessor to be reimbursed for the
license fee). Lessee agrees to be bound by the provisions of any such license
agreement and to perform all obligations of Lessor (except Lessor's payment
obligations) thereunder. Lessee acknowledges that all of Lessee's obligations
under the Lease with respect to the Equipment will apply equally to the
software, including but not limited to Lessee's obligation to pay rent to
Lessor.
SECTION 36. STOCK WARRANT. Lessee agrees that it will issue to Lessor upon
execution of this Lease a Warrant in the form of Warrant Agreement attached
hereto as Exhibit B. Lessee and Lessor agree that the value of the Warrant
hereunder is ten dollars ($10.00).
SECTION 37. COMMITMENT FEE. Lessee has paid to Lessor a commitment fee ("Fee")
of $5,000. The Fee shall be applied by Lessor first to reimburse Lessor for all
out-of-pocket UCC and other search costs, inspections and appraisal fees
incurred by Lessor, and then proportionally to the first month's rent for each
Schedule hereunder in the proportion that the purchase price of the Equipment
leased pursuant to the Schedule bears to Lessor's entire commitment. However,
the portion of the Fee which is not applied to rental shall be non-refundable
except if Lessor defaults in its obligations pursuant to Section 3.
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SECTION 38. FINANCE LEASE. The parties agree that this lease is a "Finance
Lease" as defined by section 10-103(a)(7) of the California Commercial Code
(Cal. Com. C.). Lessee acknowledges either (a) that Lessee has reviewed and
approved any written Supply Contract (as defined by Cal. Com. C. Section
10-103(a)(25)) covering Equipment purchased from the "Supplier" (as defined by
Cal. Com. C. Section 10-103(a)(24)) thereof for lease to Lessee or (b) that
Lessor has informed or advised Lessee, in writing, either previously or by this
Lease of the following: (I) the identity of the Supplier; (ii) that the Lessee
may have rights under the Supply Contract; and (iii) that the Lessee may contact
the Supplier for a description of any such rights Lessee may have under the
Supply Contract. Lessee hereby waives any rights and remedies Lessee may have
under Cal. Com. C. Sections 10-508 through 522.
SECTION 39. END OF LEASE POSITION. (a) General. Lessee shall be required to
choose a final purchase or extension of Equipment requirement ("End of Lease
Position") at the expiration of the Base Term (as defined in the Schedule) of
each Schedule to the Lease. That choice shall be an election of Lessee's End of
Lease Position for all, but not less than all, of the Equipment under each
Schedule to the Lease. Lessee shall provide written notice of its election to
Lessor at least 90 days prior to the end of the Base Term of each Schedule.
Any Equipment purchase election shall be a purchase of the Equipment, AS-IS,
WHERE-IS. Upon Lessor's receipt of the purchase price, Lessor shall issue to
Lessee an equipment bill of sale, transferring title to the Equipment to the
Lessee without any representation or warranty other than a warranty that such
Equipment is free and clear of liens and encumbrances resulting from acts of
Lessor. Lessee shall be responsible for all applicable taxes in connection with
any Equipment purchase.
In the event Lessee does not provide at least 90 days' prior written notice of
its election, Lessee shall be deemed to have elected Election No. 2.
(b) End of Lease Position Elections. At the expiration of the Base Term of each
Schedule, Lessee shall be required to elect to either:
Election No. 1: Purchase the Equipment for 20% of the Equipment's original
purchase price.
Election No. 2: Extend the Schedule's Base Term for an additional 12 months
("Extended Term") for a monthly rate of 2.05% of the Equipment's original
purchase price.
At the expiration of the Extended Term, Lessee shall purchase the Equipment for
$1.00.
SECTION 40, ADJUST-A-LEASE OPTION: General : After the first 12 months of the
term of any Schedule ("Old Schedule"), Lessee shall have the option to remove
all or part of such Old Schedule's Equipment ("Removed Equipment") and obtain
financing from Lessor for new Equipment ("New Equipment") under a new Schedule
("New Schedule"), subject to the following:
(a) New Schedule Amount: The principal amount of the New Schedule shall
be the sum of: (I) the remaining payments attributable to the Removed Equipment
due under the Old Schedule, including the End of Lease Position payment,
("Remaining Payments") and (ii) the cost of the New Equipment. The Remaining
Payments shall be discounted to present value at a rate of 6% per annum,
compounded monthly. The principal amount of the New Schedule shall be reduced by
any trade-in value or resale proceeds received by Lessor for the Removed
Equipment if Lessee or Lessor, on Lessee's behalf, sells the Removed Equipment.
For purposes of this Section, the Remaining Payments shall be assumed to be the
greatest amount Lessee would be required to
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pay under Election No. 1 in Section 39 above.
(b) Old Schedule Amount: If any item of Equipment remains on the Old
Schedule, the monthly payment amount for the Old Schedule will be reduced in
proportion to the Removed Equipment's value.
(c) Option Preconditions: Lessee's right to exercise this Adjust-A-Lease
Option ("Option") is conditioned upon the following: (I) no Event of Default
under the Lease has theretofore occurred and is continuing; (ii) the New
Schedule financing terms are subject to Lessor's then current lease rates and
documentation requirements (iii) Lessor is satisfied with Lessee's
creditworthiness; (iv) the New Equipment is acceptable to Lessor; (v) Lessee has
given Lessor at least 90 days' prior written notice of its desire to exercise
the Option; (vi) the dollar amount of the New Schedule using the formula set
forth in (a) above is not less than zero.
SECTION 41. FURTHER ASSURANCES. Lessee shall at its expense take such action and
execute and deliver all acts and instruments and other documents as Lessor may
at any time request to protect, assure or enforce its interests and rights
hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
LESSOR: CO-LESSEE:
PHOENIX LEASING INCORPORATED INTELLIPOST CORPORATION,
a Delaware corporation
By: /s/ Gregory D. Kilian By: /s/ Layton S. Han
------------------------- ---------------------------
Name: Gregory D. Kilian Name: (Print): Layton S. Han
Title: AVP Title: CFO
CO-LESSEE:
INTELLIPOST CORPORATION, a
California corporation
By: /s/ Layton S. Han
--------------------------
Name (Print): Layton S. Han
Title: CFO
HEADQUARTERS LOCATION:
565 Commercial Street, 2nd Floor
San Francisco, CA 94111
County of San Francisco
EXHIBITS AND SCHEDULES:
Exhibit A - Closing Memorandum
Exhibit B - Stock Warrant
12
DUPLICATE
<PAGE> 13
EXHIBIT A TO
MASTER EQUIPMENT LEASE AGREEMENT NO. 0148
DATED MAY 1, 1998
CLOSING MEMORANDUM
<TABLE>
<CAPTION>
<S> <C>
1.* Duly executed Master Equipment Lease marked "Original."
2. Duly executed Schedule marked "Original."
3. Duly executed Certificate of Acceptance. [EXECUTE UPON ACCEPTANCE OF
EQUIPMENT]
4. Insurance Certificates.
5.* Resolutions of Lessee's Board of Directors, including an incumbency
certificate.
6.* Copy of Lessee's articles of incorporation including all amendments,
certified by the Secretary of Lessee as being true and complete and in
full force and effect.
7.* Certificate from the Secretary of State of Lessee's state of
incorporation, from the state in which Lessee's chief executive office
is located, if different, and from each state where Lessee is qualified
to do business, stating Lessee is in good standing or is authorized to
transact business, as the case may be, dated not more than thirty days
prior to the first purchase of Equipment.
8. Real Property Waiver.**
9. UCC Financing Statements.
10.* Stock Warrant.
11. Bill of Sale (for Sale-Leaseback Equipment).
12. UCC search.
13. Equipment List, in form and substance satisfactory to Lessor.
14. Lessee's most recent financial statements.
15. Certificate of Chief Financial Officer stating that no event of default
has occurred, there is no adverse change in the financial condition of
Lessee and that the Equipment is free of any encumbrances.
16. See Section 3 of Master Equipment Lease for additional preconditions to
closing.
17. Intercreditor Agreement, if applicable.
* First Schedule Only.
** Required if any Equipment is a fixture, i.e., attached to real property,
or located in certain states.
</TABLE>
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<PAGE> 14
SCHEDULE
Schedule No. 02 to Lease
Dated as of May 1, 1998
Between INTELLIPOST CORPORATION,
a Delaware corporation, and
INTELLIPOST CORPORATION,
a California corporation, jointly and severally as Lessee
and PHOENIX LEASING INCORPORATED
A. Description and Purchase Price of Equipment
<TABLE>
<CAPTION>
Description of
Equipment
(quantity, model Purchase Mfr./ Street Address
and serial number) Price Rent Vendor City, State and Country
- ------------------ -------- ---- ------ -----------------------
<S> <C> <C> <C> <C>
See Exhibit A attached hereto.
Total: $164,038.02 $3,247.95 Months 1-12
$4,904.74 Months 13-42
</TABLE>
B. Terms
Base Term: The Base Term shall commence on the date the Equipment is
received, installed and accepted for use, as shown on the
Acceptance Notice, and continue for 42 full months after the
"Rent Start Date."
Rent Start Date: This shall be the first day of the month following the
month during which the Base Term commences; provided,
however, that if the Equipment is accepted on the first day
of the month, the Rent Start Date shall commence on the
same day that the Base Term commences.
Base Rental Payment Per Month: $3,247.95 for Months 1 to 12 and $4,904.74 for
Months 13 to 42, plus applicable taxes, which amount shall be adjusted in
accordance with the Rate Factors and Terms shown hereinbelow:
Lease Rate Factor (expressed as a percentage of Equipment's original Purchase
Price):
1.98% for months 1-12 and 2.99% for months 13-42
Monthly Rental Payments are payable monthly in advance.
Base Rent Due: Payable on the Rent Start Date shall be (1) the first and
forty-second Monthly Rental Payments including any sales or
use tax and (2) an amount equal to 1/30th of the monthly
rental amount using a rate of 1.9% multiplied by the number
of days, if any, between (and including) the date the Base
Term commences and (but not including) the Rent Start Date,
except that, if the date of the Acceptance Notice related to
this Schedule is dated on or after the 20th of the month,
this amount shall not be included in the Base Rent Due.
<PAGE> 15
Schedule No. 02 to Lease
Dated as of May 1, 1998
Between INTELLIPOST CORPORATION,
a Delaware corporation, and
INTELLIPOST CORPORATION,
a California corporation, jointly and severally as Lessee
and PHOENIX LEASING INCORPORATED
C. Invoice Information: Lessee's and Lessor's addresses for invoice purposes for
the Equipment on the Schedule shall be as follows:
<TABLE>
Lessee's Invoice Address: Remit Monthly Rental Amount To:
- -------------------------------- -------------------------------
<S> <C>
Intellipost Corporation Phoenix Leasing Incorporated
565 Commercial Street, 2nd Floor P.O. Box 200432
San Francisco, CA 94111 Dallas, TX 75320-0432
Attention: Layton Han, CFO
</TABLE>
D. Casualty Values: See attachment hereto.
E. Special Provisions: 1. Lessor's payment for Equipment hereunder is
conditioned on Lessor's satisfaction of the conditions set forth in Section 3 of
the Lease and 2. Sale Leaseback Addendum.
F. End of Lease Position: (a) General. Lessee shall be required to choose a
final purchase or extension of Equipment requirement ("End of Lease Position")
at the expiration of the Base Term (as defined in the Schedule) of each
Schedule to the Lease. That choice shall be an election of Lessee's End of
Lease Position for all, but not less than all, of the Equipment under each
Schedule to the Lease. Lessee shall provide written notice of its election to
Lessor at least 90 days prior to the end of the Base Term of each Schedule.
Any Equipment purchase election shall be a purchase of the Equipment, AS-IS,
WHERE-IS. Upon Lessor's receipt of the purchase price, Lessor shall issue to
Lessee an equipment bill of sale, transferring title to the Equipment to the
Lessee without any representation or warranty other than a warranty that such
Equipment is free and clear of liens and encumbrances resulting from acts of
Lessor. Lessee shall be responsible for all applicable taxes in connection with
any Equipment purchase.
In the event Lessee does not provide at least 90 days' prior written notice of
its election, Lessee shall be deemed to have elected Election No. 2.
(b) End of Lease Position Elections. At the expiration of the Base Term of each
Schedule, Lessee shall be required to elect to either:
Election No. 1: Purchase the Equipment for 20% of the Equipment's original
purchase price.
Election No. 2: Extend the Schedule's Base Term for an additional 12 months
("Extended Term") for a monthly rate of 2.05% of the Equipment's original
purchase price.
At the expiration of the Extended Term, Lessee shall purchase the Equipment for
$1.00.
<PAGE> 16
Schedule No. 02 to Lease
Dated as of May 1, 1998
Between INTELLIPOST CORPORATION,
a Delaware corporation, and
INTELLIPOST CORPORATION,
a California corporation, jointly and severally as Lessee
and PHOENIX LEASING INCORPORATED
LESSOR AND EACH CO-LESSEE AGREE THAT THIS SCHEDULE SHALL CONSTITUTE A LEASE OF
THE EQUIPMENT DESCRIBED ABOVE, SUBJECT TO THE TERMS AND CONDITIONS OF THIS
SCHEDULE AND OF THE MASTER EQUIPMENT LEASE DATED MAY 1, 1998 BETWEEN EACH
CO-LESSEE AND LESSOR. THE TERMS AND CONDITIONS OF SUCH MASTER EQUIPMENT LEASE
ARE HEREBY INCORPORATED BY REFERENCE AND MADE A PART HEREOF TO THE SAME EXTENT
AS IF SUCH TERMS AND CONDITIONS WERE SET FORTH IN FULL HEREIN.
LESSOR: CO-LESSEE:
PHOENIX LEASING INCORPORATED INTELLIPOST CORPORATION, a Delaware
corporation
By: /s/ LYNN SANDERS By: /s/ LAYTON S. HAN
------------------------------- ------------------------------------
Name: Lynn Sanders Name (Print): Layton S. Han
----------------------------- --------------------------
Title: Contract Administrator Title: CFO
---------------------------- ---------------------------------
Date: 6/22/98 Date: 6/22/98
----------------------------- ----------------------------------
CO-LESSEE:
INTELLIPOST CORPORATION, a California
corporation
By: /s/ LAYTON S. HAN
------------------------------------
Name (Print): Layton S. Han
--------------------------
Title: CFO
---------------------------------
Date: 6/22/98
----------------------------------
<PAGE> 17
ACCEPTANCE NOTICE
SCHEDULE NO. 02
Reference is made to the Master Equipment Lease dated as of May 1, 1998 between
PHOENIX LEASING INCORPORATED as Lessor and INTELLIPOST CORPORATION, a California
corporation and INTELLIPOST CORPORATION, a Delaware corporation, jointly and
severally, as Lessee (the "Lease").
Lessee confirms that the following Equipment has been received, installed and
is ready for use by Lessee. The Equipment is satisfactory in all respects for
the purposes of this Lease as of the date Lessee executes this Notice below.
<TABLE>
<CAPTION>
Description of
Equipment
(quantity, model Purchase Mfr./ Street Address
and serial number) Price Rent Vendor City, State and County
- ------------------ -------- ---- ------ ----------------------
<S> <C> <C> <C> <C>
See Exhibit A attached hereto.
Total: $164,038.02 $3,247.95 Months 1-12
$4,904.74 Months 13-42
</TABLE>
THE LEASE MAY NOT BE CHANGED, ALTERED OR MODIFIED EXCEPT BY AN INSTRUMENT IN
WRITING SIGNED BY AN OFFICER OF LESSOR AND A DULY AUTHORIZED REPRESENTATIVE OF
LESSEE.
IN WITNESS WHEREOF, Lessee has executed this Acceptance Notice as of June 22,
1998.
CO-LESSEE:
INTELLIPOST CORPORATION, a Delaware corporation
By: /s/ LAYTON S. HAN
--------------------------------------------
Name (Print): Layton S. Han
----------------------------------
Title: CFO
-----------------------------------------
CO-LESSEE:
INTELLIPOST CORPORATION, a California corporation
By: /s/ LAYTON S. HAN
--------------------------------------------
Name (Print): Layton S. Han
----------------------------------
Title: CFO
-----------------------------------------
<PAGE> 18
ATTACHMENT TO EQUIPMENT SCHEDULE NO. 02
CASUALTY VALUES
<TABLE>
<CAPTION>
Month of % of Original Equipment Month of % of Original Equipment
Lease Term Purchase Price Lease Term Purchase Price
- ---------- ------------------------ ---------- ------------------------
<S> <C> <C> <C>
1 125.00 22 73.78
2 122.56 23 71.34
3 120.12 24 68.90
4 117.68 25 66.46
5 115.24 26 64.02
6 112.80 27 61.59
7 110.37 28 59.15
8 107.93 29 56.71
9 105.49 30 54.27
10 103.05 31 51.83
11 100.61 32 49.39
12 98.17 33 46.95
13 95.73 34 44.51
14 93.29 35 42.07
15 90.85 36 39.63
16 88.41 37 37.20
17 85.98 38 34.76
18 83.54 39 32.32
19 81.10 40 29.88
20 78.66 41 27.44
21 76.22 42 25.00
Thereafter 25.00
</TABLE>
Lessor's Co-Lessee's
Initials LS Initials LH
---- ----
Co-Lessee's
Initials LH
----
<PAGE> 19
ATTACHMENT 1
BILL OF SALE
For valuable consideration INTELLIPOST CORPORATION, a California corporation and
INTELLIPOST CORPORATION, a Delaware corporation, (jointly and severally,
("Seller") sells to PHOENIX LEASING INCORPORATED ("Buyer"), the property listed
on Exhibit A hereof (the "Equipment").
Seller covenants and warrants that:
(1) It is the owner of, and has absolute title to, the Equipment which is
free and clear of all claims, liens and encumbrances.
(2) It has not made any prior sale, assignment, or transfer of the
Equipment.
(3) It has the present right, power, and authority to sell the Equipment to
Buyer.
(4) All action has been taken which is required to make this Bill of Sale a
legal, valid and binding obligation of Seller.
Seller shall forever warrant and defend the sale of Equipment to Buyer, its
successors and assigns, against any person claiming an interest in the
Equipment.
This Bill of Sale is binding on the successors and assigns of Seller and inures
to the benefit of the successors and assigns of Buyer.
Executed on June 22 , 1998.
---------------- --
CO-LESSEE:
INTELLIPOST CORPORATION, a Delaware corporation
By: /s/ LAYTON S. HAN
-----------------------------
Name (Print): Layton S. Han
Title: CFO
--------------------------
CO-LESSEE:
INTELLIPOST CORPORATION, a California corporation
By: /s/ LAYTON S. HAN
-----------------------------
Name (Print): Layton S. Han
Title: CFO
--------------------------
<PAGE> 20
SALE LEASEBACK ADDENDUM
to Schedule No. 02
of MASTER EQUIPMENT LEASE
Dated May 1, 1998
Between INTELLIPOST CORPORATION,
a Delaware Corporation, and
INTELLIPOST CORPORATION,
a California corporation, jointly and severally as Lessee
and PHOENIX LEASING INCORPORATED
This Addendum to Master Equipment Lease is made and entered into as of June 22,
1998 between PHOENIX LEASING INCORPORATED ("LESSOR") and INTELLIPOST
CORPORATION, a California corporation and INTELLIPOST CORPORATION, a Delaware
corporation, (jointly and severally, "Lessee").
Notwithstanding anything to the contrary contained in the Lease referenced
above, Lessor and Lessee agree as follows:
1. Lessee shall sell the Equipment to and lease the Equipment from Lessor and
Lessor shall purchase the Equipment from and lease the Equipment to Lessee
upon the terms and conditions of the Bill of Sale attached hereto as
Attachment 1.
2. Lessee represents and warrants that:
(a) Lessee has the right to sell the Equipment as set forth herein,
(b) the Equipment and Lessee's right, title and interest in such Equipment
is, as of the date of the Bill of Sale, free from all claims, liens,
security interests and encumbrances,
(c) Lessee will defend the sale against lawful claims and demands of all
persons, and
(d) the purchase price of the Equipment is equal to the fair market value
of such Equipment at the time of sale.
LESSOR: CO-LESSEE:
PHOENIX LEASING INCORPORATED INTELLIPOST CORPORATION, a Delaware
corporation
By: /s/ LYNN SANDERS By: /s/ LAYTON S. HAN
--------------------------- ------------------------------
Name: Lynn Sanders Name: Layton S. Han
------------------------- -------------------------
Title: Contract Administrator Title: CFO
------------------------ ------------------------
CO-LESSEE:
INTELLIPOST CORPORATION, a California
corporation
By: /s/ LAYTON S. HAN
------------------------------
Name: Layton S. Han
-------------------------
Title: CFO
------------------------
<PAGE> 21
Phoenix Leasing Incorporated
Funding Request
Exhibit A
Lessee: INTELLIPOST CORPORATION
--------------------------
565 COMMERCIAL STREET
Master Contract: 0148 Schedule: 02
-------------------------- -------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
L
Item Invoice Description Eq Serial o
No Vendor Name No. of item Cd Qty Number c
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Trans National 9811390 software 24 1 1
- --------------------------------------------------------------------------------------
2 DELL 151204120 DELL DIMENSION 1 2 1
- --------------------------------------------------------------------------------------
3 TAX 29 1 1
- --------------------------------------------------------------------------------------
4 FREIGHT 27 1 1
- --------------------------------------------------------------------------------------
5 ORACLE 976026 SILVER ADVANCE 24 1 1
- --------------------------------------------------------------------------------------
6 TAX 29 1 1
- --------------------------------------------------------------------------------------
7 DELL 146954243 INSPIRON 1 2 1
- --------------------------------------------------------------------------------------
8 TAX 29 1 1
- --------------------------------------------------------------------------------------
9 FREIGHT 27 1 1
- --------------------------------------------------------------------------------------
10 DELL 143909783 DELL DIMENSION 1 2 1
- --------------------------------------------------------------------------------------
11 TAX 29 1 1
- --------------------------------------------------------------------------------------
12 FREIGHT 27 1 1
- --------------------------------------------------------------------------------------
13 DELL 155853708 LATITUDE 1 1 1
- --------------------------------------------------------------------------------------
14 TAX 29 1 1
- --------------------------------------------------------------------------------------
15 FREIGHT 27 1 1
- --------------------------------------------------------------------------------------
16 DELL 158289207 DELL DIMENSION 1 1 1
- --------------------------------------------------------------------------------------
17 TAX 29 1 1
- --------------------------------------------------------------------------------------
18 FREIGHT 27 1 1
- --------------------------------------------------------------------------------------
19 DELL 158263434 INSPIRON 1 1 1
- --------------------------------------------------------------------------------------
20 TAX 29 1 1
- --------------------------------------------------------------------------------------
21 FREIGHT 27 1 1
- --------------------------------------------------------------------------------------
22 Millennia Vision 775 LX PRO 6/200 1 1 1
- --------------------------------------------------------------------------------------
23 TAX 29 1 1
- --------------------------------------------------------------------------------------
24 Millennia Vision 797 HP INSTALLATION 1 1 1
- --------------------------------------------------------------------------------------
25 TAX 29 1 1
- --------------------------------------------------------------------------------------
26 FREIGHT 27 1 1
- --------------------------------------------------------------------------------------
27 Millennia Vision 819 HP-128-MB 1 1 1
- --------------------------------------------------------------------------------------
28 TAX 29 1 1
- --------------------------------------------------------------------------------------
29 FREIGHT 27 1 1
- --------------------------------------------------------------------------------------
30 ICI, INC 1067 BLK CONF CHAIRS 6 8 1
- --------------------------------------------------------------------------------------
31 SLV CONF CHAIRS 6 8 1
- --------------------------------------------------------------------------------------
32 CONF TBL & MODIF 6 2 1
- --------------------------------------------------------------------------------------
33 CREDENZA 6 1 1
- --------------------------------------------------------------------------------------
34 OFFICE 1-SHELL 6 1 1
- --------------------------------------------------------------------------------------
35 CORNER DESK 6 1 1
- --------------------------------------------------------------------------------------
36 2 DRW FILE CAB 6 1 1
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
No entry required
Total Tax Pd ---------------------
Invoic'd $ $ Pd By Vndr? Chk Transact Net $ Due Net $ Due
Net of Sls Tx Lessee (Y/N) No. Date Lessee Vendor
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 11,157.79 11,157.79 Y 1646 4/22/98 $11,157.79 $0.00
- --------------------------------------------------------------------------------------
2 5,426.00 5,426.00 Y 5740 5/12/98 $5,426.00 $0.00
- --------------------------------------------------------------------------------------
3 478.26 478.26 Y 5740 5/12/98 $478.26 $0.00
- --------------------------------------------------------------------------------------
4 200.00 200.00 Y 5740 5/21/98 $200.00 $0.00
- --------------------------------------------------------------------------------------
5 1,200.00 1,200.00 Y 5723 5/5/98 $1,200.00 $0.00
- --------------------------------------------------------------------------------------
6 102.00 102.00 Y 5723 5/5/98 $102.00 $0.00
- --------------------------------------------------------------------------------------
7 6,048.00 6,048.00 Y 5468 3/13/98 $6,048.00 $0.00
- --------------------------------------------------------------------------------------
8 518.42 518.42 Y 5468 3/13/98 $518.42 $0.00
- --------------------------------------------------------------------------------------
9 50.00 50.00 Y 5468 3/13/98 $50.00 $0.00
- --------------------------------------------------------------------------------------
10 5,402.00 5,402.00 Y 5751 5/15/98 $5,402.00 $0.00
- --------------------------------------------------------------------------------------
11 468.58 468.58 Y 5751 5/15/98 $468.58 $0.00
- --------------------------------------------------------------------------------------
12 110.00 110.00 Y 5751 5/15/98 $110.00 $0.00
- --------------------------------------------------------------------------------------
13 4,610.68 4,610.68 Y 5801 5/28/98 $4,610.68 $0.00
- --------------------------------------------------------------------------------------
14 395.06 395.06 Y 5801 5/28/98 $395.06 $0.00
- --------------------------------------------------------------------------------------
15 37.00 37.00 Y 5801 5/28/98 $37.00 $0.00
- --------------------------------------------------------------------------------------
16 1,802.00 1,802.00 Y 5806 6/4/98 $1,802.00 $0.00
- --------------------------------------------------------------------------------------
17 164.26 164.26 Y 5806 6/4/98 $164.26 $0.00
- --------------------------------------------------------------------------------------
18 130.00 130.00 Y 5806 6/4/98 $130.00 $0.00
- --------------------------------------------------------------------------------------
19 2,944.00 2,944.00 Y 5861 6/4/98 $2,944.00 $0.00
- --------------------------------------------------------------------------------------
20 253.04 253.04 Y 5861 6/4/98 $253.04 $0.00
- --------------------------------------------------------------------------------------
21 33.00 33.00 Y 5861 6/4/98 $33.00 $0.00
- --------------------------------------------------------------------------------------
22 19,204.20 $0.00 $19,204.20
- --------------------------------------------------------------------------------------
23 1,632.36 $0.00 $1,632.36
- --------------------------------------------------------------------------------------
24 1,795.50 $0.00 $1,795.50
- --------------------------------------------------------------------------------------
25 152.62 $0.00 $152.62
- --------------------------------------------------------------------------------------
26 6.67 $0.00 $6.67
- --------------------------------------------------------------------------------------
27 6,458.00 $0.00 $6,458.00
- --------------------------------------------------------------------------------------
28 548.93 $0.00 $548.93
- --------------------------------------------------------------------------------------
29 37.70 $0.00 $37.70
- --------------------------------------------------------------------------------------
30 8,284.56 8,284.56 N 1592 2/25/98 $8,284.56 $0.00
- --------------------------------------------------------------------------------------
31 6,840.00 6,840.00 N 1592 2/25/98 $6,840.00 $0.00
- --------------------------------------------------------------------------------------
32 6,167.08 6,167.08 N 1592 2/25/98 $6,167.08 $0.00
- --------------------------------------------------------------------------------------
33 1,270.25 1,270.25 N 1611 2/25/98 $1,270.25 $0.00
- --------------------------------------------------------------------------------------
34 489.87 489.87 N 1611 2/25/98 $489.87 $0.00
- --------------------------------------------------------------------------------------
35 709.18 709.18 N 1611 2/25/98 $709.18 $0.00
- --------------------------------------------------------------------------------------
36 1,392.72 1,392.72 N 1611 2/25/98 $1,392.72 $0.00
- --------------------------------------------------------------------------------------
</TABLE>
Page 1 of 3
Property of Phoenix Leasing Incorporated
<PAGE> 22
Phoenix Leasing Incorporated
Funding Request
Exhibit A
Lessee: INTELLIPOST CORPORATION
--------------------------
565 COMMERCIAL STREET
Master Contract: 0148 Schedule: 02
-------------------------- -------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
L
Item Invoice Description Eq Serial o
No Vendor Name No. of item Cd Qty Number c
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
37 WALL CABINET 6 1 1
- --------------------------------------------------------------------------------------
38 TACK BOARD 6 1 1
- --------------------------------------------------------------------------------------
39 TASKLIGHT 6 1 1
- --------------------------------------------------------------------------------------
40 CONF TBL & MODIF 6 1 1
- --------------------------------------------------------------------------------------
41 OFFICE 2-DESK 6 1 1
- --------------------------------------------------------------------------------------
42 BRIDGE 6 1 1
- --------------------------------------------------------------------------------------
43 CORNER DESK 6 1 1
- --------------------------------------------------------------------------------------
44 FILE 6 1 1
- --------------------------------------------------------------------------------------
45 WALL CABINET 6 1 1
- --------------------------------------------------------------------------------------
46 TACK BOARD 6 1 1
- --------------------------------------------------------------------------------------
47 TASKLIGHT 6 1 1
- --------------------------------------------------------------------------------------
48 OFFICE 5-DESK 6 1 1
- --------------------------------------------------------------------------------------
49 BRIDGE 6 1 1
- --------------------------------------------------------------------------------------
50 CORNER DESK 6 1 1
- --------------------------------------------------------------------------------------
51 FILE 6 1 1
- --------------------------------------------------------------------------------------
52 WALL CABINET 6 1 1
- --------------------------------------------------------------------------------------
53 TACK BOARD 6 1 1
- --------------------------------------------------------------------------------------
54 TASKLIGHT 6 1 1
- --------------------------------------------------------------------------------------
55 OFFICE 6-DESK 6 1 1
- --------------------------------------------------------------------------------------
56 BRIDGE 6 1 1
- --------------------------------------------------------------------------------------
57 CORNER DESK 6 1 1
- --------------------------------------------------------------------------------------
58 FILE 6 1 1
- --------------------------------------------------------------------------------------
59 WALL CABINET 6 1 1
- --------------------------------------------------------------------------------------
60 TACK BOARD 6 1 1
- --------------------------------------------------------------------------------------
61 TASKLIGHT 6 1 1
- --------------------------------------------------------------------------------------
62 OVAL COFFEE TBL 6 1 1
- --------------------------------------------------------------------------------------
63 SIDE TABLE 6 1 1
- --------------------------------------------------------------------------------------
64 LOUNGE CHAIRS 6 2 1
- --------------------------------------------------------------------------------------
65 SOFA 6 1 1
- --------------------------------------------------------------------------------------
66 GUEST CHAIRS 6 2 1
- --------------------------------------------------------------------------------------
67 OFFICE 7-SHELL 6 1 1
- --------------------------------------------------------------------------------------
68 CORNER DISK 6 1 1
- --------------------------------------------------------------------------------------
69 FILE 6 1 1
- --------------------------------------------------------------------------------------
70 WALL CABINET 6 1 1
- --------------------------------------------------------------------------------------
71 TACK BOARD 6 1 1
- --------------------------------------------------------------------------------------
72 TASKLIGHT 6 1 1
- --------------------------------------------------------------------------------------
73 OFFICE 8-DESK 6 1 1
- --------------------------------------------------------------------------------------
74 LEFT RETURN 6 1 1
- --------------------------------------------------------------------------------------
75 FILE 6 1 1
- --------------------------------------------------------------------------------------
76 WALL CABINET 6 1 1
- --------------------------------------------------------------------------------------
77 TACKBOARD 6 1 1
- --------------------------------------------------------------------------------------
78 TASKLIGHT 6 1 1
- --------------------------------------------------------------------------------------
79 CONF TBL & MODIF 6 1 1
- --------------------------------------------------------------------------------------
80 PRV OFFICE CHAIRS 6 6 1
- --------------------------------------------------------------------------------------
81 PRV OFFICE CHAIRS 6 1 1
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
No entry required
Total Tax Pd ---------------------
Invoic'd $ $ Pd By Vndr? Chk Transact Net $ Due Net $ Due
Net of Sls Tx Lessee (Y/N) No. Date Lessee Vendor
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
37 683.54 638.54 N 1611 2/25/98 $683.54 $0.00
- --------------------------------------------------------------------------------------
38 131.01 131.01 N 1610 2/25/98 $131.01 $0.00
- --------------------------------------------------------------------------------------
39 142.41 142.41 N 1610 2/25/98 $142.41 $0.00
- --------------------------------------------------------------------------------------
40 586.71 586.71 N 1610 2/25/98 $586.71 $0.00
- --------------------------------------------------------------------------------------
41 945.57 945.57 N 1610 2/25/98 $945.57 $0.00
- --------------------------------------------------------------------------------------
42 196.52 196.52 N 1610 2/25/98 $196.52 $0.00
- --------------------------------------------------------------------------------------
43 709.18 709.18 N 1610 2/25/98 $709.18 $0.00
- --------------------------------------------------------------------------------------
44 985.44 985.44 N 1610 2/25/98 $985.44 $0.00
- --------------------------------------------------------------------------------------
45 800.32 800.32 N 1610 2/25/98 $800.32 $0.00
- --------------------------------------------------------------------------------------
46 131.01 131.01 N 1610 2/25/98 $131.01 $0.00
- --------------------------------------------------------------------------------------
47 142.41 142.41 N 1610 2/25/98 $142.41 $0.00
- --------------------------------------------------------------------------------------
48 945.57 945.57 N 1610 2/25/98 $945.57 $0.00
- --------------------------------------------------------------------------------------
49 273.42 273.42 N 5878 6/10/98 $273.42 $0.00
- --------------------------------------------------------------------------------------
50 709.18 709.18 N 5878 6/10/98 $709.18 $0.00
- --------------------------------------------------------------------------------------
51 917.09 917.09 N 5878 6/10/98 $917.09 $0.00
- --------------------------------------------------------------------------------------
52 1,116.45 1,116.45 N 5878 6/10/98 $1,116.45 $0.00
- --------------------------------------------------------------------------------------
53 262.03 262.03 N 5878 6/10/98 $262.03 $0.00
- --------------------------------------------------------------------------------------
54 142.41 142.41 N 5878 6/10/98 $142.41 $0.00
- --------------------------------------------------------------------------------------
55 1,166.01 1,166.01 N 5878 6/10/98 $1,166.01 $0.00
- --------------------------------------------------------------------------------------
56 225.00 225.00 N 5878 6/10/98 $225.00 $0.00
- --------------------------------------------------------------------------------------
57 709.18 709.18 N 5878 6/10/98 $709.18 $0.00
- --------------------------------------------------------------------------------------
58 945.57 945.57 N 5878 6/10/98 $945.57 $0.00
- --------------------------------------------------------------------------------------
59 888.61 888.61 N 5878 6/10/98 $888.61 $0.00
- --------------------------------------------------------------------------------------
60 131.01 131.01 N 5878 6/10/98 $131.01 $0.00
- --------------------------------------------------------------------------------------
61 142.41 142.41 N 5878 6/10/98 $142.41 $0.00
- --------------------------------------------------------------------------------------
62 694.94 694.94 N 5878 6/10/98 $694.94 $0.00
- --------------------------------------------------------------------------------------
63 395.89 395.89 N 5878 6/10/98 $395.89 $0.00
- --------------------------------------------------------------------------------------
64 894.38 894.38 N 5878 6/10/98 $894.38 $0.00
- --------------------------------------------------------------------------------------
65 784.69 784.69 N 5878 6/10/98 $784.69 $0.00
- --------------------------------------------------------------------------------------
66 742.50 742.50 N 5878 6/10/98 $742.50 $0.00
- --------------------------------------------------------------------------------------
67 384.49 384.49 N 5878 6/10/98 $384.49 $0.00
- --------------------------------------------------------------------------------------
68 709.18 709.18 N 5878 6/10/98 $709.18 $0.00
- --------------------------------------------------------------------------------------
69 917.09 917.09 N 5878 6/10/98 $917.09 $0.00
- --------------------------------------------------------------------------------------
70 700.63 700.63 N 5878 6/10/98 $700.63 $0.00
- --------------------------------------------------------------------------------------
71 131.01 131.01 N 5878 6/10/98 $131.01 $0.00
- --------------------------------------------------------------------------------------
72 142.41 142.41 N 5878 6/10/98 $142.41 $0.00
- --------------------------------------------------------------------------------------
73 700.31 700.31 N 5878 6/10/98 $700.31 $0.00
- --------------------------------------------------------------------------------------
74 433.93 433.93 N 5878 6/10/98 $433.93 $0.00
- --------------------------------------------------------------------------------------
75 762.19 762.19 N 5878 6/10/98 $762.19 $0.00
- --------------------------------------------------------------------------------------
76 877.50 877.50 N 5878 6/10/98 $877.50 $0.00
- --------------------------------------------------------------------------------------
77 129.38 129.38 N 5878 6/10/98 $129.38 $0.00
- --------------------------------------------------------------------------------------
78 140.63 140.63 N 5878 6/10/98 $140.63 $0.00
- --------------------------------------------------------------------------------------
79 579.38 579.38 N 5878 6/10/98 $579.38 $0.00
- --------------------------------------------------------------------------------------
80 4,613.94 4,613.94 N 5878 6/10/98 $4,613.94 $0.00
- --------------------------------------------------------------------------------------
81 1,022.63 1,022.63 N 5878 6/10/98 $1,022.63 $0.00
- --------------------------------------------------------------------------------------
</TABLE>
Page 2 of 3
Property of Phoenix Leasing Incorporated
<PAGE> 23
Phoenix Leasing Incorporated
Funding Request
Exhibit A
Lessee: INTELLIPOST CORPORATION
--------------------------
565 COMMERCIAL STREET
Master Contract: 0148 Schedule: 02
-------------------------- -------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
L
Item Invoice Description Eq Serial o
No Vendor Name No. of item Cd Qty Number c
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
82 PRV OFFICE CHAIRS 6 6 1
- --------------------------------------------------------------------------------------
83 FABRIC FOR FURN 6 1 1
- --------------------------------------------------------------------------------------
84 DEL & INSTALL 27 1 1
- --------------------------------------------------------------------------------------
85 TAX 29 1 1
- --------------------------------------------------------------------------------------
86 ICI, INC. 1068 OFFICE 10 & 11 6 1 1
WORKSPACE & MOD
- --------------------------------------------------------------------------------------
87 OFFICE 3 WORKSPACE 6 1 1
& MOD
- --------------------------------------------------------------------------------------
88 OFFICE 4 DESK 6 1 1
- --------------------------------------------------------------------------------------
89 BRIDGE 6 1 1
- --------------------------------------------------------------------------------------
90 CORNER DESK 6 1 1
- --------------------------------------------------------------------------------------
91 FILE 6 1 1
- --------------------------------------------------------------------------------------
92 WALL CABINET 6 1 1
- --------------------------------------------------------------------------------------
93 TACKBOARD&FABRIC 6 1 1
- --------------------------------------------------------------------------------------
94 TASKLIGHT 6 1 1
- --------------------------------------------------------------------------------------
95 FREIGHT & INSTAL 27 1 1
- --------------------------------------------------------------------------------------
96 TAX 29 1 1
- --------------------------------------------------------------------------------------
97
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
No entry required
Total Tax Pd ----------------------
Invoic'd $ $ Pd By Vndr? Chk Transact Net $ Due Net $ Due
Net of Sls Tx Lessee (Y/N) No. Date Lessee Vendor
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
82 2,255.70 2,255.70 N 5878 6/10/98 $2,255.70 $0.00
- ---------------------------------------------------------------------------------------
83 2,000.16 2,000.16 N 5878 6/10/98 $2,000.16 $0.00
- ---------------------------------------------------------------------------------------
84 2,273.71 2,273.71 N 5878 6/10/98 $2,273.71 $0.00
- ---------------------------------------------------------------------------------------
85 5,224.77 5,224.77 N 5878 6/10/98 $5,224.77 $0.00
- ---------------------------------------------------------------------------------------
86 7,696.25 7,696.25 N 1509.91 2/6/98 $7,696.25 $0.00
- ---------------------------------------------------------------------------------------
87 7,575.55 7,575.55 N 1509.91 2/6/98 $7,575.55 $0.00
- ---------------------------------------------------------------------------------------
88 961.88 961.88 N 1592 2/9/98 $961.88 $0.00
- ---------------------------------------------------------------------------------------
89 326.25 326.25 N 1592 2/9/98 $326.25 $0.00
- ---------------------------------------------------------------------------------------
90 700.31 700.31 N 1592 2/9/98 $700.31 $0.00
- ---------------------------------------------------------------------------------------
91 762.19 762.19 N 1592 2/9/98 $762.19 $0.00
- ---------------------------------------------------------------------------------------
92 790.31 790.31 N 1592 2/9/98 $790.31 $0.00
- ---------------------------------------------------------------------------------------
93 199.38 199.38 N 1592 2/9/98 $199.38 $0.00
- ---------------------------------------------------------------------------------------
94 140.63 140.63 N 1592 2/9/98 $140.63 $0.00
- ---------------------------------------------------------------------------------------
95 4,790.66 4,790.66 N 1592 2/9/98 $4,790.66 $0.00
- ---------------------------------------------------------------------------------------
96 2,035.38 2,035.38 N 1592 2/9/98 $2,035.38 $0.00
- ---------------------------------------------------------------------------------------
97 $0.00 $0.00
- ---------------------------------------------------------------------------------------
TOTAL AMOUNT DUE TO LESSEE $134,202.04
--------------------------
TOTAL AMOUNT DUE TO VENDOR $29,835.98
--------------
TOTAL DRAW $164,038.02
--------------
</TABLE>
Lessee Signature: [Signature Illegible] Date: 6/18/98
----------------------
Page 3 of 3
Property of Phoenix Leasing Incorporated
<PAGE> 24
OFFICER'S CERTIFICATE
The undersigned, Layton Han, hereby certifies that:
1) I am the Treasurer/Chief Financial Officer of INTELLIPOST CORPORATION, a
Delaware corporation;
ii) as such officer, I am familiar with the terms and conditions of that
certain Master Equipment Lease (the "Lease") dated as of May 1, 1998
between INTELLIPOST CORPORATION, a California corporation and
INTELLIPOST CORPORATION, a Delaware corporation, (jointly and severally,
"Lessee") and PHOENIX LEASING INCORPORATED ("Lessor");
iii) this certificate is delivered in connection with the leasing of certain
equipment under a Schedule with Lessor, the equipment is described in
the Schedule and the equipment is free and clear from any and all liens,
charges, security interests or other encumbrances which may affect
Lessor's right, title or interest in and to the equipment;
iv) there has been no material adverse change in the financial condition of
Lessee from the date of its most recent financial statements, true
copies of which have been delivered to Lessor; and
v) no event which, with the giving of notice or passage of time, or both,
could become an Event of Default under the Lease has occurred and is
continuing.
(vi) Lessee is performing according to Lessee's business plan described in
Section 3 of the Lease, a true copy of which business plan has been
delivered to Lessor;
(vii) the representations and warranties in Section 5 of the Lease are true
and correct as of the date hereof.
IN WITNESS WHEREOF, I hereby execute this certificate on this 12 day of June,
1998.
/s/ LAYTON S. HAN
---------------------------
<PAGE> 25
SCHEDULE
Schedule No. 01 to Lease
Dated as of May 1, 1998
Between INTELLIPOST CORPORATION,
a Delaware corporation, and
INTELLIPOST CORPORATION,
a California corporation, jointly and
severally as Lessee
and PHOENIX LEASING INCORPORATED
A. Description and Purchase Price of Equipment
<TABLE>
<CAPTION>
Description of Equipment
(quantity, model Purchase Mfr./ Street Address
and serial number) Price Rent Vendor City, State and County
- ------------------------ ---------- ---------------------- ------ ----------------------
<S> <C> <C> <C> <C>
See Exhibit A attached hereto.
Total: $96,379.86 $1,908.32 Months 1-12
$2,881.76 Months 13-42
</TABLE>
B. Terms
Base Term: The Base Term shall commence on the Equipment is received,
installed and accepted for use, as shown on the Acceptance
Notice, and continue for 42 full months after the "Rent Start
Date."
Rent Start Date: This shall be the first day of the month following the month
during which the Base Term commences; provided, however, that
if the Equipment is accepted on the first day of the month, the
Rent Start Date shall commence on the same day that the Base
Term commences.
Base Rental Payment Per Month: $1,908.32 for Months 1 to 12 and $2,881.76 for
Months 13 to 42, plus applicable taxes, which amount shall be adjusted in
accordance with the Rate Factors and Terms shown hereinbelow:
Lease Rate Factor (expressed as a percentage of Equipment's original Purchase
Price):
1.98% for months 1-12 and 2.99% for months 13-42
Monthly Rental Payments are payable monthly in advance.
Base Rent Due: Payable on the Rent Start Date shall be (1) the first and
forty-second Monthly Rental Payments including any sales or use
tax and (2) an amount equal to 1/30th of the monthly rental
amount using a rate of 1.9% multiplied by the number of days,
if any, between (and including) the date the Base Term
commences and (but not including) the Rent Start Date, except
that, if the date of the Acceptance Notice related to this
Schedule is dated on or after the 20th of the month, this
amount shall not be included in the Base Rent Due.
1
<PAGE> 26
Schedule No. 01 to Lease
Dated May 1, 1998
Between INTELLIPOST CORPORATION,
a Delaware Corporation, and
INTELLIPOST CORPORATION,
a California corporation, jointly and
severally as Lessee
and PHOENIX LEASING INCORPORATED
C. Invoice Information: Lessee's and Lessor's addresses for invoice purposes
for the Equipment on the Schedule shall be as follows:
<TABLE>
<CAPTION>
Lessee's Invoice Address: Remit Monthly Rental Amount To:
- ------------------------- -------------------------------
<S> <C>
Intellipost Corporation Phoenix Leasing Incorporated
565 Commercial Street, 2nd Floor P.O. Box 200432
San Francisco, CA 94111 Dallas, TX 75320-0432
Attention: Layton Han, CFO
</TABLE>
D. Casualty Values: See attachment hereto.
E. Special Provisions: 1. Lessor's payment for Equipment hereunder is
conditioned on Lessor's satisfaction of the conditions set forth in Section 3 of
the Lease and 2. Sale Leaseback Addendum.
F. End Of Lease Position: (a) General. Lessee shall be required to choose a
final purchase or extension of Equipment requirement ("End of Lease Position")
at the expiration of the Base Term (as defined in the Schedule) of each
Schedule to the Lease. That choice shall be an election of Lessee's End of
Lease Position for all, but not less than all, of the Equipment under each
Schedule to the Lease. Lessee shall provide written notice of its election to
Lessor at least 90 days prior to the end of the Base Term of each Schedule.
Any Equipment purchase election shall be a purchase of the Equipment, AS-IS,
WHERE-IS. Upon Lessor's receipt of the purchase price, Lessor shall issue to
Lessee an equipment bill of sale, transferring title to the Equipment to the
Lessee without any representation or warranty other than a warranty that such
Equipment is free and clear of liens and encumbrances resulting from acts of
Lessor. Lessee shall be responsible for all applicable taxes in connection with
any Equipment purchase.
In the event Lessee does not provide at least 90 days' prior written notice of
its election, Lessee shall be deemed to have elected Election No. 2.
(b) End of Lease Position Elections. At the expiration of the Base Term of each
Schedule, Lessee shall be required to elect to either:
Election No. 1: Purchase the Equipment for 20% of the Equipment's original
purchase price.
Election No. 2: Extend the Schedule's Base Term for an additional 12 months
("Extended Term") for a monthly rate of 2.05% of the Equipment's original price.
At the expiration of the Extended Term, Lessee shall purchase the Equipment for
$1.00.
2
<PAGE> 27
Schedule No. 01 to Lease
Dated as of May 1, 1998
Between INTELLIPOST CORPORATION,
a Delaware corporation, and
INTELLIPOST CORPORATION,
a California corporation, jointly and
severally as Lessee
and PHOENIX LEASING INCORPORATED
LESSOR AND EACH CO-LESSEE AGREE THAT THIS SCHEDULE SHALL CONSTITUTE A LEASE OF
THE EQUIPMENT DESCRIBED ABOVE, SUBJECT TO THE TERMS AND CONDITIONS OF THIS
SCHEDULE AND OF THE MASTER EQUIPMENT LEASE DATED MAY 1, 1998 BETWEEN EACH
CO-LESSEE AND LESSOR. THE TERMS AND CONDITIONS OF SUCH MASTER EQUIPMENT LEASE
ARE HEREBY INCORPORATED BY REFERENCE AND MADE A PART HEREOF TO THE SAME EXTENT
AS IF SUCH TERMS AND CONDITIONS WERE SET FORTH IN FULL HEREIN.
LESSOR: CO-LESSEE:
PHOENIX LEASING INCORPORATED INTELLIPOST CORPORATION, a Delaware corporation
By: /s/ GREGORY D. KILIAN By: /s/ LAYTON S. HAN
------------------------- ----------------------------
Name: /s/ Gregory D. Kilian Name (Print): Layton S. Han
----------------------- ---------------------------
Title: AVP Title: CFO
----------------------- -------------------------
Date: 6/28/98 Date: June 22, 1998
----------------------- ----------------------------
CO-LESSEE:
INTELLIPOST CORPORATION, a California corporation
By: /s/ LAYTON S. HAN
----------------------------
Name (Print): Layton S. Han
---------------------------
Title: CFO
-------------------------
Date: June 22, 1998
----------------------------
3
<PAGE> 28
ATTACHMENT TO EQUIPMENT SCHEDULE NO. 01
CASUALTY VALUES
<TABLE>
<CAPTION>
Month of % of Original Equipment Month of $ of Original Equipment
Lease Term Purchase Price Lease Term Purchase Price
- ---------- ----------------------- ---------- -----------------------
<S> <C> <C> <C>
1 125.00 22 73.78
2 122.56 23 71.34
3 120.12 24 68.90
4 117.68 25 66.46
5 115.24 26 64.02
6 112.80 27 61.59
7 110.37 28 59.15
8 107.93 29 56.71
9 105.49 30 54.27
10 103.05 31 51.83
11 100.61 32 49.39
12 98.17 33 46.95
13 95.73 34 44.51
14 93.29 35 42.07
15 90.85 36 39.63
16 88.41 37 37.20
17 85.98 38 34.76
18 83.54 39 32.32
19 81.10 40 29.88
20 78.66 41 27.44
21 76.22 42 25.00
Thereafter 25.00
</TABLE>
Lessor's Co-Lessee's
Initials GK Initials LH
------- -------
Co-Lessee's
Initials LH
-------
<PAGE> 29
ATTACHMENT 1
BILL OF SALE
For valuable consideration INTELLIPOST CORPORATION, a California corporation and
INTELLIPOST CORPORATION, a Delaware corporation (jointly and severally,
"Seller") sells to PHOENIX LEASING INCORPORATED ("Buyer"), the property listed
on Exhibit A hereof (the "Equipment").
Seller covenants and warrants that:
(1) It is the owner of, and has absolute title to, the Equipment, which is
free and clear of all claims, liens and encumbrances.
(2) It has not made any prior sale, assignment, or transfer of the Equipment.
(3) It has the present right, power, and authority to sell the Equipment to
Buyer.
(4) All action has been taken which is required to make this Bill of Sale a
legal, valid and binding obligation of Seller.
Seller shall forever warrant and defend the sale of Equipment to Buyer, its
successors and assigns, against any person claiming an interest in the
Equipment.
This Bill of Sale is binding on the successors and assigns of Seller and inures
to the benefit of the successors and assigns of Buyer.
Executed on June 22, 1998.
CO-LESSEE:
INTELLIPOST CORPORATION, a Delaware
corporation
By: /s/ LAYTON S. HAN
------------------------------------
Name (Print): Layton S. Han
--------------------------
Title: CFO
---------------------------------
CO-LESSEE:
INTELLIPOST CORPORATION, a California
corporation
By: /s/ LAYTON S. HAN
------------------------------------
Name (Print): Layton S. Han
--------------------------
Title: CFO
---------------------------------
<PAGE> 30
PHOENIX LEASING INCORPORATED
FUNDING REQUEST
EXHIBIT A
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
70 WilTel V519505 2nd Contract Payment 28 1 1 10,480.46 10,480.46 N 5465 2/24/98 $10,480.46 $0.00 N
- -----------------------------------------------------------------------------------------------------------------------------------
71 WilTel V519625 Final Contract Payment 28 1 1 5,240.24 5,240.24 Y 5595 3/31/98 $5,240.24 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
72 Tax 29 1 1 1,440.02 1,440.02 Y 5595 3/31/98 $1,440.02 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
73 WilTel V519624 Fiber Station Module 9 1 1 998.75 998.75 Y 5565 3/24/98 $998.75 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
74 Fiber 6port Exp. 9 1 1 1,275.00 1,275.00 Y 5565 3/24/98
Control $1,275.00 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
75 Key Cap KII 9 5 1 29.75 29.75 Y 5565 3/24/98 $29.75 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
76 Labor 27 1 1 67.20 67.20 Y 5565 3/24/98 $67.20 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
77 Tax 29 1 1 195.81 195.81 Y 5565 3/24/98 $195.81 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
78 Trans National 32098 Quantum DLT Stor 4000, 1 1 1 8,009.80 8,009.80 Y 5679 4/21/98
Computers, Inc. 14 Cart mini Library $8,009.80 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
79 Tax 29 1 1 660.73 660.73 Y 5679 4/21/98 $660.73 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
80 Takashi Kousaka 21998 Part of expense 1 1 1 1,579.95 1,579.95 Y 5479 3/3/98
account-NECX Laser
Jet 400dpi $1,579.95 $0.00 T
- -----------------------------------------------------------------------------------------------------------------------------------
81 Tax 29 1 1 31.24 31.24 Y 5479 3/3/98 $31.24 $0.00 ##
- -----------------------------------------------------------------------------------------------------------------------------------
82 Takashi Kousaka 21998 Part of expense 9 1 1 1,099.95 1,099.95 Y 5479 3/3/98
account-NECX Intel
Ether Express 24 port
hub $1,099.95 $0.00 T
- -----------------------------------------------------------------------------------------------------------------------------------
83 Tax 29 1 1 37.75 37.75 Y 5479 3/3/98 $37.75 $0.00 ##
- -----------------------------------------------------------------------------------------------------------------------------------
84 Takashi Kousaka 40798 Part of expense 1 1 1 3,073.00 3,073.00 Y 5668 4/14/98
account-Dell Inspiron
M200st $3,073.00 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
85 Freight 27 1 1 37.00 37.00 Y 5668 4/14/98 $37.00 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
86 Tax 29 1 1 264.36 264.36 Y 5668 4/14/98 $264.36 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
87 Takashi Kousaka 40798 Part of expense 1 2 1 1,259.90 1,259.90 N 5668 4/14/98
account-Sony Trinitron
Monitor $1,259.90 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
88 Freight 27 1 1 45.53 45.53 N 5668 4/14/98 $45.53 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
89 Takashi Kousaka 40798 Part of expense 1 1 1 2,200.00 2,200.00 Y 5668 4/14/98
account-Dell
Dimension xps 233
w/Access $2,200.00 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
90 Tax 29 1 1 187.04 187.04 Y 5668 4/14/98 $187.04 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
91 Takashi Kousaka 40798 Part of expense 1 1 1 2,313.00 2,313.00 Y 5668 4/14/98
account-Dell
Dimension xps 333
w/Accessories $2,313.00 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
92 Dell Dimension xps 1 2 1 4,002.00 4,002.00 Y 5668 4/14/98
233mhz Minitower
w/Accessories $4,002.00 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
93 Freight 27 1 1 165.00 165.00 Y 5668 4/14/98 $165.00 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
94 Tax 29 1 1 550.88 550.88 Y 5668 4/14/98 $550.88 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
95 Takashi Kousaka 40798 Part of expense 1 2 1 6,536.00 6,536.00 Y 5668 4/14/98
account-Dell
Dimension xps 333
w/Accessories $6,536.00 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
96 Freight 27 1 1 200.00 200.00 Y 5668 4/14/98 $200.00 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3 of 4
Property of Phoenix Leasing Incorporated
<PAGE> 31
PHOENIX LEASING INCORPORATED
FUNDING REQUEST
EXHIBIT A
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C><C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
97 Tax 29 1 1 572.62 572.62 Y 5668 4/14/98 $572.62 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
98 Takashi Kousaka 40798 Part of expense 1 1 1 629.95 629.95 N 5668 4/14/98
account-Sony Trinitron
Monitor $629.95 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
99 Freight 27 1 1 28.47 28.47 N 5668 4/14/98 $28.47 $0.00 P
- -----------------------------------------------------------------------------------------------------------------------------------
100 Reach Technology ??? Intel Express 10/100 9 2 1 2,450.00 2,450.00 Y 1586 2/3/98
12 port HUB
$2,450.00 $0.00 T
- -----------------------------------------------------------------------------------------------------------------------------------
101 CAT 5 Crss over Cable 8 2 1 20.00 20.00 Y 1586 2/3/98 $20.00 $0.00 T
- -----------------------------------------------------------------------------------------------------------------------------------
102 Tax 29 1 1 209.95 209.95 Y 1586 2/3/98 $209.95 $0.00 N
- -----------------------------------------------------------------------------------------------------------------------------------
103 Installation 27 1 1 250.00 250.00 Y 1586 2/3/98 $250.00 $0.00 T
- -----------------------------------------------------------------------------------------------------------------------------------
104 $0.00 $0.00 ##
- -----------------------------------------------------------------------------------------------------------------------------------
----------------------
TOTAL AMOUNT DUE TO LESSEE $96,379.86
----------------------
TOTAL AMOUNT DUE TO VENDOR $0.00
-------------
TOTAL DRAW $96,379.86
-------------
</TABLE>
Lessee Signature /s/ LAYTON S. HAN Date: 6/12/98
------------------------- ---------
Page 4 of 4
Property of Phoenix Leasing Incorporated
<PAGE> 32
SALE LEASEBACK ADDENDUM
to Schedule No. 01
of MASTER EQUIPMENT LEASE
Dated May 1, 1998
Between INTELLIPOST CORPORATION,
a Delaware Corporation, and
INTELLIPOST CORPORATION,
a California corporation, jointly and
severally as Lessee
and PHOENIX LEASING INCORPORATED
This addendum to Master Equipment Lease is made and entered into as of June 22,
1998 between PHOENIX LEASING INCORPORATED ("Lessor") and INTELLIPOST
CORPORATION, a California corporation and INTELLIPOST CORPORATION, a Delaware
corporation, (jointly and severally, "Lessee").
Notwithstanding anything to the contrary contained in the Lease referenced
above, Lessor and Lessee agree as follows:
1. Lessee shall sell the Equipment to and lease the Equipment from Lessor and
Lessor shall purchase the Equipment from and lease the Equipment to Lessee
upon the terms and conditions of the Bill of Sale attached hereto as
Attachment 1.
2. Lessee represents and warrants that:
(a) Lessee has the right to sell the Equipment as set forth herein,
(b) the Equipment and Lessee's right, title and interest in such Equipment
is, as of the date of the Bill of Sale, free from all claims, liens,
security interests and encumbrances,
(c) Lessee will defend the sale against lawful claims and demands of all
persons, and
(d) the purchase price of the Equipment is equal to the fair market value
of such Equipment at the time of sale.
LESSOR: CO-LESSEE:
PHOENIX LEASING INCORPORATED INTELLIPOST CORPORATION, a Delaware
corporation
By: /s/ GREGORY D. KILIAN By: /s/ LAYTON S. HAN
--------------------------- ------------------------------
Name: Gregory D. Kilian Name: Layton S. Han
------------------------- -------------------------
Title: AVP Title: CFO
------------------------ ------------------------
Date: 6/22/98 Date: 6/22/98
------------------------ ------------------------
CO-LESSEE:
INTELLIPOST CORPORATION, a California
corporation
By: /s/ LAYTON S. HAN
------------------------------
Name: Layton S. Han
-------------------------
Title: CFO
------------------------
<PAGE> 33
Phoenix Leasing Incorporated
Funding Request
Exhibit A
Lessee: INTELLIPOST CORPORATION
--------------------------
565 COMMERCIAL STREET
Master Contract: 148 Schedule: 01
-------------------------- -------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
L
Item Invoice Description Eq Serial o
No Vendor Name No. of item Cd Qty Number c
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 Dell 144710894 Dell Dimension 200mhz 1 1 1
minitower w/accessor
- --------------------------------------------------------------------------------------
2 Tax 29 1 1
- --------------------------------------------------------------------------------------
3 Dell 142523395 Dell Dimension xps 1 1 1
300mhz Minitower
w/access
- --------------------------------------------------------------------------------------
4 Tax 29 1 1
- --------------------------------------------------------------------------------------
5 Dell 142523620 Dell Dimension xps 1 2 1
300mhz Minitower
w/access
- --------------------------------------------------------------------------------------
6 Tax 29 1 1
- --------------------------------------------------------------------------------------
7 Dell 146694310 Del Dimension 233mhz 1 2 1
minitower w/access
- --------------------------------------------------------------------------------------
8 Tax 29 1 1
- --------------------------------------------------------------------------------------
9 Dell 143902179 Dell Dimension xps 1 1 1
300mhz Minitower
w/access
- --------------------------------------------------------------------------------------
10 Tax 29 1 1
- --------------------------------------------------------------------------------------
11 Dell 140295213 4gb SCSI HD 1 2 1
- --------------------------------------------------------------------------------------
12 2940 PCI SCSI 1 1 1
- --------------------------------------------------------------------------------------
13 Tax 29 1 1
- --------------------------------------------------------------------------------------
14 Freight 27 1 1
- --------------------------------------------------------------------------------------
15 Dell 142523521 Dim XPS m200s, 1 1 1
512k, mmx, minitower
- --------------------------------------------------------------------------------------
16 64MB SDRAM 1 1 1
- --------------------------------------------------------------------------------------
17 Altec Speakers 1 1 1
- --------------------------------------------------------------------------------------
18 14/32X EDE Cdrom 1 1 1
- --------------------------------------------------------------------------------------
19 STB Nitro 4MB edo 1 1 1
- --------------------------------------------------------------------------------------
20 Dell 1000LS 17" 1 1 1
- --------------------------------------------------------------------------------------
21 3C905-tx, enet 10/100 9 1 1
- --------------------------------------------------------------------------------------
22 Selectcare, Dim, NBD 1 1 1
- --------------------------------------------------------------------------------------
23 NBD, parts, yrs 1 1 1
- --------------------------------------------------------------------------------------
24 MS Office 97 24 1 1
- --------------------------------------------------------------------------------------
25 Tax 29 1 1
- --------------------------------------------------------------------------------------
26 Freight 27 1 1
- --------------------------------------------------------------------------------------
27 Dell 142535947 Dimension m200a/m/mx 1 1 1
512k, MB Video
- --------------------------------------------------------------------------------------
28 Vibra 16c Soundcard 1 1 1
- --------------------------------------------------------------------------------------
29 Altec Speakers 1 1 1
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Total Tax Pd
Invoic'd $ $ Pd By Vndr? Chk Transact Net $ Due Net $ Due
Net of Sls Tx Lessee (Y/N) No. Date Lessee Vendor
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,244.00 1,244.00 Y 5498 3/11/98 $1,244.00 $0.00 I
- ----------------------------------------------------------------------------------------------
2 105.76 105.76 Y 5498 3/11/98 $105.76 $0.00 N
- ----------------------------------------------------------------------------------------------
3 2,776,000 2,766.00 Y 5474 3/3/98 $2,776.00 $0.00 I
- ----------------------------------------------------------------------------------------------
4 235.96 235.96 Y 5474 3/3/98 $235.96 $0.00 N
- ----------------------------------------------------------------------------------------------
5 5,110.00 5,110.00 Y 5467 3/3/98 $5,110.00 $0.00 I
- ----------------------------------------------------------------------------------------------
6 434.44 434.44 Y 5467 3/3/98 $434.44 $0.00 N
- ----------------------------------------------------------------------------------------------
7 2,896.00 2,896.00 Y 5549 3/24/98 $2,896.00 $0.00 P
- ----------------------------------------------------------------------------------------------
8 246.19 246.19 Y 5549 3/24/98 $246.19 $0.00 P
- ----------------------------------------------------------------------------------------------
9 2,869.00 2,869.00 Y 5498 3/11/98 $2,869.00 $0.00 I
- ----------------------------------------------------------------------------------------------
10 236.72 236.72 Y 5498 3/11/98 $236.72 $0.00 N
- ----------------------------------------------------------------------------------------------
11 1,598.00 1,598.00 Y 5526 3/17/98 $1,598.00 $0.00 P
- ----------------------------------------------------------------------------------------------
12 229.00 229.00 Y 5526 3/17/98 $229.00 $0.00 P
- ----------------------------------------------------------------------------------------------
13 156.50 156.50 Y 5526 3/17/98 $156.50 $0.00 P
- ----------------------------------------------------------------------------------------------
14 14.00 14.00 Y 5526 3/17/98 $14.00 $0.00 P
- ----------------------------------------------------------------------------------------------
15 850.00 850.00 Y 5526 3/17/98 $850.00 $0.00 P
- ----------------------------------------------------------------------------------------------
16 169.00 169.00 Y 5539 3/17/98 $169.00 $0.00 P
- ----------------------------------------------------------------------------------------------
17 49.00 49.00 Y 5539 3/17/98 $49.00 $0.00 P
- ----------------------------------------------------------------------------------------------
18 100.00 100.00 Y 5539 3/17/98 $100.00 $0.00 P
- ----------------------------------------------------------------------------------------------
19 40.00 40.00 Y 5539 3/17/98 $40.00 $0.00 P
- ----------------------------------------------------------------------------------------------
20 483.00 483.00 Y 5539 3/17/98 $483.00 $0.00 P
- ----------------------------------------------------------------------------------------------
21 79.00 79.00 Y 5539 3/17/98 $79.00 $0.00 P
- ----------------------------------------------------------------------------------------------
22 35.00 35.00 Y 5539 3/17/98 $35.00 $0.00 P
- ----------------------------------------------------------------------------------------------
23 99.00 99.00 Y 5539 3/17/98 $99.00 $0.00 P
- ----------------------------------------------------------------------------------------------
24 100.00 100.00 Y 5539 3/17/98 $100.00 $0.00 P
- ----------------------------------------------------------------------------------------------
25 175.04 175.04 Y 5539 3/17/98 $175.04 $0.00 P
- ----------------------------------------------------------------------------------------------
26 55.00 55.00 Y 5539 3/17/98 $55.00 $0.00 P
- ----------------------------------------------------------------------------------------------
27 890.00 890.00 Y 5540 3/17/98 $890.00 $0.00 P
- ----------------------------------------------------------------------------------------------
28 54.00 54.00 Y 5540 3/17/98 $54.00 $0.00 P
- ----------------------------------------------------------------------------------------------
29 35.00 35.00 Y 5540 3/17/98 $35.00 $0.00 P
- ----------------------------------------------------------------------------------------------
</TABLE>
Page 1 of 4
Property of Phoenix Leasing Incorporated
<PAGE> 34
Phoenix Leasing Incorporated
Funding Request
Exhibit A
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
30 14/32X EIDE Cdrom 1 1 1
- --------------------------------------------------------------------------------------
31 Trinitron 800hs 15" 1 1 1
- --------------------------------------------------------------------------------------
32 3C905-tx, enet 10/100 9 1 1
- --------------------------------------------------------------------------------------
33 Selectcare, Dim, NBD 1 1 1
- --------------------------------------------------------------------------------------
34 NBD, parts, yrs 1 1 1
- --------------------------------------------------------------------------------------
35 MS Office 97 24 1 1
- --------------------------------------------------------------------------------------
36 Tax 29 1 1
- --------------------------------------------------------------------------------------
37 Freight 27 1 1
- --------------------------------------------------------------------------------------
38 Dell 149577868 Dell Dimension xps 1 1 1
233mhz Minitower
w/accessories
- --------------------------------------------------------------------------------------
39 Tax 29 1 1
- --------------------------------------------------------------------------------------
40 Reach Technology 2889 Intel Express 10/100 9 2 1
12port Hub
- --------------------------------------------------------------------------------------
41 CAT 5 Crss over Cable 8 2 1
- --------------------------------------------------------------------------------------
42 Intel Express 10/100 27 1 1
12port Hub installation
- --------------------------------------------------------------------------------------
43 Tax 29 1 1
- --------------------------------------------------------------------------------------
44 Reach Technology 2994 Int 1259-Cable Testing 26 1 1
- --------------------------------------------------------------------------------------
45 CAT 5Utp Plennm Cbl 8 9 1
- --------------------------------------------------------------------------------------
46 CAT 5 Wall Jacks/plate 8 9 1
- --------------------------------------------------------------------------------------
47 Wall Jacks 8 9 1
- --------------------------------------------------------------------------------------
48 9CAT 5 utp Cable Drop 26 5 1
- --------------------------------------------------------------------------------------
49 9CAT 5 Testing & 26 5 1
Termination
- --------------------------------------------------------------------------------------
50 Tax 29 1 1
- --------------------------------------------------------------------------------------
51 Reach Technology 2991 Phone & Voice Cable 8 21 1
- --------------------------------------------------------------------------------------
52 Punch Down Block 8 1 1
- --------------------------------------------------------------------------------------
53 Punch down block 8 1 1
board
- --------------------------------------------------------------------------------------
54 UTP Voice Cable Drop 27 10.5 1
- --------------------------------------------------------------------------------------
55 CAT 3 Termination 26 10.5 1
- --------------------------------------------------------------------------------------
56 Voice Cable testing 26 2.1 1
- --------------------------------------------------------------------------------------
57 Tax 29 1 1
- --------------------------------------------------------------------------------------
58 Reach Technology 3079 CAT 5 Utp Plennm Cbl 8 7 1
- --------------------------------------------------------------------------------------
59 12 Ports Patch Panel 8 2 1
- --------------------------------------------------------------------------------------
60 Cat 5 Wall Plate 8 5 1
- --------------------------------------------------------------------------------------
61 Surface Mount Boxes 8 2 1
- --------------------------------------------------------------------------------------
62 Cat 5 Wall Jacks 8 7 1
- --------------------------------------------------------------------------------------
63 Cable Installation 27 3.5 1
- --------------------------------------------------------------------------------------
64 Termination & Testing 26 3 1
- --------------------------------------------------------------------------------------
65 Tax 29 1 1
- --------------------------------------------------------------------------------------
66 SSPS, Inc. ??? 8.0 base Stat. 24 1 1
Software
- --------------------------------------------------------------------------------------
67 8.0 Profes. Stat. 24 1 1
Softw.
- --------------------------------------------------------------------------------------
68 8.0 Answer Stat. 24 1 1
Softw.
- --------------------------------------------------------------------------------------
69 WilTel V517302 Contract Payment 28 1 1
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30 100.00 100.00 Y 5540 3/17/98 $100.00 $0.00 P
- ----------------------------------------------------------------------------------------------
31 384.00 384.00 Y 5540 3/17/98 $384.00 $0.00 P
- ----------------------------------------------------------------------------------------------
32 79.00 79.00 Y 5540 3/17/98 $79.00 $0.00 P
- ----------------------------------------------------------------------------------------------
33 35.00 35.00 Y 5540 3/17/98 $35.00 $0.00 P
- ----------------------------------------------------------------------------------------------
34 99.00 99.00 Y 5540 3/17/98 $99.00 $0.00 P
- ----------------------------------------------------------------------------------------------
35 100.00 100.00 Y 5540 3/17/98 $100.00 $0.00 P
- ----------------------------------------------------------------------------------------------
36 155.68 155.68 Y 5540 3/17/98 $155.68 $0.00 P
- ----------------------------------------------------------------------------------------------
37 55.00 55.00 Y 5540 3/17/98 $55.00 $0.00 P
- ----------------------------------------------------------------------------------------------
38 2,056.00 2,056.00 Y 5641 4/14/98 $2,056.00 $0.00 P
- ----------------------------------------------------------------------------------------------
39 174.80 174.80 Y 5641 4/14/98 $174.80 $0.00 P
- ----------------------------------------------------------------------------------------------
40 2,450.00 2,450.00 Y 5487 3/3/98 $2,450.00 $0.00 I
- ----------------------------------------------------------------------------------------------
41 20.00 20.00 Y 5487 3/3/98 $20.00 $0.00 I
- ----------------------------------------------------------------------------------------------
42 250.00 250.00 Y 5487 3/3/98 $250.00 $0.00 I
- ----------------------------------------------------------------------------------------------
43 209.95 209.95 Y 5487 3/3/98 $209.95 $0.00 N
- ----------------------------------------------------------------------------------------------
44 75.00 75.00 Y 5588 3/31/98 $75.00 $0.00 P
- ----------------------------------------------------------------------------------------------
45 360.00 360.00 Y 5588 3/31/98 $360.00 $0.00 P
- ----------------------------------------------------------------------------------------------
46 45.00 45.00 Y 5588 3/31/98 $45.00 $0.00 P
- ----------------------------------------------------------------------------------------------
47 72.00 72.00 Y 5588 3/31/98 $72.00 $0.00 P
- ----------------------------------------------------------------------------------------------
48 375.00 375.00 Y 5588 3/31/98 $375.00 $0.00 P
- ----------------------------------------------------------------------------------------------
49 375.00 375.00 Y 5588 3/31/98 $375.00 $0.00 P
- ----------------------------------------------------------------------------------------------
50 40.55 40.55 Y 5588 3/31/98 $40.55 $0.00 P
- ----------------------------------------------------------------------------------------------
51 420.00 420.00 Y 5588 3/31/98 $420.00 $0.00 P
- ----------------------------------------------------------------------------------------------
52 20.00 20.00 Y 5588 3/31/98 $20.00 $0.00 P
- ----------------------------------------------------------------------------------------------
53 50.00 50.00 Y 5588 3/31/98 $50.00 $0.00 P
- ----------------------------------------------------------------------------------------------
54 787.50 787.50 Y 5588 3/31/98 $787.50 $0.00 P
- ----------------------------------------------------------------------------------------------
55 787.50 787.50 Y 5588 3/31/98 $787.50 $0.00 P
- ----------------------------------------------------------------------------------------------
56 157.50 157.50 Y 5588 3/31/98 $157.50 $0.00 P
- ----------------------------------------------------------------------------------------------
57 41.65 41.65 Y 5588 3/31/98 $41.65 $0.00 P
- ----------------------------------------------------------------------------------------------
58 280.00 280.00 Y 5620 4/7/98 $280.00 $0.00 P
- ----------------------------------------------------------------------------------------------
59 300.00 300.00 Y 5620 4/7/98 $300.00 $0.00 P
- ----------------------------------------------------------------------------------------------
60 25.00 25.00 Y 5620 4/7/98 $25.00 $0.00 P
- ----------------------------------------------------------------------------------------------
61 10.00 10.00 Y 5620 4/7/98 $10.00 $0.00 P
- ----------------------------------------------------------------------------------------------
62 56.00 56.00 Y 5620 4/7/98 $56.00 $0.00 P
- ----------------------------------------------------------------------------------------------
63 262.50 262.50 Y 5620 4/7/98 $262.50 $0.00 P
- ----------------------------------------------------------------------------------------------
64 225.00 225.00 Y 5620 4/7/98 $225.00 $0.00 P
- ----------------------------------------------------------------------------------------------
65 57.04 57.04 Y 5620 4/7/98 $57.04 $0.00 I
- ----------------------------------------------------------------------------------------------
66 954.00 954.00 N 1612 2/26/98 $954.00 $0.00 I
- ----------------------------------------------------------------------------------------------
67 495.00 495.00 N 1612 2/26/98 $495.00 $0.00 I
- ----------------------------------------------------------------------------------------------
68 1,194.00 1,194.00 N 1612 2/26/98 $1,194.00 $0.00 I
- ----------------------------------------------------------------------------------------------
69 5,240.23 5,240.23 N 1588 2/3/98 $5,240.23 $0.00 N
- ----------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 4
<PAGE> 35
OFFICER'S CERTIFICATE
The undersigned, Layton Han, hereby certifies that:
i) I am the Treasurer/Chief Financial Officer of INTELLIPOST CORPORATION, a
California corporation;
ii) as such officer, I am familiar with the terms and conditions of that
certain Master Equipment Lease (the "Lease") dated as of May 1, 1998
between INTELLIPOST CORPORATION, a California corporation and INTELLIPOST
CORPORATION, a Delaware corporation, (jointly and severally, "Lessee")
and PHOENIX LEASING INCORPORATED ("Lessor");
iii) this certificate is delivered in connection with the leasing of certain
equipment under a Schedule with Lessor, the equipment is described in the
Schedule and the equipment is free and clear from any and all liens,
charges, security interests or other encumbrances which may affect
Lessor's right, title or interest in and to the equipment;
iv) there has been no material adverse change in the financial condition of
Lessee from the date of its most recent financial statements, true copies
of which have been delivered to Lessor; and
v) no event which, with the giving of notice or passage of time, or both,
could become an Event of Default under the Lease has occurred and is
continuing.
vi) Lessee is performing according to Lessee's business plan described in
Section 3 of the Lease, a true copy of which business plan has been
delivered to Lessor;
vii) the representations and warranties in Section 5 of the Lease are true and
correct as of the date hereof.
IN WITNESS WHEREOF, I hereby execute this certificate on this 12 day of June,
1998.
/s/ LAYTON S. HAN
-------------------------------
<PAGE> 36
(For use when agreement is executed in California)
ACKNOWLEDGEMENT OF A NOTARY PUBLIC:
ALL-PURPOSE CERTIFICATE
(For use when agreement is executed in California)
State of California
County of San Francisco
---------------------
On June 12, 1998 before me /s/ SUSAN C. LEE, personally appeared /s/ LOUIS N.
HAAS, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signature(s)
on the instrument the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal
Signature /s/ SUSAN C. LEE (Seal) [SEAL]
ACKNOWLEDGEMENT OF A NOTARY PUBLIC:
REGISTERED LIMITED LIABILITY PARTNERSHIP ACKNOWLEDGEMENT
(For use when agreement is executed in California)
STATE OF
-----------------------)
)ss:
COUNTY OF )
-----------------------
On this day of , 19 , before me, a Notary Public in
and for said County, personally appeared , personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person who
executed the within instrument on behalf of said registered limited liability
partnership and acknowledged to me that he (or she) executed the same in
his/her authorized capacity as the free act and deed of said registered limited
liability partnership for the purposes therein stated.
--------------------------------
My commission expires: NOTARY PUBLIC
[Notary Seal]
<PAGE> 37
Recording Requested By
Asset Management Group
When Recorded Mail To:
CT CORPORATION SYSTEM
c/o PHOENIX LEASING INCORPORATED
2401 Kerner Boulevard
San Rafael, CA 94901
Space Above This Line for Recorder
- --------------------------------------------------------------------------------
REAL PROPERTY WAIVER
To: PHOENIX LEASING INCORPORATED
2401 Kerner Boulevard
San Rafael, CA 94901
Attention: Asset Management
Re: INTELLIPOST CORPORATION, a California corporation and INTELLIPOST
CORPORATION, a Delaware corporation, jointly and severally, Lessee
As holder ("Holder") of an interest in the real property ("Real Property")
described below, I (we) (1) acknowledge and consent to your agreement to lease
and install on the Real Property the equipment (the "Equipment") leased
pursuant to Master Equipment Lease Agreement dated as of May 1, 1998, and
Schedule(s) thereto between you and Lessee, (2) disclaim any ownership or other
interest in subject Equipment and other Equipment that may be added from time
to time, and (3) recognize your right to enter, and will permit you and your
successors and assigns to enter upon the Real Property, but only for the
purposes of inspecting or removing your Equipment.
This Real Property Waiver shall be binding upon the heirs, successors and
assigns of Holder.
I (we), as Holder, am (are) the (Please Check Appropriate Line Below):
___Beneficiary (Deed of Trust) ___Mortgagee ___Landlord/Real Property Lessor
___Sublandlord/Real Property Sublessor ___Owner
with respect to the Real Property.
Signed,
LOUIS N. HAAS
- -----------------------------
Full Legal Name of Holder
/s/ LOUIS N. HAAS Owner-Atty in Fact 6/12/98
- ----------------------- -------------------------------- --------
Signature Title Date
Real Property Located at: 565 Commercial Street, 2nd Floor
San Francisco, CA 94111
County of San Francisco
Legal Description of Real Property (which can be taken from your title policy
or deed of trust) is attached.
<PAGE> 1
23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. ___-_____) of our report dated March 26, 1999, except for Note 12 as
to which the date is March 30, 1999, on our audits of the consolidated
financial statements of MyPoints.com, Inc. (formerly Intellipost Corporation).
We also consent to the references to our firm under the captions "Experts" and
"Selected Financial Data."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
San Francisco, California
March 31, 1999
<PAGE> 1
23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1
(File No. ___-_____) of our report dated March 26, 1999 on our audits of the
combined financial statements of Enhanced Response Technologies, Inc. We also
consent to the references to our firm under the captions "Experts" and "Selected
Financial Data."
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MYPOINTS.COM, INC. FORM S-1 FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 2,948 5,089
<SECURITIES> 0 0
<RECEIVABLES> 116 1,059
<ALLOWANCES> 0 60
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,116 6,308
<PP&E> 398 1,667
<DEPRECIATION> 53 626
<TOTAL-ASSETS> 3,474 18,306
<CURRENT-LIABILITIES> 735 6,615
<BONDS> 0 0
0 0
6 10
<COMMON> 3 6
<OTHER-SE> 2,683 9,267
<TOTAL-LIABILITY-AND-EQUITY> 3,474 18,306
<SALES> 151 1,286
<TOTAL-REVENUES> 151 1,286
<CGS> 78 1,121
<TOTAL-COSTS> 78 1,121
<OTHER-EXPENSES> 3,018 8,494
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7 31
<INCOME-PRETAX> (2,889) (8,266)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,889) (8,266)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,889) (8,266)
<EPS-PRIMARY> (2.68) (4.72)
<EPS-DILUTED> (2.68) (4.72)
</TABLE>
